N-4 1 file001.txt REGISTRATION STATEMENT Registration No. 333- ------------------------------------------------------------------------------- ----------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------------- FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Pre-Effective Amendment No. [ ] ---- Post-Effective Amendment No. [ ] ---- AND/OR REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ] Amendment No. [ ] ---- (Check appropriate box or boxes) -------------------------------- THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES (Exact Name of Registrant) -------------------------------- THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES (Name of Depositor) 1290 Avenue of the Americas, New York, New York 10104 (Address of Depositor's Principal Executive Offices) Depositor's Telephone Number, including Area Code: (212) 554-1234 DODIE KENT Vice President and Counsel The Equitable Life Assurance Society of the United States 1290 Avenue of the Americas, New York, New York 10104 (Names and Addresses of Agents for Service) ----------------------------------------- Please send copies of all communications to: (201)392-5279 PETER E. PANARITES JOHN R. TOWERS Foley & Lardner Executive Vice President Washington Harbour State Street Bank and Trust Company 3000 K. Street, Northwest 225 Franklin Street Washington, D.C. 20007 Boston, MA 02110 ----------------------------------------- CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
---------------------------------------------------------------------------------------------------------------------------- Title of Securities Being Amount Being Proposed Maximum Proposed Maximum Amount of Registration Registered Registered Offering Price per Unit Aggregate Offering Price* Fee ---------------------------------------------------------------------------------------------------------------------------- Units of Interest Under Group Annuity Contract $60,000,000 $.0001267(1) $60,000,000(1) $7,602 ----------------------------------------------------------------------------------------------------------------------------
* Estimated solely for purpose of determining the registration fee. (1) The Contract does not provide for a predetermined amount or number of units Pursuant to Rule 429 promulgated under the Securities Act of 1933, as amended, the prospectus contained in this Registration Statement is also made part of Registration Statement File No. 333-104775 of the Registrant. Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this registration statement. The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. American Dental Association Members Retirement Program [ADA MEMBERS RETIREMENT PROGRAM LOGO] -------------------------------------------------------------------------------- MAY 1, 2004 [SSGA FUNDS MANAGEMENT, INC.] -------------------------------------------- EQUITY INDEX FUND -------------------------------------------- LIFECYCLE FUND-CONSERVATIVE -------------------------------------------- LIFECYCLE FUND-MODERATE -------------------------------------------- -------------------------------------------------------------------------------- This booklet contains a prospectus relating to the American Dental Association Members Retirement Program contract which is issued by The Equitable Life Assurance Society of the United States. -------------------------------------------------------------------------------- American Dental Association Members Retirement Program PROSPECTUS DATED MAY 1, 2004 -------------------------------------------------------------------------------- Please read this prospectus and keep it for future reference. It contains important information you should know before participating in the Program or allocating amounts under the contract. ABOUT THE ADA PROGRAM The Program provides members of the American Dental Association and their eligible employees several plans for the accumulation of retirement savings on a tax-deferred basis. Through trusts ("trusts") maintained under these plans, you can allocate contributions among the investment options offered under the Program. There are currently thirteen investment options under the Program including: 3-year and 5-year Guaranteed Rate Accounts, and, through the American Dental Association Members Retirement Program contract, ten investment options (the "investment funds" or "Funds") and the Money Market Guarantee Account (collectively, the "investment options"). THIS PROSPECTUS DESCRIBES THREE OF THE AVAILABLE INVESTMENT FUNDS: THE EQUITY INDEX FUND, THE LIFECYCLE FUND-CONSERVATIVE AND THE LIFECYCLE FUND-MODERATE. THIS PROSPECTUS ALSO DESCRIBES THE LIFECYCLE FUND GROUP TRUSTS IN WHICH THE TWO LIFECYCLE FUNDS INVEST. WHAT IS THE AMERICAN DENTAL ASSOCIATION MEMBERS RETIREMENT PROGRAM CONTRACT? The American Dental Association Members Retirement Program contract is a deferred group annuity contract issued by THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES. Contributions to the trusts maintained under the plans will be allocated among our investment funds and our Money Market Guarantee Account, in accordance with participant instructions. -------------------------------------------------------------------------------- INVESTMENT OPTIONS -------------------------------------------------------------------------------- PRINCIPAL PROTECTION: INTERNATIONAL STOCKS: o Money Market Guarantee o Foreign Fund Account BALANCED/HYBRID: o Guaranteed Rate Accounts o Lifecycle Fund-Conservative LARGE COMPANY STOCKS: o Lifecycle Fund-Moderate o Large Cap Growth Fund BOND FUND: o Equity Income Fund o U.S. Bond Fund o Equity Index Fund o Growth Equity Fund(1) SMALL/MID COMPANY STOCKS: o Small Cap Growth Fund(2) o Small Cap Value Fund -------------------------------------------------------------------------------- (1) There is no capitalization constraint on this fund. The capitalization size of the fund is driven by stock selection. Currently, the fund may be considered to be large capitalization. (2) Formerly named "Aggressive Equity Fund." The Growth Equity Fund is managed by Equitable Life. The Foreign Fund, Equity Index Fund, Equity Income Fund, Large Cap Growth Fund, Small Cap Growth Fund, Small Cap Value Fund and U.S. Bond Fund, respectively, invest in shares of the following mutual funds: Templeton Foreign Fund - Class A, SSgA S&P 500 Index Fund, Putnam Equity Income Fund, Janus Adviser Capital Appreciation Fund - Class I, Fidelity Small Cap Stock Fund, Strong Advisor Small Cap Value Fund and Western Asset Core Portfolio - Institutional Class ("Underlying Mutual Funds"). You should also read the prospectuses for the Underlying Mutual Funds (which you have previously received or accompany this prospectus) and keep them for future reference. You may obtain a copy of any Underlying Mutual Fund prospectus by writing or calling us toll-free. See "How to reach us" on the back cover. The Lifecycle Funds - Conservative and Moderate ("Lifecycle Funds") each invest in units of a corresponding group trust ("Lifecycle Fund Group Trusts") maintained by State Street Bank and Trust Company ("State Street"). The Lifecycle Fund Group Trusts in turn invest in units of collective investment funds of State Street. We refer to these as the "Underlying State Street Funds." The Underlying State Street Funds are the S&P 500 Flagship Fund, Russell 2000 Index Securities Lending Fund, Daily EAFE Fund, Government Credit Bond Fund, and Short Term Investment Fund, which we also describe in this prospectus. The Underlying State Street Funds may invest in other funds, including mutual funds, managed by State Street or its affiliates as part of their investment strategies or may invest cash on a temporary basis in other such funds. OTHER AVAILABLE INVESTMENT FUNDS AND INVESTMENT OPTIONS, EXCEPT THE EQUITY INDEX FUND AND THE LIFECYCLE FUNDS, ARE DESCRIBED, IN DETAIL, IN A SEPARATE PROSPECTUS FOR THOSE INVESTMENT FUNDS OR OPTIONS. We have filed registration statements relating to this offering with the Securities and Exchange Commission. A statement of additional information ("SAI"), dated May 1, 2004, which is part of the registration statements, is available free of charge upon request by writing to us or calling us toll-free. The SAI has been incorporated by reference into this prospectus. The table of contents for the SAI and a request form to obtain the SAI appear at the end of this prospectus. You may also obtain a copy of this prospectus and the SAI through the SEC Website at www.sec.gov. THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES 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. 92998/ADA State Street Contents of this prospectus -------------------------------------------------------------------------------- ADA PROGRAM ---------------------------------------------- Index of key words and phrases 3 The Program at a glance - key features 4 Employer choice of retirement plans 4 Plan features 4 The Contract at a glance - key features 5 ---------------------------------------------- 1 FEE TABLE 6 ---------------------------------------------- Examples 9 Selected financial data and condensed financial information 10 Financial statements of investment funds 10 ---------------------------------------------- 2 PROGRAM INVESTMENT OPTIONS 11 ---------------------------------------------- Investment options 11 The Equity Index Fund 11 Lifecycle Funds - Conservative and Moderate 11 Risks and investment techniques: Lifecycle Fund Group Trusts and Underlying State Street Funds 16 Additional information about the Funds 20 ---------------------------------------------- 3 HOW WE VALUE YOUR ACCOUNT BALANCE IN THE INVESTMENT FUNDS 21 ---------------------------------------------- For amounts in the Funds 21 -------------------------------------------------------------------------------- When we use the words "we," "us" and "our," we mean Equitable Life. Please see the index of key words and phrases used in this prospectus. The index will refer you to the page where particular terms are defined or explained. When we address the reader of this prospectus with words such as "you" and "your," we generally mean the individual participant in one or more of the plans available in the Program unless otherwise explained. For example, "The Program" section of the prospectus is primarily directed at the employer. "You" and "your" also can refer to the plan participant when the contract owner has instructed us to take plan participant instructions as the contract owner's instructions under the contract, for example see "Transfers and access to your account." -------------------------------------------------------------------------------- 1 Contents of this prospectus -------------------------------------------------------------------------------- 2 Contents of this prospectus -------------------------------------------------------------------------------- ------------------------------------------------------------ 4 TRANSFERS AND ACCESS TO YOUR ACCOUNT 22 ------------------------------------------------------------ Transfers among investment options 22 Disruptive transfer activity 22 Our Account Investment Management System (AIMS) and our Internet Website 23 Participant loans 23 Choosing benefit payment options 23 Spousal consent 24 Benefits payable after the death of a participant 24 ------------------------------------------------------------ ------------------------------------------------------------ 5 THE PROGRAM 25 ------------------------------------------------------------ Eligible employers 25 Summary of plan choices 25 Getting started 26 How to make Program contributions 26 Allocating Program contributions 26 Distributions from the investment options 27 Rules applicable to participant distributions 27 ------------------------------------------------------------ 6 CHARGES AND EXPENSES 28 ------------------------------------------------------------ Charges based on amounts invested in the Program 28 Other expenses borne by the investment funds 28 Plan and transaction expenses 29 Individual annuity charges 29 Charges for state premium and other applicable taxes 29 General information on fees and charges 29 Deductions and charges related to the Lifecycle Fund Group Trusts and Underlying State Street Funds 30 ------------------------------------------------------------ ------------------------------------------------------------ 7 TAX INFORMATION 31 ------------------------------------------------------------ Buying a contract to fund a retirement arrangement 31 Income taxation of distributions to qualified plan participants 31 ------------------------------------------------------------ 8 MORE INFORMATION 33 ------------------------------------------------------------ About Program changes or termination 33 IRS disqualification 33 About the separate accounts 33 About State Street 33 About legal proceedings 34 About our independent auditors 34 Reports we provide and available information 35 Acceptance 35 ------------------------------------------------------------ APPENDIX I: SELECTED FINANCIAL DATA AND CONDENSED FINANCIAL INFORMATION A-1 ------------------------------------------------------------ ------------------------------------------------------------ TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION S-1 ------------------------------------------------------------ ------------------------------------------------------------ About Equitable Life Inside Back Cover How to reach us Back Cover ------------------------------------------------------------ ADA Program INDEX OF KEY WORDS AND PHRASES Below is an index of key words and phrases used in this prospectus. The index will refer you to the page where particular terms are defined or explained. This index should help you locate more information on the terms used in this prospectus. PAGE ---- ADA Trustees 11, 25 AIMS 23 beneficiary 24 benefit payment options 23 business day 23 contract 31 Contributions 26 disruptive transfer activity 22 eligible rollover distributions 31 Equitable Life inside back cover GRAs 5 individually designed plan 25 Internet Website 23 IRA 31 investment funds front cover investment options front cover Lifecycle Funds front cover, 11 Lifecycle Fund Group Trusts front cover, 12 market timing 22 Master Plan 25 Master Trust 25 Pooled Trust 25 Portfolio 7 Program 25 separate accounts 33 State Street 33 Underlying Mutual Funds front cover Underlying State Street Funds front cover, 13 unit value 21 unit 21 Volume Submitter Plan 25 Volume Submitter Retirement Trust 25 -------------------------------------------------------------------------------- 3 ADA Program -------------------------------------------------------------------------------- 4 ADA Program -------------------------------------------------------------------------------- THE PROGRAM AT A GLANCE - KEY FEATURES EMPLOYER CHOICE OF RETIREMENT PLANS Our Master Plan is a defined contribution master plan that can be adopted as a profit-sharing plan (401(k), SIMPLE 401(k) and safe harbor 401(k) features are available) and a defined contribution pension plan, or both. The Program's investment options are the only investment choices under the Master Plan. Our Volume Submitter Plan is a defined contribution plan that can be adopted as a profit-sharing plan (new comparability or age weighted) with or without 401(k) features. The Program's investment options are the only investment choices under the Volume Submitter Plan. If you maintain your own individually-designed plan which invests through our Investment Only arrangement, you may use the investment options in the Program through our Pooled Trust. PLAN FEATURES MASTER PLAN: o Program investment options used as the only investment choices. o Plan-level and participant-level recordkeeping, benefit payments, tax withholding and reporting provided. o Use of our Master Trust. o No minimum amount must be invested. o 5500 reporting. o Automatic updates for law changes. VOLUME SUBMITTER PLAN: o Program investment options used as the only investment choices. o Plan-level and participant-level recordkeeping, benefit payments, tax withholding and reporting provided. o Use of our Volume Submitter Retirement Trust. o No minimum amount must be invested. o 5500 reporting. o Automatic updates for law changes, requires employer adoption. INVESTMENT ONLY: o Our Pooled Trust is adopted for investment use only. o Recordkeeping services provided for plan assets in Pooled Trust. TAX ADVANTAGES: o On earnings No tax on investment earnings until withdrawn. o On transfers No tax on internal transfers. ADDITIONAL FEATURES FOR AMOUNTS HELD IN THE TRUSTS: o Toll-free number available for transfers and account information. o Internet Website access to account information and transactions. o Participant loans (if elected by your employer; some restrictions apply; not applicable to Investment Only). o Regular statements of account. o Retirement Program Specialist and Account Executive support. o Daily valuation of accounts. PLAN CHARGES AND EXPENSES: o Plan and transaction charges that vary by type of plan adopted, or by specific transaction. -------------------------------------------------------------------------------- THE CONTRACT AT A GLANCE - KEY FEATURES PROFESSIONAL INVESTMENT MANAGEMENT: The Program's investments are managed by professional investment advisers. GUARANTEED OPTIONS: The three guaranteed options include two Guaranteed Rate Accounts ("GRAs") and a Money Market Guarantee Account. TAX NOTE: Because you are purchasing an annuity contract to fund a qualified employer sponsored retirement arrangement, you should be aware that such annuities do not provide tax deferral benefits beyond those already provided by the Internal Revenue Code (the "Code"). Before purchasing one of these annuities, you should consider whether its features and benefits beyond tax deferral meet your needs and goals. You may also want to consider the relative features, benefits and costs of these annuities with any other investment that you may use in connection with your retirement plan or arrangement. (For more information, see "Tax information" later in this prospectus). CONTRACT CHARGES AND EXPENSES: o Program expense charge assessed against combined value of Program assets in the Trusts. o Investment management and administration fees and other expenses charged on an investment fund-by-fund basis, as applicable. o Record maintenance and report fee. o Enrollment fee. o Investment accounting fee (applicable to GRAs only). o Annuity administrative fee. o Indirectly, charges of underlying investment vehicles for investment management, administrative fees, 12b-1 fees and other expenses. BENEFIT PAYMENT OPTIONS: o Lump sum. o Installments on a time certain or dollar certain basis. o Variety of annuity (fixed or variable) benefit payout options as available under your employer's plan. 5 ADA Program 1 Fee table -------------------------------------------------------------------------------- 6 Fee table -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering the contract. Each of the charges and expenses is more fully described in "Charges and expenses" later in this Prospectus. These tables relate to contracts with amounts invested in the Equity Index Fund and the Lifecycle Funds only. For a complete Fee table, please see the ADA prospectus which accompanies this Prospectus. The first table describes fees and expenses that you will pay if you purchase a variable annuity payout option. WHEN YOU PURCHASE OR REDEEM UNITS OF ANY OF THE INVESTMENT FUNDS YOU WILL PAY NO SALES LOAD, NO DEFERRED SALES CHARGE, NO SURRENDER FEES AND NO TRANSFER OR EXCHANGE FEES. Charges designed to approximate certain taxes that may be imposed on us, such as premium taxes in your state, may apply. Charges for certain features shown in this table are mutually exclusive. -------------------------------------------------------------------------------- CHARGES WE DEDUCT FROM YOUR ACCOUNT VALUE IF YOU PURCHASE AN ANNUITY PAYOUT OPTION -------------------------------------------------------------------------------- Charge if you purchase a variable annuity payout option $350 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The next table describes the fees and expenses that you will pay periodically during the time that you own the contract, not including the Underlying Lifecycle Fund Group Trust or Underlying State Street Fund fees and expenses. -------------------------------------------------------------------------------- CHARGES WE DEDUCT FROM YOUR INVESTMENT FUNDS EXPRESSED AS AN ANNUAL PERCENTAGE OF DAILY NET ASSETS -------------------------------------------------------------------------------- Maximum program expense charge(1) 0.645% ----- Administrative fee 0.15% ----- Maximum program-related other expenses(2) 0.41% ----- Charges we deduct from your account value at the end of each calendar quarter -------------------------------------------------------------------------------- Record maintenance and report fee(3) $3.00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- CHARGES WE MAY DEDUCT FROM YOUR ACCOUNT VALUE -------------------------------------------------------------------------------- Enrollment fee(4) $25 per participant -------------------------------------------------------------------------------- Charges we deduct from amounts in the GRAs and the Money Market Guarantee Account -------------------------------------------------------------------------------- Investment accounting fee(5) 0.02% Maximum program expense charge(1) 0.645% -------------------------------------------------------------------------------- (1) This charge will fluctuate from year-to-year based on assets in all the Program Trusts and the number of plans in the Program. For the 12 month period beginning May 1, 2004, the total program expense charge is 0.645%. This charge is also deducted from amounts in the GRAs and the Money Market Guarantee Account. For a description of how the charge is calculated for amounts in the investment funds, GRAs and the Money Market Guarantee Account, see "Charges based on amounts in the Program" in "Charges and expenses" later in this Prospectus. (2) These expenses vary by investment fund and will fluctuate from year to year based on actual expenses. See the tables that provide the expenses for each individual investment fund later in this section. The percentage set forth in the table represents the highest other expenses incurred by an investment fund during the fiscal year ended December 31, 2003. (3) For Investment only retirement arrangements, the fee is $1.00 per quarter. (4) This fee is charged to the employer. If the employer fails to pay this charge, we may deduct it from participant's account value or from subsequent contributions. (5) We charge an annual investment accounting fee of 0.02% on all amounts of Program assets invested in the GRAs only. This fee is reflected in the interest credited to the GRAs. -------------------------------------------------------------------------------- A proportionate share of all fees and expenses paid by an Underlying Mutual Fund and/or Lifecycle Fund Group Trust that corresponds to any investment fund to which monies are allocated also applies. The table below shows the lowest and highest total operating expenses (as of December 31, 2003) charged by any of the Underlying Mutual Funds and/or Lifecycle Fund Group Trusts (each, a "Portfolio") that you will pay periodically during the time that you own the contract. -------------------------------------------------------------------------------- PORTFOLIO OPERATING EXPENSES EXPRESSED AS AN ANNUAL PERCENTAGE OF AVERAGE DAILY NET ASSETS -------------------------------------------------------------------------------- Total Annual Portfolio Operating Expenses for Lowest Highest 2003 (expenses that are deducted from Portfolio ------ ------- assets including management fees, 12b-1 fees, 0.15% 0.28% administration fees and/or other expenses -------------------------------------------------------------------------------- The following tables show the operating expenses of each Portfolio and separate account expenses that are also applicable to certain investment funds. These fees and expenses are reflected in the investment fund net asset value each day. Therefore, they reduce the investment return of a Portfolio and its related investment fund. Actual fees and expenses are likely to fluctuate from year to year. UNDERLYING LIFECYCLE FUND GROUP TRUST AND/OR STATE STREET EXPENSES AND SEPARATE ACCOUNT EXPENSES EXPRESSED AS AN ANNUAL PERCENTAGE OF AVERAGE DAILY NET ASSETS FOR LIFECYCLE FUNDS No transaction charges are incurred by the Lifecycle Funds when units of a corresponding Lifecycle Fund Group Trust are purchased or redeemed, but annual operating expenses are incurred by each Lifecycle Fund Group Trust. A deduction is made from the assets of each Lifecycle Fund Group Trust to compensate State Street for managing the assets of the Lifecycle Fund Group Trusts. State Street or its affiliate, SSgA Funds Management, Inc. ("SSgAFM"), may receive fees for managing the assets of other collective investment funds or mutual funds in which the Underlying State Street Funds may invest. State Street has agreed to reduce its management fee charged each of the Lifecycle Fund Group Trusts to offset any management fees State Street or SSgAFM receives that are attributable to the Lifecycle Fund Group Trusts' investment in such other collective investment funds and mutual funds. State Street also receives an administration fee deducted from the assets of each Lifecycle Fund Group Trust, to compensate it for providing various recordkeeping and accounting services to the Lifecycle Fund Group Trust. In addition, other expenses are deducted from the assets of the Underlying State Street Funds for custodial services provided to those Funds. The fees and charges which are deducted from the assets of the Lifecycle Funds, the Lifecycle Fund Group Trusts and the Underlying State Street Funds are shown in the table below.
------------------------------------------------------------------------------------------------------------------------------------ PROGRAM INVESTMENT EXPENSE ADMINISTRATION MANAGEMENT OTHER CHARGE FEE FEE EXPENSES TOTAL ------------------------------------------------------------------------------------------------------------------------------------ Lifecycle Fund - Conservative 0.645% 0.15% None 0.41%(1) 1.21% Lifecycle Fund Group Trust - Conservative None 0.07%(2) 0.17% 0.04%(1&3) 0.28% Underlying State Street Funds: S&P 500 Flagship Fund None None None -%(4)(5) -%(4)(5) Russell 2000 Index Securities Lending Fund None None None 0.04%(5) -%(4)(5) Daily EAFE Fund None None None 0.05%(5) 0.01%(5) ------------------------------------------------------------------------------------------------------------------------------------
7 Fee table 8 Fee table --------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------- PROGRAM INVESTMENT EXPENSE ADMINISTRATION MANAGEMENT OTHER CHARGE FEE FEE EXPENSES TOTAL -------------------------------------------------------------------------------------------------------- Government Credit Bond Fund None None None 0.02%(5) 0.01%(5) Short Term Investment Fund None None None 0.03%(5) 0.01%(5) -------------------------------------------------------------------------------------------------------- TOTAL 0.645% 0.22% 0.17% 0.48%(5) 1.52%(5) --------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------- PROGRAM INVESTMENT EXPENSE ADMINISTRATION MANAGEMENT OTHER CHARGE FEE FEE EXPENSES TOTAL ------------------------------------------------------------------------------------------------------------------------- Lifecycle Fund - Moderate 0.645% 0.15% None 0.22%(1) 1.02% Lifecycle Fund Group Trust - Moderate None 0.01%(2) 0.17% 0.01%(1&3) 0.19% Underlying State Street Funds: S&P 500 Flagship Fund None None None -%(4)(5) -%(4)(5) Russell 2000 Index Securities Lending Fund None None None 0.04%(5) -%(4)(5) Daily EAFE Fund None None None 0.05%(5) 0.01%(5) Government Credit Bond Fund None None None 0.02%(5) 0.01%(5) Short Term Investment Fund None None None 0.03%(5) -%(4)(5) ------------------------------------------------------------------------------------------------------------------------- TOTAL 0.645% 0.16% 0.17% 0.25%(5) 1.23%(5) -------------------------------------------------------------------------------------------------------------------------
(1) These include a charge at the annual rate of .03% of the value of the respective program assets in the Lifecycle Funds - Conservative and Moderate to compensate Equitable Life for additional legal, accounting and other potential expenses resulting from the inclusion of the Lifecycle Fund Group Trusts and Underlying State Street Funds maintained by State Street among the investment options described in this prospectus and the SAI. On December 8, 1995, the Program's balance in the Balanced Fund (approximately $70 million) was transferred to the Lifecycle Fund - Moderate. The much larger balance in that Fund results in a much lower ratio of other expenses to total assets compared to the corresponding ratio for the Lifecycle Fund - Conservative. (2) Based on the Lifecycle Fund Group Trusts - Conservative and Moderate current fixed fee of $12,000 per year, per Group Trust, and average net assets for 2003. (3) Based on the Lifecycle Fund Group Trusts - Conservative and Moderate average net assets for 2003. (4) Less than 0.01%. (5) Other expenses of the Underlying State Street Funds are based on expenses incurred by each Fund during 2003. Fees have been rounded to 2 decimal points. The totals are based upon a weighted average of the other expenses for each Underlying State Street Fund. In calculating the weighted average, expenses for each Underlying State Street Fund were multiplied by their respective target percentages within their respective Group Trust. See "Lifecycle Funds - Conservative" and "Lifecycle Funds - Moderate" later in this prospectus for a description of the targeted percentage weightings of the Lifecycle Fund Group Trusts - Conservative and Moderate. UNDERLYING MUTUAL FUND AND SEPARATE ACCOUNT EXPENSES EXPRESSED AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS FOR EQUITY INDEX FUND The Equity Index Fund invests in shares of the SSgA S&P 500 Index Fund. No transaction charges are incurred by the Equity Index Fund when it purchases or redeems shares of the SSgA S&P 500 Index Fund, but the Underlying Mutual Fund incurs its own operating expenses. No deduction is made from the assets of the SSgA S&P 500 Index Fund to compensate State Street for managing the assets of that Fund, because that Fund is a "feeder" fund, all of whose assets are invested in a "master" fund, the State Street Equity 500 Index Portfolio (the "S&P Master Fund"), from which an affiliate of State Street deducts management fees. --------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------- PROGRAM INVESTMENT EXPENSE ADMINISTRATION MANAGEMENT OTHER CHARGE FEE FEE EXPENSES 12B-1 FEE TOTAL ------------------------------------------------------------------------------------------------------------------- Equity Index Fund 0.645% 0.15% None 0.19% None 0.99% SSgA S&P 500 Index Fund(1) None None 0.045(2)% 0.045 0.06 0.15(2) ------------------------------------------------------------------------------------------------------------------- TOTAL 0.645% 0.15% 0.045(2)% 0.235% 0.06% 1.14%(2) -------------------------------------------------------------------------------------------------------------------
(1) Source: SSgA S&P 500 Index Fund Prospectus dated February 17, 2004. (2) The Investment Management Fee represents the fees paid by the S&P Master Fund for advisory, custody, transfer agency and administration services. SSgAFM, as the investment adviser, has contractually agreed to reimburse the SSgA S&P 500 Index Fund for all expenses in excess of .18% of average daily assets on an annual basis until December 31, 2004. The total annual expenses shown reflect the expenses of both the SSgA S&P 500 Index Fund and the S&P Master Fund. EXAMPLES These examples are intended to help you compare the cost of investing in the contract with the cost of investing in other variable annuity contracts. These costs include contract owner transaction expenses, contract fees, separate account annual expenses, and underlying fund fees and expenses. The examples below show the expenses that a hypothetical contract owner would pay in the situations illustrated and assumes the maximum charges applicable under the contract, including the record maintenance and report fee and the enrollment fee. For purposes of these examples, the program expense charge has been rounded to .66%. Since there are no surrender charges in connection with amounts invested in the Funds, the expenses are the same whether or not the participant withdraws amounts held in any of the Funds. The guarantee rate accounts and money market guarantee account are not covered by the fee table and examples. However, the ongoing expenses do apply to the guarantee rate accounts and money market guarantee account. 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. These examples assume that you invest $10,000 in the indicated options under the contract for the time periods shown. The examples also assume that your investment has a 5% return each year and assumes the fees and expenses of the Underlying Mutual Fund or each of the available Lifecycle Fund Group Trusts and/or Underlying State Street Funds in addition to the expenses described above. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
------------------------------------------------------------------------------------------------------------------------------------ If you do not surrender your contract at the end If you annuitize at the end of the applicable time period: of the applicable time period:(1) ---------------------------------------------------------------------------------------------------------- 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years ------------------------------------------------------------------------------------------------------------------------------------ Equity Index $ 153.13 $ 422.33 $ 709.97 $ 1,519.41 $ 503.13 $ 772.33 $ 1,059.97 $ 1,869.41 Lifecycle - Conservative 191.57 540.06 910.30 1,941.23 541.57 890.06 1,260.30 2,291.23 Lifecycle - Moderate 162.24 450.33 757.77 1,620.89 512.24 800.33 1,107.77 1,970.89 ------------------------------------------------------------------------------------------------------------------------------------
(1) Assuming an annuity payout option could be issued. Generally, the minimum amount that can be used to purchase any type of annuity is $5,000 (see "Individual annuity charges" in "Charges and expenses" later in this Prospectus). 9 Fee table 10 Fee table -------------------------------------------------------------------------------- SELECTED FINANCIAL DATA AND CONDENSED FINANCIAL INFORMATION Please see APPENDIX I at the end of this prospectus for selected financial data and condensed financial information concerning the Equity Index Fund and Lifecycle Funds. For complete condensed financial information, please see the ADA Prospectus that accompanies this Prospectus. FINANCIAL STATEMENTS OF INVESTMENT FUNDS The Equity Index Fund and the Lifecycle Funds are each separate accounts of ours as described in "About the separate accounts" under "More information" later in this prospectus. The financial statements for the Equity Index Fund (Separate Account No. 195), Lifecyle Fund - Conservative (Separate Account No. 197) and Lifecycle Fund - Moderate (Separate Account No. 198) may be found in the SAI for this prospectus. 2 Program Investment Options -------------------------------------------------------------------------------- INVESTMENT OPTIONS You may choose from thirteen investment options under the Program, ten of which are covered in a separate prospectus. Three of these are discussed below: the Equity Index Fund and the two Lifecycle Funds - Conservative and Moderate. Each of these three Funds has a different investment objective. We cannot assure you that any of these Funds will meet their investment objectives. Also discussed are the Lifecycle Fund Group Trusts in which the Lifecycle Funds invest and the Underlying State Street Funds in which the Lifecycle Fund Group Trusts invest. You should consider the investment objectives, risks, and charges and expenses of the Portfolios and Underlying State Street Funds carefully before investing. This Prospectus contains this and other important information about the Lifecycle Fund Group Trusts and the Underlying State Street Funds and, accordingly, should be read carefully before investing. In addition, the prospectus and SAI of the SSgA S&P 500 Index Fund contain important information about the Fund, including the investment objectives, risks, and charges and expenses of the Fund and, accordingly, should be read carefully before investing. THE EQUITY INDEX FUND The Equity Index Fund invests in shares of the SSgA S&P 500 Index Fund, one of the Underlying Mutual Funds. The investment results you will experience will depend on the investment performance of SSgA S&P 500 Index Fund. The table below shows the investment objective and adviser for the SSgA S&P 500 Index Fund. Underlying mutual fund Investment Fund Name Objective Adviser -------------------- ----------- --------------- ------------ Equity Index Fund SSgA S&P Replicate the SSgA Funds 500 Index total return Management, Fund of the S&P Inc. 500 Index The Underlying Mutual Fund used by the Equity Index Fund is selected by the ADA Trustees (see "The Program" later in this Prospectus). We have no investment management responsibilities for the Equity Index Fund. As to that Fund, we act in accordance with the investment policies established by the ADA Trustees. Please refer to the prospectus and SAI of the SSgA S&P 500 Index Fund for a more detailed discussion of investment objectives and strategies, the adviser, risk factors and other information concerning that Fund. LIFECYCLE FUNDS - CONSERVATIVE AND MODERATE Each Lifecycle Fund invests in a Lifecycle Fund Group Trust. Each Lifecycle Fund Group Trust has identical investment objectives and policies to the Lifecycle Fund to which it relates. We have no investment management responsibilities for the Lifecycle Funds. As to those Funds, we act in accordance with the investment policies established by the ADA Trustees. OBJECTIVES The Lifecycle Fund - Conservative seeks to provide current income and a low to moderate growth of capital by investing exclusively in units of the Lifecycle Group Trust - Conservative. The Lifecycle Fund - Moderate seeks to provide growth of capital and a reasonable level of current income by investing exclusively in units of the Lifecycle Group Trust - Moderate. -------------------------------------------------------------------------------- 11 Program Investment Options -------------------------------------------------------------------------------- 12 Program Investment Options -------------------------------------------------------------------------------- In turn each of the Lifecycle Fund Group Trusts invests in a mix of Underlying State Street Funds. The following table diagrams this investment structure: [GRAPHIC OMITTED] -------------------------------------------------- LIFECYCLE FUND LIFECYCLE FUND CONSERVATIVE MODERATE (SA 197) (SA 198) -------------------------------------------------- -------------------------------------------------- LIFECYCLE FUND LIFECYCLE FUND GROUP TRUST GROUP TRUST CONSERVATIVE MODERATE -------------------------------------------------- UNDERLYING STATE STREET FUNDS ----------------------------- S&P 500 FLAGSHIP FUND ----------------------------- ----------------------------- RUSSELL 2000 INDEX SECURITIES LENDING FUND ----------------------------- ----------------------------- DAILY EAFE FUND ----------------------------- ----------------------------- GOVERNMENT CREDIT BOND FUND ----------------------------- ----------------------------- SHORT TERM INVESTMENT FUND ----------------------------- THE LIFECYCLE FUND GROUP TRUSTS The Lifecycle Fund Group Trusts are maintained by State Street. Each of the Lifecycle Fund Group Trusts is organized as a collective investment trust under Massachusetts law. Because of exclusionary provisions, the Lifecycle Fund Group Trusts are not subject to regulation under the Investment Company Act of 1940, as amended (the "1940 Act"). Each Trust is operated by a single corporate trustee (State Street), which is responsible for all aspects of the Trust, including portfolio management, administration and custody. The Lifecycle Fund Group Trusts were selected by the ADA Trustees. State Street serves as the trustee and investment manager to the Lifecycle Fund Group Trusts. State Street is a trust company established under the laws of the Commonwealth of Massachusetts. It is a wholly-owned subsidiary of State Street Corporation, a publicly held bank holding company registered under the Federal Bank Holding Company Act of 1956, as amended. State Street's home office is located at 225 Franklin Street, Boston, Massachusetts 02110. State Street Global Advisors (SSgA) is the investment management arm of State Street. SSgA is a leading manager of retirement assets with $1,106 billion in assets under management as of December 31, 2003. SSgAFM has $92 billion in assets under management as of December 31, 2003. SSgA's investment expertise spans multiple strategies, disciplines and markets around the world. SSgA's customers include corporate, union, public pension plans, endowments, foundations, other financial institutions and individuals worldwide. As of May 26, 2003, SSgA was ranked the largest manager of U.S. Institutional Tax-Exempt Assets. INVESTMENT OBJECTIVES AND POLICIES Each Lifecycle Fund Group Trust has the same investment objective as the Lifecycle Fund to which it relates. These investment objectives are described above. Each of the Lifecycle Trusts attempts to achieve its investment objective by investing 100% of its assets in a mix of underlying collective investment trusts (the Underlying State Street Funds) maintained by State Street and offered exclusively to tax exempt retirement plans. Unlike the Lifecycle Fund Group Trusts, however, which are available only under the ADA Program, the Underlying State Street Funds may receive contributions from other tax exempt retirement plans. INVESTMENT POLICIES OF THE LIFECYCLE FUND GROUP TRUST - CONSERVATIVE The table below shows the mix of Underlying State Street Funds targeted by the Lifecycle Fund Group Trust - Conservative. ---------------------------------------------------- S&P 500 Flagship Fund 15% Russell 2000 Index Securities Lending Fund 5% Daily EAFE Fund 10% Government Credit Bond Fund 50% Short Term Investment Fund 20% ---------------------------------------------------- -------------------------------------------------------------------------------- INVESTMENT POLICIES OF THE LIFECYCLE FUND GROUP TRUST - MODERATE The table below shows the mix of Underlying State Street Funds targeted by the Lifecycle Fund Group Trust - Moderate. ---------------------------------------------------- S&P 500 Flagship Fund 35% Russell 2000 Index Securities Lending Fund 10% Daily EAFE Fund 15% Government Credit Bond Fund 30% Short Term Investment Fund 10% ---------------------------------------------------- The target percentages shown above for each Lifecycle Fund Group Trust are reviewed annually by the ADA Trustees and may be revised as recommended, subject to State Street's approval. State Street, as investment manager of each Lifecycle Fund Group Trust, from time to time makes adjustments in the mix of Underlying State Street Funds as needed to maintain, to the extent practicable, the target percentages in each of the Underlying State Street Funds. The Underlying State Street Funds The Underlying State Street Funds are bank collective investment trusts. They are organized as common law trusts under Massachusetts law, and because of exclusionary provisions, are not subject to regulation under the 1940 Act. State Street serves as trustee and investment manager to each of the Underlying State Street Funds. The summaries that follow may contain statements to the effect that an Underlying State Street Fund makes "investments" in a particular type of security or other asset. Those "investments" include both direct and indirect investments by a Fund, such as indirect investments in securities through other collective investment funds or mutual funds held by the Fund. S&P 500 Flagship Fund OBJECTIVE The investment objective of the S&P 500 Flagship Fund ("Flagship Fund") is to replicate, as closely as possible, the return of the Standard & Poor's 500 Index (the "S&P 500 Index"). The S&P 500 Index is comprised of stocks of 500 leading companies whose stocks are chosen for market size, liquidity and industry group representation by Standard & Poor's Corporation. The stocks are also representative of the broad U.S. equity market and the U.S. economy. The S&P 500 is a market-value weighted index (stock price times number of shares outstanding), with each stock's weight in the index proportionate to its market value. The "500" is one of the most widely used benchmarks of U.S. equity performance. The Flagship Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation, and Standard & Poor's Corporation makes no representation regarding the advisability of investing in this Fund. INVESTMENT POLICIES The Flagship Fund intends to achieve its objective by investing in all 500 stocks in the S&P 500 Index. In order to provide 100% equity exposure, the Flagship Fund may hold up to 25% of its value in S&P 500 Index futures contracts in lieu of cash equivalents. The Flagship Fund will use U.S. Treasury Bills and other short-term cash equivalents it holds as collateral for the futures contracts. The Flagship Fund may also invest in other collective investment funds with investment objectives similar to that of the Flagship Fund. For additional discussion related to the investment policies of the Flagship Fund, see discussion under "Risks and Investment Techniques" below, and the Statement of Additional Information. -------------------------------------------------------------------------------- 13 Program Investment Options -------------------------------------------------------------------------------- 14 Program Investment Options -------------------------------------------------------------------------------- RUSSELL 2000 INDEX SECURITIES LENDING FUND OBJECTIVE The investment objective of the Russell 2000 Index Securities Lending Fund is to match, as closely as possible, the return of the Russell 2000 Index maintained by Frank Russell Company ("Frank Russell"). INVESTMENT POLICIES The Russell 2000 Index Securities Lending Fund seeks to fully replicate the Russell 2000 Index. The Russell 2000 Index Securities Lending Fund will invest its assets directly in shares of companies included in the Russell 2000 Index and may invest in Russell 2000 Index Futures. The Russell 2000 Index Securities Lending Fund may also invest in other collective investment funds with investment objectives similar to that of the Russell 2000 Index Securities Lending Fund. The Russell 2000 Index is a broadly diversified small capitalization index consisting of approximately 2,000 common stocks. The Russell 2000 Index is a subset of the larger Russell 3000 Index. The Russell 3000 Index consists of the largest 3,000 publicly traded stocks of U.S. domiciled corporations and includes large, medium and small capitalization stocks. As such, the Russell 3000 Index represents approximately 98 percent of the total market capitalization of all U.S. stocks that trade on the New York and American Stock Exchanges and in the NASDAQ over-the-counter market. The Russell 2000 Index consists of the approximately 2,000 smallest stocks within the Russell 3000 Index and is, therefore, a broadly diversified index of small capitalization stocks. The composition of the Russell 2000 Index is updated continuously to reflect corporate actions affecting companies in the Index. Once a year, at the end of June, the Index is fully reconstituted, and companies that no longer qualify for the Index because of fluctuations of market capitalization are replaced. The rate of change in the securities included in the Russell 2000 Index is significant, often higher than 20 percent a year of the total market capitalization of the Index. The Russell 2000 Index Securities Lending Fund may from time to time lend its portfolio securities to brokers, dealers, and financial institutions in exchange for cash and cash equivalents. The Russell 2000 Index Securities Lending Fund is neither sponsored by nor affiliated with Frank Russell. Frank Russell's only relationship to the Russell 2000 Fund is the licensing of the use of the Russell 2000 Stock Index. Frank Russell is the owner of the trademarks and copyrights relating to the Russell indices. For additional discussion related to the investment policies of the Russell 2000 Index Securities Lending Fund, see discussion under "Risks and investment techniques" below, and the Statement of Additional Information. Daily EAFE Fund OBJECTIVE The investment objective of the Daily EAFE Fund is to match, as closely as possible, the performance of the Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index ("EAFE Index"). INVESTMENT POLICIES The Daily EAFE Fund seeks to achieve its objective by investing in other funds, which invest in equity securities in each of the foreign markets comprising the EAFE Index and have investment objectives similar to that of the Daily EAFE Fund. The Daily EAFE Fund may also invest directly in equity securities comprising the EAFE Index. The EAFE Index is a broadly diversified index representing over 1,000 stocks across 21 developed markets outside of North America. The EAFE Index currently targets about 85% of the available market capitalization in each country for inclusion in the Index and is designed to offer investors access to some of the world's largest and most liquid equity securities outside the U.S. and Canada. The Daily EAFE Fund also may acquire interest-bearing cash equivalents, notes and other short-term instruments, including foreign currency time deposits or call accounts. -------------------------------------------------------------------------------- As of December 31, 2003, companies located in Japan (21.3%) and the United Kingdom (25.7%) dominated the market capitalization of the EAFE Index, with companies located in France, Germany, Switzerland and the Netherlands also being well represented on the Index. The Index covers a wide spectrum of industries. Morgan Stanley Capital International Inc., the creator of the EAFE Index, is neither a sponsor of nor affiliated with the Daily EAFE Fund. The Daily EAFE Fund seeks to fully replicate the MSCI EAFE Index, but from time to time may not be able to hold, directly or indirectly, all of the more than 1,000 stocks that comprise the EAFE Index because of the costs involved. From time to time, the Daily EAFE Fund may hold, directly or indirectly, a representative sample of the issues that comprise the EAFE Index. The Daily EAFE Fund selects stocks or underlying funds for inclusion based on country, market capitalization, industry weightings, and fundamental characteristics such as return variability, earnings valuation, and yield. In order to parallel the performance of the EAFE Index, the Daily EAFE Fund will invest in each country in approximately the same percentage as that country's weight in the EAFE Index. The Daily EAFE Fund may also invest in futures. For additional discussion related to the investment policies of the Daily EAFE Fund, see discussion under "Risks and investment techniques" below, and the Statement of Additional Information. Government Credit Bond Fund OBJECTIVE The investment objective of the Government Credit Bond Fund ("GC Bond Fund") is to match or exceed the return of the Lehman Brothers Government Credit Bond Index. INVESTMENT POLICIES The GC Bond Fund intends to achieve its objective by investing primarily in units of the Government Fund and Credit Fund, bank commingled funds managed by State Street (the "underlying bond funds"). The GC Bond Fund may also invest directly in securities that are consistent with its achieving its investment objective. The GC Bond Fund may make investments, directly or indirectly through its investments in the underlying bond funds, in (1) U.S. Government securities, including U.S. Treasury securities and other obligations issued or guaranteed as to interest and principal by the U.S. Government and its agencies and instrumentalities, (2) corporate securities, (3) asset-backed securities, (4) mortgage-backed securities including, but not limited to, collateralized mortgage obligations and real estate mortgage investment conduits, (5) repurchase and reverse repurchase agreements, (6) financial futures and option contracts, (7) interest rate exchange agreements and other swap agreements, (8) supranational and sovereign debt obligations including those of sub-divisions and agencies, and (9) other securities and instruments deemed by State Street, as trustee of the GC Bond Fund, to have characteristics consistent with the investment objective of this Fund. The GC Bond Fund will hold, directly or indirectly, securities that have a minimum credit rating when purchased of Baa3 by Moody's or BBB- by Standard & Poor's. All securities held by the GC Bond Fund will be US-dollar denominated. For additional discussion related to the investment policies of the GC Bond Fund, see discussion under "Risks and investment techniques" below, and the Statement of Additional Information. Short Term Investment Fund OBJECTIVE The investment objective of the Short Term Investment Fund ("STIF Fund") is, through active management, to provide safety of principal, daily liquidity, and a competitive yield by investing in high quality money market instruments. INVESTMENT POLICIES The STIF Fund intends to achieve its objective by investing in money market securities with short-term ratings of at least A-1 by Standard and Poor's and P-1 by Moody's at the time -------------------------------------------------------------------------------- 15 Program Investment Options -------------------------------------------------------------------------------- 16 Program Investment Options -------------------------------------------------------------------------------- of issuance. If the issuer has long-term debt outstanding, such debt should be rated at least A by Standard & Poor's and A by Moody's. The STIF Fund may purchase Yankee and Euro certificates of deposit, Euro time deposits, U.S. Treasury bills, notes and bonds, federal agency securities, corporate bonds (including commercial paper of U.S. and foreign companies), repurchase agreements and banker's acceptances. All securities and other instruments held by the STIF Fund will be U.S.-dollar denominated. Most of the STIF Fund's investments will have a range of maturity from overnight to 90 days. The average effective duration of STIF Fund will not exceed 90 days. The maximum expected average time to receipt of principal of any single security will not exceed 397 days. For additional discussion regarding the investment policies of the STIF Fund, see discussion under "Risks and investment techniques" below, and the Statement of Additional Information. RISKS AND INVESTMENT TECHNIQUES: LIFECYCLE FUND GROUP TRUSTS AND UNDERLYING STATE STREET FUNDS You should be aware that any investment in securities carries with it a risk of loss. The different investment objectives and policies of the Equity Index Fund and each of the Lifecycle Funds affect the return on these Funds. Additionally, there are market and financial risks inherent in any securities investment. By market risks, we mean factors which do not necessarily relate to a particular issuer but which affect the way markets, and securities within those markets, perform. We sometimes describe market risk in terms of volatility, that is, the range and frequency of market value changes. Market risks include such things as changes in interest rates, general economic conditions and investor perceptions regarding the value of debt and equity securities. By financial risks we mean factors associated with a particular issuer which may affect the price of its securities, such as its competitive posture, its earnings and its ability to meet its debt obligations. The risk factors and investment techniques associated with the Underlying State Street Funds in which the Lifecycle Fund Group Trusts invest are discussed below. The risk factors discussed below include indirect risks to which the Underlying State Street Funds may be exposed as a result of their investments in other funds. All references below to investments made or investment techniques used by the Underlying State Street Funds include both those made or used directly and indirectly by the Funds through the other funds in which they may invest. The risks and investment techniques associated with investments by the Equity Index Fund in the SSgA S&P 500 Index Fund are discussed in the prospectus and SAI of the SSgA S&P 500 Index Fund. IN GENERAL You should note that the S&P 500 Flagship Fund, the Russell 2000 Index Securities Lending Fund and the Daily EAFE Fund are all index funds. An index fund is one that is not managed according to traditional methods of "active" investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment. Instead, such funds utilize a "passive" investment approach, attempting to replicate the holdings and, therefore, the investment performance of their benchmark indices. Still, such Funds, to the extent they invest in the various types of securities discussed below, are subject to the risks associated with each of these investments. Also, you should note that each of the Underlying State Street Funds, for the purpose of investing uncommitted cash balances or to maintain liquidity to meet redemptions of Fund units, may invest temporarily and without limitation in certain short-term fixed income securities and other collective investment funds or registered mutual funds maintained or advised by State Street or its affiliates. The short-term fixed income securities in which an Underlying State Street Fund may invest include obligations issued or guaranteed as to principal and interest by the U.S. Government, its agencies and instrumentalities and repurchase agreements collateralized by these obligations, commercial paper, bank certificates of deposit, banker's acceptances, and time deposits. -------------------------------------------------------------------------------- In addition, the Underlying State Street Funds may invest in other collective investment or mutual funds maintained or advised by State Street or its affiliates in seeking to achieve their investment objectives. To the extent an Underlying State Street Fund invests in other funds, it will be exposed to the risk that the underlying funds will not perform as expected or will underperform other similar funds, and will be exposed indirectly to all of the risks of an investment in the underlying funds. The Underlying State Street Fund will also indirectly bear a proportionate share of the operating expenses of the other funds in which it invests. EQUITY SECURITIES Certain of the Underlying State Street Funds will invest in equity securities. Participants should be aware that equity securities fluctuate in value, often based on factors unrelated to the value of the issuer of the securities, such as real or perceived adverse economic conditions or changes in interest or currency rates, and that fluctuations can be pronounced. The securities of the smaller companies in which some of the Underlying State Street Funds may invest may be subject to more abrupt or erratic market movements than larger, more established companies for two reasons: the securities typically are traded in lower volume and the issuers typically are subject, to a greater degree, to changes in earnings and profits. FIXED-INCOME SECURITIES Certain of the Underlying State Street Funds will invest in fixed-income securities. Although these are interest-bearing securities which promise a stable stream of income, participants should be aware that the prices of such securities are affected by changes in interest rates. Accordingly, the prices of fixed-income securities are subject to the risk of market price fluctuations. The values of fixed-income securities also may be affected by changes in the credit rating or financial condition of the issuing entities. Once the rating of a portfolio security has been changed, State Street will consider all relevant circumstances in determining whether a particular Underlying State Street Fund should continue to hold that security. Certain securities such as those rated Baa by Moody's and BBB by Standard & Poor's, may be subject to greater market fluctuations than lower yielding, higher rated fixed-income securities. Securities which are rated Baa by Moody's are considered medium grade obligations; they are neither highly protected nor poorly secured, and are considered by Moody's to have speculative characteristics. Securities rated BBB by Standard & Poor's are regarded as having adequate capacity to pay interest and repay principal, and while such debt securities ordinarily exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for securities in this category than in higher rated categories. FOREIGN SECURITIES Certain of the Underlying State Street Funds will invest in foreign securities. Such investments, however, entail special risks. Foreign securities markets generally are not as developed or efficient as those in the United States. Securities of some foreign issuers are less liquid and more volatile than securities of comparable U.S. issuers. Similarly, volume and liquidity in most foreign securities markets are less than in the United States and, at times, volatility of price can be greater than in the United States. In addition, there may be less publicly available information about a non-U.S. issuer, and non-U.S. issuers generally are not subject to uniform accounting and financial reporting standards, practices and requirements comparable to those applicable to U.S. issuers. Because evidences of ownership of foreign securities usually are held outside the United States, each of the Underlying State Street Funds investing in foreign securities will be subject to additional risks. Such risks include possible adverse political and economic developments, possible seizure or nationalization of foreign deposits, and possible adoption of governmental restrictions which might adversely affect the payment of principal and interest on the foreign securities or might restrict the payment of principal and interest to investors located outside the country of the issuers, whether from currency blockage or otherwise. 17 Program Investment Options 18 Program Investment Options -------------------------------------------------------------------------------- Custodial expenses for a portfolio of non-U.S. securities generally are higher than for a portfolio of U.S. securities. Since foreign securities transactions involving the Underlying State Street Funds often are completed in currencies of foreign countries, the value of these securities as measured in U.S. dollars may be affected favorably or unfavorably by changes in currency rates and exchange control regulations. Some currency exchange costs may be incurred when an Underlying State Street Fund changes investments from one country to another. Furthermore, some of these securities may be subject to brokerage or stamp taxes levied by foreign governments, which have the effect of increasing the cost of such investment. Income received by sources within foreign countries may be reduced by any withholding and other taxes imposed by such countries. FUTURES CONTRACTS Certain of the Underlying State Street Funds may invest in futures contracts. A purchase of a futures contract is the acquisition of a contractual right and obligation to acquire the underlying security at a specified price on a specified date. Although futures contracts by their terms may call for the actual delivery or acquisition of the underlying security, in most cases the contractual obligation is terminated before the settlement date of the contract without delivery of the security. The Underlying State Street Fund will incur brokerage fees when it purchases and sells futures contracts. The Underlying State Street Funds will not purchase futures contracts for speculation. Futures contracts are used to increase the liquidity of each Underlying State Street Fund and for hedging purposes. Transactions in futures contracts entail certain risks and transaction costs to which an Underlying State Street Fund would not otherwise be subject, and the Underlying State Street Fund's ability to purchase futures contracts may be limited by market conditions or regulatory limits. Because the value of a futures contract depends primarily on changes in the value of the underlying securities, the value of the futures contracts purchased by the Underlying State Street Fund generally reflects changes in the values of the underlying stocks or bonds. The risks inherent in the use of futures contracts include: (1) imperfect correlation between the price of the futures contracts and movements in the prices in the underlying securities; and (2) the possible absence of a liquid secondary market for any particular instrument at any time. An Underlying State Street Fund also may engage in foreign futures transactions. Unlike trading on domestic futures exchanges, trading on foreign futures exchanges is not regulated by the Commodity Futures Trading Commission and may be subject to greater risks than trading on domestic exchanges. For example, some foreign exchanges are principal markets so that no common clearing facility exists and an investor may look only to the broker for performance of the contract. In addition, any profits that an Underlying State Street Fund might realize from trading could be eliminated by adverse changes in the exchange rate, and such Underlying State Street Fund could incur losses as a result of those changes. Transactions on foreign exchanges may include both futures which are traded on domestic exchanges and those which are not. Securities of medium and smaller sized companies. Certain of the Underlying State Street Funds may invest in the securities of medium and smaller sized companies. Historically, these companies have had market capitalizations of $20 million or higher. Such companies may be dependent on the performance of only one or two products and, therefore, may be vulnerable to competition from larger companies with greater resources and to economic conditions affecting their market sector. Consequently, consistent earnings may not be as likely in such companies as they would be for larger companies. In addition, medium and smaller sized companies may be more dependent on access to equity markets to raise capital than larger companies with greater ability to support debt. Medium and smaller sized companies may be new, without long business or management histories, and perceived by the market as unproven. Their securities may be held primarily by insiders or institutional investors, which may have an impact on marketability. The price of these stocks may rise and fall -------------------------------------------------------------------------------- more frequently and to a greater extent than the overall market. In addition, securities of medium and smaller sized companies may trade less frequently, and may trade in the over-the-counter market, or may otherwise have limited liquidity. LENDING OF SECURITIES Certain of the Underlying State Street Funds may from time to time lend securities from their portfolios to brokers, dealers and financial institutions and receive collateral consisting of cash, securities issued or guaranteed by the U.S. Government, or irrevocable letters of credit issued by major banks. The Underlying State Street Funds will invest this cash collateral in various collective investment funds maintained by State Street. The portion of net income from such investments, less amounts retained by State Street for its services as lending agent, will increase the return to the Underlying State Street Funds. However, an Underlying State Street Fund may experience a loss if the institution with which it has engaged in a portfolio loan transaction breaches its agreement. All securities lending transactions in which the Underlying State Street Funds engage will comply with the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974 ("ERISA") and related regulations. INVESTMENTS BY THE STIF FUND Each of the Lifecycle Fund Group Trusts will, and certain of the Underlying State Street Funds may, invest in the STIF Fund. This Fund intends to invest, among other things, in various U.S. Government Obligations, U.S. dollar-denominated instruments issued by foreign banks and foreign branches of U.S. banks, "when-issued" securities, and to enter into repurchase agreements with various banks and broker-dealers. The STIF Fund's activities with respect to each of these investments are discussed below. The STIF Fund may invest in a variety of U.S. Government obligations, including bills and notes issued by the U.S. Treasury and securities issued by agencies of the U.S. Government. The STIF Fund also may invest in U.S. dollar-denominated instruments issued by foreign banks and foreign branches of U.S. banks, a type of investment that may involve special risks. Such banks may not be required to maintain the same financial reserves or capital that are required of U.S. banks. Restrictions on loans to single borrowers, prohibitions on certain self-dealing transactions, and other regulations designed to protect the safety and solvency of U.S. banks may not be applicable to foreign banks and foreign branches of U.S. banks. In addition, investments of this type may involve the unique risks associated with investments in foreign securities described above. The STIF Fund may commit to purchasing securities on a "when-issued" basis, such that payment for and delivery of a security will occur after the date that this Fund commits to purchase the security. The payment obligation and the interest rate that will be received on the security are each fixed at the time of the purchase commitment. Prior to payment and delivery, however, the STIF Fund will not receive interest on the security, and will be subject to the risk of loss if the value of the when-issued security is less than the purchase price at time of delivery. Finally, the STIF Fund may enter into repurchase agreements with various banks and broker-dealers. In a repurchase agreement transaction, the STIF Fund acquires securities (usually U.S. Government obligations) for cash and obtains a simultaneous commitment from the seller to repurchase the securities at an agreed-upon price and date. The resale price is in excess of the acquisition price and reflects an agreed-upon rate of interest unrelated to the coupon rate on the purchased security. In these transactions, the securities purchased by the STIF Fund will have a total value at least equal to the amount of the repurchase price and will be held by State Street or a third-party custodian until repurchased. State Street will continually monitor the value of the underlying securities to verify that their value, including accrued interest, always equals or exceeds the repurchase price. 19 Program Investment Options 20 Program Investment Options -------------------------------------------------------------------------------- ADDITIONAL INFORMATION ABOUT THE FUNDS CHANGE OF INVESTMENT OBJECTIVES The ADA Trustees may change the investment objectives of the Equity Index Fund and Lifecycle Funds. The ADA Trustees may also change the mutual fund or collective investment fund in which any one of these Funds invests. The Trustees and we can make these changes without your consent. VOTING RIGHTS If SSgA S&P 500 Index Fund holds a meeting of shareholders, we will vote shares held in the corresponding Equity Index Fund in accordance with instructions received from employers, participants or trustees, as the case may be. Shares will be voted in proportion to the voter's interest in the Equity Index Fund holding the shares as of the record date for the shareholders meeting. We abstain from voting shares if we receive no instructions. Employers, participants or trustees will receive: (1) periodic reports relating to the SSgA S&P 500 Index Fund and (2) proxy materials, together with a voting instruction form, in connection with shareholder meetings. Participants do not have any voting rights with respect to their investments in a Lifecycle Fund. Similarly, participants do not have any voting rights with respect to matters such as the selection of State Street as trustee or investment manager or investment adviser of a Lifecycle Fund Group Trust or Underlying State Street Fund, or with respect to any changes in investment policy of any of these entities. 3 How we value your account balance in the Equity Index Fund and Lifecycle Funds -------------------------------------------------------------------------------- FOR AMOUNTS IN THE FUNDS When you invest in the Equity Index Fund and Lifecycle Funds, your contribution or transfer purchases "units" of that Fund. The unit value on any day reflects the value of the Fund's investments for the day and the charges and expenses we deduct from the Fund. We calculate the number of units you purchase by dividing the amount you invest by the unit value of the Fund as of the close of business on the day we receive your contribution or transfer instruction. On any given day, your account value in the Equity Index Fund and Lifecycle Funds equals the number of the Fund's units credited to your account, multiplied by that day's value for one Fund unit. In order to take deductions for expenses from any Fund, we cancel units having a value equal to the amount we need to deduct. Otherwise, the number of your Fund units of any Fund does not change unless you make additional contributions, make a withdrawal, effect a transfer, or request some other transaction that involves moving assets into or out of that Fund option. For a description of how Fund unit values are computed, see "How We Determine Unit Values for the Funds" in the SAI. -------------------------------------------------------------------------------- 21 How we value your account balance in the Equity Index Fund and Lifecycle Funds -------------------------------------------------------------------------------- 4 Transfers and access to your account -------------------------------------------------------------------------------- 22 Transfers and access to your account -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TRANSFERS AMONG INVESTMENT OPTIONS You may transfer some or all of your amounts among all of the investment options if you participate in the Master Plan or the Volume Submitter Plan (together, the "Plans"). Participants in other plans may make transfers as allowed by the plan. Transfers from the Equity Index Fund and Lifecycle Funds are permitted at any time except if there is any delay in redemptions from the Underlying Mutual Fund or, with respect to the Lifecycle Funds, the Lifecycle Fund Group Trusts in which they invest. In addition, we reserve the right to restrict transfers among variable investment funds as described in your contract, including limitations of the number, frequency or dollar amount of transfers. DISRUPTIVE TRANSFER ACTIVITY Frequent transfers, including market timing and other program trading strategies, may be disruptive to the underlying portfolios in which the variable investment options invest. Disruptive transfer activity may hurt the long-term performance of a portfolio by, for example, requiring it to maintain larger amounts of cash or to liquidate portfolio holdings at a disadvantageous time or price. Certain frequent transfer activities attempt to exploit inefficiencies in how portfolio securities are valued. We generally cooperate with the funds (including the State Street funds) available for investment through our separate accounts in identifying plans or individuals that engage in frequent trading activity. If a fund so requests, we will take action to help monitor such activity and to assist the fund in taking any steps that may be implemented by it to limit that activity. For this purpose, we may, among other things, restrict the availability of personal telephone requests, facsimile transmissions, automated telephone services, Internet services or any electronic transfer services. We may take other action requested by a fund if we deem it within our power and authority. If we are not able to take action requested by a fund, the fund may refuse to permit any additional investment in its fund through our separate account, in which case, we may terminate the availability of the fund; any replacement will be subject to approval by the Plan. We currently provide a letter to owners who have engaged in disruptive transfer activity of our intention to restrict access to communication services. However, we may not provide such letters in the future. Please refer to the following paragraph if you have selected or are considering any State Street fund for allocation of your account value for information provided by State Street respecting the monitoring of frequent trading activity in those funds. State Street attempts to monitor frequent trading activity in the Underlying State Street Funds (except for the STIF Fund), and, where it determines that such activity is adversely affecting a Fund, to take steps to limit that activity. Many of the investors in the Underlying State Street Funds are other investment pools (such as the Lifecycle Fund Group Trusts), and State Street does not generally have information regarding the trading activities of individual investors in those pools. State Street may nonetheless analyze certain data or take other steps in an attempt to determine whether frequent trading within those pools is adversely affecting the Underlying State Street Funds. There can be no assurance that State Street will in all cases or in any particular case be successful in identifying frequent trading activity or in limiting any such frequent trading activity that it may identify or in preventing an adverse effect on a Fund from any such trading activity. Please consult the current prospectus for the SSgA S&P 500 Index Fund for information relating to its policies regarding frequent trading activities. OUR ACCOUNT INVESTMENT MANAGEMENT SYSTEM ("AIMS") AND OUR INTERNET WEBSITE Participants may use our automated AIMS or our Internet Website to transfer between investment options, obtain account information, change the allocation of future contributions and maturing GRAs and hear investment performance information. To use AIMS, you must have a touch-tone telephone. Our Internet Website can be accessed at www.equitable.com/ada. -------------------------------------------------------------------------------- We have established procedures to reasonably confirm the genuineness of instructions communicated to us by telephone when using AIMS and by the Internet Website. The procedures require personal identification information, including your Personal Security Code ("PSC") number, prior to acting on telephone instructions or accessing information on the Internet Website, and providing written confirmation of the transfers. We assign a PSC number to you after we receive your completed enrollment form. Thus, we will not be liable for following telephone instructions, or Internet instructions, we reasonably believe to be genuine. We reserve the right to limit access to this service if we determine that you are engaged in a market timing strategy (see "Disruptive transfer activity" above). A transfer request will be effective on the business day we receive the request. We will confirm all transfers in writing. -------------------------------------------------------------------------------- Generally our business day is any day the New York Stock Exchange is open for trading, and generally ends at 4:00 p.m. Eastern Time. A business day does not include a day we choose not to open due to emergency conditions. We may also close early due to emergency conditions. -------------------------------------------------------------------------------- PARTICIPANT LOANS Participant loans are available if the employer plan permits them. Participants must apply for a plan loan through the employer. Loan packages containing all necessary forms, along with an explanation of how interest rates are set, are available from our Account Executives. Loans are subject to restrictions under Federal tax laws and ERISA. Participants should consult with their attorneys or tax advisors regarding the advisability and procedures for obtaining such an exemption. A loan may not be taken from the Guaranteed Rate Accounts prior to maturity. If a participant is married, written spousal consent may be required for a loan. Generally, the loan amount will be transferred from the investment options into a loan account. The participant must pay the interest as required by Federal income tax rules. If you fail to repay the loan when due, the amount of the unpaid balance may be taxable and subject to additional penalty taxes. Interest paid on a retirement plan loan is not deductible. CHOOSING BENEFIT PAYMENT OPTIONS Benefit payments are subject to plan provisions. The Program offers a variety of benefit payment options for employees that adopt either of the Plans. (If you are a participant in an individually-designed plan, ask your employer for information on benefit payment options under your Plan.) Your plan may allow you a choice of one or more of the following forms of distribution: o Qualified Joint and Survivor Annuity o Lump Sum Payment o Installment Payments o Life Annuity o Life Annuity - Period Certain o Joint and Survivor Annuity o Joint and Survivor Annuity - Period Certain o Cash Refund Annuity All of these options can be either fixed or variable except for the Cash Refund Annuity and the Qualified Joint and Survivor Annuity which are fixed options only. -------------------------------------------------------------------------------- The amount of each payment in a fixed option remains the same. Variable option payments change to reflect the investment performance of the Growth Equity Fund. -------------------------------------------------------------------------------- See "Types of Benefits" in the SAI for detailed information regarding each of the benefit payout options, and "Procedures for Withdrawals, Distributions and Transfers" in the SAI. Fixed annuities are available from insurance companies selected by the Trustees. Upon request, we will provide fixed annuity rate quotes available from one or more such companies. Participants may instruct us to withdraw all or part of their account balance and forward it to the annuity 24 Transfers and access to your account -------------------------------------------------------------------------------- provider selected. Once we have distributed that amount to the company selected, we will have no further responsibility to the extent of the distribution. We provide the variable annuity options. Payments under variable annuity options reflect investment performance of the Growth Equity Fund. The minimum amount that can be used to purchase any type of annuity is $5,000. In most cases a variable annuity administrative charge of $350 will be deducted from the amount used to purchase an annuity from Equitable Life. Annuities purchased from other providers may also be subject to fees and charges. SPOUSAL CONSENT If a participant is married and has an account balance greater than $5,000 (except for amounts contributed to the Rollover Account), federal law generally requires payment (subject to plan rules) of a Qualified Joint and Survivor Annuity payable to the participant for life and then to the surviving spouse for life, unless you and your spouse have properly waived that form of payment in advance. Please see "Spousal Consent Requirements" under "Types of Benefits" in the SAI. BENEFITS PAYABLE AFTER THE DEATH OF A PARTICIPANT Regardless of whether a participant's death occurs before or after your Required Beginning Date, an individual death beneficiary calculates annual post-death required minimum distribution payments based on the beneficiary's life expectancy using the "term certain method." That is, he or she determines his or her life expectancy using the approved life expectancy tables as of the calendar year after the participant's death and reduces that number by one each subsequent year. If a participant dies before the entire benefit has been paid, the remaining benefits will be paid to the participant's beneficiary. If a participant dies before he or she is required to begin receiving benefits, the law generally requires the entire benefit to be distributed no more than five years after death. There are exceptions: (1) a beneficiary who is not the participant's spouse may elect payments over his or her life or a fixed period which does not exceed the beneficiary's life expectancy, provided payments begin within one year of death, (2) if the benefit is payable to the spouse, the spouse may elect to receive benefits over his or her life or a fixed period which does not exceed his/her life expectancy beginning any time up to the date the participant would have attained age 701/2 or, if later, one year after the participant's death, or (3) the spouse may be able to roll over all or part of the death benefit to a traditional individual retirement arrangement. If, at death, a participant was already receiving benefits, the beneficiary must continue to receive benefits subject to the Federal income tax minimum distribution rules. To designate a beneficiary or to change an earlier designation, a participant must have the employer send us a beneficiary designation form. In some cases, the spouse must consent in writing to a designation of any non-spouse beneficiary, as explained in "Spousal Consent Requirements" under "Types of Benefits" in the SAI. Under the Plans, on the day we receive proof of death, we automatically transfer the participant's account balance in the Equity Index Fund or the Lifecycle Funds to the Money Market Guarantee Account unless the beneficiary gives us other written instructions. 5 The Program -------------------------------------------------------------------------------- This section explains the ADA Program in further detail. It is intended for employers who wish to enroll in the Program, but contains information of interest to participants as well. You should, of course, understand the provisions of your plan and the Adoption Agreement that define the scope of the Program in more specific terms. References to "you" and "your" in this section are to you in your capacity as an employer. The Program is described in the prospectus solely to provide a more complete understanding of how the investment funds operate within the Program. The American Dental Association Members Retirement Program consists of several types of retirement plans and three retirement plan Trusts: the Master Trust, the Volume Submitter Retirement Trust and the Pooled Trust. Each of the Trusts invests exclusively in the group annuity contract described in this prospectus and in the group annuity contract funding the GRAs. The Program is sponsored by the ADA, and the Trustees under the Master, Volume Submitter Retirement and Pooled Trusts are the members of the Council on Member Insurance and Retirement Programs of the ADA (the "Trustees" or "ADA Trustees"). The Program had 24,795 participants and $1.2 billion in assets at December 31, 2003. ELIGIBLE EMPLOYERS You can adopt the Program if you or at least one of your partners or other shareholders is a member of: (1) the ADA, (2) a constituent or component society of the ADA, or (3) an ADA-affiliated organization. Participation by an affiliated organization must first be approved by the ADA's Council on Insurance. Our Retirement Program Specialists are available to answer your questions about joining the Program. Please contact us by using the telephone number or addresses listed under "How to reach us - Information on joining the Program" on the back cover of the prospectus. SUMMARY OF PLAN CHOICES You have a choice of three retirement plan arrangements under the Program. You can: o Choose the Master Plan - which automatically gives you a full range of services from Equitable Life. These include your choice of the Program investment options, plan-level and participant-level recordkeeping, benefit payments and tax withholding and reporting. Under the Master Plan employers adopt our Master Trust and your only investment choices are from the Investment Options. -------------------------------------------------------------------------------- The Master Plan is a defined contribution master plan that can be adopted as a profit sharing plan, a defined contribution pension plan, or both. Traditional 401(k), SIMPLE 401(k), and Safe Harbor 401(k) are also available. -------------------------------------------------------------------------------- o Choose the Volume Submitter Plan - which automatically gives you a full range of services from Equitable Life and offers the opportunity to utilize a cross-tested plan option. The services include your choice of the Program's investment options, plan-level and participant-level recordkeeping, benefit payments and tax withholding and reporting. Under the Volume Submitter Plan, employers adopt the Volume Submitter Retirement Trust and your only investment choices are from the Investment Options. -------------------------------------------------------------------------------- The Volume Submitter Plan is a defined contribution plan that can be adopted as a profit sharing plan (new comparability or age weighted) with or without 401(k) features. -------------------------------------------------------------------------------- o Maintain your own individually designed plan - and use the Pooled Trust for investment options in the Program and your own individual investments. The Pooled Trust is for investment only and can be used for both defined benefit and defined contribution plans. -------------------------------------------------------------------------------- 25 The Program -------------------------------------------------------------------------------- 26 The Program -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The Pooled Trust is an investment vehicle used with individually designed qualified retirement plans. It can be used for both defined contribution and defined benefit plans. We provide recordkeeping services for plan assets held in the Pooled Trust. -------------------------------------------------------------------------------- Choosing the right plan depends on your own set of circumstances. We recommend that you review all plan, trust, participation and related agreements with your legal and tax counsel. GETTING STARTED If you choose either Plan, you must complete an Adoption Agreement. If you have your own individually designed plan and wish to use the Pooled Trust as an investment vehicle, the trustee of your plan must complete an Adoption Agreement. As an employer, you are responsible for the administration of the plan you choose. Please see "Your Responsibilities as Employer" in the SAI. HOW TO MAKE PROGRAM CONTRIBUTIONS Contributions must be in the form of a check drawn on a bank in the U.S. clearing through the Federal Reserve System, in U.S. dollars, and made payable to The ADA Retirement Trust. All contribution checks should be sent to Equitable Life at the address shown "For Contribution Checks Only" in the "Information once you join the Program" section under "How to reach us" on the back cover of this prospectus. Third party checks are not acceptable, except for rollover contributions, tax-free exchanges or trustee checks that involve no refund. All checks are subject to collection. We reserve the right to reject a payment if it is received in an unacceptable form. All contributions must be accompanied by a Contribution Remittance form which designates the amount to be allocated to each participant by contribution type and fiscal year to which the Contribution will be applied. Contributions are normally credited on the business day that we receive them, provided the remittance form is properly completed and matches the check amount. Contributions are only accepted from the employer. Employees may not send contributions directly to the Program. Contributions are only accepted for properly enrolled participants. There is no minimum amount which must be contributed for investment if you adopt either Plan, or if you have your own individually designed plan that uses the Pooled Trust. ALLOCATING PROGRAM CONTRIBUTIONS Under the Plans, participants make all of the investment decisions. Investment decisions in the individually designed plans are made either by the participant or by the plan trustees, depending on the terms of the plan. Participants may allocate contributions among any number of Program investment options. Allocation instructions can be changed at any time. If we do not receive adequate instructions, we will allocate your contributions to the Money Market Guarantee Account. You may, of course, transfer to another investment option at any time. When transaction requests are effective. Contributions, as well as transfer requests and allocation changes (not including GRA maturity allocation changes discussed in the SAI), are effective on the business day they are received. In-service distribution requests are also effective on the business day they are received. Benefit payments are subject to Plan provisions. Transaction requests received after the end of a business day will be processed the next business day. Processing of any transaction may be delayed if a properly completed form is not received. Trustee-to-trustee transfers of plan assets are effective the business day after we receive all items we require, including check and mailing instructions, and a plan opinion/IRS determination letter from the new or amended plan or adequate proof of qualified plan status. -------------------------------------------------------------------------------- DISTRIBUTIONS FROM THE INVESTMENT OPTIONS Keep in mind two sets of rules when considering distributions or withdrawals from the Program. The first are rules and procedures that apply to the investment options, exclusive of the provisions of your plan. We discuss those in this section. The second are rules specific to your plan. We discuss those "Rules applicable to participant distributions" below. Certain plan distributions may be subject to Federal income tax, and penalty taxes. See "Tax information" later in this prospectus. Amounts in the Equity Index Fund and Lifecycle Funds. These are generally available for distribution at any time, subject to the provisions of your plan. However, there may be a delay for withdrawals from these Funds if there is any delay in redemptions from the related Underlying Mutual Fund, or with respect to the Lifecycle Funds, from the Lifecycle Fund Group Trusts in which they invest. Payments or withdrawals and application of proceeds to an annuity ordinarily will be made promptly upon request in accordance with plan provisions. However, we can defer payments, applications and withdrawals for any period during which the New York Stock Exchange is closed for trading, sales of securities are restricted or determination of the fair market value of assets is not reasonably practicable because of an emergency. If your plan is an employer or trustee-directed plan, you as the employer are responsible for ensuring that there is sufficient cash available to pay benefits. RULES APPLICABLE TO PARTICIPANT DISTRIBUTIONS In addition to our own procedures, distribution and benefit payment options under a tax qualified retirement plan are subject to complicated legal requirements. A general explanation of the Federal income tax treatment of distributions and benefit payment options is provided in "Tax information" later in this prospectus and in the SAI. You should discuss your options with a qualified financial advisor. Our Account Executives also can be of assistance. In general, under the Plans, participants are eligible for benefits upon retirement, death or disability, or upon termination of employment with a vested benefit. Participants in an individually designed plan are eligible for retirement benefits depending on the terms of their plan. See "Benefit payment options" under "Transfers and access to your money" earlier in this prospectus and "Tax information" later in this prospectus for more details. For participants who own more than 5% of the business, benefits must begin no later than April 1 of the year after the participant reaches age 701/2. For all other participants, distribution must begin by April 1 of the later of the year after attaining age 701/2 or retirement from the employer sponsoring the plan. Distributions must be made according to rules in the Code and Treasury Regulations and the terms of the plan. Treasury Regulations on required minimum distributions were proposed in 1987, revised in 2001 and finalized in 2002. The 2002 final Regulations generally apply beginning in November 2002. The 2002 final Regulations include Temporary Regulations applicable to annuity contracts used to fund plans. Certain provisions of the Temporary Regulations concerning the actuarial value of additional contract benefits which could have increased the amount required to be distributed from contracts have currently been suspended. However, these or similar provisions may apply in future years. Under transitional rules, the 1987 and 2001 proposed regulations may continue to apply to annuity payments. Please consult your plan administrator and tax advisor concerning applicability of these complex rules to your situation. Under the Plans, self-employed persons may generally not receive a distribution prior to age 591/2, and employees generally may not receive a distribution prior to a separation from service. 27 The Program 6 Charges and expenses -------------------------------------------------------------------------------- 28 Charges and expenses -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- You will incur two general types of charges under the Program: o Charges based on the value of your assets in the Trust - these apply to all amounts invested in the Trust (including installment payout option payments), and do not vary by plan. These are, in general, reflected as reductions in the unit values of the Equity Index Fund and Lifecycle Funds. o Plan and transaction charges - these vary by plan or are charged for specific transactions, and are typically stated in a dollar amount. Unless otherwise noted, these are deducted in fixed dollar amounts by reducing the number of units in the Equity Index Fund and Lifecycle Funds. We make no deduction from your contributions or withdrawals for sales expenses. CHARGES BASED ON AMOUNTS INVESTED IN THE PROGRAM PROGRAM EXPENSE CHARGE We assess the Program expense charge against the combined value of Program assets in the Trust. The purpose of this charge is to cover the expenses that we and the ADA incur in connection with the Program. The maximum charge is as follows: Annual Program Expense Charge ------------------------------------- For the 12 months beginning May 1, Equitable Life ADA Total 2004, the total 0.620% 0.025% 0.645% The Program expense charge is determined by negotiation between us and the Trustees. The charge is primarily based on a formula that gives effect to total Program assets allocated to the Trust and the number of plans enrolled in the Program. For investment funds and the Money Market Guarantee Account, the Program expense charge is calculated based on Program assets in the Trust on January 31 of each year, and is charged at a monthly rate of 1/12 of the relevant annual charge. For a description of the Program expense charge as it relates to the Guaranteed Rate Accounts, please refer to our separate prospectus for the other Investment Options in the Program. We apply our portion of the Program expense charge toward the cost of maintenance of the investment funds, promotion of the Program investment funds and Money Market Guarantee Account, administrative costs, such as enrollment and answering participant inquiries, and overhead expenses such as salaries, rent, postage, telephone, travel, legal, actuarial and accounting costs, office equipment and stationery. The ADA's part of this fee covers developmental and administrative expenses incurred in connection with the Program. The ADA Trustees can direct us to raise or lower the ADA's part of this fee to reflect their expenses in connection with the Program. During 2003, we received $7,000,348 and the ADA received $0 under the Program expense charge. PROGRAM-RELATED ADMINISTRATION FEES The computation of unit values for each investment fund also reflects fees charged for administration. We receive an administrative fee at the annual rate of .15% of assets held in the Equity Index Fund and Lifecycle Funds. As part of our administrative functions, we maintain records for all portfolio transactions and cash flow control, calculate unit values, monitor compliance with the New York Insurance Law and supervise custody matters for all these Funds. OTHER EXPENSES BORNE BY THE INVESTMENT FUNDS Certain other expenses are charged directly to the Equity Index Fund and Lifecycle Funds. These include SEC filing fees and certain related expenses such as printing of SEC filings, prospectuses and reports, mailing costs, custodians' fees, financial accounting costs, outside auditing and legal expenses, and other costs related to the Program. The Equity Index Fund purchases and redeems shares in the SSgA S&P 500 Index Fund at net asset value. The net asset value reflects charges for management, audit, legal, -------------------------------------------------------------------------------- shareholder services, transfer agent and custodian fees. For a description of charges and expenses assessed by the SSgA S&P 500 Index Fund, which are indirectly borne by the Fund, please refer to the prospectus for the SSgA S&P 500 Index Fund. The Lifecycle Funds - Conservative and Moderate purchase and redeem units in the Lifecycle Fund Group Trusts - Conservative and Moderate, respectively, at net asset value. The net asset value reflects charges for investment management, audit, legal, custodian and other fees. By agreement with the ADA Trustees, we impose a charge at the annual rate of .03% of the value of the respective assets of the Lifecycle Funds - Conservative and Moderate. This charge compensates us for additional legal, accounting and other potential expenses resulting from the inclusion of the Lifecycle Fund Group Trusts and Underlying State Street Funds among the investment options described in this prospectus. For a description of charges and expenses assessed by the Lifecycle Fund Group Trusts, which are indirectly borne by the Lifecycle Funds, see "Deductions and charges related to the Lifecycle Trusts and Underlying State Street Funds," below. PLAN AND TRANSACTION EXPENSES MASTER AND VOLUME SUBMITTER PLANS AND INDIVIDUALLY-DESIGNED PLAN FEES RECORD MAINTENANCE AND REPORT FEE. At the end of each calendar quarter, we deduct a record maintenance and report fee from each participant's Account Balance. This fee is: ------------------------------------------------------------ Master Plan and Volume Submitter Plan participants $3 per quarter Investment Only $1 per quarter ------------------------------------------------------------ Enrollment fee. We charge an employer a non-refundable enrollment fee of $25 for each participant enrolled under its plan. If we do not maintain individual participant records under an individually-designed plan, we instead charge the employer $25 for each plan or trust. If the employer fails to pay these charges, we may deduct the amount from subsequent contributions or from participants' account balances. INDIVIDUAL ANNUITY CHARGES Annuity administrative charge. If a participant elects a variable annuity payment option, we deduct a $350 charge from the amount used to purchase the annuity. This charge reimburses us for administrative expenses associated with processing the application for the annuity and issuing each month's annuity payment. The minimum amount that can be converted to an annuity, so that the charge would apply, is $5,000. Annuities purchased from other providers may also be subject to fees and charges. CHARGES FOR STATE PREMIUM AND OTHER APPLICABLE TAXES We deduct a charge designed to approximate certain applicable taxes that may be imposed on us, for example, for our state premium tax. Currently, we deduct the charge from the amount applied to provide an annuity payout option. The current tax charge that might be imposed on us varies by state and ranges from 0% to 1%. We reserve the right to deduct any applicable charges such as premium taxes from each contribution or from distributions or upon termination of your contract. If we have deducted any applicable tax charges from contributions, we will not deduct a charge for the same taxes later. If, however, an additional tax is later imposed on us when you make a partial or full withdrawal, or your contract is terminated, or you begin receiving annuity payments, we reserve the right to deduct a charge at that time. GENERAL INFORMATION ON FEES AND CHARGES We may change the fees and charges described above at any time with the ADA's consent. During 2003 we received total fees and charges under the Program of $9,806,296. A portion of the income generated by certain of the Underlying State Street Funds attributable to securities lending activities is retained by State Street for its services as lending agent. 29 Charges and expenses 30 Charges and expenses -------------------------------------------------------------------------------- DEDUCTIONS AND CHARGES RELATED TO THE LIFECYCLE FUND GROUP TRUSTS AND UNDERLYING STATE STREET FUNDS In addition to the generally applicable Program fees and charges that we impose, State Street imposes fees and charges for providing investment management services, custodial services and for other expenses incurred in connection with operating the Lifecycle Fund Group Trusts and the Underlying State Street Funds. State Street deducts these fees from the assets of the Lifecycle Fund Group Trusts in which the Lifecycle Funds invest, or the Underlying State Street Funds in which the Lifecycle Fund Group Trusts invest. Investment management fee. Each Lifecycle Fund Group Trust pays State Street a fee equal to .17% of the average annual net assets of each Lifecycle Fund Group Trust for providing investment management services to the Trusts. No fee is paid to State Street for managing the assets of the Underlying State Street Funds with respect to investments made in such Funds by each Lifecycle Fund Group Trust. State Street or its affiliate, SSgAFM, may receive fees for managing the assets of other collective investment funds or mutual funds in which the Underlying State Street Funds may invest. State Street has agreed to reduce its management fee charged to each of the Lifecycle Fund Group Trusts to offset any management fees State Street or SSgAFM receives that are attributable to the Lifecycle Fund Group Trusts' investment in such other collective investment funds and mutual funds. Fixed administration fee. State Street also makes a deduction from the assets of each Lifecycle Fund Group Trust to compensate it for providing various recordkeeping and accounting services to such Trust and for periodically rebalancing the assets of each Lifecycle Fund Group Trust to conform to the target percentage weightings for the Trust. This fee is currently fixed at $12,000 per year for each Trust. Other expenses. Certain costs and expenses are charged directly to the Lifecycle Fund Group Trusts. These include legal and audit expenses. In addition, participants indirectly incur expenses for audit and custodial services provided to the Underlying State Street Funds. State Street serves as custodian to each of these Funds. 7 Tax information -------------------------------------------------------------------------------- In this section, we briefly outline current Federal income tax rules relating to adoption of the Program, contributions to the Program and distributions to participants under qualified retirement plans. Certain other information about qualified retirement plans appears here and in the SAI. We do not discuss the effect, if any, of state tax laws that may apply. The United States Congress has in the past considered and may in the future, without notice, consider proposals for legislation that, if enacted, could change the tax treatment of qualified retirement plans. In addition, the Treasury Department may amend existing regulations, issue new regulations, or adopt new interpretations of existing laws. State tax laws or, if you are not a United States resident, foreign tax laws may affect the tax consequences to you or the beneficiary. These laws may change from time to time without notice and, as a result, the tax consequences may also change. There is no way of predicting whether, when or in what form any such change would be adopted. Any such change could have retroactive effects regardless of the date of enactment. We suggest you consult your legal or tax advisor. BUYING A CONTRACT TO FUND A RETIREMENT ARRANGEMENT Annuity contracts can be purchased in connection with retirement plans qualified under Code section 401. How these arrangements work, including special rules applicable to each, are described in the specific sections for each type of arrangement in the SAI. You should be aware that the funding vehicle for a qualified arrangement does not provide any tax deferral benefit beyond that already provided by the Code for all permissible funding vehicles. Before choosing an annuity contract, therefore, you should consider the annuity's features and benefits, such as the selection of investment funds and guaranteed options and choices of pay-out options, as well as the features and benefits of other permissible funding vehicles and the relative costs of annuities and other arrangements. You should be aware that cost may vary depending on the features and benefits made available and the charges and expenses of the investment options or funds that you elect. INCOME TAXATION OF DISTRIBUTIONS TO QUALIFIED PLAN PARTICIPANTS In this section, the word "you" refers to the plan participant. Amounts distributed to a participant from a qualified plan are generally subject to Federal income tax as ordinary income when benefits are distributed to you or your beneficiary. Generally speaking, only your post-tax contributions, if any, are not taxed when distributed. Eligible rollover distributions. Many types of distributions from qualified plans are "eligible rollover distributions" that can be transferred directly to another qualified plan, traditional individual retirement arrangement ("IRA"), an annuity under Section 403(b) of the Code or a retirement plan under Section 457 of the Code, or rolled over to another plan or IRA within 60 days of the receipt of the distribution. If a distribution is an "eligible rollover distribution," 20% mandatory Federal income tax withholding will apply unless the distribution is directly transferred to a qualified plan or IRA. See "Eligible Rollover Distributions and Federal Income Tax Withholding" in the SAI for a more detailed discussion. Annuity or installment payments. Each payment you receive is ordinary income for tax purposes, except where you have a "cost basis" in the benefit. Your cost basis is equal to the amount of your post-tax employee contributions, plus any employer contributions you had to include in gross income in prior years. You may exclude from gross income a portion of each annuity or installment payment you receive. If you (and your survivor) continue to receive payments after you have received your cost basis in the contract, all amounts will be taxable. In-service withdrawals. Some plans allow in-service withdrawals of after-tax contributions. The portion of each withdrawal attributable to cost basis is not taxable. The portion of each withdrawal attributable to earnings is taxable. Withdrawals are taxable only after they exceed your -------------------------------------------------------------------------------- 31 Tax information -------------------------------------------------------------------------------- 32 Tax information -------------------------------------------------------------------------------- cost basis if they are attributable to your pre-January 1, 1987 contributions under plans that permitted those withdrawals as of May 5, 1986. Amounts that you include in gross income under this rule may also be subject to the additional 10% penalty tax on premature distributions described below. In addition, 20% mandatory Federal income tax withholding may also apply. Premature distributions. You may be liable for an additional 10% penalty tax on all taxable amounts distributed before age 591/2 unless the distribution falls within a specified exception or is rolled over into an IRA or other qualified plan. The exceptions to the penalty tax include (a) distributions made on account of your death or disability, (b) distributions beginning after separation from service in the form of a life annuity or installments over your life expectancy (or the joint lives or life expectancies of you and your beneficiary), (c) distributions due to separation from active service after age 55 and (d) distributions you use to pay deductible medical expenses. Withholding. In almost all cases, 20% mandatory income tax withholding will apply to all "eligible rollover distributions" that are not directly transferred to a qualified plan or IRA. If a distribution is not an eligible rollover distribution, the recipient may elect out of withholding. The rate of withholding depends on the type of distribution. See "Eligible Rollover Distributions and Federal Income Tax Withholding" in the SAI. Under the Plans, we will withhold the tax and send you the remaining amount. Under an individually designed plan we will pay the full amount of the distribution to the plan's trustee. The trustee is then responsible for withholding Federal income tax upon distributions to you or your beneficiary. Certain tax advantages of a tax-qualified retirement plan may not be available under certain state and local tax laws. This outline does not discuss the effect of any state or local tax laws. It also does not discuss the effect of federal estate and gift tax laws (or state and local estate, inheritance and other similar tax laws). This outline assumes that the participant does not participate in any other qualified retirement plan. Finally, it should be noted that many tax consequences depend on the particular jurisdiction or circumstances of a participant or beneficiary. We cannot provide detailed information on all tax aspects of the plans or contracts. Moreover, the tax aspects that apply to a particular person's plan or 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. Rights or values under plans or contracts or payments under the contracts, for example, amounts due to beneficiaries, may be subject to gift or estate taxes. You should not rely only on this document, but should consult your tax advisor before your purchase. 8 More information -------------------------------------------------------------------------------- ABOUT PROGRAM CHANGES OR TERMINATIONS Amendments. The group annuity contract has been amended in the past and we and the Trustees may agree to amendments in the future. No future change can affect annuity benefits in the course of payment. If certain conditions are met, we may: (1) terminate the offer of any of the investment options and transfer any amounts in that investment option to another option and (2) offer new investment options with different terms. Termination. We or the ADA Trustees may terminate the group annuity contract. If the contract is terminated, we will not accept any further contributions or perform any recordkeeping functions after the date of termination. We then would make arrangements with the ADA Trustees with respect to the assets held in the investment options that we provide, subject to the following: o the ADA Trustees could transfer assets from the Money Market Guarantee Account in installments over a period of time not to exceed two years; however, during that time participants would be permitted to make transfers to funding vehicles provided by another financial institution (other than a money market fund or similar investment); and o amounts allocated to the GRAs would be held until maturity. If the ADA Trustees make arrangements with us, you may be able to continue to invest amounts in the investment options that we provide and elect payment of benefits through us. Agreement with State Street. We and State Street have entered into an Agreement with respect to various administrative, procedural, regulatory compliance and other matters relating to the availability of the Lifecycle Fund Group Trusts and Underlying State Street Funds in the ADA Program through the Lifecycle Funds. The Agreement does not contain an expiration date and is intended to continue in effect indefinitely. However, under the terms of the Agreement, we may terminate it upon three months prior written notice to State Street, and State Street may terminate it upon six months prior written notice to us. In the event of a termination of the Agreement, State Street has the right, upon four months' prior notice to us, to require the redemption of all units of the Lifecycle Fund Group Trusts held by the Lifecycle Funds. Should we receive notice of a required redemption, we will advise you promptly in order to allow you adequate time to transfer to one or more of the other Investment Options. IRS DISQUALIFICATION If your plan is found not to qualify under the Internal Revenue Code, we may: (1) return the plan's assets to the employer (in our capacity as the plan administrator) or (2) prevent plan participants from investing in the separate accounts. ABOUT THE SEPARATE ACCOUNTS Each investment fund is one of our separate accounts. We established the separate accounts 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 investment funds for owners of our variable annuity contracts, including our group annuity contracts with the ADA Trustees. The results of each separate account's operations are accounted for without regard to Equitable Life's, or any other separate account's, operating results. We are the legal owner of all of the assets in the separate accounts and may withdraw any amounts we have in the separate accounts that exceed our reserves and other liabilities under variable annuity contracts. The separate accounts that we call the Equity Index Fund and Lifecycle Funds commenced operations on 1994 and 1995, respectively. Because of exclusionary provisions, none of the investment funds is subject to regulation under the Investment Company Act of 1940. The Equity Index Fund and Lifecycle Funds are used exclusively in the ADA Program. ABOUT STATE STREET State Street is one of the world's leading specialists in serving institutional investors, providing a full range of products and services. As of December 31, 2003, State -------------------------------------------------------------------------------- 33 More information -------------------------------------------------------------------------------- 34 More information -------------------------------------------------------------------------------- Street was the second largest manager of pension assets with $1.1 trillion under management. State Street is subject to supervision and examination by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Massachusetts Commissioner of Banks. This, however, does not provide any protection against loss that may be experienced as a result of an investment in the Trusts. Further, State Street is required to comply with ERISA, to the extent applicable, in connection with the administration of the Program. Tax status of the Lifecycle Fund Group Trusts and Underlying Funds. Each Lifecycle Fund Group Trust is a tax-exempt group trust established pursuant to Revenue Ruling 81-100. As a tax-exempt group trust, each Trust is not subject to federal income tax unless the Trust generates unrelated business taxable income as defined in the Code ("UBTI"). It is the policy of State Street not to invest any portion of the assets of a Trust in a manner that will generate UBTI. If State Street determines, however, that a proposed investment cannot be structured to avoid UBTI and that the projected after-tax return on that investment is sufficient to justify the making of such investment, then State Street may elect to make that investment. In the unlikely event that any UBTI is incurred by a Lifecycle Fund Group Trust, it is anticipated that any tax thereon would be reported. ABOUT LEGAL PROCEEDINGS Equitable Life and its affiliates are parties to various legal proceedings. In Equitable Life's view, none of these proceedings is likely to have a material adverse effect upon the separate accounts, our ability to meet our obligations under the Program, or the distribution of group annuity contract interests under the Program. State Street is engaged in legal proceedings of various kinds which in its judgment are not of material importance in relation to its total assets. None of the legal proceedings now in progress is expected to have a material adverse effect on the Equity Index Fund, the Underlying Mutual Fund in which the Equity Index Fund invests, the Lifecycle Funds, the Lifecycle Fund Group Trusts or the Underlying State Street Funds in which the Lifecycle Fund Group Trusts invest. ABOUT OUR INDEPENDENT AUDITORS The financial statements listed below and incorporated in the SAI have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent auditors, given on the authority of said firm as experts in auditing and accounting: o The financial statements for Separate Account Nos. 195, 197 and 198 as of December 31, 2003 and for each of the two years in the period then ended. o The financial statements for Equitable Life as of December 31, 2003 and 2002 and for each of the three years in the period then ended. o The following financial statements as of December 31, 2003: o State Street Bank and Trust Company Lifecycle Fund Group Trust - Conservative o State Street Bank and Trust Company Lifecycle Fund Group Trust - Moderate o State Street Bank and Trust Company S&P 500 Flagship Fund and State Street Bank and Trust Company S&P 500 Flagship Non-Lending Fund o State Street Bank and Trust Company Russell 2000 Index Securities Lending Fund and State Street Bank and Trust Company Russell 2000 Index Fund o State Street Bank and Trust Company Daily EAFE Fund o State Street Bank and Trust Company Daily MSCI Europe Index Securities Lending Fund and State Street Bank and Trust Company Daily MSCI Europe Index Fund o State Street Bank and Trust Company Government Credit Bond Fund o State Street Bank and Trust Company Short Term Investment Fund o State Street Bank and Trust Company Government Fund o State Street Bank and Trust Company Credit Fund -------------------------------------------------------------------------------- REPORTS WE PROVIDE AND AVAILABLE INFORMATION We send reports annually to employers showing the aggregate Account Balances of all participants and information necessary to complete annual IRS filings. As permitted by the SEC's rules, we omitted certain portions of the registration statement filed with the SEC from this prospectus and the SAI. You may obtain the omitted information by: (1) requesting a copy of the registration statement from the SEC's principal office in Washington, D.C., and paying prescribed fees, or (2) by accessing the EDGAR Database at the SEC's Website at http://www.sec.gov. ACCEPTANCE The employer or plan sponsor, as the case may be: (1) is solely responsible for determining whether the Program is a suitable funding vehicle and (2) should carefully read the prospectus and other materials before entering into an Adoption Agreement. 35 More information Appendix I: Selected financial data and condensed financial information -------------------------------------------------------------------------------- SELECTED FINANCIAL DATA LIFECYCLE FUND GROUP TRUSTS The selected financial data below provides information with respect to investment income, expenses, and investment performance for each Lifecycle Fund Group Trust attributable to each unit outstanding for the period indicated. These selected per unit data and ratios for the years ended December 31, 2003 through 1996 have been derived from financial statements audited by PricewaterhouseCoopers LLP, independent auditors, in their reports included in the SAI. The selected financial data should be read in conjunction with the full financial statements of the Lifecycle Fund Group Trusts, which appear in the SAI.
--------------------------------------------------------------------------------------------- Year Ended December 31, --------------------------------------- 2003 2002 2001 -------------------------------------------------------------------------------------------- Lifecycle Fund Group Trust - Conservative Net investment income (loss)* $ (0.01) $ 0.02 $ 0.09 Net realized and unrealized gain (loss) 1.96 ( 0.11) 0.07 Net increase (decrease) 1.95 ( 0.09) 0.16 Net asset value Beginning of period $ 15.79 $ 15.88 15.72 End of period $ 17.74 $ 15.79 $ 15.88 Total return ** 12.41% ( 0.58)% 1.02% Ratio of expenses to average net assets (a) 0.28% 0.30% 0.30% Ratio of net investment income (loss) to average net assets ( 0.03)% 0.10% 0.57% Portfolio turnover 73% 41% 30% Net assets, end of period (000s) $17,913 $14,327 $11,956 Lifecycle Fund Group Trust - Moderate Net investment income (loss)*(b) $ (0.01) $ 0.00 $ 0.05 Net realized and unrealized gain (loss) 3.46 ( 1.63) ( 0.87) Net increase (decrease) 3.45 ( 1.63) ( 0.82) Net asset value Beginning of period $ 16.37 $ 18.00 18.82 End of period $ 19.82 $ 16.37 $ 18.00 Total return** 21.13% ( 9.09)% ( 4.36)% Ratio of expenses to average net assets (a) 0.19% 0.19% 0.17% Ratio of net investment income (loss) to average net assets ( 0.06)% 0.02% 0.28% Portfolio turnover 31% 25% 21% Net assets, end of period (000s) $111,000 $90,032 $106,783 -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- Year Ended December 31, -------------------------------------------------------------- 2000 1999 1998 1997 1996 -------------------------------------------------------------------------------------------------------------------- Lifecycle Fund Group Trust - Conservative Net investment income (loss)* $ 0.15 $ 0.10 $ 0.09 $ 0.06 $ 0.05 Net realized and unrealized gain (loss) 0.39 0.81 1.41 1.28 0.65 Net increase (decrease) 0.54 0.91 1.50 1.34 0.70 Net asset value Beginning of period 15.18 14.27 12.77 11.43 10.73 End of period $ 15.72 $ 15.18 $ 14.27 $ 12.77 $ 11.43 Total return ** 3.56% 6.38% 11.75% 11.72% 6.52% Ratio of expenses to average net assets (a) 0.32% 0.38% 0.43% 0.66% 0.81% Ratio of net investment income (loss) to average net assets 0.96% 0.66% 0.68% 0.46% 0.31% Portfolio turnover 71% 42% 77% 44% 54% Net assets, end of period (000s) $11,599 $ 12,797 $ 13,516 $ 7,249 $ 4,534 Lifecycle Fund Group Trust - Moderate Net investment income (loss)*(b) $ 0.09 $ 0.06 $ 0.06 $ 0.05 $ 0.04 Net realized and unrealized gain (loss) ( 0.43) 2.14 2.30 2.11 1.27 Net increase (decrease) ( 0.34) 2.20 2.36 2.16 1.31 Net asset value Beginning of period 19.16 16.96 14.60 12.44 11.13 End of period 18.82 19.16 16.96 $ 14.60 $ 12.44 Total return** ( 1.78)% 12.97% 16.16% 17.36% 11.77% Ratio of expenses to average net assets (a) .18% 0.19% 0.19% 0.20% 0.20% Ratio of net investment income (loss) to average net assets .47% 0.34% 0.37% 0.37% 0.35% Portfolio turnover 51% 33% 46% 22% 18% Net assets, end of period (000s) $122,708 $132,764 $125,412 $108,435 $88,273 --------------------------------------------------------------------------------------------------------------------
* Net investment income (loss) per unit has been calculated based upon an average of month-end units outstanding. ** Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year. The calculation includes only those expenses charged directly to the Fund. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. (a) The calculation includes only those expenses charged directly to the Fund, and does not include expenses charged to the funds in which the Fund invests. (b) Zero amounts represent that which are less than $0.005 or 0.005%; or $(0.005) or (0.005)% if negative. -------------------------------------------------------------------------------- A-1 AppendixI: Selected financial data and condensed financial information -------------------------------------------------------------------------------- A-2 AppendixI: Selected financial data and condensed financial information -------------------------------------------------------------------------------- UNDERLYING STATE STREET FUNDS The selected financial data below provides information with respect to investment income, expenses, and investment performance for each Underlying State Street Fund attributable to each Underlying State Street Fund unit outstanding for the periods indicated. These selected per unit data and ratios for the years ended December 31, 2003 through 1994 have been derived from financial statements audited by PricewaterhouseCoopers LLP, independent auditors, as stated in their reports included in the SAI. The selected financial data should be read in conjunction with the full financial statements of the Underlying State Street Funds, which appear in the SAI.
----------------------------------------------------------------------------------------------------- Year Ended December 31, ----------------------------------------------------- 2003 2002 2001 2000 ----------------------------------------------------------------------------------------------------- S&P 500 Flagship Fund Net investment income* $ 3.08 $ 2.81 $ 2.77 $ 2.90 Net realized and unrealized gain (loss) 41.39 (46.56) (29.55) (25.33) Distribution of securities lending fee income (0.01) (0.01) (0.01) (0.03) Net increase (decrease) 44.47 (43.76) (26.79) (22.46) Net asset value Beginning of year 154.78 198.54 225.33 247.79 End of year $ 199.24 $ 154.78 $ 198.54 $ 225.33 Total return ** 28.73% (22.03)% (11.89)% (9.05)% Ratio of expenses to average net assets***(a) 0.00% 0.00% 0.00% 0.00% Ratio of net investment income to average net assets 1.80% 1.62% 1.35% 1.20% Portfolio turnover 25% 24% 19% 26% Net assets, end of year (000,000)s $ 76,859 $ 53,996 $ 62,723 $ 64,361 ----------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- Year Ended December 31, --------------------------------------------------------------------- 1999 1998 1997 1996 1995 1994 --------------------------------------------------------------------------------------------------------------------- S&P 500 Flagship Fund Net investment income* $ 2.99 $ 2.77 $ 2.64 $ 2.48 $ 2.24 $ 1.90 Net realized and unrealized gain (loss) 40.09 42.70 37.22 19.86 24.26 (0.93) Distribution of securities lending fee income (0.01) (0.01) 0.00 0.00 0.00 0.00 Net increase (decrease) 43.07 45.46 39.86 22.34 26.50 0.97 Net asset value Beginning of year 204.72 159.26 119.40 97.06 70.56 69.59 End of year $ 247.79 $ 204.72 $ 159.26 $ 119.40 $ 97.06 $ 70.56 Total return ** 21.04% 28.55% 33.38% 23.02% 37.56% 1.39% Ratio of expenses to average net assets***(a) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Ratio of net investment income to average net assets 1.35% 1.55% 1.86% 2.33% 2.66% 2.88% Portfolio turnover 13% 18% 18% 27% 10% 12% Net assets, end of year (000,000)s $ 75,574 $ 49,893 $ 36,664 $ 20,916 $15,135 $ 8,258 ---------------------------------------------------------------------------------------------------------------------
* Net investment income per unit has been calculated based upon an average of month-end units outstanding. ** Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of each year and assumes reinvestment of distributions, if any. The calculation includes only those expenses charged directly to the Lending Fund. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. *** Zero amounts represent that which are less than $0.005 or 0.005%; or $(0.005) or (0.005)% if negative. (a) The calculation includes only those expenses charged directly to the Fund, and does not include expenses charged to the funds in which the Fund invests. --------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------- Period Ended December Year Ended December 31, 31, -------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 -------------------------------------------------------------------------------------------------------------------------------- Russell 2000 Index Securities Lending Fund Net investment income* $ 0.36 $ 0.37 $ 0.41 $ 0.44 $ 0.39 $ 0.38 $ 0.36 $ 0.32 $ 0.03 $ 0.21 Distribution of securities lending fee income (0.01) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.01) (0.01) (0.01) Net realized and unrealized gain (loss) 9.79 (5.97) 0.21 (1.28) 4.34 (1.06) 4.19 2.45 3.61 (0.46) Net increase (decrease) 10.15 (5.62) 0.62 (0.86) 4.71 (0.70) 4.53 2.76 3.63 (0.26) Net asset value Beginning of period 21.90 27.52 26.92 27.78 23.07 23.77 19.24 16.48 12.85 13.11 End of period $ 32.04 $ 21.90 $ 27.52 $ 26.92 $ 27.78 $ 23.07 $ 23.77 $ 19.24 $ 16.48 $ 12.85 Total return%** 46.36 (20.33) 2.33 (3.01) 20.50 (2.88) 23.66 16.81 28.33 (1.98) Ratio of expenses to average net assets (%)(c)(d) 0.04 0.03 0.03 0.03 0.03 0.04 0.06 0.06 0.10 0.07 Ratio of net investment income to average net assets (%)(c) 1.36 1.50 1.56 1.57 1.61 1.61 1.63 1.80 1.80 1.61 Portfolio turnover (%) 110 92 91 76 51 57 105 131 103 48 Net assets, end of year (000,000)s $ 3,930 $ 1,949 $ 2,287 $ 1,818 $ 1,904 $ 1,256 $ 1,174 $ 951 $ 537 $ 372 --------------------------------------------------------------------------------------------------------------------------------
* Net investment income per unit has been calculated based upon an average month-end of units outstanding. ** Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and the end of the period and assumes reinvestment of distributions, if any. The calculation includes only those expenses charged directly to the Russell 2000 Index Securities Lending Fund. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. (c) 1996 ratios reflect net investment income and expenses attributable to the Russell 2000 Fund from its ownership of other collective investment funds. (d) The calculation includes only those expenses charged directly to the Fund and does not include expenses charged to the funds in which the Fund invests.
------------------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, Year Ended December 31, --------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------------------------------------------------------ Daily EAFE Fund Net investment income (loss)*(a) $ (0.00) $ (0.00) $ (0.00) $ (0.00) $ 0.00 $ 0.21 $ 0.19 $ 0.19 $ 0.16 Net realized and unrealized gain (loss) 2.87 ( 1.40) ( 2.42) ( 1.93) 2.87 1.57 (0.07) 0.29 0.66 Net increase (decrease) 2.87 ( 1.40) ( 2.42) ( 1.93) 2.87 1.78 0.12 0.48 0.82 Net asset value Beginning of period 7.44 8.84 11.26 13.19 10.32 8.54 8.42 7.94 7.12 End of period $ 10.31 $ 7.44 $ 8.84 $ 11.26 $ 13.19 $ 10.32 $ 8.54 $ 8.42 $ 7.94 Total return(%)** 38.52 (15.75) (21.49) (14.63) 27.83 20.84 1.43 6.07 11.56 Ratio of expenses to average net assets (%)(a)(b) 0.00 0.00 0.00 0.00 0.00 0.11 0.11 0.19 0.20 Ratio of net investment income to average net assets (%)(a) ( 0.00) 0.00 0.00 0.00 0.00 2.13 2.17 2.31 2.21 Portfolio turnover (%) 126 117 45 103 47 109 9 5 9 Net assets, end of year (000s) $ 421 $ 329 $ 432 $ 543 $ 516 $ 490 $ 277 $ 318 $ 154 ------------------------------------------------------------------------------------------------------------------------------------
* Net investment income (less) per unit has been calculated based upon an average month-end of units outstanding. ** Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in net asset value per unit between the beginning and end of the year. The calculation includes only those expenses charged directly to the Fund. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. (a) Zero amounts represents that which are less than $0.005 or 0.005%; or $(0.005) or (0.005)% if negative. (b) The calculation includes only those expenses charged directly to the Fund and does not include expenses charged to the funds in which the Fund invests. -------------------------------------------------------------------------------- A-3 AppendixI: Selected financial data and condensed financial information -------------------------------------------------------------------------------- A-4 AppendixI: Selected financial data and condensed financial information --------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, Year Ended December 31, ------------------------------------------------------------------------------------------------ 2003 2002 2001 2000 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------------------------------------------------------ Government Credit Bond Fund Net investment income* $ 0.07 $ 0.12 $ 0.12 $ 0.94 $ 0.86 $ 0.80 $ 0.83 $ 0.78 $ 0.70 Net realized and unrealized gain (loss) 0.85 1.78 1.21 0.61 ( 1.12) 0.38 0.32 ( 0.42) 1.17 Net increase (decrease) 0.92 1.90 1.33 1.55 ( 0.26) 1.18 1.15 0.36 1.87 Net asset value Beginning of year 18.70 16.80 15.47 13.92 14.18 13.00 11.85 11.49 9.62 End of year $ 19.62 $ 18.70 $ 16.80 $ 15.47 $ 13.92 $ 14.18 $ 13.00 $ 11.85 $ 11.49 Total return (%)** 4.90 11.34 8.60 11.14 ( 1.83) 9.09 9.70 3.13 19.44 Ratio of expenses to average net assets (%)(a) 0.01 0.01 0.01 0.02 0.01 0.01 0.01 0.01 0.01 Ratio of net investment income to average net assets (%) 0.35 0.69 0.76 6.50 6.17 5.89 6.73 6.82 6.53 Portfolio turnover (%) 206 96 65 734 824 478 294 299 611 Net assets, end of year (000s) $ 379 $ 457 $ 443 $ 538 $ 4,808 $ 4,644 $ 4,273 $ 3,060 $ 1,991 ------------------------------------------------------------------------------------------------------------------------------------
* Net investment income per unit has been calculated based upon an average of month-end of units outstanding. ** Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year. The calculation includes only those expenses charged directly to the Fund. This result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. (a) The calculation includes only those expenses charged directly to the Fund and does not include expenses charged to the funds in which the Fund invests.
-------------------------------------------------------------------------------------------------------------- Year Ended December 31, ----------------------- 2003 2002 2001 2000 1999 -------------------------------------------------------------------------------------------------------------- Short-Term Investment Fund Net investment income $0.0122 $0.0197 $0.0437 $0.0643 $0.0522 Net realized gain (loss)* $0.0000 $0.0000 0.0000 0.0000 0.0000 Net change in net assets resulting from operations $0.0122 $0.0197 $0.0437 $0.0643 $0.0522 Distributions from net investment income $(0.0122) $(0.0197) $(0.0437) $(0.0643) $(0.0522) Total return (%)** 1.22 1.99% 4.46 6.63 5.35 Ratio of expenses to average net assets (%)*** 0.03 0.02% 0.02 0.00 0.00 Ratio of net investment income to average net assets (%) 1.22 1.97% 4.37 6.43 5.22 Net assets, end of year (000s) $46,849,604 $39,508,195 $34,778,514 $27,527,486 $22,958,561 -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Year Ended December 31, ----------------------- 1998 1997 1996 1995 -------------------------------------------------------------------------------------------------------------- Short-Term Investment Fund Net investment income $0.0551 $0.0563 $0.0548 $0.0604 Net realized gain (loss)* 0.0000 0.0000 0.0000 0.0000 Net change in net assets resulting from operations $0.0551 $0.0563 $0.0548 $0.0604 Distributions from net investment income $(0.0551) $(0.0563) $(0.0548) $(0.0604) Total return (%)** 5.65 5.77 5.62 6.21 Ratio of expenses to average net assets (%)*** 0.00 0.00 0.00 0.00 Ratio of net investment income to average net assets (%) 5.51 5.63 5.48 6.04 Net assets, end of year (000s) $20,508,724 $18,563,057 $13,762,940 $12,393,148 --------------------------------------------------------------------------------------------------------------
* Zero amounts represent those which are less than $0.00005 or $(0.00005) if negative. ** Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year and assumes reinvestment of distributions, if any. It assumes reinvestment of distributions and includes only those expenses charged directly to the Fund. *** Zero amounts represent that which are less than 0.005% or (0.005%) if negative. -------------------------------------------------------------------------------- EQUITY INDEX FUND AND LIFECYCLE FUND - CONSERVATIVE AND LIFECYCLE FUND - MODERATE: SEPARATE ACCOUNT NOS. 195, 197 AND 198 Unit values and number of units outstanding for these Funds are shown below.
------------------------------------------------------------------------------------------------------------------------------------ Inception For the years ending December 31, Date ------------------------------------------------------------------------------------------------------------------------------------ 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 ------------------------------------------------------------------------------------------------------------------------------------ Equity Index Fund 2/1/94 Unit Value $ 9.71 $ 13.12 $ 15.91 $ 20.95 $ 26.65 $ 31.94 $ 28.74 $ 25.03 $ 19.25 $ 24.52 ------------------------------------------------------------------------------------------------------------------------------------ Number of units 515 1,483 2,100 3,713 4,890 6,399 5,746 5,639 5,580 6,253 outstanding (000's) ------------------------------------------------------------------------------------------------------------------------------------ Lifecycle Fund - Conservative 5/1/95 ------------------------------------------------------------------------------------------------------------------------------------ Unit Value - $ 10.59 $ 11.04 $ 12.13 $ 13.37 $ 14.06 $ 14.38 $ 14.34 $ 14.08 $ 15.64 ------------------------------------------------------------------------------------------------------------------------------------ Number of units - 281 409 596 1,009 906 804 831 1,015 1,143 outstanding (000's) ------------------------------------------------------------------------------------------------------------------------------------ Lifecycle Fund - Moderate 5/1/95 ------------------------------------------------------------------------------------------------------------------------------------ Unit Value - $ 11.01 $ 12.18 $ 14.14 $ 16.28 $ 18.23 $ 17.74 $ 16.81 $ 15.12 $ 18.15 ------------------------------------------------------------------------------------------------------------------------------------ Number of units - 6,924 7,241 7,657 7,691 7,262 6,906 6,334 5,937 6,124 outstanding (000's) ------------------------------------------------------------------------------------------------------------------------------------
A-5 Appendix I: Selected financial data and condensed financial information Table of contents of statement of additional information -------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE Funding of the Program SAI-2 Your Responsibilities as Employer SAI-2 Procedures for Withdrawals, Distributions and Transfers SAI-3 Types of Benefits SAI-5 Provisions of the Plans SAI-6 Additional Investment Policies and Techniques - The Underlying State Street Funds SAI-10 Investment Restrictions Applicable to the Funds SAI-14 How We Determine the Unit Value for the Funds SAI-15 How We Value the Assets of the Funds SAI-15 How State Street Values the Assets of the Underlying State Street Funds SAI-16 Transactions by the Underlying State Street Funds SAI-17 Investment Management Fee SAI-17 Distribution of the Contracts SAI-18 Equitable Life's Pending Name Change SAI-18 Management: Equitable Life SAI-18 Management: State Street SAI-21 Financial Statements SAI-22 CLIP AND MAIL TO US TO RECEIVE A STATEMENT OF ADDITIONAL INFORMATION To: The Equitable Life Assurance Society of the United States Box 2486 G.P.O. New York, NY 10116 Please send me a copy of the Statement of Additional Information for the American Dental Association Members Retirement Program Prospectus dated May 1, 2004 (State Street). ----------------------------------------------------------------------------- Name ----------------------------------------------------------------------------- Address ----------------------------------------------------------------------------- Copyright 2004 by The Equitable Life Assurance Society of the United States. All rights reserved. -------------------------------------------------------------------------------- S-1 Table of contents of statement of additional information -------------------------------------------------------------------------------- About Equitable Life -------------------------------------------------------------------------------- The Equitable Life Assurance Society of the United States ("Equitable Life") is the issuer of the group annuity contract that funds the Program. Equitable Life also makes forms of plans and trusts available, and offers recordkeeping and participant services to facilitate the operation of the Program. Equitable Life is a New York stock life insurance corporation and has been doing business since 1859. We are a wholly-owned subsidiary of AXA Financial, Inc. (previously The Equitable Companies Incorporated). The sole shareholder of AXA Financial, Inc. is AXA, a French holding company for an international group of insurance and related financial services companies. As the sole 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's related companies, however, has any legal responsibility to pay amounts that Equitable Life owes under the contract. AXA Financial, Inc., and its consolidated subsidiaries managed approximately $508.31 billion in assets as of December 31, 2003. For more than 100 years Equitable Life has 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, NY 10104. Effective on or about September 7, 2004, we expect, subject to regulatory approval, to change the name of "The Equitable Life Assurance Society of the United States" to "AXA Equitable Life Insurance Company." When the name change becomes effective, all references in any current prospectus, prospectus supplement or statement of additional information to "The Equitable Life Assurance Society of the United States" will become references to "AXA Equitable Life Insurance Company." Accordingly, all references to "Equitable Life" or "Equitable" will become references to "AXA Equitable." -------------------------------------------------------------------------------- HOW TO REACH US You may communicate with our processing office as listed below for the purposes described. Certain methods of contacting us, such as by telephone or electronically may be unavailable or delayed (for example our facsimile service may not be available at all times and/or we may be unavailable due to emergency closing). In addition, the level and type of service available may be restricted based on criteria established by us. You can reach us as indicated below to obtain: o Copies of any plans, trusts, participation agreements, enrollment or other forms used in the Program. o Unit values and other account information under your plan. o Any other information or materials that we provide in connection with the Program. INFORMATION ON JOINING THE PROGRAM -------------------------------------------------------------------- BY PHONE: -------------------------------------------------------------------- 1-800-523-1125 (Retirement Program Specialists available weekdays 9am to 5pm Eastern Time) -------------------------------------------------------------------- BY REGULAR MAIL: -------------------------------------------------------------------- The ADA Members Retirement Program c/o Equitable Life, Box 2011 Secaucus, NJ 07096 -------------------------------------------------------------------- BY REGISTERED, CERTIFIED, OR OVERNIGHT DELIVERY: -------------------------------------------------------------------- The ADA Members Retirement Program c/o Equitable Life 200 Plaza Drive, Second Floor Secaucus, NJ 07094 -------------------------------------------------------------------- BY INTERNET: -------------------------------------------------------------------- The ADA Members Retirement Program Website www.equitable.com/ada, provides information about the Program, as well as several interactive tools and resources that can help answer some of your retirement planning questions. The Website also provides an email feature that can be accessed by clicking on either "Contact Us" or "Send E-Mail to the Equitable." INFORMATION ONCE YOU JOIN THE PROGRAM -------------------------------------------------------------------- BY PHONE: -------------------------------------------------------------------- 1-800-223-5790 in the US or 1-800-223-5790-0 from France, United Kingdom, Italy, Switzerland, Israel and Republic of Korea (Account Executives available weekdays 9am to 5pm Eastern Time) -------------------------------------------------------------------- TOLL-FREE AIMS FOR AMOUNTS IN THE TRUST: -------------------------------------------------------------------- By calling 1-800-223-5790 or 1-800-223-5790-0 you may, with your assigned personal security code, use AIMS to: o Transfer assets between investment options and obtain account information. o Change the allocation of future contributions and maturing guaranteed options. o Hear investment performance information, including investment fund unit values and current guaranteed option interest rates. AIMS operates 24 hours a day. You may speak with our Account Executives during regular business hours about any matters covered by AIMS. ---------------------------------------------------------------------- BY INTERNET FOR AMOUNTS IN THE TRUST: ---------------------------------------------------------------------- By logging on to www.equitable.com/ada, Participant Services you may, with your social security number and your assigned personal security code, use the Internet to access certain retirement account information such as: o Investment performance, current and historical, investment fund unit values, and current guaranteed option interest rates. o Transfer assets between investment options and obtain account balance information o Change the allocation of future contributions and maturing guaranteed options. ---------------------------------------------------------------------- BY REGULAR MAIL: ---------------------------------------------------------------------- (correspondence): The ADA Members Retirement Program Box 2486 G.P.O. New York, NY 10116 ---------------------------------------------------------------------- FOR CONTRIBUTION CHECKS ONLY: ---------------------------------------------------------------------- The Association Members Retirement Program P.O. Box 1599 Newark, NJ 07101-9764 ---------------------------------------------------------------------- FOR REGISTERED, CERTIFIED, OR OVERNIGHT DELIVERY: ---------------------------------------------------------------------- The ADA Members Retirement Program c/o Equitable Life 200 Plaza Drive, 2B-55 Secaucus, NJ 07094 ---------------------------------------------------------------------- BY E-MAIL: ---------------------------------------------------------------------- We welcome your comments and questions regarding the ADA Retirement Program. If you have a comment or suggestion about the ADA Website we would appreciate hearing from you. Go to www.equitable.com/ada, Participant Services and click on "Contact Us" or click on "email the ADA Members Retirement Program." No person is authorized by The Equitable Life Assurance Society of the United States to give any information or make any representations other than those contained in this prospectus and the SAI, or in other printed or written material issued by Equitable Life. You should not rely on any other information or representation. -------------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION -------------------------------------------------------------------------------- MAY 1, 2004 AMERICAN DENTAL ASSOCIATION MEMBERS RETIREMENT PROGRAM (STATE STREET) -------------------------------------------------------------------------------- This Statement of Additional Information ("SAI") is not a prospectus. You should read this SAI in conjunction with Equitable Life's prospectus dated May 1, 2004 for the American Dental Association Members Retirement Program describing the EQUITY INDEX FUND AND THE LIFECYCLE FUND-CONSERVATIVE AND THE LIFECYCLE FUND-MODERATE. A copy of the prospectus to which this SAI relates is available at no charge by writing to the ADA Members Retirement Program at Box 2486 G.P.O., New York, New York 10116 or by calling our toll-free telephone number 1-800-223-5790 in the U.S., or 1-800-223-5790-0 from France, Israel, Italy, Republic of Korea, Switzerland, United Kingdom. Definitions of special terms used in this SAI are found in the prospectus. Certain of the cross references in this SAI are contained in the prospectus dated May 1, 2004 to which this SAI relates. CONTENTS OF THIS SAI PAGE IN SAI ----------- The Program ....................................................... SAI-2 Funding of the Program .......................................... SAI-2 Your Responsibilities as Employer ............................... SAI-2 Procedures for Withdrawals, Distributions and Transfers ......... SAI-3 Pre-Retirement Withdrawals ................................... SAI-3 Benefit Distributions ........................................ SAI-3 Death Benefit ................................................ SAI-4 Eligible Rollover Distributions and Federal Income Tax Withholding ................................................ SAI-4 Types of Benefits ............................................... SAI-5 Provisions of the Plans ......................................... SAI-6 Plan Eligibility Requirements ................................ SAI-6 Contributions to Qualified Plans ............................. SAI-7 Contributions to the Plans ................................... SAI-7 Allocation of Contributions .................................. SAI-9 PAGE IN SAI ------------ The Plans and Section 404(c) of ERISA ........................ SAI-9 Vesting ...................................................... SAI-9 Additional Investment Policies and Techniques -- The Underlying State Street Funds .............................................. SAI-10 Investment Restrictions Applicable to the Funds ................... SAI-14 How We Determine Unit Value for the Funds ......................... SAI-15 How We Value the Assets of the Funds .............................. SAI-15 How State Street Values the Assets of the Underlying State Street Funds ........................................................... SAI-16 Transactions by The Underlying State Street Funds ................. SAI-17 Investment Management Fee ......................................... SAI-17 Distribution of the Contracts ..................................... SAI-18 Equitable Life's Pending Name Change .............................. SAI-18 Management: Equitable Life ........................................ SAI-18 Management: State Street .......................................... SAI-21 Financial Statements .............................................. SAI-22 ---------- Copyright 2004 by The Equitable Life Assurance Society of The United States, 1290 Avenue of the Americas, New York, N.Y. 10104. All rights reserved. -------------------------------------------------------------------------------- THE PROGRAM The Program consists of the Master Plan and Volume Submitter Plan (the "Plans") and the Investment Only plans made available to members of the American Dental Association and their eligible employees. The following information regarding the Program is provided solely to provide a more complete understanding of how the investment funds available under Equitable Life's group annuity contract operate within the Program. In addition to issuing the group annuity contract under which the investment funds are available, we also provide administrative support, recordkeeping and marketing services in connection with the Program. We provide these services pursuant to an administrative services agreement between the ADA Trustees (who are currently the members of the ADA Council on Member Insurance and Retirement Programs ("Trustees" or "ADA Trustees")) and Equitable Life. This agreement would normally terminate when the group annuity contract with Equitable Life terminates. FUNDING OF THE PROGRAM The Program is primarily funded through a group annuity contract issued to the ADA Trustees by Equitable Life. The contract governs the Investment Funds that are provided by Equitable Life under the Program. The ADA Trustees hold all contracts for the benefit of employers and participants in the Program. The ADA Trustees and Equitable Life also have an administrative services agreement for administrative support, recordkeeping and marketing services provided by Equitable Life. This agreement would normally terminate when the group annuity contract with Equitable Life terminates. YOUR RESPONSIBILITIES AS EMPLOYER If you adopt one of the Plans, you as the employer and plan administrator will have certain responsibilities, including: o sending us your contributions at the proper time and in the proper format (including contribution type and fiscal year); o maintaining all personnel records necessary for administering your plan; o determining who is eligible to receive benefits; o forwarding to us, and when required, signing, all the forms your employees are required to submit; o distributing summary plan descriptions and participant annual reports to your employees and former employees; o distributing our prospectuses and confirmation notices to your employees and, in some cases, former employees; o filing an annual information return for your plan with the Department of Labor, if required; o providing us the information with which to run special non-discrimination tests, if you have a 401(k) plan or your plan accepts post-tax employee or employer matching contributions; o determining the amount of all contributions for each participant in the plan; o forwarding salary deferral and post-tax employee contributions to us as soon as possible (and, in any event, no later than the 15th business day of the month following the month in which the employer withholds or receives participant contributions); o selecting interest rates and monitoring default procedures if you elect the loan provision in your plan; and o providing us with written instructions for allocating amounts in the plan's forfeiture account. If you, as an employer, have an individually designed plan, your responsibilities will not be increased in any way by adopting the Pooled Trust for investment only. If you adopt our self-directed prototype plan, SAI-2 -------------------------------------------------------------------------------- you will be completely responsible for administering the plan and complying with all of the reporting and disclosure requirements applicable to qualified plans, with the assistance of the recordkeeper of your choice. We can provide guidance and assistance in the performance of your responsibilities. If you have questions about any of your obligations, you can contact our Account Executives at 1-800-223-5790 or write to us at Box 2486 G.P.O., New York, New York 10116. PROCEDURES FOR WITHDRAWALS, DISTRIBUTIONS AND TRANSFERS PRE-RETIREMENT WITHDRAWALS. Under the Plans, self-employed persons generally may not receive a distribution prior to age 591/2, and employees generally may not receive a distribution prior to separation from service. However, if the Plans are maintained as a profit sharing plan, you may request distribution of benefits after you reach age 591/2 even if you are still working. If the Plans are maintained as a 401(k) plan and you are under age 591/2, you may withdraw your own 401(k) contributions only if you can demonstrate financial hardship within the meaning of applicable income tax regulations. Each withdrawal must be at least $1,000 (or, if less, your entire account balance or the amount of your hardship withdrawal under a 401(k) plan). If your employer terminates the plan, all amounts (subject to GRA restrictions) may be distributed to participants at that time (except salary deferral amounts if there is a successor plan). You may withdraw all or part of your account balance under the Plans attributable to post-tax employee contributions at any time, subject to any withdrawal restrictions applicable to the Investment Options, provided that you withdraw at least $300 at a time (or, if less, your account balance attributable to post-tax employee contributions). See "Tax Information" in the prospectus. We pay all benefit payments (including withdrawals due to plan terminations) in accordance with the rules described below in the "Benefit Distributions" discussion. We effect all other participant withdrawals as of the close of the business day we receive the properly completed form. Under the self-directed prototype plan you may receive a distribution upon attaining normal retirement age as specified in the plan, or upon separation from service. If your employer maintains the self-directed prototype plan as a profit sharing plan, an earlier distribution of funds that have accumulated after two years is available if you incur a financial hardship, as defined in the plan. In addition, if you are married, your spouse may have to consent in writing before you can make any type of withdrawal, except for the purchase of a Qualified Joint and Survivor Annuity. See "Spousal Consent Requirement" below. Under an individually designed plan, the availability of pre-retirement withdrawals depends on the terms of the plan. We suggest that you ask your employer what types of withdrawals are available under your plan. Transfers and withdrawals from the Equity Index Fund may be delayed if there is any delay in redemption of shares of the SSgA S&P 500 Index Fund. We generally do not expect any such delays. Transfers and withdrawals from the Lifecycle Funds-Conservative and Moderate may be delayed if there is any delay in redemption of units of the Lifecycle Fund Group Trusts. We generally do not expect any such delays. BENEFIT DISTRIBUTIONS. In order for you to begin receiving benefits under either of the Plans, your employer must send us your properly completed Election of Benefits form and, if applicable, Beneficiary Designation form. Benefit payments will be made according to the provisions of your plan. SAI-3 -------------------------------------------------------------------------------- Under an individually designed plan and our self-directed prototype plan, your employer must send us a Request for Disbursement Form. We will process single sum payments to your plan's trustee as of the close of business on the day we receive a properly completed form. If you wish to receive annuity payments, your plan's trustee may purchase a variable annuity contract from us. Fixed annuities are available from insurance companies selected by the Trustees. See "Types of Benefits." We will pay annuity payments directly to you and payments will commence according to the provisions of your plan. Transfers and withdrawals from the Equity Index Fund may be delayed if there is any delay in redemption of shares of the SSgA S&P 500 Index Fund. We generally do not expect any such delays. Transfers and withdrawals from the Lifecycle Funds-Conservative and Moderate may be delayed if there is any delay in redemption of units of the Lifecycle Fund Group Trusts. We generally do not expect any such delays. Please note that we use the value of your vested benefits at the close of the business day payment is due to determine the amount of benefits you receive. We will not, therefore, begin processing your check until the following business day. You should expect your check to be mailed within five days after processing begins. Annuity checks can take longer. If you buy a fixed annuity, your check will come from the insurance company you selected. If you are withdrawing more than $50,000 and you would like expedited delivery at your expense, you may request it on your Election of Benefits form. DEATH BENEFIT. If a participant in either of the Plans dies without designating a beneficiary, the vested benefit will automatically be paid to the spouse or, if the participant is not married, to the first surviving class of his or her (a) children, (b) parents and (c) brothers and sisters. If none of them survive, the participant's vested benefit will be paid to the participant's estate. If a participant in our prototype self-directed plan dies without designating a beneficiary, the vested benefit will automatically be paid to the spouse or, if the participant is not married, to the first surviving class of his or her (a) children, (b) grandchildren, (c) parents, (d) brothers and sisters and (e) nephews and nieces. If none of them survive, the participant's vested benefit will be paid to the participant's estate. ELIGIBLE ROLLOVER DISTRIBUTIONS AND FEDERAL INCOME TAX WITHHOLDING. All "eligible rollover distributions" are subject to mandatory Federal income tax withholding of 20% unless the participant elects to have the distribution directly rolled over to a qualified plan or traditional individual retirement arrangement (IRA). An "eligible rollover distribution" is generally any distribution that is not one of a series of substantially equal periodic payments made (not less frequently than annually): (1) for the life (or life expectancy) of the plan participant or the joint lives (or joint life expectancies) of the plan participant and his or her designated beneficiary, or (2) for a specified period of 10 years or more. In addition, the following are not subject to mandatory 20% withholding: o hardship withdrawals; o certain corrective distributions under Code Section 401(k) plans; o loans that are treated as distributions; o a distribution to a beneficiary other than to a surviving spouse or a current or former spouse under a qualified domestic relations order; and o required minimum distributions under Code Section 401(a)(9). If we make a distribution to a participant's surviving spouse, or to a current or former spouse under a qualified domestic relations order, the distribution may be an eligible rollover distribution, subject to mandatory 20% withholding, unless one of the exceptions described above applies. If a distribution is not an "eligible rollover distribution", we will withhold income tax from all taxable payments unless the recipient elects not to have income tax withheld. SAI-4 -------------------------------------------------------------------------------- TYPES OF BENEFITS Under the Plans, and under most self-directed prototype plans, you may select one or more of the following forms of distribution once you are eligible to receive benefits. If your employer has adopted an individually designed plan or a self-directed prototype profit sharing plan that does not offer annuity benefits, not all of these distribution forms may be available to you. We suggest you ask your employer what types of benefits are available under your plan. QUALIFIED JOINT AND SURVIVOR ANNUITY. An annuity providing equal monthly payments for your life and, after your death, for your surviving spouse's life. No payments will be made after you and your spouse die, even if you have received only one payment prior to the last death. THE LAW REQUIRES THAT IF THE VALUE OF YOUR VESTED BENEFITS EXCEEDS $5,000, YOU MUST RECEIVE A QUALIFIED JOINT AND SURVIVOR ANNUITY UNLESS YOUR SPOUSE CONSENTS IN WRITING TO A CONTRARY ELECTION. Please see "Spousal Consent Requirements" below. LUMP SUM PAYMENT. A single payment of all or part of your vested benefits. If you take a lump sum payment of only part of your balance, it must be at least $1,000. If your vested benefit is $5,000 or less, you will receive a lump sum payment of the entire amount. PERIODIC INSTALLMENTS. Monthly, quarterly, semi-annual or annual payments over a period of at least three years, where the initial payment on a monthly basis is at least $300. You can choose either a time-certain payout, which provides variable payments over a specified period of time, or a dollar-certain payout, which provides level payments over a variable period of time. During the installment period, your remaining account balance will be invested in whatever investment options you designate, each payment will be drawn pro rata from all the investment options you have selected. If you die before receiving all the installments, we will make the remaining payments to your beneficiary, subject to IRS minimum distribution rules and beneficiary election. Except in the case of participant accounts transferred from defined contribution plans, we do not offer installments for benefits under the individually designed plans or our self-directed prototype plan. For special conditions applying to installment payments involving the Guaranteed Rate Accounts, please refer to the prospectus and SAI for these options. LIFE ANNUITY. An annuity providing monthly payments for your life. No payments will be made after your death, even if you have received only one payment prior to your death. LIFE ANNUITY--PERIOD CERTAIN. An annuity providing monthly payments for your life or, if longer, a specified period of time. If you die before the end of that specified period, payments will continue to your beneficiary until the end of the period. Subject to legal limitations, you may specify a minimum payment period of 5, 10, 15 or 20 years. The longer the specified period, the smaller the monthly payments will be. JOINT AND SURVIVOR ANNUITY. An annuity providing monthly payments for your life and that of your beneficiary. You may specify the percentage of the original annuity payment to be made to your beneficiary. Subject to legal limitations, that percentage may be 100%, 75%, 50%, or any other percentage you specify. JOINT AND SURVIVOR ANNUITY--PERIOD CERTAIN. An annuity providing monthly payments for your life and that of your beneficiary or, if longer, a specified period of time. If you and your beneficiary both die before the end of the specified period, payments will continue to your contingent beneficiary until the end of the period. Subject to legal limitations, you may specify a minimum payment period of 5, 10, 15 or 20 years and the percentage of the annuity payment to be made to your beneficiary (as noted above under Joint and Survivor Annuity). The longer the specified period, the smaller your monthly payments will be. CASH REFUND ANNUITY. An annuity providing equal monthly payments for your life with a guarantee that the sum of those payments will be at least equal to the portion of your vested benefits used to purchase the annuity. If upon your death the sum of the monthly payments to you is less than that amount, your beneficiary will receive a lump sum payment of the remaining guaranteed amount. SAI-5 -------------------------------------------------------------------------------- FIXED AND VARIABLE ANNUITY CHOICES Under a Qualified Joint and Survivor Annuity or a Cash Refund Annuity, the amount of the monthly payments is fixed at retirement and remains level throughout the distribution period. Under the Life Annuity, Life Annuity--Period Certain, Joint and Survivor Annuity and Joint and Survivor Annuity--Period Certain, you may select either fixed or variable payments. All forms of variable annuity benefits under the Program will be provided by us. The payments under variable annuity options reflect the investment performance of the Growth Equity Fund. If you are interested in a variable annuity, when you are ready to select your benefit please ask our Account Executives for our variable annuity prospectus supplement. Fixed annuities will be issued by insurance companies selected by the ADA Trustees from time to time. We do not currently offer fixed annuities under the Program. Upon your request, the companies selected by the Trustees will provide annuity benefit information. We have no further responsibility for the amount used to purchase a fixed annuity once it has been sent to the insurance company you select. The cost of a fixed annuity is determined by each issuing insurance company. Your Account Executive has more details regarding the insurance companies currently providing annuity benefits under the Program. SPOUSAL CONSENT REQUIREMENTS Under the Plans, you may designate a non-spouse beneficiary any time after the earlier of: (1) the first day of the plan year in which you attain age 35, or (2) the date on which you separate from service with your employer. If you designate a beneficiary other than your spouse prior to your reaching age 35, your spouse must consent to the designation and, upon your reaching age 35, must again give his or her consent or the designation will lapse. In order for you to make a withdrawal, elect a form of benefit other than a Qualified Joint and Survivor Annuity or designate a non-spouse beneficiary, your spouse must consent to your election in writing within the 90 day period before your annuity starting date. To consent, your spouse must sign on the appropriate line on your election of benefits or beneficiary designation form. Your spouse's signature must be witnessed by a notary public or plan representative. If you change your mind, you may revoke your election and elect a Qualified Joint Survivor Annuity or designate your spouse as beneficiary, simply by filing the appropriate form. Your spouse's consent is not required for this revocation. It is also possible for your spouse to sign a blanket consent form. By signing this form, your spouse consents not just to a specific beneficiary or, with respect to the waiver of the Qualified Joint and Survivor Annuity, the form of distribution, but gives you the right to name any beneficiary, or if applicable, form of distribution you want. Once you file such a form, you may change your election whenever you want, even without spousal consent. No spousal consent to a withdrawal or benefit in a form other than a Qualified Joint and Survivor Annuity is required under certain self-directed prototype profit sharing plans that do not offer life annuity benefits. PROVISIONS OF THE MASTER PLAN PLAN ELIGIBILITY REQUIREMENTS. Under the Plans, the employer specifies the eligibility requirements for its plan in the Adoption Agreement. The employer may exclude any employee who has not attained a specified age (not to exceed 21) and completed a specified number of years (not to exceed two) in each of which he completed 1,000 hours of service. No more than one year of eligible service may be required for a 401(k) arrangement. The employer may also exclude salaried dentists (those with no ownership interest in the practice), employees of related employers, leased employees and certain other types of employees at the employer's election, provided such exclusion does not cause the plan to discriminate in favor of "highly compensated" employees (defined below). SAI-6 -------------------------------------------------------------------------------- CONTRIBUTIONS TO QUALIFIED PLANS. We outline below the current Federal income tax rules relating to contributions under qualified retirement plans. This outline assumes that you are not a participant in any other qualified retirement plan. The employer deducts contributions to the plan in the year it makes them. As a general rule, an employer must make contributions for any year by the due date (including extensions) for filing its Federal income tax return for that year. However, Department of Labor ("DOL") rules generally require that the employer contribute participants' salary deferral (or post-tax employee contribution) amounts under a 401(k) plan as soon as possible after the payroll period applicable to a deferral. In any event, the employer must make these contributions no later than the 15th business day of the month following the month in which the employer withholds or receives participant contributions. If the employer contributes more to the plan than it may deduct under the rules we describe below, the employer (a) may be liable for a 10% penalty tax on that nondeductible amount and (b) may risk disqualifying the plan. CONTRIBUTIONS TO THE MASTER PLAN. The employer makes annual contributions to its plan based on the plan's provisions. An employer that adopts either of the Plans as a profit sharing plan makes discretionary contributions as it determines annually. The aggregate employer contribution to the plan may not exceed 25% of all participants' compensation for the plan year. For plan purposes, compensation for self-employed persons does not include deductible plan contributions on behalf of the self-employed person. A 401(k) arrangement is available as part of the profit sharing plan. Employees may make pre-tax contributions to a plan under a 401(k) arrangement. The maximum amount that highly compensated employees may contribute depends on (a) the amount that non-highly compensated employees contribute and (b) the amount the employer designates as a nonforfeitable 401(k) contribution. Different rules apply to a SIMPLE 401(k) or safe harbor 401(k). For 2004, a "highly compensated" employee, for this purpose, is (a) an owner of more than 5% of the practice, or (b) anyone with earnings of more than $90,000 from the practice in 2003. For (b), the employer may elect to include only employees in the highest paid 20%. In any event, the maximum amount each employee may defer is limited to $13,000 for 2004 (which amount shall increase by $1,000 each year up to 2006), reduced by that employee's salary reduction contributions to simplified employee pension plans established before 1997 (SARSEPs), SIMPLE plans, employee contributions to tax deferred Section 403(b) arrangements, and contributions deductible by the employee under a trust described under Section 501(c)(18) of the Internal Revenue Code. The maximum amount a participant may defer in a SIMPLE 401(k) plan for 2004 is $9,000. Effective January 1, 2004, an additional "catch-up" elective deferral of up to $3,000 can be made by any employees who are at least age 50 at any time during 2004. (Catch up elective deferral amount increases $1,000 per year through 2006.) Matching contributions to a 401(k) plan on behalf of a self-employed individual are no longer treated as elective deferrals, and are the same as matching contributions for other employees. Employers may adopt a safe harbor 401(k) arrangement. Under this arrangement, an employer agrees to offer a matching contribution equal to (a) 100% of salary deferral contributions up to 3% of compensation and (b) 50% of salary deferral contributions that exceed 3% but are less than 5% of compensation or a 3% non-elective contribution to all eligible employees. These contributions must be non-forfeitable. If the employer makes these contributions and meets the notice requirements for safe harbor 401(k) plans, the plan is not subject to non-discrimination testing on salary deferral and matching or non-elective contributions. SAI-7 -------------------------------------------------------------------------------- If the employer adopts the Master Plan as a defined contribution pension plan, its contribution is equal to the percentage of each participant's compensation that the Adoption Agreement specifies. Under any type of plan, an employer must disregard compensation in excess of $205,000 in 2004 in making contributions. This amount will be adjusted for cost-of-living changes in future years in $5,000 increments rounded to the next lowest multiple of $5,000. An employer may integrate contributions with Social Security. This means that contributions, for each participant's compensation, that exceed the integration level may be greater than contributions for compensation below the integration level. The Federal tax law imposes limits on this excess. Your Account Executive can help you determine the legally permissible contribution. Except in the case of certain non-top heavy plans, contributions for non-key employees must be at least 3% of compensation (or, under the profit sharing plan, the percentage the employer contributes for key employees, if less than 3%). In 2004, "key employee" means (a) an officer of the practice with earnings of more than $130,000 or (b) an owner of more than 5% of the practice, or (c) an owner of more than 1% of the practice with earnings of more than $150,000. For purposes of (a), no more than 50 employees (or, if less, the greater of three or 10% of the employees) shall be treated as officers. Certain plans may also permit participants to make post-tax contributions. We will maintain a separate account to reflect each participant's post-tax contributions and the earnings (or losses) on those contributions. Post-tax contributions are subject to complex rules under which the maximum amount that a highly compensated employee may contribute depends on the amount that non-highly compensated employees contribute. BEFORE PERMITTING ANY HIGHLY-COMPENSATED EMPLOYEE TO MAKE POST-TAX CONTRIBUTIONS, THE EMPLOYER SHOULD VERIFY THAT IT HAS PASSED ALL NON-DISCRIMINATION TESTS. If an employer employs only "highly compensated" employees (as defined above), the plan will not accept post-tax contributions. In addition, the employer may make matching contributions to certain plans, i.e., contributions based on the amount of post-tax or pre-tax 401(k) contributions that plan participants make. Special non-discrimination rules apply to matching contributions. These rules may limit the amount of matching contributions that an employer may make for highly compensated employees. These non-discrimination rules for matching contributions do not apply to SIMPLE and safe harbor 401(k) plans. Contributions (including forfeiture amounts) for each participant may not exceed the lesser of (a) $40,000 and (b) 100% of the participant's earnings (excluding, in the case of self-employed persons, all deductible plan contributions). The participant's post-tax contributions count toward this limitation. Each participant's account balance equals the sum of the amounts accumulated in each investment option. We will maintain separate records of each participant's interest in each of the investment options attributable to employer contributions, 401(k) non-elective contributions, 401(k) elective contributions, post-tax employee contributions, SIMPLE employer, safe harbor non-elective, safe harbor matching and employer matching contributions. We will also account separately for any amounts rolled over or transferred from an IRA or eligible employer plan. Our records will also reflect each participant's percentage of vesting (see below) in his account balance attributable to employer contributions and employer matching contributions. The participant will receive an individual confirmation of each transaction (including the deduction of record maintenance and report fees). The participant will also receive an annual statement showing the participant's account balance in each investment option attributable to each type of contribution. Based on information that you supply, we will run the required special non-discrimination tests (Actual Deferral Percentage and Actual Contribution Percentage) applicable to (a) 401(k) plans (other than SIMPLE 401(k) and safe harbor 401(k)) and (b) plans that accept post-tax employee contributions or employer matching contributions. Non-discrimination tests do not apply to SIMPLE 401(k) plans, if the employer makes (a) a matching contribution equal to 100% of the amount each participant deferred, up to 3% of compensation, or (b) a 2% non-elective contribution to all eligible employees. The employer must also follow the notification and filing requirements outlined in the Plans to avoid non-discrimination tests. SAI-8 -------------------------------------------------------------------------------- Under a SIMPLE 401(k) the employer must offer all eligible employees the opportunity to defer part of their salary into the plan and make either a matching or non-elective contribution. The matching contribution must be 100% of the salary deferral amount up to 3% of compensation. The non-elective contribution is 2% of compensation, which the employer must make for all eligible employees, even those not deferring. The matching or non-elective contribution must be non-forfeitable. The employer must notify employees which contribution the employer will make 60 days before the beginning of the year. Elective deferrals to a 401(k) plan are subject to applicable FICA (social security), Medicare and FUTA (unemployment) taxes. They may also be subject to state income tax. ALLOCATION OF CONTRIBUTIONS. You, as employer or participant, may allocate contributions among any number of the investment options. You may change allocation instructions at any time, and as often as needed, by calling our Account Investment Management System ("AIMS") or accessing the Website on the Internet. New instructions become effective on the business day we receive them. Employer contributions may be allocated in different percentages than employee contributions. The allocation percentages elected for employer contributions automatically apply to any 401(k) qualified non-elective contributions, qualified matching contributions, employer matching contributions, SIMPLE employer, safe harbor non-elective, safe harbor matching contributions and rollover contributions. Your allocation percentages for employee contributions automatically apply to any post-tax employee contributions and 401(k) salary deferral contributions. IF WE HAVE NOT RECEIVED VALID INSTRUCTIONS, WE WILL ALLOCATE CONTRIBUTIONS TO THE MONEY MARKET GUARANTEE ACCOUNT. You may, of course, transfer to another investment option at any time. THE PLANS AND SECTION 404(C) OF ERISA. The Plans are a participant directed individual account plan designed to comply with the requirements of Section 404(c) of ERISA. Section 404(c) of ERISA, and the related Department of Labor (DOL) regulation, provide that if a participant or beneficiary exercises control over the assets in his or her plan account, plan fiduciaries will not be liable for any loss that is the direct and necessary result of the participant's or beneficiary's exercise of control. This means that if the employer plan complies with Section 404(c), participants can make and are responsible for the results of their own investment decisions. Section 404(c) plans must, among other things, (a) make a broad range of investment choices available to participants and beneficiaries and (b) provide them with adequate information to make informed investment decisions. The Investment Options and documentation available under the ADA Program provide the broad range of investment choices and information needed in order to meet the requirements of Section 404(c). However, while our suggested summary plan descriptions, annual reports, prospectuses, and confirmation notices provide the required investment information, the employer is responsible for distributing this information in a timely manner to participants and beneficiaries. You should read this information carefully before making your investment decisions. VESTING. Vesting refers to the participant's rights with respect to that portion of a participant's Account Balance attributable to employer contributions under the Plans. If a participant is "vested," the amount or benefit in which the participant is vested belongs to the participant, and may not be forfeited. The participant's Account Balance attributable to (a) 401(k) contributions (including salary deferral, qualified non-elective and qualified matching contributions), (b) post-tax employee contributions and (c) rollover contributions always belong to the participant, and is nonforfeitable at all times. A participant becomes fully vested in all benefits if still employed at death, disability, attainment of normal retirement age or upon termination of the plan. If the participant terminates employment before that time, any benefits that have not yet vested under the plan's vesting schedule are forfeited. The normal retirement age is 65 under the Plans unless the employer elects a lower age on its Adoption Agreement. Benefits must vest in accordance with any of the schedules below or one at least as favorable to participants; SAI-9 -------------------------------------------------------------------------------- SCHEDULE A SCHEDULE B SCHEDULE C SCHEDULE E YEARS OF VESTED VESTED VESTED VESTED SERVICE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE ---------- ------------ ------------ ------------ ------------ 1 0% 0% 0% 100% 2 100 20 0 100 3 100 40 100 100 4 100 60 100 100 5 100 80 100 100 6 100 100 100 100 If the plan requires more than one year of service for participation in the plan, the plan must use Schedule E. Provided the employer plan is not "top-heavy," within the meaning of Section 416 of the Code, and provided that the plan does not require more than one year of service for participation, an employer may, in accordance with provisions of the Plans, instead elect one of the following vesting schedules or one at least as favorable to participants, further provided, however the following schedule is not available for matching contributions made in plan years beginning after 2002: SCHEDULE F SCHEDULE G YEARS OF VESTED VESTED SERVICE PERCENTAGE PERCENTAGE --------------- ------------ ----------- less than 3 0% 0% 3 20 0 4 40 0 5 60 100 6 80 100 7 100 100 All contributions to a SIMPLE 401(k) plan are 100% vested and not subject to the vesting schedule above. This rule, however, does not apply to employer and matching contributions made to a plan before the plan is amended to become a SIMPLE 401(k) plan. Non-elective and matching contributions required under a safe harbor 401(k) arrangement are 100% vested and not subject to the vesting schedule above. Matching contributions are required to vest at least as quickly as under a 3-year cliff or a 6-year "graded vesting" schedule. The 6-year schedule requires 20% vesting after 2 years of service increasing 20% per year thereafter. ADDITIONAL INVESTMENT POLICIES AND TECHNIQUES -- THE UNDERLYING STATE STREET FUNDS The following discussion supplements the discussion of the investment policies and techniques of the Underlying State Street Funds for the Lifecycle Fund Group Trusts included under the section entitled "Program investment options" in the prospectus. Also discussed hereunder are the investment restrictions applicable to investments made by such Underlying State Street Funds. As a general matter, you should note that the S&P 500 Flagship Fund, the Russell 2000 Index Securities Lending Fund, and the Daily EAFE Fund are index funds and, therefore, not "actively" managed like other collective investment funds. Each of these Underlying State Street Funds utilizes a "passive" investment approach, attempting to duplicate the investment performance of its benchmark index through automated statistical analytic procedures. See the section of the prospectus entitled "Program investment options -- Risks and investment techniques: Lifecycle Fund Group Trusts and Underlying State Street Funds -- In general" for further discussion of this method of management. Therefore, some of the policies and investment techniques discussed below may not be engaged in to the same extent as if these funds were actively managed. SAI-10 -------------------------------------------------------------------------------- Certain Underlying State Street Funds may invest in other collective investment funds and mutual funds. As a result, through their investments in other funds, these Underlying State Street Funds may indirectly engage in the investment techniques described herein and will be indirectly exposed to all risks associated with those investment techniques. U.S. GOVERNMENT SECURITIES. The Underlying State Street Funds may invest in securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities, which include U.S. Treasury securities that differ in their interest rates, maturities and times of issuance. Treasury Bills have initial maturities of one year or less; Treasury Notes have initial maturities of one to ten years; and Treasury Bonds generally have initial maturities of greater than ten years. Obligations issued or guaranteed by U.S. Government agencies and instrumentalities are supported in one of the following ways: (a) by the full faith and credit of the U.S. Treasury; (b) by the right of the issuer to borrow from the Treasury; (c) by discretionary authority of the U.S. Government to purchase certain obligations of the agency or instrumentality; or (d) only by the credit of the agency or instrumentality. These securities bear fixed, floating or variable rates of interest. Principal and interest may fluctuate based on generally recognized reference rates or the relationship of rates. While the U.S. Government provides financial support to such U.S. Government-sponsored agencies or instrumentalities, no assurance can be given that it will always do so, since it is not so obligated by law. FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES. Certain of the Underlying State Street Funds may invest in obligations issued or guaranteed by one or more foreign governments or any of their political subdivisions, agencies or instrumentalities, if State Street determines that the obligations are of comparable quality to the other obligations in which such Underlying State Street Fund may invest. Such securities also include debt obligations of supranational entities. Supranational entities include international organizations designated or supported by governmental entities to promote economic reconstruction or development and international banking institutions and related government agencies. The percentage of such Underlying State Street Fund's assets invested in securities issued by foreign governments will vary depending on the relative yields of such securities, the economic and financial markets of the countries in which the investments are made and the interest rate climate of such countries. BANK OBLIGATIONS. The Underlying State Street Funds may invest in bank obligations, including certificates of deposit, time deposits, bankers' acceptances and other short-term obligations of domestic banks, foreign subsidiaries of domestic banks, foreign branches of domestic banks, and domestic and foreign branches of foreign banks, domestic savings and loan associations and other banking institutions. With respect to such securities issued by foreign branches of domestic banks, foreign subsidiaries of domestic banks, and domestic and foreign branches of foreign banks, such Underlying State Street Fund may be subject to additional investment risks that are different in some respects from those incurred by a fund which invests only in debt obligations of U.S. domestic issuers. These risks include possible future political and economic developments, the possible imposition of foreign withholding taxes on interest income payable on the securities, the possible establishment of exchange controls or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on these securities and the possible seizure or nationalization of foreign deposits. Certificates of deposit are negotiable certificates evidencing the obligation of a bank to repay funds deposited with it for a specified period of time. Time deposits are non-negotiable deposits maintained in a banking institution for a specified period of time at a stated interest rate. Time deposits which may be held by such Underlying State Street Fund will not benefit from insurance administered by the Federal Deposit Insurance Corporation. Bankers' acceptances are credit instruments evidencing the obligation of a bank to pay a draft drawn on it by a customer. These instruments reflect the obligation both of the bank and the drawer to pay the face amount of the instrument upon maturity. The other short-term obligations may include uninsured, direct obligations, bearing fixed, floating or variable interest rates. SAI-11 -------------------------------------------------------------------------------- COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS. The Underlying State Street Funds may invest in commercial paper. Commercial paper is short-term, unsecured promissory notes issued to finance short-term credit needs. Any commercial paper in which such Underlying State Street Fund invests will consist only of direct obligations which, at the time of their purchase, are (a) rated not lower than Prime-1 (P-1) by Moody's Investor Service ("Moody's"), A-1 by Standard & Poor's ("S&P"), or any equivalent rating by any other nationally recognized statistical rating organization, (b) issued by companies having an outstanding unsecured debt issue currently rated not lower than Aa3 by Moody's or AA- by S&P, or any equivalent rating by any other nationally recognized statistical rating organization, or (c) if unrated, determined by State Street to be of comparable quality to those rated obligations which may be purchased by such Underlying State Street Fund. REPURCHASE AGREEMENTS. Certain Underlying State Street Funds may enter into repurchase agreements. Repurchase agreements involve the acquisition of an underlying debt instrument, subject to an obligation of the seller to repurchase, and to resell, the instrument at a fixed price usually not more than one week after its purchase. An Underlying State Street Fund may incur certain costs in connection with the sale of the securities if the seller does not repurchase them in accordance with the repurchase agreement. In addition, if bankruptcy proceedings are commenced with respect to the seller of the securities, realization on the securities by an Underlying State Street Fund may be delayed or limited. Each Underlying State Street Fund will consider on an ongoing basis the creditworthiness of the institutions with which it enters into repurchase agreements. FLOATING AND VARIABLE RATE OBLIGATIONS. Certain Underlying State Street Funds may purchase floating and variable rate demand notes and bonds, which are obligations ordinarily having stated maturities in excess of 13 months. Generally, the lender may demand repayment, and the borrower has a right to repay the loan prior to maturity. The interest rate generally fluctuates based on a published rate such as a bank's prime rate. Because these obligations are direct lending arrangements between the lender and borrower, the Underlying State Street Funds do not contemplate that such instruments generally will be traded, and there generally is no established secondary market for these obligations, although they are redeemable at face value. Accordingly, where the obligations are not secured by letters of credit or other credit support arrangements, the Underlying State Street Fund's right to redeem is dependent on the ability of the borrower to pay principal and interest on demand. AMERICAN, EUROPEAN AND EUROPEAN DEPOSITARY RECEIPTS. Certain Underlying State Street Funds may invest in the securities of foreign issuers in the form of American Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs"). These securities may not necessarily be denominated in the same currency as the securities into which they may be converted. ADRs are receipts typically issued by a United States bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs, which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe typically by non-United States banks and trust companies that evidence ownership of either foreign or domestic securities. DERIVATIVE INSTRUMENTS. Certain Underlying State Street Funds may invest in a variety of exchange-traded and over-the-counter derivative instruments, including, but not limited to, financial futures, including index futures, options, swap contracts, and, in the case of Underlying State Street Funds that may invest in foreign securities, foreign currency forwards. FUTURES CONTRACTS. To the extent permitted by applicable regulations, certain Underlying State Street Funds are permitted to use financial futures as a substitute for a comparable market position in the underlying securities. An Underlying State Street Fund may trade futures contracts in U.S. domestic markets or, to the extent permitted under applicable law, on exchanges located outside the United States. A stock index future obligates the seller to deliver (and the purchaser to take), effectively, an amount of cash equal to the difference between the value of a specific stock index at the close of the last trading day SAI-12 -------------------------------------------------------------------------------- of the contract and the purchase price at which the contract is made. With respect to stock indexes that are permitted investments, each Underlying State Street Fund intends to purchase and sell futures contracts on the stock index for which it can obtain the best price, with consideration also given to liquidity. Initially, when purchasing or selling futures contracts, an Underlying State Street Fund will be required to deposit with its custodian in the broker's name an amount of cash or cash equivalents up to approximately 10% of the contract amount, which is returned to the Fund upon termination. This amount is subject to change. Subsequent payments to and from the broker will be made daily as the price of the index or securities underlying the futures contract fluctuates. Although an Underlying State Street Fund intends to purchase or sell futures contracts only if there is an active market for such contracts, no assurance can be given that a liquid market will exist for any particular contract at any particular time. Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified periods during the trading day. Futures contract prices could move to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and potentially subjecting the relevant Underlying State Street Fund to substantial losses. INTEREST RATE AND EQUITY INDEX SWAPS. Certain Underlying State Street Funds may enter into interest rate and index swaps. Interest rate swaps are contracts in which one party agrees to pay interest at a floating rate for a specified period of time, while the counterparty agrees to pay interest at a fixed rate for the same period. Index swaps involve the exchange by an Underlying State Street Fund with another party of cash flows based upon the performance of an index or a portion of an index of securities which usually include dividends. An Underlying State Street Fund will enter into swap transactions only if: (i) for transactions with maturities under one year, the counterparty has outstanding short-term paper rated at least A-1 by S&P, Prime-1 (P-1) by Moody's, or any equivalent rating by any other nationally recognized statistical rating organization, or (ii) for transactions with maturities greater than one year, the counterparty has outstanding debt securities rated at least Aa by Moody's or AA by S&P, or any equivalent rating by any other nationally recognized statistical rating organization, or (iii) if unrated, State Street deems the counterparty's creditworthiness to be of equivalent quality. An Underlying State Street Fund will enter into swap transactions only if the counterparty is assigned a long-term rating of at least A or A2 by two of the following three rating organizations: Moody's, S&P, and Fitch Ratings Ltd. ("Fitch"). Ratings of A or A2 are below the ratings of Aa by Moody's or AA by S&P and Fitch. FOREIGN CURRENCY TRANSACTIONS. Certain Underlying State Street Funds may engage in currency exchange transactions either on a spot (i.e., cash) basis at the rate prevailing in the currency exchange market, or through entering into forward contracts to purchase or sell currencies. A forward currency exchange contract involves an obligation to purchase or sell a specific currency at a future date, which must be more than two days from the date of the contract, at a price set at the time of the contract. These contracts are entered into in the interbank market conducted directly between currency traders (typically commercial banks or other financial institutions) and their customers. LENDING PORTFOLIO SECURITIES. Certain Underlying State Street Funds may lend securities to brokers, dealers and other financial institutions. The Underlying State Street Fund will receive collateral of at least 100% cash, letters of credit or U.S. government securities. The Underlying State Street Fund can increase its income through the investment of the collateral as well as the interest receivable on the loan. An Underlying State Street Fund might experience a loss if the institution with which it has engaged in a portfolio loan transaction breaches its agreement. SAI-13 -------------------------------------------------------------------------------- RATINGS. The ratings of Moody's, S&P, Fitch or any other nationally recognized statistical rating organizations represent their opinions as to the quality of the obligations which they undertake to rate. It should be emphasized, however, that ratings are relative and subjective and, although ratings may be useful in evaluating the safety of interest and principal payments, they do not evaluate the market value risk of such obligations. Each Underlying State Street Fund will rely on State Street's judgment, analysis and experience in evaluating the creditworthiness of an issuer. INVESTMENT RESTRICTIONS APPLICABLE TO THE FUNDS EQUITY INDEX FUND. The Equity Index Fund will operate as discussed under "Program investment options--The Equity Index Fund" in the prospectus, and will be subject to the investment policies and limitations described therein. The prospectus and statement of additional information for the SSgA S&P 500 Index Fund describes the investment objective, policies and limitations applicable to the SSgA S&P 500 Index Fund. Free copies of the SSgA S&P 500 Index Fund prospectus and statement of additional information may be obtained by calling an Equitable Life Account Executive. LIFECYCLE FUNDS. The Lifecycle Funds will operate as discussed under "Program investment options-Lifecycle Funds-Conservative and Moderate" in the prospectus, and will be subject to the investment policies and limitations described therein. LIFECYCLE FUND GROUP TRUSTS. The Lifecycle Fund Group Trusts will operate as discussed in "Program investment options-Lifecycle Funds-Conservative and Moderate--The Lifecycle Fund Group Trusts" in the prospectus, and will be subject to the investment policies and limitations described therein. UNDERLYING STATE STREET FUNDS: COMMON INVESTMENT RESTRICTIONS. In addition to the limitations discussed herein under "Additional Investment Policies and Techniques--The Underlying State Street Funds" and in the prospectus under "Program investment options", each Underlying State Street Fund will not: (1) Invest in securities for the purpose of obtaining control of management. (2) Engage in business of underwriting securities issued by others, except that an Underlying State Street Fund will not be deemed to be an underwriter or to be engaged in underwriting by virtue of having purchased securities subject to legal or contractual restrictions on disposition. (3) Make short sales of securities or purchase any securities on margin, except for such short-term credits as are necessary for the clearance of transactions. An Underlying State Street Fund may make initial margin deposits and variation margin payments in connection with transactions in futures contracts or related options. (4) Purchase or sell real estate or real estate mortgage loans, except that an Underlying State Street Fund may invest in securities secured by real estate or interests in real estate, or securities issued by companies which invest in real estate or interests in real estate. (5) Pledge, mortgage or hypothecate its assets, except to the extent necessary to (a) secure any permitted borrowings, (b) engage in transactions that involve the purchase of securities on a when-issued or forward commitment basis, (c) deposit assets in escrow in connection with writing covered put and call options, and (d) deposit assets as initial or variation margin or collateral in connection with transactions in options, forward contracts, futures contracts (including those relating to indices), and options on futures contracts or indices. (6) Invest 25% or more of the value of its total assets in securities of companies primarily engaged in any one industry (other than the U.S. Government, its agencies and instrumentalities), except to the extent necessary to comply with the industry weightings of a particular index in accordance with SAI-14 -------------------------------------------------------------------------------- such Underlying State Street Fund's investment objective and policies. For purposes of this restriction, the concentration limit may be exceeded as a result of changes in the market value of portfolio securities in which an Underlying State Street Fund invests. This limit, however, may not be exceeded as a result of investments made by an Underlying State Street Fund. (7) Purchase or sell commodities or commodity futures contracts, except that an Underlying State Street Fund may enter into futures contracts to the extent provided in such Underlying State Street Fund's Declaration of Trust and as discussed under Additional Investment Policies and Techniques above and under Investment Options in the prospectus. While State Street and SSgA Funds Management, Inc. are not required to observe the foregoing restrictions (except where otherwise required by law or governmental regulation), they currently do not intend to change any of these restrictions. In addition, pursuant to its Fund Declaration, Short Term Investment Fund will not invest more than 5% of its portfolio in any one issuer at the time of purchase. U.S. Government and agency securities, repurchase agreements and other commingled funds are exempt from this restriction. HOW WE DETERMINE UNIT VALUE FOR THE FUNDS We determine the Unit Value for the Equity Index Fund and each of the Lifecycle Funds at the end of each business day. The Unit Value for each of these Funds is calculated by first determining a gross unit value, which reflects only investment performance, and then adjusting it for Fund expenses to obtain the Fund Unit Value. We determine the gross unit value by multiplying the gross unit value for the preceding business day by the net investment factor for that subsequent business day. We calculate the net investment factor as follows: o First, we take the value of the Fund's assets at the close of business on the preceding business day. o Next, we add the investment income and capital gains, realized and unrealized, that are credited to the assets of the Fund during the business day for which we are calculating the net investment factor. o Then we subtract the capital losses, realized and unrealized, charged to the Fund during that business day. o Finally, we divide this amount by the value of the Fund's assets at the close of the preceding business day. The Fund Unit Value is calculated on every business day by multiplying the Fund Unit Value for the last business day of the previous month by the net change factor for that business day. The net change factor for each business day is equal to (a) minus (b) where: (a) is the gross unit value for that business day divided by the gross unit value for the last business day of the previous month; and (b) is the charge to the Fund for that month for the daily accrual of fees and other expenses times the number of days since the end of the preceding month. HOW WE VALUE THE ASSETS OF THE FUNDS The Equity Index Fund will invest all of its assets in the SSgA S&P 500 Index Fund. The Equity Index Fund's investments in the SSgA S&P 500 Index Fund will be valued at the Underlying Mutual Fund's net asset value per share. The asset value of the Equity Index Fund is computed on a daily basis by reference to the SSgA S&P 500 Index Fund. See the prospectus of the SSgA S&P 500 Index Fund for information on valuation methodology. SAI-15 -------------------------------------------------------------------------------- The Lifecycle Funds-Conservative and -Moderate will invest all of their assets in the Lifecycle Fund Group Trusts-Conservative and -Moderate, respectively. The Lifecycle Fund Group Trusts, in turn, will invest all of their assets in the Underlying State Street Funds. The investments made by each of the Lifecycle Funds in units of the corresponding Lifecycle Fund Group Trust will be valued at the net asset value of the units of such Lifecycle Fund Group Trust. The units of each of the Lifecycle Fund Group Trusts will be valued each business day as of the close of the regular trading session of the New York Stock Exchange (generally 4 p.m. Eastern time). A business day is any business day on which the New York Stock Exchange is open for business. The net asset value of each unit is computed by dividing the current value of the assets of each Lifecycle Fund Group Trust, less its liabilities, by the number of units outstanding and rounding to the nearest tenth of a cent. Investments made by each Lifecycle Fund Group Trust in the Underlying State Street Funds will be valued at the Underlying State Street Fund's net asset value per unit. The units of each Underlying State Street Fund are valued each business day in a manner that is similar to the method used for valuing units of the Lifecycle Fund Group Trusts daily. The method of valuing the assets of each Underlying State Street Fund is discussed below. HOW STATE STREET VALUES THE ASSETS OF THE UNDERLYING STATE STREET FUNDS State Street values the assets of each Underlying State Street Fund, other than the STIF Fund, in the following manner on a daily basis: o STOCKS listed on a national securities exchange are valued at the last reported sale price or the official closing price reported for an issue traded on the over-the-counter stock market, including the NASDAQ Official Closing Price for NASDAQ-traded securities. If on a particular day there is no reported sale or official closing price, such securities are valued at the latest available bid price reported on a composite tape. Other unlisted securities reported on the NASDAQ system are valued at inside (highest) quoted bid prices. o FOREIGN SECURITIES not traded directly, or in ADR form, in the United States, are valued at the last sale price in the local currency on an exchange in the country of origin. Foreign currency is converted into U.S. dollars at current exchange rates. o UNITED STATES TREASURY SECURITIES and other obligations issued or guaranteed by the United States Government, its agencies or instrumentalities are valued at representative quoted prices. o LONG-TERM PUBLICLY TRADED CORPORATE BONDS (i.e., maturing in more than one year) are valued at prices obtained from a bond pricing service of a major dealer in bonds when such prices are available; however, in circumstances where it is deemed appropriate to do so, an over-the-counter or exchange quotation may be used. o CONVERTIBLE PREFERRED STOCKS listed on national securities exchanges are valued at their last sale price or, if there is no sale, at the latest available bid price. o CONVERTIBLE BONDS and UNLISTED CONVERTIBLE PREFERRED STOCKS are valued at bid prices obtained from one or more major dealers in such securities; where there is a discrepancy between dealers, values may be adjusted based on recent premium spreads to the underlying common stock. o SHORT-TERM DEBT SECURITIES that mature in more than 60 days are valued at representative quoted prices. Short-term debt securities that mature in 60 days or less are valued at amortized cost, which approximates market value. State Street determines in good faith the "fair values" of securities and other assets that do not have a readily available market price in accordance with accepted accounting practices and applicable laws and regulations. SAI-16 -------------------------------------------------------------------------------- Assets of the STIF Fund are valued at amortized cost on a daily basis. Under this method of valuation, securities purchased by the STIF Fund, such as bonds, notes, commercial paper, certificates of deposit, or other evidences of indebtedness, are recorded at original cost and adjusted daily for premium amortization or discount accretion. Use of the amortized cost method results in a value of portfolio securities that approximates the value computed by use of mark-to-market method (i.e., use of market values). Values computed under both methods approach each other the closer a debt obligation comes to maturity. In this regard, the STIF Fund will not hold debt obligations that have a remaining maturity of more than 397 days. See discussion under "Program investment options--Investment options" in the prospectus. TRANSACTIONS BY THE UNDERLYING STATE STREET FUNDS This section discusses the procedures followed by the Underlying State Street Funds, with respect to the buying and selling of portfolio securities for these Funds. In connections with such transactions, the Underlying State Street Funds pay brokerage commissions, transfer taxes, and other fees. Decisions to buy or sell securities for the Underlying State Street Funds are made by State Street in accordance with the investment policies and restrictions of each Underlying State Street Fund. Such decisions are made independently of the decisions made for other entities managed by State Street. There may be occasions, however, when the same investment decision is made for more than one account advised or managed by State Street. In such cases, State Street will allocate such purchases or sales among the affected accounts in as equitable a manner as it deems possible. The principal factors State Street will take into account in making this determination are the relative investment objectives of the affected client accounts, the relative sizes of the same or comparable securities held by or on behalf of such accounts, and the availability at the time of funds in each client account to make the investment. Portfolio securities held by one State Street client also may be held by one or more of its other clients. When two or more of State Street's clients are engaged in the simultaneous purchase or sale of securities, State Street allocates the amount of each transaction in accordance with the formulae deemed to be equitable as to each client. There may be circumstances, however, when purchases or sales of portfolio securities for one or more of State Street's clients will have an adverse effect on other clients. In placing portfolio transactions for an Underlying State Street Fund, State Street will seek the best price and most favorable execution available to such Fund. In this regard, State Street will take into account all factors which it considers relevant to making this decision, including the extent of any provision of any brokerage and research services to such Fund within the meaning of Section 28(e) of the Securities Exchange Act of 1934 ("1934 Act"), viewed in terms of either that particular transaction or the broker's or dealer's overall responsibilities to the Underlying State Street Fund. State Street periodically will review the brokerage commissions paid by an Underlying State Street Fund to determine whether the commissions paid over a particular period of time were reasonable in relation to the benefits provided to such Fund. It is possible that certain of the services received from a broker or dealer in connection with the execution of transactions will primarily benefit one or more other accounts for which State Street exercises discretion, or an Underlying State Street Fund other than that for which the transaction was executed. Conversely, any given Underlying State Street Fund may be the primary beneficiary of the service received as a result of portfolio transactions effected for such other accounts or Underlying State Street Funds. The investment management fees paid to State Street are not reduced by reason of receipt of such brokerage and research services. INVESTMENT MANAGEMENT FEE OF SSGA S&P 500 INDEX FUND SSgA Funds Management, Inc. is the investment adviser to the SSgA S&P 500 Index Fund, the Underlying Mutual Fund in which the Equity Index Fund invests. No direct investment management fee was paid to SSgA Funds Management, Inc. in 2003 for its management of the SSgA S&P 500 Index Fund. However, all of the assets of the SSgA S&P 500 Index Fund are invested through a master/feeder SAI-17 -------------------------------------------------------------------------------- arrangement into the State Street Equity 500 Index Portfolio. SSgA Funds Management, Inc. and its affiliates are paid a total fee of 0.045% for advisory, custody, transfer agency and administration services provided to the State Street Equity 500 Index Portfolio. DISTRIBUTION OF THE CONTRACTS Equitable Life performs all marketing and service functions under the contract. No sales commissions are paid with respect to units of interest in any of the separate accounts available under the contract. The offering of the units is continuous. No person currently serves as underwriter for the Lifecycle Fund Group Trusts or the Underlying State Street Funds. EQUITABLE LIFE'S PENDING NAME CHANGE Effective on or about September 7, 2004, we expect, subject to regulatory approval, to change the name of "The Equitable Life Assurance Society of the United States" to "AXA Equitable Life Insurance Company." When the name change becomes effective, all references in any current prospectus, prospectus supplement or statement of additional information to "The Equitable Life Assurance Society of the United States" will become references to "AXA Equitable Life Insurance Company." Accordingly, all references to "Equitable Life" or "Equitable" will become references to "AXA Equitable." MANAGEMENT: EQUITABLE LIFE We are managed by a Board of Directors which is elected by our shareholder(s). Our directors and certain of our executive officers and their principal occupations are as follows. Unless otherwise indicated, the following persons have been involved in the management of Equitable and/or its affiliates in various executive positions during the last five years.
DIRECTOR'S NAME AGE PRINCIPAL OCCUPATION ----------------------- ----- -------------------------------------------------------------------------- DIRECTORS WHO ARE NOT "INTERESTED" PERSONS OF REGISTRANT Joseph L. Dionne 70 Retired Chairman and Chief Executive Officer, The McGraw-Hill Companies. Denis Duverne 50 Executive Vice President, AXA; Member, AXA Executive Committee; prior thereto, Member of the AXA Management Board and Chief Financial Officer. Jean-Rene Fourtou 64 Chairman and Chief Executive Officer, Vivendi Universal and Vice Chairman of the Supervisory Board, Aventis; prior thereto, Chairman and Chief Executive Officer, Rhone-Poulenc, S.A. Donald J. Greene 70 Counsel, LeBoeuf, Lamb, Greene & MacRae; prior thereto, Of Counsel and Partner of the firm. Mary (Nina) Henderson 53 Retired Corporate Vice President, Core Business Development of Bestfoods (formerly CPC International, Inc.); prior thereto, Vice President and President, Bestfoods Grocery. W. Edwin Jarmain 65 President, Jarmain Group Inc. Peter J. Tobin 60 Special Assistant to the President, St. John's University; prior thereto, Dean, Peter J. Tobin College of Business, St. John's University; prior thereto, Chief Financial Officer, Chase Manhattan Corp. Bruce W. Calvert 57 Chairman, Alliance Capital Management Corporation. Former Chief Executive Officer. John C. Graves 40 President and Chief Operating Officer, Graves Ventures, LLC. Chief of Staff, Earl G. Graves, Ltd. and President of Black Enterprise Unlimited.
SAI-18 --------------------------------------------------------------------------------
DIRECTOR'S NAME AGE PRINCIPAL OCCUPATION -------------------- ----- ------------------------------------------------------------------- James F. Higgins 56 Senior Advisor, Morgan Stanley. Prior thereto, President and Chief Operating Officer -- Individual Investor Group, Morgan Stanley Dean Witter. Christina Johnson 53 Former President and Chief Executive Officer, Saks Fifth Avenue Enterprises. Prior thereto, President and CEO, Saks Fifth Avenue. Scott D. Miller 51 Vice Chairman, Hyatt Hotels Corporation; prior thereto, President, Hyatt Hotels Corporation; Executive Vice President, Hyatt Development Corporation. Joseph H. Moglia 54 Chief Executive Officer, Ameritrade Holding Corporation; prior thereto, Senior Vice President, Merrill Lynch & Co., Inc. "INTERESTED" PERSONS OF REGISTRANT AS DEFINED IN 15 U.S.C.80A-2(A)(19). Henri de Castries 49 Chairman of the Board, AXA Financial, Inc.; Chairman of the Management Board of AXA; prior thereto, CFO, AXA. Claus-Michael Dill 50 Chairman of the Management Board of AXA Konzern AG; prior thereto, member of the Holding Management Board of Gerling-Konzern in Cologne.
OFFICER-DIRECTORS NAME AGE PRINCIPAL OCCUPATION ------------------------ ----- ---------------------------------------------------------------------- Christopher M. Condron 56 Director, Chairman of the Board, President and Chief Executive Officer, Equitable Life and AXA Financial Services, LLC; Director, President and Chief Executive Officer, AXA Financial, Inc., Director, Chairman of the Board, President and Chief Executive Officer, The Equitable of Colorado, Inc. and AXA Distribution Holding Company; prior thereto, President and Chief Operating Officer, Mellon Financial Corporation and Chairman and Chief Executive Officer, Dreyfus Corp. Stanley B. Tulin 54 Vice Chairman of the Board and Chief Financial Officer of Equitable Life, AXA Financial, Inc. and AXA Financial Services, LLC; Executive Vice President and Member of the Executive Committee of AXA; prior thereto, Chairman of the Insurance Consulting and Actuarial Practice of Coopers & Lybrand, L.L.P. Leon B. Billis 57 Executive Vice President and AXA Group Deputy Chief Information Officer, Equitable Life and AXA Financial Services, LLC; Director, Chief Executive Officer and President of AXA Technology Services of America, Inc. Harvey Blitz 58 Senior Vice President, Equitable Life, AXA Financial, Inc. and AXA Financial Services, LLC; Director and Executive Vice President, AXA Advisors, LLC. Kevin R. Byrne 48 Senior Vice President and Treasurer, Equitable Life, AXA Financial, Inc., AXA Financial Services, LLC and The Equitable of Colorado, Inc. Judy A. Faucett 55 Senior Vice President of Equitable Life and AXA Financial Services, LLC. Alvin H. Fenichel 59 Senior Vice President and Controller of Equitable Life, AXA Financial, Inc. and AXA Financial Services, LLC. Paul J. Flora 57 Senior Vice President and Auditor of Equitable Life, AXA Financial, Inc. and AXA Financial Services, LLC.
SAI-19 --------------------------------------------------------------------------------
OFFICER-DIRECTORS NAME AGE PRINCIPAL OCCUPATION ------------------------ ----- --------------------------------------------------------------------- Donald R. Kaplan 49 Senior Vice President, Chief Compliance Officer and Associate General Counsel of Equitable Life and AXA Financial Services, LLC. Peter D. Noris 48 Executive Vice President and Chief Investment Officer of Equitable Life, AXA Financial, Inc. and AXA Financial Services, LLC; Chairman and Trustee of EQ Advisors Trust; Executive Vice President and Chief Investment Officer of The Equitable of Colorado, Inc. Anthony C. Pasquale 56 Senior Vice President of Equitable Life and AXA Financial Services, LLC. Pauline Sherman 60 Senior Vice President, Secretary and Associate General Counsel of Equitable Life, AXA Financial, Inc., AXA Financial Services, LLC; and The Equitable of Colorado, Inc. Richard V. Silver 48 Executive Vice President and General Counsel, Equitable Life, AXA Financial, Inc., AXA Financial Services, LLC and The Equitable of Colorado, Inc.; Director, AXA Advisors, LLC. Jennifer L. Blevins 46 Executive Vice President, Equitable Life and AXA Financial Services, LLC; prior thereto, Senior Vice President and Managing Director, Worldwide Human Resources, Chubb and Son, Inc. Mary Beth Farrell 46 Executive Vice President, Equitable Life and AXA Financial Services, LLC; prior thereto, Controller and Senior Vice President, GreenPoint Financial/GreenPoint Bank. Stuart L. Faust 51 Senior Vice President and Deputy General Counsel, Equitable Life, AXA Financial, Inc. and AXA Financial Services, LLC. William I. Levine 60 Executive Vice President and Chief Information Officer, Equitable Life and AXA Financial Services, LLC; prior thereto, Senior Vice President, Paine Webber. Deanna M. Mulligan 40 Executive Vice President, Equitable Life and AXA Financial Services, LLC; prior thereto, Principal, McKinsey and Company, Inc. Jerald E. Hampton 49 Executive Vice President, Equitable Life and AXA Financial Services, LLC; Director and Vice Chairman of the Board, AXA Advisors, LLC; Director, Chairman and CEO, AXA Network, LLC; Director and Chairman of the Board of AXA Distributors, LLC; prior thereto, Executive Vice President and Director of the Private Client Financial Services Division, Salomon Smith Barney. Charles A. Marino 45 Senior Vice President and Actuary, Equitable Life and AXA Financial Services, LLC; prior thereto, Vice President of Equitable Life.
SAI-20 -------------------------------------------------------------------------------- MANAGEMENT: STATE STREET State Street is managed by its sole shareholder, State Street Corporation. Its directors and certain of its executive officers and their principal occupations are as follows:
DIRECTOR'S NAME PRINCIPAL OCCUPATION --------------------------- -------------------------------------------------------------------- Tenley E. Albright, M.D. Chairman, Western Resources, Inc. Kennett F. Burnes Chairman and CEO, Cabot Corporation Truman S. Casner, Esquire Of Counsel, Ropes & Gray LLP Nader F. Darehshori Chairman and CEO, Cambium Learning, Inc. Arthur L. Goldstein Chairman Ionics, Incorporated David P. Gruber Retired Chairman and CEO, Wyman-Gordon Company Linda A. Hill Wallace Brett Donham Professor of Business Administration, Harvard Business School Charles R. LaMantia Retired Chairman and CEO, Arthur D. Little, Inc. Ronald E. Logue President and Chief Operating Officer, State Street Corporation Richard P. Sergel President and CEO, National Grid USA Ronald L. Skates Private Investor David A. Spina Chairman and Chief Executive Officer, State Street Corporation Gregory L. Summe Chairman, President, and Chief Executive Officer, PerkinElmer, Inc. Diana Chapman Walsh President, Wellesley College Robert E. Weissman Chairman, Shelburne Investments
OTHER OFFICERS NAMES PRINCIPAL OCCUPATION* ---------------------- ---------------------------------------------------------------- Stefan Gavell Executive Vice President and Treasurer Timothy B. Harbert Executive Vice President, Chairman and CEO, State Street Global Advisors Edward J. Resch Executive Vice President and Chief Financial Officer John R. Towers Vice Chairman
---------- * All positions are with State Street Bank and Trust Company. SAI-21 -------------------------------------------------------------------------------- FINANCIAL STATEMENTS The financial statements of Equitable Life included in this Statement of Additional Information should be considered only as bearing upon the ability of Equitable Life to meet its obligations under the group annuity contract. They should not be considered as bearing upon the investment experience of the Separate Account Nos. 195, 197 and 198 or the Underlying Funds. The financial statements of Separate Account Nos. 195, 197 and 198 reflect applicable fees, charges and other expenses under the Program as in effect during the periods covered.
SEPARATE ACCOUNT NOS. 195, 197 AND 198: Report of Independent Auditors ..................................................... SAI-25 Separate Account No. 195 (Equity Index Fund): Statement of Assets and Liabilities, December 31, 2003 ............................. SAI-26 Statement of Operations for Year Ended December 31, 2003 ........................... SAI-27 Statements of Changes in Net Assets for the Years Ended December 31, 2003 and 2002 . SAI-28 Separate Account No. 197 (Lifecycle Fund -- Conservative): Statement of Assets and Liabilities, December 31, 2003 ............................. SAI-29 Statement of Operations for Year Ended December 31, 2003 ........................... SAI-30 Statements of Changes in Net Assets for the Years Ended December 31, 2003 and 2002 . SAI-31 Separate Account No. 198 (Lifecycle Fund -- Moderate): Statement of Assets and Liabilities, December 31, 2003 ............................. SAI-32 Statement of Operations for Year Ended December 31, 2003 ........................... SAI-33 Statements of Changes in Net Assets for the Years Ended December 31, 2003 and 2002 . SAI-34 Separate Account Nos. 195, 197 and 198: Notes to Financial Statements ...................................................... SAI-35
The financial statements for each of the Underlying Funds reflect charges for operating expenses, but do not include any investment management, Program or other charges imposed against the respective assets of the Lifecycle Funds and Lifecycle Fund Group Trusts.
STATE STREET BANK AND TRUST COMPANY -- LIFECYCLE FUND GROUP TRUST -- CONSERVATIVE Report of Independent Auditors ....................................................... SAI-39 Lifecycle Fund Group Trust -- Conservative: Statement of Assets and Liabilities, December 31, 2003 ............................... SAI-40 Statement of Operations for Year Ended December 31, 2003 ............................. SAI-41 Statement of Changes in Net Assets for the Years Ended December 31, 2003 and 2002 .... SAI-42 Financial Highlights ................................................................. SAI-44 Schedule of Investments .............................................................. SAI-45 Notes to Financial Statements ........................................................ SAI-46 STATE STREET BANK AND TRUST COMPANY -- LIFECYCLE FUND GROUP TRUST -- MODERATE Report of Independent Auditors ....................................................... SAI-48 Lifecycle Fund Group Trust -- Moderate: Statement of Assets and Liabilities, December 31, 2003 ............................... SAI-49 Statement of Operations for the Year Ended December 31, 2003 ......................... SAI-50 Statement of Changes in Net Assets for the Years Ended December 31, 2003 and 2002 .... SAI-51 Financial Highlights ................................................................. SAI-53 Schedule of Investments .............................................................. SAI-54 Notes to Financial Statements ........................................................ SAI-55 STATE STREET BANK AND TRUST COMPANY -- UNDERLYING FUNDS FLAGSHIP FUND Report of Independent Auditors ....................................................... SAI-57 S&P 500 Flagship Fund and S&P 500 Flagship Non-Lending Fund: Combined Statement of Assets and Liabilities, December 31, 2003 ...................... SAI-58 Combined Statement of Operations for the Year Ended December 31, 2003 ................ SAI-59
SAI-22 --------------------------------------------------------------------------------
Combined Statement of Changes in Net Assets for the Years Ended December 31, 2003 and 2002.................................................................................. SAI-60 S&P 500 Flagship Fund Financial Highlights ........................................... SAI-62 S&P 500 Flagship Non-Lending Fund Financial Highlights ............................... SAI-63 Combined Schedule of Investments, December 31, 2003 .................................. SAI-64 Notes to Combined Financial Statements ............................................... SAI-78 RUSSELL 2000 FUND Report of Independent Auditors ....................................................... SAI-81 Russell 2000 Index Securities Lending Fund and Russell 2000 Index Fund: Combined Statement of Asset and Liabilities, December 31, 2003 ....................... SAI-82 Combined Statement of Operations for the Year Ended December 31, 2003 ................ SAI-83 Combined Statement of Changes in Net Assets for the Years Ended December 31, 2003 and 2002.................................................................................. SAI-84 Russell 2000 Index Securities Lending Fund Financial Highlights ...................... SAI-86 Russell 2000 Index Fund Financial Highlights ......................................... SAI-87 Combined Schedule of Investments ..................................................... SAI-88 Notes to Combined Financial Statements ............................................... SAI-133
The financial statements for the Russell 2000 Fund reflect direct investments made by this Fund in shares of companies included in the Russell 2000 Index. Beginning February 1, 1995, this Fund has invested in units of Russell 2000 Value and Growth Funds, which in turn invest in shares of companies included in the Russell 2000 Index. Beginning June 17, 1996, the Fund began making direct investment again.
DAILY EAFE FUND Report of Independent Auditors ....................................................... SAI-136 Daily EAFE Fund: Statement of Assets and Liabilities, December 31, 2003 ............................... SAI-137 Statement of Operations for the Year Ended December 31, 2003 ......................... SAI-138 Statement of Changes in Net Assets for the Years Ended December 31, 2003 and 2002 .... SAI-139 Financial Highlights ................................................................. SAI-141 Schedule of Investments .............................................................. SAI-142 Notes to Financial Statements ........................................................ SAI-143 DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Report of Independent Auditors ....................................................... SAI-145 Daily MSCI Europe Index Securities Lending Fund and Daily MSCI Europe Index Fund: Combined Statement of Assets and Liabilities, December 31, 2003 ...................... SAI-146 Combined Statement of Operations for the Year Ended December 31, 2003 ................ SAI-147 Combined Statement of Changes in Net Assets for the Years Ended December 31, 2003 and SAI-148 2002 Daily MSCI Europe Index Securities Lending Fund Financial Highlights ................. SAI-150 Daily MSCI Europe Index Fund Financial Highlights .................................... SAI-151 Combined Schedule of Investments ..................................................... SAI-152 Notes to Combined Financial Statements ............................................... SAI-166 STIF FUND Report of Independent Auditors ....................................................... SAI-169 Short Term Investment Fund: Statement of Assets and Liabilities, December 31, 2003 ............................... SAI-170 Statement of Operations for the Year Ended December 31, 2003 ......................... SAI-171 Statement of Changes in Net Assets for the Years Ended December 31, 2003 and 2002 .... SAI-172 Financial Highlights ................................................................. SAI-174 Schedule of Investments, December 31, 2003 ........................................... SAI-175 Notes to Financial Statements ........................................................ SAI-182
SAI-23 --------------------------------------------------------------------------------
GOVERNMENT CREDIT BOND FUND Report of Independent Auditors ....................................................... SAI-184 Government Credit Bond Fund: Statement of Assets and Liabilities, December 31, 2003 ............................... SAI-185 Statement of Operations for the Year Ended December 31, 2003 ......................... SAI-186 Statement of Changes in Net Assets for the Years Ended December 31, 2003 and 2002 .... SAI-187 Financial Highlights ................................................................. SAI-189 Schedule of Investments, December 31, 2002 ........................................... SAI-190 Notes to Financial Statements ........................................................ SAI-192 GOVERNMENT FUND Report of Independent Auditors ....................................................... SAI-197 Government Fund Statement of Assets and Liabilities, December 31, 2003 ............................... SAI-198 Statement of Operations for Year ended December 31, 2003 ............................. SAI-199 Statement of Changes in Net Assets for the Years ended December 31, 2003 and 2002 .... SAI-200 Statement of Cash Flows for the Year ended December 31, 2003 ......................... SAI-202 Financial Highlights ................................................................. SAI-203 Schedule of Investments December 31, 2003 ............................................ SAI-204 Notes to Financial Statements ........................................................ SAI-207 CREDIT FUND Report of Independent Auditors ....................................................... SAI-211 Credit Fund Statement of Assets and Liabilities, December 31, 2003 ............................... SAI-212 Statement of Operations for Year ended December 31, 2003 ............................. SAI-213 Statement of Changes in Net Assets for the Year ended December 31, 2003 .............. SAI-214 Statement of Cash Flows for the Year ended December 31, 2003 ......................... SAI-216 Financial Highlights ................................................................. SAI-217 Schedule of Investments December 31, 2003 ............................................ SAI-218 Notes to Financial Statements ........................................................ SAI-222 THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES: Report of Independent Auditors ....................................................... F-1 Consolidated Balance Sheets, December 31, 2003 and 2002 .............................. F-2 Consolidated Statements of Earnings for the Years Ended December 31, 2003, 2002 and F-3 2001 Consolidated Statements of Shareholder's Equity and Comprehensive Income for the Years Ended December 31, 2003, 2002 and 2001 .................................................... F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and F-5 2001 Notes to Consolidated Financial Statements ........................................... F-7
SAI-24 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS To the Board of Directors of The Equitable Life Assurance Society of the United States and the Contractowners of Separate Account Nos. 195, 197 and 198 of The Equitable Life Assurance Society of the United States In our opinion, the accompanying statements of assets and liabilities and related statements of operations and of changes in net assets present fairly, in all material respects, the financial position of Separate Account Nos. 195 (The Equity Index Fund), 197 (The Lifecycle Fund -- Conservative), and 198 (The Lifecycle Fund -- Moderate) of The Equitable Life Assurance Society of the United States ("Equitable Life") at December 31, 2003, and the results of each of their operations for the year then ended and the changes in each of their net assets for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America, 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 securities at December 31, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP New York, New York March 9, 2004 SAI-25 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NO. 195 (THE EQUITY INDEX FUND) OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Statement of Assets and Liabilities DECEMBER 31, 2003 --------------------------------------------------------------------------------
ASSETS: Investments in 8,355,591 shares of The SSgA S&P 500 Index Fund -- at value (cost: $170,980,340) (Notes 2 and 4)..................................... $153,408,643 Cash ..................................................................... 375,539 ------------------------------------------------------------------------------------------ Total assets ............................................................. 153,784,182 ------------------------------------------------------------------------------------------ LIABILITIES: Due to Equitable Life's General Account .................................. 241,513 Accrued expenses ......................................................... 180,577 ------------------------------------------------------------------------------------------ Total liabilities ........................................................ 422,090 ------------------------------------------------------------------------------------------ NET ASSETS ............................................................... $153,362,092 ==========================================================================================
ADA Units Outstanding ............................................ 6,253,352 ADA Unit Value ................................................... $ 24.52
The accompanying notes are an integral part of these financial statements. SAI-26 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NO. 195 (THE EQUITY INDEX FUND) OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Statement of Operations YEAR ENDED DECEMBER 31, 2003 --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 2): Dividends from The SSgA S&P 500 Index Fund ............................................... $ 2,024,015 ----------------------------------------------------------------------------------------------------------- EXPENSES (NOTE 3): Administration fees and program expense charge ........................................... (976,039) Operating expenses ....................................................................... (233,457) ----------------------------------------------------------------------------------------------------------- Total expenses ........................................................................... (1,209,496) ----------------------------------------------------------------------------------------------------------- Net investment income .................................................................... 814,519 ----------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 2): Net realized loss from share transactions ................................................ (4,985,469) Change in unrealized appreciation/depreciation of investments ............................ 35,975,059 ----------------------------------------------------------------------------------------------------------- Net realized and unrealized loss on investments .......................................... 30,989,590 ----------------------------------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS ATTRIBUTABLE TO OPERATIONS .................................... $ 31,804,109 ===========================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-27 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NO. 195 (THE EQUITY INDEX FUND) OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Statements of Changes in Net Assets --------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2003 2002 ---------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income ................................................................... $ 814,519 $ 305,460 Net realized loss on investments ........................................................ (4,985,469) (3,503,727) Change in unrealized appreciation/depreciation of investments ........................... 35,975,059 (29,849,086) ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets attributable to operations ........................ 31,804,109 (33,047,353) ---------------------------------------------------------------------------------------------------------------------------- FROM CONTRIBUTIONS AND WITHDRAWALS: Contributions ........................................................................... 40,862,549 37,882,899 Withdrawals ............................................................................. (26,740,299) (38,564,580) ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets attributable to contributions and withdrawals ..... 14,122,250 (681,681) ---------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS ....................................................... 45,926,359 (33,729,034) NET ASSETS -- BEGINNING OF YEAR ......................................................... 107,435,733 141,164,767 ---------------------------------------------------------------------------------------------------------------------------- NET ASSETS -- END OF YEAR ............................................................... $ 153,362,092 $ 107,435,733 ============================================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-28 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NO. 197 (THE LIFECYCLE FUND -- CONSERVATIVE) OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Statement of Assets and Liabilities DECEMBER 31, 2003 --------------------------------------------------------------------------------
ASSETS: Investments in 1,009,457 shares of The Lifecycle Fund Group Trust, Conservative -- at value (cost: $16,139,885) (Notes 2 and 4)............................................... $17,912,813 Cash ..................................................................................... 41,609 --------------------------------------------------------------------------------------------------------- Total assets ............................................................................. 17,954,422 --------------------------------------------------------------------------------------------------------- LIABILITIES: Due to Equitable Life's General Account .................................................. 16,211 Accrued expenses ......................................................................... 64,200 --------------------------------------------------------------------------------------------------------- Total liabilities ........................................................................ 80,411 --------------------------------------------------------------------------------------------------------- NET ASSETS ............................................................................... $17,874,011 =========================================================================================================
ADA Units Outstanding ............................................ 1,142,776 ADA Unit Value ................................................... $ 15.64
The accompanying notes are an integral part of these financial statements. SAI-29 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NO. 197 (THE LIFECYCLE FUND -- CONSERVATIVE) OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Statement of Operations YEAR ENDED DECEMBER 31, 2003 --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 2): Dividends from The Lifecycle Fund Group Trust -- Conservative ......... $ -- -------------------------------------------------------------------------------------- EXPENSES (NOTE 3): Administration fees and program expense charge ........................ (138,970) Operating expenses .................................................... (74,285) -------------------------------------------------------------------------------------- Total expenses ........................................................ (213,255) -------------------------------------------------------------------------------------- Net investment loss ................................................... (213,255) -------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 2): Net realized gain from share transactions ............................. 729,108 Change in unrealized appreciation/depreciation of investments ......... 1,377,126 -------------------------------------------------------------------------------------- Net realized and unrealized gain on investments ....................... 2,106,234 -------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS ATTRIBUTABLE TO OPERATIONS ................. $1,892,979 ======================================================================================
The accompanying notes are an integral part of these financial statements. SAI-30 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NO. 197 (THE LIFECYCLE FUND -- CONSERVATIVE) OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Statements of Changes in Net Assets --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2003 2002 ----------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment loss .......................................................... $ (213,255) $ (170,255) Net realized gain on investments ............................................. 729,108 365,644 Change in unrealized appreciation/depreciation of investments ................ 1,377,126 (394,429) ----------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets attributable to operations ............. 1,892,979 (199,040) ----------------------------------------------------------------------------------------------------------------- FROM CONTRIBUTIONS AND WITHDRAWALS: Contributions ................................................................ 11,091,630 8,984,510 Withdrawals .................................................................. (9,401,642) (6,411,935) ----------------------------------------------------------------------------------------------------------------- Net increase in net assets attributable to contributions and withdrawals ..... 1,689,988 2,572,575 ----------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS ....................................................... 3,582,967 2,373,535 NET ASSETS -- BEGINNING OF YEAR .............................................. 14,291,044 11,917,509 ----------------------------------------------------------------------------------------------------------------- NET ASSETS -- END OF YEAR .................................................... 17,874,011 $ 14,291,044 =================================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-31 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NO. 198 (THE LIFECYCLE FUND -- MODERATE) OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Statement of Assets and Liabilities DECEMBER 31, 2003 --------------------------------------------------------------------------------
ASSETS: Investments in 5,619,020 shares of The Lifecycle Fund Group Trust, Moderate -- at value (cost: $90,478,136) (Notes 2 and 4)................................................... $111,391,455 Cash .................................................................................. 330,342 ------------------------------------------------------------------------------------------------------- Total assets .......................................................................... 111,721,797 ------------------------------------------------------------------------------------------------------- LIABILITIES: Due to Equitable Life's General Account ............................................... 224,696 Accrued expenses ...................................................................... 374,425 ------------------------------------------------------------------------------------------------------- Total liabilities ..................................................................... 599,121 ------------------------------------------------------------------------------------------------------- NET ASSETS ............................................................................ $111,122,676 =======================================================================================================
ADA Units Outstanding ............................................ 6,124,075 ADA Unit Value ................................................... $ 18.15 The accompanying notes are an integral part of these financial statements. SAI-32 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NO. 198 (THE LIFECYCLE FUND -- MODERATE) OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Statement of Operations YEAR ENDED DECEMBER 31, 2003 --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 2): Dividends from The Lifecycle Fund Group Trust -- Moderate ............. $ -- ---------------------------------------------------------------------------------------- EXPENSES (NOTE 3): Administration fees and program expense charge ........................ (748,694) Operating expenses .................................................... (214,107) ---------------------------------------------------------------------------------------- Total expenses ........................................................ (962,801) ---------------------------------------------------------------------------------------- Net investment loss ................................................... (962,801) ---------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 2): Net realized gain from share transactions ............................. 4,107,930 Change in unrealized appreciation/depreciation of investments ......... 14,939,436 ---------------------------------------------------------------------------------------- Net realized and unrealized gain on investments ....................... 19,047,366 ---------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS ATTRIBUTABLE TO OPERATIONS ................. $18,084,565 ========================================================================================
The accompanying notes are an integral part of these financial statements. SAI-33 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NO. 198 (THE LIFECYCLE FUND -- MODERATE) OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Statements of Changes in Net Assets --------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2003 2002 ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment loss ..................................................................... $ (962,801) $ (986,103) Net realized gain on investments ........................................................ 4,107,930 4,801,444 Change in unrealized appreciation/depreciation of investments ........................... 14,939,436 (14,685,613) ------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets attributable to operations ........................ 18,084,565 (10,870,272) ------------------------------------------------------------------------------------------------------------------------------- FROM CONTRIBUTIONS AND WITHDRAWALS: Contributions ........................................................................... 20,834,250 16,370,925 Withdrawals ............................................................................. (17,584,841) (22,162,900) ------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets attributable to contributions and withdrawals ..... 3,249,409 (5,791,975) ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS ....................................................... 21,333,974 (16,662,247) NET ASSETS -- BEGINNING OF YEAR ......................................................... 89,788,702 106,450,949 ------------------------------------------------------------------------------------------------------------------------------- NET ASSETS -- END OF YEAR ............................................................... $ 111,122,676 $ 89,788,702 ===============================================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-34 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NOS. 195, 197 AND 198 OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Notes to Financial Statements -------------------------------------------------------------------------------- 1. GENERAL Separate Account Nos. 195 (the Equity Index Fund), 197 (the Lifecycle Fund -- Conservative) and 198 (the Lifecycle Fund -- Moderate) (collectively the Funds) of the Equitable Life Assurance Society of the United States (Equitable Life), a wholly-owned subsidiary of AXA Financial, Inc., were established in conformity with the New York State Insurance Law. Pursuant to such law, to the extent provided in the contracts, the net assets in the Funds are not chargeable with liabilities arising out of any other business of Equitable Life. Separate Account No. 195 was established as of the opening of business on February 1, 1994 and Separate Account Nos. 197 and 198 were established as of the opening of business on May 1, 1995 to solely fund the American Dental Association Members Retirement Trust and the American Dental Association Members Pooled Trust for Retirement Plans (Trusts) sponsored by the American Dental Association (ADA). Equitable Life is the investment manager for the Funds. Separate Account No. 195 invests its assets in shares of the SSgA S&P 500 Index Fund, a portfolio of the SSgA Funds, which is registered under the Investment Company Act of 1940 as an open-end management investment company. The investment manager of the SSgA S&P 500 Index Fund is SSgA Funds Management, Inc. ("SSgAFM"). Separate Account Nos. 197 and 198 invest their assets in shares of the Lifecycle Fund Group Trusts -- Conservative and Moderate, respectively. The Lifecycle Funds Group Trusts are collective investment funds maintained by State Street Bank and Trust Company (State Street). Each Lifecycle Fund Group is organized as a common law trust under Massachusetts Law, and, because of exclusionary provisions, is not subject to regulation under the Investment Company Act of 1940. State Street serves as the trustee and investment manager to each of these Group Trusts. 2. SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. On December 29, 2003, The American Institute of Certified Public Accountants issued Statement of Position 03-05, "Financial Highlights of Separate Accounts: An Amendment to the Audit and Accounting Guide Audits of Investment Companies," which was effective for the December 31, 2003 financial statements. Adoption of the new requirements did not have a significant impact on the Funds' financial position or results of operations. Investments: Realized gains and losses on investments include gains and losses on redemptions of the underlying fund's shares (determined on the identified cost basis) and capital gain distributions from the underlying funds. Dividends and realized gain distributions from underlying funds are recorded on the ex-dividend date. Investments in the SSgA S&P 500 Index Fund and the Lifecycle Fund Group Trusts -- Conservative and Moderate, respectively, are valued at the underlying mutual fund's or trust's net asset value per share. Amounts due to/from the General Account represent receivables/payables for policy related transactions predominately related to premiums, surrenders and death benefits. SAI-35 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NOS. 195, 197 AND 198 OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Notes to Financial Statements (Continued) -------------------------------------------------------------------------------- 3. EXPENSES Charges and fees related to the Funds are deducted in accordance with the terms of the various contracts which participate in the Funds. With respect to the American Dental Association Members Retirement Program, these expenses consist of program expense charge, administration fees, direct expenses and record maintenance and report fees. These charges and fees are paid to Equitable Life and are recorded as expenses in the accompanying Statement of Operations. The charges and fees are as follows: Program Expense Charge: In the year prior to May 1, 2003 the expense charge was made on the combined value of all investment options maintained under the contract with Equitable Life at a monthly rate 1/12 of (i) 0.655 of 1% of the first $400 million and (ii) 0.650 of 1% of the excess over $400 million. Effective May 1, 2003 an expense charge is made on the combined value of all investment options maintained under the contract with Equitable Life at a monthly rate of 1/12 of (i) 0.655 of 1% of the first $400 million and (ii) 0.650 of 1% of the excess over $400 million. A portion of the Program Expense Charge assessed by Equitable Life is made on behalf of the ADA and is equal to a monthly rate of 1/12 of (i) 0.025 of 1% of the first $400 million and (ii) 0.020 of 1% of the excess over $400 million. For 2003 and 2002, respectively, the portion of the Program Expense charge paid to the ADA has been reduced to 0.00% for all asset levels but the ADA's portion could be increased in the future. Administration Fees: Equitable Life receives a fee based on the value of the Funds at a monthly rate of 1/12 of 0.15 of 1% of their respective ADA Program assets. This charge is deducted from the investment fund. Operating Expenses: In addition to the charges and fees mentioned above, the Funds are charged for certain costs and expenses directly related to its operations. These may include transfer taxes, SEC filing fees and certain related expenses including printing of SEC filings, prospectuses and reports. Other expenses are deducted from the investment fund. A record maintenance and report fee of $3 is deducted quarterly from each participant's aggregate account balance. For clients with Investment Only plans, a record maintenance fee of $1 is deducted quarterly. If an variable annuity payment option is elected, a $350 charge is deducted from the amount used to purchase the annuity. A charge for state premium and other taxes is deducted from the amount applied to provide an annuity payout option. An enrollment fee of $25 per participant is charged to the employer. If the employer fails to pay these charges, the amount may be deducted from subsequent contributions of from the participants account balances. SAI-36 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NOS. 195, 197 AND 198 OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Notes to Financial Statements (Continued) -------------------------------------------------------------------------------- 4. PURCHASES AND SALES ON INVESTMENTS For the year ended December 31, 2003, the cost of purchases and proceeds of sales on investment transactions were as follows for Separate Account Nos. 195, 197 and 198: PURCHASES SALES --------- ----- The Equity Index Fund $27,860,312 $12,952,085 The Lifecycle Fund - Conservative 9,388,437 7,908,806 The Lifecycle Fund - Moderate 14,158,918 11,846,293 5. TAXES No federal income tax based on net income or realized and unrealized capital gains was applicable to contracts participating in the Funds, by reason of applicable provisions of the Internal Revenue Code and no federal income tax payable by Equitable Life will affect such contracts. Accordingly, no federal income tax provision is required. 6. CHANGES IN UNITS OUTSTANDING Accumulation units issued and redeemed during the periods indicated were (in thousands): YEAR ENDED DECEMBER 31, ------------------------- 2003 2002 ---- ---- THE EQUITY INDEX FUND Issued 1,881 1,724 Redeemed (1,207) (1,783) ------ ------ Net Decrease 674 (59) ------ ------ THE LIFECYCLE FUND - CONSERVATIVE Issued 746 633 Redeemed (618) (449) ------ ------ Net Increase 128 184 ------ ------ THE LIFECYCLE FUND - MODERATE Issued 1,259 1,024 Redeemed (1,072) (1,421) ------ ------ Net Decrease 187 (397) ------ ------ SAI-37 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NOS. 195, 197 AND 198 OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Notes to Financial Statements (Concluded) -------------------------------------------------------------------------------- 7. INVESTMENT INCOME RATIO Shown below is the investment income ratio throughout the periods indicated for Separate Account Nos. 195, 197 and 198. These amounts represent the dividends, excluding distributions of capital gains, received by the Funds from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as asset-based charges, that result in direct reductions in the unit value. The recognition of investment income by the Funds is affected by the timing of the declaration of dividends by the underlying mutual fund in which the Funds invest.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 2003 2002 2001 2000 1999 ---------- ---------- ---------- ---------- ---------- The Equity Index Fund 1.61% 1.22% 1.37% 1.16% 1.52% The Lifecycle Fund - Conservative -- -- -- -- -- The LIfecycle Fund - Moderate -- -- -- -- --
8. ACCUMULATION UNIT VALUES Shown below is accumulation unit value information for American Dental Association Members Retirement Program units outstanding of Separate Account Nos. 195, 197 and 198. The unit values presented reflect charges for administrative fees, program expenses and certain operating expenses. The fees are charged as a reduction of unit value and are disclosed below in percentage terms. Expenses exclude charges made directly to contractholder accounts through redemption of units.
YEAR ENDED DECEMBER 31, ----------------------------- 2003 2002 ------------- ------------- THE EQUITY INDEX FUND, .79% Unit Value, end of period $ 24.52 $ 19.25 Net Assets (000's) $153,362 $107,436 Number of units outstanding, end of period (000's) 6,253 5,580 Total Return 27.4% (23.09)% THE LIFECYCLE FUND - CONSERVATIVE, 1.20% Unit Value end of period $ 15.64 $ 14.08 Net Assets (000's) $17,874 $ 14,291 Number of units outstanding, end of period (000's) 1,143 1,015 Total Return 11.08% ( 1.81)% THE LIFECYCLE FUND - MODERATE, 1.00% Unit Value, end of period $ 18.15 $ 15.12 Net Assets (000's) $111,123 $ 89,789 Number of units outstanding, end of period (000's) 6,124 5,937 Total Return 20.04% (10.05)%
SAI-38 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS To the Participants and Trustee of State Street Bank and Trust Company Lifecycle Fund Group Trust -- Conservative In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of State Street Bank and Trust Company Lifecycle Fund Group Trust -- Conservative at December 31, 2003, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trustee; 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 auditing standards generally accepted in the United States of America, 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 the Trustee, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2003 by correspondence with the custodian, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts March 5, 2004 SAI-39 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY LIFECYCLE FUND GROUP TRUST -- CONSERVATIVE Statement of Assets and Liabilities December 31, 2003 --------------------------------------------------------------------------------
ASSETS Investments in securities, at value (cost $16,027,024) ............................................................ $ 17,928,985 Interest receivable ............................................................ 3,604 ------------------------------------------------------------------------------------------------ Total assets .................................................................. 17,932,589 ------------------------------------------------------------------------------------------------ LIABILITIES Payable for Fund units redeemed ................................................ 16,211 Accrued expenses ............................................................... 3,686 ------------------------------------------------------------------------------------------------ Total liabilities ............................................................. 19,897 ------------------------------------------------------------------------------------------------ NET ASSETS (equivalent to $17.74 per unit based on 1,009,457 units outstanding) $ 17,912,692 ================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-40 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY LIFECYCLE FUND GROUP TRUST -- CONSERVATIVE Statement of Operations Year Ended December 31, 2003 --------------------------------------------------------------------------------
INVESTMENT INCOME Interest ............................................................... $ 42,784 Securities lending fee income (net of related expenses) ................ 640 --------------------------------------------------------------------------------------- Total investment income .............................................. 43,424 --------------------------------------------------------------------------------------- EXPENSES Management ............................................................. 29,939 Administration ......................................................... 12,000 Audit .................................................................. 6,500 Other .................................................................. 825 --------------------------------------------------------------------------------------- Total expenses ....................................................... 49,264 --------------------------------------------------------------------------------------- Net investment income (loss) ......................................... (5,840) --------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss): Investments .......................................................... 674,663 --------------------------------------------------------------------------------------- 674,663 --------------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation): Investments .......................................................... 1,437,661 --------------------------------------------------------------------------------------- 1,437,661 --------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) ................................ 2,112,324 --------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ......... $2,106,484 =======================================================================================
The accompanying notes are an integral part of these financial statements. SAI-41 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY LIFECYCLE FUND GROUP TRUST -- CONSERVATIVE Statement of Changes in Net Assets
---------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2003 2002 ---------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss) ...................................................... $ (5,840) $ 13,327 Net realized gain (loss) .......................................................... 674,663 216,433 Net change in unrealized appreciation (depreciation) .............................. 1,437,661 (258,958) ---------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations .................. 2,106,484 (29,198) ---------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from participant transactions ..... 1,479,631 2,399,692 ---------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS ............................................. 3,586,115 2,370,494 NET ASSETS Beginning of year ................................................................ 14,326,577 11,956,083 ---------------------------------------------------------------------------------------------------------------------- End of year ...................................................................... $17,912,692 $14,326,577 ======================================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-42 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY LIFECYCLE FUND GROUP TRUST -- CONSERVATIVE Statement of Changes in Net Assets (Continued)
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 2003 2002 ------------------------------- ------------------------------- UNITS AMOUNT UNITS AMOUNT ------------- --------------- ------------- --------------- UNITS OF PARTICIPATION PARTICIPANT TRANSACTIONS FOR THE FUND WERE AS FOLLOWS: Units issued ......................................... 573,025 $ 9,388,437 463,479 $ 7,182,688 Units redeemed ....................................... (471,141) (7,908,806) (308,947) (4,782,996) -------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) .............................. 101,884 $ 1,479,631 154,532 $ 2,399,692 ==========================================================================================================================
All of the Fund's units outstanding were held by 1 unitholder at December 31, 2003. The accompanying notes are an integral part of these financial statements. SAI-43 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY LIFECYCLE FUND GROUP TRUST -- CONSERVATIVE Financial Highlights (For a Unit of Participation Outstanding Throughout the Year)
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 2003 2002 2001 2000 1999 SELECTED PER UNIT DATA Net asset value, beginning of year .............. $ 15.79 $ 15.88 $ 15.72 $ 15.18 $ 14.27 ----------------------------------------------------------------------------------------------------------------------- Net investment income (loss) (a) ................ ( 0.01) 0.02 0.09 0.15 0.10 Net realized and unrealized gain (loss) ......... 1.96 ( 0.11) 0.07 0.39 0.81 ----------------------------------------------------------------------------------------------------------------------- Total from investment operations ................ 1.95 ( 0.09) 0.16 0.54 0.91 ----------------------------------------------------------------------------------------------------------------------- Net asset value, end of year .................... $ 17.74 $ 15.79 $ 15.88 $ 15.72 $ 15.18 ======================================================================================================================= Total return (%) (b) ............................ 12.41 ( 0.58) 1.02 3.56 6.38 ----------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS Ratio of expenses (%) (c) ....................... 0.28 0.30 0.30 0.32 0.38 ----------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (%) .............. ( 0.03) 0.10 0.57 0.96 0.66 ----------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) .......................... 73 41 30 71 42 ----------------------------------------------------------------------------------------------------------------------- Net assets, end of year (000's) ................. $17,913 $14,327 $11,956 $11,599 $12,797 =======================================================================================================================
(a) Net investment income per unit has been calculated based upon an average of month-end units outstanding. (b) Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year. The calculation includes only those expenses charged directly to the Fund. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. (c) The calculation includes only those expenses charged directly to the Fund, and does not include expenses charged to the funds in which the Fund invests. The accompanying notes are an integral part of these financial statements. SAI-44 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY LIFECYCLE FUND GROUP TRUST -- CONSERVATIVE Schedule of Investments (showing percentage of total value of investments) December 31, 2003
---------------------------------------------------------------------------------- UNITS VALUE ---------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY COLLECTIVE INVESTMENT FUNDS -- 100.0% 174,798 Daily EAFE Fund1 ..................................... $ 1,802,687 457,012 Government Credit Bond Fund1 ......................... 8,966,582 27,540 Russell 2000 Index Securities Lending Fund1 .......... 882,435 13,519 S&P 500 Flagship Fund1 ............................... 2,693,541 3,583,740 Short Term Investment Fund1 .......................... 3,583,740 ---------------------------------------------------------------------------------- TOTAL COLLECTIVE INVESTMENT FUNDS .................... 17,928,985 ---------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (COST $16,027,024)............................................... $17,928,985 ==================================================================================
1 Collective Investment fund advised by State Street Global Advisors. The accompanying notes are an integral part of these financial statements. SAI-45 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY LIFECYCLE FUND GROUP TRUST -- CONSERVATIVE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 1. FUND ORGANIZATION AND INVESTMENT OBJECTIVE State Street Bank and Trust Company ("State Street Bank") Lifecycle Fund Group Trust -- Conservative (the "Fund") was formed by State Street Bank under the State Street Bank and Trust Company Investment Funds for Tax Exempt Retirement Plans Declaration of Trust. The investment objective of the Fund is to seek to provide current income and a low to moderate growth of capital. The Fund may attempt to achieve its investment objective by investing in other collective investment funds (each an "underlying fund"), managed by the Trustee, which have characteristics consistent with the overall investment objective. Refer to the financial statements of each underlying fund for disclosure of its accounting policies and investment holdings. State Street Bank is Trustee, custodian, and recordkeeper of the Fund and has exclusive management and control of the Trust. State Street Global Advisors, a division of State Street Bank, is the Fund's investment manager. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently in the preparation of the financial statements. A. SECURITY VALUATION Investments in regulated investment companies or collective investment funds are valued at the net asset value per share/unit on the valuation date. Equity investments of the underlying funds for which market quotations are readily available are valued at the last reported sale price on their principal exchange on valuation date, or official close price for certain markets. If no sales are reported for that day, investments are valued at the more recent of the last published sale price or the mean between the last reported bid and asked prices, or at fair value as determined in good faith by the Trustee. Fixed income investments of the underlying funds are valued on the basis of valuations furnished by a pricing service approved by the Trustee, which determines valuations using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders, or at fair value as determined in good faith by the Trustee. Short-term investments, if any, are stated at amortized cost, which approximates market value. B. SECURITY TRANSACTIONS AND INVESTMENT INCOME Security transactions are accounted for as of trade date. Realized gains and losses from investment transactions are determined using the average cost method. Dividend income, if any, is recorded on the ex-dividend date. Distributions received from collective investment funds are recorded on the ex-dividend date and retain the character of income as earned by the underlying fund. Interest income earned on securities, if any, is recorded on the accrual basis. Interest income includes accretion of discounts and amortization of premiums, if any. Collective investment funds, in which the Fund invests, may retain investment income and net realized gains. Accordingly, realized and unrealized gains and losses reported by the Fund may include a component attributable to investment income of the underlying funds. C. INCOME TAXES It is the Fund's policy to comply with the requirements of Section 501(a) of the Internal Revenue Code relating to collective investment of employee benefit funds. Accordingly, the Fund is exempt from federal and state taxes and no federal or state tax provision is required. SAI-46 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY LIFECYCLE FUND GROUP TRUST -- CONSERVATIVE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 D. ISSUANCES AND REDEMPTIONS OF UNITS OF PARTICIPATION The net asset value of the Fund is determined each business day ("valuation date"). Issuances and redemptions of Fund units are made on such days, based upon the value of the Fund as of the Fund's valuation date last preceding the date on which such order to contribute or withdraw assets is received. The Trustee, in its sole discretion, reserves the right to value any contribution or withdrawal as of the next succeeding valuation date or another date as the Trustee deems appropriate. E. EXPENSES Under the Declaration of Trust, the Fund may pay certain expenses for services received. The Trustee is paid a management fee by the Fund at the annual rate of 0.17% of the Fund's daily net asset value. The Trustee is paid an annual administration fee of $12,000. The Fund indirectly bears the expenses paid by the underlying funds, if any. F. DISTRIBUTIONS TO PARTICIPANTS Net investment income (including security lending fee income, if any) and net realized gains are retained by the Fund. 3. GLOBAL SECURITIES LENDING PROGRAM Fund participants have authorized the Fund to invest in certain collective investment funds that participate in the Global Securities Lending Program maintained by State Street Bank. 4. INVESTMENT TRANSACTIONS Purchases and sales of securities, including in-kind contributions and redemptions, if any, during the period ended December 31, 2003 were $14,411,727 and $12,970,724, respectively. SAI-47 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS To the Participants and Trustee of State Street Bank and Trust Company Lifecycle Fund Group Trust -- Moderate In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of State Street Bank and Trust Company Lifecycle Fund Group Trust -- Moderate at December 31, 2003, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trustee; 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 auditing standards generally accepted in the United States of America, 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 the Trustee, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2003 by correspondence with the custodian, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts March 5, 2004 SAI-48 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY LIFECYCLE FUND GROUP TRUST -- MODERATE Statement of Assets and Liabilities December 31, 2003 --------------------------------------------------------------------------------
ASSETS Investments in securities, at value (cost $94,072,850).......................... $ 111,623,643 Interest receivable ............................................................ 10,652 -------------------------------------------------------------------------------------------------- Total assets .................................................................. 111,634,295 -------------------------------------------------------------------------------------------------- LIABILITIES Payable for Fund units redeemed ................................................ 224,696 Accrued expenses ............................................................... 16,845 -------------------------------------------------------------------------------------------------- Total liabilities ............................................................. 241,541 -------------------------------------------------------------------------------------------------- NET ASSETS (equivalent to $19.82 per unit based on 5,619,020 units outstanding) $ 111,392,754 ==================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-49 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY LIFECYCLE FUND GROUP TRUST -- MODERATE Statement of Operations Year Ended December 31, 2003 --------------------------------------------------------------------------------
INVESTMENT INCOME Interest ............................................................... $ 117,150 Securities lending fee income (net of related expenses) ................ 7,267 --------------------------------------------------------------------------------------- Total investment income .............................................. 124,417 --------------------------------------------------------------------------------------- EXPENSES Management ............................................................. 165,004 Administration ......................................................... 12,000 Audit .................................................................. 8,500 Other .................................................................. 825 --------------------------------------------------------------------------------------- Total expenses ....................................................... 186,329 --------------------------------------------------------------------------------------- Net investment income (loss) ......................................... (61,912) --------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss): Investments .......................................................... 1,161,521 --------------------------------------------------------------------------------------- 1,161,521 --------------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation): Investments .......................................................... 17,948,624 --------------------------------------------------------------------------------------- 17,948,624 --------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) ................................ 19,110,145 --------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ......... $19,048,233 =======================================================================================
The accompanying notes are an integral part of these financial statements. SAI-50 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY LIFECYCLE FUND GROUP TRUST -- MODERATE Statement of Changes in Net Assets
------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2003 2002 ------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss) ...................................................... $ (61,912) $ 20,095 Net realized gain (loss) .......................................................... 1,161,521 2,337,453 Net change in unrealized appreciation (depreciation) .............................. 17,948,624 (12,238,829) ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations .................. 19,048,233 (9,881,281) ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from participant transactions ..... 2,312,625 (6,753,633) ------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS ............................................. 21,360,858 (16,634,914) NET ASSETS Beginning of year ................................................................ 90,031,896 106,666,810 ------------------------------------------------------------------------------------------------------------------------- End of year ...................................................................... $111,392,754 $ 90,031,896 =========================================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-51 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY LIFECYCLE FUND GROUP TRUST -- MODERATE Statement of Changes in Net Assets (Continued)
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 2003 2002 ------------------------------------------------------------------- UNITS AMOUNT UNITS AMOUNT ---------------------------------------------------------------------------------------------------------------------------- UNITS OF PARTICIPATION PARTICIPANT TRANSACTIONS FOR THE FUND WERE AS FOLLOWS: Units issued ......................................... 798,769 $ 14,158,918 466,959 $ 7,910,046 Units redeemed ....................................... (680,877) (11,846,293) (890,913) (14,663,679) ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) .............................. 117,892 $ 2,312,625 (423,954) $ (6,753,633) ============================================================================================================================
All of the Fund's units outstanding were held by 1 unitholder at December 31, 2003. The accompanying notes are an integral part of these financial statements. SAI-52 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY LIFECYCLE FUND GROUP TRUST -- MODERATE Financial Highlights (For a Unit of Participation Outstanding Throughout the Year)
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 2003 2002 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------- SELECTED PER UNIT DATA Net asset value, beginning of year .............. $ 16.37 $ 18.00 $ 18.82 $ 19.16 $ 16.96 ----------------------------------------------------------------------------------------------------------------------- Net investment income (loss) (a) (b) ............ ( 0.01) 0.00 0.05 0.09 0.06 Net realized and unrealized gain (loss) ......... 3.46 ( 1.63) ( 0.87) ( 0.43) 2.14 ----------------------------------------------------------------------------------------------------------------------- Total from investment operations ................ 3.45 ( 1.63) ( 0.82) ( 0.34) 2.20 ----------------------------------------------------------------------------------------------------------------------- Net asset value, end of year .................... $ 19.82 $ 16.37 $ 18.00 $ 18.82 $ 19.16 ======================================================================================================================= Total return (%) (c) ............................ 21.13 ( 9.09) ( 4.36) ( 1.78) 12.97 ======================================================================================================================= RATIOS TO AVERAGE NET ASSETS Ratio of expenses (%) (d) ....................... 0.19 0.19 0.17 0.18 0.19 ----------------------------------------------------------------------------------------------------------------------- Ratio of net investment (loss) (%) .............. ( 0.06) 0.02 0.28 0.47 0.34 Portfolio turnover (%) .......................... 31 25 21 51 33 ----------------------------------------------------------------------------------------------------------------------- Net assets, end of year (000,000s) .............. $ 111 $ 90 $ 107 $ 123 $ 133 -----------------------------------------------------------------------------------------------------------------------
(a) Net investment income (loss) per unit has been calculated based upon an average of month-end units outstanding. (b) Zero amounts represent that which are less than $0.005 or 0.005% or ($0.005) or (0.005%) if negative. (c) Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year. The calculation includes only those expenses charged directly to the Fund. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. (d) The calculation includes only those expenses charged directly to the Fund, and does not include expenses charged to the funds in which the Fund invests. The accompanying notes are an integral part of these financial statements. SAI-53 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY LIFECYCLE FUND GROUP TRUST -- MODERATE Schedule of Investments (showing percentage of total value of investments) December 31, 2003
---------------------------------------------------------------------------------------------------------- UNITS VALUE ---------------------------------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY COLLECTIVE INVESTMENT FUNDS -- 100.0% 1,632,617 Daily EAFE Fund1 ........................................................ $ 16,837,176 1,707,513 Government Credit Bond Fund1 ............................................ 33,501,400 343,009 Russell 2000 Index Securities Lending Fund1 ............................. 10,990,700 196,431 S&P 500 Flagship Fund1 .................................................. 39,136,129 11,158,238 Short Term Investment Fund1 ............................................. 11,158,238 ---------------------------------------------------------------------------------------------------------- TOTAL COLLECTIVE INVESTMENT FUNDS ....................................... 111,623,643 ---------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (COST $94,072,850)..................................................................... $111,623,643 ==========================================================================================================
1 Collective Investment fund advised by State Street Global Advisors. The accompanying notes are an integral part of these financial statements. SAI-54 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY LIFECYCLE FUND GROUP TRUST -- MODERATE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 1. FUND ORGANIZATION AND INVESTMENT OBJECTIVE State Street Bank and Trust Company ("State Street Bank") Lifecycle Fund Group Trust -- Moderate (the "Fund") was formed by State Street Bank under the State Street Bank and Trust Company Investment Funds for Tax Exempt Retirement Plans Declaration of Trust. The investment objective of the Fund is to seek to provide growth of capital and a reasonable level of current income. The Fund may attempt to achieve its investment objective by investing in other collective investment funds (each an "underlying fund"), managed by the Trustee, which have characteristics consistent with the overall investment objective. Refer to the financial statements of each underlying fund for disclosure of its accounting policies and investment holdings. State Street Bank is Trustee, custodian, and recordkeeper of the Fund and has exclusive management and control of the Trust. State Street Global Advisors, a division of State Street Bank, is the Fund's investment manager. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently in the preparation of the financial statements. A. SECURITY VALUATION Investments in regulated investment companies or collective investment funds are valued at the net asset value per share/unit on the valuation date. Equity investments of the underlying funds for which market quotations are readily available are valued at the last reported sale price on their principal exchange on valuation date, or official close price for certain markets. If no sales are reported for that day, investments are valued at the more recent of the last published sale price or the mean between the last reported bid and asked prices, or at fair value as determined in good faith by the Trustee. Fixed income investments of the underlying funds are valued on the basis of valuations furnished by a pricing service approved by the Trustee, which determines valuations using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders, or at fair value as determined in good faith by the Trustee. Short-term investments, if any, are stated at amortized cost, which approximates market value. B. SECURITY TRANSACTIONS AND INVESTMENT INCOME Security transactions are accounted for as of trade date. Realized gains and losses from investment transactions are determined using the average cost method. Dividend income, if any, is recorded on the ex-dividend date. Interest income earned on securities, if any, is recorded on the accrual basis. Interest income includes accretion of discounts and amortization of premiums, if any. Collective investment funds, in which the Fund invests, may retain investment income and net realized gains. Accordingly, realized and unrealized gains and losses reported by the Fund may include a component attributable to investment income of the underlying funds. C. INCOME TAXES It is the Fund's policy to comply with the requirements of Section 501(a) of the Internal Revenue Code relating to collective investment of employee benefit funds. Accordingly, the Fund is exempt from federal and state taxes and no federal or state tax provision is required. D. ISSUANCES AND REDEMPTIONS OF UNITS OF PARTICIPATION The net asset value of the Fund is determined each business day ("valuation date"). Issuances and redemptions of Fund units are made on such days, based upon the net asset value per unit of the Fund as SAI-55 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY LIFECYCLE FUND GROUP TRUST -- MODERATE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 of the Fund's valuation date last preceding the date on which such order to contribute or withdraw assets is received. The Trustee, in its sole discretion, reserves the right to value any contribution or withdrawal as of the next succeeding valuation date or another date as the Trustee deems appropriate. E. EXPENSES Under the Declaration of Trust, the Fund may pay certain expenses for services received. The Trustee is paid a management fee by the Fund at the annual rate of 0.17% of the Fund's daily net asset value. The Trustee is paid an annual administration fee of $12,000. The Fund indirectly bears the expenses paid by the underlying funds, if any. F. DISTRIBUTIONS TO PARTICIPANTS Net investment income (including security lending fee income, if any) and net realized gains are retained by the Fund. 3. GLOBAL SECURITIES LENDING PROGRAM Fund participants have authorized the Fund to invest in certain collective investment funds that participate in the Global Securities Lending Program maintained by State Street Bank. 4. INVESTMENT TRANSACTIONS Purchases and sales of securities, including in-kind contributions and redemptions, if any, during the period ended December 31, 2003 were $32,864,064 and $30,445,229, respectively. SAI-56 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS To the Participants and Trustee of State Street Bank and Trust Company S&P 500 Flagship Fund and State Street Bank and Trust Company S&P 500 Flagship Non-Lending Fund In our opinion, the accompanying combined statement of assets and liabilities, including the combined schedule of investments, and the related combined statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of State Street Bank and Trust Company S&P 500 Flagship Fund and State Street Bank and Trust Company S&P 500 Flagship Non-Lending Fund at December 31, 2003, and the results of their operations, the changes in their net assets and each of their financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trustee; 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 auditing standards generally accepted in the United States of America, 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 the Trustee, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2003 by correspondence with the custodian, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 13, 2004 SAI-57 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND Combined Statement of Assets and Liabilities DECEMBER 31, 2003 --------------------------------------------------------------------------------
ASSETS Investments in securities, at value, (including securities on loan of $1,365,819,533) (cost $70,408,923,663) ................. $79,437,797,796 Investments held as collateral for securities loaned ..................................... 1,400,803,370 Receivable for Fund units issued ......................................................... 40,463,858 Receivable for investments sold .......................................................... 9,109,396 Variation margin receivable .............................................................. 2,497,520 Dividends receivable ..................................................................... 105,457,413 Interest receivable ...................................................................... 868,582 ----------------------------------------------------------------------------------------------------------- Total assets ............................................................................ 80,996,997,935 ----------------------------------------------------------------------------------------------------------- LIABILITIES Payable for collateral on securities loaned .............................................. 1,400,803,370 Payable for Fund units redeemed .......................................................... 1,207,369 Payable for investments purchased ........................................................ 104,180,522 Accrued expenses ......................................................................... 231,163 ----------------------------------------------------------------------------------------------------------- Total liabilities ....................................................................... 1,506,422,424 ----------------------------------------------------------------------------------------------------------- NET ASSETS ............................................................................... $79,490,575,511 ----------------------------------------------------------------------------------------------------------- S&P 500 FLAGSHIP FUND (385,769,603 units outstanding, at $199.24 per unit net asset value) $76,858,955,430 value) S&P 500 FLAGSHIP NON-LENDING FUND (13,208,598 units outstanding, at $199.24 per unit net asset value) .................................................................................. 2,631,620,081 ----------------------------------------------------------------------------------------------------------- $79,490,575,511 ===========================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-58 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND Combined Statement of Operations YEAR ENDED DECEMBER 31, 2003 --------------------------------------------------------------------------------
INVESTMENT INCOME Dividends ............................................................................. $ 1,179,454,702 Interest .............................................................................. 11,446,148 Securities lending fee income (net of related expenses), allocated to the Lending Fund 2,607,874 ---------------------------------------------------------------------------------------------------------- Total investment income ............................................................. 1,193,508,724 ---------------------------------------------------------------------------------------------------------- EXPENSES Custody ............................................................................... 2,193,277 Audit ................................................................................. 78,000 Other ................................................................................. 10,485 ---------------------------------------------------------------------------------------------------------- Total expenses ...................................................................... 2,281,762 ---------------------------------------------------------------------------------------------------------- Net investment income (loss) ........................................................ 1,191,226,962 ---------------------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss): Investments ......................................................................... (531,433,813) Futures contracts ................................................................... 156,720,853 ---------------------------------------------------------------------------------------------------------- (374,712,960) ---------------------------------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation): Investments ......................................................................... 16,571,058,846 Futures contracts ................................................................... 70,696,066 ---------------------------------------------------------------------------------------------------------- 16,641,754,912 ---------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) ............................................. 16,267,041,952 ---------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ....................... $17,458,268,914 ==========================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-59 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND Combined Statement of Changes in Net Assets
--------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2003 2002 --------------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss) ............................................................ $ 1,191,226,962 $ 1,039,161,175 Net realized gain (loss) ................................................................ (374,712,960) (1,755,452,338) Net change in unrealized appreciation (depreciation) .................................... 16,641,754,912 (15,355,655,795) --------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ......................... 17,458,268,914 (16,071,946,958) --------------------------------------------------------------------------------------------------------------------------------- Distributions of security lending fee income, allocated to the Lending Fund participants . (2,607,874) (4,128,421) --------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from participant transactions ............ 3,213,988,294 3,816,157,284 --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS .................................................... 20,669,649,334 (12,259,918,095) NET ASSETS Beginning of year ....................................................................... 58,820,926,177 71,080,844,272 --------------------------------------------------------------------------------------------------------------------------------- End of year ............................................................................. $79,490,575,511 $ 58,820,926,177 =================================================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-60 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND Combined Statement of Changes in Net Assets (Continued)
YEAR ENDED DECEMBER 31, 2003 2002 --------------------------------------------------------------------------------------------------------------------------------- UNITS AMOUNT UNITS AMOUNT --------------------------------------------------------------------------------------------------------------------------------- UNITS OF PARTICIPATION PARTICIPANT TRANSACTIONS FOR THE FUND WERE AS FOLLOWS: LENDING FUND Units issued ........................................ 126,878,539 $ 21,894,176,856 94,473,861 $ 16,124,195,966 Units redeemed ...................................... (89,977,623) (15,832,787,498) (61,529,262) (10,446,896,132) --------------------------------------------------------------------------------------------------------------------------------- Total ............................................. 36,900,916 $ 6,061,389,358 32,944,599 $ 5,677,299,834 --------------------------------------------------------------------------------------------------------------------------------- NON-LENDING FUND Units issued ........................................ 3,708,285 $ 607,890,709 4,397,428 $ 762,548,309 Units redeemed ...................................... (21,672,172) (3,455,291,773) (15,319,023) (2,623,690,859) --------------------------------------------------------------------------------------------------------------------------------- Total ............................................. (17,963,887) $ (2,847,401,064) (10,921,595) $ (1,861,142,550) --------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) ............................. 18,937,029 $ 3,213,988,294 22,023,004 $ 3,816,157,284 =================================================================================================================================
LENDING FUND Units in excess of 10% of the Lending Fund units outstanding at December 31, 2003 held by 1 of the Lending Fund's unitholders aggregated 29% of the Lending Fund's total units outstanding. NON-LENDING FUND Units in excess of 10% of the Non-Lending Fund units outstanding at December 31, 2003 held by 4 of the Non-Lending Fund's unitholders aggregated 82% of the Non-Lending Fund's total units outstanding. The accompanying notes are an integral part of these financial statements. SAI-61 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND Financial Highlights (FOR A UNIT OF PARTICIPATION OUTSTANDING THROUGHOUT THE YEAR)
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------- 2003 2002 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------ SELECTED PER UNIT DATA Net asset value, beginning of year .................... $ 154.78 $ 198.54 $ 225.33 $ 247.79 $ 204.72 ------------------------------------------------------------------------------------------------------------------------ Net investment income (loss) (a) ...................... 3.08 2.81 2.77 2.90 2.99 Net realized and unrealized gain (loss) ............... 41.39 ( 46.56) ( 29.55) ( 25.33) 40.09 ------------------------------------------------------------------------------------------------------------------------ Total from investment operations ...................... 44.47 ( 43.75) ( 26.78) ( 22.43) 43.08 Distribution of securities lending fee income ......... ( 0.01) ( 0.01) ( 0.01) ( 0.03) ( 0.01) ------------------------------------------------------------------------------------------------------------------------ Net asset value, end of year .......................... $ 199.24 $ 154.78 $ 198.54 $ 225.33 $ 247.79 ======================================================================================================================== Total return (%) (b) .................................. 28.73 ( 22.03) ( 11.89) ( 9.05) 21.04 RATIOS TO AVERAGE NET ASSETS Ratio of expenses (%) (c) (d) ......................... 0.00 0.00 0.00 0.00 0.00 Ratio of net investment income (%) .................... 1.80 1.62 1.35 1.20 1.35 Portfolio turnover (%) ................................ 25 24 19 26 13 Net assets, end of year (000,000s) .................... $ 76,859 $ 53,996 $ 62,723 $ 64,361 $ 75,574
---------- (a) Net investment income (loss) per unit has been calculated based upon an average of month-end units outstanding. (b) Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year and assumes reinvestment of distributions, if any. The calculation includes only those expenses charged directly to the Lending Fund. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. (c) Zero amounts represent that which are less than $0.005 or 0.005% or ($0.005) or (0.005%) if negative. (d) The calculation includes only those expenses charged directly to the Fund, and does not include expenses charged to the funds in which the Fund invests. The accompanying notes are an integral part of these financial statements. SAI-62 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP NON-LENDING FUND Financial Highlights (FOR A UNIT OF PARTICIPATION OUTSTANDING THROUGHOUT THE YEAR)
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2003 2002 2001 2000 1999 ---------------------------------------------------------------------------------------------------------------------------- SELECTED PER UNIT DATA Net asset value, beginning of year .............. $ 154.78 $ 198.54 $ 225.33 $ 247.79 $ 204.72 ---------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) (a) ................ 3.07 2.80 2.76 2.87 2.98 Net realized and unrealized gain (loss) ......... 41.39 ( 46.56) ( 29.55) ( 25.33) 40.09 ---------------------------------------------------------------------------------------------------------------------------- Total from investment operations ................ 44.46 ( 43.76) ( 26.79) ( 22.46) 43.07 ---------------------------------------------------------------------------------------------------------------------------- Net asset value, end of year .................... $ 199.24 $ 154.78 $ 198.54 $ 225.33 $ 247.79 ============================================================================================================================ Total return (%) (b) ............................ 28.72 ( 22.04) ( 11.89) ( 9.06) 21.04 RATIOS TO AVERAGE NET ASSETS Ratio of expenses (%) (c) (d) ................... 0.00 0.00 0.00 0.00 0.00 Ratio of net investment income (%) .............. 1.79 1.61 1.34 1.19 1.34 Portfolio turnover (%) .......................... 25 24 19 26 13 Net assets, end of year (000,000s) .............. $ 2,632 $ 4,825 $ 8,357 $ 12,332 $ 14,321
---------- (a) Net investment income (loss) per unit has been calculated based upon an average of month-end units outstanding. (b) Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in net asset value per unit between the beginning and end of the year. The calculation includes only those expenses charged directly to the Non-Lending Fund. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. (c) Zero amounts represent that which are less than 0.005% or (0.005%) if negative. (d) The calculation includes only those expenses charged directly to the Fund, and does not include expenses charged to the funds in which the Fund invests. The accompanying notes are an integral part of these financial statements. SAI-63 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCK -- 98.9% (UNLESS OTHERWISE NOTED) 3M Co .................................... 5,990,717 $ 509,390,667 Abbott Laboratories ...................... 11,935,302 556,185,073 ACE Ltd .................................. 2,138,385 88,571,907 ADC Telecommunications Inc ............... 6,184,096 18,366,765 Adobe Systems Inc ........................ 1,774,323 69,730,894 Adolph Coors Co .......................... 280,630 15,743,343 Advanced Micro Devices Inc ............... 2,660,361 39,639,379 AES Corp/The ............................. 4,732,895 44,678,529 Aetna Inc ................................ 1,170,566 79,106,850 Aflac Inc ................................ 3,922,911 141,930,920 Agilent Technologies Inc ................. 3,649,417 106,708,953 Air Products & Chemicals Inc ............. 1,758,173 92,884,280 Alberto-Culver Co ........................ 447,641 28,237,194 Albertson's Inc .......................... 2,813,119 63,717,145 Alcoa Inc ................................ 6,613,974 251,331,012 Allegheny Energy Inc ..................... 968,510 12,358,188 Allegheny Technologies Inc ............... 609,324 8,055,263 Allergan Inc ............................. 989,924 76,036,062 Allied Waste Industries Inc .............. 2,436,503 33,818,662 Allstate Corp/The ........................ 5,395,016 232,093,588 ALLTEL Corp .............................. 2,381,730 110,940,983 Altera Corp .............................. 2,904,352 65,928,790 Altria Group Inc ......................... 15,467,208 841,725,459 AMBAC Financial Group Inc ................ 806,209 55,942,843 Amerada Hess Corp ........................ 685,782 36,463,029 Ameren Corp .............................. 1,218,451 56,048,746 American Electric Power Co Inc ........... 3,014,673 91,977,673 American Express Co ...................... 9,829,067 474,055,901 American Greetings ....................... 508,418 11,119,102 American International Group Inc ......... 19,932,520 1,321,127,426 American Power Conversion ................ 1,479,876 36,182,968 American Standard Cos Inc ................ 554,836 55,871,985 AmerisourceBergen Corp ................... 845,646 47,483,023 Amgen Inc ................................ 9,845,684 608,463,271 AmSouth Bancorp .......................... 2,679,352 65,644,124 Anadarko Petroleum Corp .................. 1,911,664 97,513,981 Analog Devices Inc ....................... 2,803,467 127,978,269 Andrew Corp .............................. 1,186,458 13,656,132 The accompanying notes are an integral part of these financial statements. SAI-64 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) (UNLESS OTHERWISE NOTED) Anheuser-Busch Cos Inc ........................... 6,218,664 $ 327,599,220 Anthem Inc ....................................... 1,054,319 79,073,925 AON Corp ......................................... 2,393,358 57,296,991 Apache Corp ...................................... 1,242,288 100,749,557 Apartment Investment & Management Co ............. 704,374 24,300,903 Apollo Group Inc (Class A) ....................... 1,343,510 91,358,680 Apple Computer Inc ............................... 2,766,579 59,121,793 Applera Corp -- Applied Biosystems Group ......... 1,587,388 32,874,805 Applied Materials Inc ............................ 12,693,987 284,980,008 Applied Micro Circuits Corp ...................... 2,251,569 13,464,383 Archer-Daniels-Midland Co ........................ 4,935,245 75,114,429 Ashland Inc ...................................... 521,809 22,990,905 AT&T Corp ........................................ 6,028,548 122,379,524 AT&T Wireless Services Inc ....................... 20,786,998 166,088,114 Autodesk Inc ..................................... 850,507 20,905,462 Automatic Data Processing Inc .................... 4,596,107 182,051,798 Autonation Inc ................................... 2,129,522 39,119,319 Autozone Inc ..................................... 671,982 57,259,586 Avaya Inc ........................................ 3,151,960 40,786,362 Avery Dennison Corp .............................. 843,007 47,225,252 Avon Products Inc ................................ 1,821,336 122,921,967 Baker Hughes Inc ................................. 2,559,898 82,326,320 Ball Corp ........................................ 433,618 25,830,624 Bank of America Corp ............................. 11,341,906 912,229,500 Bank of New York Co Inc/The ...................... 5,947,721 196,988,520 Bank One Corp .................................... 8,534,943 389,108,051 Bausch & Lomb Inc ................................ 400,122 20,766,332 Baxter International Inc ......................... 4,658,080 142,164,602 BB&T Corp ........................................ 4,180,951 161,551,947 Bear Stearns Cos Inc/The ......................... 754,756 60,342,742 Becton Dickinson & Co ............................ 1,938,087 79,732,899 Bed Bath & Beyond Inc ............................ 2,241,404 97,164,863 BellSouth Corp ................................... 14,110,325 399,322,198 Bemis Co ......................................... 405,545 20,277,250 Best Buy Co Inc .................................. 2,469,538 129,008,665 Big Lots Inc ..................................... 879,005 12,490,661 Biogen Idec Inc .................................. 2,479,105 91,181,482 Biomet Inc ....................................... 1,951,155 71,041,554 BJ Services Co ................................... 1,196,263 42,945,842 The accompanying notes are an integral part of these financial statements. SAI-65 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) (UNLESS OTHERWISE NOTED) Black & Decker Corp ....................... 592,887 $ 29,241,187 BMC Software Inc .......................... 1,814,661 33,843,428 Boeing Co/The ............................. 6,420,739 270,569,941 Boise Cascade Corp ........................ 660,147 21,692,430 Boston Scientific Corp .................... 6,245,598 229,588,182 Bristol-Myers Squibb Co ................... 14,801,807 423,331,680 Broadcom Corp (Class A) ................... 2,311,461 78,797,705 Brown-Forman Corp ......................... 462,959 43,263,519 Brunswick Corp ............................ 696,989 22,185,160 Burlington Northern Santa Fe Corp ......... 2,833,167 91,652,952 Burlington Resources Inc .................. 1,557,661 86,263,266 Calpine Corp .............................. 3,158,901 15,194,314 Campbell Soup Co .......................... 3,131,805 83,932,374 Capital One Financial Corp ................ 1,762,602 108,029,877 Cardinal Health Inc ....................... 3,304,386 202,096,248 Carnival Corp ............................. 4,811,504 191,161,054 Caterpillar Inc ........................... 2,656,140 220,512,743 Cendant Corp .............................. 7,737,106 172,305,351 Centerpoint Energy Inc .................... 2,335,976 22,635,607 Centex Corp ............................... 474,479 51,077,664 CenturyTel Inc ............................ 1,100,396 35,894,918 Charles Schwab Corp/The ................... 10,262,354 121,506,271 Charter One Financial Inc ................. 1,700,139 58,739,802 ChevronTexaco Corp ........................ 8,163,447 705,240,186 Chiron Corp ............................... 1,425,870 81,260,331 Chubb Corp ................................ 1,433,283 97,606,572 Ciena Corp ................................ 3,576,248 23,746,287 Cigna Corp ................................ 1,072,159 61,649,143 Cincinnati Financial Corp ................. 1,224,467 51,280,678 Cinergy Corp .............................. 1,337,685 51,915,555 Cintas Corp ............................... 1,303,392 65,339,041 Circuit City Stores Inc ................... 1,655,913 16,774,399 Cisco Systems Inc ......................... 52,603,666 1,277,743,047 Citigroup Inc ............................. 39,347,836 1,909,943,959 Citizens Communications Co ................ 2,172,880 26,987,170 Citrix Systems Inc ........................ 1,246,141 26,430,651 Clear Channel Communications Inc .......... 4,706,354 220,398,558 Clorox Co ................................. 1,648,219 80,037,515 CMS Energy Corp ........................... 1,232,295 10,499,153 The accompanying notes are an integral part of these financial statements. SAI-66 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) (UNLESS OTHERWISE NOTED) Coca-Cola Co/The .............................. 18,708,708 $ 949,466,931 Coca-Cola Enterprises Inc ..................... 3,479,920 76,105,850 Colgate-Palmolive Co .......................... 4,099,443 205,177,122 Comcast Corp CL A ............................. 17,184,958 564,869,569 Comerica Inc .................................. 1,337,533 74,982,100 Computer Associates International Inc ......... 4,419,675 120,833,915 Computer Sciences Corp ........................ 1,429,706 63,235,896 Compuware Corp ................................ 2,869,652 17,332,698 Comverse Technology Inc ....................... 1,496,379 26,321,307 ConAgra Foods Inc ............................. 4,097,923 108,144,188 Concord EFS Inc ............................... 3,690,004 54,759,659 ConocoPhillips ................................ 5,219,028 342,211,666 Consolidated Edison Inc ....................... 1,720,811 74,012,081 Constellation Energy Group Inc ................ 1,273,437 49,867,793 Convergys Corp ................................ 1,132,612 19,775,406 Cooper Industries Ltd ......................... 703,263 40,740,026 Cooper Tire & Rubber Co ....................... 565,825 12,097,339 Corning Inc ................................... 10,199,589 106,381,713 Costco Wholesale Corp ......................... 3,529,448 131,224,877 Countrywide Financial Corp .................... 1,405,328 106,594,129 CR Bard Inc ................................... 394,755 32,073,844 Crane Co ...................................... 449,076 13,804,596 CSX Corp ...................................... 1,663,669 59,792,264 Cummins Inc ................................... 319,684 15,645,335 CVS Corp ...................................... 3,009,751 108,712,206 Dana Corp ..................................... 1,143,588 20,984,840 Danaher Corp .................................. 1,176,200 107,916,350 Darden Restaurants Inc ........................ 1,248,776 26,274,247 Deere & Co .................................... 1,834,153 119,311,653 Dell Inc ...................................... 19,514,540 662,713,778 Delphi Corp ................................... 4,194,749 42,828,387 Delta Air Lines Inc ........................... 943,014 11,136,995 Deluxe Corp ................................... 419,799 17,350,293 Devon Energy Corp ............................. 1,763,305 100,966,844 Dillard's Inc/AR .............................. 671,151 11,047,145 Dollar General Corp ........................... 2,569,291 53,929,418 Dominion Resources Inc/VA ..................... 2,491,941 159,060,594 Dover Corp .................................... 1,545,615 61,438,196 Dow Chemical Co/The ........................... 7,026,087 292,074,437 The accompanying notes are an integral part of these financial statements. SAI-67 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) (UNLESS OTHERWISE NOTED) Dow Jones & Co Inc .............................. 662,008 $ 33,001,099 DTE Energy Co ................................... 1,284,430 50,606,542 Duke Energy Corp ................................ 6,931,076 141,740,504 Dynegy Inc (Class A) ............................ 2,790,435 11,943,062 Eastman Chemical Co ............................. 587,398 23,219,843 Eastman Kodak Co ................................ 2,194,118 56,323,009 Eaton Corp ...................................... 580,023 62,630,884 eBay Inc ........................................ 4,914,288 317,413,862 Ecolab Inc ...................................... 1,991,378 54,504,016 Edison International ............................ 2,468,035 54,124,008 EI Du Pont de Nemours & Co ...................... 7,608,087 349,135,112 El Paso Corp .................................... 4,542,637 37,204,197 Electronic Arts Inc ............................. 2,274,880 108,693,766 Electronic Data Systems Corp .................... 3,630,150 89,083,881 Eli Lilly & Co .................................. 8,570,675 602,775,573 EMC Corp ........................................ 18,180,038 234,886,091 Emerson Electric Co ............................. 3,224,381 208,778,670 Engelhard Corp .................................. 964,698 28,892,705 Entergy Corp .................................... 1,770,111 101,126,441 EOG Resources Inc ............................... 866,573 40,009,675 Equifax Inc ..................................... 1,171,367 28,698,492 Equity Office Properties Trust (REIT) 1 ......... 3,025,772 86,688,368 Equity Residential (REIT) 1 ..................... 2,099,058 61,943,202 Exelon Corp ..................................... 2,493,959 165,499,119 Express Scripts Inc ............................. 594,606 39,499,677 Exxon Mobil Corp ................................ 50,456,337 2,068,709,817 Family Dollar Stores Inc ........................ 1,315,899 47,214,456 Fannie Mae ...................................... 7,435,103 558,078,831 Federated Department Stores ..................... 1,396,369 65,810,871 Federated Investors Inc (Class B) ............... 819,086 24,048,365 FedEx Corp ...................................... 2,277,911 153,758,993 Fifth Third Bancorp ............................. 4,343,014 256,672,127 First Data Corp ................................. 5,582,303 229,376,830 First Tennessee National Corp ................... 959,843 42,329,076 FirstEnergy Corp ................................ 2,532,838 89,155,898 Fiserv Inc ...................................... 1,476,856 58,350,581 FleetBoston Financial Corp ...................... 8,056,905 351,683,903 Fluor Corp ...................................... 611,251 24,229,990 Ford Motor Co ................................... 13,926,378 222,822,048 The accompanying notes are an integral part of these financial statements. SAI-68 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) (UNLESS OTHERWISE NOTED) Forest Laboratories Inc ........................... 2,790,538 $ 172,455,248 Fortune Brands Inc ................................ 1,113,337 79,592,462 FPL Group Inc ..................................... 1,406,214 91,994,520 Franklin Resources Inc ............................ 1,912,811 99,580,941 Freddie Mac ....................................... 5,312,424 309,820,568 Freeport-McMoRan Copper & Gold Inc (Class B) ...... 1,332,013 56,117,708 Gannett Co Inc .................................... 2,090,462 186,385,592 Gap Inc/The ....................................... 6,837,325 158,694,313 Gateway Inc ....................................... 2,476,415 11,391,509 General Dynamics Corp ............................. 1,509,189 136,415,594 General Electric Co ............................... 76,664,142 2,375,055,119 General Mills Inc ................................. 2,849,631 129,088,284 General Motors Corp ............................... 4,281,756 228,645,770 Genuine Parts Co .................................. 1,384,590 45,968,388 Genzyme Corp ...................................... 1,707,994 84,272,424 Georgia-Pacific Corp .............................. 1,939,553 59,486,091 Gillette Co/The ................................... 7,743,217 284,408,360 Golden West Financial Corp ........................ 1,159,590 119,658,092 Goldman Sachs Group Inc ........................... 3,604,363 355,858,759 Goodrich Corp ..................................... 901,195 26,756,480 Goodyear Tire & Rubber Co/The ..................... 1,343,188 10,557,458 Great Lakes Chemical Corp ......................... 386,430 10,507,032 Guidant Corp ...................................... 2,368,663 142,593,513 H&R Block Inc ..................................... 1,364,707 75,563,827 Halliburton Co .................................... 3,343,287 86,925,462 Harley-Davidson Inc ............................... 2,320,500 110,293,365 Harrah's Entertainment Inc ........................ 842,141 41,913,358 Hartford Financial Services Group Inc ............. 2,154,860 127,201,386 Hasbro Inc ........................................ 1,331,882 28,342,449 HCA Inc ........................................... 3,816,199 163,943,909 Health Management Associates Inc .................. 1,811,753 43,482,072 Hercules Inc ...................................... 847,982 10,345,380 Hershey Foods Corp ................................ 993,074 76,456,767 Hewlett-Packard Co ................................ 23,273,121 534,583,589 Hilton Hotels Corp ................................ 2,891,239 49,526,924 HJ Heinz Co ....................................... 2,685,332 97,826,645 Home Depot Inc .................................... 17,366,069 616,321,789 Honeywell International Inc ....................... 6,620,305 221,316,796 Humana Inc ........................................ 1,232,738 28,168,063 The accompanying notes are an integral part of these financial statements. SAI-69 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) (UNLESS OTHERWISE NOTED) Huntington Bancshares Inc ...................... 1,735,812 $ 39,055,770 Illinois Tool Works Inc ........................ 2,356,027 197,694,226 IMS Health Inc ................................. 1,835,561 45,632,046 Ingersoll-Rand Co (Class A) .................... 1,334,909 90,613,623 Intel Corp ..................................... 49,862,721 1,605,579,616 International Business Machines Corp ........... 13,132,923 1,217,159,304 International Flavors & Fragrances Inc ......... 723,966 25,280,893 International Game Technology .................. 2,641,282 94,293,767 International Paper Co ......................... 3,684,591 158,842,718 Interpublic Group of Cos Inc ................... 3,164,208 49,361,645 Intuit Inc ..................................... 1,560,611 82,571,928 ITT Industries Inc ............................. 695,660 51,624,929 Jabil Circuit Inc .............................. 1,532,868 43,380,164 Janus Capital Group Inc ........................ 1,809,953 29,701,329 JC Penney Co Inc Holding Co .................... 2,083,666 54,758,742 JDS Uniphase Corp .............................. 10,930,349 39,895,774 Jefferson-Pilot Corp ........................... 1,079,010 54,651,857 John Hancock Financial Services Inc ............ 2,186,319 81,986,963 Johnson & Johnson .............................. 22,656,176 1,170,418,052 Johnson Controls Inc ........................... 686,308 79,694,085 Jones Apparel Group Inc ........................ 949,501 33,450,920 JP Morgan Chase & Co ........................... 15,606,522 573,227,553 KB Home ........................................ 356,446 25,849,464 Kellogg Co ..................................... 3,107,987 118,352,145 Kerr-McGee Corp ................................ 813,546 37,821,754 Keycorp ........................................ 3,183,583 93,342,654 KeySpan Corp ................................... 1,214,098 44,678,806 Kimberly-Clark Corp ............................ 3,858,830 228,018,265 Kinder Morgan Inc .............................. 944,715 55,832,657 King Pharmaceuticals Inc ....................... 1,823,746 27,830,364 KLA-Tencor Corp ................................ 1,490,967 87,475,034 Knight-Ridder Inc .............................. 612,430 47,383,709 Kohl's Corp .................................... 2,571,801 115,576,737 Kroger Co ...................................... 5,702,473 105,552,775 Leggett & Platt Inc ............................ 1,464,653 31,680,444 Lehman Brothers Holdings Inc ................... 2,090,649 161,439,916 Lexmark International Inc ...................... 1,002,979 78,874,269 Lincoln National Corp .......................... 1,364,882 55,100,286 Linear Technology Corp ......................... 2,380,912 100,164,968 The accompanying notes are an integral part of these financial statements. SAI-70 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) (UNLESS OTHERWISE NOTED) Liz Claiborne Inc .................... 834,598 $ 29,594,845 Lockheed Martin Corp ................. 3,434,570 176,536,898 Loews Corp ........................... 1,417,967 70,118,468 Louisiana-Pacific Corp ............... 824,004 14,733,192 Lowe's Cos Inc ....................... 6,003,254 332,520,239 LSI Logic Corp ....................... 3,105,299 27,544,002 Ltd Brands ........................... 3,959,199 71,384,358 Lucent Technologies Inc .............. 32,123,692 91,231,285 Manor Care Inc ....................... 687,274 23,759,062 Marathon Oil Corp .................... 2,364,398 78,237,930 Marriott International Inc ........... 1,790,674 82,729,139 Marsh & McLennan Cos Inc ............. 4,036,842 193,324,363 Marshall & Ilsley Corp ............... 1,728,179 66,102,847 Masco Corp ........................... 3,540,135 97,035,100 Mattel Inc ........................... 3,436,606 66,223,398 Maxim Integrated Products ............ 2,505,583 124,778,033 May Department Stores Co/The ......... 2,186,385 63,558,212 Maytag Corp .......................... 609,431 16,972,653 MBIA Inc ............................. 1,095,554 64,889,663 MBNA Corp ............................ 9,750,154 242,291,327 McCormick & Co Inc ................... 1,059,298 31,884,870 McDonald's Corp ...................... 9,747,473 242,029,755 McGraw-Hill Cos Inc/The .............. 1,455,795 101,789,186 McKesson Corp ........................ 2,203,554 70,866,297 MeadWestvaco Corp .................... 1,515,119 45,074,790 Medco Health Solutions Inc ........... 2,060,663 70,041,935 Medimmune Inc ........................ 1,856,749 47,161,425 Medtronic Inc ........................ 9,248,996 449,593,696 Mellon Financial Corp ................ 3,277,332 105,235,131 Merck & Co Inc ....................... 17,006,380 785,694,756 Mercury Interactive Corp ............. 699,817 34,039,099 Meredith Corp ........................ 381,332 18,612,815 Merrill Lynch & Co Inc ............... 7,223,305 423,646,838 Metlife Inc .......................... 5,789,023 194,916,404 MGIC Investment Corp ................. 762,706 43,428,480 Micron Technology Inc ................ 4,660,066 62,771,089 Microsoft Corp ....................... 82,394,604 2,269,147,394 Millipore Corp ....................... 374,208 16,109,654 Molex Inc ............................ 1,453,641 50,717,534 The accompanying notes are an integral part of these financial statements. SAI-71 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) (UNLESS OTHERWISE NOTED) Monsanto Co ........................... 1,969,256 $ 56,675,188 Monster Worldwide Inc ................. 842,503 18,501,366 Moody's Corp .......................... 1,127,252 68,255,109 Morgan Stanley ........................ 8,279,704 479,146,470 Motorola Inc .......................... 17,773,182 250,068,671 Nabors Industries Ltd ................. 1,200,386 49,816,019 National City Corp .................... 4,665,071 158,332,510 National Semiconductor Corp ........... 1,412,241 55,656,418 Navistar International Corp ........... 528,174 25,294,253 NCR Corp .............................. 718,497 27,877,684 Network Appliance Inc ................. 2,608,508 53,552,669 New York Times Co (Class A) ........... 1,136,828 54,329,010 Newell Rubbermaid Inc ................. 2,091,989 47,634,590 Newmont Mining Corp ................... 3,297,720 160,302,169 Nextel Communications Inc ............. 8,393,690 235,526,941 Nicor Inc ............................. 344,597 11,730,082 Nike Inc .............................. 2,002,878 137,117,028 NiSource Inc .......................... 1,997,390 43,822,737 Noble Corp ............................ 1,011,598 36,194,976 Nordstrom Inc ......................... 1,041,121 35,710,450 Norfolk Southern Corp ................. 2,979,632 70,468,297 North Fork Bancorporation Inc ......... 1,157,519 46,844,794 Northern Trust Corp ................... 1,682,043 78,080,436 Northrop Grumman Corp ................. 1,397,707 133,620,789 Novell Inc ............................ 2,848,892 29,970,344 Novellus Systems Inc .................. 1,192,183 50,131,295 Nucor Corp ............................ 595,024 33,321,344 NVIDIA Corp ........................... 1,236,968 28,759,506 Occidental Petroleum Corp ............. 2,939,413 124,160,805 Office Depot Inc ...................... 2,363,434 39,492,982 Omnicom Group ......................... 1,454,621 127,032,052 Oracle Corp ........................... 39,860,010 526,152,132 Paccar Inc ............................ 893,477 76,052,762 Pactiv Corp ........................... 1,196,534 28,597,163 Pall Corp ............................. 944,166 25,331,974 Parametric Technology Corp ............ 2,023,153 7,971,223 Parker Hannifin Corp .................. 904,903 53,841,729 Paychex Inc ........................... 2,876,237 106,996,016 Peoples Energy Corp ................... 285,531 12,003,723 The accompanying notes are an integral part of these financial statements. SAI-72 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) (UNLESS OTHERWISE NOTED) Peoplesoft Inc .............................. 2,852,076 $ 65,027,333 Pepsi Bottling Group Inc .................... 2,034,527 49,194,863 PepsiCo Inc ................................. 13,112,978 611,327,034 PerkinElmer Inc ............................. 983,506 16,788,447 Pfizer Inc .................................. 58,244,766 2,057,787,583 PG&E Corp ................................... 3,183,044 88,393,132 Phelps Dodge Corp ........................... 677,373 51,541,312 Pinnacle West Capital Corp .................. 699,809 28,006,356 Pitney Bowes Inc ............................ 1,871,924 76,037,553 Plum Creek Timber Co Inc (REIT) 1 ........... 1,385,130 42,177,209 PMC -- Sierra Inc ........................... 1,307,717 26,350,498 PNC Financial Services Group Inc ............ 2,134,578 116,825,454 Power-One Inc ............................... 631,944 6,843,954 PPG Industries Inc .......................... 1,319,969 84,504,415 PPL Corp .................................... 1,348,847 59,012,056 Praxair Inc ................................. 2,486,242 94,974,444 Principal Financial Group ................... 2,437,220 80,598,865 Procter & Gamble Co ......................... 9,897,518 988,564,098 Progress Energy Inc ......................... 1,870,342 84,651,679 Progressive Corp/The ........................ 1,647,100 137,681,089 Prologis .................................... 1,353,863 43,445,464 Providian Financial Corp .................... 2,247,133 26,156,628 Prudential Financial Inc .................... 4,146,086 173,182,012 Public Service Enterprise Group Inc ......... 1,786,691 78,257,066 Pulte Homes Inc ............................. 469,970 43,998,591 QLogic Corp ................................. 712,091 36,743,896 QUALCOMM Inc ................................ 6,075,641 327,659,319 Quest Diagnostics ........................... 798,539 58,381,186 Qwest Communications International .......... 13,488,786 58,271,556 RadioShack Corp ............................. 1,252,968 38,441,058 Raytheon Co ................................. 3,151,373 94,667,245 Reebok International Ltd .................... 457,478 17,988,035 Regions Financial Corp ...................... 1,695,528 63,073,642 RJ Reynolds Tobacco Holdings Inc ............ 641,217 37,286,769 Robert Half International Inc ............... 1,310,642 30,590,384 Rockwell Automation Inc ..................... 1,412,860 50,297,816 Rockwell Collins Inc ........................ 1,377,458 41,365,064 Rohm & Haas Co .............................. 1,700,846 72,643,133 Rowan Cos Inc ............................... 720,005 16,682,516 The accompanying notes are an integral part of these financial statements. SAI-73 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) (UNLESS OTHERWISE NOTED) RR Donnelley & Sons Co .......................... 865,117 $ 26,083,278 Ryder System Inc ................................ 480,529 16,410,065 Sabre Holdings Corp ............................. 1,078,680 23,288,701 Safeco Corp ..................................... 1,047,661 40,785,443 Safeway Inc ..................................... 3,377,214 73,994,759 Sanmina-SCI Corp ................................ 3,991,248 50,329,637 Sara Lee Corp ................................... 6,055,112 131,456,482 SBC Communications Inc .......................... 25,217,259 657,413,942 Schering-Plough Corp ............................ 11,168,014 194,211,763 Schlumberger Ltd ................................ 4,467,332 244,452,407 Scientific-Atlanta Inc .......................... 1,130,418 30,860,411 Sealed Air Corp ................................. 643,988 34,865,510 Sears Roebuck and Co ............................ 1,954,016 88,888,188 Sempra Energy ................................... 1,696,779 51,005,177 Sherwin-Williams Co/The ......................... 1,100,593 38,234,601 Siebel Systems Inc .............................. 3,732,043 51,763,436 Sigma-Aldrich Corp .............................. 534,445 30,559,565 Simon Property Group Inc 1 ...................... 1,457,877 67,558,020 SLM Corp ........................................ 3,450,882 130,029,234 Snap-On Inc ..................................... 446,952 14,409,732 Solectron Corp .................................. 6,374,671 37,674,306 Southern Co/The ................................. 5,596,566 169,296,122 SouthTrust Corp ................................. 2,558,239 83,731,162 Southwest Airlines Co ........................... 6,005,175 96,923,525 Sprint Corp-FON Group ........................... 6,833,552 112,206,924 Sprint Corp-PCS Group ........................... 7,783,393 43,742,669 St Jude Medical Inc ............................. 1,333,983 81,839,857 St Paul Cos ..................................... 1,732,253 68,683,831 Stanley Works/The ............................... 654,010 24,767,359 Staples Inc ..................................... 3,799,282 103,720,399 Starbucks Corp .................................. 2,970,184 98,194,283 Starwood Hotels & Resorts Worldwide Inc ......... 1,543,538 55,521,062 State Street Corporation 2 ...................... 2,590,808 134,929,281 Stryker Corp .................................... 1,509,983 128,363,655 Sun Microsystems Inc ............................ 24,837,275 111,519,365 Sungard Data Systems Inc ........................ 2,171,223 60,164,589 Sunoco Inc ...................................... 579,322 29,632,320 SunTrust Banks Inc .............................. 2,144,049 153,299,504 Supervalu Inc ................................... 1,016,092 29,050,070 The accompanying notes are an integral part of these financial statements. SAI-74 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) (UNLESS OTHERWISE NOTED) Symantec Corp .................................. 2,372,932 $ 82,222,094 Symbol Technologies Inc ........................ 1,749,510 29,549,224 Synovus Financial Corp ......................... 2,303,045 66,604,061 Sysco Corp ..................................... 4,907,730 182,714,788 T Rowe Price Group Inc ......................... 934,669 44,312,657 Target Corp .................................... 6,986,170 268,268,928 TECO Energy Inc ................................ 1,417,901 20,431,953 Tektronix Inc .................................. 638,585 20,179,286 Tellabs Inc .................................... 3,131,294 26,396,808 Temple-Inland Inc .............................. 420,042 26,324,032 Tenet Healthcare Corp .......................... 3,569,421 57,289,207 Teradyne Inc ................................... 1,447,359 36,835,287 Texas Instruments Inc .......................... 13,179,609 387,216,912 Textron Inc .................................... 1,025,576 58,519,367 Thermo Electron Corp ........................... 1,226,607 30,910,496 Thomas & Betts Corp ............................ 446,571 10,222,010 Tiffany & Co ................................... 1,100,258 49,731,662 Time Warner Inc ................................ 34,475,137 620,207,715 TJX Cos Inc .................................... 3,880,376 85,562,291 Torchmark Corp ................................. 862,926 39,297,650 Toys R US Inc .................................. 1,621,641 20,497,542 Transocean Inc ................................. 2,456,220 58,973,842 Travelers Property Casualty Corp CL B .......... 7,605,512 129,065,539 Tribune Co ..................................... 2,374,341 122,515,996 Tupperware Corp ................................ 470,671 8,161,435 TXU Corp ....................................... 2,442,709 57,941,057 Tyco International Ltd ......................... 15,288,148 405,135,922 Union Pacific Corp ............................. 1,932,383 134,261,971 Union Planters Corp ............................ 1,479,856 46,600,665 Unisys Corp .................................... 2,722,878 40,434,738 United Parcel Service Inc (Class B) ............ 8,545,566 637,071,945 United States Steel Corp ....................... 781,283 27,360,531 United Technologies Corp ....................... 3,588,227 340,056,273 UnitedHealth Group Inc ......................... 4,515,031 262,684,504 Univision Communications Inc (Class A) ......... 2,449,117 97,205,454 Unocal Corp .................................... 1,950,293 71,829,291 UnumProvident Corp ............................. 2,243,940 35,386,934 US Bancorp ..................................... 14,724,775 438,503,800 UST Inc ........................................ 1,257,296 44,872,894 The accompanying notes are an integral part of these financial statements. SAI-75 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) (UNLESS OTHERWISE NOTED) VERITAS Software Corp .............. 3,235,965 $ 120,248,459 Verizon Communications Inc ......... 21,078,276 739,425,929 VF Corp ............................ 814,041 35,199,133 Viacom Inc (Class B) ............... 13,316,764 590,997,986 Visteon Corp ....................... 965,841 10,054,405 Vulcan Materials Co ................ 768,753 36,569,580 Wachovia Corp ...................... 10,108,736 470,966,010 Wal-Mart Stores Inc ................ 32,973,714 1,749,255,528 Walgreen Co ........................ 7,808,075 284,057,769 Walt Disney Co ..................... 15,610,519 364,193,408 Washington Mutual Inc .............. 6,866,643 275,489,717 Waste Management Inc ............... 4,580,212 135,574,275 Waters Corp ........................ 926,074 30,708,614 Watson Pharmaceuticals Inc ......... 896,839 41,254,594 WellPoint Health Networks .......... 1,162,990 112,798,400 Wells Fargo & Co ................... 12,932,544 761,597,516 Wendy's International Inc .......... 852,125 33,437,385 Weyerhaeuser Co .................... 1,661,108 106,310,912 Whirlpool Corp ..................... 519,741 37,759,184 Williams Cos Inc ................... 3,880,534 38,106,844 Winn-Dixie Stores Inc .............. 1,065,923 10,605,934 WM Wrigley Jr Co ................... 1,704,302 95,798,815 Worthington Industries ............. 648,374 11,690,183 WW Grainger Inc .................... 699,949 33,170,583 Wyeth .............................. 10,175,390 431,945,306 Xcel Energy Inc .................... 3,037,427 51,575,510 Xerox Corp ......................... 5,985,489 82,599,748 Xilinx Inc ......................... 2,608,823 101,065,803 XL Capital Ltd (Class A) ........... 1,055,071 81,820,756 Yahoo! Inc ......................... 4,996,795 225,705,230 Yum! Brands Inc .................... 2,241,188 77,096,867 Zimmer Holdings Inc ................ 1,847,216 130,044,006 Zions Bancorporation ............... 678,525 41,613,930 --------------- TOTAL COMMON STOCK ................. $78,538,513,096 --------------- The accompanying notes are an integral part of these financial statements. SAI-76 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003
PRINCIPAL VALUE ----------------- ------------------ DEBT INSTRUMENTS -- 0.1% United States Treasury Bills3 0.87% 3/11/2004 ..... USD 75,600,000 $ 75,472,100 ---------------
UNITS ------------- STATE STREET BANK AND TRUST COMPANY COLLECTIVE INVESTMENT FUNDS -- 1.0% Short Term Investment Fund4 ......... 823,812,590 823,812,590 ----------- ----------- TOTAL INVESTMENTS -- 100% (Cost $70,408,923,663).............. $79,437,797,796 =============== ---------- 1 Real Estate Investment Trust. 2 Parent company of State Street Bank and Trust Company. 3 All or a portion of this security was pledged to cover margin requirements for open future contracts. 4 Collective investment fund advised by State Street Global Advisors. At December 31, 2003, U.S. Treasury Bills with principal of $75,600,000 were pledged to cover margin requirements for open futures contracts. The following futures contracts were open at December 31, 2003:
NUMBER OF FUTURES CONTRACTS NOTIONAL MATURITY UNREALIZED CONTRACTS LONG/(SHORT) COST DATE GAIN/(LOSS) ----------------------- -------------- --------------- ------------ -------------- S&P 500 Index Futures 3,430 $913,381,924 March 2004 $38,957,577 ===========
USD: United States Dollar The accompanying notes are an integral part of these financial statements. SAI-77 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2003 1. FUND ORGANIZATION AND INVESTMENT OBJECTIVE State Street Bank and Trust Company ("State Street Bank") S&P 500 Flagship Fund and State Street Bank and Trust Company S&P 500 Flagship Non-Lending Fund (collectively, the "Fund") were formed by State Street Bank under the State Street Bank and Trust Company Investment Funds for Tax Exempt Retirement Plans Declaration of Trust. The investment objective of the Fund is to match the return of the S&P 500 Index. State Street Bank is Trustee, custodian, and recordkeeper of the Fund and has exclusive management and control of the Trust. State Street Global Advisors, a division of State Street Bank, is the Fund's investment manager. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently in the preparation of the financial statements. A. SECURITY VALUATION Equity investments for which market quotations are readily available are valued at the last reported sale price on their principal exchange on valuation date, or official close price for certain markets. If no sales are reported for that day, investments are valued at the more recent of the last published sale price or the mean between the last reported bid and asked prices, or at fair value as determined in good faith by the Trustee. Short-term investments, if any, are stated at amortized cost, which approximates fair value. Investments in regulated investment companies or collective investment funds are valued at the net asset value per share/unit on the valuation date. B. SECURITY TRANSACTIONS AND INVESTMENT INCOME Security transactions are accounted for as of trade date. Realized gains and losses from investment transactions are determined using the average cost method. Dividend income, if any, is recorded net of applicable withholding taxes on the ex-dividend date. Interest income earned on securities, if any, is recorded net of applicable withholding taxes on the accrual basis. Interest income includes accretion of discounts and amortization of premiums, if any. C. INCOME TAXES It is the Fund's policy to comply with the requirements of Section 501(a) of the Internal Revenue Code relating to collective investment of employee benefit funds. Accordingly, the Fund is exempt from federal and state taxes and no federal or state tax provision is required. D. ISSUANCES AND REDEMPTIONS OF UNITS OF PARTICIPATION The net asset value of the Fund is determined each business day ("valuation date"). Issuances and redemptions of Fund units are made on such days, based upon the net asset value per unit and the closing market value on the valuation date of the investments bought or sold. The cost or proceeds of investments bought or sold are recorded at the execution price. Market effect is the difference between the execution price of the investment on the trade date and the investment's closing market value on the valuation date. Market effect and transaction costs (which include brokerage commissions, taxes and other direct costs related to the transactions), are recorded as realized gain/loss. SAI-78 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2003 E. EXPENSES Under the Declaration of Trust, the Fund may pay certain expenses for services received. The Fund pays State Street Bank for custody services. The Fund indirectly bears the expenses paid by the underlying funds, if any. State Street Global Advisors receives investment management fees from the participating accounts and therefore, the Fund makes no payment for these services. F. DISTRIBUTIONS TO PARTICIPANTS Net investment income (excluding security lending fee income, if any) and net realized gains are retained by the Fund. Income generated by security lending, if any, is distributed monthly to participants of the Lending Fund. G. FUTURES CONTRACTS The Fund may use futures contracts to manage exposure to the market. Buying futures tends to increase a fund's exposure to the underlying instrument. Selling futures tends to decrease a fund's exposure to the underlying instrument held by a fund, or hedge the fair value of other fund investments. Futures contracts are valued at the last settlement price at the end of each day on the board of trade or exchange upon which they are traded. Upon entering into a futures contract, the Fund is required to deposit either in cash, currency or securities an amount ("initial margin") equal to a certain percentage of the nominal value of the contract. Subsequent payments are made or received by the Fund periodically, depending on the fluctuation in the value of the underlying index or security, and are recorded as unrealized gains or losses by the Fund. A gain or loss is realized when the contract is closed or expires. Futures contracts involve, to varying degrees, credit and market risks. The Fund enters into futures contracts only on exchanges or boards of trade where the exchange or board of trade acts as the counterparty to the transaction. Thus, credit risk on such transactions is limited to the failure of the exchange or board of trade. Losses in value may arise from changes in the value of the underlying instruments or if there is an illiquid secondary market for the contracts. In addition, there is the risk that there may not be an exact correlation between a futures contract and the underlying index or security. 3. GLOBAL SECURITIES LENDING PROGRAM: PRINCIPLES OF COMBINATION The participants in the S&P 500 Flagship Fund (the "Lending Fund") have authorized the Lending Fund to participate in the Global Securities Lending Program maintained by State Street Bank. The investment objective, techniques and results of operations of the Lending Fund are identical to those of the S&P 500 Flagship Non-Lending Fund (the "Non-Lending Fund"), except that the Lending Fund engages in securities lending activity. Accordingly, the financial statements of the Lending Fund and the Non-Lending Fund have been prepared on a combined basis, with separate disclosure of the participant transactions and financial highlights of the Lending Fund and the Non-Lending Fund. The Lending Fund and the Non-Lending Fund each maintain a divided pro-rata interest in the combined assets and liabilities (including each investment security position but excluding assets and liabilities related to securities lending activity) proportionate to the net asset value of the outstanding combined units of the Fund. All interfund transactions have been eliminated in the combined financial statements. SAI-79 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY S&P 500 FLAGSHIP FUND S&P 500 FLAGSHIP NON-LENDING FUND NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2003 Under the Global Securities Lending Program, securities held by the Lending Fund are loaned by State Street Bank, as agent, to certain brokers and other financial institutions (the "Borrowers"). The Borrowers provide cash, securities, or letters of credit as collateral against loans in an amount at least equal to 100% of the market value of the loaned securities. The Borrowers are required to maintain the collateral at not less than 100% of the market value of the loaned securities. At December 31, 2003, the market value of securities loaned by the Lending Fund is disclosed on the Statement of Assets and Liabilities. Cash collateral provided by the Borrowers is recorded on the Statement of Assets and Liabilities and is invested in State Street Bank and Trust Company Quality D Short-Term Investment Fund. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the Lending Fund and State Street Bank in its capacity as lending agent. Negotiated lenders' fees are received for those loans collateralized by securities or letters of credit, if any. Securities lending fee income, if any, is recorded on an accrual basis by the Lending Fund. State Street Bank, as lending agent, indemnifies the Lending Fund for replacement of any loaned securities (or, in certain circumstances, return of equivalent cash value) due to Borrower default on a security loan. Lending Fund participants, however, bear the risk of loss with respect to the investment of collateral. 4. INVESTMENT TRANSACTIONS Purchases and sales of securities, including in-kind contributions and redemptions, if any, during the period ended December 31, 2003 were $20,663,237,485 and $15,993,514,579, respectively. SAI-80 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS To the Participants and Trustee of State Street Bank and Trust Company Russell 2000 Index Securities Lending Fund and State Street Bank and Trust Company Russell 2000 Index Fund In our opinion, the accompanying combined statement of assets and liabilities, including the combined schedule of investments, and the related combined statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of State Street Bank and Trust Company Russell 2000 Index Securities Lending Fund and State Street Bank and Trust Company Russell 2000 Index Fund at December 31, 2003, and the results of their operations, the changes in their net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trustee; 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 auditing standards generally accepted in the United States of America, 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 the Trustee, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2003 by correspondence with the custodian, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 27, 2004 SAI-81 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Statement of Assets and Liabilities December 31, 2003 -------------------------------------------------------------------------------- ASSETS Investments in securities, at value, (including securities on loan of $644,864,281) (cost $3,776,182,710) ................................................................... $4,409,461,587 Investments held as collateral for securities loaned ..................................... 672,383,411 Receivable for Fund units issued ......................................................... 28,681,535 Receivable for investments sold .......................................................... 69,161,130 Dividends receivable ..................................................................... 4,227,397 Interest receivable ...................................................................... 145,574 Tax reclaims receivable .................................................................. 2,753 ------------------------------------------------------------------------------------------------------------ Total assets .......................................................................... 5,184,063,387 ------------------------------------------------------------------------------------------------------------ LIABILITIES Payable for collateral on securities loaned .............................................. 672,383,411 Payable for investments purchased ........................................................ 49,909,759 Variation margin payable ................................................................. 1,781,600 Accrued expenses ......................................................................... 147,530 ------------------------------------------------------------------------------------------------------------ Total liabilities ..................................................................... 724,222,300 ------------------------------------------------------------------------------------------------------------ NET ASSETS ............................................................................... $4,459,841,087 ============================================================================================================ RUSSELL 2000 INDEX SECURITIES LENDING FUND (122,671,486 units outstanding, at $32.04 per unit net asset value) ..................................................... $3,930,641,189 RUSSELL 2000 INDEX FUND (16,515,814 units outstanding, at $32.04 per unit net asset value) 529,199,898 ------------------------------------------------------------------------------------------------------------ $4,459,841,087 ============================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-82 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Statement of Operations Year Ended December 31, 2003 -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends ............................................................................... $ 42,447,129 Interest ................................................................................ 1,698,375 Securities lending fee income (net of related expenses), allocated to the Lending Fund .. 1,426,283 ------------------------------------------------------------------------------------------------------------- Total investment income ............................................................... 45,571,787 ------------------------------------------------------------------------------------------------------------- EXPENSES Custody ................................................................................. 1,136,873 Audit ................................................................................... 70,000 Other 1,370 ------------------------------------------------------------------------------------------------------------- Total expenses ........................................................................ 1,208,243 ------------------------------------------------------------------------------------------------------------- Net investment income (loss) .......................................................... 44,363,544 ------------------------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss): Investments .......................................................................... 56,792,898 Futures contracts .................................................................... 49,103,844 ------------------------------------------------------------------------------------------------------------- 105,896,742 ------------------------------------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation): Investments .......................................................................... 1,226,888,832 Futures contracts .................................................................... 7,091,917 ------------------------------------------------------------------------------------------------------------- 1,233,980,749 ------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) ................................................. 1,339,877,491 ------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .......................... $ 1,384,241,035 =============================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-83 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Statement of Changes in Net Assets --------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 2003 2002 ------------------------------------------------------------------------------------------------------------------------------ FROM OPERATIONS Net investment income (loss) ............................................................. $ 44,363,544 $ 37,261,163 Net realized gain (loss) ................................................................. 105,896,742 (154,045,233) Net change in unrealized appreciation (depreciation) ..................................... 1,233,980,749 (466,272,184) ------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations .......................... 1,384,241,035 (583,056,254) ------------------------------------------------------------------------------------------------------------------------------ Distributions of security lending fee income, allocated to the Lending Fund participants . (1,426,283) (1,724,775) Net increase (decrease) in net assets resulting from participant transactions ............ 883,154,128 137,191,950 ------------------------------------------------------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN NET ASSETS .................................................... 2,265,968,880 (447,589,079) NET ASSETS Beginning of year ....................................................................... 2,193,872,207 2,641,461,286 ------------------------------------------------------------------------------------------------------------------------------ End of year ............................................................................. $4,459,841,087 $2,193,872,207 ==============================================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-84 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Statement of Changes in Net Assets (Continued) --------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------- 2003 2002 -------------------------------------- -------------------------------- UNITS AMOUNT UNITS AMOUNT ---------------------------------------------------------------------------------------------------------------------------------- UNITS OF PARTICIPATION PARTICIPANT TRANSACTIONS FOR THE FUND WERE AS FOLLOWS: LENDING FUND Units issued ......................................... 93,225,523 $ 2,445,567,140 39,664,311 $ 989,136,517 Units redeemed ....................................... (59,516,513) (1,674,404,212) (33,799,074) (803,195,584) ---------------------------------------------------------------------------------------------------------------------------------- Total ............................................... 33,709,010 $ 771,162,928 5,865,237 $ 185,940,933 ---------------------------------------------------------------------------------------------------------------------------------- NON-LENDING FUND Units issued ......................................... 18,101,616 $ 464,238,479 5,617,431 $ 143,251,491 Units redeemed ....................................... (12,780,630) (352,247,279) (7,322,271) (192,000,474) ---------------------------------------------------------------------------------------------------------------------------------- Total ............................................... 5,320,986 $ 111,991,200 (1,704,840) $ (48,748,983) ---------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) ............................ 39,029,996 $ 883,154,128 4,160,397 $ 137,191,950 ==================================================================================================================================
LENDING FUND Units in excess of 10% of the Lending Fund units outstanding at December 31, 2003 held by 1 of the Lending Fund's unitholders aggregated 60% of the Lending Fund's total units outstanding. NON-LENDING FUND Units in excess of 10% of the Non-Lending Fund units outstanding at December 31, 2003 held by 3 of the Non-Lending Fund's unitholders aggregated 83% of the Non-Lending Fund's total units outstanding. The accompanying notes are an integral part of these financial statements. SAI-85 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND Financial Highlights (FOR A UNIT OF PARTICIPATION OUTSTANDING THROUGHOUT THE YEAR) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 2003 2002 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------------- SELECTED PER UNIT DATA Net asset value, beginning of year .................... $ 21.90 $ 27.52 $ 26.92 $ 27.78 $ 23.07 ----------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) (a) ...................... 0.36 0.37 0.41 0.44 0.39 Net realized and unrealized gain (loss) ............... 9.79 ( 5.97) 0.21 ( 1.28) 4.34 ----------------------------------------------------------------------------------------------------------------------------- Total from investment operations ...................... 10.15 ( 5.60) 0.62 ( 0.84) 4.73 Distribution of securities lending fee income ......... ( 0.01) ( 0.02) ( 0.02) ( 0.02) ( 0.02) ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of year .......................... $ 32.04 $ 21.90 $ 27.52 $ 26.92 $ 27.78 ============================================================================================================================= Total return (%) (b) .................................. 46.36 (20.33) 2.33 ( 3.01) 20.50 RATIOS TO AVERAGE NET ASSETS Ratio of expenses (%) (c) ............................. 0.04 0.03 0.03 0.03 0.03 Ratio of net investment income (%) .................... 1.36 1.50 1.56 1.57 1.61 Portfolio turnover (%) ................................ 110 92 91 76 51 Net assets, end of year (000,000s) .................... $ 3,930 $ 1,949 $ 2,287 $ 1,818 $ 1,904
---------- (a) Net investment income (loss) per unit has been calculated based upon an average of month-end units outstanding. (b) Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year and assumes reinvestment of distributions, if any. The calculation includes only those expenses charged directly to the Lending Fund. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. (c) The calculation includes only those expenses charged directly to the Fund, and does not include expenses charged to the funds in which the Fund invests. The accompanying notes are an integral part of these financial statements. SAI-86 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX FUND Financial Highlights (FOR A UNIT OF PARTICIPATION OUTSTANDING THROUGHOUT THE YEAR) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 2003 2002 2001 2000 1999 SELECTED PER UNIT DATA Net asset value, beginning of year .............. $ 21.90 $ 27.52 $ 26.92 $ 27.78 $ 23.07 ----------------------------------------------------------------------------------------------------------------------- Net investment income (loss) (a) ................ 0.35 0.35 0.39 0.42 0.37 Net realized and unrealized gain (loss) ......... 9.79 ( 5.97) 0.21 ( 1.28) 4.34 ----------------------------------------------------------------------------------------------------------------------- Total from investment operations ................ 10.14 ( 5.62) 0.60 ( 0.86) 4.71 ----------------------------------------------------------------------------------------------------------------------- Net asset value, end of year .................... $ 32.04 $ 21.90 $ 27.52 $ 26.92 $ 27.78 ======================================================================================================================= Total return (%) (b) ............................ 46.28 (20.39) 2.23 ( 3.10) 20.42 RATIOS TO AVERAGE NET ASSETS Ratio of expenses (%) (c) ....................... 0.04 0.03 0.03 0.03 0.03 Ratio of net investment income (%) .............. 1.31 1.42 1.48 1.48 1.54 Portfolio turnover (%) .......................... 110 92 91 76 51 Net assets, end of year (000,000s) .............. $ 529 $ 245 $ 355 $ 382 $ 118
---------- (a) Net investment income (loss) per unit has been calculated based upon an average of month-end units outstanding. (b) Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year. The calculation includes only those expenses charged directly to the Non-Lending Fund. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. (c) The calculation includes only those expenses charged directly to the Fund, and does not include expenses charged to the funds in which the Fund invests. The accompanying notes are an integral part of these financial statements. SAI-87 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK -- 97.8% 1-800 Contacts Inc ...................... 23,400 $ 491,400 1-800-FLOWERS.COM Inc ................... 98,485 1,089,244 1st Source Corp ......................... 61,438 1,321,531 21st Century Insurance Group ............ 97,100 1,335,125 4Kids Entertainment Inc ................. 60,184 1,565,988 7-Eleven Inc ............................ 122,000 1,958,100 aaiPharma Inc ........................... 70,015 1,758,777 Aaon Inc ................................ 44,450 862,775 AAR Corp ................................ 160,297 2,396,440 Aaron Rents Inc ......................... 123,144 2,478,889 ABC Bancorp ............................. 46,400 741,008 Abgenix Inc ............................. 443,500 5,526,010 Able Laboratories Inc ................... 66,916 1,209,172 ABM Industries Inc ...................... 185,630 3,231,818 AC Moore Arts & Crafts Inc .............. 57,200 1,101,672 Acadia Realty Trust ..................... 67,200 840,000 Accredited Home Lenders Holding Co ...... 45,771 1,400,593 Accredo Health Inc ...................... 239,300 7,564,273 Aceto Corp .............................. 40,900 1,044,586 Aclara BioSciences Inc .................. 106,900 390,185 Acme Communications Inc ................. 35,400 311,166 Actel Corp .............................. 108,260 2,609,066 Action Performance Cos Inc .............. 71,700 1,405,320 ActivCard Corp .......................... 179,700 1,416,036 Activision Inc .......................... 426,400 7,760,480 Actuant Corp ............................ 106,600 3,858,920 Acuity Brands Inc ....................... 209,431 5,403,320 Adaptec Inc ............................. 542,200 4,787,626 Administaff Inc ......................... 96,172 1,671,469 Adolor Corp ............................. 177,042 3,544,381 Advanced Digital Information Corp ....... 305,388 4,275,432 Advanced Energy Industries Inc .......... 76,088 1,982,092 Advanced Marketing Services ............. 78,732 897,545 Advanced Medical Optics Inc ............. 147,600 2,900,340 Advanced Neuromodulation Systems Inc .... 90,450 4,158,891 Advanta Corp ............................ 109,100 1,387,752 Advent Software Inc ..................... 154,800 2,698,164 Advisory Board Co/The ................... 51,425 1,795,247 Advo Inc ................................ 151,293 4,805,066 Aeroflex Inc ............................ 264,040 3,086,628 Aeropostale Inc ......................... 98,300 2,695,386 Aether Systems Inc ...................... 162,200 770,450 Affiliated Managers Group ............... 106,100 7,383,499 Aftermarket Technology Corp ............. 69,100 948,052 Agile Software Corp ..................... 213,800 2,116,620 Agilysys Inc ............................ 141,205 1,574,436 The accompanying notes are an integral part of these financial statements. SAI-88 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Airtran Holdings Inc .................... 384,042 $ 4,570,100 AK Steel Holding Corp ................... 445,800 2,273,580 Akamai Technologies Inc ................. 499,000 5,364,250 Aksys Ltd ............................... 144,900 1,279,467 Alabama National Bancorp ................ 48,060 2,525,553 Alamo Group Inc ......................... 25,300 386,078 Alaris Medical Systems Inc .............. 90,000 1,368,900 Alaska Air Group Inc .................... 105,559 2,880,705 Albany International Corp ............... 125,799 4,264,586 Albany Molecular Research Inc ........... 116,568 1,750,851 Albemarle Corp .......................... 161,000 4,825,170 Alderwoods Group Inc .................... 175,103 1,649,470 Alexander & Baldwin Inc ................. 206,327 6,951,157 Alexander's Inc ......................... 10,473 1,305,564 Alexandria Real Estate Equities Inc ..... 96,046 5,561,063 Alexion Pharmaceuticals Inc ............. 102,528 1,745,027 Alfa Corp ............................... 177,878 2,287,511 Alico Inc ............................... 15,650 543,994 Align Technology Inc .................... 213,800 3,531,976 Alkermes Inc ............................ 316,700 4,275,450 Allegheny Energy Inc .................... 636,418 8,120,694 Allegheny Technologies Inc .............. 412,600 5,454,572 Allegiant Bancorp Inc ................... 62,500 1,753,125 Alliance Gaming Corp .................... 247,726 6,106,446 Alliance Imaging Inc .................... 64,200 237,540 Alliance Semiconductor Corp ............. 111,069 789,701 Allmerica Financial Corp ................ 257,700 7,929,429 Alloy Inc ............................... 192,500 1,002,925 Allscripts Healthcare Solutions Inc ..... 126,906 675,140 Alpharma Inc ............................ 197,037 3,960,444 Alteon Inc .............................. 139,000 218,230 Altiris Inc ............................. 41,300 1,506,624 Ambassadors Group Inc ................... 22,700 533,223 Ambassadors International Inc ........... 27,700 346,250 AMC Entertainment Inc ................... 160,000 2,433,600 Amcol International Corp ................ 87,200 1,770,160 Amcore Financial Inc .................... 127,594 3,447,590 America West Holdings Corp .............. 158,600 1,966,640 America's Car Mart Inc .................. 19,800 533,016 American Eagle Outfitters ............... 263,500 4,321,400 American Greetings ...................... 297,500 6,506,325 American Healthways Inc ................. 130,398 3,112,600 American Home Mortgage Investment Corp .. 92,806 2,089,063 American Italian Pasta Co ............... 72,519 3,038,546 American Land Lease Inc ................. 24,900 496,755 The accompanying notes are an integral part of these financial statements. SAI-89 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) American Management Systems ............. 189,900 $ 2,861,793 American Medical Security Group Inc ..... 56,500 1,266,730 American Medical Systems Holdings Inc ... 103,500 2,256,300 American Mortgage Acceptance Co ......... 43,900 715,570 American National Bankshares Inc/VA ..... 19,300 511,064 American Physicians Capital Inc ......... 38,100 701,040 American Realty Investors Inc ........... 18,800 171,644 American States Water Co ................ 80,269 2,006,725 American Woodmark Corp .................. 26,213 1,443,026 AmericanWest Bancorp .................... 44,697 1,019,092 AMERIGROUP Corp ......................... 118,546 5,055,987 Ameristar Casinos Inc ................... 42,500 1,039,975 Ameron International Corp ............... 36,100 1,252,309 AmerUs Group Co ......................... 196,600 6,875,102 AMLI Residential Properties Trust ....... 85,666 2,295,849 AMN Healthcare Services Inc ............. 67,908 1,165,301 Ampco-Pittsburgh Corp ................... 22,127 302,476 AMR Corp ................................ 750,650 9,720,918 Amsurg Corp ............................. 87,300 3,307,797 Analogic Corp ........................... 39,027 1,600,107 Anaren Inc .............................. 113,348 1,600,474 Anchor Bancorp Wisconsin Inc ............ 101,270 2,521,623 Andrew Corp ............................. 738,793 8,503,507 Angelica Corp ........................... 31,500 693,000 Anixter International Inc ............... 158,166 4,093,336 AnnTaylor Stores Corp ................... 221,758 8,648,562 Ansoft Corp ............................. 29,400 377,202 Ansys Inc ............................... 75,600 3,001,320 Anteon International Corp ............... 90,500 3,262,525 Anthracite Capital Inc .................. 223,500 2,474,145 Antigenics Inc .......................... 91,661 1,037,603 Anworth Mortgage Asset Corp ............. 201,800 2,811,074 AO Smith Corp ........................... 85,979 3,013,564 APAC Customer Services Inc .............. 131,820 342,732 Aphton Corp ............................. 121,518 729,108 Apogee Enterprises Inc .................. 120,700 1,369,945 Applera Corp -- Celera Genomics Group ... 347,700 4,836,507 Applica Inc ............................. 103,947 789,997 Applied Films Corp ...................... 70,169 2,316,980 Applied Industrial Technologies Inc ..... 70,201 1,674,996 Applied Signal Technology Inc ........... 40,200 925,002 aQuantive Inc ........................... 2,119,700 206,800 Aquila Inc .............................. 926,800 3,141,852 Arbitron Inc ............................ 148,800 6,207,936 Arch Chemicals Inc ...................... 102,960 2,641,954 The accompanying notes are an integral part of these financial statements. SAI-90 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Arch Coal Inc ............................ 232,693 $ 7,253,041 Arctic Cat Inc ........................... 63,547 1,569,611 Arden Group Inc .......................... 6,600 511,500 Arena Pharmaceuticals Inc ................ 81,000 502,200 Argonaut Group Inc ....................... 122,225 1,899,377 Argosy Gaming Co ......................... 114,103 2,965,537 Ariad Pharmaceuticals Inc ................ 217,200 1,618,140 Ariba Inc ................................ 1,366,393 4,099,179 Arkansas Best Corp ....................... 98,872 3,103,592 Armor Holdings Inc ....................... 99,070 2,606,532 Arris Group Inc .......................... 279,300 2,022,132 Arrow Financial Corp ..................... 39,400 1,094,138 Arrow International Inc .................. 105,762 2,641,935 Artesyn Technologies Inc ................. 165,132 1,406,925 Arthrocare Corp .......................... 90,842 2,225,629 Artisan Components Inc ................... 82,900 1,699,450 Asbury Automotive Group Inc .............. 59,800 1,071,018 Ascential Software Corp .................. 278,600 7,224,098 AsiaInfo Holdings Inc .................... 140,200 936,536 Ask Jeeves ............................... 175,486 3,179,806 Aspect Communications Corp ............... 151,500 2,387,640 Aspect Medical Systems Inc ............... 44,100 503,181 Aspen Technology Inc ..................... 146,084 1,498,822 Associated Estates Realty ................ 69,500 508,045 Astec Industries Inc ..................... 73,325 899,698 ASV Inc .................................. 26,000 971,360 Asyst Technologies Inc ................... 225,128 3,905,971 At Road Inc .............................. 138,000 1,835,400 Atari Inc ................................ 25,946 108,973 Atherogenics Inc ......................... 183,000 2,735,850 Atlantic Coast Airlines Holdings Inc ..... 163,009 1,613,789 ATMI Inc ................................. 133,441 3,087,825 Atmos Energy Corp ........................ 239,745 5,825,804 Atrix Labs Inc ........................... 100,400 2,413,616 Atwood Oceanics Inc ...................... 39,836 1,272,362 Audiovox Corp ............................ 78,115 1,002,997 Autobytel Inc ............................ 142,900 1,297,532 Avanex Corp .............................. 239,800 1,196,602 Avant Immunotherapeutics Inc ............. 289,600 793,504 Avatar Holdings Inc ...................... 17,986 664,403 AVI BioPharma Inc ........................ 88,600 360,602 Aviall Inc ............................... 157,100 2,436,621 Avid Technology Inc ...................... 150,264 7,212,672 Avista Corp .............................. 227,039 4,113,947 Axcelis Technologies Inc ................. 477,700 4,882,094 The accompanying notes are an integral part of these financial statements. SAI-91 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Aztar Corp ............................... 136,894 $ 3,080,115 Baldor Electric Co ....................... 146,867 3,355,911 Baldwin & Lyons Inc ...................... 35,489 995,821 Bally Total Fitness Holding Corp ......... 145,108 1,015,756 Bancfirst Corp ........................... 16,075 943,635 BancTrust Financial Group Inc ............ 30,500 488,610 Bandag Inc ............................... 59,231 2,440,317 Bank Mutual Corp ......................... 185,519 2,113,061 Bank of Granite Corp ..................... 63,488 1,382,769 Bank of the Ozarks Inc ................... 37,300 839,623 BankAtlantic Bancorp Inc ................. 214,104 4,067,976 Bankrate Inc ............................. 24,100 298,358 Bankunited Financial Corp ................ 132,239 3,410,444 Banner Corp .............................. 46,500 1,169,475 Banta Corp ............................... 118,528 4,800,384 Barnes Group Inc ......................... 63,972 2,066,935 Barra Inc ................................ 68,607 2,434,862 Bassett Furniture Industries Inc ......... 54,000 891,000 Bay View Capital Corp .................... 309,616 662,578 Beasley Broadcasting Group Inc ........... 14,400 236,592 Beazer Homes USA Inc ..................... 66,245 6,469,487 Bebe Stores Inc .......................... 25,404 660,250 Bedford Property Investors ............... 69,483 1,989,298 BEI Technologies Inc ..................... 40,400 808,000 Bel Fuse Inc ............................. 46,319 1,511,389 Belden Inc ............................... 112,763 2,378,172 Benchmark Electronics Inc ................ 185,953 6,473,024 Bentley Pharmaceuticals Inc .............. 61,400 816,620 Berkshire Hills Bancorp Inc .............. 24,100 872,420 Berry Petroleum Co ....................... 64,900 1,314,225 Beverly Enterprises Inc .................. 464,686 3,991,653 BHA Group Holdings Inc ................... 18,162 456,774 Big 5 Sporting Goods Corp ................ 64,500 1,351,275 Biolase Technology Inc ................... 91,448 1,518,037 BioMarin Pharmaceuticals Inc ............. 292,341 2,271,197 Biopure Corp ............................. 155,334 369,695 Bioreliance Corp ......................... 26,600 1,272,012 Biosite Inc .............................. 56,362 1,631,680 BJ's Wholesale Club Inc .................. 347,900 7,987,784 BKF Capital Group Inc .................... 27,400 676,232 Black Box Corp ........................... 80,725 3,719,001 Black Hills Corp ......................... 159,000 4,742,970 Blair Corp ............................... 32,000 778,880 Blount International Inc ................. 19,100 150,317 Blue Rhino Corp .......................... 59,246 822,927 The accompanying notes are an integral part of these financial statements. SAI-92 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Bob Evans Farms Inc ...................... 169,075 $ 5,488,175 Boca Resorts Inc ......................... 121,155 1,812,479 Bombay Co Inc/The ........................ 161,500 1,314,610 Bone Care International Inc .............. 42,942 547,081 Borland Software Corp .................... 361,493 3,517,327 Boston Beer Co Inc ....................... 32,500 589,550 Boston Communications Group .............. 69,000 641,010 Boston Private Financial Holdings Inc .... 98,975 2,458,539 Bowne & Co Inc ........................... 174,492 2,366,112 Boyd Gaming Corp ......................... 164,523 2,655,401 Boyds Collection Ltd ..................... 102,475 435,519 Boykin Lodging Co ........................ 77,354 707,789 Bradley Pharmaceuticals Inc .............. 37,100 943,453 Brady Corp ............................... 87,573 3,568,600 Brandywine Realty Trust (REIT)(1) ........ 126,785 3,394,034 Briggs & Stratton Corp ................... 104,406 7,036,964 Bright Horizons Family Solutions Inc ..... 58,766 2,468,172 Brink's Co/The ........................... 272,100 6,152,181 BroadVision Inc .......................... 107,256 456,911 Brookfield Homes Corp .................... 80,300 2,069,331 Brookline Bancorp Inc .................... 292,708 4,490,141 Brooks Automation Inc .................... 175,780 4,248,603 Brookstone Inc ........................... 58,400 1,244,504 Brown Shoe Co Inc ........................ 77,466 2,938,285 BRT Realty Trust (REIT)(1) ............... 16,048 462,985 Bruker BioSciences Corp .................. 86,047 391,514 Brush Engineered Materials Inc ........... 63,400 970,654 Bryn Mawr Bank Corp ...................... 31,800 778,782 BSB Bancorp Inc .......................... 39,215 1,548,993 Buckeye Technologies Inc ................. 126,684 1,273,174 Buckle Inc/The ........................... 33,423 740,319 Building Material Holding Corp ........... 54,000 838,620 Burlington Coat Factory Warehouse Corp ... 91,636 1,939,018 C&D Technologies Inc ..................... 107,356 2,058,015 C&F Financial Corp ....................... 14,300 567,710 C-COR.net Corp ........................... 153,830 1,712,128 Cable Design Technologies Corp ........... 199,141 1,790,278 Cabot Microelectronics Corp .............. 91,400 4,478,600 Cabot Oil & Gas Corp ..................... 129,377 3,797,215 CACI International Inc ................... 142,408 6,923,877 Cal Dive International Inc ............... 172,963 4,170,138 Calgon Carbon Corp ....................... 173,004 1,074,355 California Pizza Kitchen Inc ............. 69,650 1,402,055 California Water Service Group ........... 77,103 2,112,622 Callaway Golf Co ......................... 332,500 5,602,625 The accompanying notes are an integral part of these financial statements. SAI-93 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Cambrex Corp .......................... 99,432 $ 2,511,652 Camco Financial Corp .................. 41,042 711,258 Camden National Corp .................. 43,700 1,326,732 Candela Corp .......................... 39,500 718,110 Cantel Medical Corp ................... 34,600 560,174 Capital Automotive (REIT)(1) .......... 111,008 3,552,256 Capital City Bank Group Inc ........... 37,595 1,728,994 Capital Corp of the West .............. 22,000 872,080 Capital Southwest Corp ................ 22,300 1,382,600 Capitol Bancorp Ltd ................... 45,500 1,292,200 Capstead Mortgage Corp ................ 50,097 840,628 Caraustar Industries Inc .............. 134,374 1,854,361 CARBO Ceramics Inc .................... 51,877 2,658,696 Cardiac Science Inc ................... 203,100 810,369 Cardiodynamics International Corp ..... 162,442 969,779 Carmike Cinemas Inc ................... 9,000 313,650 Carpenter Technology .................. 96,091 2,841,411 Cascade Bancorp ....................... 61,200 1,178,712 Cascade Corp .......................... 38,500 858,550 Cascade Natural Gas Corp .............. 52,907 1,115,809 Casella Waste Systems Inc ............. 39,566 541,659 Casey's General Stores Inc ............ 223,046 3,938,992 Cash America International Inc ........ 141,908 3,005,611 Casual Male Retail Group Inc .......... 147,626 1,024,524 Catalina Marketing Corp ............... 193,600 3,902,976 Catapult Communications Corp .......... 22,900 332,050 Cathay General Bancorp ................ 98,680 5,494,502 Cato Corp/The ......................... 80,364 1,647,462 Cavalry Bancorp Inc ................... 24,400 428,708 CB Bancshares Inc ..................... 20,633 1,291,626 CCBT Financial Cos Inc ................ 35,511 1,241,109 CCC Information Services Group ........ 47,453 801,956 CDI Corp .............................. 59,445 1,946,824 CEC Entertainment Inc ................. 113,500 5,378,765 Cell Genesys Inc ...................... 174,441 2,257,267 Cell Therapeutics Inc ................. 169,142 1,471,535 Centene Corp .......................... 83,450 2,337,435 Centennial Communications Corp ........ 42,025 221,052 Center Bancorp Inc .................... 33,300 654,678 Center Financial Corp ................. 21,600 588,600 Centex Construction Products Inc ...... 34,373 2,071,661 Centillium Communications Inc ......... 164,597 926,681 Central Coast Bancorp ................. 37,724 684,313 Central European Distribution Corp .... 36,018 1,138,169 Central Garden and Pet Co ............. 76,900 2,155,507 The accompanying notes are an integral part of these financial statements. SAI-94 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Central Pacific Financial Corp .......... 70,154 $ 2,107,426 Central Parking Corp .................... 94,134 1,405,421 Central Vermont Public Service Corp ..... 57,928 1,361,308 Century Aluminum Co ..................... 64,235 1,221,107 Century Bancorp Inc/Mass ................ 9,300 329,778 Century Business Services Inc ........... 356,414 1,593,171 Cepheid Inc ............................. 151,889 1,455,097 Ceradyne Inc ............................ 42,600 1,450,956 Cerner Corp ............................. 135,300 5,121,105 Cerus Corp .............................. 71,514 324,674 Ceva Inc ................................ 74,200 771,680 CFS Bancorp Inc ......................... 42,100 624,764 CH Energy Group Inc ..................... 71,966 3,375,205 Champion Enterprises Inc ................ 274,746 1,923,222 Charles River Associates Inc ............ 39,800 1,273,202 Charlotte Russe Holding Inc ............. 49,700 688,842 Charming Shoppes ........................ 514,178 2,776,561 Charter Communications Inc .............. 1,269,100 5,101,782 Charter Financial Corp/GA ............... 19,200 715,584 CharterMac .............................. 194,292 4,105,390 Chattem Inc ............................. 65,500 1,172,450 Checkpoint Systems Inc .................. 169,548 3,206,153 Chemical Financial Corp ................. 111,437 4,055,192 Cherokee Inc ............................ 31,076 706,668 Chesapeake Corp ......................... 73,374 1,942,944 Chesapeake Utilities Corp ............... 27,600 718,980 Chicago Pizza & Brewery Inc ............. 38,550 575,166 Childrens Place ......................... 60,396 1,614,385 ChipPAC Inc ............................. 224,900 1,706,991 Chiquita Brands International Inc ....... 168,700 3,800,811 Chittenden Corp ......................... 158,834 5,343,176 Choice Hotels International Inc ......... 100,628 3,547,137 Cholestech Corp ......................... 66,700 508,921 Christopher & Banks Corp ................ 177,884 3,474,075 Chronimed Inc ........................... 53,600 454,528 Churchill Downs Inc ..................... 27,377 991,075 Ciber Inc ............................... 256,744 2,223,403 Cima Labs Inc ........................... 74,600 2,433,452 Cimarex Energy Co ....................... 209,400 5,588,886 Cincinnati Bell Inc ..................... 864,838 4,367,432 Ciphergen Biosystems Inc ................ 108,770 1,222,575 CIRCOR International Inc ................ 51,000 1,229,100 Cirrus Logic Inc ........................ 310,400 2,380,768 Citizens Banking Corp/MI ................ 209,900 6,867,928 Citizens First Bancorp Inc .............. 45,100 1,028,280 The accompanying notes are an integral part of these financial statements. SAI-95 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Citizens Inc ............................. 141,205 $ 1,331,558 Citizens South Banking Corp .............. 38,190 532,751 City Bank/Lynnwood WA .................... 39,922 1,297,465 City Holding Co .......................... 83,674 2,928,590 CKE Restaurants Inc ...................... 221,300 1,414,107 Clarcor Inc .............................. 124,239 5,478,940 Clark Inc ................................ 80,300 1,544,972 Clayton Williams Energy Inc .............. 21,300 619,191 Clean Harbors Inc ........................ 34,656 308,785 Cleco Corp ............................... 224,645 4,039,117 Cleveland-Cliffs Inc ..................... 45,734 2,330,147 Closure Medical Corp ..................... 32,156 1,091,053 CMGI Inc ................................. 1,890,700 3,365,446 CMS Energy Corp .......................... 767,280 6,537,226 CNA Surety Corp .......................... 70,754 672,871 CNB Financial Corp/PA .................... 16,900 711,152 CNET Networks Inc ........................ 512,493 3,495,202 Coachmen Industries Inc .................. 70,769 1,281,627 Coastal Bancorp Inc ...................... 21,000 863,310 Coastal Financial Corp ................... 48,064 847,849 CoBiz Inc ................................ 43,100 793,902 Coca-Cola Bottling Co Consolidated ....... 17,813 952,817 Coeur D'alene Mines Corp ................. 1,038,874 6,004,692 Cognex Corp .............................. 161,800 4,569,232 Coherent Inc ............................. 144,691 3,443,646 Cohu Inc ................................. 109,818 2,103,015 Coinstar Inc ............................. 95,345 1,721,931 Coldwater Creek Inc ...................... 58,598 644,578 Cole National Corp ....................... 57,800 1,156,000 Collagenex Pharmaceuticals Inc ........... 51,900 581,799 Collins & Aikman Corp .................... 135,512 586,767 Colonial Properties Trust ................ 77,503 3,069,119 Columbia Bancorp ......................... 24,175 772,391 Columbia Bancorp/OR ...................... 22,400 386,400 Columbia Banking Systems Inc ............. 64,629 1,399,864 Columbia Laboratories Inc ................ 156,055 983,147 Commerce Group Inc ....................... 116,916 4,618,182 Commercial Bankshares Inc/Fl ............. 15,647 525,113 Commercial Capital Bancorp Inc ........... 36,166 774,314 Commercial Federal Corp .................. 219,335 5,858,438 Commercial Metals Co ..................... 123,972 3,768,749 Commercial Net Lease Realty .............. 185,919 3,309,358 Commonwealth Telephone Enterprises Inc ... 110,029 4,153,595 CommScope Inc ............................ 247,000 4,033,510 Community Bank Of North VA ............... 20,334 385,939 The accompanying notes are an integral part of these financial statements. SAI-96 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Community Bank System Inc ................... 49,400 $ 2,420,600 Community Banks Inc ......................... 39,559 1,555,064 Community First Bankshares Inc .............. 184,158 5,329,533 Community Trust Bancorp Inc ................. 65,286 1,971,637 Compucom Systems Inc ........................ 112,400 588,976 CompuCredit Corp ............................ 62,382 1,327,489 Computer Horizons Corp ...................... 134,400 528,192 Computer Network Technology Corp ............ 123,460 1,177,808 Computer Programs & Systems Inc ............. 27,900 561,348 Comstock Resources Inc ...................... 146,548 2,828,376 Comtech Telecommunications .................. 69,449 2,004,993 Conceptus Inc ............................... 77,600 824,112 Concord Camera Corp ......................... 127,943 1,183,473 Concord Communications Inc .................. 81,500 1,627,555 Concur Technologies Inc ..................... 116,022 1,123,093 Concurrent Computer Corp .................... 296,467 1,295,561 Conexant Systems Inc ........................ 1,346,885 6,694,018 Conmed Corp ................................. 148,139 3,525,708 Connecticut Bancshares Inc/de ............... 52,897 2,726,311 Connecticut Water Service Inc ............... 36,650 1,013,373 Connetics Corp .............................. 128,930 2,341,369 Consolidated Graphics Inc ................... 42,900 1,354,782 Consolidated-Tomoka Land Co ................. 26,600 869,820 Continental Airlines Inc .................... 331,950 5,400,827 Convera Corp ................................ 55,400 188,914 Cooper Cos Inc .............................. 155,541 7,330,647 Cooper Tire & Rubber Co ..................... 315,928 6,754,541 Copart Inc .................................. 335,400 5,534,100 Corixa Corp ................................. 233,742 1,411,802 Corn Products International Inc ............. 181,009 6,235,760 Cornell Cos Inc ............................. 56,800 775,320 Cornerstone Realty Income Trust Inc (REIT)(1) ................................. 292,288 2,560,443 Corporate Office Properties Trust SBI MD .... 146,450 3,075,450 Correctional Properties Trust ............... 53,500 1,540,800 Corrections Corp of America ................. 177,135 5,106,802 Corus Bankshares Inc ........................ 76,538 2,415,539 Corvel Corp ................................. 31,088 1,168,909 Corvis Corp ................................. 1,710,200 2,907,340 Cost Plus Inc ............................... 108,352 4,442,432 CoStar Group Inc ............................ 72,516 3,022,467 Courier Corp ................................ 26,350 1,013,711 Covance Inc ................................. 296,825 7,954,910 Covenant Transport Inc ...................... 34,900 663,449 CPI Corp .................................... 38,600 780,106 Crawford & Co ............................... 68,447 483,236 The accompanying notes are an integral part of these financial statements. SAI-97 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Cray Inc ............................. 349,500 $ 3,470,535 Credence Systems Corp ................ 318,020 4,185,143 Credit Acceptance Corp ............... 58,928 901,598 Criimi MAE Inc ....................... 69,814 728,160 Crompton Corp ........................ 582,767 4,178,439 Cross Country Healthcare Inc ......... 91,100 1,359,212 Crown Holdings Inc ................... 827,800 7,499,868 Crown Media Holdings Inc ............. 51,645 427,104 CryoLife Inc ......................... 63,314 365,955 CSG Systems International ............ 262,400 3,277,376 CSK Auto Corp ........................ 171,626 3,221,420 CSS Industries Inc ................... 21,021 651,861 CT Communications Inc ................ 86,356 1,165,806 CTI Molecular Imaging Inc ............ 118,374 2,001,704 CTS Corp ............................. 170,741 1,963,522 Cubic Corp ........................... 77,884 1,791,332 Cubist Pharmaceuticals Inc ........... 193,951 2,358,444 Cumulus Media Inc .................... 216,600 4,765,200 Cuno Inc ............................. 72,613 3,269,763 CuraGen Corp ......................... 227,187 1,665,281 Curative Health Services Inc ......... 50,600 698,280 Curtiss-Wright Corp .................. 84,462 3,801,635 CV Therapeutics Inc .................. 127,740 1,872,668 CVB Financial Corp ................... 179,166 3,456,112 Cyberguard Corp ...................... 52,600 458,672 Cyberonics ........................... 100,683 3,222,863 Cymer Inc ............................ 165,500 7,644,445 Cytyc Corp ........................... 540,600 7,438,656 D&E Communications Inc ............... 65,996 957,602 D&K Healthcare Resources Inc ......... 44,900 608,844 Dade Behring Holdings Inc ............ 199,300 7,122,982 Daktronics Inc ....................... 73,401 1,846,769 Darling International Inc ............ 218,819 603,940 Datascope Corp ....................... 55,233 1,980,103 Datastream Systems Inc ............... 74,355 583,687 Dave & Buster's Inc .................. 63,600 806,448 DEB Shops Inc ........................ 19,200 412,800 Decode Genetics Inc .................. 207,107 1,696,206 DEL Laboratories Inc ................. 20,595 514,869 Delphi Financial Group ............... 119,191 4,290,876 Delta & Pine Land Co ................. 185,751 4,718,075 Deltic Timber Corp ................... 40,701 1,237,310 Denbury Resources Inc ................ 177,100 2,463,461 Dendreon Corp ........................ 28,100 226,486 Dendrite International Inc ........... 148,678 2,329,784 The accompanying notes are an integral part of these financial statements. SAI-98 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Department 56 ............................ 44,500 $ 582,950 DHB Industries Inc ....................... 88,700 620,900 Diagnostic Products Corp ................. 103,200 4,737,912 Dick's Sporting Goods Inc ................ 61,396 2,987,529 Digene Corp .............................. 57,060 2,288,106 Digimarc Corp ............................ 51,237 681,452 Digital Generation Systems ............... 138,848 311,020 Digital Insight Corp ..................... 149,377 3,719,487 Digital River Inc ........................ 138,800 3,067,480 Digitalthink Inc ......................... 218,800 614,828 Digitas Inc .............................. 81,506 759,636 Dillard's Inc/AR ......................... 311,000 5,119,060 Dime Community Bancshares ................ 100,999 3,106,729 DIMON Inc ................................ 172,700 1,165,725 Diodes Inc ............................... 32,850 624,150 Dionex Corp .............................. 84,734 3,899,459 Discovery Laboratories Inc ............... 172,500 1,809,525 Ditech Communications Corp ............... 129,000 2,463,900 Diversa Corp ............................. 112,425 1,039,931 DJ Orthopedics Inc ....................... 32,200 862,960 Dobson Communications Corp ............... 99,293 652,355 Dollar Thrifty Automotive Group .......... 114,181 2,961,855 Dominion Homes Inc ....................... 17,200 521,676 Donegal Group Inc ........................ 13,900 306,078 Dot Hill Systems Corp .................... 170,124 2,577,379 Dov Pharmaceutical Inc ................... 51,300 691,011 Dover Downs Gaming & Entertainment Inc ... 32,104 303,704 Dover Motorsports Inc .................... 62,500 218,750 Dress Barn Inc ........................... 89,956 1,348,440 Drew Industries Inc ...................... 27,500 764,500 Drexler Technology Corp .................. 55,200 754,584 Dril-Quip Inc ............................ 26,656 434,493 DRS Technologies Inc ..................... 120,252 3,340,601 Drugstore.Com ............................ 168,973 931,041 DSP Group Inc ............................ 137,441 3,423,655 Duane Reade Inc .......................... 101,826 1,722,896 Ducommun Inc ............................. 30,000 670,500 Dupont Photomasks Inc .................... 63,669 1,536,970 Dura Automotive Systems Inc .............. 76,297 974,313 Duratek Inc .............................. 34,354 447,976 Durect Corp .............................. 113,000 291,540 Dycom Industries Inc ..................... 229,642 6,158,998 Dynacq Healthcare Inc .................... 27,800 213,504 E-Loan Inc ............................... 186,170 554,787 E.piphany Inc ............................ 292,900 2,111,809 The accompanying notes are an integral part of these financial statements. SAI-99 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Earthlink Inc ........................... 564,700 $ 5,647,000 East-West Bancorp Inc ................... 113,666 6,101,591 Eastern American Natural Gas ............ 31,400 817,342 Eastern Virginia Bankshares Inc ......... 21,150 609,776 Eastgroup Properties .................... 90,331 2,924,918 Echelon Corp ............................ 139,477 1,553,774 Eclipsys Corp ........................... 169,002 1,967,183 eCollege.com Inc ........................ 1,271,894 68,900 EDO Corp ................................ 80,176 1,976,338 eFunds Corp ............................. 4,103,553 236,516 EGL Inc ................................. 155,804 2,735,918 El Paso Electric Co ..................... 243,738 3,253,902 Electro Rent Corp ....................... 81,000 1,080,540 Electro Scientific Industries Inc ....... 127,201 3,027,384 Electronics Boutique Holdings Corp ...... 71,986 1,647,760 Electronics for Imaging ................. 222,300 5,784,246 Elizabeth Arden Inc ..................... 79,409 1,581,827 ElkCorp ................................. 96,365 2,572,946 Embarcadero Technologies Inc ............ 68,193 1,087,678 EMC INS Group Inc ....................... 10,200 215,628 EMCOR Group Inc ......................... 65,760 2,886,864 Emerson Radio ........................... 65,596 246,641 Emmis Communications Corp ............... 214,900 5,813,045 Empire District Electric Co/The ......... 113,274 2,484,099 EMS Technologies Inc .................... 55,998 1,150,199 Encore Acquisition Co ................... 41,700 1,027,905 Encore Wire Corp ........................ 55,000 974,050 Encysive Pharmaceuticals Inc ............ 226,800 2,029,860 Energen Corp ............................ 168,147 6,899,071 Energy Conversion Devices Inc ........... 91,271 824,177 Energy Partners Ltd ..................... 102,500 1,424,750 EnergySouth Inc ......................... 14,200 497,000 Engineered Support Systems Inc .......... 88,100 4,850,786 Ennis Business Forms .................... 64,800 991,440 EnPro Industries Inc .................... 111,000 1,548,450 Enstar Group Inc ........................ 13,060 614,486 Entegris Inc ............................ 256,850 3,300,523 Enterasys Networks Inc .................. 1,009,523 3,785,711 Entertainment Properties Trust .......... 94,185 3,269,161 Entrust Inc ............................. 232,100 946,968 Enzo Biochem Inc ........................ 108,946 1,951,223 Enzon Pharmaceuticals Inc ............... 208,011 2,496,132 Epicor Software Corp .................... 188,000 2,398,880 EPIQ Systems Inc ........................ 51,550 883,052 Epix Medical Inc ........................ 82,225 1,338,623 The accompanying notes are an integral part of these financial statements. SAI-100 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Equity Inns Inc ......................... 191,737 $ 1,735,220 Equity One Inc .......................... 144,500 2,439,160 eResearch Technology Inc ................ 3,479,896 136,896 ESB Financial Corp ...................... 21,702 355,696 ESCO Technologies Inc ................... 54,089 2,360,985 eSpeed Inc .............................. 2,711,229 115,815 Esperion Therapeutics Inc ............... 161,200 5,579,132 ESS Technology .......................... 160,032 2,722,144 Essex Property Trust Inc ................ 86,777 5,572,819 Esterline Technologies Corp ............. 106,204 2,832,461 Ethyl Corp .............................. 63,278 1,383,890 eUniverse Inc ........................... 42,400 26,500 Euronet Worldwide Inc ................... 77,500 1,395,000 Evergreen Resources Inc ................. 193,868 6,302,649 EverTrust Financial Group Inc ........... 19,700 627,248 Exact Sciences Corp ..................... 64,600 653,752 Exactech Inc ............................ 26,545 391,539 Exar Corp ............................... 196,053 3,348,585 Excel Technology Inc .................... 43,931 1,443,573 Exchange National Bancshares Inc ........ 22,500 813,375 Exelixis Inc ............................ 245,338 1,736,993 ExpressJet Holdings Inc ................. 148,500 2,227,500 Extended Stay America Inc ............... 359,400 5,204,112 Extreme Networks ........................ 450,150 3,245,582 Exult Inc ............................... 165,900 1,181,208 F5 Networks Inc ......................... 126,474 3,174,497 Fairchild Corp/The ...................... 65,100 328,104 FalconStor Software Inc ................. 183,191 1,601,089 Fargo Electronics Inc ................... 49,472 629,284 Farmer Bros Co .......................... 3,563 1,108,984 Farmers Capital Bank Corp ............... 26,941 916,263 FBL Financial Group Inc ................. 57,652 1,487,422 Federal Agricultural Mortgage Corp ...... 42,600 1,361,496 Federal Signal Corp ..................... 236,677 4,146,581 FEI Co .................................. 121,013 2,722,793 FelCor Lodging Trust Inc ................ 232,616 2,577,385 Ferro Corp .............................. 180,464 4,910,425 FFLC Bancorp Inc ........................ 17,827 512,526 Fidelity Bankshares Inc ................. 62,341 1,957,507 Filenet Corp ............................ 171,797 4,652,263 Financial Federal Corp .................. 64,757 1,978,326 Financial Industries Corp ............... 37,200 524,520 Financial Institutions Inc .............. 31,606 892,237 FindWhat.com ............................ 56,058 1,051,088 Finisar Corp ............................ 657,300 2,057,349 The accompanying notes are an integral part of these financial statements. SAI-101 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE COMMON STOCK (CONTINUED) Finish Line ............................... 89,800 $2,691,306 Finlay Enterprises Inc .................... 26,700 377,271 First Albany Cos Inc ...................... 31,500 442,260 First Bancorp/NC .......................... 35,900 1,127,619 First Busey Corp .......................... 40,059 1,081,593 First Charter Corp ........................ 152,649 2,984,288 First Citizens Banc Corp .................. 20,600 585,040 First Citizens BancShares Inc ............. 27,856 3,385,340 First Commonwealth Financial Corp ......... 283,659 4,044,977 First Community Bancorp/CA ................ 58,850 2,126,839 First Community Bancshares Inc/VA ......... 41,511 1,376,505 First Consulting Group Inc ................ 83,056 467,605 First Defiance Financial Corp ............. 21,685 577,905 First Essex Bancorp Inc ................... 34,200 1,988,388 First Federal Capital Corp ................ 85,757 1,931,248 First Federal Financial Of Kentucky ....... 14,600 367,190 First Financial Bancorp ................... 159,142 2,538,315 First Financial Bankshares Inc ............ 69,078 2,880,553 First Financial Corp/Indiana .............. 69,588 2,088,336 First Financial Holdings Inc .............. 54,254 1,695,980 First Horizon Pharmaceutical Corp ......... 101,000 1,131,200 First Indiana Corp ........................ 61,266 1,148,738 First Industrial Realty Trust Inc (REIT)(1) .............................. 191,900 6,476,625 First M & F Corp .......................... 10,208 386,883 First Merchants Corp ...................... 93,452 2,384,895 First National Corp ....................... 34,890 1,047,049 First Niagara Financial Group Inc ......... 356,734 5,318,904 First Oak Brook Bancshares Inc ............ 29,450 883,795 First of Long Island Corp/The ............. 16,159 694,837 First Place Financial Corp/OH ............. 55,817 1,090,106 First Republic Bank ....................... 42,000 1,503,600 First Sentinel Bancorp Inc ................ 96,892 2,040,546 First South Bancorp Inc/VA ................ 13,025 475,413 First State Bancorporation ................ 36,900 1,282,275 First United Corp ......................... 30,035 731,953 Firstbank Corp/MI ......................... 25,525 795,359 Firstfed America Bancorp .................. 70,150 1,826,005 FirstFed Financial Corp ................... 76,028 3,307,218 Fisher Communications Inc ................. 24,300 1,239,300 Flag Financial Corp ....................... 31,600 407,640 Flagstar Bancorp Inc ...................... 137,148 2,937,710 Fleetwood Enterprises Inc ................. 202,524 2,077,896 Flir Systems Inc .......................... 166,000 6,059,000 Florida East Coast Industries ............. 74,400 2,462,640 FloridaFirst Bancorp Inc .................. 30,000 993,000 The accompanying notes are an integral part of these financial statements. SAI-102 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Flowers Foods Inc .................... 145,800 $3,761,640 Flowserve Corp ....................... 230,200 4,806,576 Flushing Financial Corp .............. 65,425 1,195,969 FMC Corp ............................. 165,900 5,662,167 FMS Financial Corp ................... 18,600 334,800 FNB Corp Inc ......................... 20,000 423,600 FNB Corp/VA .......................... 38,011 1,128,927 Foothill Independent Bancorp ......... 22,400 529,984 Forest Oil Corp ...................... 221,920 6,340,254 Forrester Research Inc ............... 66,561 1,189,445 Forward Air Corp ..................... 51,977 1,429,368 Fossil Inc ........................... 117,392 3,288,150 Franklin Electric Co Inc ............. 32,302 1,953,948 Franklin Financial Corp/TN ........... 15,000 460,800 Fred's Inc ........................... 187,763 5,816,898 FreeMarkets Inc ...................... 143,300 958,677 Fremont General Corp ................. 305,252 5,161,811 Friedman's Inc ....................... 92,800 622,688 Frontier Airlines Inc ................ 169,121 2,411,665 Frontier Financial Corp .............. 74,798 2,480,302 Frontier Oil Corp .................... 135,398 2,331,554 FTD Inc .............................. 18,600 458,304 FTI Consulting Inc ................... 199,449 4,661,123 FuelCell Energy Inc .................. 168,332 2,188,316 G&K Services Inc ..................... 84,984 3,123,162 GA Financial Inc ..................... 20,611 715,820 Gabelli Asset Management Inc ......... 35,450 1,410,910 Gables Residential Trust ............. 131,654 4,573,660 Galyan's Trading Co Inc .............. 41,600 500,864 GameStop Corp ........................ 111,400 1,716,674 Gardner Denver Inc ................... 84,144 2,008,517 Gartner Inc .......................... 393,094 4,445,893 Gateway Inc .......................... 1,070,012 4,922,055 GATX Corp ............................ 210,500 5,889,790 Gaylord Entertainment Co ............. 58,545 1,747,568 GB&T Bancshares Inc .................. 32,328 763,911 Gen-Probe Inc ........................ 238,252 8,689,050 GenCorp Inc .......................... 152,830 1,645,979 Gene Logic Inc ....................... 135,545 703,479 Genencor International Inc ........... 39,200 617,400 General Binding Corp ................. 24,600 442,800 General Cable Corp ................... 202,855 1,653,268 General Communication ................ 217,053 1,888,361 Genesco Inc .......................... 101,640 1,537,813 Genesee & Wyoming Inc ................ 60,100 1,893,150 The accompanying notes are an integral part of these financial statements. SAI-103 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Genesis HealthCare Corp ................... 60,100 $1,369,078 Genesis Microchip Inc ..................... 154,900 2,794,396 Genlyte Group Inc ......................... 59,353 3,465,028 Genta Inc ................................. 237,901 2,476,549 Gentiva Health Services Inc ............... 116,650 1,474,456 Georgia Gulf Corp ......................... 140,097 4,046,001 Gerber Scientific Inc ..................... 117,852 938,102 German American Bancorp ................... 32,724 572,670 Geron Corp ................................ 190,600 1,900,282 Getty Realty Corp ......................... 87,400 2,285,510 Gevity HR Inc ............................. 61,099 1,358,842 Gibraltar Steel Corp ...................... 37,393 940,434 Glacier Bancorp Inc ....................... 87,561 2,836,976 Gladstone Capital Corp .................... 43,300 967,755 Glatfelter ................................ 143,378 1,785,056 Glenborough Realty Trust Inc .............. 75,747 1,511,153 Glimcher Realty Trust ..................... 139,434 3,120,533 Global Imaging Systems Inc ................ 71,200 2,260,600 Global Industries Ltd ..................... 375,502 1,933,835 Global Power Equipment Group Inc/ ......... 88,400 590,512 GlobespanVirata Inc ....................... 596,630 3,508,184 Gold Banc Corp Inc ........................ 174,937 2,459,614 Golden Telecom Inc ........................ 54,836 1,521,699 Goody's Family Clothing Inc ............... 66,300 620,568 Goodyear Tire & Rubber Co/The ............. 753,103 5,919,390 Gorman-Rupp Co/The ........................ 38,100 1,005,840 GrafTech International Ltd ................ 415,614 5,610,789 Granite Construction Inc .................. 160,635 3,773,316 Gray Television Inc ....................... 196,900 2,977,128 Great American Financial Resources Inc .... 27,422 444,785 Great Atlantic & Pacific Tea Co ........... 67,563 567,529 Great Lakes Chemical Corp ................. 182,855 4,971,827 Great Lakes REIT(1) ....................... 71,700 1,125,690 Great Northern Iron ORE Ppty .............. 13,100 1,215,680 Great Southern Bancorp Inc ................ 27,355 1,268,451 Greater Bay Bancorp ....................... 259,500 7,390,560 Greater Community Bancorp ................. 23,750 403,038 Green Mountain Coffee Roasters Inc ........ 14,600 336,092 Greenbrier Cos Inc ........................ 28,017 469,285 Greene County Bancshares Inc .............. 29,300 682,104 Greif Inc ................................. 64,711 2,297,888 Grey Global Group Inc ..................... 4,489 3,066,211 Grey Wolf Inc ............................. 834,196 3,119,893 Griffon Corp .............................. 127,403 2,581,185 Group 1 Automotive Inc .................... 79,413 2,873,956 The accompanying notes are an integral part of these financial statements. SAI-104 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Group 1 Software Inc ......................... 51,279 $ 903,536 GSI Commerce Inc ............................. 68,800 671,557 GTC Biotherapeutics Inc ...................... 107,200 341,968 Guess ? Inc .................................. 30,316 365,914 Guilford Pharmaceuticals Inc ................. 105,065 712,341 Guitar Center Inc ............................ 67,351 2,194,296 Gulf Island Fabrication Inc .................. 35,433 603,424 Gulfmark Offshore Inc ........................ 75,678 1,059,492 Gundle/Slt Environmental Inc ................. 24,900 516,924 Gymboree Corp ................................ 145,100 2,500,073 Haemonetics Corp/Mass ........................ 78,902 1,884,969 Hain Celestial Group Inc ..................... 108,295 2,513,527 Hampshire Group Ltd .......................... 9,700 304,289 Hancock Fabrics Inc /DE ...................... 70,400 1,019,392 Hancock Holding Co ........................... 65,356 3,566,477 Handleman Co ................................. 121,066 2,485,485 Hanger Orthopedic Group Inc .................. 111,600 1,737,612 Hanmi Financial Corp ......................... 34,400 680,088 Hanover Compressor Co ........................ 254,400 2,836,560 Harbor Florida Bancshares Inc ................ 105,478 3,133,751 Harleysville Group Inc ....................... 145,631 2,896,601 Harleysville National Corp ................... 118,507 3,567,061 Harmonic Inc ................................. 338,100 2,451,225 Harris Interactive Inc ....................... 219,221 1,819,534 Harvest Natural Resources Inc ................ 171,400 1,705,430 Haverty Furniture Cos Inc .................... 83,945 1,667,148 Hawthorne Financial Corp ..................... 60,200 1,684,396 HB Fuller Co ................................. 143,166 4,257,757 Headwaters Inc ............................... 132,000 2,589,840 Health Care REIT Inc(1) ...................... 246,420 8,871,120 Healthcare Services Group .................... 46,500 896,985 HealthExtras Inc ............................. 73,100 979,540 Heartland Express Inc ........................ 139,563 3,376,029 Heartland Financial USA Inc .................. 40,950 761,670 Hecla Mining Co .............................. 524,900 4,351,421 Heico Corp ................................... 68,400 1,244,880 Heidrick & Struggles International Inc ....... 83,323 1,816,441 Helix Technology Corp ........................ 135,028 2,778,876 Hercules Inc ................................. 447,092 5,454,522 Heritage Commerce Corp ....................... 35,676 437,031 Heritage Financial Corp ...................... 23,224 508,141 Heritage Property Investment Trust (REIT)(1) . 95,300 2,711,285 Herley Industries Inc ........................ 40,300 834,210 Hexcel Corp .................................. 100,163 742,208 Hi-Tech Pharmacal Co Inc ..................... 26,533 623,526 The accompanying notes are an integral part of these financial statements. SAI-105 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Hibbett Sporting Goods Inc ........... 53,175 $ 1,584,615 Hickory Tech Corp .................... 58,901 674,416 Hifn Inc ............................. 137 1,630 Highwoods Properties Inc ............. 269,000 6,832,600 Hilb Rogal & Hamilton Co ............. 156,996 5,034,862 Hollinger International Inc .......... 195,500 3,053,710 Hollis-Eden Pharmaceuticals .......... 53,263 586,426 Holly Corp ........................... 46,000 1,265,000 Hollywood Entertainment Corp ......... 261,255 3,592,256 Hologic Inc .......................... 85,000 1,473,050 Home Properties Inc .................. 152,383 6,154,749 Homestore Inc ........................ 432,300 2,044,779 Hooker Furniture Corp ................ 12,696 517,997 Hooper Holmes Inc .................... 300,244 1,855,508 Horace Mann Educators Corp ........... 177,061 2,473,542 Horizon Financial Corp ............... 41,332 723,723 Horizon Offshore Inc ................. 114,173 502,361 Horizon Organic Holding Corp ......... 27,100 649,045 HOT Topic Inc ........................ 229,671 6,766,108 Houston Exploration Co ............... 59,318 2,166,293 Hudson Highland Group Inc ............ 35,700 851,445 Hudson River Bancorp ................. 74,900 2,923,347 Hughes Supply Inc .................... 116,634 5,787,379 Humboldt Bancorp ..................... 60,140 1,053,653 Hungarian Telephone & Cable .......... 11,700 115,362 Hutchinson Technology Inc ............ 114,030 3,505,282 Hydril ............................... 72,800 1,742,104 Hypercom Corp ........................ 117,000 556,920 Hyperion Solutions Corp .............. 203,271 6,126,588 I-Stat Corp .......................... 64,000 979,200 IBERIABANK Corp ...................... 32,800 1,935,200 IBT Bancorp Inc/Pa ................... 11,700 692,991 ICT Group Inc ........................ 24,600 289,050 ICU Medical Inc ...................... 45,750 1,568,310 Idacorp Inc .......................... 190,400 5,696,768 Identix Inc .......................... 443,566 1,973,869 IDEX Corp ............................ 131,964 5,488,383 IDX Systems Corp ..................... 85,965 2,305,581 iGate Corp ........................... 868,210 110,600 IGEN International Inc ............... 88,525 5,215,008 Ihop Corp ............................ 92,739 3,568,597 Ii-Vi Inc ............................ 56,781 1,464,950 Ilex Oncology Inc .................... 194,127 4,125,199 Imagistics International Inc ......... 79,700 2,988,750 IMC Global Inc ....................... 511,400 5,078,202 The accompanying notes are an integral part of these financial statements. SAI-106 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Immucor Inc ............................. 97,200 $1,981,908 Immunogen Inc ........................... 210,679 1,063,929 Immunomedics Inc ........................ 201,863 920,495 IMPAC Medical Systems Inc ............... 27,800 710,568 IMPAC Mortgage Holdings Inc ............. 268,500 4,889,385 Impax Laboratories Inc .................. 144,200 2,075,038 Inamed Corp ............................. 133,930 6,436,676 Incyte Corp ............................. 363,000 2,482,920 Independence Holding Co ................. 12,100 287,375 Independent Bank Corp/MA ................ 55,948 1,612,421 Independent Bank Corp/MI ................ 97,308 2,759,655 Indevus Pharmaceuticals Inc ............. 177,400 1,044,886 Inet Technologies Inc ................... 62,633 751,596 Infinity Property & Casualty Corp ....... 59,740 1,974,407 InFocus Corp ............................ 184,504 1,785,999 Infonet Services Corp ................... 314,200 534,140 Informatica Corp ........................ 319,750 3,293,425 Information Holdings Inc ................ 65,880 1,455,948 Infospace Inc ........................... 125,242 2,886,828 infoUSA Inc ............................. 121,148 898,918 Ingles Markets Inc ...................... 38,800 398,476 Innkeepers USA Trust .................... 147,252 1,232,499 Innovex Inc/MN .......................... 85,700 722,451 Input/Output Inc ........................ 200,104 902,469 Insight Communications Co Inc ........... 220,800 2,276,448 Insight Enterprises Inc ................. 219,419 4,125,077 Insituform Technologies Inc ............. 117,933 1,945,895 Inspire Pharmaceuticals Inc ............. 141,685 2,006,260 Insurance Auto Auctions Inc ............. 43,648 569,606 Integra Bank Corp ....................... 74,230 1,631,345 Integra LifeSciences Holdings Corp ...... 85,100 2,436,413 Integral Systems Inc/MD ................. 55,300 1,190,056 Integrated Electrical Services Inc ...... 138,959 1,285,371 Integrated Silicon Solutions Inc ........ 133,700 2,095,079 Intelidata Technologies Corp ............ 205,500 339,075 Inter Parfums Inc ....................... 19,600 442,764 Inter-Tel Inc ........................... 92,033 2,298,984 Intercept Inc ........................... 70,390 794,703 Interchange Financial Services Cp/Nj .... 55,300 1,399,090 Interface Inc ........................... 214,728 1,187,446 Intergraph Corp ......................... 223,173 5,338,298 Interland Inc ........................... 59,530 388,731 Intermagnetics General Corp ............. 82,370 1,825,319 InterMune Inc ........................... 127,173 2,945,327 International Multifoods Corp ........... 93,710 1,686,780 The accompanying notes are an integral part of these financial statements. SAI-107 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Internet Security Systems ............... 180,700 $3,402,581 Interpool Inc ........................... 33,200 481,400 Interpore International ................. 80,200 1,042,600 Interstate Bakeries ..................... 230,114 3,274,522 Intertan Inc ............................ 107,139 1,084,247 InterVoice Inc .......................... 175,500 2,083,185 Interwoven Inc .......................... 127,148 1,607,151 Intrado Inc ............................. 74,900 1,644,055 Intuitive Surgical Inc .................. 139,325 2,381,064 Invacare Corp ........................... 131,737 5,318,223 Inveresk Research Group Inc ............. 147,900 3,657,567 Inverness Medical Innovations Inc ....... 59,900 1,304,622 Investment Technology Group Inc ......... 231,400 3,737,110 Investors Real Estate Trust ............. 157,606 1,560,299 Invision Technologies Inc ............... 86,900 2,917,233 Iomega Corp ............................. 275,462 1,647,263 Ionics Inc .............................. 86,749 2,762,956 iPayment Inc ............................ 989,400 29,100 Irwin Financial Corp .................... 81,022 2,544,091 Isis Pharmaceuticals Inc ................ 205,688 1,336,972 Isle of Capri Casinos Inc ............... 64,740 1,389,968 Itla Capital Corp ....................... 23,000 1,152,300 Itron Inc ............................... 104,000 1,909,440 Ixia .................................... 107,700 1,260,090 IXYS Corp ............................... 84,067 786,026 J Jill Group Inc/The .................... 78,900 1,002,819 J&J Snack Foods Corp .................... 22,000 830,720 j2 Global Communications Inc ............ 2,041,048 82,400 Jack in the Box Inc ..................... 173,514 3,706,259 Jacuzzi Brands Inc ...................... 371,952 2,637,140 Jakks Pacific Inc ....................... 126,916 1,670,215 Jarden Corp ............................. 133,606 3,652,788 JDA Software Group Inc .................. 147,081 2,428,307 JLG Industries Inc ...................... 220,122 3,352,458 Jo-Ann Stores Inc ....................... 81,775 1,668,210 John B. Sanfilippo & SON ................ 21,700 1,107,568 John H Harland Co ....................... 125,281 3,420,171 Jones Lang LaSalle Inc .................. 138,479 2,870,670 JOS A Bank Clothiers Inc ................ 23,308 808,555 Journal Register Co ..................... 142,109 2,941,656 Joy Global Inc .......................... 233,100 6,095,565 K-Swiss Inc ............................. 117,200 2,819,832 K2 Inc .................................. 110,908 1,686,911 Kadant Inc .............................. 55,961 1,211,556 Kaman Corp .............................. 117,155 1,491,383 The accompanying notes are an integral part of these financial statements. SAI-108 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Kana Software Inc ....................... 108,200 $ 364,634 Kansas City Life Ins Co ................. 16,534 763,871 Kansas City Southern .................... 312,150 4,469,988 Kaydon Corp ............................. 132,468 3,422,973 KCS Energy Inc .......................... 186,300 1,965,465 Keane Inc ............................... 258,536 3,784,967 Keithley Instruments Inc ................ 55,762 1,020,445 Kellwood Co ............................. 120,785 4,952,185 Kelly Services Inc ...................... 82,798 2,363,055 Kemet Corp .............................. 406,100 5,559,509 Kennametal Inc .......................... 163,028 6,480,363 Kenneth Cole Productions Inc ............ 32,786 963,908 Kensey Nash Corp ........................ 39,100 909,075 Keynote Systems Inc ..................... 88,254 1,050,223 Keystone Automotive Industries Inc ...... 53,700 1,361,832 Keystone Property Trust (REIT)(1) ....... 106,800 2,359,212 KFX Inc ................................. 129,800 979,990 Kilroy Realty Corp ...................... 118,285 3,873,834 Kimball International Inc ............... 93,824 1,458,963 Kindred Healthcare Inc .................. 50,900 2,645,782 Kirby Corp .............................. 93,695 3,268,082 Kirkland's Inc .......................... 53,046 936,792 Klamath First Bancorp Inc ............... 29,700 788,238 Knight Trading Group Inc ................ 366,800 5,369,952 Knight Transportation Inc ............... 120,053 3,079,359 Koger Equity Inc ........................ 80,362 1,681,977 Komag Inc ............................... 126,700 1,853,621 Kopin Corp .............................. 342,500 2,298,175 Korn/Ferry International ................ 169,092 2,255,687 Kos Pharmaceuticals Inc ................. 67,286 2,895,989 Kosan Biosciences Inc ................... 89,100 878,526 Kramont Realty Trust .................... 103,500 1,873,350 Kroll Inc ............................... 181,599 4,721,574 Kronos Inc/MA ........................... 143,224 5,673,103 Kronos Worldwide Inc .................... 16,189 359,396 Kulicke & Soffa Industries Inc .......... 247,379 3,557,310 KV Pharmaceutical Co .................... 160,750 4,099,125 KVH Industries Inc ...................... 44,511 1,222,717 Kyphon Inc .............................. 80,100 1,988,883 La Jolla Pharmaceutical Co .............. 284,580 1,220,848 La Quinta Corp .......................... 701,256 4,495,051 LabOne Inc .............................. 45,400 1,474,138 Labor Ready Inc ......................... 201,185 2,635,524 Laclede Group Inc/The ................... 98,109 2,801,012 Lakeland Bancorp Inc .................... 48,652 781,351 The accompanying notes are an integral part of these financial statements. SAI-109 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Lakeland Financial Corp ................. 27,400 $ 967,768 Lance Inc ............................... 127,462 1,915,754 Landamerica Financial Group Inc ......... 84,602 4,421,301 Landauer Inc ............................ 37,700 1,537,406 Landry's Restaurants Inc ................ 111,613 2,870,686 Landstar System Inc ..................... 132,012 5,021,736 Lannett Co Inc .......................... 25,799 433,681 LaSalle Hotel Properties ................ 110,652 2,052,595 Laserscope .............................. 59,300 924,487 Lattice Semiconductor Corp .............. 497,400 4,814,832 Lawson Products ......................... 15,699 520,893 Lawson Software Inc ..................... 185,300 1,525,019 Learning Tree International Inc ......... 40,449 703,408 Lennox International Inc ................ 223,757 3,736,742 Lexar Media Inc ......................... 286,242 4,989,198 Lexicon Genetics Inc/tx ................. 205,592 1,210,937 Lexington Corporate Properties Trust .... 167,514 3,382,108 Libbey Inc .............................. 58,136 1,655,713 Liberty Corp ............................ 74,767 3,378,721 Lifeline Systems Inc .................... 46,306 879,814 LifePoint Hospitals Inc ................. 180,300 5,309,835 Ligand Pharmaceuticals Inc .............. 301,699 4,431,958 Lightbridge Inc ......................... 133,497 1,214,823 Lin TV Corp ............................. 131,200 3,386,272 Lincoln Electric Holdings Inc ........... 163,810 4,052,659 Lindsay Manufacturing Co ................ 47,957 1,210,914 Linens 'N Things Inc .................... 221,862 6,673,609 Lionbridge Technologies ................. 150,700 1,448,227 Liquidmetal Technologies Inc ............ 79,500 225,780 Lithia Motors Inc ....................... 60,400 1,522,684 Littelfuse Inc .......................... 92,128 2,655,129 LNB Bancorp Inc ......................... 19,400 393,820 Local Financial Corp .................... 74,900 1,560,916 Lodgenet Entertainment Corp ............. 48,317 883,235 Lone Star Steakhouse & Saloon ........... 73,863 1,712,144 Lone Star Technologies .................. 123,628 1,975,575 Longs Drug Stores Corp .................. 146,421 3,622,456 Longview Fibre Co ....................... 262,556 3,242,567 Looksmart ............................... 334,900 519,095 Louisiana-Pacific Corp .................. 522,006 9,333,467 LSB Bancshares Inc ...................... 38,000 661,200 LSI Industries Inc ...................... 64,287 867,875 LTC Properties Inc (REIT)(1) ............ 70,300 1,036,222 LTX Corp ................................ 257,146 3,864,904 Lufkin Industries Inc ................... 25,200 725,508 The accompanying notes are an integral part of these financial statements. SAI-110 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Luminex Corp ............................. 82,460 $ 773,475 Lydall Inc ............................... 74,400 758,136 M&F Worldwide Corp ....................... 45,945 613,825 M/I Homes Inc ............................ 53,700 2,096,985 Macatawa Bank Corp ....................... 39,854 1,128,267 MacDermid Inc ............................ 128,863 4,412,269 Macrovision Corp ......................... 192,582 4,350,427 MAF Bancorp Inc .......................... 136,834 5,733,345 Magma Design Automation Inc .............. 100,500 2,345,670 Magna Entertainment Corp ................. 213,972 1,084,838 Magnum Hunter Resources Inc .............. 323,959 3,080,850 Mail-Well Inc ............................ 129,408 596,571 Main Street Banks Inc .................... 65,332 1,731,298 MainSource Financial Group Inc ........... 29,020 890,048 MAIR Holdings Inc ........................ 40,500 294,840 Manhattan Associates Inc ................. 111,375 3,078,405 Manitowoc Co ............................. 131,191 4,093,159 Mantech International Corp ............... 63,200 1,576,840 Manufactured Home Communities Inc (REIT)(1) ............................. 70,942 2,670,966 Manufacturers Services Ltd ............... 67,400 409,792 Manugistics Group Inc .................... 299,743 1,873,394 MAPICS Inc ............................... 85,900 1,124,431 Marcus Corp .............................. 88,653 1,453,909 Marine Products Corp ..................... 22,500 423,000 MarineMax Inc ............................ 40,200 781,086 Maritrans Inc ............................ 31,672 529,239 Marketwatch.com Inc ...................... 34,074 293,343 Martek Biosciences Corp .................. 113,784 7,392,546 Martha Stewart Living Omnimedia .......... 53,157 523,596 MASSBANK Corp ............................ 16,400 698,640 Massey Energy Co ......................... 298,100 6,200,480 Mastec Inc ............................... 92,300 1,366,963 Material Sciences Corp ................... 38,000 384,180 Matria Healthcare Inc .................... 42,300 893,799 Matrix Service Co ........................ 77,700 1,410,255 Matrixone Inc ............................ 235,206 1,448,869 Matthews International Corp .............. 140,364 4,153,371 Mattson Technology Inc ................... 146,999 1,796,328 Maui Land & Pineapple Co Inc ............. 14,500 501,410 Maverick Tube Corp ....................... 209,485 4,032,586 MAXIMUS Inc .............................. 71,153 2,784,217 Maxwell Shoe Co .......................... 67,200 1,140,384 Maxygen .................................. 91,404 971,625 MB Financial Corp ........................ 87,500 3,185,000 MBT Financial Corp ....................... 83,667 1,381,342 The accompanying notes are an integral part of these financial statements. SAI-111 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) MCG Capital Corp ........................ 134,400 $2,620,800 Mcgrath Rentcorp ........................ 35,122 957,075 McLeodUSA Inc ........................... 276,700 409,516 McMoRan Exploration Co .................. 57,200 1,072,500 Medallion Financial Corp ................ 44,600 423,254 Medarex Inc ............................. 376,200 2,343,726 Mediacom Communications Corp ............ 221,025 1,916,287 Medical Action Industries Inc ........... 34,500 645,495 Medical Staffing Network Holdings Inc ... 48,000 525,600 Medicines Co ............................ 198,700 5,853,702 Medis Technologies Ltd .................. 64,642 691,669 MedQuist Inc ............................ 46,540 747,432 Memberworks Inc ......................... 35,066 952,743 Men's Wearhouse Inc ..................... 162,748 4,070,327 Mentor Corp ............................. 206,185 4,960,811 Mentor Graphics Corp .................... 338,283 4,918,635 Mercantile Bank Corp .................... 28,031 1,023,132 Merchants Bancshares Inc ................ 11,900 363,545 Mercury Computer Systems Inc ............ 103,055 2,566,070 Meridian Bioscience Inc ................. 59,200 617,456 Meridian Resource Corp .................. 181,800 1,079,892 Meristar Hospitality Corp ............... 250,736 1,632,291 Merit Medical Systems Inc ............... 98,789 2,199,043 Meritage Corp ........................... 45,800 3,036,998 Mesa Air Group Inc ...................... 116,098 1,453,547 Mestek Inc .............................. 11,700 225,342 Methode Electronics Inc ................. 171,883 2,102,129 Metris Cos Inc .......................... 152,236 675,928 Metro One Telecommunications ............ 81,824 212,742 Metrologic Instruments Inc .............. 32,600 880,200 MFA Mortgage Investments Inc ............ 304,100 2,964,975 MGE Energy Inc .......................... 88,298 2,782,270 MGI Pharma Inc .......................... 157,614 6,485,816 Micrel Inc .............................. 283,100 4,410,698 Micro Therapeutics Inc .................. 50,400 162,792 Micromuse Inc ........................... 288,100 1,987,890 Micros Systems Inc ...................... 81,497 3,533,710 Microsemi Corp .......................... 142,058 3,491,786 MicroStrategy Inc ....................... 52,455 2,752,838 Mid-America Apartment Communities Inc ... 78,111 2,622,967 Mid-State Bancshares .................... 114,163 2,904,307 Midas Inc ............................... 71,127 1,017,116 Middlesex Water Co ...................... 47,199 958,140 Midland Co/The .......................... 34,492 814,701 Midway Games Inc ........................ 145,722 565,401 The accompanying notes are an integral part of these financial statements. SAI-112 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Midwest Banc Holdings Inc ............... 52,748 $1,173,643 Milacron Inc ............................ 168,825 704,000 Millennium Chemicals Inc ................ 307,661 3,901,141 MIM Corp ................................ 105,250 739,908 Mindspeed Technologies Inc .............. 458,545 3,141,033 Mine Safety Appliances Co ............... 32,321 2,569,843 Minerals Technologies Inc ............... 87,760 5,199,780 Mission West Properties ................. 71,200 922,040 MKS Instruments Inc ..................... 129,100 3,743,900 Mobile Mini Inc ......................... 61,636 1,215,462 Mobius Management Systems Inc ........... 36,100 456,665 Modine Manufacturing Co ................. 114,487 3,088,859 Modtech Holdings Inc .................... 34,900 293,509 Molecular Devices Corp .................. 63,679 1,209,264 Monaco Coach Corp ....................... 127,374 3,031,501 Monolithic System Technology Inc ........ 127,300 1,088,415 Monro Muffler Inc ....................... 43,500 870,435 Moog Inc ................................ 75,116 3,710,730 Mothers Work Inc ........................ 20,100 490,440 Movado Group Inc ........................ 37,300 1,052,979 Movie Gallery Inc ....................... 115,273 2,153,300 MPS Group Inc ........................... 478,875 4,477,481 MRO Software Inc ........................ 99,827 1,343,671 MRV Communications Inc .................. 507,345 1,907,617 MSC.Software Corp ....................... 112,600 1,064,070 MTC Technologies Inc .................... 28,140 906,671 MTR Gaming Group Inc .................... 92,300 950,690 MTS Systems Corp ........................ 91,217 1,754,103 Mueller Industries Inc .................. 163,285 5,610,473 Multimedia Games Inc .................... 51,700 2,124,870 MutualFirst Financial Inc ............... 24,220 613,735 Myers Industries Inc .................... 93,352 1,131,426 Mykrolis Corp ........................... 150,862 2,425,861 Myriad Genetics Inc ..................... 143,400 1,844,124 Nabi Biopharmaceuticals ................. 219,813 2,793,823 NACCO Industries Inc .................... 23,004 2,058,398 Nara Bancorp Inc ........................ 45,732 1,248,484 NASB Financial Inc ...................... 13,209 553,589 Nash Finch Co ........................... 54,400 1,215,296 Nassda Corp ............................. 65,018 471,381 National Bankshares Inc/VA .............. 12,631 634,581 National Beverage Corp .................. 16,900 275,470 National Health Investors Inc ........... 110,102 2,739,338 National Health Realty Inc .............. 32,900 648,130 National Healthcare Corp ................ 30,800 612,920 The accompanying notes are an integral part of these financial statements. SAI-113 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) National Penn Bancshares Inc ................ 108,093 $3,471,947 National Presto Industries Inc .............. 21,500 777,225 National Processing Inc ..................... 40,300 949,065 National Western Life INS ................... 10,668 1,651,940 Nationwide Health Properties Inc (REIT)(1) .. 296,843 5,803,281 Natures Sunshine Prods Inc .................. 43,700 369,265 Nautilus Group Inc .......................... 143,181 2,011,693 Navigant Consulting Inc ..................... 211,971 3,997,773 Navigant International Inc .................. 55,800 772,830 Navigators Group Inc ........................ 30,905 954,037 NBC Capital Corp ............................ 30,533 814,315 NBT Bancorp Inc ............................. 149,097 3,196,640 NBTY Inc .................................... 258,859 6,952,953 NCI Building Systems Inc .................... 92,908 2,220,501 NCO Group Inc ............................... 93,072 2,119,249 NDCHealth Corp .............................. 172,536 4,420,372 NeighborCare Inc ............................ 111,000 2,192,250 Nektar Therapeutics ......................... 234,900 3,196,989 Neoforma Inc ................................ 35,500 377,720 Neopharm Inc ................................ 52,137 955,150 Neose Technologies Inc ...................... 71,732 659,934 Neoware Systems Inc ......................... 72,485 993,045 Net2Phone Inc ............................... 148,252 1,008,114 Netbank Inc ................................. 231,039 3,084,371 Netegrity Inc ............................... 119,171 1,228,653 NetFlix Inc ................................. 52,390 2,865,209 NetIQ Corp .................................. 251,875 3,337,344 Netratings Inc .............................. 48,090 549,669 Netscout Systems Inc ........................ 84,208 639,981 Network Equipment Technologies Inc .......... 117,719 1,294,909 New Century Financial Corp .................. 137,100 5,438,757 New England Business Svc Inc ................ 47,860 1,411,870 New Focus Inc ............................... 273,300 1,371,966 New Jersey Resources Corp ................... 132,166 5,089,713 Newcastle Investment Corp ................... 136,850 3,708,635 Newpark Resources ........................... 386,012 1,848,997 Newport Corp ................................ 189,516 3,132,699 Newtek Business Services Inc ................ 37,000 256,780 NIC Inc ..................................... 117,300 941,919 NII Holdings Inc ............................ 65,332 4,875,727 NL Industries ............................... 32,279 377,664 NN Inc ...................................... 52,400 659,716 Noland Co ................................... 3,257 135,166 Nordson Corp ................................ 127,500 4,402,575 North Coast Energy Inc ...................... 12,800 136,845 The accompanying notes are an integral part of these financial statements. SAI-114 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) North Pittsburgh Systems Inc ........... 71,640 $1,354,712 Northern States Financial Corp ......... 13,000 375,830 Northwest Airlines Corp ................ 309,200 3,902,104 Northwest Bancorp Inc .................. 54,392 1,161,813 Northwest Natural Gas Co ............... 117,165 3,602,824 Novastar Financial Inc ................. 108,700 4,669,752 Noven Pharmaceuticals Inc .............. 94,434 1,436,341 Novoste Corp ........................... 70,666 338,490 NPS Pharmaceuticals Inc ................ 146,205 4,494,342 NS Group Inc ........................... 66,617 646,185 Nu Skin Enterprises Inc ................ 143,035 2,444,468 Nuance Communications Inc .............. 24,900 190,236 Nuevo Energy Co ........................ 74,036 1,789,450 NUI Corp ............................... 86,500 1,394,380 Nuvelo Inc ............................. 212,798 738,409 NYFIX Inc .............................. 103,629 823,851 NYMAGIC Inc ............................ 8,100 222,102 O'Charleys Inc ......................... 90,949 1,632,535 Oak Hill Financial Inc ................. 16,300 502,203 Oakley Inc ............................. 127,800 1,768,752 Oceaneering International Inc .......... 116,197 3,253,516 OceanFirst Financial Corp .............. 30,245 821,454 Octel Corp ............................. 44,700 880,143 Ocular Sciences Inc .................... 91,293 2,621,022 Ocwen Financial Corp ................... 201,087 1,781,631 Odyssey HealthCare Inc ................. 158,298 4,631,799 Offshore Logistics Inc ................. 92,522 2,268,639 Ohio Casualty Corp ..................... 274,014 4,756,883 Oil States International Inc ........... 125,100 1,743,894 Old Dominion Freight Line .............. 53,969 1,839,264 Old Point Financial Corp ............... 11,300 358,323 Old Second Bancorp Inc ................. 34,912 1,728,144 Olin Corp .............................. 269,444 5,405,047 OM Group Inc ........................... 143,300 3,753,027 Omega Financial Corp ................... 37,558 1,445,607 Omega Healthcare Investors Inc ......... 75,900 708,147 Omega Protein Corp ..................... 29,796 230,025 Omnicell Inc ........................... 79,100 1,281,420 Omnivision Technologies Inc ............ 119,600 6,607,900 Omnova Solutions Inc ................... 152,580 732,384 ON Semiconductor Corp .................. 166,300 1,072,635 Oneida Financial Corp .................. 9,083 200,834 Oneida Ltd ............................. 73,741 434,334 Onyx Pharmaceuticals Inc ............... 143,500 4,051,005 Openwave Systems Inc ................... 304,233 3,346,563 The accompanying notes are an integral part of these financial statements. SAI-115 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Oplink Communications Inc .............. 509,300 $1,217,227 Opnet Technologies Inc ................. 56,580 931,307 Opsware Inc ............................ 230,446 1,705,300 Optical Communication Products Inc ..... 75,300 278,610 Option Care Inc ........................ 60,363 644,677 OraSure Technologies Inc ............... 190,925 1,519,763 Orbital Sciences Corp .................. 235,059 2,825,409 Oriental Financial Group ............... 63,214 1,624,600 Orleans Homebuilders Inc ............... 11,400 322,962 Orthodontic Centers Of America ......... 264,300 2,127,615 Orthologic Corp ........................ 150,500 922,565 Oshkosh B'Gosh Inc ..................... 40,914 878,014 Oshkosh Truck Corp ..................... 144,670 7,382,510 OSI Pharmaceuticals Inc ................ 193,400 6,229,414 OSI Systems Inc ........................ 70,600 1,356,226 Osteotech Inc .......................... 64,400 566,720 Otter Tail Corp ........................ 129,845 3,470,757 Overland Storage Inc ................... 52,900 994,520 Overseas Shipholding Group ............. 78,818 2,683,753 Overstock.com Inc ...................... 42,926 852,510 Owens & Minor Inc ...................... 184,796 4,048,880 Oxford Industries Inc .................. 61,100 2,070,068 PAB Bankshares Inc ..................... 32,400 503,496 Pacer International Inc ................ 108,733 2,198,581 Pacific Capital Bancorp ................ 163,425 6,017,309 Pacific Sunwear Of California .......... 356,126 7,521,381 Pacific Union Bank ..................... 23,859 609,120 Packeteer Inc .......................... 112,558 1,911,235 Pain Therapeutics Inc .................. 112,000 778,400 Palatin Technologies Inc ............... 151,100 377,750 Palm Harbor Homes Inc .................. 81,909 1,463,714 PalmOne Inc ............................ 177,530 2,085,978 PalmSource Inc ......................... 49,268 1,073,550 PAM Transportation Services ............ 23,500 501,255 Panera Bread Co ........................ 137,575 5,438,340 Pantry Inc/The ......................... 27,400 621,980 Papa John's International Inc .......... 53,149 1,774,114 Parametric Technology Corp ............. 1,096,758 4,321,227 Parexel International Corp ............. 128,820 2,094,613 Park Electrochemical Corp .............. 85,400 2,262,246 Parker Drilling Co ..................... 428,017 1,091,443 Parkvale Financial Corp ................ 20,000 537,000 Parkway Properties Inc/Md (REIT)(1) .... 49,169 2,045,430 Partners Trust Financial Group Inc ..... 34,200 1,162,800 Party City Corp ........................ 54,654 693,559 The accompanying notes are an integral part of these financial statements. SAI-116 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Pathmark Stores Inc ........................ 133,200 $1,012,320 Patina Oil & Gas Corp ...................... 148,635 7,281,629 Patriot Bank Corp .......................... 28,200 806,802 Paxar Corp ................................. 144,013 1,929,774 Paxson Communications Corp ................. 147,267 566,978 Payless Shoesource Inc ..................... 325,800 4,365,720 PC Connection Inc .......................... 22,779 190,660 PC-Tel Inc ................................. 88,980 944,078 PDF Solutions Inc .......................... 68,800 1,025,120 PDI Inc .................................... 34,394 922,103 Peapack Gladstone Financial Corp ........... 35,319 1,094,889 Pec Solutions Inc .......................... 30,344 514,331 Pediatrix Medical Group Inc ................ 118,637 6,535,712 Peet's Coffee & Tea Inc .................... 52,800 919,248 Pegasus Communications Corp ................ 18,700 525,096 Pegasus Solutions Inc ...................... 129,213 1,352,860 Pegasystems Inc ............................ 50,465 435,008 Pemstar Inc ................................ 128,300 422,107 Penn Engineering & Manufacturing Corp ...... 54,288 1,033,101 Penn National Gaming Inc ................... 145,341 3,354,470 Penn Virginia Corp ......................... 36,494 2,030,891 Penn-America Group Inc ..................... 51,672 685,687 Pennfed Financial Services Inc ............. 20,600 690,100 Pennrock Financial Services Corp ........... 35,479 1,102,687 Penns Woods Bancorp Inc .................... 16,403 766,020 Pennsylvania Real Estate Investment Trust (REIT)(1) ......................... 144,974 5,262,556 Penwest Pharmaceuticals Co ................. 74,221 1,282,539 Peoples Bancorp Inc/OH ..................... 51,875 1,530,831 Peoples Holding Co/The ..................... 43,600 1,438,800 PEP Boys-Manny Moe & Jack .................. 242,721 5,551,029 Per-Se Technologies Inc .................... 140,464 2,143,481 Peregrine Pharmaceuticals Inc .............. 578,155 1,277,723 Pericom Semiconductor Corp ................. 102,550 1,093,183 Perini Corp ................................ 48,389 442,759 Perot Systems Corp ......................... 352,900 4,757,092 Perrigo Co ................................. 291,504 4,582,443 Perry Ellis International Inc .............. 17,100 440,838 Petco Animal Supplies Inc .................. 172,100 5,240,445 Petrocorp Inc .............................. 27,574 371,146 Petroleum Development Corp ................. 78,100 1,850,970 Petroleum Helicopters ...................... 14,300 350,350 PF Chang's China Bistro Inc ................ 120,456 6,128,801 PFF Bancorp Inc ............................ 63,631 2,308,533 Pharmacopeia Inc ........................... 122,431 1,739,745 Philadelphia Consolidated Holding Co ....... 73,523 3,590,128 The accompanying notes are an integral part of these financial statements. SAI-117 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Phillips-Van Heusen ....................... 128,007 $2,270,844 Phoenix Cos Inc/The ....................... 472,500 5,688,900 Photon Dynamics Inc ....................... 80,988 3,258,957 Photronics Inc ............................ 144,742 2,883,261 Pico Holdings Inc ......................... 26,585 416,587 Pilgrim's Pride Corp ...................... 72,300 1,180,659 Pinnacle Entertainment Inc ................ 96,298 897,497 Pinnacle Systems Inc ...................... 278,878 2,378,829 Pixelworks Inc ............................ 150,917 1,666,124 Plains Exploration & Production Co ........ 191,269 2,943,630 Plains Resources Inc ...................... 100,219 1,608,515 Planar Systems Inc ........................ 62,500 1,520,000 Plantronics Inc ........................... 202,525 6,612,441 Playboy Enterprises Inc ................... 67,236 1,086,534 Playtex Products Inc ...................... 144,141 1,114,210 Plexus Corp ............................... 198,705 3,411,765 Plug Power Inc ............................ 136,800 991,800 PMA Capital Corp .......................... 95,952 491,274 PNM Resources Inc ......................... 190,371 5,349,425 PolyMedica Corp ........................... 80,994 2,130,952 PolyOne Corp .............................. 472,475 3,019,115 Pomeroy IT Solutions Inc .................. 44,800 660,352 Pope & Talbot Inc ......................... 75,552 1,330,471 Portal Software Inc ....................... 131,260 883,380 Portfolio Recovery Associates Inc ......... 59,612 1,582,699 Possis Medical Inc ........................ 83,900 1,657,025 Post Properties Inc ....................... 159,900 4,464,408 Potlatch Corp ............................. 132,689 4,613,597 Powell Industries Inc ..................... 32,600 624,290 Power Integrations Inc .................... 127,120 4,253,435 Power-One Inc ............................. 294,127 3,185,395 Powerwave Technologies Inc ................ 325,600 2,490,840 Pozen Inc ................................. 102,200 1,042,440 Praecis Pharmaceuticals Inc ............... 191,992 1,236,428 Pre-Paid Legal Services Inc ............... 78,167 2,041,722 Prentiss Properties Trust ................. 161,262 5,320,033 Presidential Life Corp .................... 110,045 1,448,192 Presstek Inc .............................. 140,702 1,022,904 PRG-Schultz International Inc ............. 152,049 745,040 Price Communications Corp ................. 200,321 2,750,407 Price Legacy Corp ......................... 71,300 271,653 Priceline.com Inc ......................... 108,850 1,948,415 Prima Energy Corp ......................... 35,363 1,243,363 Prime Hospitality Corp .................... 194,473 1,983,625 Primedia Inc .............................. 701,600 1,985,528 The accompanying notes are an integral part of these financial statements. SAI-118 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Primus Telecommunications GP ............ 254,543 $2,591,248 Princeton Review Inc .................... 71,016 692,406 Priority Healthcare Corp ................ 174,600 4,209,606 PrivateBancorp Inc ...................... 33,000 1,502,160 ProAssurance Corp ....................... 117,003 3,761,646 ProcureNet Inc(2) ....................... 64,900 0 Progenics Pharmaceuticals Inc ........... 50,100 944,886 Progress Software Corp .................. 136,108 2,784,770 ProQuest Co ............................. 118,627 3,493,565 Prosperity Bancshares Inc ............... 71,640 1,613,333 Provident Bancorp Inc ................... 17,400 817,800 Provident Bankshares Corp ............... 117,627 3,462,939 Provident Financial Hldgs ............... 14,692 532,879 Provident Financial Services Inc ........ 231,035 4,366,562 Province Healthcare Co .................. 231,392 3,702,272 Proxim Corp ............................. 669,416 1,117,925 PS Business Parks Inc ................... 58,045 2,394,937 PSS World Medical Inc ................... 345,332 4,168,157 PTEK Holdings Inc ....................... 185,500 1,634,255 Pulitzer Inc ............................ 22,994 1,241,676 Pumatech Inc ............................ 188,453 750,043 QAD Inc ................................. 46,591 571,206 Quaker Chemical Corp .................... 40,500 1,245,375 Quaker City Bancorp Inc ................. 24,700 1,149,785 Quality Systems Inc ..................... 15,581 694,757 Quanex Corp ............................. 82,824 3,818,186 Quanta Services Inc ..................... 316,400 2,309,720 Quantum Corp ............................ 731,100 2,281,032 Quest Software Inc ...................... 199,400 2,831,480 Quicksilver Resources Inc ............... 59,200 1,912,160 Quidel Corp ............................. 115,700 1,251,874 Quiksilver Inc .......................... 256,938 4,555,511 Quixote Corp -- Rights .................. 34,000 829,940 R&G Financial Corp ...................... 82,590 3,287,082 Radiant Systems Inc ..................... 53,029 445,974 Radisys Corp ............................ 84,752 1,428,919 RailAmerica Inc ......................... 127,400 1,503,320 Rainbow Technologies Inc ................ 117,362 1,321,496 Raindance Communications Inc ............ 216,570 595,568 RAIT Investment Trust ................... 104,600 2,677,760 Ralcorp Holdings Inc .................... 146,676 4,599,759 Ramco-Gershenson Properties ............. 55,800 1,579,140 Range Resources Corp .................... 240,700 2,274,615 Rare Hospitality International Inc ...... 148,855 3,638,016 Raven Industries Inc .................... 31,789 937,776 The accompanying notes are an integral part of these financial statements. SAI-119 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Rayovac Corp ............................ 167,574 $3,510,675 Raytech Corp-Del ........................ 44,600 148,072 RC2 Corp ................................ 62,200 1,290,650 RCN Corp ................................ 226,170 180,936 Reading International Inc ............... 63,000 372,960 Reckson Associates Realty Corp .......... 252,600 6,138,180 Red Robin Gourmet Burgers Inc ........... 43,646 1,328,584 Redback Networks Inc/Old ................ 603,700 139,455 Redwood Trust Inc ....................... 55,100 2,801,835 Regal-Beloit Corp ....................... 116,028 2,552,616 Regeneration Technologies Inc ........... 121,200 1,328,352 Regeneron Pharmaceuticals Inc ........... 170,295 2,505,039 Regent Communications Inc ............... 187,842 1,192,797 Register.com ............................ 164,504 863,646 RehabCare Group Inc ..................... 80,098 1,702,883 Reliance Steel & Aluminum Co ............ 121,913 4,048,731 Remec Inc ............................... 263,195 2,213,470 Remington Oil & Gas Corp ................ 106,900 2,104,861 Renaissance Learning Inc ................ 30,414 732,369 Rent-Way Inc ............................ 104,866 858,853 Repligen Corp ........................... 131,038 572,636 Republic Bancorp Inc/KY ................. 34,391 672,000 Republic Bancorp Inc/MI ................. 281,964 3,803,694 Republic Bancshares Inc ................. 46,876 1,475,188 Research Frontiers Inc .................. 39,862 370,318 Resource America Inc .................... 77,600 1,164,000 Resource Bankshares Corp /VA ............ 21,000 662,130 Resources Connection Inc ................ 102,125 2,789,034 Restoration Hardware Inc ................ 77,100 366,225 Retek Inc ............................... 271,375 2,518,360 Retractable Technologies Inc ............ 30,600 184,212 Revlon Inc .............................. 18,308 41,010 Rewards Network Inc ..................... 117,500 1,252,550 Rex Stores Corp ......................... 41,300 584,808 RF Micro Devices Inc .................... 860,000 8,643,000 RH Donnelley Corp ....................... 93,991 3,744,601 Richardson Electronics Ltd .............. 29,400 361,326 Riggs National Corp ..................... 74,058 1,224,179 Right Management Consultants Inc ........ 77,225 1,441,019 Riviana Foods Inc ....................... 26,463 724,822 RLI Corp ................................ 90,750 3,399,495 Robbins & Myers Inc ..................... 58,787 1,116,365 Robert Mondavi .......................... 45,714 1,775,532 Rock-Tenn Co ............................ 99,299 1,713,901 Rofin-Sinar Technologies Inc ............ 44,702 1,544,901 The accompanying notes are an integral part of these financial statements. SAI-120 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Rogers Corp ............................... 79,560 $3,510,187 Rollins Inc ............................... 99,695 2,248,122 Roper Industries Inc ...................... 132,644 6,534,043 Roto-Rooter Inc ........................... 49,061 2,261,712 Roxio Inc ................................. 120,000 574,800 Royal Bancshares Of Pennsylvania .......... 18,885 481,568 Royal Gold Inc ............................ 86,100 1,802,073 RPC Inc ................................... 40,813 448,535 RSA Security Inc .......................... 232,050 3,295,110 RTI International Metals Inc .............. 94,476 1,593,810 Ruddick Corp .............................. 165,227 2,957,563 Rudolph Technologies Inc .................. 60,552 1,485,946 Russ Berrie & Co Inc ...................... 43,362 1,469,972 Russell Corp .............................. 138,909 2,439,242 Ryan's Family Steak Houses Inc ............ 191,097 2,893,209 Ryerson Tull Inc .......................... 103,431 1,184,285 S&T Bancorp Inc ........................... 123,105 3,680,840 S1 Corp ................................... 375,200 3,020,360 Safeguard Scientifics Inc ................. 619,728 2,503,701 SafeNet Inc ............................... 45,273 1,393,050 Safety Insurance Group Inc ................ 47,307 809,423 SAFLINK Corp .............................. 107,400 288,906 Saga Communications Inc ................... 69,857 1,294,450 Salem Communications Corp /DE ............. 41,441 1,123,880 Salix Pharmaceuticals Ltd ................. 84,500 1,915,615 Sanchez Computer Associates ............... 62,703 260,217 Sanders Morris Harris Group Inc ........... 32,656 404,934 Sanderson Farms Inc ....................... 23,700 955,110 Sandy Spring Bancorp Inc .................. 74,488 2,785,851 Santander BanCorp ......................... 23,916 582,355 Sapient Corp .............................. 414,500 2,321,200 Sauer-Danfoss Inc ......................... 53,929 873,650 Saul Centers Inc .......................... 54,944 1,575,244 Savient Pharmaceuticals Inc ............... 291,118 1,342,054 Saxon Capital Inc ......................... 115,000 2,409,250 SBA Communications Corp ................... 261,400 988,092 SBS Technologies Inc ...................... 46,257 680,440 ScanSoft Inc .............................. 377,982 2,010,864 Scansource Inc ............................ 55,300 2,522,786 Schawk Inc ................................ 33,200 452,516 Schnitzer Steel Industries Inc ............ 41,600 2,516,800 School Specialty Inc ...................... 84,701 2,880,681 Schulman A Inc ............................ 145,618 3,104,576 Schweitzer-Mauduit International Inc ...... 74,617 2,222,094 Sciclone Pharmaceuticals Inc .............. 189,693 1,286,119 The accompanying notes are an integral part of these financial statements. SAI-121 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Scientific Games Corp .................... 248,400 $4,225,284 SCP Pool Corp ............................ 150,882 4,930,824 SCS Transportation Inc ................... 64,142 1,127,616 Seaboard Corp ............................ 1,600 451,200 Seabulk International Inc ................ 46,315 376,078 Seachange International Inc .............. 104,186 1,604,464 Seacoast Banking Corp of Florida ......... 52,179 905,827 Seacoast Financial Services Corp ......... 129,911 3,560,861 Seacor Smit Inc .......................... 86,127 3,619,918 Seattle Genetics Inc /wa ................. 94,300 809,094 Second Bancorp Inc ....................... 30,600 807,840 Secure Computing Corp .................... 168,725 3,021,865 Security Bank Corp/US .................... 16,100 507,150 Seebeyond Technology Corp ................ 254,136 1,090,243 Select Comfort Corp ...................... 106,667 2,641,075 Select Medical Corp ...................... 230,200 3,747,656 Selective Insurance Group ................ 136,654 4,422,123 SEMCO Energy Inc ......................... 81,900 401,310 Semitool Inc ............................. 82,595 885,501 Semtech Corp ............................. 291,945 6,635,910 Senior Housing Properties Trust .......... 222,849 3,839,688 Sensient Technologies Corp ............... 201,764 3,988,874 Sequa Corp ............................... 17,662 865,438 Serena Software Inc ...................... 114,517 2,101,387 Serologicals Corp ........................ 120,175 2,235,255 SFBC International Inc ................... 35,329 938,338 Sharper Image Corp ....................... 44,300 1,446,395 Shaw Group Inc/The ....................... 273,800 3,729,156 Shenandoah Telecom Co .................... 16,460 843,740 Shoe Carnival Inc ........................ 30,900 550,020 ShopKo Stores Inc ........................ 132,795 2,025,124 Shore Bancshares Inc ..................... 26,484 1,008,776 Shuffle Master Inc ....................... 84,200 2,915,004 Sierra Bancorp ........................... 26,300 412,384 Sierra Health Services ................... 119,400 3,277,530 Sierra Pacific Resources ................. 586,198 4,302,693 Sigma Designs Inc ........................ 77,000 579,810 Silgan Holdings Inc ...................... 55,200 2,350,968 Silicon Graphics Inc ..................... 1,063,882 1,457,518 Silicon Image Inc ........................ 361,144 2,611,071 Silicon Storage Technology Inc ........... 381,200 4,193,200 Silicon Valley Bancshares ................ 148,200 5,345,574 Siliconix Inc ............................ 27,092 1,238,104 Simmons First National Corp .............. 60,964 1,700,896 SimpleTech Inc ........................... 33,600 201,936 The accompanying notes are an integral part of these financial statements. SAI-122 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Simpson Manufacturing Co Inc ........... 73,332 $3,729,666 Sinclair Broadcast Group Inc ........... 198,340 2,959,233 Sipex Corp ............................. 118,000 909,780 Sirna Therapeutics Inc ................. 51,219 266,339 Six Flags Inc .......................... 467,600 3,516,352 Sizeler Property Investors (REIT)(1) ... 69,400 743,274 SJW Corp ............................... 9,800 874,650 Skechers U.S.A. Inc .................... 84,018 684,747 Skyline Corp ........................... 29,583 1,031,559 Skywest Inc ............................ 292,300 5,296,476 Skyworks Solutions Inc ................. 744,014 6,472,922 SL Green Realty Corp ................... 150,775 6,189,314 SM&A ................................... 58,900 689,130 Smart & Final Inc ...................... 54,112 545,449 Sohu.com Inc ........................... 87,741 2,633,107 Sola International Inc ................. 127,100 2,389,480 Sonic Automotive Inc ................... 140,000 3,208,800 Sonic Corp ............................. 194,081 5,942,760 Sonic Solutions Inc .................... 70,100 1,072,530 SonicWALL Inc .......................... 244,294 1,905,493 SonoSite Inc ........................... 76,122 1,632,056 Sonus Networks Inc ..................... 1,034,400 7,820,064 Sotheby's Holdings ..................... 214,652 2,932,146 Sound Federal Bancorp Inc .............. 69,918 1,090,022 SoundView Technology Group Inc ......... 75,887 1,175,490 Source Interlink Cos Inc ............... 52,000 552,240 Sourcecorp ............................. 60,778 1,557,740 South Financial Group Inc/The .......... 282,824 7,879,477 South Jersey Industries Inc ............ 56,326 2,281,203 Southern Financial Bancorp Inc ......... 29,675 1,278,102 Southern Union Co ...................... 281,748 5,184,163 Southside Bancshares Inc ............... 38,404 710,474 Southwest Bancorp Inc/OK ............... 51,000 911,880 Southwest Bancorp of Texas Inc ......... 141,814 5,509,474 Southwest Gas Corp ..................... 149,010 3,345,275 Southwest Water Co ..................... 48,219 773,915 Southwestern Energy Co ................. 179,653 4,293,707 Sovran Self Storage Inc ................ 70,400 2,615,360 Spanish Broadcasting System ............ 143,670 1,508,535 Spartech Corp .......................... 115,280 2,840,499 Specialty Laboratories ................. 30,500 512,095 Spectralink Corp ....................... 85,664 1,642,179 Speedway Motorsports Inc ............... 72,351 2,092,391 Spherion Corp .......................... 294,400 2,882,176 Spinnaker Exploration Co ............... 123,674 3,990,960 The accompanying notes are an integral part of these financial statements. SAI-123 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Sports Authority Inc/The ................ 101,077 $3,881,357 Sports Resorts International Inc ........ 10,600 53,636 SPSS Inc ................................ 56,964 1,018,516 SRA International Inc ................... 44,000 1,896,400 SS&C Technologies Inc ................... 36,900 1,031,355 St Mary Land & Exploration Co ........... 138,360 3,943,260 Staar Surgical Co ....................... 66,900 753,294 Stage Stores Inc ........................ 74,200 2,070,180 Stamps.com Inc .......................... 174,124 1,079,569 Standard Commercial Corp ................ 44,900 901,143 Standard Microsystems Corp .............. 62,974 1,593,242 Standard Motor Products Inc ............. 32,300 392,445 Standard Register Co/The ................ 65,369 1,100,160 Standard-Pacific Corp ................... 161,238 7,828,105 Standex International Corp .............. 51,532 1,442,896 Stanley Furniture Co Inc ................ 21,600 680,400 Star Scientific Inc ..................... 112,500 207,000 Startek Inc ............................. 50,239 2,049,249 State Auto Financial Corp ............... 54,226 1,268,346 State Bancorp Inc ....................... 29,185 708,028 State Financial Services Corp ........... 27,914 741,396 Staten Island Bancorp Inc ............... 259,638 5,841,855 Steak N Shake Co/The .................... 112,324 2,004,983 Steel Dynamics Inc ...................... 185,156 4,349,314 Stein Mart Inc .......................... 92,243 760,082 Steinway Musical Instruments ............ 19,300 476,710 Stellent Inc ............................ 84,500 831,480 Stepan Co ............................... 23,427 600,903 Sterling Bancorp/NY ..................... 61,170 1,743,345 Sterling Bancshares Inc/TX .............. 188,750 2,516,038 Sterling Financial Corp/PA .............. 84,375 2,341,406 Sterling Financial Corp/WA .............. 63,369 2,169,121 Steven Madden Ltd ....................... 36,174 737,950 Stewart & Stevenson Services ............ 145,836 2,048,996 Stewart Enterprises Inc ................. 500,878 2,844,987 Stewart Information Services Corp ....... 84,553 3,428,624 Stillwater Mining Co .................... 210,049 2,010,169 Stone Energy Corp ....................... 114,363 4,854,709 Stoneridge Inc .......................... 60,234 906,522 Stratasys Inc ........................... 38,701 1,054,989 Stratex Networks Inc .................... 389,100 1,653,675 Strattec Security Corp .................. 17,832 1,086,147 Strayer Education Inc ................... 51,823 5,639,897 Stride Rite Corp ........................ 185,716 2,113,448 Sturm Ruger & Co Inc .................... 97,994 1,114,192 The accompanying notes are an integral part of these financial statements. SAI-124 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Suffolk Bancorp ......................... 54,455 $1,880,331 Summit America Television Inc ........... 178,230 698,662 Summit Bancshares Inc/TX ................ 24,600 685,356 Summit Properties Inc ................... 119,261 2,864,649 Sun Bancorp Inc-NJ ...................... 34,400 908,160 Sun Bancorp Inc/PA ...................... 23,400 443,664 Sun Communities Inc ..................... 70,577 2,731,330 Sunrise Senior Living Inc ............... 77,036 2,984,375 Superconductor Technologies ............. 260,800 1,455,264 SuperGen Inc ............................ 168,053 1,848,583 Superior Energy Services ................ 247,633 2,327,750 Superior Industries International ....... 109,909 4,783,240 Supertex Inc ............................ 40,699 777,351 SupportSoft Inc ......................... 140,300 1,844,945 Surebeam Corp ........................... 337,428 80,983 SureWest Communications ................. 71,000 2,869,820 SurModics Inc ........................... 68,016 1,625,582 Susquehanna Bancshares Inc .............. 187,070 4,678,621 Swift Energy Co ......................... 131,078 2,208,664 SWS Group Inc ........................... 75,086 1,336,531 SY Bancorp Inc .......................... 48,000 986,880 Sybase Inc .............................. 425,300 8,752,674 Sybron Dental Specialties Inc ........... 189,266 5,318,375 Sycamore Networks Inc ................... 775,219 4,062,148 SYKES Enterprises Inc ................... 111,985 958,592 Sylvan Learning Systems Inc ............. 176,219 5,073,345 Symmetricom Inc ......................... 183,332 1,334,657 Symyx Technologies ...................... 112,637 2,314,690 Synaptics Inc ........................... 78,500 1,175,930 Synovis Life Technologies Inc ........... 46,600 947,844 Synplicity Inc .......................... 53,497 418,882 Syntel Inc .............................. 28,954 715,453 Sypris Solutions Inc .................... 25,800 433,698 Systemax Inc ............................ 53,200 354,312 Systems & Computer Technology Corp ...... 170,869 2,793,708 Take-Two Interactive Software Inc ....... 203,984 5,876,779 Talk America Holdings Inc ............... 135,833 1,564,796 Talx Corp ............................... 67,440 1,553,143 Tanger Factory Outlet Centrs ............ 37,400 1,522,180 Tanox Inc ............................... 126,685 1,881,272 Tarragon Realty Investors Inc ........... 25,023 413,130 Taubman Centers Inc ..................... 209,005 4,305,503 Taylor Capital Group Inc ................ 18,390 489,726 TBC Corp ................................ 81,700 2,108,677 Techne Corp ............................. 199,100 7,521,998 The accompanying notes are an integral part of these financial statements. SAI-125 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Technical Olympic USA Inc .............. 8,900 $ 245,017 Technitrol Inc ......................... 202,518 4,200,223 Tecumseh Products Co ................... 76,284 3,694,434 Tejon Ranch Co ......................... 35,391 1,451,385 Tekelec ................................ 252,000 3,918,600 Teledyne Technologies Inc .............. 162,799 3,068,761 TeleTech Holdings Inc .................. 183,400 2,072,420 Telik Inc .............................. 188,600 4,339,686 Tennant Co ............................. 41,862 1,812,625 Tenneco Automotive Inc ................. 224,100 1,499,229 Terayon Corp ........................... 303,100 1,363,950 Terex Corp ............................. 220,018 6,266,113 Tesoro Petroleum Corp .................. 271,314 3,953,045 Tetra Tech Inc ......................... 238,693 5,933,908 Tetra Technologies Inc ................. 104,150 2,524,596 Texas Industries Inc ................... 106,403 3,936,911 Texas Regional Bancshares Inc .......... 116,946 4,327,002 Theragenics Corp ....................... 147,842 808,696 Therasense Inc ......................... 108,000 2,192,400 TheStreet.com Inc ...................... 70,200 289,224 Third Wave Technologies Inc ............ 103,404 470,488 Thomas & Betts Corp .................... 215,480 4,932,337 Thomas Industries Inc .................. 47,676 1,652,450 Thomas Nelson Inc ...................... 39,400 761,602 Thor Industries Inc .................... 89,452 5,028,991 Thoratec Corp .......................... 245,704 3,196,609 THQ Inc ................................ 194,867 3,295,201 Three-Five Systems Inc ................. 95,059 498,109 TIBCO Software Inc ..................... 413,200 2,797,364 Tier Technologies Inc .................. 60,800 496,736 TierOne Corp ........................... 102,095 2,344,101 Timco Aviation Services -- Warrants .... 6,002 1 Time Warner Telecom Inc ................ 194,900 1,974,337 Titan Corp ............................. 382,000 8,331,420 Tivo Inc ............................... 171,624 1,270,018 Tollgrade Communications Inc ........... 62,615 1,097,641 Tom Brown Inc .......................... 181,972 5,868,597 Tompkins Trustco Inc ................... 41,460 1,909,233 Too Inc ................................ 176,318 2,976,248 Topps Co/The ........................... 129,158 1,325,161 Toro Co ................................ 119,834 5,560,298 Tower Automotive Inc ................... 270,986 1,850,834 Town & Country Trust/The ............... 62,052 1,573,018 Tractor Supply Co ...................... 138,900 5,401,821 TradeStation Group Inc ................. 82,647 732,252 The accompanying notes are an integral part of these financial statements. SAI-126 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Trammell Crow Co .......................... 149,835 $1,985,314 Trans World Entertainment ................. 53,800 383,056 Transaction Systems Architects Inc ........ 170,413 3,856,446 Transcontinental Realty Investors Inc (REIT)(1) .............................. 3,300 55,209 Transkaryotic Therapies Inc ............... 142,631 2,226,470 Transmeta Corp/Delaware ................... 571,100 1,941,740 Transmontaigne Inc ........................ 70,639 455,622 TRC Cos Inc ............................... 53,849 1,134,060 Tredegar Corp ............................. 157,731 2,449,562 Trex Co Inc ............................... 38,740 1,471,345 Triad Guaranty Inc ........................ 39,588 1,993,256 Triarc Cos ................................ 163,428 1,761,754 Trico Bancshares .......................... 28,084 886,331 Trimble Navigation Ltd .................... 156,783 5,838,599 Trimeris Inc .............................. 66,306 1,391,100 Trinity Industries Inc .................... 173,604 5,353,947 TriPath Imaging Inc ....................... 96,800 755,040 Triquint Semiconductor Inc ................ 665,517 4,705,205 Triton PCS Holdings Inc ................... 105,700 589,806 Triumph Group Inc ......................... 74,498 2,711,727 Trizetto Group ............................ 146,582 945,454 Troy Financial Corp ....................... 29,554 1,034,390 Trust Co of New Jersey/The ................ 91,892 3,646,275 Trustco Bank Corp NY ...................... 367,077 4,827,063 TTM Technologies Inc ...................... 98,400 1,660,992 Tuesday Morning Corp ...................... 60,458 1,828,855 Tularik Inc ............................... 232,305 3,751,726 Tupperware Corp ........................... 247,148 4,285,546 Turnstone Systems Inc ..................... 154,302 17,745 Tweeter Home Entertainment Group Inc ...... 112,790 1,065,866 Tyler Technologies Inc .................... 204,709 1,971,348 UCBH Holdings Inc ......................... 210,491 8,202,834 UICI ...................................... 184,607 2,451,581 UIL Holdings Corp ......................... 59,811 2,697,476 Ulticom Inc ............................... 51,225 494,321 Ultimate Electronics Inc .................. 54,205 413,584 Ultratech Inc ............................. 93,570 2,748,151 UMB Financial Corp ........................ 75,551 3,591,695 Umpqua Holdings Corp ...................... 135,770 2,822,658 Unifi Inc ................................. 212,887 1,373,121 Unifirst Corp/MA .......................... 47,300 1,121,483 Union Bankshares Corp ..................... 37,200 1,134,600 Unisource Energy Corp ..................... 144,188 3,555,676 Unit Corp ................................. 184,658 4,348,696 United Auto Group Inc ..................... 81,921 2,564,127 The accompanying notes are an integral part of these financial statements. SAI-127 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) United Capital Corp ......................... 12,958 $ 268,490 United Community Banks Inc/GA ............... 91,900 3,023,510 United Community Financial Corp/OH .......... 155,618 1,775,601 United Fire & Casualty Co ................... 35,300 1,424,708 United Industrial Corp/New York ............. 35,500 640,775 United Mobile Homes Inc ..................... 26,279 447,006 United National Bancorp NJ .................. 92,212 3,294,735 United Natural Foods Inc .................... 97,922 3,516,379 United Online Inc ........................... 216,500 3,635,035 United PanAm Financial Corp ................. 19,793 330,741 United Rentals Inc .......................... 267,900 5,159,754 United Security Bancshares/AL ............... 31,456 910,651 United Security Bancshares/CA ............... 15,800 431,024 United Stationers Inc ....................... 144,509 5,913,308 United Surgical Partners International Inc .. 85,400 2,859,192 United Therapeutics Corp .................... 90,784 2,083,493 Universal American Financial Corp ........... 107,100 1,061,361 Universal Compression Holdings Inc .......... 82,463 2,157,232 Universal Corp/Richmond VA .................. 125,316 5,535,208 Universal Display Corp ...................... 77,599 1,060,778 Universal Electronics Inc ................... 64,749 824,902 Universal Forest Products Inc ............... 75,617 2,433,355 Universal Health Rlty Income ................ 51,000 1,535,100 Unizan Financial Corp ....................... 104,460 2,115,315 UNOVA Inc ................................... 224,038 5,141,672 Urban Outfitters Inc ........................ 122,000 4,520,100 URS Corp .................................... 79,346 1,984,443 Urstadt Biddle Properties Inc -- Class A .... 110,900 1,569,235 US Oncology Inc ............................. 326,029 3,508,072 US Physical Therapy Inc ..................... 57,400 902,902 US Restaurant Properties Inc (REIT)(1) ...... 106,901 1,821,593 US Xpress Enterprises Inc ................... 23,300 285,425 USANA Health Sciences Inc ................... 44,856 1,372,594 USB Holding Co Inc .......................... 64,545 1,251,528 USEC Inc .................................... 422,633 3,550,117 USF Corp .................................... 136,417 4,664,097 USG Corp .................................... 177,400 2,939,518 USI Holdings Corp ........................... 119,900 1,564,695 Vail Resorts Inc ............................ 95,538 1,624,146 Valence Technology Inc ...................... 226,947 873,746 Valhi Inc ................................... 132,040 1,975,318 Valmont Industries Inc ...................... 61,084 1,414,095 Value Line Inc .............................. 5,200 259,480 Valueclick Inc .............................. 332,300 3,017,284 Valuevision Media Inc ....................... 81,069 1,353,852 The accompanying notes are an integral part of these financial statements. SAI-128 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Vans Inc ................................. 79,100 $ 902,531 Varian Inc ............................... 141,083 5,887,394 Varian Semiconductor Equipment Associates Inc ................................... 135,699 5,928,689 Vastera Inc .............................. 115,300 461,200 VCA Antech Inc ........................... 148,900 4,612,922 Vector Group Ltd ......................... 112,646 1,838,383 Veeco Instruments Inc .................... 114,397 3,225,995 Ventana Medical Systems .................. 64,379 2,536,533 Ventas Inc ............................... 371,223 8,166,906 Verint Systems Inc ....................... 28,500 642,960 Veritas DGC Inc .......................... 155,200 1,626,496 Verity Inc ............................... 104,164 1,738,497 Verso Technologies Inc ................... 602,818 1,929,018 Vertex Pharmaceuticals Inc ............... 382,500 3,912,975 Viasat Inc ............................... 107,367 2,055,004 Viasys Healthcare Inc .................... 137,231 2,826,959 Vicor Corp ............................... 93,710 1,069,231 Vicuron Pharmaceuticals Inc .............. 230,100 4,291,365 Vignette Corp ............................ 985,065 2,236,098 Vintage Petroleum Inc .................... 254,267 3,058,832 Virage Logic Corp ........................ 55,200 561,384 Virbac Corp .............................. 38,500 250,635 Virginia Commerce Bancorp ................ 22,852 731,950 Virginia Financial Group Inc ............. 38,200 1,356,864 VistaCare Inc ............................ 55,515 1,951,352 Visteon Corp ............................. 632,776 6,587,198 Visx Inc ................................. 192,405 4,454,176 Vital Images Inc ......................... 39,200 699,328 Vital Signs Inc .......................... 32,081 1,049,049 VitalWorks Inc ........................... 140,200 619,684 Vitesse Semiconductor Corp ............... 980,300 5,754,361 Vitria Technology Inc .................... 85,750 608,825 Vivus Inc ................................ 158,679 601,393 Volt Information Sciences Inc ............ 36,762 830,821 W Holding Co Inc ......................... 349,411 6,502,539 W-H Energy Services Inc .................. 111,600 1,807,920 Wabash National Corp ..................... 126,017 3,692,298 Wabtec Corp .............................. 147,308 2,510,128 Wackenhut Corrections Corp ............... 45,400 1,035,120 Walter Industries Inc .................... 149,211 1,991,967 Warnaco Group Inc/The .................... 171,500 2,735,425 Warwick Community Bancorp Inc ............ 14,200 488,480 Warwick Valley Telephone Co .............. 23,982 709,627 Washington Group International Inc ....... 116,400 3,954,108 Washington Real Estate Investment Trust .. 177,159 5,173,043 The accompanying notes are an integral part of these financial statements. SAI-129 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Washington Trust Bancorp Inc ............. 64,600 $1,692,520 Waste Connections Inc .................... 141,536 5,345,815 WatchGuard Technologies .................. 161,636 940,722 Watsco Inc ............................... 97,848 2,224,085 Watson Wyatt & Co Holdings ............... 163,800 3,955,770 Watts Water Technologies Inc ............. 50,887 1,129,691 Wausau-Mosinee Paper Corp ................ 162,492 2,196,892 Wayne Bancorp Inc/OH ..................... 27,840 749,731 Waypoint Financial Corp .................. 145,471 3,155,266 WCI Communities Inc ...................... 85,100 1,753,911 WD-40 Co ................................. 79,655 2,816,601 WebEx Communications Inc ................. 121,331 2,438,753 webMethods Inc ........................... 2,035,454 222,454 Websense Inc ............................. 95,747 2,799,642 Weis Markets Inc ......................... 54,300 1,971,090 Wellman Inc .............................. 165,212 1,686,815 Wells Fargo & Co ......................... 1 59 WesBanco Inc ............................. 83,427 2,310,094 WESCO International Inc .................. 78,165 691,760 West Bancorporation ...................... 82,400 1,425,520 West Coast Bancorp/OR .................... 76,300 1,628,242 West Marine Inc .......................... 49,200 1,368,252 West Pharmaceutical Services Inc ......... 55,424 1,878,874 Westar Energy Inc ........................ 336,300 6,810,075 Westcorp ................................. 66,199 2,419,573 Westell Technologies Inc ................. 223,723 1,411,692 Western Sierra Bancorp ................... 18,875 887,125 Western Wireless Corp .................... 287,700 5,282,172 Westfield Financial Inc .................. 21,000 498,960 Westmoreland Coal Co ..................... 30,500 533,750 Wet Seal Inc/The ......................... 106,982 1,058,052 Weyco Group Inc .......................... 12,882 433,466 WFS Financial Inc ........................ 60,557 2,571,250 White Electronic Designs Corp ............ 98,900 870,320 Whitehall Jewellers Inc .................. 43,800 432,306 Wild Oats Markets Inc .................... 127,707 1,651,252 William Lyon Homes Inc ................... 19,300 1,211,461 Willow Grove Bancorp Inc ................. 54,556 968,915 Wilson Greatbatch Technologies Inc ....... 97,800 4,134,006 Wilsons The Leather Experts .............. 75,700 264,193 Wiltel Communications -- Rts. Exp. 10/15/2004 ..... ...................... 119,795 0 Wind River Systems Inc ................... 356,500 3,122,940 Winnebago Industries ..................... 58,002 3,987,638 Winston Hotels Inc ....................... 104,500 1,065,900 Wintrust Financial Corp .................. 98,000 4,419,800 The accompanying notes are an integral part of these financial statements. SAI-130 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) Wireless Facilities Inc ................ 160,800 $ 2,389,488 WMS Industries Inc ..................... 112,987 2,960,259 Wolverine World Wide Inc ............... 202,971 4,136,549 Woodhead Industries Inc ................ 53,100 897,390 Woodward Governor Co ................... 44,442 2,525,639 World Acceptance Corp .................. 76,600 1,525,106 World Fuel Services Corp ............... 47,400 1,609,230 World Wrestling Entertainment Inc ...... 65,018 851,736 WR Grace & Co .......................... 288,000 740,160 Wright Medical Group Inc ............... 78,800 2,398,672 WSFS Financial Corp .................... 22,300 1,000,155 X-Rite Inc ............................. 110,500 1,250,860 Xicor Inc .............................. 133,200 1,510,488 Yadkin Valley Bank and Trust Co ........ 35,595 608,675 Yankee Candle Co Inc ................... 136,585 3,732,868 Yardville National Bancorp ............. 40,504 1,042,573 Yellow Roadway Corp .................... 199,859 7,228,900 York International Corp ................ 198,700 7,312,160 Young Broadcasting Inc ................. 60,262 1,207,650 Young Innovations Inc .................. 12,200 439,200 Zale Corp .............................. 126,800 6,745,760 Zenith National Insurance Corp ......... 47,392 1,542,610 Zhone Technologies Inc ................. 195,450 965,523 Zoll Medical Corp ...................... 43,063 1,527,875 Zoran Corp ............................. 204,253 3,551,960 Zygo Corp .............................. 56,329 928,865 Zymogenetics Inc ....................... 70,900 1,098,930 ------------- TOTAL COMMON STOCK ..................... 4,312,945,218 -------------
PRINCIPAL VALUE --------------- ----------------- DEBT INSTRUMENTS -- 0.2% Timco Aviation Services(3) 8.00% 1/02/2007 .............. USD 5,787 0 United States Treasury Bills(4) 0.87% 3/11/2004 ......... USD 9,760,000 9,743,669 -------------- TOTAL DEBT INSTRUMENTS .................................. 9,743,669 --------------
UNITS ------------ STATE STREET BANK AND TRUST COMPANY COLLECTIVE INVESTMENT FUNDS -- 2.0% Short Term Investment Fund(5) ......... 86,772,700 86,772,700 -------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost $3,776,182,710)................. $4,409,461,587 ================================================================================ The accompanying notes are an integral part of these financial statements. SAI-131 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 ---------- (1) Real Estate Investment Trust (2) Valued by management. (3) Issuer delisted due to failure to meet listing requirement. (4) All or a portion of this security was pledged to cover margin requirements for open future contracts. (5) Collective investment fund advised by State Street Global Advisors. At December 31, 2003, U.S. Treasury Bills with principal of $9,760,000 were pledged to cover margin requirements for open futures contracts. The following futures contracts were open at December 31, 2003: NUMBER OF FUTURES CONTRACTS NOTIONAL MATURITY UNREALIZED CONTRACTS LONG/(SHORT) COST DATE GAIN/(LOSS) ---------------------------- -------------- ----------- ---------- ----------- Russell 2000 Index Futures 524 140,236,350 March 2004 5,750,050 ========= USD: United States Dollar The accompanying notes are an integral part of these financial statements. SAI-132 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2003 1. FUND ORGANIZATION AND INVESTMENT OBJECTIVE State Street Bank and Trust Company ("State Street Bank") Russell 2000 Index Securities Lending Fund and State Street Bank and Trust Company Russell 2000 Index Fund (collectively, the "Fund") were formed by State Street Bank under the State Street Bank and Trust Company Investment Funds for Tax Exempt Retirement Plans Declaration of Trust. The investment objective of the Fund is to match the return of the Russell 2000 Index. State Street Bank is Trustee, custodian, and recordkeeper of the Fund and has exclusive management and control of the Trust. State Street Global Advisors, a division of State Street Bank, is the Fund's investment manager. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently in the preparation of the financial statements. A. SECURITY VALUATION Equity investments for which market quotations are readily available are valued at the last reported sale price on their principal exchange on valuation date, or official close price for certain markets. If no sales are reported for that day, investments are valued at the more recent of the last published sale price or the mean between the last reported bid and asked prices, or at fair value as determined in good faith by the Trustee. Short-term investments, if any, are stated at amortized cost, which approximates fair value. Investments in regulated investment companies or collective investment funds are valued at the net asset value per share/unit on the valuation date. B. SECURITY TRANSACTIONS AND INVESTMENT INCOME Security transactions are accounted for as of trade date. Realized gains and losses from investment transactions are determined using the average cost method. Dividend income, if any, is recorded net of applicable withholding taxes on the ex-dividend date. Distributions received from collective investment funds are recorded on the ex-dividend date and retain the character of income as earned by the underlying fund. Interest income earned on securities, if any, is recorded on the accrual basis. Interest income includes accretion of discounts and amortization of premiums, if any. C. INCOME TAXES It is the Fund's policy to comply with the requirements of Section 501(a) of the Internal Revenue Code relating to collective investment of employee benefit funds. Accordingly, the Fund is exempt from federal and state taxes and no federal or state tax provision is required. D. ISSUANCES AND REDEMPTIONS OF UNITS OF PARTICIPATION The net asset value of the Fund is determined each business day ("valuation date"). Issuances and redemptions of Fund units are made on such days, based upon the net asset value per unit and the closing market value on the valuation date of the investments bought or sold. The cost or proceeds of investments bought or sold are recorded at the execution price. Market effect is the difference between the execution price of the investment on the trade date and the investment's closing market value on the valuation date. Market effect and transaction costs (which include brokerage commissions, taxes and other direct costs related to the transactions), are recorded as realized gain/loss. SAI-133 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2003 E. EXPENSES Under the Declaration of Trust, the Fund may pay certain expenses for services received. The Fund pays State Street Bank for custody services. The Fund indirectly bears the expenses paid by the underlying funds, if any. State Street Global Advisors receives investment management fees from the participating accounts and therefore, the Fund makes no payment for these services. F. DISTRIBUTIONS TO PARTICIPANTS Net investment income (excluding security lending fee income, if any) and net realized gains are retained by the Fund. Income generated by security lending, if any, is distributed monthly to participants of the Lending Fund. G. FUTURES CONTRACTS The Fund may use futures contracts to manage exposure to the market. Buying futures tends to increase a fund's exposure to the underlying instrument. Selling futures tends to decrease a fund's exposure to the underlying instrument held by a fund, or hedge the fair value of other fund investments. Futures contracts are valued at the last settlement price at the end of each day on the board of trade or exchange upon which they are traded. Upon entering into a futures contract, the Fund is required to deposit either in cash, currency or securities an amount ("initial margin") equal to a certain percentage of the nominal value of the contract. Subsequent payments are made or received by the Fund periodically, depending on the fluctuation in the value of the underlying index or security, and are recorded as unrealized gains or losses by the Fund. A gain or loss is realized when the contract is closed or expires. Futures contracts involve, to varying degrees, credit and market risks. The Fund enters into futures contracts only on exchanges or boards of trade where the exchange or board of trade acts as the counterparty to the transaction. Thus, credit risk on such transactions is limited to the failure of the exchange or board of trade. Losses in value may arise from changes in the value of the underlying instruments or if there is an illiquid secondary market for the contracts. In addition, there is the risk that there may not be an exact correlation between a futures contract and the underlying index or security. 3. GLOBAL SECURITIES LENDING PROGRAM: PRINCIPLES OF COMBINATION The participants in the Russell 2000 Index Securities Lending Fund (the "Lending Fund") have authorized the Lending Fund to participate in the Global Securities Lending Program maintained by State Street Bank. The investment objective, techniques and results of operations of the Lending Fund are identical to those of the Russell 2000 Index Fund (the "Non-Lending Fund"), except that the Lending Fund engages in securities lending activity. Accordingly, the financial statements of the Lending Fund and the Non-Lending Fund have been prepared on a combined basis, with separate disclosure of the participant transactions and financial highlights of the Lending Fund and the Non-Lending Fund. The Lending Fund and the Non-Lending Fund each maintain a divided pro-rata interest in the combined assets and liabilities (including each investment security position but excluding assets and liabilities related to securities lending activity) proportionate to the net asset value of the outstanding combined units of the Fund. All interfund transactions have been eliminated in the combined financial statements. SAI-134 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY RUSSELL 2000 INDEX SECURITIES LENDING FUND RUSSELL 2000 INDEX FUND NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2003 Under the Global Securities Lending Program, securities held by the Lending Fund are loaned by State Street Bank, as agent, to certain brokers and other financial institutions (the "Borrowers"). The Borrowers provide cash, securities, or letters of credit as collateral against loans in an amount at least equal to 100% of the market value of the loaned securities. The Borrowers are required to maintain the collateral at not less than 100% of the market value of the loaned securities. At December 31, 2003, the market value of securities loaned by the Lending Fund is disclosed on the Statement of Assets and Liabilities. Cash collateral provided by the Borrowers is recorded on the Statement of Assets and Liabilities and is invested in State Street Bank and Trust Company Quality D Short-Term Investment Fund. The Fund received securities valued at $835,064 as additional collateral. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the Lending Fund and State Street Bank in its capacity as lending agent. Negotiated lenders' fees are received for those loans collateralized by securities or letters of credit, if any. Securities lending fee income, if any, is recorded on an accrual basis by the Lending Fund. State Street Bank, as lending agent, indemnifies the Lending Fund for replacement of any loaned securities (or, in certain circumstances, return of equivalent cash value) due to Borrower default on a security loan. Lending Fund participants, however, bear the risk of loss with respect to the investment of collateral. 4. INVESTMENT TRANSACTIONS Purchases and sales of securities, including in-kind contributions and redemptions, if any, during the period ended December 31, 2003 were $4,471,126,673 and $3,534,992,199, respectively. SAI-135 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS To the Participants and Trustee of State Street Bank and Trust Company Daily EAFE Fund In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of State Street Bank and Trust Company Daily EAFE Fund at December 31, 2003, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trustee; 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 auditing standards generally accepted in the United States of America, 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 the Trustee, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2003 by correspondence with the custodian, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts March 5, 2004 SAI-136 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY EAFE FUND Statement of Assets and Liabilities December 31, 2003 --------------------------------------------------------------------------------
ASSETS Investments in securities, at value (cost $362,699,693).......................... $420,577,797 Foreign currency, at value (cost $5) ............................................ 5 -------------------------------------------------------------------------------------------------- Total assets ................................................................... 420,577,802 -------------------------------------------------------------------------------------------------- LIABILITIES Total liabilities .............................................................. 0 -------------------------------------------------------------------------------------------------- NET ASSETS (equivalent to $10.31 per unit based on 40,782,897 units outstanding) $420,577,802 ==================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-137 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY EAFE FUND Statement of Operations Year Ended December 31, 2003 --------------------------------------------------------------------------------
INVESTMENT INCOME Total investment income .............................................. $ 0 ------------------------------------------------------------------------------------------- EXPENSES Audit .................................................................. 7,000 Other .................................................................. 1,663 ------------------------------------------------------------------------------------------- Total expenses ....................................................... 8,663 ------------------------------------------------------------------------------------------- Net investment income (loss) ......................................... (8,663) ------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss): Investments .......................................................... (46,151,302) ------------------------------------------------------------------------------------------- (46,151,302) ------------------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation): Investments .......................................................... 112,622,658 ------------------------------------------------------------------------------------------- 112,622,658 ------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) ................................ 66,471,356 ------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ......... $ 66,462,693 ===========================================================================================
The accompanying notes are an integral part of these financial statements. SAI-138 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY EAFE FUND Statement of Changes in Net Assets
YEAR ENDED DECEMBER 31, 2003 2002 ----------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss) .................................................. $ (8,663) $ (8,499) Net realized gain (loss) ...................................................... (46,151,302) (98,462,890) Net change in unrealized appreciation (depreciation) .......................... 112,622,658 39,698,860 ----------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations .............. 66,462,693 (58,772,529) ----------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from participant transactions . 25,410,072 (44,378,271) ----------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS ......................................... 91,872,765 (103,150,800) NET ASSETS Beginning of year ............................................................ 328,705,037 431,855,837 ----------------------------------------------------------------------------------------------------------------- End of year .................................................................. $ 420,577,802 $ 328,705,037 =================================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-139 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY EAFE FUND Statement of Changes in Net Assets (Continued)
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------- 2003 2002 ---------------------------------- ---------------------------------- UNITS AMOUNT UNITS AMOUNT ---------------------------------------------------------------------------------------------------------------------------- UNITS OF PARTICIPATION PARTICIPANT TRANSACTIONS FOR THE FUND WERE AS FOLLOWS: Units issued ......................................... 42,485,490 $ 358,130,671 59,566,784 $ 476,406,124 Units redeemed ....................................... (45,854,230) (332,720,599) (64,285,714) (520,784,395) ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) .............................. (3,368,740) $ 25,410,072 (4,718,930) $ (44,378,271) ============================================================================================================================
Units in excess of 10% of the Fund units outstanding at December 31, 2003 held by 3 of the Fund's unitholders aggregated 67% of the Fund's total units outstanding. The accompanying notes are an integral part of these financial statements. SAI-140 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY EAFE FUND Financial Highlights (FOR A UNIT OF PARTICIPATION OUTSTANDING THROUGHOUT THE YEAR)
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 2003 2002 2001 2000 1999 --------------------------------------------------------------------------------------------------------------------- SELECTED PER UNIT DATA Net asset value, beginning of year .............. $ 7.44 $ 8.84 $ 11.26 $ 13.19 $ 10.32 --------------------------------------------------------------------------------------------------------------------- Net investment income (loss) (a) (b) ............ (0.00) (0.00) (0.00) (0.00) 0.00 Net realized and unrealized gain (loss) ......... 2.87 (1.40) (2.42) (1.93) 2.87 --------------------------------------------------------------------------------------------------------------------- Total from investment operations ................ 2.87 (1.40) (2.42) (1.93) 2.87 --------------------------------------------------------------------------------------------------------------------- Net asset value, end of year .................... $ 10.31 $ 7.44 $ 8.84 $ 11.26 $ 13.19 --------------------------------------------------------------------------------------------------------------------- Total return (%) (c) ............................ 38.52 (15.75) (21.49) (14.63) 27.83 --------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS Ratio of expenses (%) (b) (d) ................... 0.00 0.00 0.00 0.00 0.00 --------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (%) (b) .......... (0.00) (0.00) (0.00) (0.00) 0.00 --------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) .......................... 126 117 45 103 47 --------------------------------------------------------------------------------------------------------------------- Net assets, end of year (000,000s) .............. $ 421 $ 329 $ 432 $ 543 $ 516 =====================================================================================================================
(a) Net investment income (loss) per unit has been calculated based upon an average of month-end units outstanding. (b) Zero amounts represent that which are less than $0.005 or 0.005% or ($0.005) or (0.005%) if negative. (c) Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year. The calculation includes only those expenses charged directly to the Fund. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. (d) The calculation includes only those expenses charged directly to the Fund, and does not include expenses charged to the funds in which the Fund invests. The accompanying notes are an integral part of these financial statements. SAI-141 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY EAFE FUND Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- COMMON STOCK -- 0.0% 1,805 Idaman Unggul Bhd ....................... $ 468 750,800 Kematyan Corp BHD(1) .................... 0 11,820 MP Technology Resources BHD(2) .......... 0 500 Pilecon Engineering BHD ................. 22 500 Pilecon Engineering BHD -- WTS .......... 6 1,283,900 Promet BHD(1) ........................... 0 1,927,000 Rekapacific Bhd(1) ...................... 0 889,800 Saship Holdings BHD(1) .................. 0 -------------------------------------------------------------------------------- TOTAL COMMON STOCK ...................... 496 --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY COLLECTIVE INVESTMENT FUNDS -- 100.0% 29,770,862 Daily MSCI Europe Index Fund(3) ........................ 298,363,583 8,929,880 Daily MSCI Japan Index Fund(3) ......................... 89,906,033 2,193,177 Daily MSCI Pacific Basin ex-Japan Index Fund(3) ........ 32,307,685 -------------------------------------------------------------------------------------- TOTAL COLLECTIVE INVESTMENT FUNDS ...................... 420,577,301 -------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (COST $362,699,693)................................................. $420,577,797 ======================================================================================
1 Issuer delisted due to bankruptcy. 2 Valued by management. 3 Collective investment fund advised by State Street Global Advisors. The accompanying notes are an integral part of these financial statements. SAI-142 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY EAFE FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 1. FUND ORGANIZATION AND INVESTMENT OBJECTIVE State Street Bank and Trust Company ("State Street Bank") Daily EAFE Funds (collectively, the "Funds") are organized by State Street Bank under the State Street Bank and Trust Company Investment Funds for Tax Exempt Retirement Plans Declaration of Trust. The Funds are organized into separate regional funds, a country fund and umbrella funds that hold investments in separate country and regional funds (individually, a "Fund"). Refer to the financial statements of each underlying fund for disclosure of its accounting policies and investment holdings. State Street Bank is Trustee, custodian, and recordkeeper of the Funds and has exclusive management and control of the Trust. State Street Global Advisors, a division of State Street Bank, is the Funds' investment manager. The investment objective of the Daily EAFE Fund (the "Fund") is to match the performance of the MSCI EAFE Index. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently in the preparation of the financial statements. A. SECURITY VALUATION Equity investments for which market quotations are readily available are valued at the last reported sale price on their principal exchange on valuation date, or official close price for certain markets. If no sales are reported for that day, investments are valued at the more recent of the last published sale price or the mean between the last reported bid and asked prices, or at fair value as determined in good faith by the Trustee. Short-term investments, if any, are stated at amortized cost, which approximates fair value. Investments in regulated investment companies or collective investment funds are valued at the net asset value per share/unit on the valuation date. B. SECURITY TRANSACTIONS AND INVESTMENT INCOME Security transactions are accounted for as of trade date. Realized gains and losses from investment transactions are determined using the average cost method. Dividend income, if any, is recorded on the ex-dividend date. Interest income earned on securities, if any, is recorded on the accrual basis; interest earned on foreign currency accounts is recorded when the Trustee is first notified of the amount credited by the depository bank. Interest income includes accretion of discounts and amortization of premiums, if any. Collective investment funds in which the Fund invests may retain investment income and net realized gains. Accordingly, realized and unrealized gains and losses reported by the Fund may include a component attributable to investment income of the underlying funds. C. FOREIGN CURRENCY AND FORWARD FOREIGN CURRENCY CONTRACTS The accounting records of the Fund are maintained in U.S. dollars. Foreign currency, investment securities, and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Purchases and sales of securities, income and expenses are translated into U.S. dollars at the prevailing exchange rate on the respective dates of the transactions. SAI-143 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY EAFE FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 Reported net realized gains and losses on foreign currency transactions represent net gains and losses from disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The effects of changes in foreign currency exchange rates on securities and derivative instruments are not segregated in the Statement of Operations from the effects of changes in market prices of those securities and derivative instruments, but are included with the net realized and unrealized gain or loss on securities and derivative instruments. Net unrealized foreign exchange gains and losses arising from changes in the value of other assets and liabilities as a result of changes in foreign exchange rates are included as increases and decreases in unrealized appreciation/ depreciation on foreign currency related transactions. The Fund may use forward foreign currency contracts to facilitate transactions in foreign securities, to gain exposure to foreign currency or as a hedge against the foreign currency exposure of either specific transactions or portfolio positions. When entering into a forward foreign currency contract, the Fund agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed upon future date. Such contracts are valued based upon the difference in the forward exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, and any resulting unrealized gains or losses are recorded in the Fund's financial statements. The Fund records realized gains or losses at the time the forward contract is extinguished by entry into a closing transaction or by delivery of the currency. Risks in foreign currency contracts arise from the possible inability of counterparties to meet the contracts' terms and from movements in currency values. D. INCOME TAXES It is the Fund's policy to comply with the requirements of Section 501(a) of the Internal Revenue Code relating to collective investment of employee benefit funds. Accordingly, the Fund is exempt from federal and state taxes and no federal or state tax provision is required. E. ISSUANCES AND REDEMPTIONS OF UNITS OF PARTICIPATION The net asset value of the Fund is determined each business day ("valuation date"). Issuances and redemptions of Fund units are made on such days, based upon the net asset value per unit. Participants may be charged transaction fees with respect to any contribution or withdrawal which exceeds 5% of the underlying fund's assets in accordance with the respective fund declaration of each such underlying fund. Such transaction fees can be up to 0.80% of such contribution or withdrawal and are credited to the Fund. During the year, transaction fees of $67,632 were charged by the Fund. F. EXPENSES Under the Declaration of Trust, the Fund may pay certain expenses for services received. The Fund indirectly bears the expenses paid by the underlying funds, if any. State Street Global Advisors receives investment management fees from the participating accounts and therefore, the Fund makes no payment for these services. G. DISTRIBUTIONS TO PARTICIPANTS Net investment income and net realized gains are retained by the Fund. 3. INVESTMENT TRANSACTIONS Purchases and sales of securities, including in-kind contributions and redemptions, if any, during the period ended December 31, 2003 were $327,003,029 and $301,601,200, respectively. SAI-144 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS To the Participants and Trustee of State Street Bank and Trust Company Daily MSCI Europe Index Securities Lending Fund and State Street Bank and Trust Company Daily MSCI Europe Index Fund In our opinion, the accompanying combined statement of assets and liabilities, including the combined schedule of investments, and the related combined statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of State Street Bank and Trust Company Daily MSCI Europe Index Securities Lending Fund and State Street Bank and Trust Company Daily MSCI Europe Index Fund at December 31, 2003, and the results of their operations, the changes in their net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trustee; 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 auditing standards generally accepted in the United States of America, 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 the Trustee, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2003 by correspondence with the custodian, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts March 5, 2004 SAI-145 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Combined Statement of Assets and Liabilities December 31, 2003 -------------------------------------------------------------------------------- ASSETS Investments in securities, at value, (including securities on loan of $603,609,146) (cost $3,419,077,505) ................................................................ $3,808,645,261 Foreign currency, at value (cost $31,118,338) ......................................... 32,116,557 Foreign currency, segregated, at value (cost $14,665,880) ............................. 16,028,891 Investments held as collateral for securities loaned .................................. 631,143,411 Receivable for Fund units issued ...................................................... 40,344,600 Receivable for investments sold ....................................................... 1,321,277 Receivable for open foreign currency contracts ........................................ 313,733,404 Unrealized gain on open futures contracts ............................................. 2,763,231 Dividends receivable .................................................................. 4,851,065 Interest receivable ................................................................... 114,834 Tax reclaims receivable ............................................................... 1,814,305 --------------------------------------------------------------------------------------------------------- Total assets ......................................................................... 4,852,876,836 --------------------------------------------------------------------------------------------------------- LIABILITIES Payable for collateral on securities loaned ........................................... 631,143,411 Payable for investments purchased ..................................................... 65,348,560 Payable for open foreign currency contracts ........................................... 307,293,547 Accrued expenses ...................................................................... 416,656 --------------------------------------------------------------------------------------------------------- Total liabilities .................................................................... 1,004,202,174 --------------------------------------------------------------------------------------------------------- NET ASSETS ............................................................................ $3,848,674,662 ========================================================================================================= Daily MSCI Europe Index Securities Lending Fund (348,918,423 units outstanding, at $10.02 per unit net asset value)................... $3,496,742,709 Daily MSCI Europe Index Fund (35,117,123 units outstanding, at $10.02 per unit net asset value) ..................................... 351,931,953 --------------------------------------------------------------------------------------------------------- $3,848,674,662 =========================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-146 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Combined Statement of Operations Year Ended December 31, 2003 --------------------------------------------------------------------------------
INVESTMENT INCOME Dividends (net of taxes withheld of $7,672,005) ........................ $ 74,431,783 Interest ............................................................... 1,270,006 Securities lending fee income (net of related expenses), allocated to the Lending Fund ........................................ 2,066,348 -------------------------------------------------------------------------------------------- Total investment income .............................................. 77,768,137 -------------------------------------------------------------------------------------------- EXPENSES Custody ................................................................ 1,239,293 Audit .................................................................. 63,000 Other .................................................................. 14,559 -------------------------------------------------------------------------------------------- Total expenses ....................................................... 1,316,852 -------------------------------------------------------------------------------------------- Net investment income (loss) ........................................... 76,451,285 ============================================================================================ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss): Investments .......................................................... (17,340,898) Foreign currency transactions ........................................ 14,638,678 Futures contracts .................................................... 21,889,333 -------------------------------------------------------------------------------------------- 19,187,113 -------------------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation): Investments .......................................................... 950,610,964 Foreign currency transactions ........................................ 5,314,588 Futures contracts .................................................... 4,368,214 -------------------------------------------------------------------------------------------- 960,293,766 -------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) ................................ 979,480,879 -------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ......... $1,055,932,164 ============================================================================================
The accompanying notes are an integral part of these financial statements. SAI-147 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Combined Statement of Changes in Net Assets
YEAR ENDED DECEMBER 31, 2003 2002 ------------------------------------------------------------------------------------------------------------------------------ FROM OPERATIONS Net investment income (loss) ............................................................. $ 76,451,285 $ 40,749,536 Net realized gain (loss) ................................................................. 19,187,113 (128,922,683) Net change in unrealized appreciation (depreciation) ..................................... 960,293,766 (327,600,360) ------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations ......................... 1,055,932,164 (415,773,507) ------------------------------------------------------------------------------------------------------------------------------ Distributions of security lending fee income, allocated to the Lending Fund participants . (2,066,348) (1,471,653) ------------------------------------------------------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PARTICIPANT TRANSACTIONS ............ 930,294,042 809,919,920 ------------------------------------------------------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN NET ASSETS .................................................... 1,984,159,858 392,674,760 NET ASSETS Beginning of year ....................................................................... 1,864,514,804 1,471,840,044 ------------------------------------------------------------------------------------------------------------------------------ End of year ............................................................................. $3,848,674,662 $1,864,514,804 ==============================================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-148 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Combined Statement of Changes in Net Assets (Continued)
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------------- 2003 2002 --------------------------------------------------------------------------- UNITS AMOUNT UNITS AMOUNT ---------------------------------------------------------------------------------------------------------------------------------- UNITS OF PARTICIPATION PARTICIPANT TRANSACTIONS FOR THE FUND WERE AS FOLLOWS: LENDING FUND Units issued ......................................... 407,070,642 $ 3,084,490,588 394,449,132 $ 3,097,155,258 Units redeemed ....................................... (280,158,522) (2,186,696,016) (302,348,332) (2,277,704,469) ---------------------------------------------------------------------------------------------------------------------------------- Total ............................................... 126,912,120 $ 897,794,572 92,100,800 $ 819,450,789 ---------------------------------------------------------------------------------------------------------------------------------- NON-LENDING FUND Units issued ......................................... 31,441,034 $ 257,020,554 42,252,590 $ 330,591,702 Units redeemed ....................................... (31,940,629) (224,521,084) (43,100,771) (340,122,571) ---------------------------------------------------------------------------------------------------------------------------------- Total ............................................... (499,595) $ 32,499,470 (848,181) $ (9,530,869) ---------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) .............................. 126,412,525 $ 930,294,042 91,252,619 $ 809,919,920 ==================================================================================================================================
LENDING FUND Units in excess of 10% of the Lending Fund units outstanding at December 31, 2003 held by 2 of the Lending Fund's unitholders aggregated 98% of the Lending Fund's total units outstanding. NON-LENDING FUND Units in excess of 10% of the Non-Lending Fund units outstanding at December 31, 2003 held by 2 of the Non-Lending Fund's unitholders aggregated 100% of the Non-Lending Fund's total units outstanding. The accompanying notes are an integral part of these financial statements. SAI-149 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND Financial Highlights (For a Unit of Participation Outstanding Throughout the Year)
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 2003 2002 2001 2000 1999 ---------------------------------------------------------------------------------------------------------------------------- SELECTED PER UNIT DATA Net asset value, beginning of year ..................... $ 7.24 $ 8.85 $ 11.06 $ 12.16 $ 10.42 ---------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) (a) ....................... 0.23 0.19 0.21 0.25 0.23 Net realized and unrealized gain (loss) ................ 2.56 ( 1.79) ( 2.41) ( 1.34) 1.52 ---------------------------------------------------------------------------------------------------------------------------- Total from investment operations ....................... 2.79 ( 1.60) ( 2.20) ( 1.09) 1.75 Distributions of securities lending fee income ......... ( 0.01) ( 0.01) ( 0.01) ( 0.01) ( 0.01) ============================================================================================================================ Net asset value, end of year ........................... $ 10.02 $ 7.24 $ 8.85 $ 11.06 $ 12.16 ============================================================================================================================ Total return (%) (b) ................................... 38.59 (18.11) (19.91) ( 8.99) 16.87 RATIOS TO AVERAGE NET ASSETS Ratio of expenses (%) (c) .............................. 0.05 0.05 0.05 0.04 0.10 ---------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (%) ..................... 2.81 2.42 2.28 2.10 2.20 ---------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) ................................. 26.86 26.40 94.75 64.53 13.93 ---------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (000,000s) ..................... $ 3,497 $ 1,607 $ 1,149 $ 1,272 $ 1,211 ============================================================================================================================
(a) Net investment income (loss) per unit has been calculated based upon an average of month-end units outstanding. (b) Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year and assumes reinvestment of distributions, if any. The calculation includes only those expenses charged directly to the Lending Fund. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. (c) The calculation includes only those expenses charged directly to the Fund, and does not include expenses charged to the funds in which the Fund invests. The accompanying notes are an integral part of these financial statements. SAI-150 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX FUND Financial Highlights (For a Unit of Participation Outstanding Throughout the Year)
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 2003 2002 2001 2000 1999 --------------------------------------------------------------------------------------------------------------------- SELECTED PER UNIT DATA Net asset value, beginning of year .............. $ 7.24 $ 8.85 $ 11.06 $ 12.16 $ 10.42 --------------------------------------------------------------------------------------------------------------------- Net investment income (loss) (a) ................ 0.22 0.18 0.20 0.24 0.22 Net realized and unrealized gain (loss) ......... 2.56 ( 1.79) ( 2.41) ( 1.34) 1.52 --------------------------------------------------------------------------------------------------------------------- Total from investment operations ................ 2.78 ( 1.61) ( 2.21) ( 1.10) 1.74 --------------------------------------------------------------------------------------------------------------------- Net asset value, end of year .................... $ 10.02 $ 7.24 $ 8.85 $ 11.06 $ 12.16 ===================================================================================================================== Total return (%) (b) ............................ 38.47 (18.19) (19.98) ( 9.05) 16.75 ===================================================================================================================== RATIOS TO AVERAGE NET ASSETS Ratio of expenses (%) (c) ....................... 0.05 0.05 0.05 0.04 0.10 --------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (%) .............. 2.72 2.31 2.15 2.04 2.14 --------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) .......................... 26.86 26.40 94.75 64.53 13.93 --------------------------------------------------------------------------------------------------------------------- Net assets, end of year (000,000s) .............. $ 352 $ 258 $ 323 $ 1,509 $ 1,724 =====================================================================================================================
(a) Net investment income (loss) per unit has been calculated based upon an average of month-end units outstanding. (b) Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year. The calculation includes only those expenses charged directly to the Non-Lending Fund. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. (c) The calculation includes only those expenses charged directly to the Fund, and does not include expenses charged to the funds in which the Fund invests. The accompanying notes are an integral part of these financial statements. SAI-151 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003
------------------------------------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE ------------------------------------------------------------------------------------------------------------- COMMON STOCK -- 93.2% AUSTRIA -- 0.2% Bank Austria Creditanstalt AG ................................... 20,417 $ 1,042,996 Boehler-Uddeholm ................................................ 3,252 219,616 Erste Bank der Oesterreichischen Sparkassen AG .................. 16,513 2,040,586 Flughafen Wien AG ............................................... 5,888 276,278 IMMOFINANZ Immobilien Anlagen AG ................................ 122,681 974,886 Mayr-Melnhof Karton AG .......................................... 2,792 335,617 OMV AG .......................................................... 7,987 1,189,586 RHI AG .......................................................... 10,316 196,483 Telekom Austria AG .............................................. 117,779 1,455,894 VA Technologie .................................................. 7,459 240,949 Verbund - Oesterreichische Elektrizitaetswirtschafts AG ......... 3,030 353,907 Voestalpine AG .................................................. 7,430 302,710 Wienerberger AG ................................................. 20,838 556,696 ----------- 9,186,204 ----------- BELGIUM -- 1.5% AGFA-Gevaert NV ................................................. 82,869 2,362,307 Barco NV ........................................................ 7,252 635,738 Bekaert SA ...................................................... 13,149 837,568 Cofinimmo ....................................................... 3,569 496,094 Colruyt SA ...................................................... 12,091 1,165,176 Compagnie Maritime Belge SA ..................................... 2,412 194,712 D'ieteren NV .................................................... 1,944 398,706 Delhaize Group .................................................. 46,700 2,402,149 Dexia ........................................................... 465,355 8,018,089 Electrabel ...................................................... 21,862 6,871,851 Fortis .......................................................... 752,726 15,134,255 Fortis - VVPR Strip ............................................. 46,620 588 Groupe Bruxelles Lambert SA ..................................... 53,207 2,997,923 Interbrew ....................................................... 109,775 2,929,914 KBC Bancassurance Holding ....................................... 68,336 3,190,963 Mobistar SA ..................................................... 15,684 880,345 Omega Pharma SA ................................................. 7,904 251,237 Solvay SA ....................................................... 45,651 3,958,757 Suez SA VVPR STRIP .............................................. 185,560 2,341 Total SA VVPR STRIP ............................................. 33,930 428 UCB SA .......................................................... 62,861 2,369,971 Umicore ......................................................... 10,560 741,250 ----------- 55,840,362 ----------- CANADA -- 0.0% Alcan Inc ....................................................... 598 28,029 ----------- DENMARK -- 1.1% AP Moller - Maersk A/S .......................................... 798 5,758,756 Bang & Olufsen A/S .............................................. 7,955 332,854 Carlsberg A/S ................................................... 17,677 814,505
The accompanying notes are an integral part of these financial statements. SAI-152 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------- Coloplast A/S ...................... 3,030 $ 259,209 Danisco A/S ........................ 37,481 1,666,697 Danske Bank A/S .................... 363,841 8,536,456 DSV DE Sammenslut Vogn A/S ......... 4,437 196,176 FLS Industries A/S ................. 26,327 303,268 GN Store Nord ...................... 91,992 596,850 Group 4 Falck A/S .................. 49,530 1,015,243 H Lundbeck A/S ..................... 38,616 641,076 ISS A/S ............................ 26,085 1,285,879 Kobenhavns Lufthavne ............... 1,449 169,860 NEG Micon A/S ...................... 4,242 68,986 NKT Holding A/S .................... 20,084 364,891 Novo-Nordisk A/S ................... 209,328 8,528,224 Novozymes A/S ...................... 45,318 1,654,376 Ostasiatiske Kompagni .............. 13,769 601,781 TDC A/S ............................ 117,243 4,230,412 Topdanmark A/S ..................... 23,254 1,244,804 Vestas Wind Systems A/S ............ 70,839 1,152,020 William Demant Holding ............. 39,848 1,346,684 ----------- 40,769,007 ----------- FINLAND -- 2.3% Amer Group ......................... 15,793 684,270 Elisa Oyj .......................... 100,622 1,345,348 Fortum Oyj ......................... 246,780 2,546,238 KCI Konecranes Oyj ................. 9,430 328,289 Kesko OYJ .......................... 40,998 717,774 Kone OYJ ........................... 25,561 1,466,983 Metso Oyj .......................... 70,449 860,173 Nokia OYJ .......................... 3,496,905 60,472,385 Nokian Renkaat OYJ ................. 6,180 466,929 Orion-Yhtymae OY ................... 25,563 548,791 Outokumpu OYJ ...................... 59,541 808,849 Pohjola Group PLC .................. 12,233 327,118 Rautaruukki OYJ .................... 57,526 423,753 Sampo Oyj .......................... 201,500 2,084,130 Stora Enso OYJ ..................... 446,856 6,019,697 Tietoenator Oyj .................... 60,427 1,653,966 UPM-Kymmene Oyj .................... 381,724 7,280,095 Uponor Oyj ......................... 20,579 648,933 Wartsila Oyj Series B .............. 26,010 498,677 ----------- 89,182,398 ----------- FRANCE -- 12.9% Accor .............................. 128,549 5,821,018 Air France ......................... 53,662 822,392 Air Liquide ........................ 67,784 11,969,914 The accompanying notes are an integral part of these financial statements. SAI-153 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003
----------------------------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE ----------------------------------------------------------------------------------------------------- Alcatel SA .............................................. 827,882 $10,661,787 Alstom .................................................. 344,083 542,512 Alstom -- Wts. Exp. 01/09/2004 .......................... 170,811 6,464 Arcelor ................................................. 235,360 4,102,764 Atos Origin ............................................. 15,737 1,006,389 Autoroutes du Sud de la France .......................... 45,044 1,511,313 Aventis SA .............................................. 460,841 30,459,180 AXA ..................................................... 957,072 20,486,240 BNP Paribas ............................................. 551,217 34,708,272 Bouygues ................................................ 136,270 4,764,631 Business Objects SA ..................................... 45,296 1,579,759 Cap Gemini SA ........................................... 76,038 3,377,011 Carrefour SA ............................................ 388,578 21,330,592 Casino Guichard Perrachon SA ............................ 25,980 2,526,558 Cie de Saint-Gobain ..................................... 212,266 10,391,061 Cie Generale D'Optique Essilor International SA ......... 65,978 3,412,077 CNP Assurances .......................................... 23,096 1,202,575 Credit Agricole SA ...................................... 245,485 5,861,535 Dassault Systemes SA .................................... 37,336 1,702,911 Euronext NV ............................................. 59,604 1,508,894 European Aeronautic Defense and Space Co ................ 192,883 4,586,075 France Telecom .......................................... 733,215 20,956,901 GECINA .................................................. 9,683 1,424,112 Groupe Danone ........................................... 83,448 13,620,279 Hermes International .................................... 6,093 1,178,942 Imerys SA ............................................... 5,139 1,081,859 Klepierre ............................................... 14,919 897,623 L'Oreal SA .............................................. 229,282 18,798,324 Lafarge SA .............................................. 113,404 10,098,779 Lagardere S.C.A. ........................................ 85,206 4,919,114 LVMH Moet Hennessy Louis Vuitton SA ..................... 166,208 12,096,606 Michelin (C.G.D.E.) ..................................... 92,562 4,247,479 Pernod-Ricard ........................................... 35,925 3,994,431 Peugeot SA .............................................. 123,153 6,275,700 Pinault-Printemps-Redoute ............................... 45,738 4,422,065 Publicis Groupe ......................................... 63,673 2,064,069 Renault SA .............................................. 116,043 8,006,489 Sagem SA ................................................ 13,945 1,494,231 Sanofi-Synthelabo SA .................................... 248,449 18,708,863 Schneider Electric SA ................................... 140,683 9,209,685 Societe BIC SA .......................................... 22,246 1,028,119 Societe Generale ........................................ 222,644 19,658,250 Societe Television Francaise 1 .......................... 80,334 2,804,796 Sodexho Alliance SA ..................................... 62,533 1,885,926 STMicroelectronics NV ................................... 397,409 10,777,350 Suez SA ................................................. 545,137 10,953,609 The accompanying notes are an integral part of these financial statements.
SAI-154 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003
------------------------------------------------------------------------------------------ SHARES (UNLESS OTHERWISE NOTED) VALUE ------------------------------------------------------------------------------------------ Technip SA ................................. 12,209 $ 1,321,305 Thales SA .................................. 50,688 1,703,877 Thomson .................................... 162,171 3,450,834 Total SA ................................... 436,252 81,109,313 Unibail .................................... 27,906 2,617,064 Valeo SA ................................... 48,447 1,940,200 Veolia Environnement ....................... 165,125 4,436,375 Vinci SA ................................... 45,447 3,763,360 Vivendi Universal SA ....................... 617,849 15,017,577 Wanadoo .................................... 244,998 2,008,684 Zodiac SA .................................. 25,878 759,235 ------------ 493,073,349 ------------ GERMANY -- 8.9% Adidas-Salomon AG .......................... 30,020 3,419,277 Allianz AG ................................. 190,263 24,018,034 Altana AG .................................. 46,452 2,791,921 BASF AG .................................... 358,253 20,144,928 Bayer AG ................................... 434,630 12,729,687 Bayerische Hypo-und Vereinsbank AG ......... 241,501 5,586,684 Beiersdorf AG .............................. 16,522 2,004,811 Celesio AG ................................. 19,650 953,004 Commerzbank AG ............................. 315,000 6,178,410 Continental AG ............................. 80,074 3,037,112 DaimlerChrysler AG ......................... 569,289 26,568,701 Deutsche Bank AG ........................... 346,237 28,692,914 Deutsche Boerse AG ......................... 70,260 3,841,785 Deutsche Lufthansa AG ...................... 126,114 2,107,730 Deutsche Post AG ........................... 257,562 5,311,722 Deutsche Telekom AG ........................ 1,665,374 30,480,003 Douglas Holding AG ......................... 22,856 635,401 E.ON AG .................................... 411,835 26,877,291 Epcos AG ................................... 32,392 731,352 Fresenius Medical Care AG .................. 23,165 1,647,962 HeidelbergCement AG ........................ 29,316 1,239,125 Hypo Real Estate Holding ................... 86,250 2,152,984 Infineon Technologies AG ................... 309,802 4,306,274 KarstadtQuelle AG .......................... 27,871 689,040 Linde AG ................................... 55,162 2,971,007 MAN AG ..................................... 69,850 2,118,933 Merck KGaA ................................. 32,191 1,341,155 Metro AG ................................... 96,418 4,250,511 MLP AG ..................................... 40,382 789,506 Muenchener Rueckversicherungs AG ........... 98,745 11,971,944 Puma AG Rudolf Dassler Sport ............... 10,500 1,854,185 Qiagen NV .................................. 86,620 1,063,082 RWE AG ..................................... 276,918 10,957,249
The accompanying notes are an integral part of these financial statements. SAI-155 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003
-------------------------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------------------------- SAP AG .............................................. 135,357 $ 22,733,050 Schering AG ......................................... 110,399 5,590,961 Siemens AG .......................................... 529,836 42,437,618 Suedzucker AG ....................................... 34,700 660,910 ThyssenKrupp AG ..................................... 204,139 4,034,882 TUI AG .............................................. 82,378 1,717,592 Volkswagen AG ....................................... 148,205 8,253,333 ------------ 338,892,070 ------------ GREECE -- 0.5% Alpha Bank A.E. ..................................... 104,693 3,164,028 Aluminum of Greece S.A.I.C. ......................... 6,716 136,387 Coca Cola Hellenic Bottling Co SA ................... 50,224 1,047,810 Commercial Bank Of Greece ........................... 39,525 991,115 EFG Eurobank Ergasias SA ............................ 110,870 2,148,034 Folli - Follie SA ................................... 11,585 336,093 Hellenic Duty Free Shops SA ......................... 18,508 363,249 Hellenic Petroleum SA ............................... 73,060 641,394 Hellenic Technodomiki Tev SA ........................ 39,911 251,709 Hellenic Telecommunications Organization SA ......... 178,222 2,360,404 Intracom SA ......................................... 59,900 406,485 National Bank of Greece SA .......................... 122,392 3,195,650 OPAP SA ............................................. 64,628 935,833 Piraeus Bank SA ..................................... 93,187 1,121,346 Public Power Corp ................................... 49,651 1,227,495 Technical Olympic SA ................................ 58,549 313,127 Titan Cement Co SA .................................. 20,231 829,347 Viohalco ............................................ 75,876 493,844 Vodafone-Panafon SA ................................. 115,200 898,001 ------------ 20,861,351 ------------ IRELAND -- 1.1% Allied Irish Banks .................................. 639,211 10,239,618 Bk of Ireland ....................................... 745,213 10,170,528 CRH ................................................. 415,562 8,533,477 DCC ................................................. 61,846 844,063 Elan Corp ........................................... 250,493 1,725,139 FYFFES .............................................. 229,973 478,626 Grafton Group ....................................... 140,933 972,380 Greencore Group ..................................... 122,495 548,507 Independent News + M ................................ 413,128 979,667 Irish Life + Perm ................................... 203,550 3,286,373 Kerry Group ......................................... 101,021 1,898,601 Ryanair Hldgs ....................................... 135,782 1,128,661 Ryanair Holdings PLC ADR ............................ 2,900 146,856 Waterford Wedgewood ................................. 506,025 140,420 Waterford Wedgwood UTS .............................. 138,006 40,037 ------------ 41,132,953 ------------
The accompanying notes are an integral part of these financial statements. SAI-156 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003
---------------------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE ---------------------------------------------------------------------------------------------- ITALY -- 4.4% Alleanza Assicurazioni SpA ..................... 272,329 $ 2,981,600 Arnoldo Mondadori Editore SpA .................. 72,943 654,168 Assicurazioni Generali SpA ..................... 559,290 14,814,676 Autogrill SpA .................................. 67,433 964,542 Autostrade SpA ................................. 114,443 2,007,947 Banca Fideuram SpA ............................. 165,495 983,199 Banca Intesa SpA ............................... 2,074,895 8,113,227 Banca Intesa SpA Di Risp ....................... 535,612 1,533,600 Banca Monte dei Paschi di Siena SpA ............ 644,919 2,037,740 Banca Nazionale del Lavoro SpA ................. 896,605 2,143,118 Banca Popolare di Milano SCRL .................. 226,142 1,480,418 Banche Popolari Unite Scrl ..................... 185,767 3,364,797 Banco Popolare di Verona e Novara Scrl ......... 216,474 3,664,326 Benetton Group SpA ............................. 33,385 383,624 Bulgari SpA .................................... 74,988 695,208 Capitalia SpA .................................. 710,350 2,078,721 Enel SpA ....................................... 1,417,581 9,637,679 ENI-Ente Nazionale Idrocarburi SpA ............. 1,519,989 28,681,896 Fiat SpA ....................................... 244,678 1,876,438 Fiat SpA Di Risp ............................... 13,793 69,765 FinecoGroup SpA ................................ 888,382 626,394 Finmeccanica SpA ............................... 3,454,672 2,706,040 Gruppo Editoriale L'Espresso SpA ............... 104,112 648,729 Italcementi SpA ................................ 44,954 560,790 Luxottica Group SpA ............................ 79,839 1,379,658 Mediaset SpA ................................... 345,368 4,103,636 Mediobanca SpA ................................. 273,288 2,964,523 Mediolanum SpA ................................. 148,874 1,173,639 Pirelli & C SpA ................................ 1,046,159 1,064,896 Riunione Adriatica di Sicurta SpA .............. 176,647 3,007,986 Sanpaolo IMI SpA ............................... 592,836 7,731,983 Seat Pagine Gialle SpA ......................... 1,900,704 1,810,078 Snam Rete Gas SpA .............................. 515,014 2,182,700 Snia Spa ....................................... 174,073 432,547 Telecom Italia Media SpA ....................... 692,667 344,236 Telecom Italia SpA ............................. 5,410,611 16,037,992 Telecom Italia SpA Di Risp ..................... 3,388,352 6,902,348 TIM SpA ........................................ 2,218,283 12,059,520 Tiscali SpA .................................... 102,060 713,183 UniCredito Italiano SpA ........................ 2,206,067 11,909,630 ------------ 166,527,197 ------------ NETHERLANDS -- 5.7% ABN AMRO Holding NV ............................ 1,147,362 26,846,037 Aegon NV ....................................... 1,010,570 14,952,032 Akzo Nobel NV .................................. 203,399 7,850,658
The accompanying notes are an integral part of these financial statements. SAI-157 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003
---------------------------------------------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE ---------------------------------------------------------------------------------------------------------------------- ASML Holding NV ........................................................ 342,773 $ 6,796,651 Corio NV ............................................................... 32,344 1,252,472 DSM NV ................................................................. 60,504 2,978,643 Hagemeyer NV ........................................................... 76,838 173,486 Heineken NV ............................................................ 146,683 5,585,714 IHC Caland NV .......................................................... 23,064 1,250,947 Koninklijke Ahold NV ................................................... 812,983 6,193,758 Koninklijke Philips Electronics NV ..................................... 984,189 28,738,580 OCE NV ................................................................. 54,309 832,308 Reed Elsevier NV ....................................................... 469,939 5,838,665 Rodamco Europe NV ...................................................... 33,607 1,957,156 Royal Dutch Petroleum Co ............................................... 1,557,894 82,139,111 Royal KPN NV ........................................................... 1,583,808 12,226,151 TPG NV ................................................................. 251,598 5,893,250 VNU NV ................................................................. 168,263 5,316,578 Wereldhave NV .......................................................... 14,799 1,107,870 ------------ 217,930,067 ------------ NORWAY -- 0.6% Aker Kvaerner ASA ...................................................... 11,774 201,313 DNB NOR ASA ............................................................ 398,884 2,662,105 Frontline Ltd .......................................................... 46,164 1,196,983 Norsk Hydro ASA ........................................................ 96,791 5,972,328 Norske Skogindustrier ASA .............................................. 63,106 1,204,675 Orkla ASA .............................................................. 145,330 3,254,896 Schibsted ASA .......................................................... 40,967 705,075 Smedvig A .............................................................. 32,111 243,748 Statoil ASA ............................................................ 304,876 3,425,547 Storebrand ............................................................. 194,923 1,268,664 Tandberg ASA ........................................................... 78,209 576,034 Telenor ASA ............................................................ 324,840 2,123,999 Tomra Systems ASA ...................................................... 112,282 676,784 ------------ 23,512,151 ------------ PORTUGAL -- 0.5% Banco BPI SA ........................................................... 339,315 1,249,746 Banco Comercial Portugues SA ........................................... 1,510,140 3,371,524 Banco Espirito Santo SA ................................................ 79,540 1,304,262 Brisa-Auto Estradas de Portugal SA ..................................... 203,475 1,360,263 Cimpor Cimentos de Portugal SA ......................................... 137,795 712,612 Electricidade de Portugal SA ........................................... 1,268,414 3,343,822 Jeronimo Martins ....................................................... 54,414 717,923 Portugal Telecom SGPS SA ............................................... 685,105 6,895,978 PT Multimedia Servicos de Telecomunicacoes e Multimedia SGPSSA ......... 10,753 208,875 Sonae SGPS SA .......................................................... 823,894 685,885 ------------ 19,850,890 ------------
The accompanying notes are an integral part of these financial statements. SAI-158 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003
-------------------------------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE -------------------------------------------------------------------------------------------------------- SPAIN -- 4.3% Abertis Infraestructuras SA .............................. 132,391 $ 2,002,228 Acciona SA ............................................... 17,341 1,055,376 Acerinox SA .............................................. 26,754 1,261,432 ACS Actividades Cons y Serv .............................. 60,924 2,973,960 Altadis SA ............................................... 174,554 4,953,910 Amadeus Global Travel Distribution ....................... 142,766 927,402 Antena 3 Television SA ................................... 10,018 441,509 Banco Bilbao Vizcaya Argentaria SA ....................... 1,836,633 25,367,187 Banco Popular Espanol SA ................................. 96,289 5,744,783 Banco Santander Central Hispano SA ....................... 2,596,136 30,748,847 Corp Mapfre SA ........................................... 63,251 895,948 Endesa SA ................................................ 537,193 10,333,228 Fomento de Construcciones Y Contratas SA ................. 30,265 1,116,230 Gas Natural SDG SA ....................................... 119,751 2,801,940 Grupo Ferrovial SA ....................................... 38,386 1,345,058 Iberdrola SA ............................................. 463,575 9,162,728 Iberia Lineas Aereas de Espana ........................... 263,237 757,038 Inditex SA ............................................... 125,220 2,542,936 Indra Sistemas SA ........................................ 76,669 983,505 NH Hoteles SA ............................................ 50,617 581,635 Promotora de Informaciones SA (PRISA) .................... 46,329 672,027 Repsol YPF SA ............................................ 553,912 10,801,550 Sacyr Vallehermoso SA .................................... 60,782 920,009 Sociedad General de Aguas de Barcelona SA ................ 46,556 694,698 Sociedad General de Aguas de Barcelona SA-Rights ......... 453 6,651 Telefonica Publicidad e Informacion SA ................... 100,242 550,015 Telefonica SA ............................................ 2,848,114 41,816,354 Union Fenosa SA .......................................... 117,711 2,210,790 Zeltia SA ................................................ 84,005 593,375 ------------ 164,262,349 ------------ SWEDEN -- 3.2% Alfa Laval AB ............................................ 45,991 699,903 Assa Abloy AB ............................................ 214,819 2,552,642 Atlas Copco AB Series A .................................. 81,510 2,917,019 Atlas Copco AB Series B .................................. 50,865 1,657,727 Axfood AB ................................................ 17,025 393,960 Billerud AB .............................................. 40,956 617,587 Castellum AB ............................................. 28,048 662,677 Drott AB ................................................. 58,033 1,100,928 Electrolux AB ............................................ 217,278 4,771,160 Eniro AB ................................................. 122,156 1,171,426 Gambro AB Series A ....................................... 128,096 1,059,263 Gambro AB Series B ....................................... 64,410 532,625 Getinge AB ............................................... 118,656 1,137,863 Hennes & Mauritz AB ...................................... 345,634 8,214,170
The accompanying notes are an integral part of these financial statements. SAI-159 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003
---------------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE ---------------------------------------------------------------------------------------- Hoganas AB ............................... 18,642 $ 398,992 Holmen AB ................................ 35,588 1,263,705 Modern Times Group AB .................... 34,919 735,234 Nobel Biocare Holding AG ................. 14,805 1,444,430 Nordea AB ................................ 1,705,195 12,797,316 OMHEX AB ................................. 38,582 479,909 Sandvik AB ............................... 160,171 5,520,605 Sapa AB .................................. 140 3,434 SAS AB ................................... 50,813 480,214 Securitas AB ............................. 215,519 2,905,416 Skandia Forsakrings AB ................... 596,960 2,173,690 Skandinaviska Enskilda Banken AB ......... 343,566 5,061,359 Skanska AB ............................... 279,095 2,463,071 SKF AB Series A .......................... 11,846 459,332 SKF AB Series B .......................... 62,237 2,404,609 Ssab Svenskt Stal AB Series A ............ 40,912 730,643 Ssab Svenskt Stal AB Series B ............ 17,802 305,553 Svenska Cellulosa AB ..................... 139,304 5,691,962 Svenska Handelsbanken Series A ........... 402,246 8,217,887 Svenska Handelsbanken Series B ........... 31,155 617,012 Swedish Match AB ......................... 243,189 2,484,176 Tele2 AB ................................. 68,688 3,665,753 Telefonaktiebolaget LM Ericsson .......... 10,702,946 19,188,638 TeliaSonera AB ........................... 1,191,551 6,226,609 Trelleborg AB ............................ 56,191 913,700 Volvo AB Series A ........................ 70,743 2,074,517 Volvo AB Series B ........................ 165,443 5,058,505 WM-data AB ............................... 174,693 376,321 ------------ 121,631,542 ------------ SWITZERLAND -- 10.3% ABB LTD .................................. 1,250,133 6,337,848 Adecco SA ................................ 94,043 6,045,214 CIBA Specialty CHE ....................... 48,758 3,772,905 Clariant ................................. 99,561 1,469,164 Credit Suisse Grp ........................ 857,854 31,387,017 Geberit AG ............................... 2,550 1,253,608 Gibaudan AG .............................. 5,130 2,662,996 HOLCIM ................................... 108,780 5,066,285 KUDELSKI SA .............................. 22,824 753,879 Kuoni Reisen Holding ..................... 2,078 695,607 Logitech International SA ................ 31,081 1,344,519 LONZA GROUP AG ........................... 30,916 1,777,342 Nestle SA ................................ 290,918 72,685,395 Novartis AG .............................. 1,716,766 77,943,328 Richemont (CIE FIN) ...................... 376,337 9,037,565 Roche Holding AG ......................... 22,780 3,158,900
The accompanying notes are an integral part of these financial statements. SAI-160 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003
--------------------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE --------------------------------------------------------------------------------------------- Roche Holdings AG Genusscheine NPV ............ 506,514 $ 51,091,669 Schindler Holding AG .......................... 3,824 933,776 Serono SA ..................................... 4,945 3,526,574 SGS SA ........................................ 3,102 1,946,353 SULZER AG ..................................... 2,355 634,093 Swatch Group Reg D ............................ 37,873 903,379 Swatch Group BR ............................... 24,125 2,896,756 Swiss Reinsurance ............................. 232,188 15,676,327 Swisscom AG ................................... 19,092 6,298,392 Syngenta AG ................................... 77,096 5,192,720 Synthes-Stratec Inc ........................... 3,163 3,130,392 UBS AG ........................................ 850,938 58,277,298 Unaxis Holding AG ............................. 6,794 962,724 Valora Holding AG ............................. 2,804 698,308 Zurich Fin SVS Grp ............................ 103,822 14,942,645 ------------ 392,502,978 ------------ UNITED KINGDOM -- 35.7% 3i Group Plc .................................. 436,737 4,827,771 Aegis Group Plc ............................... 766,642 1,355,250 Aggreko Plc ................................... 177,490 490,899 Alliance Unichem Plc .......................... 178,301 1,656,574 Amec Plc ...................................... 210,845 981,356 Amersham PLC .................................. 493,385 6,761,155 Amvescap Plc .................................. 483,952 3,515,204 ARM Holdings Plc .............................. 709,384 1,631,828 Associated British Ports Holdings Plc ......... 227,735 1,830,484 AstraZeneca Plc ............................... 1,214,143 58,249,791 Aviva Plc ..................................... 1,607,128 14,104,504 BAA Plc ....................................... 752,292 6,683,081 BAE Systems Plc ............................... 2,151,817 6,481,121 Balfour Beatty Plc ............................ 288,367 1,127,942 Barclays PLC .................................. 4,659,483 41,559,927 Barratt Developments plc ...................... 165,104 1,604,897 BBA Group Plc ................................. 324,737 1,450,414 Berkeley Group Plc ............................ 85,523 1,347,272 BG Group Plc .................................. 2,513,847 12,904,227 BHP Billiton PLC .............................. 1,757,158 15,350,424 BOC Group Plc ................................. 355,397 5,430,090 Boots Group PLC ............................... 564,974 6,988,698 BP PLC ........................................ 15,710,516 127,402,629 BPB Plc ....................................... 358,149 2,224,759 Brambles Industries PLC ....................... 502,298 1,829,850 British Airways ............................... 375,476 1,562,769 British American Tobacco Plc .................. 1,125,693 15,516,738 British Land Co Plc ........................... 349,807 3,657,052 British Sky Broadcasting PLC .................. 896,853 11,286,683
The accompanying notes are an integral part of these financial statements. SAI-161 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003
----------------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE ----------------------------------------------------------------------------------------- BT Group PLC .............................. 6,170,250 $ 20,793,495 Bunzl Plc ................................. 308,938 2,360,123 Cable & Wireless PLC ...................... 1,704,967 4,074,619 Cadbury Schweppes Plc ..................... 1,468,379 10,783,916 Canary Wharf Group Plc .................... 323,965 1,552,806 Capita Group Plc .......................... 486,845 2,117,809 Carlton Communications Plc ................ 443,855 1,827,506 Carnival PLC .............................. 119,033 4,796,590 Cattles Plc ............................... 225,543 1,349,555 Celltech Group Plc ........................ 191,277 1,294,328 Centrica Plc .............................. 3,031,385 11,450,206 Close Brothers Group Plc .................. 99,798 1,311,317 Cobham PLC ................................ 80,998 1,692,135 Compass Group PLC ......................... 1,557,127 10,592,473 Daily Mail & General Trust ................ 219,166 2,585,523 Davis Service Group PLC ................... 135,316 903,541 De La Rue Plc ............................. 126,723 628,951 Diageo PLC ................................ 2,204,395 29,004,574 Dixons Group Plc .......................... 1,366,634 3,400,609 Electrocomponents Plc ..................... 318,101 1,850,709 Emap Plc .................................. 184,532 2,831,016 EMI GROUP ................................. 547,059 1,554,668 Enterprise Inns Plc ....................... 124,172 2,253,987 Exel plc .................................. 214,727 2,838,748 Firstgroup Plc ............................ 287,312 1,406,698 FKI Plc ................................... 399,944 766,077 Friends Provident PLC ..................... 1,178,972 2,785,911 GKN Plc ................................... 526,709 2,517,513 GlaxoSmithKline plc ....................... 4,237,356 97,094,507 Granada Plc ............................... 1,979,875 4,324,016 Great Portland Estates Plc ................ 114,207 479,430 GUS PLC ................................... 720,790 9,980,650 Hammerson Plc ............................. 185,238 2,147,136 Hanson Plc ................................ 527,446 3,873,614 Hays Plc .................................. 1,187,959 2,551,952 HBOS PLC .................................. 2,730,164 35,360,387 Hilton Group Plc .......................... 1,129,720 4,545,276 HSBC Holdings Plc ......................... 7,726,930 121,448,242 IMI Plc ................................... 244,453 1,475,832 Imperial Chemical Industries plc .......... 854,268 3,043,245 Imperial Tobacco Group Plc ................ 519,597 10,231,730 Intercontinental Hotels Group Plc ......... 517,135 4,897,217 International Power Plc ................... 814,056 1,799,745 Invensys Plc .............................. 2,429,194 793,624 J Sainsbury Plc ........................... 1,022,894 5,726,875 Johnson Matthey Plc ....................... 157,538 2,766,585
The accompanying notes are an integral part of these financial statements. SAI-162 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003
------------------------------------------------------------------------------------------------------ SHARES (UNLESS OTHERWISE NOTED) VALUE ------------------------------------------------------------------------------------------------------ Kelda Group Plc ......................................... 263,797 $ 2,214,789 Kesa Electricals PLC .................................... 382,166 1,759,937 Kidde Plc ............................................... 571,598 1,089,758 Kingfisher PLC .......................................... 1,651,823 8,235,281 Land Securities Group PLC ............................... 327,629 5,818,134 Legal & General Group PLC ............................... 4,636,730 8,321,199 Liberty International Plc ............................... 173,559 2,120,506 Lloyds TSB Group Plc .................................... 3,976,045 31,887,395 LogicaCMG PLC ........................................... 525,047 2,408,529 Man Group Plc ........................................... 196,341 5,135,124 Marks & Spencer Group PLC ............................... 1,616,117 8,361,042 MFI Furniture Plc ....................................... 448,044 1,211,120 Misys Plc ............................................... 390,147 1,478,909 Mitchells & Butlers PLC ................................. 379,062 1,526,801 National Grid Transco PLC ............................... 2,191,025 15,698,871 Next Plc ................................................ 194,036 3,900,783 Novar Plc ............................................... 290,836 718,484 Pearson Plc ............................................. 563,740 6,277,099 Peninsular and Oriental Steam Navigation Co/The ......... 531,041 2,186,481 Persimmon Plc ........................................... 195,898 1,883,190 Pilkington Plc .......................................... 727,007 1,246,141 Provident Financial Plc ................................. 185,833 2,164,013 Prudential PLC .......................................... 1,429,489 12,084,885 Rank Group Plc .......................................... 399,695 1,998,074 Reckitt Benckiser PLC ................................... 428,361 9,692,744 Reed Elsevier PLC ....................................... 904,702 7,567,364 Rentokil Initial Plc .................................... 1,312,235 4,463,288 Reuters Group Plc ....................................... 1,024,304 4,309,099 Rexam Plc ............................................... 434,297 3,325,574 Rio Tinto Plc ........................................... 758,520 20,951,866 RMC Group Plc ........................................... 184,025 2,297,792 Rolls-Royce Group PLC ................................... 1,059,348 3,361,357 Royal & Sun Alliance Insurance Group .................... 1,982,178 3,131,462 Royal Bank of Scotland Group Plc ........................ 1,986,872 58,544,953 SABMiller PLC ........................................... 562,175 5,826,930 Safeway Plc ............................................. 756,961 3,848,412 Sage Group Plc .......................................... 873,555 2,748,371 Schroders PLC ........................................... 86,264 975,970 Scottish & Newcastle Plc ................................ 573,418 3,882,755 Scottish & Southern Energy Plc .......................... 603,710 7,273,328 Scottish Power Plc ...................................... 1,323,036 8,816,498 Securicor PLC ........................................... 375,030 639,471 Serco Group Plc ......................................... 301,887 929,528 Severn Trent PLC ........................................ 246,575 3,306,135 Shell Transport & Trading Co PLC ........................ 6,874,178 51,130,677 Signet Group PLC ........................................ 1,235,154 2,277,446
The accompanying notes are an integral part of these financial statements. SAI-163 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003
--------------------------------------------------------------------------------------- SHARES (UNLESS OTHERWISE NOTED) VALUE --------------------------------------------------------------------------------------- Slough Estates Plc ................... 304,211 $ 2,392,084 Smith & Nephew PLC ................... 653,661 5,490,939 Smiths Group PLC ..................... 399,348 4,725,445 SSL International Plc ................ 133,168 786,690 Stagecoach Group PLC ................. 742,146 1,042,915 Tate & Lyle Plc ...................... 284,505 1,586,491 Taylor Woodrow Plc ................... 398,403 1,904,248 Tesco Plc ............................ 5,204,560 24,014,438 TI Automotive Ltd1 ................... 195,737 0 Tomkins Plc .......................... 555,059 2,657,986 Unilever PLC ......................... 1,968,601 18,351,718 United Business Media PLC ............ 235,616 2,066,763 United Utilities PLC ................. 398,758 3,537,063 United Utilities PLC A SHS ........... 208,653 1,137,370 Vodafone Group PLC ................... 48,464,767 120,161,583 Whitbread PLC ........................ 213,289 2,745,283 William Hill PLC ..................... 303,880 2,322,842 Wimpey George Plc .................... 278,422 1,860,343 Wolseley Plc ......................... 408,700 5,779,915 WPP Group Plc ........................ 841,077 8,258,518 Yell Group PLC ....................... 321,800 1,757,016 -------------- 1,355,286,070 -------------- TOTAL COMMON STOCK ................... 3,550,468,967 -------------- PREFERRED STOCK -- 2.1% FRANCE -- 0.0% Casino Guichard Perrachon SA ......... 360 28,948 -------------- GERMANY -- 0.3% Fresenius Medical Care AG ............ 17,317 872,620 Henkel KGaA .......................... 39,262 3,070,435 Metro AG ............................. 192 11,867 Porsche AG ........................... 5,207 3,090,306 ProSieben SAT.1 Media AG ............. 48,146 804,659 RWE AG ............................... 26,212 924,097 Volkswagen AG ........................ 69,624 2,524,833 Wella AG ............................. 9,300 824,072 -------------- 12,122,889 -------------- NETHERLANDS -- 1.8% ING Groep NV ......................... 1,310,493 30,563,806 Koninklijke Vendex KBB NV ............ 68,722 957,842 Numico NV ............................ 112,006 3,095,419 Unilever NV .......................... 427,442 27,955,146 Vedior NV ............................ 68,026 1,063,977 Wolters Kluwer NV .................... 203,099 3,176,620 -------------- 66,812,810 --------------
The accompanying notes are an integral part of these financial statements. SAI-164 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND Combined Schedule of Investments (showing percentage of total value of investments) December 31, 2003
----------------------------------------------------------------------------------------------------------- UNITS VALUE ----------------------------------------------------------------------------------------------------------- TOTAL PREFERRED STOCK ................................................. $ 78,964,647 -------------- STATE STREET BANK AND TRUST COMPANY COLLECTIVE INVESTMENT FUNDS -- 4.7% Short Term Investment Fund(2) ......................................... 179,211,647 179,211,647 ----------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (COST $3,419,077,505)........................ $3,808,645,261 ===========================================================================================================
1 Valued by management. 2 Collective investment fund advised by State Street Global Advisors. At December 31, 2003, foreign currency balances totaling $16,028,891 were pledged to cover margin requirements for open futures contracts. The following futures contracts were open at December 31, 2003:
NUMBER OF UNREALIZED FUTURES CONTRACTS GAIN/(LOSS) CONTRACTS LONG/(SHORT) NOTIONAL COST($) MATURITY DATE ($) ------------------------- -------------- ------------------ --------------- ------------ FTSE 100 Index .......... 674 52,800,321 March 2004 1,090,769 MIB 30 Index ............ 232 40,071,468 March 2004 (819,110) DAX Stock Index ......... 251 30,798,287 March 2004 822,038 IBEX 35 Index ........... 323 30,485,255 January 2004 855,254 TOPIX Index ............. 1,043 46,078,547 March 2004 814,280 --------- 2,763,231 =========
The following foreign currency contracts were open at December 31, 2003:
UNREALIZED GAIN/(LOSS) SETTLEMENT DATE CONTRACTS TO DELIVER IN EXCHANGE FOR ($) -------------------- -------------------- -------------------- ------------ 01/02/2004 ......... CAD 1,612,538 USD 1,241,732 (6,121) 01/02/2004 ......... USD 40,391,040 EUR 32,000,000 (27,821) 01/02/2004 ......... USD 37,426,884 GBP 20,900,000 (12,722) 01/05/2004 ......... USD 13,154,486 CHF 16,250,000 (15,210) 03/04/2004 ......... EUR 22,000,000 USD 26,963,200 (737,766) 03/04/2004 ......... GBP 5,000,000 USD 8,669,400 (237,305) 03/04/2004 ......... USD 71,250,060 EUR 60,690,000 5,166,833 03/04/2004 ......... USD 14,484,600 EUR 12,000,000 625,018 03/04/2004 ......... USD 50,726,840 EUR 41,000,000 897,688 03/04/2004 ......... USD 5,089,592 GBP 3,022,000 293,621 03/04/2004 ......... USD 5,213,100 GBP 3,000,000 130,923 03/04/2004 ......... USD 31,701,420 GBP 18,000,000 362,719 --------- 6,439,857 ---------
CAD: Canadian Dollar CHF: Swiss Franc EUR: Euro GBP: British Pound Sterling USD: United States Dollar The accompanying notes are an integral part of these financial statements. SAI-165 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2003 State Street Bank and Trust Company ("State Street Bank") Daily EAFE Funds (collectively, the "Funds") are organized by State Street Bank under the State Street Bank and Trust Company Investment Funds for Tax Exempt Retirement Plans Declaration of Trust. The Funds are organized into separate regional funds, a country fund and umbrella funds that hold investments in separate country and regional funds (individually, a "Fund"). State Street Bank is Trustee, custodian, and recordkeeper of each Fund and has exclusive management and control of the Trust. State Street Global Advisors, a division of State Street Bank, is each Fund's investment manager. The investment objective of each Fund is generally to match, as closely as possible, the total return of the relevant portion of the MSCI World Index (the "Index"). 1. The following is a summary of significant accounting policies followed by each Fund in the preparation of its financial statements. The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently in the preparation of the financial statements. A. SECURITY VALUATION Equity investments for which market quotations are readily available are valued at the last reported sale price on their principal exchange on valuation date, or official close price for certain markets. If no sales are reported for that day, investments are valued at the more recent of the last published sale price or the mean between the last reported bid and asked prices, or at fair value as determined in good faith by the Trustee. Short-term investments, if any, are stated at amortized cost, which approximates fair value. Investments in regulated investment companies or collective investment funds are valued at the net asset value per share/unit on the valuation date. B. SECURITY TRANSACTIONS AND INVESTMENT INCOME Security transactions are accounted for as of trade date. Realized gains and losses from investment transactions are determined using the average cost method. Dividend income, if any, is recorded net of applicable withholding taxes on the ex-dividend date or as soon thereafter as the Fund is informed of the dividend. Interest income earned on securities, if any, is recorded net of applicable withholding taxes on the accrual basis; interest earned on foreign currency accounts is recorded when the Trustee is first notified of the amount credited by the depository bank. Interest income includes accretion of discounts and amortization of premiums, if any. Distributions received from collective investment funds are recorded on the ex-dividend date and retain the character of income as earned by the underlying fund. C. FOREIGN CURRENCY AND FORWARD FOREIGN CURRENCY CONTRACTS The accounting records of the Fund are maintained in U.S. dollars. Foreign currency, investment securities, and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Purchases and sales of securities, income and expenses are translated into U.S. dollars at the prevailing exchange rate on the respective dates of the transactions. Reported net realized gains and losses on foreign currency transactions represent net gains and losses from disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The effects of changes in foreign currency exchange rates on SAI-166 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 securities and derivative instruments are not segregated in the Statement of Operations from the effects of changes in market prices of those securities and derivative instruments, but are included with the net realized and unrealized gain or loss on securities and derivative instruments. Net unrealized foreign exchange gains and losses arising from changes in the value of other assets and liabilities as a result of changes in foreign exchange rates are included as increases and decreases in unrealized appreciation/ depreciation on foreign currency related transactions. The Fund may use forward foreign currency contracts to facilitate transactions in foreign securities, to gain exposure to foreign currency or as a hedge against the foreign currency exposure of either specific transactions or portfolio positions. When entering into a forward foreign currency contract, the Fund agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed upon future date. Such contracts are valued based upon the difference in the forward exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, and any resulting unrealized gains or losses are recorded in the Fund's financial statements. The Fund records realized gains or losses at the time the forward contract is extinguished by entry into a closing transaction or by delivery of the currency. Risks in foreign currency contracts arise from the possible inability of counterparties to meet the contracts' terms and from movements in currency values. D. INCOME TAXES It is the Fund's policy to comply with the requirements of Section 501(a) of the Internal Revenue Code relating to collective investment of employee benefit funds. Accordingly, the Fund is exempt from federal and state taxes and no federal or state tax provision is required. E. ISSUANCES AND REDEMPTIONS OF UNITS OF PARTICIPATION The net asset value of the Fund is determined each business day ("valuation date"). Issuances and redemptions of Fund units are made on such days, based upon the net asset value per unit. A transaction fee of 0.5% -- 0.8% is charged on any contribution or withdrawal greater than 5% of the net asset value of the Fund. However, such fees are waived if the Fund's net participant activity on any day is less than 5% of the net asset value of the Fund. During the year, transaction fees of $1,548,948, $35,475, and $17,661 were charged by the Daily MSCI Europe Index Fund, the Daily MSCI Japan Index Fund and the Daily MSCI Pacific Basin ex-Japan Fund, respectively. F. EXPENSES Under the Declaration of Trust, the Fund may pay certain expenses for services received. The Fund pays State Street Bank for custody services. The Fund indirectly bears the expenses paid by the underlying funds, if any. State Street Global Advisors receives investment management fees from the participating accounts and therefore, the Fund makes no payment for these services. G. DISTRIBUTIONS TO PARTICIPANTS Net investment income (excluding security lending fee income, if any) and net realized gains are retained by the Fund. Income generated by security lending, if any, is distributed monthly to participants of the Lending Fund. SAI-167 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY DAILY MSCI EUROPE INDEX SECURITIES LENDING FUND DAILY MSCI EUROPE INDEX FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 2. GLOBAL SECURITIES LENDING PROGRAM: PRINCIPLES OF COMBINATION The participants in the Daily MSCI Europe Index Securities Lending Fund (the "Lending Fund") have authorized the Lending Fund to participate in the Global Securities Lending Program maintained by State Street Bank. The investment objective, techniques and results of operations of the Lending Fund are identical to those of the Daily MSCI Europe Index Fund (the "Non-Lending Fund"), except that the Lending Fund engages in securities lending activity. Accordingly, the financial statements of the Lending Fund and the Non-Lending Fund have been prepared on a combined basis, with separate disclosure of the participant transactions and financial highlights of the Lending Fund and the Non-Lending Fund. The Lending Fund and the Non-Lending Fund each maintain a divided pro-rata interest in the combined assets and liabilities (including each investment security position but excluding assets and liabilities related to securities lending activity) proportionate to the net asset value of the outstanding combined units of the Fund. All interfund transactions have been eliminated in the combined financial statements. Under the Global Securities Lending Program, securities held by the Lending Fund are loaned by State Street Bank, as agent, to certain brokers and other financial institutions (the "Borrowers"). The Borrowers provide cash, securities, or letters of credit as collateral against loans in an amount at least equal to 100% of the market value of the loaned securities. The Borrowers are required to maintain the collateral at not less than 100% of the market value of the loaned securities. At December 31, 2003, the market value of securities loaned by the Lending Fund is disclosed on the Statement of Assets and Liabilities. Cash collateral provided by the Borrowers is recorded on the Statement of Assets and Liabilities and is invested in State Street Bank and Trust Company Quality D Short-Term Investment Fund. The Fund received securities valued at $844,705 as additional collateral. 3. INVESTMENT TRANSACTIONS Purchases and sales of securities, including in-kind contributions and redemptions, if any, during the period ended December 31, 2003 were $3,966,187,930 and $2,912,050,480, respectively. 4. FUTURES CONTRACTS The Fund may use futures contracts to manage exposure to the market. Buying futures tends to increase a fund's exposure to the underlying instrument. Selling futures tends to decrease a fund's exposure to the underlying instrument held by a fund, or hedge the fair value of other fund investments. Futures contracts are valued at the last settlement price at the end of each day on the board of trade or exchange upon which they are traded. Upon entering into a futures contract, the Fund is required to deposit either in cash, currency or securities an amount ("initial margin") equal to a certain percentage of the nominal value of the contract. Subsequent payments are made or received by the Fund periodically, depending on the fluctuation in the value of the underlying index or security, and are recorded as unrealized gains or losses by the Fund. Such payments are made on a periodic basis. A gain or loss is realized when the contract is closed or expires. Futures contracts involve, to varying degrees, credit and market risks. The Fund enters into futures contracts only on exchanges or boards of trade where the exchange or board of trade acts as the counterparty to the transaction. Thus, credit risk on such transactions is limited to the failure of the exchange or board of trade. Losses in value may arise from changes in the value of the underlying instruments or if there is an illiquid secondary market for the contracts. In addition, there is the risk that there may not be an exact correlation between a futures contract and the underlying index or security. SAI-168 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS To the Participants and Trustee of State Street Bank and Trust Company Short Term Investment Fund In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of State Street Bank and Trust Company Short Term Investment Fund at December 31, 2003, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trustee; 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 auditing standards generally accepted in the United States of America, 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 the Trustee, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2003 by correspondence with the custodian, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 27, 2004 SAI-169 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY SHORT TERM INVESTMENT FUND Statement of Assets and Liabilities December 31, 2003 --------------------------------------------------------------------------------
ASSETS Investments in securities, at amortized cost .................................... $ 46,849,657,492 Cash ............................................................................ 662 Interest receivable ............................................................. 44,724,556 --------------------------------------------------------------------------------------------------- Total assets ................................................................... 46,894,382,710 --------------------------------------------------------------------------------------------------- LIABILITIES Distributions payable ........................................................... 43,331,270 Accrued expenses ................................................................ 1,446,990 --------------------------------------------------------------------------------------------------- Total liabilities .............................................................. 44,778,260 --------------------------------------------------------------------------------------------------- NET ASSETS (equivalent to $1.00 per unit based on 46,849,139,943 units outstanding)$ 46,849,604,450 ===================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-170 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY SHORT TERM INVESTMENT FUND Statement of Operations Year Ended December 31, 2003 -------------------------------------------------------------------------------- INVESTMENT INCOME Interest ..................................................... $ 498,154,078 -------------------------------------------------------------------------------- EXPENSES Custody ...................................................... 3,688,099 Audit ........................................................ 76,000 Insurance .................................................... 7,250,657 Other ........................................................ 107,071 -------------------------------------------------------------------------------- Total expenses .............................................. 11,121,827 -------------------------------------------------------------------------------- Net investment income (loss) ................................ 487,032,251 -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS): Investments ................................................. (60,193) -------------------------------------------------------------------------------- (60,193) -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 486,972,058 ================================================================================ The accompanying notes are an integral part of these financial statements. SAI-171 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY SHORT TERM INVESTMENT FUND Statement of Changes in Net Assets
YEAR ENDED DECEMBER 31, 2003 2002 ---------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss) ..................................................... $ 487,032,251 $ 722,278,653 Net realized gain (loss) ......................................................... (60,193) 7,924 ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations .................. 486,972,058 722,286,577 ---------------------------------------------------------------------------------------------------------------------------- Distributions .................................................................... (487,014,523) (722,296,381) ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from participant transactions .... 7,341,452,275 4,729,690,820 ---------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS ............................................ 7,341,409,810 4,729,681,016 NET ASSETS Beginning of year .............................................................. 39,508,194,640 34,778,513,624 ---------------------------------------------------------------------------------------------------------------------------- End of year .................................................................... $46,849,604,450 $39,508,194,640 ============================================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-172 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY SHORT TERM INVESTMENT FUND Statement of Changes in Net Assets (Continued)
YEAR ENDED DECEMBER 31, --------------------------------------------- 2003 2002 --------------------- --------------------- UNITS UNITS ------------------------------------------------------------------------------------------------------ UNITS OF PARTICIPATION PARTICIPANT TRANSACTIONS FOR THE FUND WERE AS FOLLOWS: Units issued ......................................... 386,421,752,057 239,397,576,601 Units redeemed ....................................... (379,080,299,782) (234,667,885,781) ------------------------------------------------------------------------------------------------------ Net increase (decrease) .............................. 7,341,452,275 4,729,690,820 ======================================================================================================
Participant transactions for the Funds were at a constant net asset value of $1 per unit. The accompanying notes are an integral part of these financial statements. SAI-173 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY SHORT TERM INVESTMENT FUND Financial Highlights (FOR A UNIT OF PARTICIPATION OUTSTANDING THROUGHOUT EACH YEAR)
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------ 2003 2002 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------------------ SELECTED PER UNIT DATA Net asset value, beginning of year ................ $1.00 $1.00 $1.00 $1.00 $1.00 ------------------------------------------------------------------------------------------------------------------------------------ Net investment income (loss) ...................... 0.0122 0.0197 0.0437 0.0643 0.0522 Net realized and unrealized gain (loss) (a) ....... 0.0000 0.0000 0.0000 0.0000 0.0000 ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .................. 0.0122 0.0197 0.0437 0.0643 0.0522 Distributions from net investment income .......... (0.0122) (0.0197) (0.0437) (0.0643) (0.0522) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of year ...................... $1.00 $1.00 $1.00 $1.00 $1.00 ==================================================================================================================================== Total return (%) (b) .............................. 1.22 1.99 4.46 6.63 5.35 RATIOS TO AVERAGE NET ASSETS Ratio of expenses (%) ............................. 0.03 0.02 0.02 0.00(c) 0.00(c) Ratio of net investment income (%) ................ 1.22 1.97 4.37 6.43 5.22 Net assets, end of year (000's) ................... $46,849,604 $39,508,195 $34,778,514 $27,527,486 $22,958,561
---------- (a) Zero amounts represent that which are less than $0.00005 or ($0.00005) if negative. (b) Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year and assumes reinvestment of distributions, if any. It assumes reinvestment of distributions and includes only those expenses charged directly to the Fund. (c) Zero amounts represent that which are less than 0.005% or (0.005%) if negative. The accompanying notes are an integral part of these financial statements. SAI-174 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY SHORT TERM INVESTMENT FUND Schedule of Investments (showing percentage of total value of investments) December 31, 2003
----------------------------------------------------------------------------------------------------------------- PRINCIPAL VALUE ----------------------------------------------------------------------------------------------------------------- DEBT INSTRUMENTS -- 86.9% USD 100,000,000 Alliance & Leicester London ............... 1.10% 02/09/2004 $100,000,000 100,000,000 Alliance & Leicester London ............... 1.13% 02/11/2004 100,000,000 100,000,000 Alliance & Leicester London ............... 1.11% 03/19/2004 100,002,155 100,000,000 Alliance & Leicester London ............... 1.11% 03/22/2004 100,000,000 100,000,000 Alliance & Leicester Yrs 1&2 .............. 1.12% 03/08/2004 99,792,486 50,000,000 Alliance & Leicester Yrs 1&2 .............. 1.10% 03/12/2004 49,891,528 150,000,000 Alliance & Leicester Yrs 1&2 .............. 1.09% 03/23/2004 149,627,583 150,000,000 Alliance & Leicester Yrs 1&2 .............. 1.11% 04/14/2004 149,519,000 100,000,000 Alliance & Leicester Yrs 1&2 .............. 1.16% 06/14/2004 99,470,625 200,000,000 Amstel Funding Corporation ................ 1.14% 02/11/2004 199,740,333 563,944,000 Amstel Funding Corporation ................ 1.11% 02/17/2004 563,126,751 368,000,000 Amstel Funding Corporation ................ 1.13% 03/19/2004 367,099,013 100,000,000 Amstel Funding Corporation ................ 1.11% 04/19/2004 99,663,916 100,000,000 Amstel Funding Corporation ................ 1.12% 05/28/2004 99,539,556 119,146,000 Amstel Funding Corporation ................ 1.15% 06/16/2004 118,510,389 150,000,000 Amsterdam Funding Corporation ............. 1.09% 02/04/2004 149,845,583 400,000,000 Anz De .................................... 1.08% 03/10/2004 399,172,000 100,000,000 Atlantis One Funding Corporation .......... 1.10% 01/21/2004 99,938,889 225,121,000 Atlantis One Funding Corporation .......... 1.08% 02/17/2004 224,803,579 101,050,000 Atlantis One Funding Corporation .......... 1.08% 02/18/2004 100,904,488 59,129,000 Atlantis One Funding Corporation .......... 1.11% 03/15/2004 58,994,087 127,355,000 Atlantis One Funding Corporation .......... 1.14% 04/07/2004 126,963,808 227,849,000 Atlantis One Funding Corporation .......... 1.15% 06/23/2004 226,582,539 100,000,000 Banco Bil Vizcay .......................... 1.12% 08/04/2004 100,000,000 400,000,000 Bank America NA ........................... 1.10% 03/15/2004 400,000,000 250,000,000 Bank America NA ........................... 1.12% 04/14/2004 250,000,000 200,000,000 Bank America NA ........................... 1.15% 05/12/2004 200,000,000 400,000,000 Bank America NA Charlotte, NC ............. 1.13% 05/05/2004 400,000,000 110,000,000 Bank Ireland Governor & Co ................ 1.09% 02/13/2004 109,856,786 193,000,000 Bank One NA Illinois1 ..................... 1.09% 12/13/2004 192,945,255 275,000,000 Barclays Bank Euro CD ..................... 1.16% 02/27/2004 275,000,000 150,000,000 Barclays Bank Euro CD ..................... 1.12% 03/18/2004 150,004,795 400,000,000 Barclays Bank Euro CD ..................... 1.11% 04/14/2004 400,000,000 522,000,000 Barclays Bank Euro CD ..................... 1.19% 08/13/2004 522,000,000 140,199,000 Barton Capital Corporation ................ 1.10% 01/12/2004 140,151,878 300,000,000 BNP Paribas ............................... 1.09% 02/17/2004 300,000,000 100,000,000 Cafco LLC ................................. 1.10% 01/09/2004 99,975,556 175,000,000 Canadian Imperial ......................... 1.14% 11/08/2004 175,009,356 125,000,000 Canadian Imperial ......................... 1.10% 12/13/2004 124,970,062 The accompanying notes are an integral part of these financial statements.
SAI-175 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY SHORT TERM INVESTMENT FUND Schedule of Investments (showing percentage of total value of investments) December 31, 2003 (Continued)
----------------------------------------------------------------------------------------------------------------------- PRINCIPAL VALUE ----------------------------------------------------------------------------------------------------------------------- USD 192,000,000 Canadian Imperial .............................. 1.47% 12/27/2004 $ 191,943,175 186,340,000 CBA Del Financial Inc .......................... 1.09% 02/03/2004 186,153,815 174,100,000 CBA Del Financial Inc. ......................... 1.08% 03/10/2004 173,739,613 100,000,000 CBA Del Financial Inc. ......................... 1.08% 03/11/2004 99,790,000 150,000,000 CDC Commercial ................................. 1.08% 03/22/2004 149,635,500 75,000,000 Charta Corp Yrs 1&2 ............................ 1.09% 01/22/2004 74,952,313 325,000,000 Chase Manhattan Bank USA ....................... 1.10% 06/30/2004 325,000,000 220,000,000 Chase Manhattan Bank USA ....................... 1.13% 07/07/2004 220,000,000 470,000,000 Chase Manhattan Bank USA ....................... 1.09% 10/29/2004 470,000,000 450,000,000 Citibank NA New York ........................... 1.10% 02/20/2004 450,000,000 280,000,000 Citibank NA New York ........................... 1.08% 03/29/2004 280,000,000 400,000,000 Citicorp ....................................... 1.08% 02/02/2004 399,616,000 150,000,000 Corporate Receivables Corporation .............. 1.09% 01/09/2004 149,963,833 129,910,000 CRC Funding LLC ................................ 1.09% 02/06/2004 129,769,048 100,000,000 CRC Funding LLC ................................ 1.09% 02/10/2004 99,879,444 200,000,000 Credit Agricole Indosuez Ldn ................... 1.06% 01/20/2004 199,993,513 200,000,000 Credit Lyonnais ................................ 1.11% 04/06/2004 200,002,652 300,000,000 Credit Lyonnais ................................ 1.13% 04/20/2004 300,000,000 200,000,000 Credit Lyonnais NY BRH Instl ................... 1.12% 02/09/2004 200,000,000 190,000,000 Credit Lyonnais NY BRH Instl ................... 1.10% 03/16/2004 190,000,000 400,000,000 Credito Italiano Grand Cayman .................. 1.10% 03/31/2004 400,000,000 100,000,000 CXC, Inc Yrs 3&4 144A .......................... 1.09% 03/09/2004 99,795,056 175,000,000 Danske Corporation ............................. 1.09% 03/08/2004 174,644,993 151,258,000 Delaware Funding Corporation ................... 1.09% 02/03/2004 151,106,868 81,000,000 Den Danske Corporation ......................... 1.26% 09/29/2004 80,993,958 80,000,000 Dexia Bank NY .................................. 1.24% 10/07/2004 79,990,784 169,500,000 Dexia Delaware ................................. 1.08% 03/17/2004 169,113,540 150,000,000 Dexia Delaware LLC ............................. 1.08% 02/24/2004 149,758,125 250,000,000 Edison Asset Securitization Yrs 1&2 ............ 1.09% 02/05/2004 249,735,069 103,000,000 Edison Asset Securitization Yrs 1&2 ............ 1.11% 02/10/2004 102,872,967 50,000,000 Edison Asset Securitization Yrs 1&2 ............ 1.10% 02/13/2004 49,934,306 192,000,000 Edison Asset Securitization Yrs 1&2 ............ 1.14% 02/13/2004 191,738,560 272,000,000 Edison Asset Securitization Yrs 1&2 ............ 1.10% 02/17/2004 271,609,378 300,000,000 Edison Asset Securitization Yrs 1&2 ............ 1.10% 03/08/2004 299,385,833 150,000,000 Edison Asset Securitization Yrs 1&2 ............ 1.12% 04/01/2004 149,575,333 42,000,000 Eiffel Fdg Yrs 3&4 ............................. 1.10% 02/17/2004 41,939,683 135,396,000 Fairway Financial Corporation Yrs 1&2 .......... 1.09% 03/11/2004 135,109,036 110,000,000 Falcon Asset Securitization .................... 1.09% 01/13/2004 109,960,033 125,000,000 Falcon Asset Securitization .................... 1.08% 01/21/2004 124,925,000 43,000,000 Falcon Asset Securitization .................... 1.10% 01/22/2004 42,972,408 The accompanying notes are an integral part of these financial statements.
SAI-176 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY SHORT TERM INVESTMENT FUND Schedule of Investments (showing percentage of total value of investments) December 31, 2003 (Continued)
------------------------------------------------------------------------------------------------------------------------- PRINCIPAL VALUE ------------------------------------------------------------------------------------------------------------------------- USD 272,060,000 Falcon Asset Securitization .................... 1.09% 03/15/2004 $ 271,450,434 250,000,000 Fannie Mae ..................................... 1.36% 09/10/2004 250,000,000 350,000,000 Fannie Mae ..................................... 1.35% 10/22/2004 350,000,000 500,000,000 Fannie Mae ..................................... 1.08% 12/13/2004 499,880,719 150,000,000 Fannie Mae Discount Notes ...................... 1.12% 02/11/2004 149,808,667 123,170,000 Fannie Mae Discount Notes ...................... 1.08% 02/23/2004 122,974,160 97,300,000 Fannie Mae Discount Notes ...................... 1.08% 02/24/2004 97,142,374 258,500,000 Fannie Mae Discount Notes ...................... 1.09% 02/24/2004 258,077,353 100,000,000 Fannie Mae Discount Notes ...................... 1.15% 03/03/2004 99,802,806 72,000,000 Fannie Mae Discount Notes ...................... 1.05% 03/10/2004 71,848,200 100,000,000 Fannie Mae Discount Notes ...................... 1.05% 03/17/2004 99,778,333 405,000,000 Fannie Mae Discount Notes ...................... 1.15% 03/18/2004 404,003,813 100,000,000 Fannie Mae Discount Notes ...................... 1.09% 03/24/2004 99,749,847 250,000,000 Fannie Mae Discount Notes ...................... 1.09% 05/28/2004 248,879,722 250,000,000 Fannie Mae Discount Notes ...................... 1.10% 06/10/2004 248,775,729 75,000,000 Fannie Mae Discount Notes ...................... 1.12% 06/25/2004 74,594,833 150,000,000 Fannie Mae Discount Notes ...................... 1.19% 07/23/2004 148,988,500 50,000,000 Fannie Mae Discount Notes ...................... 1.27% 09/17/2004 49,541,389 95,000,000 Federal Home Loan Bank Discount Notes .......... 1.11% 02/11/2004 94,879,904 200,000,000 Federal Home Loan Bank Discount Notes .......... 1.07% 03/05/2004 199,618,844 230,150,000 Federal Home Loan Bank Discount Notes .......... 1.12% 04/02/2004 229,491,260 125,000,000 Federal Home Loan Bank System .................. 1.05% 01/06/2004 124,999,352 200,000,000 Federal Home Loan Bank System .................. 3.75% 04/15/2004 201,436,167 150,000,000 Federal Home Loan Bank System .................. 3.38% 05/14/2004 153,204,750 100,000,000 Federal Home Loan Bank System .................. 4.88% 05/14/2004 103,739,500 175,000,000 Federal Home Loan Bank System .................. 1.25% 07/02/2004 175,000,000 305,000,000 Federal Home Loan Bank System .................. 1.21% 08/04/2004 305,000,000 25,000,000 Federal Home Loan Bank System .................. 1.35% 08/13/2004 25,000,000 170,000,000 Fifth Third Bank(1) ............................ 1.05% 12/16/2004 169,934,973 66,459,000 Freddie Mac .................................... 3.75% 04/15/2004 68,046,373 140,000,000 Freddie Mac(1) ................................. 1.08% 12/10/2004 139,966,775 650,000,000 Freddie Mac .................................... 1.08% 12/15/2004 649,874,799 175,000,000 Freddie Mac Discount Notes ..................... 1.07% 02/02/2004 174,833,556 200,000,000 Freddie Mac Discount Notes ..................... 1.13% 02/11/2004 199,742,611 283,410,000 Freddie Mac Discount Notes ..................... 1.10% 03/02/2004 282,879,354 115,345,000 Freddie Mac Discount Notes ..................... 1.08% 03/04/2004 115,126,998 100,000,000 Freddie Mac Discount Notes ..................... 1.25% 03/10/2004 99,761,375 100,000,000 Freddie Mac Discount Notes ..................... 1.17% 03/17/2004 99,754,056 110,000,000 Freddie Mac Discount Notes ..................... 1.14% 04/09/2004 109,656,663 149,411,000 Freddie Mac Discount Notes ..................... 1.23% 07/01/2004 148,481,913 The accompanying notes are an integral part of these financial statements.
SAI-177 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY SHORT TERM INVESTMENT FUND Schedule of Investments (showing percentage of total value of investments) December 31, 2003 (Continued)
---------------------------------------------------------------------------------------------------------------------------- PRINCIPAL VALUE ---------------------------------------------------------------------------------------------------------------------------- USD 131,050,000 Freddie Mac Discount Notes .......................... 1.28% 08/02/2004 $ 130,052,855 165,000,000 Galaxy Funding Inc .................................. 1.09% 02/18/2004 164,760,200 100,000,000 Galaxy Funding Inc .................................. 1.09% 03/09/2004 99,794,111 125,000,000 GE Capital International Funding .................... 1.10% 02/10/2004 124,847,222 200,000,000 GE Capital International Funding .................... 1.12% 04/06/2004 199,402,667 200,000,000 General Electric Capital Corp ....................... 1.14% 02/17/2004 199,702,333 300,000,000 General Electric Capital Corp ....................... 1.10% 03/16/2004 299,312,500 245,000,000 General Electric Capital Corp1 ...................... 1.25% 01/10/2005 245,000,000 257,000,000 General Electric Capital Corp1 ...................... 1.23% 01/17/2005 257,000,000 44,428,000 Giro Balanced Funding ............................... 1.10% 01/14/2004 44,410,352 70,089,000 Giro Funding United States Corporation .............. 1.09% 01/05/2004 70,080,511 100,000,000 GOVCO Incorporated .................................. 1.09% 01/06/2004 99,984,861 100,000,000 GOVCO Incorporated .................................. 1.09% 01/07/2004 99,981,833 94,800,000 GOVCO Incorporated .................................. 1.09% 01/08/2004 94,780,000 100,000,000 GOVCO Incorporated .................................. 1.09% 01/08/2004 99,978,806 126,000,000 Grampian Funding Limited LLC ........................ 1.09% 01/16/2004 125,942,775 313,000,000 Grampian Funding Limited LLC ........................ 1.10% 01/26/2004 312,760,903 210,000,000 Grampian Funding Limited LLC ........................ 1.10% 01/28/2004 209,826,750 165,000,000 Grampian Funding Limited LLC ........................ 1.10% 02/19/2004 164,752,958 140,000,000 Grampian Funding Limited LLC ........................ 1.10% 03/12/2004 139,696,278 175,000,000 HBOS ................................................ 1.04% 01/15/2004 175,000,000 400,000,000 HBOS ................................................ 1.11% 02/11/2004 400,000,000 150,000,000 HBOS ................................................ 1.14% 02/23/2004 150,000,000 200,000,000 HBOS ................................................ 1.11% 04/16/2004 199,999,840 122,000,000 HBOS ................................................ 1.18% 04/22/2004 122,000,000 150,000,000 HBOS ................................................ 1.17% 04/30/2004 150,000,000 100,000,000 HSBC Bank PLC ....................................... 1.09% 02/17/2004 100,001,299 250,000,000 JP Morgan Chase ..................................... 1.10% 03/16/2004 249,427,083 80,600,000 Lake Con Fund/Lake Con .............................. 1.11% 01/23/2004 80,545,326 500,000,000 Landesbank Baden Wuerttemberg ....................... 1.14% 02/26/2004 500,000,000 185,000,000 Landesbank Baden Wuerttemberg ....................... 1.14% 03/08/2004 185,000,000 50,000,000 Landesbank Baden Wuerttemberg ....................... 1.11% 03/12/2004 50,000,000 400,000,000 Landesbank Baden Wuerttemberg ....................... 1.09% 04/05/2004 400,000,000 100,000,000 Landesbank Baden Wuerttemberg ....................... 1.17% 04/30/2004 100,000,000 130,408,000 Lexington Parker Capital Corporation CP ............. 1.14% 02/03/2004 130,271,724 100,283,000 Lexington Parker Capital Corporation CP ............. 1.10% 03/09/2004 100,074,634 125,000,000 Liberty Street Funding Corporation Yrs 1&2 .......... 1.09% 03/22/2004 124,693,437 90,000,000 Lloyds Bank Plc NY .................................. 1.11% 02/03/2004 90,000,768 98,000,000 MBNA Credit Card .................................... 1.10% 02/04/2004 97,898,189 174,000,000 MBNA Credit Card .................................... 1.12% 02/05/2004 173,810,533 The accompanying notes are an integral part of these financial statements.
SAI-178 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY SHORT TERM INVESTMENT FUND Schedule of Investments (showing percentage of total value of investments) December 31, 2003 (Continued)
------------------------------------------------------------------------------------------------------------------------ PRINCIPAL VALUE ------------------------------------------------------------------------------------------------------------------------ USD 250,000,000 National City Bank/Indiana(1) ................... 1.03% 03/15/2004 $ 249,989,782 161,000,000 Nieuw Amsterdam Receivables ..................... 1.10% 01/23/2004 160,891,772 400,000,000 Nordea Bank Finland Plc NY BRH .................. 1.08% 03/24/2004 400,000,000 300,000,000 Nordea Bank Finland Plc NY BRH .................. 1.09% 03/30/2004 300,000,000 250,000,000 Nordea North America Inc ........................ 1.09% 01/16/2004 249,886,458 107,700,000 Nordea North America Inc ........................ 1.08% 02/10/2004 107,570,760 200,000,000 Nordeutsche Landesbank Euro ..................... 1.09% 01/12/2004 200,000,000 86,000,000 Park Granada LLC ................................ 1.12% 01/26/2004 85,933,111 390,000,000 Park Granada LLC ................................ 1.11% 02/11/2004 389,506,975 100,000,000 Park Granada LLC ................................ 1.11% 03/15/2004 99,771,833 150,000,000 PFD Receivables Funding Yrs 1&2 ................. 1.10% 01/16/2004 149,931,563 150,000,000 PFD Receivables Funding Yrs 1&2 ................. 1.10% 02/03/2004 149,848,750 100,000,000 Rabobank Nederland N.V. ......................... 1.19% 08/04/2004 100,002,935 160,000,000 Rabobank Nederland N.V. ......................... 1.31% 08/06/2004 159,990,439 171,000,000 Royal Bank of Canada NY BRH ..................... 1.03% 03/15/2004 170,993,033 250,000,000 Royal Bank of Canada NY BRH ..................... 1.08% 06/16/2004 249,977,026 225,000,000 Royal Bank of Canada NY BRH ..................... 1.07% 09/27/2004 224,974,756 225,000,000 Royal Bank of Scotland .......................... 1.08% 01/28/2004 224,817,750 400,000,000 Royal Bank of Scotland Grand Cayman ............. 1.09% 02/17/2004 400,000,000 250,000,000 Salomon Smith Barney Holdings Inc ............... 1.08% 01/21/2004 249,850,000 250,000,000 San Paolo IMI Bank .............................. 1.10% 03/11/2004 250,000,000 100,000,000 Santander Financial DE .......................... 1.10% 03/12/2004 99,783,056 75,250,000 Sheffield Receivables Corporation ............... 1.10% 01/09/2004 75,231,606 103,000,000 Sheffield Receivables Corporation ............... 1.11% 01/20/2004 103,000,000 250,000,000 Societe Generale ................................ 1.11% 06/14/2004 249,983,220 135,000,000 Societe Generale ................................ 1.10% 07/15/2004 135,000,000 375,000,000 Societe Generale ................................ 1.21% 09/30/2004 375,000,000 300,000,000 Societe Generale ................................ 1.10% 11/12/2004 299,960,863 144,585,000 Societe Generale North America Inc. ............. 1.09% 03/03/2004 144,313,582 42,000,000 Societe Generale North America Inc. ............. 1.10% 03/15/2004 41,905,033 175,000,000 South Trust Bank National Association ........... 1.09% 02/11/2004 175,000,000 185,919,000 Svenska Handelsbanken Inc. ...................... 1.09% 02/25/2004 185,609,393 400,000,000 Svenska Handelsbanken Yrs 1&2 ................... 1.32% 08/18/2004 399,974,785 85,000,000 Svenska Handelsbanken Yrs 1&2 ................... 1.41% 08/31/2004 84,994,345 400,000,000 Svenska Handelsbanken Yrs 1&2 ................... 1.40% 09/07/2004 399,958,929 85,000,000 Svenska Handelsbanken Yrs 1&2 ................... 1.24% 10/07/2004 84,990,208 189,000,000 Swedbank Forenings Yrs 1&2 ...................... 1.08% 01/05/2004 188,977,320 200,000,000 Swedbank Forenings Yrs 1&2 ...................... 1.09% 03/11/2004 199,578,056 300,000,000 Thames Asset Global Securities Yrs 1&2 .......... 1.10% 01/20/2004 299,825,834 100,000,000 UBS AG Stamford BRH Institutional CTF ........... 1.29% 04/15/2004 100,023,184 The accompanying notes are an integral part of these financial statements.
SAI-179 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY SHORT TERM INVESTMENT FUND Schedule of Investments (showing percentage of total value of investments) December 31, 2003 (Continued)
-------------------------------------------------------------------------------------------------------------------- PRINCIPAL VALUE -------------------------------------------------------------------------------------------------------------------- USD 120,000,000 Unicredito Italiano NY .................... 1.10% 01/05/2004 $ 119,999,998 400,000,000 Unicredito Italiano NY .................... 1.10% 01/06/2004 400,000,000 185,000,000 Unicredito Italiano NY .................... 1.10% 01/08/2004 185,000,000 150,000,000 Unicredito Italiano NY .................... 1.11% 03/12/2004 150,008,822 166,569,000 Variable Funding Capital Yrs 3&4 .......... 1.09% 01/16/2004 166,493,350 300,000,000 Wells Fargo Bank NA ....................... 1.08% 01/15/2004 300,000,000 300,000,000 Wells Fargo Bank NA1 ...................... 1.11% 06/10/2004 300,000,000 400,000,000 Wells Fargo Bank San Francisco ............ 1.07% 01/20/2004 399,998,946 100,000,000 Westpac Banking Corp ...................... 1.30% 04/15/2004 100,027,507 100,000,000 Westpac Banking Corp ...................... 1.10% 06/07/2004 99,991,390 100,000,000 Westpac Banking Corp ...................... 1.10% 10/12/2004 99,988,182 100,000,000 Westpac Banking Corp./NY(1) ............... 1.18% 06/14/2004 100,029,600 200,000,000 Westpac Capital Corp Yrs 1&2 .............. 1.09% 02/04/2004 199,794,111 125,000,000 Westpac Capital Corp Yrs 1&2 .............. 1.12% 04/19/2004 124,576,111 300,000,000 World Savings Bank FSB .................... 1.07% 02/17/2004 299,992,189 74,498,000 Yorktown Capital LLC ...................... 1.17% 05/10/2004 74,183,247 -------------------------------------------------------------------------------------------------------------------- TOTAL DEBT INSTRUMENTS .................... $40,702,348,492 ====================================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-180 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY SHORT TERM INVESTMENT FUND Schedule of Investments (showing percentage of total value of investments) December 31, 2003 (Concluded)
------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL VALUE ------------------------------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENTS -- 13.1% USD 366,000,000 Bear Stearns Repo, 0.900% to be repurchased at $366,018,300 on 01/02/04 (cost $366,000,000)(2)................................................................ $ 366,000,000 80,000,000 Countrywide Tri Party Repo, 0.950% to be repurchased at $80,004,222 on 01/02/04 (cost $80,000,000)(2)................................................................. 80,000,000 400,000,000 Countrywide Tri Party Repo, 0.980% to be repurchased at $400,021,778 on 01/02/04 (cost $400,000,000)(2)................................................................ 400,000,000 1,845,000,000 Countrywide Tri Party Repo, 1.000% to be repurchased at $1,845,102,500 on 01/02/04 (cost $1,845,000,000)(2).............................................................. 1,845,000,000 162,000,000 Credit Suisse First Boston Tri Party Repo, 0.900% to be repurchased at $162,008,100 on 01/02/04 (cost $162,000,000)(2)....................................................... 162,000,000 2,000,000,000 Goldman Tri Party Repo, 1.000% to be repurchased at $2,000,111,111 on 01/02/04 (cost $2,000,000,000)(2).............................................................. 2,000,000,000 500,000,000 Greenwich Capital Markets Tri Party Repo, 1.010% to be repurchased at $500,028,056 on 01/02/04 (cost $500,000,000)(2).................................................... 500,000,000 139,309,000 Morgan Stanley Tri Party Repo, 0.950% to be repurchased at $139,316,352 on 01/02/04 (cost $139,309,000)(2)................................................................ 139,309,000 655,000,000 Warburg Tri Party Repo, 1.000% to be repurchased at $655,036,389 on 01/02/04 (cost $655,000,000)(2)................................................................ 655,000,000 ------------------------------------------------------------------------------------------------------------------------------- TOTAL REPURCHASE AGREEMENTS .......................................................... 6,147,309,000 ------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (COST $46,849,657,492) $46,849,657,492 ===============================================================================================================================
1 Variable rate security. Rate disclosed is that which was in effect at December 31, 2003. Date disclosed is the next interest rate reset date. 2 Repurchase agreements are fully collateralized by U.S. Treasury or Government agency securities. USD: United States Dollar The accompanying notes are an integral part of these financial statements. SAI-181 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY SHORT TERM INVESTMENT FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 1. FUND ORGANIZATION AND INVESTMENT OBJECTIVE State Street Bank and Trust Company ("State Street Bank") Short Term Investment Fund (the "Fund") was formed by State Street Bank under the State Street Bank and Trust Company Investment Funds for Tax Exempt Retirement Plans Declaration of Trust. The investment objective of the Fund is to provide safety of principal, daily liquidity, and a competitive yield by investing in high quality money market instruments. State Street Bank is Trustee, custodian, and recordkeeper of the Fund and has exclusive management and control of the Trust. State Street Global Advisors, a division of State Street Bank, is the Fund's investment manager. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently in the preparation of the financial statements. A. SECURITY VALUATION Investments are stated at amortized cost, which approximates market value. B. SECURITY TRANSACTIONS INVESTMENT INCOME Security transactions are accounted for as of trade date. Realized gains and losses from investment transactions are determined using the average cost method. Interest income earned on securities, if any, is recorded on the accrual basis. Interest income includes accretion of discounts and amortization of premiums, if any. C. INCOME TAXES It is the Fund's policy to comply with the requirements of Section 501(a) of the Internal Revenue Code relating to collective investment of employee benefit funds. Accordingly, the Fund is exempt from federal and state taxes and no federal or state tax provision is required. D. ISSUANCES AND REDEMPTIONS OF UNITS OF PARTICIPATION Issuances and redemptions of participant units are made on each business day ("valuation date"). Participant units are typically purchased and redeemed at a constant net asset value of $1.00 per unit. In the event that a significant disparity develops between the constant net asset value and the market value based net asset value of the Fund, the Trustee may determine that continued issuance or redemption at a constant $1.00 net asset value would create inequitable results for the Fund's unitholders. In these circumstances, the Trustee, in its sole discretion and acting on behalf of the Fund's unitholders, may direct that units be issued or redeemed at the market-value based net asset value until such time as the disparity between the market-value based and the constant net asset value per unit is deemed to be immaterial. E. EXPENSES Under the Declaration of Trust, the Fund may pay certain expenses for services received. The Fund pays State Street Bank for custody services. The Fund indirectly bears the expenses paid by the underlying funds, if any. State Street Global Advisors receives investment management fees from the participating accounts and therefore, the Fund makes no payment for these services. F. DISTRIBUTIONS TO PARTICIPANTS Distributions from net investment income are recorded on each valuation date and paid monthly. Net realized gains are retained by the Fund. SAI-182 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY SHORT TERM INVESTMENT FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 G. REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements whereby the Fund receives delivery of underlying collateral securities, and the seller of such securities agrees to repurchase the securities at an agreed upon price and time. The Fund values the underlying collateral securities daily on a mark-to-market basis to determine that the value, including accrued interest is at least equal to the repurchase price. The underlying collateral securities consist of securities in which the Fund is permitted to invest. The use of repurchase agreements involves certain risks. If the seller defaults as a result of its bankruptcy or otherwise, and the value of the collateral declines, realization of the collateral by the Fund may be delayed or limited. The Fund may enter into repurchase agreements with domestic dealers, banks and other financial institutions deemed to be creditworthy by the investment manager. Collateral for certain tri-party repurchase agreements is held at a custodian in a segregated account for the benefit of the Fund and the counterparty. 3. INVESTMENT TRANSACTIONS Purchases and sales of short-term investments (including maturities) during the year ended December 31, 2003 were $837,290,517,177 and $830,141,940,778, respectively. 4. FINANCIAL GUARANTY INSURANCE POLICY The Fund has entered into a Financial Guaranty Insurance Agreement (the "Default Insurance Policy") with MBIA Insurance Corporation ("MBIA") that provides limited coverage for certain loss events involving money market instruments held by the Fund. These loss events include non-payment of principal or interest or bankruptcy or insolvency of the issuer or credit enhancement provider (if any). The Default Insurance Policy is subject to an aggregate loss limitation of $420 million and a deductible of 0.30% of the holdings of the Fund, determined as of the close of business on the first business day prior to the loss event. The Default Insurance Policy is intended as a credit enhancement strategy for the Fund. The Default Insurance Policy does not cover losses resulting from changes in interest rates or other market developments. While the Default Insurance Policy is intended to provide some protection against credit risk and to help the Fund maintain a constant price per share of $1.00, there is no guarantee that the policy will do so. The Default Insurance Policy became effective February 15, 2001 and was amended as of January 1, 2002 to increase the loss limitation. As of December 31, 2003, the Fund made no claims under the policy. SAI-183 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS To the Participants and Trustee of State Street Bank and Trust Company Government Credit Bond Fund In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of State Street Bank and Trust Company Government Credit Bond Fund (formerly "State Street Bank and Trust Company Government Corporate Bond Fund") at December 31, 2003, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trustee; 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 auditing standards generally accepted in the United States of America, 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 the Trustee, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2003 by correspondence with the custodian, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 27, 2004 SAI-184 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT CREDIT BOND FUND Statement of Assets and Liabilities December 31, 2003 --------------------------------------------------------------------------------
ASSETS Investments in securities, at value (cost $358,466,604) ............................ $386,577,231 Receivable for Fund units issued ................................................... 1,754,124 Receivable for investments sold .................................................... 5,528,029 Variation margin receivable ........................................................ 941 Interest receivable ................................................................ 258,070 Unrealized gain on open swap contracts ............................................. 102,516 -------------------------------------------------------------------------------------------------- Total assets .................................................................... 394,220,911 -------------------------------------------------------------------------------------------------- LIABILITIES Due to custodian ................................................................... 10,000 Payable for Fund units redeemed .................................................... 5 Payable for investments purchased .................................................. 14,797,253 Accrued expenses ................................................................... 717 Unrealized loss on open swap contracts ............................................. 92,542 -------------------------------------------------------------------------------------------------- Total liabilities ............................................................... 14,900,517 -------------------------------------------------------------------------------------------------- Net Assets (equivalent to $19.62 per unit based on 19,333,354 units outstanding) ... $379,320,394 ==================================================================================================
The accompany notes are an integral part of these financial statements. SAI-185 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT CREDIT BOND FUND Statement of Operations Year Ended December 31, 2003 --------------------------------------------------------------------------------
INVESTMENT INCOME Interest ............................................................... $ 1,513,260 ------------------------------------------------------------------------------------------ Total investment income .............................................. 1,513,260 ------------------------------------------------------------------------------------------ EXPENSES Custody ................................................................ 8,148 Audit .................................................................. 19,000 Other .................................................................. 1,639 ------------------------------------------------------------------------------------------ Total expenses ....................................................... 28,787 ------------------------------------------------------------------------------------------ Net investment income (loss) ......................................... 1,484,473 ------------------------------------------------------------------------------------------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss): Investments .......................................................... 40,576,538 Futures contracts .................................................... (420,842) Swap contracts ....................................................... 408,085 Written options ...................................................... 424,854 ------------------------------------------------------------------------------------------ 40,988,635 ------------------------------------------------------------------------------------------ Net change in unrealized appreciation (depreciation): Investments .......................................................... (23,106,451) Futures contracts .................................................... 71,231 Swap contracts ....................................................... (268,507) Written options ...................................................... 479,518 ------------------------------------------------------------------------------------------ (22,824,209) ------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) ................................ 18,164,426 ------------------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ......... $ 19,648,899 ==========================================================================================
The accompany notes are an integral part of these financial statements. SAI-186 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT CREDIT BOND FUND Statement of Changes in Net Assets
YEAR ENDED DECEMBER 31, 2003 2002 ----------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss) ..................................................... $ 1,484,473 $ 3,025,861 Net realized gain (loss) ......................................................... 40,988,635 23,814,778 Net change in unrealized appreciation (depreciation) ............................. (22,824,209) 20,106,591 ----------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations .................. 19,648,899 46,947,230 ----------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from participant transactions .... (97,292,910) (32,737,541) ----------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets ............................................ (77,644,011) 14,209,689 NET ASSETS Beginning of year ............................................................... 456,964,405 442,754,716 ----------------------------------------------------------------------------------------------------------------------- End of year ..................................................................... $ 379,320,394 $ 456,964,405 =======================================================================================================================
The accompany notes are an integral part of these financial statements. SAI-187 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT CREDIT BOND FUND Statement of Changes in Net Assets (Continued)
YEAR ENDED DECEMBER 31, 2003 2002 ------------------------------------------------------------------------------------------------------------------------- UNITS AMOUNT UNITS AMOUNT ------------------------------------------------------------------------------------------------------------------------- UNITS OF PARTICIPATION PARTICIPANT TRANSACTIONS FOR THE FUND WERE AS FOLLOWS: Units issued ......................................... 4,393,589 $ 84,642,492 4,953,943 $ 88,008,911 Units redeemed ....................................... (9,491,275) (181,935,402) (6,878,016) (120,746,452) ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) .............................. (5,097,686) $ (97,292,910) (1,924,073) $ (32,737,541) =========================================================================================================================
Units in excess of 10% of the Fund units outstanding at December 31, 2003 held by 4 of the Fund's unitholders aggregated 78% of the Fund's total units outstanding. The accompany notes are an integral part of these financial statements. SAI-188 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT CREDIT BOND FUND Financial Highlights (FOR A UNIT OF PARTICIPATION OUTSTANDING THROUGHOUT THE YEAR)
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 2003 2002 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------- SELECTED PER UNIT DATA Net asset value, beginning of year .............. $ 18.70 $ 16.80 $ 15.47 $ 13.92 $ 14.18 ----------------------------------------------------------------------------------------------------------------------- Net investment income (loss) (a) ................ 0.07 0.12 0.12 0.94 0.86 Net realized and unrealized gain (loss) ......... 0.85 1.78 1.21 0.61 ( 1.12) ----------------------------------------------------------------------------------------------------------------------- Total from investment operations ................ 0.92 1.90 1.33 1.55 ( 0.26) ----------------------------------------------------------------------------------------------------------------------- Net asset value, end of year .................... $ 19.62 $ 18.70 $ 16.80 $ 15.47 $ 13.92 ======================================================================================================================= Total return (%) (b) ............................ 4.90 11.34 8.60 11.14 ( 1.83) ======================================================================================================================= RATIO TO AVERAGE NET ASSETS Ratio of expenses (%) (c) ....................... 0.01 0.01 0.01 0.02 0.01 ----------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (%) .............. 0.35 0.69 0.76 6.50 6.17 ----------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) .......................... 206 96 65 734 824 ----------------------------------------------------------------------------------------------------------------------- Net assets, end of year (000,000s) .............. $ 379 $ 457 $ 443 $ 538 $ 4,808 =======================================================================================================================
(a) Net investment income (loss) per unit has been calculated based upon an average of month-end units outstanding. (b) Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year. The calculation includes only those expenses charged directly to the Fund. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. (c) The calculation includes only those expenses charged directly to the Fund, and does not include expenses charged to the funds in which the Fund invests. The accompany notes are an integral part of these financial statements. SAI-189 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT CREDIT BOND FUND Schedule of Investments (showing percentage of total value of investments) December 31, 2003 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL VALUE -------------------------------------------------------------------------------------------------------------------------------- DEBT INSTRUMENTS -- 3.6% USD 610,000 Financing Corp Fico ............................................. 9.40% 02/08/2018 $ 861,222 870,000 Financing Corp Fico ............................................. 10.35% 08/03/2018 1,323,305 27,257,946 GE Capital Commercial Mortgage Corp ............................. 1.65% 12/15/2020 2,327,572 1,220,000 Providian Master Trust .......................................... 7.49% 08/17/2009 1,258,906 150,000 United States Treasury Bills(1) ................................. 0.84% 02/19/2004 149,824 2,185,000 United States Treasury Bond(2) .................................. 8.13% 05/15/2021 2,977,893 1,300,000 United States Treasury Bond(2) .................................. 8.13% 08/15/2021 1,773,473 1,000,000 United States Treasury Note(2) .................................. 1.63% 03/31/2005 1,003,521 2,250,000 United States Treasury Note(2) .................................. 3.00% 02/15/2008 2,260,462 -------------------------------------------------------------------------------------------------------------------------------- TOTAL DEBT INSTRUMENTS .......................................... 13,936,178 -------------------------------------------------------------------------------------------------------------------------------- UNITS -------------------------------------------------------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY COLLECTIVE INVESTMENT FUNDS -- 96.4% 13,178,123 Credit Fund3 .................................................... 176,336,463 13,074,536 Government Fund3 ................................................ 170,400,422 25,849,168 Short Term Investment Fund3 ..................................... 25,849,168 -------------------------------------------------------------------------------------------------------------------------------- TOTAL COLLECTIVE INVESTMENT FUNDS ............................... 372,586,053 -------------------------------------------------------------------------------------------------------------------------------- CURRENT NOTIONAL AMOUNT -------------------------------------------------------------------------------------------------------------------------------- PURCHASED SWAPTIONS -- 0.0% $ 10,000,000 Purchased Call Swaption with JP Morgan effective November 14, 55,000 2003 and exercisable on May 14, 2004 to enter into a swap effective May 18, 2004 and terminating on May 18, 2006 to make semiannual payments equal to the Current Notional Amount multiplied by the Fixed Rate of 2.775%; and to receive semiannual payments equal to 6 month LIBOR multiplied by the Current Notional Amount of $10,000,000. -------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (COST $358,466,604).................................................................. $386,577,231 ================================================================================================================================
1 All or a portion of this security was pledged to cover margin requirements for open future contracts. 2 All or a portion of this security has been purchased on a delayed delivery basis. 3 Collective investment fund advised by State Street Global Advisors. The accompanying notes are an integral part of these financial statements. SAI-190 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT CREDIT BOND FUND Schedule of Investments (showing percentage of total value of investments) December 31, 2003 (Concluded) -------------------------------------------------------------------------------- At December 31, 2003, U.S Treasury Bills with principal of $150,000 were pledged to cover margin requirements for open futures contracts. The following futures contracts were open at December 31, 2003:
NUMBER OF CONTRACTS NOTIONAL UNREALIZED FUTURES CONTRACTS LONG/(SHORT) COST ($) MATURITY DATE GAIN/(LOSS) ($) ------------------------------------ -------------- --------------- ---------------- ---------------- Eurodollar Futures 10 2,439,915 September 2004 16,210 Eurodollar Futures 10 2,427,540 December 2004 18,460 Eurodollar Futures 10 2,417,915 March 2005 17,835 Eurodollar Futures 10 2,407,915 June 2005 17,335 U.S. Treasury Bonds Futures 15 1,631,193 March 2004 8,495 U.S. Treasury Notes 10 Year Future (18) (2,007,350) March 2004 (13,431) U.S. Treasury Notes 5 Year Futures 12 1,333,173 March 2004 6,327 ------- 71,231 =======
USD: United States Dollar The following swap contracts were open at December 31, 2003: CREDIT DEFAULT SWAPS
FUND RECEIVES/ IN EXCHANGE PROVIDES FOR PREMIUM PREMIUM CREDIT PAYMENTS OF PAYMENT EFFECTIVE COUNTERPARTY PROTECTION (PER ANNUM) FREQUENCY DATE ---------------- ------------ ------------- ----------- ------------ Morgan Stanley Receives 1.150% Quarterly 10/19/2002 Morgan Stanley Receives 1.150% Quarterly 10/19/2002 NOTIONAL DEFAULT UNREALIZED MATURITY AMOUNT AMOUNT GAIN/LOSS COUNTERPARTY DATE ($) ISSUER ($) ($) ---------------- ------------ ----------- --------------------------- ------------ ----------- Morgan Stanley 10/19/2007 2,000,000 Simon Property Group Inc. 10,000,000 (42,729) Morgan Stanley 10/19/2007 2,000,000 Equity Residential 10,000,000 (49,813) ------- (92,542) =======
TOTAL RETURN SWAPS
LIBOR INTEREST COUNTERPARTY INDEX PAYER RATE -------------- ---------------- ------- ---------------------- Lehman CMBS, Deutche Bank ERISA Eligible Fund 1 Mo LIBOR -- 60 bps NOTIONAL COST UNREALIZED SETTLEMENT EFFECTIVE MATURITY AMOUNT PREMIUM GAIN/LOSS COUNTERPARTY PERIOD DATE DATE ($) ($) ($) -------------- ------------ ------------ ------------ ------------ --------- ----------- Deutche Bank Monthly 09/01/2003 02/01/2004 10,000,000 -- 102,516 =======
The accompanying notes are an integral part of these financial statements. SAI-191 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT CREDIT BOND FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 1. FUND ORGANIZATION AND INVESTMENT OBJECTIVE State Street Bank and Trust Company ("State Street Bank") Government Credit Bond Fund (the "Fund") was formed by State Street Bank under the State Street Bank and Trust Company Investment Funds for Tax Exempt Retirement Plans Declaration of Trust. The investment objective of the Fund is to match or exceed the return of the Lehman Brothers Government Credit Bond Index. The Fund may attempt to achieve its investment objective by investing in other collective investment funds (each an "underlying fund"), managed by the Trustee, which have characteristics consistent with the overall investment objective. Refer to the financial statements of each underlying fund for disclosure of its accounting policies and investment holdings. State Street Bank is Trustee, custodian, and recordkeeper of the Fund and has exclusive management and control of the Trust. State Street Global Advisors, a division of State Street Bank, is the Fund's investment manager. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently in the preparation of the financial statements. A. SECURITY VALUATION Fixed income investments are valued on the basis of valuations furnished by a pricing service approved by the Trustee, which determines valuations using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders, or at fair value as determined in good faith by the Trustee. Short-term investments, if any, are stated at amortized cost, which approximates fair value. Investments in regulated investment companies or collective investment funds are valued at the net asset value per share/unit on the valuation date. B. SECURITY TRANSACTIONS AND INVESTMENT INCOME Security transactions are accounted for as of trade date. Realized gains and losses from investment transactions are determined using the average cost method. Dividend income, if any, is recorded on the ex-dividend date. Distributions received from collective investment funds are recorded on the ex-dividend date and retain the character of income as earned by the underlying fund. Interest income earned on securities, if any, is recorded on the accrual basis. Interest income includes accretion of discounts and amortization of premiums, if any. Collective investment funds, in which the Fund invests, may retain investment income and net realized gains. Accordingly, realized and unrealized gains and losses reported by the Fund may include a component attributable to investment income of the underlying funds. C. INCOME TAXES It is the Fund's policy to comply with the requirements of Section 501(a) of the Internal Revenue Code relating to collective investment of employee benefit funds. Accordingly, the Fund is exempt from federal and state taxes and no federal or state tax provision is required. D. ISSUANCES AND REDEMPTIONS OF UNITS OF PARTICIPATION The net asset value of the Fund is determined each business day ("valuation date"). Issuances and redemptions of Fund units are made on such days, based upon the net asset value per unit. SAI-192 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT CREDIT BOND FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 E. EXPENSES Under the Declaration of Trust, the Fund may pay certain expenses for services received. The Fund pays State Street Bank for custody services. The Fund indirectly bears the expenses paid by the underlying funds, if any. State Street Global Advisors receives investment management fees from the participating accounts and therefore, the Fund makes no payment for these services. F. DISTRIBUTIONS TO PARTICIPANTS Net investment income and net realized gains are retained by the Fund. G. FUTURES CONTRACTS The Fund may use futures contracts to manage exposure to the market. Buying futures tends to increase a fund's exposure to the underlying instrument. Selling futures tends to decrease a fund's exposure to the underlying instrument held by a fund, or hedge the fair value of other fund investments. Futures contracts are valued at the last settlement price at the end of each day on the board of trade or exchange upon which they are traded. Upon entering into a futures contract, the Fund is required to deposit either in cash, currency or securities an amount ("initial margin") equal to a certain percentage of the nominal value of the contract. Subsequent payments are made or received by the Fund periodically, depending on the fluctuation in the value of the underlying index or security, and are recorded as unrealized gains or losses by the Fund. A gain or loss is realized when the contract is closed or expires. Futures contracts involve, to varying degrees, credit and market risks. The Fund enters into futures contracts only on exchanges or boards of trade where the exchange or board of trade acts as the counterparty to the transaction. Thus, credit risk on such transactions is limited to the failure of the exchange or board of trade. Losses in value may arise from changes in the value of the underlying instruments or if there is an illiquid secondary market for the contracts. In addition, there is the risk that there may not be an exact correlation between a futures contract and the underlying index or security. H. CREDIT DEFAULT SWAP CONTRACTS The Fund may invest in credit default swaps. Credit default swap contracts entered into by the Fund typically represent the exchange by the Fund with a counterparty of a commitment to provide a level of credit protection for a commitment to receive interest at a fixed rate based on the potential risk of default of the relevant underlying issuer. Providing credit protection to a counterparty tends to increase a Fund's exposure to the underlying instrument. Receiving credit protection from a counterparty tends to decrease a Fund's exposure to the underlying instrument held by a Fund, or hedge the fair value of other Fund investments. Such contracts may have a term of one to ten years, but typically require periodic interim settlement in cash. During the period that the credit default swap contract is open, the contract is marked-to-market in accordance with the terms of the contract based on the current interest rate spreads and credit risk of the referenced obligation of the underlying issuer and interest accrual through valuation date. Changes in the value of the credit default swap are recorded as unrealized gains or losses, while periodic cash settlements are recorded as realized gains or losses. Entering into a credit default swap contract involves, to varying degrees, elements of credit, market and interest rate risk in excess of the amounts reported in the Statement of Assets and Liabilities. Notional principal amounts are used to express the extent of involvement in the transactions, and may be delivered SAI-193 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT CREDIT BOND FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 under the contracts in the event of default of the underlying issuer. In addition to credit exposure to the underlying issuer implicit in the contract, credit risk is applicable to any amounts receivable from the counterparty. To reduce credit risk from potential counterparty default, the Fund enters into credit default swap contracts with counterparties whose creditworthiness has been approved by the Trustee. The Fund bears the interest rate and market risk arising from any change in the interest rate or credit rating of the underlying issuer. I. TOTAL RETURN SWAP CONTRACTS The Fund may invest in total return swap contracts. The Fund uses total return swap contracts to gain exposure to different underlying instruments. Total return swap contracts entered into by the Fund typically represent the exchange by the Fund with a counterparty of a commitment to pay interest at a variable rate for a cash flow based on the change in market price and/or total return (change in market price plus related income, if any) of the relevant index or security. Such contracts may have a term of one to ten years, but typically require periodic interim settlement in cash, at which time both the value of the index or security and the specified interest rate are reset for the next settlement period. During the period that the swap contract is open, the contract is marked-to-market as the net amount due to or from the Fund in accordance with the terms of the contract based on the closing level of the relevant index or security and interest accrual through valuation date. Changes in the value of the swap contract are recorded as unrealized gains or losses, while periodic cash settlements are recorded as realized gains or losses. Entering into a swap contract involves, to varying degrees, elements of credit, market and interest rate risk in excess of the amounts reported in the Statement of Assets and Liabilities. Notional principal amounts are used to express the extent of involvement in the transactions, but are not delivered under the contracts. Accordingly, credit risk is limited to any amounts receivable from the counterparty. To reduce credit risk from potential counterparty default, the Fund enters into swap contracts with counterparties whose creditworthiness has been approved by the Trustee. The Fund bears the market risk arising from any change in index or security values or interest rates. J. SWAPTION CONTRACTS The Fund may purchase or write swaption contracts to manage exposure to fluctuations in interest rates or hedge the fair value of other Fund investments. Swaption contracts entered into by the Fund typically represent an option that gives the purchaser the right, but not the obligation, to enter into a swap contract on a future date. If a call swaption is exercised, the purchaser will enter a swap to receive the fixed rate and pay a floating rate in exchange. Exercising a put would entitle the purchaser to pay a fixed rate and receive a floating rate. Swaption contracts are marked-to-market as the net amount due to or from the Fund in accordance with the terms of the contract based on the closing level of the relevant market rate of interest. Changes in the value of the swaption are reported as unrealized gains or losses. Gain or loss is recognized when the swaption contract expires or is closed. When the Fund writes a swaption, the premium received is recorded as a liability and is subsequently adjusted to the current fair value of the swaption written. Premiums received from writing swaptions that expire unexercised are treated by the Fund on the expiration date as realized gains from swaptions. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain or loss. The risk of loss is limited to premiums paid on a purchased swaption. Entering into a written swaption contract involves, to varying degrees, the elements of credit, market and interest rate risk in excess of the SAI-194 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT CREDIT BOND FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 amounts reported in the Statement of Assets and Liabilities, associated with both option contracts and swap contracts. To reduce credit risk from potential counterparty default, the Fund enters into swaption contracts with counterparties whose creditworthiness has been approved by the Trustee. The Fund bears the market risk arising from any change in index values or interest rates. K. OPTION CONTRACTS The Fund may purchase or write option contracts to manage exposure to the securities markets and to fluctuations in interest rates. Writing puts and buying calls tend to increase the Fund's exposure to the underlying instrument. Buying puts and writing calls tend to decrease the Fund's exposure to the underlying instrument held by the Fund, or hedge the fair value of other Fund investments. Exchange-traded options are valued using the last sale price or, in the absence of a sale, the last offering price. Options traded over-the-counter are valued using dealer-supplied valuations. Gain or loss is recognized when the option contract is exercised, expires or is closed. When the Fund writes an option, the premium received is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains from written options. The difference between the premium and the amount paid for a closing purchase, including brokerage commissions, is also recorded as a realized gain/loss. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as an addition to cost of investments. Options involve, to varying degrees, credit and market risks. Loss in value may arise from changes in the value of the underlying instruments. In writing a put option, the Fund assumes the risk of incurring a loss if the market price decreases and the option is exercised. Writing a call option will increase the risk of loss to the Fund, if the market price increases and the option is exercised. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market for the contracts or if the counterparties do not perform in accordance with the contracts' terms. L. TREASURY DOLLAR ROLLS TRANSACTIONS The Fund may enter into dollar roll transactions. A dollar roll transaction may involve the sale of securities by the Fund with a simultaneous purchase of the same securities at an agreed upon price and date. During the period between the sale and purchase, the Fund will not be entitled to accrue interest and/or receive principal payments on the securities sold. The Fund is compensated by the difference between the current sales price and the lower forward price of the future purchase (often referred to as the "drop"), which is reported as interest income, as well as by the interest earned on the cash proceeds of the initial sale. Dollar roll transactions involve the risk that the market value of the securities sold by the Fund may decline below the purchase price of those securities. SAI-195 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT CREDIT BOND FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 3. INVESTMENT TRANSACTIONS Purchases and sales of securities, including in-kind contributions and redemptions, if any, during the period ended December 31, 2003 were $871,706,092 and $977,377,926, respectively. Written option transactions during the year were as follows:
CONTRACT PREMIUMS AMOUNTS RECEIVED ----------------------------------------------------------------------------------------- Written options outstanding at beginning of year ......... 1,214 $ 428,519 Options opened ........................................... 2,534 1,242,364 Options exercised ........................................ -- -- Options expired .......................................... (1,334) (331,539) Options closed ........................................... (2,414) (1,339,344) ----------------------------------------------------------------------------------------- Written options outstanding at end of year ............... -- $ -- =========================================================================================
4. NAME CHANGE DURING THE YEAR On March 15, 2003, the Fund Declaration was amended resulting in a name change from State Street Bank and Trust Company Government Corporate Bond Fund to State Street Bank and Trust Company Government Credit Bond Fund. SAI-196 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS To the Participants and Trustee of State Street Bank and Trust Company Government Fund In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations, of cash flows and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of State Street Bank and Trust Company Government Fund at December 31, 2003, and the results of its operations, its cash flows, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trustee; 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 auditing standards generally accepted in the United States of America, 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 the Trustee, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2003 by correspondence with the custodian, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts March 5, 2004 SAI-197 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT FUND Statement of Assets and Liabilities December 31, 2003 --------------------------------------------------------------------------------
ASSETS Investments in securities, at value (cost $1,087,166,414)........................ $1,091,385,029 Receivable for Fund units issued ................................................ 2,567,515 Receivable for investments sold ................................................. 512,800 Interest receivable ............................................................. 8,308,361 Unrealized gain on open swap contracts .......................................... 799,329 --------------------------------------------------------------------------------------------------- Total assets ................................................................... 1,103,573,034 --------------------------------------------------------------------------------------------------- LIABILITIES Due to custodian ................................................................ 2,015,060 Payable for investments purchased ............................................... 438,368,040 Variation margin payable ........................................................ 470 Accrued expenses ................................................................ 10,895 --------------------------------------------------------------------------------------------------- Total liabilities .............................................................. 440,394,465 --------------------------------------------------------------------------------------------------- NET ASSETS (equivalent to $13.03 per unit based on 50,886,441 units outstanding) $ 663,178,569 ===================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-198 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT FUND Statement of Operations Year Ended December 31, 2003 --------------------------------------------------------------------------------
INVESTMENT INCOME Interest ............................................................... $ 18,823,873 ---------------------------------------------------------------------------------------- Total investment income .............................................. 18,823,873 ---------------------------------------------------------------------------------------- EXPENSES Custody ................................................................ 97,757 Audit .................................................................. 27,000 Other .................................................................. 4,342 ---------------------------------------------------------------------------------------- Total expenses ....................................................... 129,099 ---------------------------------------------------------------------------------------- Net investment income (loss) ......................................... 18,694,774 ---------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss): Investments .......................................................... (3,390,167) Futures contracts .................................................... 287,544 Swap contracts ....................................................... 3,838,056 Written options ...................................................... 6,201 ---------------------------------------------------------------------------------------- 741,634 ---------------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation): Investments .......................................................... (1,886,773) Futures contracts .................................................... 3,210 Swap contracts ....................................................... (1,583,416) Written options ...................................................... 859,560 ---------------------------------------------------------------------------------------- (2,607,419) ---------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) ................................ (1,865,785) ---------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ......... $ 16,828,989 ========================================================================================
The accompanying notes are an integral part of these financial statements. SAI-199 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT FUND Statement of Changes in Net Assets
YEAR ENDED DECEMBER 31, 2003 2002 ------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss) ...................................................... $ 18,694,774 $ 14,286,328 Net realized gain (loss) .......................................................... 741,634 44,771,852 Net change in unrealized appreciation (depreciation) .............................. (2,607,419) (2,256,181) ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations .................. 16,828,989 56,801,999 ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from participant transactions ..... 140,357,773 (123,620,565) ------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS ............................................. 157,186,762 (66,818,566) NET ASSETS Beginning of year ................................................................ 505,991,807 572,810,373 ------------------------------------------------------------------------------------------------------------------------- End of year ...................................................................... $663,178,569 $ 505,991,807 =========================================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-200 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT FUND Statement of Changes in Net Assets (Continued)
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------- 2003 2002 --------------------------------------------------------------------- UNITS AMOUNT UNITS AMOUNT ---------------------------------------------------------------------------------------------------------------------------- UNITS OF PARTICIPATION PARTICIPANT TRANSACTIONS FOR THE FUND WERE AS FOLLOWS: Units issued ......................................... 35,488,385 $ 458,563,995 8,643,358 $ 104,033,767 Units redeemed ....................................... (24,554,126) (318,206,222) (19,203,904) (227,654,332) ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) .............................. 10,934,259 $ 140,357,773 (10,560,546) $ (123,620,565) ============================================================================================================================
Units in excess of 10% of the Fund units outstanding at December 31, 2003 held by 3 of the Fund's unitholders aggregated 97% of the Fund's total units outstanding. The accompanying notes are an integral part of these financial statements. SAI-201 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT FUND Statement of Cash Flows Year Ended December 31, 2003 --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH CASH FLOWS FROM OPERATING ACTIVITIES: Net increase (decrease) in net assets from operations ................................... $ 16,828,989 Adjustments to reconcile net increase in net assets from operations to net cash provided by (used for) operating activities: Purchase of investment securities ..................................................... (8,066,561,323) Proceeds from disposition of investment securities .................................... 7,871,505,706 Increase (decrease) in premiums on options written .................................... (616,239) Purchase of short term investment securities (net) .................................... (6,087,260) Amortization (accretion) of premium (discount) ........................................ 582,853 Dollar roll income .................................................................... (12,077,388) (Increase) decrease in variation margin ............................................... 470 (Increase) decrease in interest receivable ............................................ (1,935,548) (Increase) decrease in receivable for investments sold ................................ (512,800) Increase (decrease) in payable for swap contracts ..................................... 1,583,416 Increase (decrease) in payable for investments purchased .............................. 53,057,731 Increase (decrease) in accrued expenses ............................................... 8,694 Net (increase) decrease in unrealized appreciation (depreciation) on investments ...... 1,886,773 Net (increase) decrease in unrealized appreciation (depreciation) on written options .. (859,560) Net realized (gain) loss on investments ............................................... 3,390,167 ---------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) operating activities .................................... (139,805,319) ---------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from units sold ................................................................ 455,996,481 Payments on units redeemed .............................................................. (318,206,222) ---------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing activities .................................... 137,790,259 ---------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash .......................................................... (2,015,060) CASH: Beginning balance ....................................................................... -- ---------------------------------------------------------------------------------------------------------------- Ending balance .......................................................................... $ (2,015,060) ================================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-202 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT FUND Financial Highlights (FOR A UNIT OF PARTICIPATION OUTSTANDING THROUGHOUT THE YEAR)
YEAR ENDED DECEMBER 31, -------------------------------------------------------- 2003 2002 2001 2000 (A) ------------------------------------------------------------------------------------------------------------ SELECTED PER UNIT DATA Net asset value, beginning of year .............. $ 12.66 $ 11.34 $ 10.50 $ 10.00 ------------------------------------------------------------------------------------------------------------ Net investment income (loss) (b) ................ 0.44 0.32 0.41 0.15 Net realized and unrealized gain (loss) ......... ( 0.07) 1.00 0.43 0.35 ------------------------------------------------------------------------------------------------------------ Total from investment operations ................ 0.37 1.32 0.84 0.50 ------------------------------------------------------------------------------------------------------------ Net asset value, end of year .................... $ 13.03 $ 12.66 $ 11.34 $ 10.50 ------------------------------------------------------------------------------------------------------------ Total return (%) (c) ............................ 2.90 11.68 8.00 5.01(e) ------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS Ratio of expenses (%) (d) ....................... 0.02 0.01 0.01 0.00(e) ------------------------------------------------------------------------------------------------------------ Ratio of net investment income (%) .............. 3.38 2.73 3.79 1.53(e) ------------------------------------------------------------------------------------------------------------ Portfolio turnover % ............................ 1,751 1,569 5,506 1,607(e) ------------------------------------------------------------------------------------------------------------ Net assets, end of year (000,000s) .............. $ 663 $ 506 $ 573 $ 866 ============================================================================================================
(a) The Fund commenced operations on October 6, 2000. (b) Net investment income (loss) per unit has been calculated based upon an average of month-end units outstanding. (c) Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year. The calculation includes only those expenses charged directly to the Fund. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. (d) The calculation includes only those expenses charged directly to the Fund, and does not include expenses charged to the funds in which the Fund invests. (e) Not annualized. The accompanying notes are an integral part of these financial statements. SAI-203 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT FUND Schedule of Investments (showing percentage of total value of investments) December 31, 2003
------------------------------------------------------------------------------------------------------------------------ PRINCIPAL VALUE ------------------------------------------------------------------------------------------------------------------------ DEBT INSTRUMENTS -- 57.9% USD 11,500,000 Fannie Mae .............................................. 1.88% 09/15/2005 $11,511,730 5,000,000 Fannie Mae .............................................. 2.13% 10/14/2005 4,986,746 10,000,000 Fannie Mae .............................................. 2.00% 01/15/2006 9,990,400 5,000,000 Fannie Mae .............................................. 2.75% 11/21/2006 4,968,609 5,000,000 Fannie Mae .............................................. 3.75% 01/23/2008 5,003,000 5,000,000 Fannie Mae .............................................. 3.75% 09/15/2008 4,997,450 7,800,000 Fannie Mae .............................................. 5.25% 01/15/2009 8,389,993 5,000,000 Fannie Mae .............................................. 7.13% 06/15/2010 5,870,150 3,000,000 Fannie Mae .............................................. 4.38% 03/15/2013 2,946,180 5,000,000 Fannie Mae .............................................. 4.63% 10/15/2013 4,960,400 15,000,000 Fannie Mae .............................................. 2.32% 02/25/2022 15,001,860 8,000,000 Federal Home Loan Bank System ........................... 3.63% 10/15/2004 8,127,820 3,000,000 Federal Home Loan Bank System ........................... 1.75% 06/17/2005 2,988,146 15,000,000 Federal Home Loan Bank System ........................... 5.13% 03/06/2006 15,938,099 5,500,000 Federal Home Loan Bank System ........................... 5.25% 08/15/2006 5,879,665 2,570,000 Federal Home Loan Bank System ........................... 5.63% 11/15/2011 2,759,563 2,300,000 Federal Home Loan Bank System ........................... 4.50% 09/16/2013 2,262,487 1,600,000 Freddie Mac ............................................. 3.88% 02/15/2005 1,643,456 6,100,000 Freddie Mac ............................................. 2.00% 02/18/2005 6,104,572 5,000,000 Freddie Mac ............................................. 1.52% 07/22/2005 4,956,059 7,000,000 Freddie Mac ............................................. 2.20% 10/27/2005 6,987,676 10,000,000 Freddie Mac ............................................. 2.13% 11/15/2005 10,034,000 5,000,000 Freddie Mac ............................................. 1.67% 11/23/2005 5,000,000 4,300,000 Freddie Mac ............................................. 2.20% 12/30/2005 4,280,827 5,000,000 Freddie Mac ............................................. 2.50% 12/30/2005 5,006,073 4,000,000 Freddie Mac ............................................. 3.13% 08/25/2006 4,021,280 5,000,000 Freddie Mac ............................................. 2.75% 10/06/2006 4,983,484 10,000,000 Freddie Mac ............................................. 3.00% 10/27/2006 10,024,266 25,000,000 Freddie Mac ............................................. 2.88% 12/15/2006 25,165,251 6,800,000 Freddie Mac ............................................. 4.50% 07/23/2007 6,911,112 5,200,000 Freddie Mac ............................................. 4.00% 10/29/2007 5,255,640 10,000,000 Freddie Mac ............................................. 3.63% 09/15/2008 10,050,399 5,000,000 Freddie Mac ............................................. 5.13% 10/15/2008 5,351,100 5,000,000 Freddie Mac ............................................. 5.75% 03/15/2009 5,489,000 1,500,000 Freddie Mac ............................................. 5.13% 07/15/2009 1,522,605 8,000,000 Freddie Mac ............................................. 5.63% 03/15/2011 8,681,360 5,000,000 Freddie Mac ............................................. 4.75% 10/11/2012 4,946,850 3,000,000 Freddie Mac ............................................. 5.13% 11/07/2013 2,995,170 3,000,000 Sallie Mae Inc .......................................... 2.00% 03/15/2005 3,020,190 20,000,000 United States Treasury Bond ............................. 12.38% 05/15/2004 20,835,800 20,000,000 United States Treasury Bond ............................. 11.63% 11/15/2004 21,785,199 20,000,000 United States Treasury Bond ............................. 12.00% 05/15/2005 22,876,802 5,000,000 United States Treasury Bond ............................. 9.38% 02/15/2006 5,774,350 8,000,000 United States Treasury Bond ............................. 6.50% 02/15/2010 9,295,840 3,100,000 United States Treasury Bond ............................. 11.25% 02/15/2015 4,962,697 16,476,000 United States Treasury Bond ............................. 8.88% 08/15/2017 23,332,322 6,500,000 United States Treasury Bond ............................. 8.13% 08/15/2019 8,783,255 12,400,000 United States Treasury Bond ............................. 7.88% 02/15/2021 16,504,649 3,500,000 United States Treasury Bond ............................. 7.63% 11/15/2022 4,585,385 9,829,000 United States Treasury Bond ............................. 7.13% 02/15/2023 12,270,819 9,500,000 United States Treasury Bond ............................. 6.88% 08/15/2025 11,621,350 8,000,000 United States Treasury Bond ............................. 5.25% 11/15/2028 8,059,437 6,060,000 United States Treasury Bond ............................. 5.38% 02/15/2031 6,319,428 16,921,350 United States Treasury Inflation Indexed Bonds .......... 3.88% 01/15/2009 19,105,219
The accompanying notes are an integral part of these financial statements. SAI-204 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT FUND Schedule of Investments (showing percentage of total value of investments) December 31, 2003
---------------------------------------------------------------------------------------------------------------------------- PRINCIPAL VALUE ---------------------------------------------------------------------------------------------------------------------------- 14,375,000 United States Treasury Note ............................. 5.75% 11/15/2005 $ 15,434,005 25,000,000 United States Treasury Note ............................. 1.88% 12/31/2005 25,011,719 10,000,000 United States Treasury Note ............................. 4.63% 05/15/2006 10,597,500 5,000,000 United States Treasury Note ............................. 6.88% 05/15/2006 5,558,900 20,000,000 United States Treasury Note ............................. 7.00% 07/15/2006 22,402,798 31,700,000 United States Treasury Note ............................. 3.00% 11/15/2007 31,969,766 18,000,000 United States Treasury Note ............................. 3.25% 08/15/2008 18,110,520 20,000,000 United States Treasury Note ............................. 3.38% 11/15/2008 20,156,400 2,000,000 United States Treasury Note ............................. 3.38% 12/15/2008 2,013,440 10,000,000 United States Treasury Note ............................. 3.63% 05/15/2013 9,616,800 16,500,000 United States Treasury Note ............................. 4.25% 11/15/2013 16,482,180 ---------------------------------------------------------------------------------------------------------------------------- TOTAL DEBT INSTRUMENTS .................................. 632,479,248 ---------------------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS -- 0.1% ..................... 940,000 United States Treasury Bills(1) ......................... 0.84% 02/19/2004 938,900 ---------------------------------------------------------------------------------------------------------------------------- UNITS ---------------------------------------------------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY COLLECTIVE INVESTMENT FUNDS -- 42.0% ($) 15,306,954 Limited Duration Bond Fund(2) ........................... 160,049,510 2,859,878 Long US Agency Index Securities Lending Fund(2) ......... 28,538,719 269,378,652 Short Term Investment Fund(2) ........................... 269,378,652 ---------------------------------------------------------------------------------------------------------------------------- TOTAL COLLECTIVE INVESTMENT FUNDS ....................... 457,966,881 ---------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (COST $1,087,166,414).......... $1,091,385,029 ============================================================================================================================
1 All or a portion of this security was pledged to cover margin requirements for open future contracts. 2 Collective investment fund advised by State Street Global Advisors. The accompanying notes are an integral part of these financial statements. SAI-205 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT FUND Schedule of Investments (showing percentage of total value of investments) December 31, 2003 -------------------------------------------------------------------------------- At December 31, 2003, U.S Treasury Bills with principal of $940,000 were pledged to cover margin requirements for open futures contracts. The following futures contracts were open at December 31, 2003:
NUMBER OF FUTURES CONTRACTS UNREALIZED CONTRACTS LONG/(SHORT) NOTIONAL COST ($) GAIN/(LOSS) MATURITY DATE ---------------------------------- -------------- ------------------- ---------------- -------------- Eurodollar Futures (450) (110,881,950) June 2004 $ (9,300) Eurodollar Futures 400 98,241,600 September 2004 3,400 Eurodollar Futures 50 12,094,575 June 2005 31,675 US Treasury Notes 2 Year Futures (75) (16,030,950) March 2004 (22,565) --------- $ 3,210 =========
USD: United States Dollar The following swap contracts were open at December 31, 2003: TOTAL RETURN SWAPS
INTEREST COUNTERPARTY INDEX LIBOR PAYER RATE ----------------- -------------------- ------------- ------------------------ Lehman Brothers Lehman US Treasury Fund 1 month LIBOR-- 17 bps NOTIONAL COST UNREALIZED SETTLEMENT EFFECTIVE MATURITY AMOUNT PREMIUM GAIN/LOSS COUNTERPARTY PERIOD DATE DATE ($) ($) ($) ----------------- ------------ ----------- ---------- ------------- --------- ----------- Lehman Brothers Monthly 9/1/2003 3/1/2004 100,000,000 -- 799,329 =======
The accompanying notes are an integral part of these financial statements. SAI-206 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 1. FUND ORGANIZATION AND INVESTMENT OBJECTIVE State Street Bank and Trust Company ("State Street Bank") Government Fund (the "Fund") was formed by State Street Bank under the State Street Bank and Trust Company Investment Funds for Tax Exempt Retirement Plans Declaration of Trust. The investment objective of the Fund is to match or exceed the return of the Lehman Brothers Government Index. The Fund may attempt to achieve its investment objective by investing in other collective investment funds (each an "underlying fund"), managed by the Trustee, which have characteristics consistent with the overall investment objective. Refer to the financial statements of each underlying fund for disclosure of its accounting policies and investment holdings. State Street Bank is Trustee, custodian, and recordkeeper of the Fund and has exclusive management and control of the Trust. State Street Global Advisors, a division of State Street Bank, is the Fund's investment manager. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently in the preparation of the financial statements. A. SECURITY VALUATION Fixed income investments are valued on the basis of valuations furnished by a pricing service approved by the Trustee, which determines valuations using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders, or at fair value as determined in good faith by the Trustee. Short-term investments, if any, are stated at amortized cost, which approximates fair value. Investments in regulated investment companies or collective investment funds are valued at the net asset value per share/unit on the valuation date. B. SECURITY TRANSACTIONS AND INVESTMENT INCOME Security transactions are accounted for as of trade date. Realized gains and losses from investment transactions are determined using the average cost method. Dividend income, if any, is recorded on the ex-dividend date. Interest income earned on securities, if any, is recorded on the accrual basis. Interest income includes accretion of discounts and amortization of premiums, if any. Collective investment funds, in which the Fund invests, may retain investment income and net realized gains. Accordingly, realized and unrealized gains and losses reported by the Fund may include a component attributable to investment income of the underlying funds. C. INCOME TAXES It is the Fund's policy to comply with the requirements of Section 501(a) of the Internal Revenue Code relating to collective investment of employee benefit funds. Accordingly, the Fund is exempt from federal and state taxes and no federal or state tax provision is required. D. ISSUANCES AND REDEMPTIONS OF UNITS OF PARTICIPATION The net asset value of the Fund is determined each business day ("valuation date"). Issuances and redemptions of Fund units are made on such days, based upon the net asset value per unit. SAI-207 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 E. EXPENSES Under the Declaration of Trust, the Fund may pay certain expenses for services received. The Fund pays State Street Bank for custody services. The Fund indirectly bears the expenses paid by the underlying funds, if any. State Street Global Advisors receives investment management fees from the participating accounts and therefore, the Fund makes no payment for these services. F. DISTRIBUTIONS TO PARTICIPANTS Net investment income and net realized gains are retained by the Fund. G. FUTURES CONTRACTS The Fund may use futures contracts to manage exposure to the market. Buying futures tends to increase a fund's exposure to the underlying instrument. Selling futures tends to decrease a fund's exposure to the underlying instrument held by a fund, or hedge the fair value of other fund investments. Futures contracts are valued at the last settlement price at the end of each day on the board of trade or exchange upon which they are traded. Upon entering into a futures contract, the Fund is required to deposit either in cash, currency or securities an amount ("initial margin") equal to a certain percentage of the nominal value of the contract. Subsequent payments are made or received by the Fund periodically, depending on the fluctuation in the value of the underlying index or security, and are recorded as unrealized gains or losses by the Fund. A gain or loss is realized when the contract is closed or expires. Futures contracts involve, to varying degrees, credit and market risks. The Fund enters into futures contracts only on exchanges or boards of trade where the exchange or board of trade acts as the counterparty to the transaction. Thus, credit risk on such transactions is limited to the failure of the exchange or board of trade. Losses in value may arise from changes in the value of the underlying instruments or if there is an illiquid secondary market for the contracts. In addition, there is the risk that there may not be an exact correlation between a futures contract and the underlying index or security. H. TOTAL RETURN SWAP CONTRACTS The Fund may invest in total return swap contracts. The Fund uses total return swap contracts to gain exposure to different underlying instruments. Total return swap contracts entered into by the Fund typically represent the exchange by the Fund with a counterparty of a commitment to pay interest at a variable rate for a cash flow based on the change in market price and/or total return (change in market price plus related income, if any) of the relevant index or security. Such contracts may have a term of one to ten years, but typically require periodic interim settlement in cash, at which time both the value of the index or security and the specified interest rate are reset for the next settlement period. During the period that the swap contract is open, the contract is marked-to-market as the net amount due to or from the Fund in accordance with the terms of the contract based on the closing level of the relevant index or security and interest accrual through valuation date. Changes in the value of the swap contract are recorded as unrealized gains or losses, while periodic cash settlements are recorded as realized gains or losses. Entering into a swap contract involves, to varying degrees, elements of credit, market and interest rate risk in excess of the amounts reported in the Statement of Assets and Liabilities. Notional principal amounts are used to express the extent of involvement in the transactions, but are not delivered under the contracts. Accordingly, credit risk is limited to any amounts receivable from the counterparty. To reduce credit risk from potential counterparty default, the Fund enters into swap contracts with counterparties whose creditworthiness has been approved by the Trustee. The Fund bears the market risk arising from any change in index or security values or interest rates. SAI-208 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 I. CREDIT DEFAULT SWAP CONTRACTS The Fund may invest in credit default swaps. Credit default swap contracts entered into by the Fund typically represent the exchange by the Fund with a counterparty of a commitment to provide a level of credit protection for a commitment to receive interest at a fixed rate based on the potential risk of default of the relevant underlying issuer. Providing credit protection to a counterparty tends to increase a Fund's exposure to the underlying instrument. Receiving credit protection from a counterparty tends to decrease a Fund's exposure to the underlying instrument held by a Fund, or hedge the fair value of other Fund investments. Such contracts may have a term of one to ten years, but typically require periodic interim settlement in cash. During the period that the credit default swap contract is open, the contract is marked-to-market in accordance with the terms of the contract based on the current interest rate spreads and credit risk of the referenced obligation of the underlying issuer and interest accrual through valuation date. Changes in the value of the credit default swap are recorded as unrealized gains or losses, while periodic cash settlements are recorded as realized gains or losses. Entering into a credit default swap contract involves, to varying degrees, elements of credit, market and interest rate risk in excess of the amounts reported in the Statement of Assets and Liabilities. Notional principal amounts are used to express the extent of involvement in the transactions, and may be delivered under the contracts in the event of default of the underlying issuer. In addition to credit exposure to the underlying issuer implicit in the contract, credit risk is applicable to any amounts receivable from the counterparty. To reduce credit risk from potential counterparty default, the Fund enters into credit default swap contracts with counterparties whose creditworthiness has been approved by the Trustee. The Fund bears the interest rate and market risk arising from any change in the interest rate or credit rating of the underlying issuer. J. OPTIONS CONTRACTS The Fund may purchase or write option contracts to manage exposure to the securities markets and to fluctuations in interest rates. Writing puts and buying calls tend to increase the Fund's exposure to the underlying instrument. Buying puts and writing calls tend to decrease the Fund's exposure to the underlying instrument held by the Fund, or hedge the fair value of other Fund investments. Exchange-traded options are valued using the last sale price or, in the absence of a sale, the last offering price. Options traded over-the-counter are valued using dealer-supplied valuations. Gain or loss is recognized when the option contract is exercised, expires or is closed. When the Fund writes an option, the premium received is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains from written options. The difference between the premium and the amount paid for a closing purchase, including brokerage commissions, is also recorded as a realized gain/loss. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as an addition to cost of investments. Options involve, to varying degrees, credit and market risks. Loss in value may arise from changes in the value of the underlying instruments. In writing a put option, the Fund assumes the risk of incurring a loss if the market price decreases and the option is exercised. Writing a call option will increase the risk of loss to the Fund, if the market price increases and the option is exercised. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market for the contracts or if the counterparties do not perform in accordance with the contracts' terms. SAI-209 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY GOVERNMENT FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 K. DOLLAR ROLL TRANSACTIONS The Fund may enter into dollar roll transactions. A dollar roll transaction may involve the sale of securities by the Fund with a simultaneous purchase of the same securities at an agreed upon price and date. During the period between the sale and purchase, the Fund will not be entitled to accrue interest and/or receive principal payments on the securities sold. The Fund is compensated by the difference between the current sales price and the lower forward price of the future purchase (often referred to as the "drop"), which is reported as interest income, as well as by the interest earned on the cash proceeds of the initial sale. Dollar roll transactions involve the risk that the market value of the securities sold by the Fund may decline below the purchase price of those securities. 3. INVESTMENT TRANSACTIONS Purchases and sales of securities, including in-kind contributions and redemptions, if any, during the period ended December 31, 2003 were $9,880,647,443 and $9,695,559,816, respectively. Written option transactions during the year were as follows:
CONTRACT PREMIUMS AMOUNTS RECEIVED ---------- --------------- Written options outstanding at beginning of year ......... 1,140 $ 622,440 Options written .......................................... 2,820 1,035,314 Options exercised ........................................ -- -- Options expired .......................................... (600) (72,600) Options closed ........................................... (3,360) (1,585,154) ------ ------------ Written options outstanding at end of year ............... -- $ -- ====== ============
4. STATEMENT OF CASH FLOWS Information on financial transactions which have been settled through the receipt and disbursement of cash is presented in the Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows is the amount reported as cash or due to Custodian in the Fund's Statement of Assets and Liabilities and represents the cash position in its custodian bank account at December 31, 2003. SAI-210 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS To the Participants and Trustee of State Street Bank and Trust Company Credit Fund In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations, of cash flows and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of State Street Bank and Trust Company Credit Fund (formerly "State Street Bank and Trust Company Corporate Fund") at December 31, 2003, and the results of its operations, its cash flows, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trustee; 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 auditing standards generally accepted in the United States of America, 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 the Trustee, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2003 by correspondence with the custodian, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts March 5, 2004 SAI-211 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY CREDIT FUND Statement of Assets and Liabilities December 31, 2003 --------------------------------------------------------------------------------
ASSETS Investments in securities, at value (cost $532,311,919) ............................................................ $558,573,591 Receivable for Fund units issued ................................................ 5,801,298 Interest receivable ............................................................. 2,070,422 ------------------------------------------------------------------------------------------------- Total assets ................................................................. 566,445,311 ------------------------------------------------------------------------------------------------- LIABILITIES Payable for Fund units redeemed ................................................. 6,135,202 Payable for investments purchased ............................................... 50,327,677 Variation margin payable ........................................................ 14,219 Accrued expenses ................................................................ 3,585 Unrealized loss on open swap contracts .......................................... 283,283 ------------------------------------------------------------------------------------------------- Total liabilities ............................................................ 56,763,966 ------------------------------------------------------------------------------------------------- NET ASSETS (equivalent to $13.38 per unit based on 38,090,475 units outstanding) $509,681,345 =================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-212 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY CREDIT FUND Statement of Operations Year Ended December 31, 2003 --------------------------------------------------------------------------------
INVESTMENT INCOME Interest ............................................................... $ 7,812,031 ----------------------------------------------------------------------------------------- Total investment income .............................................. 7,812,031 ----------------------------------------------------------------------------------------- EXPENSES Custody ................................................................ 39,373 Audit .................................................................. 24,500 Other .................................................................. 4,110 ----------------------------------------------------------------------------------------- Total expenses ....................................................... 67,983 ----------------------------------------------------------------------------------------- Net investment income (loss) ......................................... 7,744,048 ----------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss): Investments .......................................................... 40,949,210 Futures contracts .................................................... (105,558) Swap contracts ....................................................... (1,317,917) ----------------------------------------------------------------------------------------- 39,525,735 ----------------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation): Investments .......................................................... (7,528,354) Futures contracts .................................................... (86,028) Swap contracts ....................................................... 416,918 ----------------------------------------------------------------------------------------- (7,197,464) ----------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) ................................ 32,328,271 ----------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ......... $ 40,072,319 =========================================================================================
The accompanying notes are an integral part of these financial statements. SAI-213 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY CREDIT FUND Statement of Changes in Net Assets
YEAR ENDED DECEMBER 31, 2003 2002 --------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss) .................................................. $ 7,744,048 $ 16,284,541 Net realized gain (loss) ...................................................... 39,525,735 23,755,583 Net change in unrealized appreciation (depreciation) .......................... (7,197,464) 17,693,747 --------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations .............. 40,072,319 57,733,871 --------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from participant transactions . (80,173,583) (361,210,525) --------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS ......................................... (40,101,264) (303,476,654) NET ASSETS Beginning of year ............................................................ 549,782,609 853,259,263 --------------------------------------------------------------------------------------------------------------- End of year .................................................................. $ 509,681,345 $ 549,782,609 ===============================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-214 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY CREDIT FUND Statement of Changes in Net Assets (Continued)
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------- 2003 2002 --------------------------------------------------------------------- UNITS AMOUNT UNITS AMOUNT ---------------------------------------------------------------------------------------------------------------------------- UNITS OF PARTICIPATION PARTICIPANT TRANSACTIONS FOR THE FUND WERE AS FOLLOWS: Units issued ......................................... 21,911,227 $ 288,768,021 15,770,294 $ 185,708,517 Units redeemed ....................................... (28,032,022) (368,941,604) (46,991,281) (546,919,042) ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) .............................. (6,120,795) $ (80,173,583) (31,220,987) $ (361,210,525) ============================================================================================================================
Units in excess of 10% of the Fund units outstanding at December 31, 2003 held by 2 of the Fund's unitholders aggregated 97% of the Fund's total units outstanding. The accompanying notes are an integral part of these financial statements. SAI-215 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY CREDIT FUND Statement of Cash Flows Year Ended December 31, 2003 --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH CASH FLOWS FROM OPERATING ACTIVITIES: Net increase (decrease) in net assets from operations ................................... $ 40,072,319 Adjustments to reconcile net increase in net assets from operations to net cash provided by (used for) operating activities: Purchase of investment securities ..................................................... (1,255,697,774) Proceeds from disposition of investment securities .................................... 1,403,185,918 Purchase of short term investment securities (net) .................................... (28,796,904) Amortization (accretion) of premium (discount) ........................................ 941,201 Dollar roll income .................................................................... (1,557,228) (Increase) decrease in variation margin ............................................... 14,219 (Increase) decrease in interest receivable ............................................ 763,204 (Increase) decrease in receivable for investments sold ................................ 3,301,776 Increase (decrease) in payable for swap contracts ..................................... (420,854) Increase (decrease) in payable for investments purchased .............................. (48,546,104) Increase (decrease) in accrued expenses ............................................... 751 Net (increase) decrease in unrealized appreciation (depreciation) on investments ...... 7,528,354 Net realized (gain) loss on investments ................................................. (40,949,210) ---------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) operating activities .................................... 79,839,668 ---------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from units sold ................................................................ 282,966,734 Payments on units redeemed .............................................................. (362,806,402) ---------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing activities .................................... (79,839,668) ---------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash .......................................................... 0 CASH: Beginning balance ....................................................................... -- ---------------------------------------------------------------------------------------------------------------- Ending balance .......................................................................... $ 0 ================================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-216 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY CREDIT FUND Financial Highlights (For a Unit of Participation Outstanding Throughout the Year)
YEAR ENDED DECEMBER 31, ----------------------------------------------------- 2003 2002 2001 2000 (A) --------------------------------------------------------------------------------------------------------- SELECTED PER UNIT DATA Net asset value, beginning of year .............. $ 12.44 $ 11.31 $ 10.37 $ 10.00 --------------------------------------------------------------------------------------------------------- Net investment income (loss) (b) ................ 0.19 0.28 0.66 0.20 Net realized and unrealized gain (loss) ......... 0.75 0.85 0.28 0.17 --------------------------------------------------------------------------------------------------------- Total from investment operations ................ 0.94 1.13 0.94 0.37 --------------------------------------------------------------------------------------------------------- Net asset value, end of year .................... $ 13.38 $ 12.44 $ 11.31 $ 10.37 ========================================================================================================= Total return (%) (c) ............................ 7.60 9.93 9.06 3.73 ========================================================================================================= RATIOS TO AVERAGE NET ASSETS Ratio of expenses (%) (d) (e) ................... 0.01 0.02 0.02 0.02 --------------------------------------------------------------------------------------------------------- Ratio of net investment income (%) (d) .......... 1.43 2.45 5.99 6.98 --------------------------------------------------------------------------------------------------------- Portfolio turnover (%) (f) ...................... 291 579 616 91 --------------------------------------------------------------------------------------------------------- Net assets, end of year (000,000s) .............. $ 510 $ 550 $ 853 $ 1,151 ---------------------------------------------------------------------------------------------------------
(a) The Fund commenced operations on October 6, 2000. (b) Net investment income (loss) per unit has been calculated based upon an average of month-end units outstanding. (c) Total return calculation (not annualized for the year ended December 31, 2000) is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year. The calculation includes only those expenses charged directly to the Fund. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. (d) Annualized for the year ended December 31, 2000. (e) The calculation includes only those expenses charged directly to the Fund and does not include expenses charged to the funds in which the Fund invests. (f) Not annualized for the year ended December 31, 2000. The accompanying notes are an integral part of these financial statements. SAI-217 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY CREDIT FUND Schedule of Investments (showing percentage of total value of investments) Year Ended December 31, 2003
------------------------------------------------------------------------------------------------------------------ PRINCIPAL VALUE ------------------------------------------------------------------------------------------------------------------ DEBT INSTRUMENTS -- 25.9% USD 500,000 Alcoa Inc ...................................... 5.88% 06/01/2006 $ 539,264 800,000 American Electric Power Co Inc ................. 6.13% 05/15/2006 861,622 750,000 American International Group Inc ............... 4.25% 05/15/2013 709,195 1,000,000 AT&T Corp ...................................... 7.25% 11/15/2006 1,104,889 1,450,000 AT&T Wireless Services Inc ..................... 7.88% 03/01/2011 1,677,206 2,000,000 Bank One Corp .................................. 6.50% 02/01/2006 2,169,613 400,000 Bear Stearns Cos Inc/The ....................... 2.88% 07/02/2008 386,639 1,000,000 Boeing Co/The .................................. 5.13% 02/15/2013 1,008,062 250,000 Boston Properties Inc .......................... 6.25% 01/15/2013 267,933 1,000,000 Cadbury Schweppes US Finance LLC ............... 5.13% 10/01/2013 994,292 500,000 Caterpillar Financial Services Corp ............ 2.70% 07/15/2008 483,347 2,000,000 Centex Corp1 ................................... 5.13% 10/01/2013 1,964,074 900,000 Chevron Texaco Capital Co ...................... 3.50% 09/17/2007 913,512 1,200,000 CIT Group Inc .................................. 6.50% 02/07/2006 1,296,900 2,000,000 Citigroup Global Markets Holdings Inc2 ......... 6.50% 02/15/2008 2,232,684 1,500,000 Citigroup Inc .................................. 5.63% 08/27/2012 1,583,117 500,000 CNOOC Finance 2002 Ltd ......................... 4.13% 05/21/2013 463,965 2,200,000 Comcast Cable Communications Holdings Inc2 ..... 8.38% 03/15/2013 2,690,581 400,000 ConAgra Foods Inc .............................. 6.75% 09/15/2011 448,535 900,000 ConocoPhillips ................................. 8.50% 05/25/2005 983,526 400,000 Consolidated Edison Co of New York ............. 4.88% 02/01/2013 400,333 2,000,000 Continental Airlines Inc ....................... 7.88% 07/02/2018 2,000,000 800,000 Continental Cablevision ........................ 8.30% 05/15/2006 898,753 1,300,000 Countrywide Home Loans Inc ..................... 5.50% 08/01/2006 1,390,718 750,000 Countrywide Home Loans Inc ..................... 4.25% 12/19/2007 771,304 1,000,000 COX Communications Inc1 ........................ 5.50% 10/01/2015 1,003,068 1,000,000 Credit Suisse First Boston USA Inc ............. 5.88% 08/01/2006 1,079,861 1,000,000 Credit Suisse First Boston USA Inc ............. 4.63% 01/15/2008 1,040,988 1,000,000 DaimlerChrysler NA Holding Corp ................ 4.05% 06/04/2008 991,709 1,900,000 Delta Air Lines Inc ............................ 7.11% 09/18/2011 1,900,000 2,500,000 Deutsche Telekom International Finance BV ...... 5.25% 07/22/2013 2,518,040 1,000,000 Dominion Resources Inc/VA ...................... 5.13% 12/15/2009 1,040,982 1,000,000 Dow Chemical Co/The ............................ 5.75% 12/15/2008 1,074,369 475,000 Duke Energy Field Services LLC ................. 5.75% 11/15/2006 509,252 250,000 Eastman Chemical Co ............................ 3.25% 06/15/2008 241,652 600,000 EOP Operating LP ............................... 6.63% 02/15/2005 630,973 295,000 Exelon Generation Co LLC ....................... 6.95% 06/15/2011 329,204 2,100,000 Firstar Bank NA ................................ 7.13% 12/01/2009 2,429,830 400,000 Florida Power & Light Co ....................... 4.85% 02/01/2013 402,527 2,075,000 Ford Motor Credit Co1 .......................... 6.50% 01/25/2007 2,210,487 4,500,000 Ford Motor Credit Co2 .......................... 7.38% 02/01/2011 4,889,484 The accompanying notes are an integral part of these financial statements.
SAI-218 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY CREDIT FUND Schedule of Investments (showing percentage of total value of investments) Year Ended December 31, 2003
-------------------------------------------------------------------------------------------------------------- PRINCIPAL VALUE -------------------------------------------------------------------------------------------------------------- 1,000,000 France Telecom ............................ 8.70% 03/01/2006 $1,112,855 800,000 General Electric Capital Corp ............. 5.00% 06/15/2007 851,016 750,000 General Electric Capital Corp ............. 3.50% 05/01/2008 749,769 1,900,000 General Electric Capital Corp ............. 5.88% 02/15/2012 2,043,469 1,600,000 General Electric Capital Corp2 ............ 6.00% 06/15/2012 1,734,081 500,000 General Mills Inc ......................... 3.88% 11/30/2007 507,961 900,000 General Motors Acceptance Corp ............ 6.75% 01/15/2006 965,239 500,000 General Motors Acceptance Corp2 ........... 5.13% 05/09/2008 517,064 2,000,000 Goldman Sachs Group Inc ................... 4.13% 01/15/2008 2,048,428 1,000,000 Goldman Sachs Group Inc2 .................. 5.25% 04/01/2013 1,011,386 500,000 Hewlett-Packard Co ........................ 6.50% 07/01/2012 556,434 1,000,000 Household Finance Corp2 ................... 7.88% 03/01/2007 1,143,365 1,700,000 Household Finance Corp2 ................... 6.38% 10/15/2011 1,872,958 1,000,000 HSBC Holdings Plc2 ........................ 5.25% 12/12/2012 1,024,134 1,000,000 ICI Wilmington Inc ........................ 5.63% 12/01/2013 1,008,392 2,000,000 Intelsat Ltd1 ............................. 6.50% 11/01/2013 2,101,655 3,500,000 Inter-American Development Bank ........... 6.38% 10/22/2007 3,911,655 200,000 InterActiveCorp ........................... 7.00% 01/15/2013 221,392 2,300,000 International Lease Finance Corp2 ......... 5.75% 10/15/2006 2,478,463 325,000 International Paper Co .................... 6.75% 09/01/2011 360,104 500,000 Israel Government International Bond ...... 4.63% 06/15/2013 475,748 400,000 JP Morgan Chase & Co ...................... 5.25% 05/30/2007 427,358 1,150,000 JP Morgan Chase & Co ...................... 6.63% 03/15/2012 1,283,182 2,500,000 KFW International Finance ................. 4.75% 01/24/2007 2,653,870 1,000,000 Kraft Foods Inc ........................... 5.25% 10/01/2013 1,006,506 1,000,000 Kroger Co2 ................................ 6.80% 04/01/2011 1,116,415 1,000,000 Kroger Co2 ................................ 5.50% 02/01/2013 1,017,613 1,000,000 Lehman Brothers Holdings Inc .............. 6.63% 02/05/2006 1,085,668 5,000,000 Lehman Brothers Holdings Inc2 ............. 7.88% 08/15/2010 5,982,346 425,000 MBNA Corp ................................. 6.25% 01/17/2007 463,279 1,000,000 Mellon Funding Corp ....................... 7.50% 06/15/2005 1,080,869 1,000,000 Merrill Lynch & Co Inc .................... 5.36% 02/01/2007 1,068,500 1,500,000 Mexico Government International Bond2 ..... 8.63% 03/12/2008 1,767,750 1,000,000 Midamerican Funding LLC ................... 6.34% 03/01/2009 1,091,767 2,700,000 Morgan Stanley2 ........................... 5.80% 04/01/2007 2,922,989 1,000,000 New Brunswick Province of ................. 3.50% 10/23/2007 1,016,230 750,000 News America Inc .......................... 4.75% 03/15/2010 756,888 1,000,000 Nexen Inc ................................. 5.05% 11/20/2013 987,476 500,000 Nisource Finance Corp ..................... 7.88% 11/15/2010 594,888 2,000,000 Noranda Inc1 .............................. 6.00% 10/15/2015 2,048,465 890,000 Norfolk Southern Corp ..................... 8.38% 05/15/2005 965,492 1,125,000 Occidental Petroleum Corp ................. 6.75% 01/15/2012 1,272,827 500,000 Ohio Power Co ............................. 5.50% 02/15/2013 516,882 1,000,000 Pemex Project Funding Master Trust2 ....... 7.88% 02/01/2009 1,130,000 The accompanying notes are an integral part of these financial statements.
SAI-219 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY CREDIT FUND Schedule of Investments (showing percentage of total value of investments) Year Ended December 31, 2003
-------------------------------------------------------------------------------------------------------------------- PRINCIPAL VALUE -------------------------------------------------------------------------------------------------------------------- 600,000 Progress Energy Inc ............................ 6.85% 04/15/2012 $ 669,640 450,000 PSEG Power LLC ................................. 6.88% 04/15/2006 491,437 2,000,000 PSEG Power LLC ................................. 5.50% 12/01/2015 1,994,195 1,000,000 Public Service Co of New Mexico ................ 4.40% 09/15/2008 1,018,193 660,000 Raytheon Co .................................... 8.30% 03/01/2010 789,620 600,000 Regency Centers LP ............................. 6.75% 01/15/2012 660,744 1,000,000 Russian Federation ............................. 5.00% 03/31/2030 962,500 1,250,000 Simon Property Group LP ........................ 6.35% 08/28/2012 1,354,255 500,000 South Africa Government International Bond ..... 9.13% 05/19/2009 603,750 2,000,000 Sprint Capital Corp2 ........................... 8.38% 03/15/2012 2,330,366 2,000,000 Telecom Italia Capital SA1 ..................... 5.25% 11/15/2013 2,005,441 600,000 Telefonica Europe BV ........................... 7.75% 09/15/2010 709,866 1,500,000 Time Warner Cos Inc2 ........................... 8.18% 08/15/2007 1,742,190 1,000,000 Toys R US Inc .................................. 7.38% 10/15/2018 996,361 240,000 Transocean Inc ................................. 9.50% 12/15/2008 298,108 500,000 TuranAlem Finance BV ........................... 7.88% 06/02/2010 514,494 500,000 TXU Energy Co .................................. 7.00% 03/15/2013 553,059 3,000,000 Tyco International Group SA1 ................... 6.00% 11/15/2013 3,089,688 1,425,000 Unilever Capital Corp .......................... 7.13% 11/01/2010 1,658,035 500,000 Union Pacific Corp ............................. 3.63% 06/01/2010 480,595 900,000 United Technologies Corp ....................... 6.10% 05/15/2012 986,781 400,000 Valero Energy Corp ............................. 6.88% 04/15/2012 443,106 2,700,000 Verizon Global Funding Corp .................... 6.75% 12/01/2005 2,931,248 800,000 Viacom Inc ..................................... 6.40% 01/30/2006 864,952 995,000 Virginia Electric and Power Co ................. 5.38% 02/01/2007 1,060,570 1,000,000 Vodafone Group PLC ............................. 5.00% 12/16/2013 995,606 1,650,000 Wachovia Bank NA/Charlotte ..................... 7.80% 08/18/2010 1,979,663 300,000 Wachovia Corp .................................. 4.95% 11/01/2006 318,157 500,000 Waste Management Inc ........................... 6.88% 05/15/2009 563,346 2,000,000 Wyeth .......................................... 5.50% 02/01/2014 2,025,526 -------------------------------------------------------------------------------------------------------------------- TOTAL DEBT INSTRUMENTS ......................... 144,576,810 -------------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS -- 0.0% 220,000 United States Treasury Bills3 .................. 0.84% 02/19/2004 219,742 -------------------------------------------------------------------------------------------------------------------- UNITS -------------------------------------------------------------------------------------------------------------------- COLLECTIVE INVESTMENT FUNDS -- 74.1% 14,724,754 Credit 3-10 Year Index Fund4 ................... 154,389,050 2,400,845 Limited Duration Bond Fund4 .................... 25,103,236 6,829,086 Long Credit Index Fund4 ........................ 119,864,112 7,678,754 Passive 1-3 Year Credit Index Fund4 ............ 85,648,820 28,771,821 Short Term Investment Fund4 .................... 28,771,821 -------------------------------------------------------------------------------------------------------------------- TOTAL COLLECTIVE INVESTMENT FUNDS .............. 413,777,039 -------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (COST $532,311,919)...................................................... $558,573,591 ====================================================================================================================
The accompanying notes are an integral part of these financial statements. SAI-220 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY CREDIT FUND Schedule of Investments (showing percentage of total value of investments) Year Ended December 31, 2003 1 Security purchased on a when-issued basis. 2 All or a portion of this security has been purchased on a delayed delivery basis. 3 All or a portion of this security was pledged to cover margin requirements for open future contracts. 4 Collective investment fund advised by State Street Global Advisors. At December 31, 2003, U.S Treasury Bills with principal of $220,000 were pledged to cover margin requirements for open futures contracts. The following futures contracts were open at December 31, 2003:
NUMBER OF FUTURES CONTRACTS UNREALIZED CONTRACTS LONG/(SHORT) NOTIONAL COST ($) MATURITY DATE GAIN/(LOSS) ($) ------------------------------------ -------------- ------------------- --------------- ---------------- U.S. Treasury Notes 10 Year Future (91) (10,130,144) March 2004 (86,028) =======
USD : United States Dollar The following swap contracts were open at December 31, 2003:
FUND RECEIVES/ IN EXCHANGE PROVIDES FOR PREMIUM PREMIUM CREDIT PAYMENTS OF PAYMENT EFFECTIVE COUNTERPARTY PROTECTION (PER ANNUM) FREQUENCY DATE ---------------------------- ------------ ------------- ----------- ----------- Morgan Stanley Receives 0.630% Quarterly 2/14/2003 Morgan Stanley Receives 0.675% Quarterly 2/25/2003 Credit Suisse First Boston Receives 0.940% Quarterly 2/28/2003 Goldman Sachs Receives 1.500% Quarterly 3/8/2003 Goldman Sachs Receives 1.140% Quarterly 3/22/2003 Barclays Capital Receives 0.980% Quarterly 5/3/2003 Goldman Sachs Receives 0.930% Quarterly 11/9/2002 MATURITY NOTIONAL DEFAULT UNREALIZED COUNTERPARTY DATE AMOUNT ISSUER AMOUNT GAIN/LOSS ---------------------------- ----------- ------------- ------------------- -------------- ------------- Morgan Stanley 3/20/2008 $2,000,000 Viacom $10,000,000 $ (20,328) Morgan Stanley 3/20/2008 2,000,000 Bellsouth 10,000,000 (18,432) Credit Suisse First Boston 3/20/2008 1,000,000 St. Paul Co. 10,000,000 (16,397) Goldman Sachs 3/20/2008 1,000,000 Republic of Korea 10,000,000 (31,152) Goldman Sachs 6/20/2008 1,500,000 Kerr-McGee 10,000,000 (24,292) Barclays Capital 6/20/2008 1,000,000 Republic of Korea 10,000,000 (11,672) Goldman Sachs 9/15/2010 5,000,000 Lehman Brothers 10,000,000 (161,010) ---------- $ (283,283) ==========
The accompanying notes are an integral part of these financial statements. SAI-221 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY CREDIT FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 1. FUND ORGANIZATION AND INVESTMENT OBJECTIVE State Street Bank and Trust Company ("State Street Bank") Credit Fund (the "Fund") was formed by State Street Bank under the State Street Bank and Trust Company Investment Funds for Tax Exempt Retirement Plans Declaration of Trust. The investment objective of the Fund is to match or exceed the return of the Lehman Brothers Credit Index. The Fund may attempt to achieve its investment objective by investing in other collective investment funds (each an "underlying fund"), managed by the Trustee, which have characteristics consistent with the overall investment objective. Refer to the financial statements of each underlying fund for disclosure of its accounting policies and investment holdings. State Street Bank is Trustee, custodian, and recordkeeper of the Fund and has exclusive management and control of the Trust. State Street Global Advisors, a division of State Street Bank, is the Fund's investment manager. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently in the preparation of the financial statements. A. SECURITY VALUATION Fixed income investments are valued on the basis of valuations furnished by a pricing service approved by the Trustee, which determines valuations using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders, or at fair value as determined in good faith by the Trustee. Short-term investments, if any, are stated at amortized cost, which approximates fair value. Investments in regulated investment companies or collective investment funds are valued at the net asset value per share/unit on the valuation date. B. SECURITY TRANSACTIONS AND INVESTMENT INCOME Security transactions are accounted for as of trade date. Realized gains and losses from investment transactions are determined using the average cost method. Dividend income, if any, is recorded on the ex-dividend date. Distributions received from collective investment funds are recorded on the ex-dividend date and retain the character of income as earned by the underlying fund. Interest income earned on securities, if any, is recorded on the accrual basis. Interest income includes accretion of discounts and amortization of premiums, if any. Collective investment funds, in which the Fund invests, may retain investment income and net realized gains. Accordingly, realized and unrealized gains and losses reported by the Fund may include a component attributable to investment income of the underlying funds. C. INCOME TAXES It is the Fund's policy to comply with the requirements of Section 501(a) of the Internal Revenue Code relating to collective investment of employee benefit funds. Accordingly, the Fund is exempt from federal and state taxes and no federal or state tax provision is required. D. ISSUANCES AND REDEMPTIONS OF UNITS OF PARTICIPATION The net asset value of the Fund is determined each business day ("valuation date"). Issuances and redemptions of Fund units are made on such days, based upon the net asset value per unit. SAI-222 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY CREDIT FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 E. EXPENSES Under the Declaration of Trust, the Fund may pay certain expenses for services received. The Fund pays State Street Bank for custody services. The Fund indirectly bears the expenses paid by the underlying funds, if any. State Street Global Advisors receives investment management fees from the participating accounts and therefore, the Fund makes no payment for these services. F. DISTRIBUTIONS TO PARTICIPANTS Net investment income and net realized gains are retained by the Fund. G. FUTURES CONTRACTS The Fund may use futures contracts to manage exposure to the market. Buying futures tends to increase a fund's exposure to the underlying instrument. Selling futures tends to decrease a fund's exposure to the underlying instrument held by a fund, or hedge the fair value of other fund investments. Futures contracts are valued at the last settlement price at the end of each day on the board of trade or exchange upon which they are traded. Upon entering into a futures contract, the Fund is required to deposit either in cash, currency or securities an amount ("initial margin") equal to a certain percentage of the nominal value of the contract. Subsequent payments are made or received by the Fund periodically, depending on the fluctuation in the value of the underlying index or security, and are recorded as unrealized gains or losses by the Fund. A gain or loss is realized when the contract is closed or expires. Futures contracts involve, to varying degrees, credit and market risks. The Fund enters into futures contracts only on exchanges or boards of trade where the exchange or board of trade acts as the counterparty to the transaction. Thus, credit risk on such transactions is limited to the failure of the exchange or board of trade. Losses in value may arise from changes in the value of the underlying instruments or if there is an illiquid secondary market for the contracts. In addition, there is the risk that there may not be an exact correlation between a futures contract and the underlying index or security. H. SWAP CONTRACTS The Fund may invest in credit default swaps. Credit default swap contracts entered into by the Fund typically represent the exchange by the Fund with a counterparty of a commitment to provide a level of credit protection for a commitment to receive interest at a fixed rate based on the potential risk of default of the relevant underlying issuer. Providing credit protection to a counterparty tends to increase a Fund's exposure to the underlying instrument. Receiving credit protection from a counterparty tends to decrease a Fund's exposure to the underlying instrument held by a Fund, or hedge the fair value of other Fund investments. Such contracts may have a term of one to ten years, but typically require periodic interim settlement in cash. During the period that the credit default swap contract is open, the contract is marked-to-market in accordance with the terms of the contract based on the current interest rate spreads and credit risk of the referenced obligation of the underlying issuer and interest accrual through valuation date. Changes in the value of the credit default swap are recorded as unrealized gains or losses, while periodic cash settlements are recorded as realized gains or losses. SAI-223 -------------------------------------------------------------------------------- STATE STREET BANK AND TRUST COMPANY CREDIT FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 Entering into a credit default swap contract involves, to varying degrees, elements of credit, market and interest rate risk in excess of the amounts reported in the Statement of Assets and Liabilities. Notional principal amounts are used to express the extent of involvement in the transactions, and may be delivered under the contracts in the event of default of the underlying issuer. In addition to credit exposure to the underlying issuer implicit in the contract, credit risk is applicable to any amounts receivable from the counterparty. To reduce credit risk from potential counterparty default, the Fund enters into credit default swap contracts with counterparties whose creditworthiness has been approved by the Trustee. The Fund bears the interest rate and market risk arising from any change in the interest rate or credit rating of the underlying issuer. I. DELAYED DELIVERY COMMITMENTS The Fund may purchase or sell securities on a delayed delivery, when issued, or forward commitment basis. Payment and delivery may take place one month or more after the date of the transaction. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The underlying securities are valued at current market value with daily fluctuations in the market value recorded as unrealized gains or losses. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under contract. J. DOLLAR ROLLS TRANSACTIONS The Fund may enter into dollar roll transactions. A dollar roll transaction may involve the sale of securities by the Fund with a simultaneous purchase of the same securities at an agreed upon price and date. During the period between the sale and purchase, the Fund will not be entitled to accrue interest and/or receive principal payments on the securities sold. The Fund is compensated by the difference between the current sales price and the lower forward price of the future purchase (often referred to as the "drop"), which is reported as interest income, as well as by the interest earned on the cash proceeds of the initial sale. Dollar roll transactions involve the risk that the market value of the securities sold by the Fund may decline below the purchase price of those securities. 3. INVESTMENT TRANSACTIONS Purchases and sales of securities, including in-kind contributions and redemptions, if any, during the period ended December 31, 2003 were $1,565,393,840 and $1,684,085,080, respectively. 4. STATEMENT OF CASH FLOWS Information on financial transactions which have been settled through the receipt and disbursement of cash is presented in the Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows is the amount reported as cash in the Fund's Statement of Assets and Liabilities and represents the cash position in its custodian bank account at December 31, 2003. 5. NAME CHANGE DURING THE YEAR On March 15, 2003, the Fund Declaration was amended resulting in a name change from State Street Bank and Trust Company Corporate Fund to State Street Bank and Trust Company Credit Fund. SAI-224 REPORT OF INDEPENDENT AUDITORS 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 statement 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, 2003 and December 31, 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America, 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 our opinion. /s/ PricewaterhouseCoopers LLP New York, New York March 9, 2004 F-1 THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2003 AND 2002
December 31, December 31, 2003 2002 ----------------- ----------------- (In Millions) ASSETS Investments: Fixed maturities available for sale, at estimated fair value.............. $ 29,095.5 $ 26,278.9 Mortgage loans on real estate............................................. 3,503.1 3,746.2 Equity real estate, held for the production of income..................... 656.5 717.3 Policy loans.............................................................. 3,894.3 4,035.6 Other equity investments.................................................. 789.1 720.3 Other invested assets..................................................... 1,101.6 1,327.6 ----------------- ----------------- Total investments..................................................... 39,040.1 36,825.9 Cash and cash equivalents................................................... 722.7 269.6 Cash and securities segregated, at estimated fair value..................... 1,285.8 1,174.3 Broker-dealer related receivables........................................... 2,284.7 1,446.2 Deferred policy acquisition costs........................................... 6,290.4 5,801.0 Goodwill and other intangible assets, net................................... 3,513.4 3,503.8 Amounts due from reinsurers................................................. 2,460.4 2,351.7 Loans to affiliates, at estimated fair value................................ 400.0 413.0 Other assets................................................................ 3,829.7 4,028.7 Separate Accounts' assets................................................... 54,438.1 39,012.1 ----------------- ----------------- Total Assets................................................................ $ 114,265.3 $ 94,826.3 ================= ================= LIABILITIES Policyholders' account balances............................................. $ 25,307.7 $ 23,037.5 Future policy benefits and other policyholders liabilities.................. 13,934.7 13,975.7 Broker-dealer related payables.............................................. 1,261.8 731.0 Customers related payables.................................................. 1,897.5 1,566.8 Amounts due to reinsurers................................................... 936.5 867.5 Short-term and long-term debt............................................... 1,253.2 1,274.7 Federal income taxes payable................................................ 2,362.8 2,006.4 Other liabilities........................................................... 2,006.9 1,751.8 Separate Accounts' liabilities.............................................. 54,300.6 38,883.8 Minority interest in equity of consolidated subsidiaries.................... 1,744.9 1,816.6 Minority interest subject to redemption rights.............................. 488.1 515.4 ----------------- ----------------- Total liabilities..................................................... 105,494.7 86,427.2 ----------------- ----------------- Commitments and contingencies (Notes 12, 14, 15, 16 and 17) 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.............................................. 4,848.2 4,812.8 Retained earnings........................................................... 3,027.1 2,902.7 Accumulated other comprehensive income...................................... 892.8 681.1 ----------------- ----------------- Total shareholder's equity............................................ 8,770.6 8,399.1 ----------------- ----------------- Total Liabilities and Shareholder's Equity.................................. $ 114,265.3 $ 94,826.3 ================= =================
See Notes to Consolidated Financial Statements. F-2 THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES CONSOLIDATED STATEMENTS OF EARNINGS YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
2003 2002 2001 ----------------- ----------------- ----------------- (In Millions) REVENUES Universal life and investment-type product policy fee income........................................... $ 1,376.7 $ 1,315.5 $ 1,342.3 Premiums...................................................... 889.4 945.2 1,019.9 Net investment income......................................... 2,386.9 2,377.2 2,404.3 Investment losses, net........................................ (62.3) (278.5) (207.3) Commissions, fees and other income............................ 2,811.8 2,987.6 3,108.5 ----------------- ----------------- ----------------- Total revenues.......................................... 7,402.5 7,347.0 7,667.7 ----------------- ----------------- ----------------- BENEFITS AND OTHER DEDUCTIONS Policyholders' benefits....................................... 1,708.2 2,036.0 1,888.8 Interest credited to policyholders' account balances.......... 969.7 972.5 981.7 Compensation and benefits..................................... 1,327.0 1,244.3 1,307.1 Commissions................................................... 991.9 788.8 742.1 Distribution plan payments.................................... 370.6 392.8 429.1 Amortization of deferred sales commissions.................... 208.6 229.0 230.8 Interest expense.............................................. 82.3 95.7 102.6 Amortization of deferred policy acquisition costs............. 434.6 296.7 287.9 Capitalization of deferred policy acquisition costs........... (990.7) (754.8) (746.4) Rent expense.................................................. 165.8 168.8 157.5 Amortization of goodwill and other intangible assets, net..... 21.9 21.2 178.2 Alliance charge for mutual fund matters and legal proceedings................................................. 330.0 - - Other operating costs and expenses............................ 832.4 827.4 815.4 ----------------- ----------------- ----------------- Total benefits and other deductions..................... 6,452.3 6,318.4 6,374.8 ----------------- ----------------- ----------------- Earnings from continuing operations before Federal income taxes and minority interest.......................... 950.2 1,028.6 1,292.9 Federal income tax expense.................................... (240.5) (50.9) (316.2) Minority interest in net income of consolidated subsidiaries.. (188.7) (362.8) (370.1) ----------------- ----------------- ----------------- Earnings from continuing operations........................... 521.0 614.9 606.6 Earnings from discontinued operations, net of Federal income taxes.............................................. 3.4 5.6 43.9 Cumulative effect of accounting changes, net of Federal income taxes.............................................. - (33.1) (3.5) ----------------- ----------------- ----------------- Net Earnings.................................................. $ 524.4 $ 587.4 $ 647.0 ================= ================= =================
See Notes to Consolidated Financial Statements. F-3 THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
2003 2002 2001 ----------------- ---------------- ---------------- (In Millions) Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5 ----------------- ---------------- ---------------- Capital in excess of par value, beginning of year as previously reported................................................... 4,753.8 4,694.6 4,723.8 Prior period adjustment related to deferred Federal income taxes.............................................. 59.0 59.0 59.0 ----------------- ---------------- ---------------- Capital in excess of par value, beginning of year as restated. 4,812.8 4,753.6 4,782.8 Increase (decrease) in paid in capital in excess of par value. 35.4 59.2 (29.2) ----------------- ---------------- ---------------- Capital in excess of par value, end of year................... 4,848.2 4,812.8 4,753.6 ----------------- ---------------- ---------------- Retained earnings, beginning of year as previously reported... 2,740.6 2,653.2 3,706.2 Prior period adjustment related to deferred Federal income taxes............................................... 162.1 162.1 162.1 ----------------- ---------------- ---------------- Retained earnings, beginning of year as restated.............. 2,902.7 2,815.3 3,868.3 Net earnings.................................................. 524.4 587.4 647.0 Shareholder dividends paid.................................... (400.0) (500.0) (1,700.0) ----------------- ---------------- ---------------- Retained earnings, end of year................................ 3,027.1 2,902.7 2,815.3 ----------------- ---------------- ---------------- Accumulated other comprehensive income , beginning of year........................................... 681.1 215.4 12.8 Other comprehensive income.................................... 211.7 465.7 202.6 ----------------- ---------------- ---------------- Accumulated other comprehensive income, end of year........... 892.8 681.1 215.4 ----------------- ---------------- ---------------- Total Shareholder's Equity, End of Year....................... $ 8,770.6 $ 8,399.1 $ 7,786.8 ================= ================ ================ COMPREHENSIVE INCOME Net earnings.................................................. $ 524.4 $ 587.4 $ 647.0 ----------------- ---------------- ---------------- Change in unrealized gains (losses), net of reclassification adjustments................................................ 211.7 465.6 202.6 Minimum pension liability adjustment.......................... - .1 - ----------------- ---------------- ---------------- Other comprehensive income.................................... 211.7 465.7 202.6 ----------------- ---------------- ---------------- Comprehensive Income.......................................... $ 736.1 $ 1,053.1 $ 849.6 ================= ================ ================
See Notes to Consolidated Financial Statements. F-4 THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
2003 2002 2001 ----------------- ----------------- ----------------- (In Millions) Net earnings.................................................. $ 524.4 $ 587.4 $ 647.0 Adjustments to reconcile net earnings to net cash provided by operating activities: Interest credited to policyholders' account balances........ 969.7 972.5 981.7 Universal life and investment-type product policy fee income......................................... (1,376.7) (1,315.5) (1,342.3) Net change in broker-dealer and customer related receivables/payables...................................... 22.5 (237.3) 181.0 Investment losses, net...................................... 62.3 278.5 207.3 Change in deferred policy acquisition costs................. (556.1) (458.1) (458.5) Change in future policy benefits............................ (97.4) 218.0 (15.1) Change in property and equipment............................ (55.8) (76.6) (229.2) Change in Federal income tax payable........................ 246.3 93.3 (231.5) Change in accounts payable and accrued expenses............. 276.8 (8.9) (36.8) Change in segregated cash and securities, net............... (111.5) 240.8 (108.8) Minority interest in net income of consolidated subsidiaries............................................. 188.7 362.8 370.1 Change in fair value of guaranteed minimum income benefit reinsurance contracts............................ 91.0 (120.0) - Amortization of deferred sales commissions.................. 208.6 229.0 230.8 Amortization of goodwill and other intangible assets, net... 21.9 21.2 178.2 Other, net.................................................. 272.6 (114.2) 121.9 ----------------- ----------------- ----------------- Net cash provided by operating activities..................... 687.3 672.9 495.8 ----------------- ----------------- ----------------- Cash flows from investing activities: Maturities and repayments................................... 4,216.4 2,996.0 2,454.6 Sales....................................................... 4,818.2 8,035.9 9,285.2 Purchases................................................... (11,457.9) (12,709.0) (11,833.0) Change in short-term investments............................ 334.3 (568.9) 211.8 Acquisition of subsidiary .................................. - (249.7) - Loans to affiliates......................................... - - (400.0) Other, net.................................................. 89.3 126.6 (80.3) ----------------- ----------------- ----------------- Net cash used by investing activities......................... (1,999.7) (2,369.1) (361.7) ----------------- ----------------- ----------------- Cash flows from financing activities: Policyholders' account balances: Deposits................................................. 5,639.1 4,328.5 3,198.8 Withdrawals and transfers to Separate Accounts........... (3,181.1) (2,022.9) (2,458.1) Net change in short-term financings......................... (22.1) (201.2) (552.8) Additions to long-term debt................................. - - 398.1 Shareholder dividends paid.................................. (400.0) (500.0) (1,700.0) Other, net.................................................. (270.4) (318.6) (456.9) ----------------- ----------------- ----------------- Net cash provided (used) by financing activities.............. 1,765.5 1,285.8 (1,570.9) ----------------- ----------------- ----------------- Change in cash and cash equivalents........................... 453.1 (410.4) (1,436.8) Cash and cash equivalents, beginning of year.................. 269.6 680.0 2,116.8 ----------------- ----------------- ----------------- Cash and Cash Equivalents, End of Year........................ $ 722.7 $ 269.6 $ 680.0 ================= ================= =================
F-5 THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 CONTINUED
2003 2002 2001 ----------------- ----------------- ----------------- (In Millions) Supplemental cash flow information: Interest Paid............................................... $ 91.0 $ 80.5 $ 82.1 ================= ================= ================= Income Taxes (Refunded) Paid................................ $ (45.7) $ (139.6) $ 524.2 ================= ================= =================
See Notes to Consolidated Financial Statements. F-6 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 an indirect, wholly owned subsidiary of AXA Financial, Inc. (the "Holding Company," and collectively with its consolidated subsidiaries, "AXA Financial"). Equitable Life's insurance business is conducted principally by Equitable Life and its wholly owned life insurance subsidiary, Equitable of Colorado ("EOC"). Equitable Life's investment management business, which comprises the Investment Services segment, is principally conducted by Alliance Capital Management L.P. ("Alliance"). In October 2000, Alliance acquired substantially all of the assets and liabilities of SCB Inc., formerly known as Sanford C. Bernstein, Inc. ("Bernstein"). In the fourth quarter of 2002, Equitable Life and its consolidated subsidiaries (collectively, the "Company") acquired 8.16 million units in Alliance ("Alliance Units") at the aggregate market price of $249.7 million from SCB Inc. and SCB Partners, Inc. under a preexisting agreement (see Note 2). Upon completion of this transaction the Company's beneficial ownership in Alliance increased by approximately 3.2%. The Company's consolidated economic interest in Alliance was 42.6% at December 31, 2003, and together with the Holding Company's economic interest in Alliance was approximately 55.5%. AXA, a French holding company for an international group of insurance and related financial services companies, has been the Holding Company's largest shareholder since 1992. In 2000, AXA acquired the approximately 40% of outstanding Holding Company common stock ("Common Stock") it did not already own. On January 2, 2001, AXA Merger Corp. ("AXA Merger"), a wholly owned subsidiary of AXA, was merged with and into the Holding Company, resulting in AXA Financial becoming a wholly owned subsidiary of AXA. 2) SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation ----------------------------------------------------- The preparation of the accompanying consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions (including normal, recurring accruals) that affect the reported amounts of assets and liabilities and the 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 these estimates. The accompanying consolidated financial statements reflect all adjustments necessary in the opinion of management to present fairly the consolidated financial position of the Company and its consolidated results of operations and cash flows for the periods presented. The accompanying consolidated financial statements include the accounts of Equitable Life and its subsidiary engaged in insurance related businesses (collectively, the "Insurance Group"); other subsidiaries, principally Alliance; and those investment companies, partnerships and joint ventures in which Equitable Life or its subsidiaries has control and a majority economic interest as well as those variable interest entities ("VIEs") that meet the requirements for consolidation. All significant intercompany transactions and balances except those with discontinued operations have been eliminated in consolidation. The years "2003," "2002" and "2001" refer to the years ended December 31, 2003, 2002 and 2001, respectively. Certain reclassifications have been made in the amounts presented for prior periods to conform those periods with the current presentation. Prior Period Adjustment ----------------------- A review by Equitable Life in 2003 of Federal income tax assets and liabilities identified an overstatement of the deferred Federal income tax liability related to the years ended December 31, 2000 and earlier. As a F-7 result, the Federal income tax liability as of December 31, 2002 has been reduced by $221.1 million, and the consolidated shareholder's equity as of December 31, 2002 and 2001 has been increased by $221.1 million, with no impact on the consolidated statements of earnings for the years ended December 31, 2002 and 2001 or any prior period after the adoption on January 1, 1992 of SFAS No. 109, "Accounting for Income Taxes." This adjustment has been reported in the accompanying financial statements as an increase in consolidated shareholder's equity as of January 1, 2001. Closed Block ------------ When it demutualized on July 22, 1992, Equitable Life established a 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 the 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. Other Discontinued Operations ----------------------------- In 1991, management discontinued the business of certain pension operations ("Other Discontinued Operations"). Other Discontinued Operations at December 31, 2003 principally consists of the group non-participating wind-up annuities ("Wind-Up Annuities"), for which a premium deficiency reserve has been established. Management reviews the adequacy of the allowance for future losses each quarter and makes adjustments when necessary. Management believes the allowance for future losses at December 31, 2003 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 invested assets ("Discontinued Operations Investment Assets") held by Other Discontinued Operations. 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 Other 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 Other Discontinued Operations. See Note 8. Accounting Changes ------------------ In January 2003, the Financial Accounting Standards Board (the "FASB") issued Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities". FIN No. 46 addresses when it is appropriate to consolidate financial interests in a VIE, a new term to define a business structure that either (i) does not have equity investors with voting or other similar rights or (ii) has equity investors that do not provide sufficient financial resources to support its activities. For entities with these characteristics, including many formerly known as special purpose entities ("SPEs"), FIN No. 46 imposes a consolidation standard that focuses on the relative exposures of the participants to the economic risks and rewards from the net assets of the VIE rather than on ownership of its voting interests, if any, to determine whether a parent-subsidiary relationship exists. Under FIN No. 46, the party with a majority of the economic risks or rewards associated with a VIE's activities, including those conveyed by guarantees, commitments, derivatives, credit enhancements, and similar instruments or obligations, is the "primary beneficiary" and, therefore, is required to consolidate the VIE. Transition to the consolidation requirements of FIN No. 46 began in first quarter 2003, with immediate application to all new VIEs created after January 31, 2003, and was expected to be followed by application beginning in third quarter 2003 to all existing VIEs. However, in October 2003, the FASB deferred the latter transition date to December 31, 2003 and, likewise, extended the related transitional requirements to disclose if it is "reasonably possible" that a company will have a significant, but not necessarily consolidated, variable F-8 interest in a VIE when the consolidation requirements become effective. On December 24, 2003, the FASB issued FIN No. 46(Revised) ("FIN No. 46(R)"), containing significant modifications to the original interpretation issued in January 2003 and delaying the requirement to consolidate all VIEs for which the company's financial interest therein constitutes a primary beneficiary relationship until March 31, 2004. Although the consolidation requirements of FIN No. 46(R) generally begin in first quarter 2004, no delay was afforded to consolidation of SPEs. However, at December 31, 2003, no entities in which the Company had economic interests were identified as SPEs under the rules previously in effect. While FIN No. 46(R) supports the same underlying principle put forth in the original interpretation, it addresses issues that arose as companies analyzed the potential impact of adopting FIN No. 46's consolidation requirements and resolves some of those issues in a manner expected to make implementation less onerous for certain entities with financial interests in VIEs. The most notable departure of FIN No. 46(R) from the original interpretation is the revised treatment of "decision maker" fees (such as asset management fees) to include only their variability in the calculation of a VIE's expected residual returns. Prior to this change, inclusion of decision maker fees on a gross basis created a bias towards consolidation by a decision maker as the recipient of a majority of a VIE's economic rewards unless another party absorbed a majority of the VIE's economic risks. At December 31, 2003, the Insurance Group's General Account had VIEs deemed to be significant under FIN No. 46 totaling $105.8 million. VIEs totaling $45.5 million and $60.3 million are reflected in the consolidated balance sheets as fixed maturities (collateralized debt obligations) and other equity investments (principally, investment limited partnerships), respectively, and are subject to ongoing review for impairment in value. These VIEs and approximately $17.1 million of funding commitments to the investment limited partnerships at December 31, 2003 represent the Insurance Group's maximum exposure to loss from its direct involvement with these VIEs. The Insurance Group has no further economic interests in these VIEs in the form of related guarantees, commitments, derivatives, credit enhancements or similar instruments and obligations. As a result of management's review and the FASB's implementation guidance to date, these VIEs are not expected to require consolidation because management has determined that the Insurance Group is not the primary beneficiary. Management of Alliance has reviewed its investment management agreements, its investments in and other financial arrangements with certain entities that hold client assets under management of approximately $48 billion. These include certain mutual fund products domiciled in Luxembourg, India, Japan, Singapore and Australia (collectively "Offshore Funds"), hedge funds, structured products, group trusts and joint ventures, to determine the entities that Alliance would be required to consolidate under FIN No. 46(R). As a result of its review, which is still ongoing, Alliance's management believes it is reasonably possible that Alliance will be required to consolidate an investment in a joint venture arrangement including the joint venture's funds under management, and one hedge fund as of March 31, 2004. These entities have client assets under management totaling approximately $231 million. However, Alliance's total investment in these entities is approximately $.4 million and its maximum exposure to loss is limited to its investments and prospective investment management fees. Consolidation of these entities would result in increases in Alliance's assets, principally investments, and in its liabilities, principally minority interests in consolidated entities, of approximately $231 million. Alliance derives no direct benefit from client assets under management other than investment management fees and cannot utilize those assets in its operations. Alliance has significant variable interests in certain other VIEs with approximately $1.1 billion in client assets under management. However, these VIEs do not require consolidation because Alliance's management has determined that Alliance is not the primary beneficiary. Alliance's maximum exposure to loss to these entities is limited to a nominal investment and prospective investment management fees. FIN No. 46(R) is highly complex and requires significant estimates and judgments as to its application. Since implementation of the consolidation of VIEs under FIN No. 46(R) generally has been deferred to reporting periods ending after March 15, 2004 and the FASB is continuing to develop guidance on implementation issues, management's assessment of the effect of FIN No. 46(R) is ongoing and its initial conclusions regarding the consolidation of VIEs may change. F-9 On January 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets," and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets". SFAS No. 142 embraced an entirely new approach to accounting for goodwill by eliminating the long-standing requirement for systematic amortization and instead imposing periodic impairment testing to determine whether the fair value of the reporting unit to which the goodwill is ascribed supports its continued recognition. Concurrent with its adoption of SFAS No. 142, the Company ceased to amortize goodwill. Amortization of goodwill and other intangible assets for the year ended December 31, 2001 was approximately $73.4 million, net of minority interest of $104.7 million, of which $7.6 million, net of minority interest of $13.6 million, related to other intangible assets. Net income, excluding goodwill amortization expense, for the year ended December 31, 2001 would have been $712.8 million. The carrying amount of goodwill was $3,140.6 million and $3,112.2 million, respectively, at December 31, 2003 and 2002 and relates solely to the Investment Services segment. No losses resulted in 2003 and 2002 from the annual impairment testing of goodwill and indefinite-lived intangible assets. Amounts presently estimated to be recorded in each of the succeeding five years ending December 31, 2008 for amortization of other intangible assets are not expected to vary significantly from the amount for the full year December 31, 2003 of $9.3 million, net of minority interest of $12.6 million. Amortization of other intangible assets for the year ended December 31, 2002 was $8.6 million, net of minority interest of $12.6 million. The gross carrying amount and accumulated amortization of other intangible assets were $534.8 million and $162.0 million, respectively, at December 31, 2003 and $531.7 million and $140.1 million, respectively, at December 31, 2002. SFAS No. 144 retains many of the fundamental recognition and measurement provisions previously required by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed of," except for the removal of goodwill from its scope, inclusion of specific guidance on cash flow recoverability testing and the criteria that must be met to classify a long-lived asset as held-for-sale. SFAS No. 141 and No. 144 had no material impact on the results of operations or financial position of the Company upon their adoption on January 1, 2002. Effective January 1, 2002, the Company changed its method of accounting for liabilities associated with variable annuity contracts that contain guaranteed minimum death benefit ("GMDB") and guaranteed minimum income benefit ("GMIB") features, to establish reserves for the Company's estimated obligations associated with these features. The method was changed to achieve a better matching of revenues and expenses. The initial impact of adoption as of January 1, 2002 resulted in a charge of $33.1 million for the cumulative effect of this accounting change, net of Federal income taxes of $17.9 million, in the consolidated statements of earnings. Prior to the adoption of this accounting change, benefits under these features were expensed as incurred. The impact of this change was to reduce Earnings from continuing operations in 2002 by $113.0 million, net of Federal income taxes of $61.0 million. The pro-forma effect of retroactive application of this change on 2001 results of operations was not material. On January 1, 2001, the Company adopted SFAS No. 133, as amended, that established new accounting and reporting standards for all derivative instruments, including certain derivatives embedded in other contracts, and for hedging activities. With respect to free-standing derivative positions, at January 1, 2001, the Company recorded a cumulative-effect-type charge to earnings of $3.5 million to recognize the difference between the carrying values and fair values. With respect to embedded derivatives, the Company elected a January 1, 1999 transition date, thereby effectively "grandfathering" existing accounting for derivatives embedded in hybrid instruments. As a consequence of this election, coupled with interpretive guidance specifically related to insurance contracts and features, adoption of the new requirements for embedded derivatives had no material impact on the Company's results of operations or its financial position. None of the Company's derivatives were designated as qualifying hedges under SFAS No. 133 and, consequently, required mark-to-market accounting through earnings for changes in their fair values beginning January 1, 2001. Upon its adoption of SFAS No. 133, the Company reclassified $256.7 million of held-to-maturity securities as available-for-sale. This reclassification resulted in an after-tax cumulative-effect-type adjustment of $8.9 million in other comprehensive income, representing the after-tax unrealized gain on these securities at January 1, 2001. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146 established financial accounting and reporting standards for costs associated with exit or disposal activities initiated after December 31, 2002 and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". SFAS No. 146 requires that a liability for a F-10 cost associated with an exit or disposal activity is recognized only when the liability is incurred and measured initially at fair value. However, the cost of termination benefits provided under the terms of an ongoing benefit arrangement, such as a standard severance offering based on years of service, continues to be covered by other accounting pronouncements and is unchanged by SFAS No. 146. No material impact on the results of operations or financial position of the Company resulted in 2003 from compliance with these new recognition and measurement provisions. In November 2002, the FASB issued FIN No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN No. 45 addresses the disclosures made by a guarantor in its interim and annual financial statements about obligations under guarantees. FIN No. 45 also clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee for the obligations that the guarantor has undertaken in issuing that guarantee. The fair value reporting provisions of FIN No. 45 were applied on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements were effective for financial statements of interim or annual periods ending after December 15, 2002 (see Note 15). The initial recognition and initial measurement provisions were applied only on a prospective basis to guarantees issued or modified after December 31, 2002 and had no material impact on the Company's results of operations or financial position upon adoption. The Company adopted SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which was effective for financial instruments entered into or modified after May 31, 2003, and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. SFAS No. 150 establishes standards for classification and measurement of certain financial instruments with characteristics of both liabilities and equity in the statement of financial position. SFAS No. 150 had no material impact on the Company's results of operations or financial position upon adoption. New Accounting Pronouncements ----------------------------- In July 2003, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts". SOP 03-1 is effective as of January 1, 2004, and will require a change in the Company's accounting policies relating to (a) general account interests in separate accounts, (b) assets and liabilities associated with market value-adjusted annuities, (c) liabilities related to group pension participating contracts, and (d) liabilities related to certain mortality and annuitization benefits, such as the no lapse guarantee feature contained in variable and universal life contracts. The method of accounting that the Company adopted in 2002 for GMDB and GMIB liabilities is consistent with the requirements of SOP 03-1. Management expects that the impact of adopting SOP 03-1 on January 1, 2004 will result in a one-time decrease to net earnings of approximately $(1.0) million related to the cumulative effect of the required changes in accounting. Approximately $12.5 million of the cumulative effect adjustment represents a reclassification of investment income previously reported in the consolidated statements of earnings to unrealized gains included in other comprehensive income. Therefore, shareholders' equity is expected to increase approximately $11.5 million as a result of the implementation of SOP 03-1. The determination of liabilities associated with group pension participating contracts and mortality and annuitization benefits, as well as related impacts on deferred acquisition costs, is based on models that involve numerous estimates and subjective judgments. There can be no assurance that the ultimate actual experience will not differ from management's estimates. Investments ----------- The carrying values of fixed maturities identified as available for sale are reported at estimated fair value. Changes in estimated fair value are reported in comprehensive income. The amortized cost of fixed maturities is adjusted for impairments in value deemed to be other than temporary. Mortgage loans on real estate are stated at unpaid principal balances, net of unamortized discounts and valuation allowances. Valuation allowances are based on the present value of expected future cash flows discounted at the loan's original effective interest rate or on its collateral value if the loan is collateral dependent. However, if foreclosure is or becomes probable, the collateral value measurement method is used. 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. F-11 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. Real estate held for the production of income, 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. 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. Real estate investments meeting the following criteria are classified as real estate held-for-sale: o Management having the authority to approve the action commits the organization to a plan to sell the property. o The property is available for immediate sale in its present condition subject only to terms that are usual and customary for the sale of such assets. o An active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated and are continuing. o The sale of the asset is probable and transfer of the asset is expected to qualify for recognition as a completed sale within one year. o The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value. o Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Real estate held-for-sale is stated at depreciated cost less valuation allowances. 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. In the fourth quarter of 2003, three real estate investments met the criteria of real estate held-for-sale. As a result, the Company transferred these investments with a total carrying value of $56.9 million from real estate held for the production of income to real estate held-for-sale. This amount is included in the Other assets line in the 2003 consolidated balance sheet. The results of operations for these properties in each of the three years ended December 31, 2003 were not significant. Valuation allowances are netted against the asset categories to which they apply. Policy loans are stated at unpaid principal balances. Partnerships, investment companies and joint venture interests in which the Company has control and a majority economic interest (that is, greater than 50% of the economic return generated by the entity) or those that meet FIN No. 46(R) requirements for consolidation are consolidated; those in which the Company does not have control and a majority economic interest and those that do not meet FIN No. 46(R) requirements for consolidation are reported on the equity basis of accounting and are included either with equity real estate or other equity investments, as appropriate. Equity securities include common stock and non-redeemable preferred stock classified as either trading or available for sale securities, are carried at estimated fair value and are included in other equity investments. Short-term investments are stated at amortized cost which approximates fair value and are included with other invested assets. Cash and cash equivalents includes cash on hand, amounts due from banks and highly liquid debt instruments purchased with an original maturity of three months or less. F-12 All securities owned as well as United States government and agency securities, mortgage-backed securities, futures and forwards transactions are recorded in the consolidated financial statements on a trade date basis. Net Investment Income, Investment Gains (Losses), Net and Unrealized -------------------------------------------------------------------- Investment Gains (Losses) ------------------------ Net investment income and realized investment gains (losses), net (together "investment results") related to certain participating group annuity contracts which are passed through to the contractholders are offset by amounts reflected as interest credited to policyholders' account balances. Realized investment gains (losses) are determined by identification with the specific asset and are presented as a component of revenue. Changes in the valuation allowances are included in investment gains or losses. Realized and unrealized holding gains (losses) on trading securities are reflected in net investment income. Unrealized investment gains and losses on fixed maturities and equity securities 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 Other Discontinued Operations, Closed Block policyholders dividend obligation, 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 --------------------------------- Acquisition costs that vary with and are primarily related to the acquisition of new and renewal insurance business, including commissions, underwriting, agency and policy issue expenses, 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 as a constant percentage of estimated gross profits arising principally from investment results, Separate Account fees, 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. A decrease in expected gross profits would accelerate DAC amortization. Conversely, an increase in expected gross profits would slow DAC amortization. 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 shareholders' equity as of the balance sheet date. F-13 A significant assumption in the amortization of DAC on variable and interest-sensitive life insurance and variable annuities relates to projected future Separate Account performance. Expected future gross profit assumptions related to Separate Account performance are set by management using a long-term view of expected average market returns by applying a reversion to the mean approach. In applying this approach to develop estimates of future returns, it is assumed that the market will return to an average gross long-term return estimate, developed with reference to historical long-term equity market performance and subject to assessment of the reasonableness of resulting estimates of future return assumptions. For purposes of making this reasonableness assessment, management has set limitations as to maximum and minimum future rate of return assumptions, as well as a limitation on the duration of use of these maximum or minimum rates of return. Currently, the average gross long-term annual return estimate is 9.0% (7.05% net of product weighted average Separate Account fees), and the gross maximum and minimum annual rate of return limitations are 15.0% (13.05% net of product weighted average Separate Account fees) and 0% (-1.95% net of product weighted average Separate Account fees), respectively. The maximum duration over which these rate limitations may be applied is 5 years. This approach will continue to be applied in future periods. If actual market returns continue at levels that would result in assuming future market returns of 15% for more than 5 years in order to reach the average gross long-term return estimate, the application of the 5 year maximum duration limitation would result in an acceleration of DAC amortization. Conversely, actual market returns resulting in assumed future market returns of 0% for more than 5 years would result in a required deceleration of DAC amortization. As of December 31, 2003, current projections of future average gross market returns assume a 4.7% return for 2004 which is within the maximum and minimum limitations and assume a reversion to the mean of 9.0% after 1 year. In addition, projections of future mortality assumptions related to variable and interest-sensitive life products are based on a long-term average of actual experience. This assumption is updated quarterly to reflect recent experience as it emerges. Improvement of life mortality in future periods from that currently projected would result in future deceleration of DAC amortization. Conversely, deterioration of life mortality in future periods from that currently projected would result in future acceleration of DAC amortization. Generally, life mortality experience has improved in recent periods. Other significant assumptions underlying gross profit estimates relate to contract persistency and general account investment spread. 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 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, 2003, the average rate of assumed investment yields, excluding policy loans, was 7.9% grading to 7.3% over 7 years. Estimated gross margin includes anticipated premiums and investment results less claims and administrative expenses, changes in the net level premium reserve and expected annual policyholder dividends. 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 shareholders' equity as of the balance sheet date. For non-participating traditional life policies, 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. Policyholders' Account Balances and Future Policy Benefits ---------------------------------------------------------- Policyholders' account balances for universal life and investment-type contracts are equal to the policy account values. The policy account values represent an accumulation of gross premium payments plus credited interest less expense and mortality charges and withdrawals. Equitable Life issues certain variable annuity products with a GMDB feature. Equitable Life also issues certain variable annuity products that contain a GMIB feature which, if elected by the policyholder after a stipulated waiting period from contract issuance, guarantees a minimum lifetime annuity based on predetermined annuity purchase rates that may be in excess of what the contract account value can purchase F-14 at then-current annuity purchase rates. This minimum lifetime annuity is based on predetermined annuity purchase rates applied to a guaranteed minimum income benefit base. The risk associated with the GMDB and GMIB features is that a protracted under-performance of the financial markets could result in GMDB and GMIB benefits being higher than what accumulated policyholder account balances would support. Reserves for GMDB and GMIB obligations are calculated on the basis of actuarial assumptions related to projected benefits and related contract charges generally over the lives of the contracts using assumptions consistent with those used in estimating gross profits for purposes of amortizing DAC. The determination of this estimated liability is based on models which involve numerous estimates and subjective judgments, including those regarding expected market rates of return and volatility, contract surrender rates, mortality experience, and, for GMIB, GMIB election rates. Assumptions regarding Separate Account performance used for purposes of this calculation are set using a long-term view of expected average market returns by applying a reversion to the mean approach, consistent with that used for DAC amortization. There can be no assurance that ultimate actual experience will not differ from management's estimates. The GMIB reinsurance contracts are considered derivatives under SFAS No. 133 and, therefore, are required to be reported in the balance sheet at their fair value. GMIB fair values are reported in the consolidated balance sheets in Other assets. Changes in GMIB fair values are reflected in Commissions, fees and other income in the consolidated statements of earnings. Since there is no readily available market for GMIB reinsurance contracts, the determination of their fair values is based on models which involve numerous estimates and subjective judgments including those regarding expected market rates of return and volatility, GMIB election rates, contract surrender rates and mortality experience. There can be no assurance that ultimate actual experience will not differ from management's estimates. For reinsurance contracts other than those covering GMIB exposure, reinsurance recoverable balances are calculated using methodologies and assumptions that are consistent with those used to calculate the direct liabilities. 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 that, 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 2.0% to 10.9% for life insurance liabilities and from 2.25% to 8.63% for annuity liabilities. 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. While management believes its disability income ("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 net of reinsurance ceded for individual DI and major medical policies were $69.9 million and $86.0 million at December 31, 2003 and 2002, respectively. At December 31, 2003 and 2002, respectively, $1,109.3 million and $1,088.9 million of DI reserves and associated liabilities were ceded through an indemnity reinsurance agreement principally with a single reinsurer (see Note 12). Incurred benefits (benefits paid plus changes in claim reserves) and benefits paid for individual DI and major medical policies are summarized as follows: F-15
2003 2002 2001 ----------------- ---------------- ----------------- (In Millions) Incurred benefits related to current year.......... $ 33.8 $ 36.6 $ 44.0 Incurred benefits related to prior years........... (2.8) (6.3) (10.6) ----------------- ---------------- ----------------- Total Incurred Benefits............................ $ 31.0 $ 30.3 $ 33.4 ================= ================ ================= Benefits paid related to current year.............. $ 12.1 $ 11.5 $ 10.7 Benefits paid related to prior years............... 34.9 37.2 38.8 ----------------- ---------------- ----------------- Total Benefits Paid................................ $ 47.0 $ 48.7 $ 49.5 ================= ================ =================
Policyholders' Dividends ------------------------ The amount of policyholders' dividends to be paid (including dividends 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, 2003, participating policies, including those in the Closed Block, represent approximately 18.7% ($34.7 billion) of directly written life insurance in-force, net of amounts ceded. Separate Accounts ----------------- Generally, Separate Accounts established under New York State Insurance Law 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 Separate Accounts assets exceed Separate Accounts liabilities. Assets and liabilities of the Separate Accounts represent the 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. Separate Accounts' assets and liabilities are shown on separate lines 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 readily 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 and are not reported in revenues in the consolidated statements of earnings. For 2003, 2002 and 2001, investment results of such Separate Accounts were losses of $(466.2) million, $(4,740.7) million and $(2,214.4) 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. Recognition of Investment Management Revenues and Related Expenses ------------------------------------------------------------------ Commissions, fees and other income principally include Investment Management advisory and service fees. Investment Management advisory and services base fees, generally calculated as a percentage, referred to as "basis points", of assets under management for clients, are recorded as revenue as the related services are performed; they include brokerage transactions charges of Sanford C. Bernstein & Co., LLC ("SCB LLC"), a wholly owned subsidiary of Alliance, for substantially all private client transactions and certain institutional investment management client transactions. Certain investment advisory contracts provide for a performance fee, in addition to or in lieu of a base fee, that is calculated as either a percentage of absolute investment results or a percentage of the related investment results in excess of a stated benchmark over a specified period of time. Performance fees are recorded as revenue at the end of the measurement period. Transaction charges earned and related expenses are recorded on a trade date basis. Distribution revenues and shareholder servicing fees are accrued as earned. F-16 Institutional research services revenue consists of brokerage transaction charges received by SCB LLC and Sanford C. Bernstein Limited, a wholly owned subsidiary of Alliance, for in-depth research and other services provided to institutional investors. Brokerage transaction charges earned and related expenses are recorded on a trade date basis. Sales commissions paid to financial intermediaries in connection with the sale of shares of open-end Alliance mutual funds sold without a front-end sales charge are capitalized as deferred sales commissions and amortized over periods not exceeding five and one-half years, the periods of time during which deferred sales commissions are generally recovered from distribution services fees received from those funds and from contingent deferred sales charges ("CDSC") received from shareholders of those funds upon the redemption of their shares. CDSC cash recoveries are recorded as reductions in unamortized deferred sales commissions when received. At December 31, 2003 and 2002, respectively, net deferred sales commissions totaled $387.2 million and $500.9 million and are included within Other assets. The estimated amortization expense of deferred sales commission, based on December 31, 2003 net balance for each of the next five years is approximately $386.0 million. Alliance's management tests the deferred sales commission asset for recoverability quarterly, or more often when events or changes in circumstances occur that could significantly increase the risk of impairment of the asset. Alliance's management determines recoverability by estimating undiscounted future cash flows to be realized from this asset, as compared to its recorded amount, as well as the estimated remaining life of the deferred sales commission asset over which undiscounted future cash flows are expected to be received. Undiscounted future cash flows consist of ongoing distribution services fees and CDSC. Distribution services fees are calculated as a percentage of average assets under management related to back-end load shares. CDSC is based on the lower of cost or current value, at the time of redemption, of back-end load shares redeemed and the point at which redeemed during the applicable minimum holding period under the mutual fund distribution system. Significant assumptions utilized to estimate future average assets under management of back-end load shares include expected future market levels and redemption rates. Market assumptions are selected using a long-term view of expected average market returns based on historical returns of broad market indices. Future redemption rate assumptions are determined by reference to actual redemption experience over the last five years. These assumptions are updated periodically. Estimates of undiscounted future cash flows and the remaining life of the deferred sales commission asset are made from these assumptions. Alliance's management considers the results of these analyses performed at various dates. If Alliance's management determines in the future that the deferred sales commission asset is not recoverable, an impairment condition would exist and a loss would be measured as the amount by which the recorded amount of the asset exceeds its estimated fair value. Estimated fair value is determined using Alliance's management's best estimate of future cash flows discounted to a present value amount. As such, given the volatility and uncertainty of capital markets and future redemption, Alliance's management believes these to be critical accounting estimates. Other Accounting Policies ------------------------- In accordance with regulations of the Securities and Exchange Commission ("SEC"), securities with a fair value of $1.29 billion and $1.17 billion have been segregated in a special reserve bank custody account at December 31, 2003 and 2002, respectively for the exclusive benefit of securities broker-dealer or brokerage customers under Rule 15c3-3 under the Securities Exchange Act of 1934, as amended. Intangible assets include costs assigned to contracts of businesses acquired. These costs continue to be amortized on a straight-line basis over estimated useful lives of twenty years. Capitalized internal-use software is amortized on a straight-line basis over the estimated useful life of the software. The Holding Company and certain of its consolidated subsidiaries, including the Company, file a consolidated Federal income tax return. 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 F-17 statement carrying amounts and income tax bases of assets and liabilities using enacted income tax rates and laws. Minority interest subject to redemption rights represents the remaining 32.6 million of private Alliance Units issued to former Bernstein shareholders in connection with Alliance's acquisition of Bernstein. The Holding Company agreed to provide liquidity to these former Bernstein shareholders after a two-year lock-out period which ended October 2002. The Company acquired 8.16 million of the former Bernstein shareholders' Alliance Units in 2002. The outstanding 32.6 million Alliance Units may be sold to the Holding Company at the prevailing market price over the remaining six years ending in 2009. Generally, not more than 20% of the original Alliance Units issued to the former Bernstein shareholders may be put to the Holding Company in any one annual period. The Company accounts for its stock option plans and other stock-based compensation plans in accordance with the provisions of Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and related interpretations. In accordance with the opinion, stock option awards result in compensation expense only if the current market price of the underlying stock exceeds the option strike price at the grant date. See Note 22 for the pro forma disclosures required by SFAS No. 123, "Accounting for Stock-Based Compensation," and SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure". F-18 3) INVESTMENTS The following tables provide additional information relating to fixed maturities and equity securities:
Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value --------------- ----------------- ----------------- --------------- (In Millions) December 31, 2003 ----------------- Fixed Maturities: Available for Sale: Corporate..................... $ 20,653.7 $ 1,726.2 $ 84.7 $ 22,295.2 Mortgage-backed............... 3,837.0 57.0 17.4 3,876.6 U.S. Treasury, government and agency securities....... 812.3 58.7 .5 870.5 States and political subdivisions................ 188.2 14.1 2.0 200.3 Foreign governments........... 248.4 45.9 .3 294.0 Redeemable preferred stock.... 1,412.0 151.1 4.2 1,558.9 ----------------- ----------------- ----------------- ---------------- Total Available for Sale.... $ 27,151.6 $ 2,053.0 $ 109.1 $ 29,095.5 ================= ================= ================= ================ Equity Securities: Available for sale.............. $ 11.6 $ 1.2 $ .2 $ 12.6 Trading securities.............. 1.9 .6 1.5 1.0 ----------------- ----------------- ----------------- ---------------- Total Equity Securities........... $ 13.5 $ 1.8 $ 1.7 $ 13.6 ================= ================= ================= ================ December 31, 2002 ----------------- Fixed Maturities: Available for Sale: Corporate..................... $ 20,084.0 $ 1,491.0 $ 269.0 $ 21,306.0 Mortgage-backed............... 2,419.2 99.2 - 2,518.4 U.S. Treasury, government and agency securities....... 895.5 84.1 - 979.6 States and political subdivisions................ 197.6 17.9 - 215.5 Foreign governments........... 231.8 37.4 .8 268.4 Redeemable preferred stock.... 923.7 71.4 4.1 991.0 ----------------- ----------------- ----------------- ---------------- Total Available for Sale.... $ 24,751.8 $ 1,801.0 $ 273.9 $ 26,278.9 ================= ================= ================= ================ Equity Securities: Available for sale.............. $ 37.6 $ 2.0 $ 3.4 $ 36.2 Trading securities.............. 3.3 .8 3.0 1.1 ----------------- ----------------- ----------------- ---------------- Total Equity Securities........... $ 40.9 $ 2.8 $ 6.4 $ 37.3 ================= ================= ================= ================
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 estimated fair values using a discounted cash flow approach, including provisions for credit risk, generally based on the assumption such securities will be held to maturity. 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, 2003 and 2002, securities without a readily ascertainable market value having an amortized cost of $4,462.1 million and $4,899.8 million, respectively, had estimated fair values of $4,779.6 million and $5,137.2 million, respectively. F-19 The contractual maturity of bonds at December 31, 2003 is shown below:
Available for Sale ------------------------------------ Amortized Estimated Cost Fair Value ---------------- ----------------- (In Millions) Due in one year or less................................................ $ 495.5 $ 514.8 Due in years two through five.......................................... 4,981.3 5,386.0 Due in years six through ten........................................... 9,760.8 10,595.8 Due after ten years.................................................... 6,665.0 7,163.4 Mortgage-backed securities............................................. 3,837.0 3,876.6 ---------------- ----------------- Total.................................................................. $ 25,739.6 $ 27,536.6 ================ =================
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 Company's management, with the assistance of its investment advisors, monitors the investment performance of its portfolio. This review process culminates with a quarterly review of certain assets by the Insurance Group's Investments Under Surveillance Committee that evaluates whether any investments are other than temporarily impaired. The review considers an analysis of individual credit metrics of each issuer as well as industry fundamentals and the outlook for the future. Based on the analysis, a determination is made as to the ability of the issuer to service its debt obligations on an ongoing basis. If this ability is deemed to be impaired, then the appropriate provisions are taken. The following table discloses fixed maturities (598 fixed maturities) that have been in a continuous unrealized loss position for less than a twelve month period and greater than a twelve month period as of December 31, 2003:
Less than 12 Months 12 Months or Longer Total ------------------------------- ---------------------------- ---------------------------- Gross Gross Gross Estimated Unrealized Estimated Unrealized Estimated Unrealized Fair Value Losses Fair Value Losses Fair Value Losses ------------- ------------- ------------- ------------- ------------- ------------- (In Millions) Fixed Maturities: Corporate................. $ 2,342.9 $ 77.6 $ 81.0 $ 7.1 $ 2,423.9 $ 84.7 Mortgage-backed........... 1,406.0 17.4 - - 1,406.0 17.4 U.S. Treasury, government and agency securities.............. 28.3 .5 - - 28.3 .5 States and political subdivisions............ 24.2 2.0 - - 24.2 2.0 Foreign governments....... 7.4 .3 1.0 - 8.4 .3 Redeemable preferred stock......... 58.5 3.2 14.0 1.0 72.5 4.2 -------------- ------------- ------------- -------------- ------------- --------------- Total Temporarily Impaired Securities ...... $ 3,867.3 $ 101.0 $ 96.0 $ 8.1 $ 3,963.3 $ 109.1 ============== ============= ============= ============== ============= ===============
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. These corporate high yield securities are classified as other than investment grade by the various rating agencies, i.e., a rating below Baa3/BBB- 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, 2003, approximately F-20 $1,366.2 million or 5.3% of the $25,739.6 million aggregate amortized cost of bonds held by the Company was considered to be other than investment grade. At December 31, 2003, the carrying value of fixed maturities which are non-income producing for the twelve months preceding the consolidated balance sheet date was $53.0 million. The Insurance Group holds equity in limited partnership interests and other equity method investments that primarily invest in securities considered to be other than investment grade. The carrying values at December 31, 2003 and 2002 were $775.5 million and $683.0 million, 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 $122.4 million and $75.3 million at December 31, 2003 and 2002, respectively. Gross interest income on these loans included in net investment income aggregated $7.8 million, $5.3 million and $3.2 million in 2003, 2002 and 2001, 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 $10.0 million, $6.8 million and $4.2 million in 2003, 2002 and 2001, respectively. Impaired mortgage loans along with the related investment valuation allowances for losses follow:
December 31, ---------------------------------------- 2003 2002 ------------------- ------------------- (In Millions) Impaired mortgage loans with investment valuation allowances....... $ 149.4 $ 111.8 Impaired mortgage loans without investment valuation allowances.... 29.1 20.4 ------------------- ------------------- Recorded investment in impaired mortgage loans..................... 178.5 132.2 Investment valuation allowances.................................... (18.8) (23.4) ------------------- ------------------- Net Impaired Mortgage Loans........................................ $ 159.7 $ 108.8 =================== ===================
During 2003, 2002 and 2001, respectively, the Company's average recorded investment in impaired mortgage loans was $180.9 million, $138.1 million and $141.7 million. Interest income recognized on these impaired mortgage loans totaled $12.3 million, $10.0 million and $7.2 million for 2003, 2002 and 2001, respectively. Mortgage loans on real estate are placed on nonaccrual status once management believes the collection of accrued interest is doubtful. Once mortgage loans on real estate are classified as nonaccrual loans, interest income is recognized under the cash basis of accounting and the resumption of the interest accrual would commence only after all past due interest has been collected or the mortgage loan on real estate has been restructured to where the collection of interest is considered likely. At December 31, 2003 and 2002, respectively, the carrying value of mortgage loans on real estate that had been classified as nonaccrual loans was $143.2 million and $91.1 million. The Insurance Group's investment in equity real estate is through direct ownership and through investments in real estate joint ventures. At December 31, 2003 and 2002, the carrying value of equity real estate held-for-sale amounted to $56.9 million and $107.7 million, respectively. For 2003, 2002 and 2001, respectively, real estate of $2.8 million, $5.6 million and $64.8 million was acquired in satisfaction of debt. At December 31, 2003 and 2002, the Company owned $275.8 million and $268.8 million, respectively, of real estate acquired in satisfaction of debt of which $3.6 million and $2.7 million, respectively, are held as real estate joint ventures. Accumulated depreciation on real estate was $189.6 million and $163.6 million at December 31, 2003 and 2002, respectively. Depreciation expense on real estate totaled $38.8 million, $18.0 million and $16.1 million for 2003, 2002 and 2001, respectively. F-21 Investment valuation allowances for mortgage loans and equity real estate and changes thereto follow:
2003 2002 2001 ----------------- ---------------- ----------------- (In Millions) Balances, beginning of year........................... $ 55.0 $ 87.6 $ 126.2 Additions charged to income........................... 12.2 32.5 40.0 Deductions for writedowns and asset dispositions.................................. (15.2) (65.1) (78.6) Deduction for transfer of real estate held-for-sale to real estate held for the production of income.... (31.5) - - ----------------- ---------------- ----------------- Balances, End of Year................................. $ 20.5 $ 55.0 $ 87.6 ================= ================ ================= Balances, end of year comprise: Mortgage loans on real estate....................... $ 18.8 $ 23.4 $ 19.3 Equity real estate.................................. 1.7 31.6 68.3 ----------------- ---------------- ----------------- Total................................................. $ 20.5 $ 55.0 $ 87.6 ================= ================ =================
4) EQUITY METHOD INVESTMENTS Included in equity real estate or other equity investments, as appropriate, is the Company's interest in real estate joint ventures, limited partnership interests and investment companies accounted for under the equity method with a total carrying value of $896.9 million and $801.7 million, respectively, at December 31, 2003 and 2002. The Company's total equity in net earnings (losses) for these real estate joint ventures and limited partnership interests was $4.3 million, $(18.3) million and $(111.1) million, respectively, for 2003, 2002 and 2001. Summarized below is the combined financial information only for those real estate joint ventures and for those 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 (6 and 7 individual ventures at December 31, 2003 and 2002, respectively) and the Company's carrying value and equity in net earnings for those real estate joint ventures and limited partnership interests:
December 31, ------------------------------------ 2003 2002 ---------------- ----------------- (In Millions) BALANCE SHEETS Investments in real estate, at depreciated cost........................ $ 551.6 $ 550.0 Investments in securities, generally at estimated fair value........... 204.8 237.5 Cash and cash equivalents.............................................. 37.6 27.9 Other assets........................................................... 22.8 32.2 ---------------- ----------------- Total Assets........................................................... $ 816.8 $ 847.6 ================ ================= Borrowed funds - third party........................................... $ 259.7 $ 264.7 Other liabilities...................................................... 19.5 19.2 ---------------- ----------------- Total liabilities...................................................... 279.2 283.9 ---------------- ----------------- Partners' capital...................................................... 537.6 563.7 ---------------- ----------------- Total Liabilities and Partners' Capital................................ $ 816.8 $ 847.6 ================ ================= The Company's Carrying Value in These Entities Included Above.......... $ 168.8 $ 172.3 ================ =================
F-22
2003 2002 2001 ----------------- ---------------- ----------------- (In Millions) STATEMENTS OF EARNINGS Revenues of real estate joint ventures............. $ 95.6 $ 98.4 $ 95.6 Net revenues (losses) of other limited partnership interests.............. 26.0 (23.2) 29.8 Interest expense - third party..................... (18.0) (19.8) (11.5) Interest expense - the Company..................... - - (.7) Other expenses..................................... (61.7) (59.3) (58.2) ----------------- ---------------- ----------------- Net Earnings (Losses).............................. $ 41.9 $ (3.9) $ 55.0 ================= ================ ================= The Company's Equity in Net Earnings of These Entities Included Above.......................... $ 5.0 $ 12.8 $ 13.2 ================= ================ =================
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES) The sources of net investment income follows:
2003 2002 2001 ----------------- ---------------- ----------------- (In Millions) Fixed maturities................................... $ 1,792.6 $ 1,755.4 $ 1,662.4 Mortgage loans on real estate...................... 279.5 314.8 361.6 Equity real estate................................. 136.9 153.7 166.2 Other equity investments........................... 49.3 (45.4) (53.6) Policy loans....................................... 260.1 269.4 268.2 Other investment income............................ 66.8 114.1 216.6 ----------------- ---------------- ----------------- Gross investment income.......................... 2,585.2 2,562.0 2,621.4 Investment expenses.............................. (198.3) (184.8) (217.1) ----------------- ---------------- ----------------- Net Investment Income.............................. $ 2,386.9 $ 2,377.2 $ 2,404.3 ================= ================ =================
Investment (losses) gains including changes in the valuation allowances follow:
2003 2002 2001 ----------------- ---------------- ----------------- (In Millions) Fixed maturities................................... $ (100.7) $ (374.3) $ (225.2) Mortgage loans on real estate...................... 1.3 3.7 (11.4) Equity real estate................................. 26.8 101.5 34.5 Other equity investments........................... 2.0 3.3 (13.0) Issuance and sales of Alliance Units............... - .5 (2.3) Other.............................................. 8.3 (13.2) 10.1 ----------------- ---------------- ----------------- Investment Losses, Net........................... $ (62.3) $ (278.5) $ (207.3) ================= ================ =================
Writedowns of fixed maturities amounted to $193.2 million, $312.8 million and $287.5 million for 2003, 2002 and 2001, respectively. Writedowns of mortgage loans on real estate and equity real estate amounted to $5.2 million and zero, respectively, for 2003 and $5.5 million and $5.8 million, respectively, for 2002. For 2003, 2002 and 2001, respectively, proceeds received on sales of fixed maturities classified as available for sale amounted to $4,773.5 million, $7,176.3 million and $7,372.3 million. Gross gains of $105.1 million, $108.4 million and $156.2 million and gross losses of $39.5 million, $172.9 million and $115.9 million, respectively, were realized on these sales. The change in unrealized investment gains (losses) related to fixed F-23 maturities classified as available for sale for 2003, 2002 and 2001 amounted to $416.8 million, $1,047.8 million and $429.5 million, respectively. Net investment income in 2001 included realized gains of $27.1 million on sales of Credit Suisse Group common stock, which was designated as trading account securities and acquired in conjunction with the sale of Donaldson, Lufkin & Jenrette, Inc., formerly a majority owned subsidiary, in 2000. In 2003, 2002 and 2001, respectively, net unrealized holding gains (losses) on trading account equity securities of $2.1 million, $.5 million, and $25.0 million were included in net investment income in the consolidated statements of earnings. These trading securities had a carrying value of $1.0 million and $1.1 million and costs of $1.9 million and $3.3 million at December 31, 2003 and 2002, respectively. For 2003, 2002 and 2001, investment results passed through to certain participating group annuity contracts as interest credited to policyholders' account balances amounted to $76.5 million, $92.1 million and $96.7 million, respectively. Net unrealized investment gains (losses) included in the consolidated balance sheets as a component of accumulated other comprehensive income and the changes for the corresponding years, including Other Discontinued Operations on a line-by-line basis, follow:
2003 2002 2001 ----------------- ---------------- ----------------- (In Millions) Balance, beginning of year......................... $ 681.1 $ 215.5 $ 12.9 Changes in unrealized investment gains (losses).... 440.8 1,049.9 436.0 Changes in unrealized investment (gains) losses attributable to: Participating group annuity contracts, Closed Block policyholder dividend obligation and other........................ (53.0) (157.3) (48.6) DAC............................................ (65.7) (174.1) (71.6) Deferred Federal income taxes.................. (110.4) (252.9) (113.2) ----------------- ---------------- ----------------- Balance, End of Year............................... $ 892.8 $ 681.1 $ 215.5 ================= ================ ================= 2003 2002 2001 ------------- --------------- -------------- (In Millions) Balance, end of year comprises: Unrealized investment gains (losses) on: Fixed maturities............................... $ 2,015.7 $ 1,572.0 $ 496.0 Other equity investments....................... 1.5 (1.5) 4.3 Other.......................................... (28.1) (22.2) (1.9) ----------------- ------------------ ----------------- Total........................................ 1,989.1 1,548.3 498.4 Amounts of unrealized investment (gains) losses attributable to: Participating group annuity contracts, Closed Block policyholder dividend obligation and other....................... (274.2) (221.2) (63.9) DAC.......................................... (339.7) (274.0) (99.9) Deferred Federal income taxes................ (482.4) (372.0) (119.1) ----------------- ------------------ ----------------- Total.............................................. $ 892.8 $ 681.1 $ 215.5 ================= ================== =================
Changes in unrealized gains (losses) reflect changes in fair value of only those fixed maturities and equity securities classified as available for sale and do not reflect any changes in fair value of policyholders' account balances and future policy benefits. F-24 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 past three years follow:
2003 2002 2001 ----------------- ---------------- ----------------- (In Millions) Unrealized gains on investments.................... $ 892.8 $ 681.1 $ 215.5 Minimum pension liability.......................... - - (.1) ----------------- ---------------- ----------------- Total Accumulated Other Comprehensive Income............................. $ 892.8 $ 681.1 $ 215.4 ================= ================ =================
The components of other comprehensive income for the past three years follow:
2003 2002 2001 ----------------- ---------------- ----------------- (In Millions) Net unrealized gains (losses) on investments: Net unrealized gains arising during the period..................................... $ 416.6 $ 1,008.9 $ 525.2 Losses (gains) reclassified into net earnings during the period.............................. 24.2 41.0 (89.2) ----------------- ---------------- ----------------- Net unrealized gains on investments................ 440.8 1,049.9 436.0 Adjustments for policyholders liabilities, DAC and deferred Federal income taxes.......... (229.1) (584.3) (233.4) ----------------- ---------------- ----------------- Change in unrealized gains, net of adjustments.................................... 211.7 465.6 202.6 Change in minimum pension liability................ - .1 - ----------------- ---------------- ----------------- Total Other Comprehensive Income................... $ 211.7 $ 465.7 $ 202.6 ================= ================ =================
7) CLOSED BLOCK The excess of Closed Block liabilities over Closed Block assets (adjusted to exclude the impact of related amounts in accumulated other comprehensive income) represents the expected maximum future post-tax earnings from the Closed Block which would be recognized in income from continuing operations over the period the policies and contracts in the Closed Block remain in force. As of January 1, 2001, the Company has developed an actuarial calculation of the expected timing of the Closed Block earnings. If the actual cumulative earnings from the Closed Block are greater than the expected cumulative earnings, only the expected earnings will be recognized in net income. Actual cumulative earnings in excess of expected cumulative earnings at any point in time are recorded as a policyholder dividend obligation because they will ultimately be paid to Closed Block policyholders as an additional policyholder dividend unless offset by future performance that is less favorable than originally expected. If a policyholder dividend obligation has been previously established and the actual Closed Block earnings in a subsequent period are less than the expected earnings for that period, the policyholder dividend obligation would be reduced (but not below zero). If, over the period the policies and contracts in the Closed Block remain in force, the actual cumulative earnings of the Closed Block are less than the expected cumulative earnings, only actual earnings would be recognized in income from continuing operations. If the Closed Block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside the Closed Block. Many expenses related to Closed Block operations, including amortization of DAC, are charged to operations outside of the Closed Block; accordingly, net revenues of the Closed Block do 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-25 Summarized financial information for the Closed Block is as follows:
December 31, December 31, 2003 2002 ----------------- ----------------- (In Millions) CLOSED BLOCK LIABILITIES: Future policy benefits, policyholders' account balances and other........................................................... $ 8,972.1 $ 8,997.3 Policyholder dividend obligation....................................... 242.1 213.3 Other liabilities...................................................... 129.5 134.6 ----------------- ----------------- Total Closed Block liabilities......................................... 9,343.7 9,345.2 ----------------- ----------------- ASSETS DESIGNATED TO THE CLOSED BLOCK: Fixed maturities, available for sale, at estimated fair value (amortized cost of $5,061.0 and $4,794.0)............................ 5,428.5 5,098.4 Mortgage loans on real estate.......................................... 1,297.6 1,456.0 Policy loans........................................................... 1,384.5 1,449.9 Cash and other invested assets......................................... 143.3 141.9 Other assets........................................................... 199.2 219.9 ----------------- ----------------- Total assets designated to the Closed Block........................... 8,453.1 8,366.1 ----------------- ----------------- Excess of Closed Block liabilities over assets designated to the Closed Block.................................................... 890.6 979.1 Amounts included in accumulated other comprehensive income: Net unrealized investment gains, net of deferred Federal income tax of $43.9 and $31.8 and policyholder dividend obligation of $242.1 and $213.3................................................. 81.6 59.1 ----------------- ----------------- Maximum Future Earnings To Be Recognized From Closed Block Assets and Liabilities.............................................. $ 972.2 $ 1,038.2 ================= =================
Closed Block revenues and expenses were as follows:
2003 2002 2001 ---------------- ---------------- -------------------- (In Millions) REVENUES: Premiums and other income.......................... $ 508.5 $ 543.8 $ 571.5 Investment income (net of investment expenses of $2.4, $5.4, and $3.0)............... 559.2 582.4 583.5 Investment losses, net............................. (35.7) (47.0) (42.3) ---------------- ---------------- -------------------- Total revenues..................................... 1,032.0 1,079.2 1,112.7 ---------------- ---------------- -------------------- BENEFITS AND OTHER DEDUCTIONS: Policyholders' benefits and dividends.............. 924.5 980.2 1,009.3 Other operating costs and expenses................. 4.0 4.4 4.7 ---------------- ---------------- -------------------- Total benefits and other deductions................ 928.5 984.6 1,014.0 ---------------- ---------------- -------------------- Net revenues before Federal income taxes........... 103.5 94.6 98.7 Federal income taxes............................... (37.5) (34.7) (36.2) ---------------- ---------------- -------------------- Net Revenues....................................... $ 66.0 $ 59.9 $ 62.5 ================ ================ ====================
F-26 Reconciliation of the policyholder dividend obligation is as follows:
December 31, ------------------------------------ 2003 2002 ---------------- ----------------- (In Millions) Balance at beginning of year........................................... $ 213.3 $ 47.1 Unrealized investment gains............................................ 28.8 166.2 ---------------- ----------------- Balance at End of Year ................................................ $ 242.1 $ 213.3 ================ =================
Impaired mortgage loans along with the related investment valuation allowances follows:
December 31, ------------------------------------ 2003 2002 ---------------- ----------------- (In Millions) Impaired mortgage loans with investment valuation allowances........... $ 58.3 $ 18.6 Impaired mortgage loans without investment valuation allowances........ 5.8 .9 ---------------- ----------------- Recorded investment in impaired mortgages.............................. 64.1 19.5 Investment valuation allowances........................................ (3.7) (4.0) ---------------- ----------------- Net Impaired Mortgage Loans............................................ $ 60.4 $ 15.5 ================ =================
During 2003, 2002 and 2001, the Closed Block's average recorded investment in impaired mortgage loans was $51.9 million, $26.0 million and $30.8 million, respectively. Interest income recognized on these impaired mortgage loans totaled $2.7 million, $2.1 million and $1.2 million for 2003, 2002 and 2001, respectively. Valuation allowances amounted to $3.6 million and $3.9 million on mortgage loans on real estate and $.1 million and $.1 million on equity real estate at December 31, 2003 and 2002, respectively. Writedowns of fixed maturities amounted to $37.8 million, $40.0 million and $30.8 million for 2003, 2002 and 2001, respectively, including $23.3 million in fourth quarter 2001. 8) OTHER DISCONTINUED OPERATIONS Summarized financial information for Other Discontinued Operations follows:
December 31, -------------------------------------- 2003 2002 ----------------- ----------------- (In Millions) BALANCE SHEETS Fixed maturities, available for sale, at estimated fair value (amortized cost of $644.7 and $677.8).............................. $ 716.4 $ 722.7 Equity real estate................................................... 198.2 203.7 Mortgage loans on real estate........................................ 63.9 87.5 Other equity investments............................................. 7.5 9.4 Other invested assets................................................ .2 .2 ----------------- ----------------- Total investments.................................................. 986.2 1,023.5 Cash and cash equivalents............................................ 63.0 31.0 Other assets......................................................... 110.9 126.5 ----------------- ----------------- Total Assets......................................................... $ 1,160.1 $ 1,181.0 ================= ================= Policyholders liabilities............................................ $ 880.3 $ 909.5 Allowance for future losses.......................................... 173.4 164.6 Other liabilities.................................................... 106.4 106.9 ----------------- ----------------- Total Liabilities.................................................... $ 1,160.1 $ 1,181.0 ================= =================
F-27
2003 2002 2001 ----------------- ---------------- ----------------- (In Millions) STATEMENTS OF EARNINGS Investment income (net of investment expenses of $21.0, $18.1 and $25.3).............. $ 70.6 $ 69.7 $ 91.6 Investment gains (losses), net..................... 5.4 34.2 33.6 Policy fees, premiums and other income............. - .2 .2 ----------------- ---------------- ----------------- Total revenues..................................... 76.0 104.1 125.4 Benefits and other deductions...................... 89.4 98.7 100.7 (Losses charged) earnings credited to allowance for future losses................................ (13.4) 5.4 24.7 ----------------- ---------------- ----------------- Pre-tax loss from operations....................... - - - Pre-tax earnings from releasing the allowance for future losses................................ 5.2 8.7 46.1 Federal income tax expense......................... (1.8) (3.1) (2.2) ----------------- ---------------- ----------------- Earnings from Discontinued Operations.............. $ 3.4 $ 5.6 $ 43.9 ================= ================ =================
The Company's quarterly process for evaluating the allowance for future losses applies the current period's results of 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, investment and benefit cash flow projections are prepared. These updated assumptions and estimates resulted in a release of allowance in each of the three years presented. Valuation allowances of $2.5 million and $4.9 million on mortgage loans on real estate were held at December 31, 2003 and 2002, respectively. During 2003, 2002 and 2001, discontinued operations' average recorded investment in impaired mortgage loans was $16.2 million, $25.3 million and $32.2 million, respectively. Interest income recognized on these impaired mortgage loans totaled $1.3 million, $2.5 million and $2.5 million for 2003, 2002 and 2001, respectively. In 2001, Federal Income tax expense for discontinued operations reflected a $13.8 million reduction in taxes due to settlement of open tax years. 9) VARIABLE ANNUITY CONTRACTS - GMDB AND GMIB Equitable Life issues certain variable annuity contracts with GMDB and GMIB features that guarantee either: a) Return of Premium: the benefit is the greater of current account value or premiums paid (adjusted for withdrawals); b) Ratchet: the benefit is the greatest of current account value, premiums paid (adjusted for withdrawals), or the highest account value on any anniversary up to contractually specified ages (adjusted for withdrawals); c) Roll-Up: the benefit is the greater of current account value or premiums paid (adjusted for withdrawals) accumulated at contractually specified interest rates up to specified ages; or d) Combo: the benefit is the greater of the ratchet benefit or the roll-up benefit. The following table summarizes the GMDB and GMIB liabilities, before reinsurance ceded, reflected in the General Account in future policy benefits and other policyholders liabilities in 2003: F-28
GMDB GMDB Total ----------------- ---------------- ----------------- (In Millions) Balance at January 1, 2003......................... $ 128.4 $ 117.5 $ 245.9 Paid guarantee benefits.......................... (65.6) - (65.6) Other changes in reserve......................... 6.5 (31.9) (25.4) ----------------- ---------------- ----------------- Balance at December 31, 2003....................... $ 69.3 $ 85.6 $ 154.9 ================= ================ =================
Related GMDB reinsurance ceded amounts were:
GMDB --------------------- (In Millions) Balance at December 31, 2002....................... $ 21.5 Paid guarantee benefits ceded.................... (18.5) Other changes in reserve......................... 14.2 --------------------- Balance at December 31, 2003....................... $ 17.2 =====================
The GMIB reinsurance contracts are considered derivatives and are reported at fair value; see Note 16. The December 31, 2003 values for those variable contracts with GMDB and GMIB features are presented in the following table. Since variable contracts with GMDB guarantees may also offer GMIB guarantees in each contract, the GMDB and GMIB amounts listed are not mutually exclusive:
Return of Premium Ratchet Roll-Up Combo Total -------------- ------------- -------------- ------------- -------------- (Dollars In Millions) GMDB: Account value (1)................... $ 26,849 $ 5,332 $ 8,030 $ 6,160 $ 46,371 Net amount at risk, gross........... $ 2,108 $ 942 $ 2,112 $ 10 $ 5,172 Net amount at risk, net of amounts reinsured......................... $ 2,104 $ 631 $ 1,281 $ 10 $ 4,026 Average attained age of Contractholders................... 49.5 59.6 61.7 59.8 51.7 Percentage of contractholders over age 70....................... 7.1 20.9 25.8 20.3 10.3 Range of guaranteed minimum return rates............................ N/A N/A 3%-6% 3%-6% N/A GMIB: Account value (2)................... N/A N/A $ 5,763 $ 8,589 $ 14,352 Net amount at risk, gross........... N/A N/A $ 442 $ - $ 442 Net amount at risk, net of amounts reinsured......................... N/A N/A $ 110 $ - $ 110 Weighted average years remaining until annuitization.............. N/A N/A 4.6 9.8 7.2 Range of guaranteed minimum return rates............................ N/A N/A 3%-6% 3%-6% 3%-6%
(1) Included General Account balances of $11,379 million, $199 million, $182 million and $380 million, respectively, for a total of $12,140 million. (2) Included General Account balances of $3 million and $568 million, respectively, for a total of $571 million. F-29 For contracts with the GMDB feature, the net amount at risk in the event of death is the amount by which the GMDB benefits exceed related account values. For contracts with the GMIB feature, the net amount at risk in the event of annuitization is defined as the amount by which the present value of the GMIB benefits exceeds related account values, taking into account the relationship between current annuity purchase rates and the GMIB guaranteed annuity purchase rates. In third quarter 2003, Equitable Life initiated a program to hedge certain risks associated with the GMDB feature of the Accumulator series of annuity products sold beginning April 2002. At December 31, 2003, contracts with these features had a total account value and net amount at risk of $13,008 million and $17 million, respectively. This program currently utilizes exchange-traded, equity-based futures contracts that are dynamically managed in an effort to reduce the economic impact of unfavorable changes in GMDB exposure attributable to movements in the equity markets. 10) SHORT-TERM AND LONG-TERM DEBT Short-term and long-term debt consists of the following:
December 31, -------------------------------------- 2003 2002 ----------------- ----------------- (In Millions) Short-term debt: Promissory note, 1.53% .............................................. $ 248.3 $ 248.3 Other................................................................ - 22.0 ----------------- ----------------- Total short-term debt................................................ 248.3 270.3 ----------------- ----------------- Long-term debt: Equitable Life: Surplus notes, 6.95%, due 2005..................................... 399.8 399.8 Surplus notes, 7.70%, due 2015..................................... 199.8 199.7 ----------------- ----------------- Total Equitable Life........................................... 599.6 599.5 ----------------- ----------------- Alliance: Senior Notes, 5.625%, due 2006..................................... 398.8 398.4 Other.............................................................. 6.5 6.5 ----------------- ----------------- Total Alliance................................................. 405.3 404.9 ----------------- ----------------- Total long-term debt................................................. 1,004.9 1,004.4 ----------------- ----------------- Total Short-term and Long-term Debt.................................. $ 1,253.2 $ 1,274.7 ================= =================
Short-term Debt --------------- Equitable Life has a $350.0 million 5 year bank credit facility. The interest rates are based on external indices dependent on the type of borrowing ranging from 1.34% to 4.0%. No amounts were outstanding under this credit facility at December 31, 2003. 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 $350.0 million bank credit facility. At December 31, 2003, no amounts were outstanding under this program. Equitable Life has a $350.0 million, one year promissory note, of which $101.7 million is included within Other Discontinued Operations. The promissory note, which matures in March 2004, is related to wholly owned real estate. Certain terms of the promissory note, such as interest rate and maturity date, are negotiated annually. F-30 At December 31, 2003 and 2002, respectively, the Company had pledged real estate of $309.8 million and $322.9 million as collateral for certain short-term debt. Since 1998, Alliance has had a $425.0 million commercial paper program. In September 2002, Alliance entered into an $800.0 million five-year revolving credit facility with a group of commercial banks and other lenders that replaced three credit facilities aggregating $875.0 million.Of the $800.0 million total, $425.0 million is intended to provide back-up liquidity for Alliance's commercial paper program, with the balance available for general purposes, including capital expenditures and funding the payments of sales commissions to financial intermediaries. 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. The credit facility also provides for a facility fee payable on the total facility. In addition, a utilization rate fee is payable in the event the average aggregate daily outstanding balance exceeds $400.0 million for each calendar quarter. The revolving credit facility contains covenants that, among other things, require Alliance to meet certain financial ratios. Alliance was in compliance with the covenants at December 31, 2003. At December 31, 2003, no borrowings were outstanding under Alliance's commercial paper program or revolving credit facilities. Since December 1999, Alliance has maintained a $100.0 million extendible commercial notes ("ECN") program as a supplement to its $425.0 million commercial paper program. ECNs are short-term uncommitted debt instruments that do not require back-up liquidity support. At December 31, 2003, no borrowings were outstanding under the ECN program. Long-term Debt ------------- At December 31, 2003, the Company was in compliance with all debt covenants. At December 31, 2003, aggregate maturities of the long-term debt based on required principal payments at maturity were $400.0 million for 2005, $406.5 million for 2006, zero for 2007, zero for 2008 and $200.1 million thereafter. Under its shelf registration, Alliance may issue up to $600.0 million in senior debt securities. In August 2001, Alliance issued $400.0 million 5.625% notes in a public offering. These Alliance notes mature in 2006 and are redeemable at any time. The proceeds from the Alliance notes were used to reduce commercial paper and credit facility borrowings and for other general partnership purposes. 11) FEDERAL INCOME TAXES A summary of the Federal income tax expense in the consolidated statements of earnings follows:
2003 2002 2001 ----------------- ---------------- ----------------- (In Millions) Federal income tax expense: Current expense (benefit)........................ $ 112.5 $ (400.0) $ (38.2) Deferred expense................................. 128.0 450.9 354.4 ----------------- ---------------- ----------------- Total.............................................. $ 240.5 $ 50.9 $ 316.2 ================= ================ =================
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 their tax effects follow: F-31
2003 2002 2001 ----------------- ---------------- ----------------- (In Millions) Expected Federal income tax expense................ $ 332.6 $ 360.0 $ 452.5 Minority interest.................................. (58.7) (128.3) (126.9) Separate Account investment activity............... (29.1) (159.3) - Non-taxable investment income...................... (20.8) 3.4 (1.6) Non deductible penalty............................. 14.8 - - Adjustment of tax audit reserves................... (9.9) (34.2) (28.2) Other.............................................. 11.6 9.3 20.4 ----------------- ---------------- ----------------- Federal Income Tax Expense......................... $ 240.5 $ 50.9 $ 316.2 ================= ================ =================
The components of the net deferred Federal income taxes are as follows:
December 31, 2003 December 31, 2002 --------------------------------- --------------------------------- Assets Liabilities Assets Liabilities --------------- ---------------- --------------- --------------- (In Millions) Compensation and related benefits...... $ - $ 271.8 $ - $ 244.2 Reserves and reinsurance............... 801.9 - 646.2 - DAC.................................... - 1,855.6 - 1,680.5 Unrealized investment gains............ - 482.4 - 372.0 Investments............................ - 525.3 - 138.6 Other.................................. 6.7 - - 68.2 --------------- ---------------- --------------- --------------- Total.................................. $ 808.6 $ 3,135.1 $ 646.2 $ 2,503.5 =============== ================ =============== ===============
In 2002, the Company recorded a $144.3 million benefit resulting from the favorable treatment of certain tax matters related to Separate Account investment activity arising during the 1997-2001 tax years and a settlement with the Internal Revenue Service (the "IRS") with respect to such tax matters for the 1992-1996 tax years. In January 2003, the IRS commenced an examination of the AXA Financial's consolidated Federal income tax returns, which includes the Company, for the years 1997 through 2001. Management believes this audit will have no material adverse effect on the Company's consolidated results of operations or financial position. 12) 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: F-32
2003 2002 2001 ----------------- ---------------- ----------------- (In Millions) Direct premiums.................................... $ 913.8 $ 954.6 $ 990.0 Reinsurance assumed................................ 153.2 181.4 203.0 Reinsurance ceded.................................. (177.6) (190.8) (173.1) ----------------- ---------------- ----------------- Premiums........................................... $ 889.4 $ 945.2 $ 1,019.9 ================= ================ ================= Universal Life and Investment-type Product Policy Fee Income Ceded.......................... $ 100.3 $ 96.6 $ 86.9 ================= ================ ================= Policyholders' Benefits Ceded...................... $ 390.9 $ 346.3 $ 370.3 ================= ================ ================= Interest Credited to Policyholders' Account Balances Ceded................................... $ 49.7 $ 54.6 $ 50.4 ================= ================ =================
During the first quarter of 2003, the Insurance Group began to transition to excess of retention reinsurance on most new variable life, universal life and term life policies whereby mortality risk will be retained up to a maximum of $15 million on single-life policies and $20 million on second-to-die policies with the excess 100% reinsured. Previously the Insurance Group ceded 90% of mortality risk on substantially all new variable life, universal life and term life policies, with risk retained to a maximum of $5 million on single-life policies, and $15 million on second-to-die policies. Substantially all other in-force business above the joint survivorship and single life policies retention limit is reinsured. The Insurance Group also reinsures the entire risk on certain substandard underwriting risks and in certain other cases. At December 31, 2003, Equitable Life had reinsured in the aggregate approximately 22% of its current exposure to the GMDB obligation on annuity contracts in-force and, subject to certain maximum amounts or caps in any one period, approximately 75% of its current liability exposure resulting from the GMIB feature. At December 31, 2003 and 2002, respectively, reinsurance recoverables related to insurance contracts amounted to $2,460.4 million and $2,351.7 million, of which $1,069.8 million and $1,049.2 million relates to one specific reinsurer. Reinsurance payables related to insurance contracts amounting to $936.5 million and $867.5, respectively million are included in Other liabilities in the consolidated balance sheets. Based on management's estimates of future contract cash flows and experience, the estimated fair values of the GMIB reinsurance contracts, considered derivatives under SFAS No. 133, at December 31, 2003 and 2002 were $29.0 million and $120.0 million, respectively. The (decrease) increase in estimated fair value of $(91.0) million and $120.0 million for the years ended December 31, 2003 and 2002, respectively, were due primarily to significant equity market increases in 2003 and declines during 2002. The Insurance Group cedes 100% of its group life and health business to a third party insurer. Insurance liabilities ceded totaled $389.7 million and $410.9 million at December 31, 2003 and 2002, respectively. In addition to the sale of insurance products, the Insurance Group acts as a professional retrocessionaire by assuming life and annuity reinsurance from professional reinsurers. The Insurance Group also assumes accident, health, aviation and space risks by participating in various reinsurance pools. Reinsurance assumed reserves at December 31, 2003 and 2002 were $587.5 million and $572.8 million, respectively. 13) 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 uses a December 31 measurement date for its plans. Generally, the Company's funding policy is to make the minimum contribution required by the Employee Retirement Income Security Act of 1974 ("ERISA"). The Company made cash contributions in 2002 to the F-33 qualified plans of $348.2 million. The Company's cash contributions to the qualified plans for the year ended 2004 is estimated to be $1.4 million, reflecting the amount needed to satisfy its minimum funding requirements. Components of net periodic pension expense (credit) follow:
2003 2002 2001 ----------------- ---------------- ------------------ (In Millions) Service cost....................................... $ 31.8 $ 32.1 $ 32.1 Interest cost on projected benefit obligations..... 122.6 125.3 128.8 Expected return on assets.......................... (173.9) (181.8) (218.7) Net amortization and deferrals..................... 53.4 6.4 .1 ----------------- ---------------- ------------------ Net Periodic Pension Credit........................ $ 33.9 $ (18.0) $ (57.7) ================= ================ ==================
The projected benefit obligations under the pension plans were comprised of:
December 31, ------------------------------------ 2003 2002 ---------------- ----------------- (In Millions) Benefit obligations, beginning of year................................. $ 1,883.9 $ 1,812.3 Service cost........................................................... 26.8 27.1 Interest cost.......................................................... 122.6 125.3 Actuarial losses....................................................... 113.5 42.5 Benefits paid.......................................................... (133.5) (123.3) ---------------- ----------------- Benefit Obligation, End of Year........................................ $ 2,013.3 $ 1,883.9 ================ =================
The change in plan assets and the funded status of the pension plans were as follows:
December 31, ------------------------------------ 2003 2002 ---------------- ----------------- (In Millions) Plan assets at fair value, beginning of year........................... $ 1,785.4 $ 1,845.3 Actual return on plan assets........................................... 359.7 (278.2) Contributions.......................................................... 10.0 348.2 Benefits paid and fees................................................. (140.0) (129.9) ---------------- ----------------- Plan assets at fair value, end of year................................. 2,015.1 1,785.4 Projected benefit obligations.......................................... 2,013.3 1,883.9 ---------------- ----------------- Excess of plan assets over projected benefit obligations............... 1.8 (98.5) Unrecognized prior service cost........................................ (34.8) (40.0) Unrecognized net loss from past experience different from that assumed.................................................... 904.3 1,033.9 Unrecognized net asset at transition................................... (1.3) (1.5) ---------------- ----------------- Prepaid Pension Cost, Net.............................................. $ 870.0 $ 893.9 ================ =================
The aggregate accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $51.1 million and $37.3 million, respectively, at December 31, 2003 and $42.0 million and $24.2 million, respectively, at December 31, 2002. The following table discloses the estimated fair value of plan assets and the percentage of estimated fair value to total plan assets: F-34
December 31, ----------------------------------------------------------- 2003 2002 ----------------------------------------------------------- (In Millions) Estimated Estimated Fair Value % Fair Value % ------------------------ ------- ----------------- ------ Corporate and government debt securities....... $ 438.2 21.7 $ 551.3 30.9 Equity securities.............................. 1,387.4 68.9 793.9 44.5 Equity real estate ............................ 184.8 9.2 180.2 10.1 Short-term investments......................... 2.1 .1 258.6 14.5 Other.......................................... 2.6 .1 1.4 - ------------------------ ------------------- Total Plan Assets.................. $ 2,015.1 $ 1,785.4 ======================== ===================
The asset mix is designed to meet, and, if possible, exceed the long-term rate-of-return assumptions for benefit obligations. The asset allocation is designed with a long-term investment horizon, based on target investment of 65% equities, 25% fixed income and 10% real estate. Emphasis is given to equity investments, given their high expected rate of return. Fixed income investments are included to provide less volatile return. Real Estate investments offer diversity to the total portfolio and long-term inflation protection. The primary investment objective of the plan is to maximize return on assets, giving consideration to prudent risk, in order to minimize net periodic cost. A secondary investment objective is to minimize variation in annual net periodic pension cost over the long term and to fund as much of the future liability growth as practical. Specifically, a reasonable total rate of return is defined as income plus realized and unrealized capital gains and losses such that the growth in projected benefit obligation is less than the return on investments plus the Company's contributions. The following table discloses the weighted-average assumptions used to determine the pension benefit obligations and net periodic pension cost at and for the years ended December 31, 2003 and 2002:
Equitable Life -------------------------------- 2003 2002 ---- ---- Discount rate: Benefit obligation................................................. 6.25% 6.75% Periodic cost...................................................... 6.75% 7.25% Rate of compensation increase: Benefit obligation and periodic cost............................... 5.78% 6.73% Expected long-term rate of return on plan assets (periodic cost)... 8.5% 9.0%
As noted above, the pension plan's target asset allocation is 65% equities, 25% fixed maturities, and 10% real estate. The Company reviewed the historical investment returns for these asset classes. Based on that analysis, management concluded that a long-term expected rate of return of 8.5% is reasonable. 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 $24.5 million, $26.0 million and $27.3 million for 2003, 2002 and 2001, respectively. On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "2003 Medicare Act") was signed into law. It introduces a prescription drug benefit under Medicare Part D as well as a Federal subsidy to employers whose plans provide an "actuarially equivalent" prescription drug benefit. While the Company expects its postretirement prescription drug benefit program will qualify for this subsidy, detailed regulations necessary to implement and administer the 2003 Medicare Act have not yet been issued. Similarly, certain accounting issues raised by the Medicare Act are pending further discussion and resolution by the FASB, thereby further reducing the likelihood at this time of producing a sufficiently reliable measure of the effects of the 2003 Medicare Act. Consequently, and in accordance with FASB Staff Position FAS 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003," measures of the accumulated postretirement benefits obligation and net periodic postretirement benefits costs, as presented in the consolidated financial statements F-35 and accompanying notes thereto, at and for the year ended December 31, 2003, do not reflect the effects of the 2003 Medicare Act on the plan. This election to defer accounting for the effects of the 2003 Medicare Act generally will continue to apply until authoritative guidance on the accounting for the Federal subsidy is issued, at which time transition could result in a change to previously reported information. Alliance maintains several unfunded deferred compensation plans for the benefit of certain eligible employees and executives. The Capital Accumulation Plan was frozen on December 31, 1987 and no additional awards have been made. For the active plans, benefits vest over a period ranging from 3 to 8 years and are amortized as compensation and benefit expense. ACMC, Inc. ("ACMC"), a subsidiary of the Company, is obligated to make capital contributions to Alliance in amounts equal to benefits paid under the Capital Accumulation Plan and the contractual unfunded deferred compensation arrangements. In connection with the acquisition of Bernstein, Alliance agreed to invest $96.0 million per annum for three years to fund purchases of Alliance Holding units or an Alliance sponsored money market fund in each case for the benefit of certain individuals who were stockholders or principals of Bernstein or were hired to replace them. The Company has recorded compensation and benefit expenses in connection with these deferred compensation plans totaling $127.3 million, $101.4 million and $58.3 million for 2003, 2002 and 2001, respectively (including $83.4 million and $63.7 million and $34.5 million for 2003, 2002 and 2001, respectively, relating to the Bernstein deferred compensation plan). 14) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS The Insurance Group primarily uses derivatives for asset/liability risk management, for hedging individual securities and to reduce the Insurance Group's exposure to interest rate fluctuations. Similarly, the Holding Company utilizes derivatives to reduce the fixed interest cost of its long-term debt obligations. Various derivative financial instruments are used to achieve these objectives, including interest rate caps and floors to hedge crediting rates on interest-sensitive individual annuity contracts, interest rate futures to protect against declines in interest rates between receipt of funds and purchase of appropriate assets, and interest rate swaps to modify the duration and cash flows of fixed maturity investments and long-term debt. In addition, the Company periodically enters into forward and futures contracts to hedge certain equity exposures, including the program to hedge certain risks associated with the GMDB feature of the Accumulator series of annuity products. At December 31, 2003, the Company's outstanding equity-based futures contracts were exchange-traded and net settled each day. Also, the Company has purchased reinsurance contracts to mitigate the risks associated with the impact of potential market fluctuations on future policyholder elections of GMIB features contained in certain annuity contracts issued by the Company. See Note 12. As described in Note 2, the Company adopted SFAS No. 133, as amended, on January 1, 2001. Consequently, all derivatives outstanding at December 31, 2003 and 2002 are recognized on the balance sheet at their fair values. These amounts principally consist of interest rate floors that have a total fair value at December 31, 2003 of $9.7 million, excluding the estimated fair value of the GMIB reinsurance contracts. The outstanding notional amounts of derivative financial instruments purchased and sold were:
December 31, ------------------------------------ 2003 2002 ---------------- ----------------- (In Millions) Notional Amount by Derivative Type:: Options: Caps............................................................ $ - $ 5,050 Floors.......................................................... 12,000 4,000 Equity-based futures................................................ 275 50 ---------------- ----------------- Total............................................................... $ 12,275 $ 9,100 ================ =================
At December 31, 2003 and during the year then ended, there were no hybrid instruments that required bifurcation of an embedded derivative component under the provisions of SFAS No. 133. All gains and losses on derivative financial instruments utilized by the Company in 2003 and 2002 are reported in earnings. None of the derivatives were designated as qualifying hedges under SFAS No. 133. For 2003 and 2002, respectively, investment results, principally in net investment income, included gross gains of F-36 $.6 million and $24.3 million and gross losses of $42.6 million and $7.7 million that were recognized on derivative positions. 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 values of off-balance-sheet financial instruments of the Insurance Group were not material at December 31, 2003 and 2002. 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 fair values for variable deferred annuities and single premium deferred annuities, included in policyholders' account balances, are estimated as the discounted value of projected account values. Current account values are projected to the time of the next crediting rate review at the current crediting rates and are projected beyond that date at the greater of current estimated market rates offered on new policies or the guaranteed minimum crediting rate. Expected cash flows and projected account values are discounted back to the present at the current estimated market 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 carrying value and estimated fair value for financial instruments not previously disclosed in Notes 3, 7, 8 and 10 are presented below: F-37
December 31, -------------------------------------------------------------------- 2003 2002 --------------------------------- --------------------------------- Carrying Estimated Carrying Estimated Value Fair Value Value Fair Value --------------- ---------------- --------------- --------------- (In Millions) Consolidated: ------------ Mortgage loans on real estate.......... $ 3,503.1 $ 3,761.7 $ 3,746.2 $ 4,070.1 Other limited partnership interests.... 775.5 775.5 683.0 683.0 Policy loans........................... 3,894.3 4,481.9 4,035.6 4,728.2 Policyholders liabilities: Investment contracts................. 16,817.0 17,245.9 14,555.0 15,114.9 Long-term debt......................... 1,004.9 1,105.7 1,004.4 1,086.4 Closed Block: ------------ Mortgage loans on real estate.......... $ 1,297.6 $ 1,386.0 $ 1,456.0 $ 1,572.6 Other equity investments............... 14.2 14.2 16.4 16.4 Policy loans........................... 1,384.5 1,626.7 1,449.9 1,740.9 SCNILC liability....................... 14.8 14.9 16.5 16.6 Other Discontinued Operations: ----------------------------- Mortgage loans on real estate.......... $ 63.9 $ 69.5 $ 87.5 $ 94.7 Other equity investments............... 7.5 7.5 9.4 9.4 Guaranteed interest contracts.......... 17.8 16.3 18.3 17.0 Long-term debt......................... 101.7 101.7 101.7 101.7
15) COMMITMENTS AND CONTINGENT LIABILITIES In addition to its debt and lease commitments discussed in Notes 10 and 17, from time to time, the Company has provided certain guarantees or commitments to affiliates, investors and others. At December 31, 2003, these arrangements included commitments by the Company to provide equity financing of $342.6 million to certain limited partnerships under certain conditions. Management believes the Company will not incur material losses as a result of these commitments. Equitable Life is the obligor under certain structured settlement agreements 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 need for Equitable Life to satisfy those obligations is remote. The Company had $169.9 million of letters of credit related to reinsurance of which no amounts were outstanding at December 31, 2003. In February 2002, Alliance signed a $125.0 million agreement with a commercial bank under which it guaranteed certain obligations of SCB LLC incurred in the ordinary course of its business in the event SCB LLC is unable to meet these obligations. At December 31, 2003, Alliance was not required to perform under the agreement and had no liability outstanding in connection with the agreement. 16) LITIGATION A number of lawsuits have been filed against life and health insurers in the jurisdictions in which Equitable Life and its subsidiaries do business involving insurers' sales practices, alleged agent misconduct, alleged failure to properly supervise agents, and other matters. Some of the lawsuits have resulted in the award of substantial judgments against other insurers, including material amounts of punitive damages, or in substantial settlements. In some states, juries have substantial discretion in awarding punitive damages. Equitable Life, F-38 Equitable Variable Life Insurance Company ("EVLICO," which was merged into Equitable Life effective January 1, 1997, but whose existence continues for certain limited purposes, including the defense of litigation) and EOC, like other life and health insurers, from time to time are involved in such litigations. Among litigations against Equitable Life, EVLICO and EOC of the type referred to in this paragraph are the litigations described in the following two paragraphs. In October 2000, an action entitled SHAM MALHOTRA, ET AL. V. THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, AXA ADVISORS, LLC AND EQUITABLE DISTRIBUTORS, INC. was commenced in the Supreme Court of the State of New York, County of Nassau. The action was brought by two individuals who purchased Equitable Life deferred annuity products. The action purports to be on behalf of a class consisting of all persons who purchased an individual deferred annuity contract or who received a certificate to a group deferred annuity contract, sold by one of the defendants, which was used to fund a contributory retirement plan or arrangement qualified for favorable income tax treatment; excluded from the class are officers, directors and agents of the defendants. The complaint alleges that the defendants engaged in fraudulent and deceptive practices in connection with the marketing and sale of deferred annuity products to fund tax-qualified contributory retirement plans. The complaint asserts claims for: deceptive business acts and practices in violation of the New York General Business Law ("GBL"); use of misrepresentations and misleading statements in violation of the New York Insurance Law; false or misleading advertising in violation of the GBL; fraud, fraudulent concealment and deceit; negligent misrepresentation; negligence; unjust enrichment and imposition of a constructive trust; declaratory and injunctive relief; and reformation of the annuity contracts. The complaint seeks injunctive and declaratory relief, an unspecified amount of compensatory and punitive damages, restitution for all members of the class, and an award of attorneys' fees, costs and expenses. In October 2000, the defendants removed the action to the United States District Court for the Eastern District of New York, and thereafter filed a motion to dismiss. Plaintiffs filed a motion to remand the case to state court. In September 2001, the District Court issued a decision granting defendants' motion to dismiss and denying plaintiffs' motion to remand, and judgment was entered in favor of the defendants. In October 2001, plaintiffs filed a motion seeking leave to reopen the case for the purpose of filing an amended complaint. In addition, plaintiffs filed a new complaint in the District Court, alleging a similar class and similar facts. The new complaint asserts causes of action for violations of Federal securities laws in addition to the state law causes of action asserted in the previous complaint. In January 2002, plaintiffs amended their new complaint in response to defendants' motion to dismiss and, subsequently, in March 2002, defendants filed a motion to dismiss the amended complaint. In March 2003, the United States District Court for the Eastern District of New York: (i) granted plaintiffs' motion, filed October 2001, seeking leave to reopen their original case for the purpose of filing an amended complaint and accepted plaintiffs' proposed amended complaint, (ii) appointed the named plaintiffs as lead plaintiffs and their counsel as lead counsel for the putative class, (iii) consolidated plaintiffs' original action with their second action, which was filed in October 2001, and (iv) ruled that the court would apply Equitable Life's motion to dismiss the amended complaint in the second action to the plaintiffs' amended complaint from the original action. In April 2003, plaintiffs filed a second amended complaint alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The action purports to be on behalf of a class consisting of all persons who on or after October 3, 1997 purchased an individual variable deferred annuity contract, received a certificate to a group variable deferred annuity contract or made an additional investment through such a contract, which contract was used to fund a contributory retirement plan or arrangement qualified for favorable income tax treatment. In May 2003, the defendants filed a motion to dismiss the second amended complaint and that motion is currently pending. The previously disclosed lawsuit, BRENDA MCEACHERN V. THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES AND GARY RAYMOND, JR., has been settled and dismissed with prejudice. In addition, all of the Mississippi Actions, including the agents' cross-claims, have been settled and dismissed with prejudice. In October 2000, an action entitled AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, AS TRUSTEE F/B/O EMERALD INVESTMENTS LP AND EMERALD INVESTMENTS LP V. AXA CLIENT SOLUTIONS, LLC; THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES; AND AXA FINANCIAL, INC. was commenced in the United States District Court for the Northern District of Illinois. The complaint alleges that the defendants (i) in connection with certain annuities issued by Equitable Life breached an agreement with the plaintiffs involving the execution of mutual fund transfers, and (ii) wrongfully withheld withdrawal charges in connection with the termination of such annuities. Plaintiffs seek substantial lost profits and injunctive relief, punitive damages and attorneys' fees. Plaintiffs also seek return of the withdrawal charges. In February 2001, the District Court granted in part and denied in part defendants' motion to dismiss the complaint. In March 2001, F-39 plaintiffs filed an amended complaint. The District Court granted defendants' motion to dismiss AXA Client Solutions and the Holding Company from the amended complaint, and dismissed the conversion claims in June 2001. The District Court denied defendants' motion to dismiss the remaining claims. Equitable Life has answered the amended complaint. While the monetary damages sought by plaintiffs, if awarded, could have a material adverse effect on the consolidated financial position and results of operations of the Company, management believes that the ultimate resolution of this litigation should not have a material adverse on the Company's consolidated financial position. After the District Court denied defendants' motion to assert certain defenses and counterclaims in AMERICAN NATIONAL BANK, Equitable Life commenced an action, in December 2001, entitled THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES V. AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, AS TRUSTEE F/B/O EMERALD INVESTMENTS LP AND EMERALD INVESTMENTS LP, in the United States District Court for the Northern District of Illinois. The complaint arises out of the same facts and circumstances as described in AMERICAN NATIONAL BANK. Equitable Life's complaint alleges common law fraud and equitable rescission in connection with certain annuities issued by Equitable Life. Equitable Life seeks unspecified money damages, rescission, punitive damages and attorneys' fees. In March 2002, defendants filed an answer to Equitable Life's complaint and asserted counterclaims. Defendants' counterclaims allege common law fraud, violations of the Federal and Illinois Securities Acts and violations of the Illinois and New York Consumer Fraud Acts. Defendants seek unspecified money damages, punitive damages and attorneys' fees. In May 2002, the District Court granted in part and denied in part Equitable Life's motion to dismiss defendants' counterclaims, dismissing defendants' Illinois Securities Act and New York Consumer Fraud Act claims. Equitable Life has answered defendants' remaining counterclaims. In November 2003, Emerald filed a motion for summary judgment; Equitable Life filed its opposition to this motion in December 2003. In January 2004, DH2, Inc., an entity related to Emerald Investments L.P., filed a lawsuit in the United States District Court for the Northern District of Illinois, against Equitable Life and Equitable Advisors Trust, asserting claims for breach of contract and breach of fiduciary duty, claims under the Federal securities laws, and misappropriation of trade secrets. The complaint alleges that Equitable Life and Equitable Advisors Trust wrongfully misappropriated DH2, Inc.'s confidential and proprietary information to implement fair value pricing of securities within the subaccounts of DH2, Inc.'s variable annuity, which diminished the profitability of its proprietary trading strategy. The complaint also alleges that Equitable Life and Equitable Advisors Trust implemented fair value pricing for an improper purpose and without adequate disclosure. The complaint further alleges that Equitable Life and Equitable Advisors Trust are not permitted to implement fair value pricing of securities. The complaint has not been served upon either Equitable Life or Equitable Advisors Trust. In November 1997, an amended complaint was filed in PETER FISCHEL, ET AL. V. THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES alleging, among other things, that Equitable Life violated ERISA by eliminating certain alternatives pursuant to which agents of Equitable Life could qualify for health care coverage. In March 1999, the United States District Court for the Northern District of California entered an order certifying a class consisting of "[a]ll current, former and retired Equitable agents, who while associated with Equitable satisfied [certain alternatives] to qualify for health coverage or contributions thereto under applicable plans." Plaintiffs allege various causes of action under ERISA, including claims for enforcement of alleged promises contained in plan documents and for enforcement of agent bulletins, breach of a unilateral contract, breach of fiduciary duty and promissory estoppel. In May 2001, plaintiffs filed a second amended complaint which, among other things, alleges that Equitable Life failed to comply with plan amendment procedures and deletes the promissory estoppel claim. In September 2001, Equitable Life filed a motion for summary judgment on all of plaintiffs' claims, and plaintiffs filed a motion for partial summary judgment on all claims except their claim for breach of fiduciary duty. In May 2002, the District Court issued an order granting plaintiffs' motion for partial summary judgment, granting Equitable Life's motion for summary judgment on plaintiffs' claim for breach of fiduciary duty and otherwise denying Equitable Life's motion for summary judgment. The court ruled that Equitable Life is liable to plaintiffs on their contract claims for subsidized benefits under ERISA. The court has deferred addressing the relief to which plaintiffs are entitled in light of the May 2002 order. In June 2000, plaintiffs appealed to the Court of Appeals for the Ninth Circuit contesting the District Court's award of F-40 legal fees to plaintiffs' counsel in connection with a previously settled count of the complaint unrelated to the health benefit claims. In that appeal, plaintiffs challenged the District Court's subject matter jurisdiction over the health benefit claims. A decision was rendered in October 2002 on that appeal. The Court of Appeals denied plaintiffs' challenge to the District Court's subject matter jurisdiction over the settled claim, affirmed the method that the District Court used to calculate the award of legal fees to plaintiffs' counsel and remanded for further consideration of the fee award. In May 2003, plaintiffs' motion for an award of additional legal fees from the settled claim settlement fund was denied by the District Court. Plaintiffs have appealed that order. A putative class action entitled STEFANIE HIRT, ET AL. V. THE EQUITABLE RETIREMENT PLAN FOR EMPLOYEES, MANAGERS AND AGENTS, ET AL. was filed in the District Court for the Southern District of New York in August 2001 against The Equitable Retirement Plan for Employees, Managers and Agents (the "Retirement Plan") and The Officers Committee on Benefit Plans of Equitable Life, as Plan Administrator. The action was brought by five participants in the Retirement Plan and purports to be on behalf of "all Plan participants, whether active or retired, their beneficiaries and Estates, whose accrued benefits or pension benefits are based on the Plan's Cash Balance Formula." The complaint challenges the change, effective January 1, 1989, in the pension benefit formula from a final average pay formula to a cash balance formula. Plaintiffs allege that the change to the cash balance formula violates ERISA by reducing the rate of accruals based on age, failing to comply with ERISA's notice requirements and improperly applying the formula to retroactively reduce accrued benefits. The relief sought includes a declaration that the cash balance plan violates ERISA, an order enjoining the enforcement of the cash balance formula, reformation and damages. Defendants answered the complaint in October 2001. In April 2002, plaintiffs filed a motion seeking to certify a class of "all Plan participants, whether active or retired, their beneficiaries and Estates, whose accrued benefits or pension benefits are based on the Plan's Cash Balance Formula." Also in April 2002, plaintiffs agreed to dismiss with prejudice their claim that the change to the cash balance formula violates ERISA by improperly applying the formula to retroactively reduce accrued benefits. That claim has been dismissed. In March 2003, plaintiffs filed an amended complaint elaborating on the remaining claims in the original complaint and adding additional class and individual claims alleging that the adoption and announcement of the cash balance formula and the subsequent announcement of changes in the application of the cash balance formula failed to comply with ERISA. The parties agreed that the new individual claims of the five named plaintiffs regarding the delivery of announcements to them would be excluded from the class certification. In April 2003, defendants filed an answer to the amended complaint. By order dated May 2003, the District Court, as requested by the parties, certified the case as a class action, including a sub-class of all current and former Plan participants, whether active, inactive or retired, their beneficiaries or estates, who were subject to a 1991 change in application of the cash balance formula. In July 2003, defendants filed a motion for summary judgment on the grounds that plaintiffs' claims are barred by applicable statutes of limitations. In October 2003, the District Court denied that motion. In January 2003, a putative class action entitled BERGER ET AL. V. AXA NETWORK, LLC AND THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES was commenced in the United States District Court for the Northern District of Illinois by two former agents on behalf of themselves and other similarly situated present, former and retired agents who, according to the complaint, "(a) were discharged by Equitable Life from `statutory employee status' after January 1, 1999, because of Equitable Life's adoption of a new policy stating that in any given year, those who failed to meet specified sales goals during the preceding year would not be treated as `statutory employees,' or (b) remain subject to discharge from `statutory employee' status based on the policy applied by Equitable Life." The complaint alleges that the company improperly "terminated" the agents' full-time life insurance salesman statutory employee status in or after 1999 by requiring attainment of minimum production credit levels for 1998, thereby making the agents ineligible for benefits and "requiring" them to pay Self-Employment Contribution Act taxes. The former agents, who assert claims for violations of ERISA and 26 U.S.C. 3121, and breach of contract, seek declaratory and injunctive relief, plus restoration of benefits and an adjustment of their benefit plan contributions and payroll tax withholdings. In March 2003, Equitable Life filed a motion to dismiss the complaint. In July 2003, the United States District Court for the Northern District of Illinois granted in part and denied in part Equitable Life's motion to dismiss the complaint, dismissing plaintiffs' claims for violation of 26 U.S.C. 3121 and breach of contract. Equitable Life has answered plaintiffs' remaining claim for violation of ERISA. In July 2003, plaintiffs filed a motion for class certification. In November 2003, Equitable Life filed its opposition to the motion for class certification; that motion is currently pending and the case is currently in discovery. In May 2003, a putative class action complaint entitled ECKERT V. THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES was filed in the United States District Court for the Eastern District of New York, as a case related to the MALHOTRA action described above. The complaint asserts a single claim for relief under Section 47(b) of the Investment Company Act of 1940, as amended based on Equitable Life's alleged failure to register as an investment company. According to the complaint, Equitable Life was required to register as an investment company because it was allegedly issuing securities in the form of variable insurance products and F-41 allegedly investing its assets primarily in other securities. The plaintiff purports to act on behalf of all persons who purchased or made an investment in variable insurance products from Equitable Life on or after May 7, 1998. The complaint seeks declaratory judgment permitting putative class members to elect to void their variable insurance contracts; restitution of all fees and penalties paid by the putative class members on the variable insurance products, disgorgement of all revenues received by Equitable Life on those products, and an injunction against the payment of any dividends by Equitable Life to the Holding Company. In June 2003, Equitable Life filed a motion to dismiss the complaint and that motion is currently pending. Between September and October 2003, ten substantially similar putative class action lawsuits were filed against AXA Financial (and in some cases AIMA Acquisition Co., a wholly owned subsidiary of AXA Financial ("AIMA")), The MONY Group Inc. ("MONY") and MONY's directors in the Court of Chancery of the State of Delaware in and for New Castle County, entitled BEAKOVITZ V. AXA FINANCIAL, INC., ET AL.; BELODOFF V. THE MONY GROUP INC., ET AL.; BRIAN V. THE MONY GROUP INC., ET AL.; BRICKLAYERS LOCAL 8 AND PLASTERERS LOCAL 233 PENSION FUND V. THE MONY GROUP, INC., ET AL.; CANTOR V. THE MONY GROUP INC., ET AL.; E.M. CAPITAL, INC. V. THE MONY GROUP INC., ET AL.; GARRETT V. THE MONY GROUP INC., ET AL.; LEBEDDA V. THE MONY GROUP INC., ET AL.; MARTIN V. ROTH, ET AL.; AND MUSKAL V. THE MONY GROUP INC., ET AL. (collectively, the MONY Stockholder Litigation). The complaints in these actions, all of which purport to be brought on behalf of a class consisting of all MONY stockholders, excluding the defendants and their affiliates, challenge the proposed merger of MONY into AIMA and allege, among other things, that the $31.00 cash price per share to be paid to MONY stockholders in connection with the proposed merger is inadequate and that MONY's directors breached their fiduciary duties in negotiating and approving the merger agreement. The complaints also allege that AXA Financial, and in some cases AIMA, aided and abetted the alleged breaches of fiduciary duty by MONY's directors. The complaints seek various forms of relief, including damages and injunctive relief that would, if granted, prevent completion of the merger. In September 2003, a joint motion was filed on behalf of plaintiffs in six of the Delaware actions seeking to consolidate all actions. In November 2003, the Court of Chancery signed an order consolidating the actions and plaintiffs served a consolidated complaint. Pursuant to stipulation, in December 2003 defendants have contested the complaint. In January 2004, the Court of Chancery granted plaintiffs leave to amend their complaint. Plaintiffs have stated that they intend to file a motion for a preliminary injunction seeking to prevent completion of the merger. Defendants will oppose a motion for a preliminary injunction. The Court of Chancery has scheduled the hearing on plaintiffs' planned motion for February 17, 2004 and the parties are engaged in discovery. In addition, AXA Financial, MONY and MONY's directors have been named in two putative class action lawsuits filed in New York State Supreme Court in Manhattan, entitled LAUFER V. THE MONY GROUP, ET AL. and NORTH BORDER INVESTMENTS V. BARRETT, ET AL.. The complaints in these actions contain allegations substantially similar to those in the Delaware cases, and likewise purport to assert claims for breach of fiduciary duty against MONY's directors and for aiding and abetting a breach of fiduciary duty against AXA Financial. The complaints in these actions also purport to be brought on behalf of a class consisting of all MONY stockholders, excluding the defendants and their affiliates, and seek various forms of relief, including damages and injunctive relief that would, if granted, prevent the completion of the merger. In December 2003, defendants contested the claims in the LAUFER and NORTH BORDER complaints. The parties in each of these actions are engaged in discovery. Although the outcome of litigation generally cannot be predicted with certainty, the Company's management believes that, subject to the foregoing, (i) the settlement of the MCEACHERN litigation and the Mississippi Actions, including the agents' cross-claims, will not have a material adverse effect on the consolidated financial position or results of operations of the Company and (ii) the ultimate resolution of the other litigations described above should not have a material adverse effect on the consolidated financial position of the Company. The Company's management cannot make an estimate of loss, if any, or predict whether or not any of such other litigations described above will have a material adverse effect on the Company's consolidated results of operations in any particular period. Alliance Litigations -------------------- In April 2001, an amended class action complaint entitled MILLER, ET AL. V. MITCHELL HUTCHINS ASSET MANAGEMENT, INC., ET AL. was filed in the United States District Court for the Southern District of Illinois against Alliance, Alliance Fund Distributors, Inc. (now known as AllianceBernstein Investment Research and Management, Inc., "ABIRM"), a wholly owned subsidiary of Alliance, and other defendants alleging violations of the Investment Company Act of 1940, as amended ("ICA"), and breaches of common law F-42 fiduciary duty. The principal allegations of the amended complaint were that the advisory and distribution fees for certain mutual funds managed by Alliance were excessive and in violation of the ICA and the common law. Plaintiffs subsequently amended their compliant to include, as plaintiffs, shareholders of the AllianceBernstein Premier Growth Fund ("Premier Growth Fund"), the AllianceBernstein Quasar Fund (now known as AllianceBernstein Small Cap Growth Fund), the AllianceBernstein Growth and Income Fund, the AllianceBernstein Corporate Bond Fund, the AllianceBernstein Growth Fund, the AllianceBernstein Balanced Shares Fund, and the AllianceBernstein Americas Government Income Trust. In December 2003, the parties entered into a settlement agreement resolving the matter and the matter has been dismissed by the court. In December 2001, a complaint entitled BENAK V. ALLIANCE CAPITAL MANAGEMENT L.P. AND ALLIANCE PREMIER GROWTH FUND ("BENAK COMPLAINT") was filed in the United States District Court for the District of New Jersey against Alliance and Premier Growth Fund alleging that defendants violated Section 36(b) of the ICA. The principal allegations of the Benak Complaint are that Alliance breached its duty of loyalty to Premier Growth Fund because one of the directors of the general partner of Alliance served as a director of Enron Corp. ("Enron") when Premier Growth Fund purchased shares of Enron, and as a consequence thereof, the investment advisory fees paid to Alliance by Premier Growth Fund should be returned as a means of recovering for Premier Growth Fund the losses plaintiff alleges were caused by the alleged breach of the duty of loyalty. Subsequently, between December 2001 and July 2002, five complaints making substantially the same allegations and seeking substantially the same relief as the Benak Complaint were filed against Alliance and Premier Growth Fund. All of those actions were consolidated in the United States District Court for the District of New Jersey. In January 2003, a consolidated amended complaint entitled BENAK V. ALLIANCE CAPITAL MANAGEMENT L.P. ("BENAK CONSOLIDATED AMENDED COMPLAINT") was filed containing allegations similar to those in the individual complaints although it does not name the Premier Growth Fund as a defendant. In February 2003, the court granted with prejudice Alliance's motion to dismiss the Benak Consolidated Amended Complaint, holding that plaintiffs' allegations failed to state a claim under Section 36(b). Plaintiffs have thirty days from the entry of the dismissal order to appeal the court's decision dismissing the action. Alliance believes that plaintiffs' allegations in the Benak Consolidated Amended Complaint were without merit and intends to vigorously defend against any appeal that may be taken from the dismissal with prejudice of the action. In April 2002, a consolidated complaint entitled IN RE ENRON CORPORATION SECURITIES LITIGATION ("ENRON COMPLAINT") was filed in the United States District Court for the Southern District of Texas, Houston Division, against numerous defendants, including Alliance. The principal allegations of the Enron Complaint, as they pertain to Alliance, are that Alliance violated Sections 11 and 15 of the Securities Act of 1933, as amended ("Securities Act") with respect to a registration statement filed by Enron and effective with the SEC on July 18, 2001, which was used to sell $1.9 billion Enron Corp. Zero Coupon Convertible Notes due 2021. Plaintiffs allege that Frank Savage, who was at that time an employee of Alliance and who was and remains a director of the general partner of Alliance, signed the registration statement at issue. Plaintiffs allege that the registration statement was materially misleading. Plaintiffs further allege that Alliance was a controlling person of Frank Savage. Plaintiffs therefore assert that Alliance is itself liable for the allegedly misleading registration statement. Plaintiffs seek recission or a recissionary measure of damages. In June 2002, Alliance moved to dismiss the Enron Complaint as the allegations therein pertain to it. In March 2003, that motion was denied. In May 2003, a First Amended Consolidated Complaint ("Enron Amended Consolidated Complaint"), with substantially identical allegations as to Alliance, was filed. Alliance filed its answer in June 2003. In May 2003, plaintiffs filed an Amended Motion For Class Certification. In October 2003, following the completion of class discovery, Alliance filed its opposition to class certification. Alliance's motion is pending. The case is currently in discovery. Alliance believes that plaintiffs' allegations in the Enron Amended Consolidated Complaint as to it are without merit and intends to vigorously defend against these allegations. In May 2002, a complaint entitled THE FLORIDA STATE BOARD OF ADMINISTRATION V. ALLIANCE CAPITAL MANAGEMENT L.P. ("SBA COMPLAINT") was filed in the Circuit Court of the Second Judicial Circuit, in and for Leon County, Florida against Alliance. The SBA Complaint alleges breach of contract relating to the Investment Management Agreement between The Florida State Board of Administration ("SBA") and Alliance, breach of the covenant of good faith and fair dealing contained in the Investment Management Agreement, breach of fiduciary duty, negligence, gross negligence and violation of the Florida Securities and Investor Protection Act, in connection with purchases and sales of Enron common stock for the SBA investment account. The SBA seeks more than $300 million in compensatory damages and an unspecified F-43 amount of punitive damages. In June 2002, Alliance moved to dismiss the SBA Complaint; in September 2002, the court denied Alliance's motion to dismiss the SBA Complaint in its entirety. In November 2003, the SBA filed an amended complaint ("Amended SBA Complaint"). While the Amended SBA Complaint contains the Enron claims, the Amended SBA Complaint also alleges that Alliance breached its contract with the SBA by investing in or continuing to hold stocks for the SBA's investment portfolio that were not "1 rated," the highest rating that Alliance's research analysts could assign. The SBA also added claims for negligent supervision and common law fraud. In December 2003, Alliance moved to dismiss the fraud and breach of fiduciary duty claims in the Amended SBA Complaint. In January 2004, the court denied that motion. The case is currently in discovery. Alliance believes the SBA's allegations in the Amended SBA Complaint are without merit and intends to vigorously defend against these allegations. In September 2002, a complaint entitled LAWRENCE E. JAFFE PENSION PLAN, LAWRENCE E. JAFFE TRUSTEE U/A 1198 V. ALLIANCE CAPITAL MANAGEMENT L.P., ALFRED HARRISON AND ALLIANCE PREMIER GROWTH FUND, INC. ("JAFFE COMPLAINT") was filed in the United States District Court for the Southern District of New York against Alliance, Alfred Harrison and Premier Growth Fund alleging violation of the ICA. Plaintiff seeks damages equal to Premier Growth Fund's losses as a result of Premier Growth Fund's investment in shares of Enron and a recovery of all fees paid to Alliance beginning November 1, 2000. In March 2003, the court granted Alliance's motion to transfer the Jaffe Complaint to the United States District Court for the District of New Jersey to be consolidated with the Benak Consolidated Amended Complaint already pending there. In December 2003, plaintiff filed an amended complaint ("Amended Jaffe Complaint") in the United States District Court for the District of New Jersey. The Amended Jaffe Complaint alleges violations of Section 36(a) of the ICA, common law negligence, and negligent misrepresentation. Specifically, the Amended Jaffe Complaint alleges that (i) the defendants breached their fiduciary duties of loyalty, care and good faith to Premier Growth Fund by causing Premier Growth Fund to invest in the securities of Enron, (ii) the defendants were negligent for investing in securities of Enron, and (iii) through prospectuses and other documents, defendants misrepresented material facts related to Premier Growth Fund's investment objective and policies. In January 2004, defendants moved to dismiss the Amended JAFFE COMPLAINT. Alliance and Alfred Harrison believe that plaintiff's allegations in the Amended JAFFE COMPLAINT are without merit and intend to vigorously defend against these allegations. In December 2002, a putative class action complaint entitled PATRICK J. GOGGINS ET AL. V. ALLIANCE CAPITAL MANAGEMENT L.P. ET AL. ("GOGGINS COMPLAINT") was filed in the United States District Court for the Southern District of New York against Alliance, Premier Growth Fund and individual directors and certain officers of Premier Growth Fund. In August 2003, the court granted Alliance's motion to transfer the Goggins Complaint to the United States District Court for the District of New Jersey. In December 2003, plaintiffs filed an amended complaint ("Amended Goggins Compliant") in the United States District Court for the District of New Jersey. The Amended Goggins Complaint alleges that defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act because Premier Growth Fund's registration statements and prospectuses contained untrue statements of material fact and omitted material facts. More specifically, the Amended Goggins Complaint alleges that the Premier Growth Fund's investment in Enron was inconsistent with the fund's stated strategic objectives and investment strategies. Plaintiffs seek rescissory relief or an unspecified amount of compensatory damages on behalf of a class of persons who purchased shares of Premier Growth Fund during the period October 31, 2000 through February 14, 2002. In January 2004, Alliance moved to dismiss the Amended Goggins Complaint. Alliance, Premier Growth Fund and the other defendants believe the plaintiffs' allegations in the Amended Goggins Complaint are without merit and intend to vigorously defend against these allegations. In August 2003, the Securities and Exchange Board of India ("SEBI") ordered that Samir C. Arora, a former research analyst/portfolio manager of Alliance, refrain from buying, selling or dealing in Indian securities. Until August 4, 2003, when Mr. Arora announced his resignation from Alliance, he served as head of Asian emerging markets equities and a fund manager of Alliance Capital Asset Management (India) Pvt. Ltd. ("ACAML"), a fund management company 75% owned by Alliance. The order states that Mr. Arora relied on unpublished price sensitive information in making certain investment decisions on behalf of certain clients of ACAML and Alliance, that there were failures to make required disclosures regarding the size of certain equity holdings, and that Mr. Arora tried to influence the sale of Alliance's stake in ACAML. Mr. Arora contested the findings in the order by filing objections and at a personal hearing held in August 2003. In September 2003, SEBI issued an order confirming its previous order against Mr. Arora. In October 2003, Mr. Arora filed an appeal with the Securities Appellate Tribunal ("SAT") seeking certain interim reliefs. Mr. F-44 Arora's appeal was heard by the SAT on December 15, 2003. The SAT passed an order on January 12, 2004 wherein it did not grant any interim reliefs to Mr. Arora since SEBI had stated that the investigations in the matter were in progress. However, the SAT has directed SEBI to complete the investigations by February 28, 2004 and to pass final orders in the matter by March 31, 2004. Alliance is reviewing this matter and, at the present time, management of Alliance does not believe its outcome will have a material impact on Alliance's results of operations or financial condition, and the Company's management does not believe its outcome will have a material impact on the Company's consolidated results of operations or financial position. In September 2003, SEBI issued to Alliance a show cause notice and finding of investigation (the "Notice"). The Notice requires Alliance to explain its failure to make disclosure filings as to the acquisition of shares of five (5) Indian equity securities held at various times by Alliance (through sub-accounts under foreign institutional investor licenses), ACAML and Alliance's local Indian mutual fund as required under the SEBI (Insider Trading) Regulations, 1992, and the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 when the holdings of the said entities in the Relevant Scrips crossed five percent (5%) which could make Alliance liable to pay penalties prescribed under Section 15A of the SEBI Act, 1992, which requires that disclosure be made when the holdings of an investor (or group of investors acting in concert) in an Indian security exceeds either five percent (5%) of the outstanding shares or changes by more than two percent (2%). In October 2003 and November 2003, Alliance filed its reply and written submissions, respectively. Alliance also had a personal hearing before the SEBI on October 21, 2003 and the decision of SEBI in relation to the Notice is pending. At the present time, management of Alliance does not believe the outcome of this matter will have a material impact on Alliance's results of operations or financial condition and the Company's management does not believe its outcome will have a material impact on the Company's consolidated results of operations or financial position. In October 2003, a purported class action complaint entitled ERB ET AL. V. ALLIANCE CAPITAL MANAGEMENT L.P. ET AL. ("ERB COMPLAINT") was filed in the Circuit Court of St. Clair County, State of Illinois against Alliance. Plaintiff, purportedly a shareholder in the Premier Growth Fund, alleges that Alliance breached unidentified provisions of Premier Growth Fund's prospectus and subscription and confirmation agreements that allegedly required that every security bought for Premier Growth Fund's portfolio must be a "1-rated" stock, the highest rating that Alliance's analysts could assign. Plaintiff alleges that Alliance impermissibly purchased shares of stocks that were not 1-rated. Plaintiff seeks rescission of all purchases of any non-1-rated stocks Alliance made for Premier Growth Fund over the past ten years, as well as an unspecified amount of damages. In November 2003, Alliance removed the Erb Complaint to the United States District Court for the Southern District of Illinois on the basis that plaintiff's alleged breach of contract claims are preempted under the Securities Litigation Uniform Standards Act. In December 2003, plaintiff filed a motion for remand. In February 2004, the court granted that motion and remanded the action to state court. Alliance believes that plaintiff's allegations in the Erb Complaint are without merit and intends to vigorously defend against these allegations. In October 2003, a purported class action complaint entitled HINDO ET AL. V. ALLIANCEBERNSTEIN GROWTH & INCOME FUND ET AL. ("HINDO COMPLAINT") was filed against Alliance, Alliance Holding, ACMC, AXA Financial, the AllianceBernstein family of mutual funds ("AllianceBernstein Funds"), the registrants and issuers of those funds, certain officers of Alliance (the "Alliance defendants"), and certain other defendants not affiliated with Alliance, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act, and Sections 206 and 215 of the Investment Advisers Act of 1940 (the "Advisers Act"). Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with Alliance, including recovery of all fees paid to Alliance pursuant to such contracts. Between October 3 and January 29, 2004, forty additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed against Alliance and certain other defendants, and others may be filed. These forty additional lawsuits are as follows: a) Federal Court Class Actions: Twenty-five of the lawsuits were brought as class actions filed in Federal court (twenty-one in the United States District Court for the Southern District of New York, two in the United States District Court for the District of New Jersey, one in the United States District Court for the Northern District of California, and one in the United States District Court for the District of Connecticut). Certain of these additional lawsuits allege claims under the Securities Act, the Exchange Act, the Advisers Act, the ICA and common law. All of F-45 these lawsuits are brought on behalf of shareholders of AllianceBernstein Funds, except three. Of these three, one was brought on behalf of a unitholder of Alliance Holding and two were brought on behalf of participants in the Profit Sharing Plan for Employees of Alliance Capital ("Plan"). The latter two lawsuits allege claims under Sections 404, 405 and 406 of ERISA, on the grounds that defendants violated fiduciary obligations to the Plan by failing to disclose the alleged market timing and late trading activities in AllianceBernstein Funds, and by permitting the Plan to invest in funds subject to those activities. One of these ERISA actions has been voluntarily dismissed. AXA Financial is named as a defendant, primarily as a control person of Alliance, in all but two of these cases (two of the twenty-five cases pending before the United States District Court for the Southern District of New York). b) Federal Court Derivative Actions: Eight of the lawsuits were brought as derivative actions in Federal court (one in the United States District Court for the Southern District of New York, five in the United States District Court for the Eastern District of New York, and two in the United States District Court for the District of New Jersey). These lawsuits allege claims under the Exchange Act, Section 36(b) of the ICA and/or common law. Six of the lawsuits were brought derivatively on behalf of certain AllianceBernstein Funds, with the broadest lawsuits being brought derivatively on behalf of all AllianceBernstein Funds, generally alleging that defendants violated fiduciary obligations to the AllianceBernstein Funds and/or fund shareholders by permitting select investors to engage in market timing activities and failing to disclose those activities. Two of the lawsuits were brought derivatively on behalf of Alliance Holding, generally alleging that defendants breached fiduciary obligations to Alliance Holding or its unitholders by failing to prevent the alleged undisclosed market timing and late trading activities from occurring. AXA Financial is named as a defendant, primarily as a control person of Alliance, in all but two of these cases (the one case pending before the United States District Court for the Southern District of New York and one of the two cases pending before the United States District Court for the District of New Jersey). c) State Court Representative Actions: Two lawsuits were brought as class actions in the Supreme Court of the State of New York, County of New York, by alleged shareholders of an AllianceBernstein Fund on behalf of shareholders of the AllianceBernstein Funds. The lawsuits allege that defendants allowed certain parties to engage in late trading and market timing transactions in the AllianceBernstein Funds and that such arrangements breached defendants' fiduciary duty to investors, and purport to state a claim for breach of fiduciary duty. One of the complaints also purports to state claims for breach of contract and tortious interference with contract. AXA Financial is named as a defendant, primarily as a control person of Alliance, in one of these two lawsuits. d) A lawsuit was filed in Superior Court for the State of California, County of Los Angeles, alleging that defendants violated fiduciary responsibilities and disclosure obligations by permitting certain favored customers to engage in market timing and late trading activities in the AllianceBernstein Funds, and purports to state claims of unfair business practices under Sections 17200 and 17303 of the California Business & Professional Code. Pursuant to these statutes, the action was brought on behalf of members of the general public of the State of California. AXA Financial is named as a defendant, primarily as a control person of Alliance. e) State Court Derivative Actions: Three lawsuits were brought as derivative actions in state court (one in the Supreme Court of the State of New York, County of New York, and two in the Superior Court of the State of Massachusetts, County of Suffolk). The New York action was brought derivatively on behalf of Alliance Holding and alleges that, in connection with alleged market timing and late trading transactions, defendants breached their fiduciary duties to Alliance Holding and its unitholders by failing to maintain adequate controls and employing improper practices in managing unspecified AllianceBernstein Funds. AXA Financial is named as a defendant, primarily as a control person of Alliance in the New York lawsuit. The Massachusetts actions were brought derivatively on behalf of certain AllianceBernstein Funds and allege state common law claims for breach of fiduciary duty, abuse of control, gross mismanagement, waste and unjust enrichment. Both Massachusetts actions attempt to name AXA Financial as a defendant. f) State Court Individual Action: A lawsuit was filed in the District Court of Johnson County, Kansas, Civil Court Department, alleging that defendants were negligent and breached their fiduciary duties by knowingly entering into a number of illegal and improper arrangements with institutional investors for the purpose of engaging in late trading and market timing in AllianceBernstein Funds to the detriment of F-46 plaintiff and failing to disclose such arrangements in the AllianceBernstein Fund prospectuses, and purports to state claims under Sections 624 and 626 of the Kansas Consumer Protection Act, and Section 1268 of the Kansas Securities Act. The lawsuit also purports to state claims of negligent misrepresentation, professional negligence and breach of fiduciary duty under common law. AXA Financial is not named as a defendant in this lawsuit. All of these lawsuits seek an unspecified amount of damages. All of the Federal actions discussed above (i.e., the Hindo Complaint, Federal Court Class Actions and Federal Court Derivative Actions) are the subject of a petition or tag-along notices filed by Alliance before the Judicial Panel on Multidistrict Litigation ("MDL Panel") seeking to have all of the actions centralized in a single forum for pre-trial proceedings. On January 29, 2004, the MDL Panel held a hearing on these petitions. On February 20, 2004, the MDL Panel transferred all of the actions to the United States District Court for the District of Maryland. Pursuant to agreements among the parties, the Alliance defendants' and AXA Financial's responses to the Federal actions that have been served on Alliance and AXA Financial are stayed pending a decision on consolidation by the MDL panel and the filing of an amended or operative complaint. The various plaintiffs seeking appointment to serve as lead plaintiffs have stipulated to stay the lead plaintiff decision until after the MDL Panel makes a decision on the MDL petitions pending before it. In addition, discovery has not commenced in any of these cases. In most of them, discovery is stayed under the Private Securities Litigation Reform Act of 1995 or pursuant to an agreement among the parties. Defendants have removed each of the State Court Representative Actions discussed above, and thereafter submitted the actions to the MDL Panel in a notice of tag-along actions. Plaintiff in each of these actions has moved to remand the action back to state court or has indicated an intention to do so. Where defendants have responded to the complaints, defendants have moved to stay proceedings pending transfer by the MDL Panel. Defendants have not yet responded to the complaints filed in the State Court Derivative Actions. Alliance recorded charges to income totaling $330.0 million in 2003 in connection with establishing the $250.0 million restitution fund (which is discussed in detail under "Business - Regulation" in this Form 10-K) and certain other matters discussed above under "Alliance Litigations". Management of Alliance, however, cannot determine at this time the eventual outcome, timing or impact of these matters. Accordingly, it is possible that additional charges in the future may be required. With respect to the matters discussed above under "Alliance Litigations" (other than those referred to in the preceding paragraph and those related to SEBI), management of Alliance is unable to estimate the impact, if any, that the outcome of these matters may have on Alliance' results of operations or financial condition and the Company's management is unable to estimate the impact, if any, that the outcome of these matters may have on the Company's results of operations or financial position. In addition to the matters previously reported and those 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. However, it should be noted that the frequency of large damage awards, including large punitive damage awards that bear little or no relation to actual economic damages incurred by plaintiffs in some jurisdictions, continues to create the potential for an unpredictable judgment in any given matter. 17) LEASES The Company has entered into operating leases for office space and certain other assets, principally information technology equipment and office furniture and equipment. Future minimum payments under noncancelable operating leases for 2004 and the four successive years are $125.8 million, $123.6 million, $111.5 million, $97.8 million, $90.1 million and $764.0 million thereafter. Minimum future sublease rental income on these noncancelable operating leases for 2004 and the four successive years is $13.0 million, $9.2 million, $2.9 million, $2.7 million, $2.3 million and $16.1 million thereafter. F-47 At December 31, 2003, the minimum future rental income on noncancelable operating leases for wholly owned investments in real estate for 2004 and the four successive years is $80.7 million, $79.4 million, $78.4 million, $69.8 million, $62.2 million and $497.7 million thereafter. The Company has entered into capital leases for certain information technology equipment. Future minimum payments under noncancelable capital leases for 2004 and 2005 are $2.0 million and $1.9 million, respectively. 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, a domestic life insurer may, without prior approval of the Superintendent; pay a dividend to its shareholders not exceeding an amount calculated based on a statutory formula. This formula would permit Equitable Life to pay shareholder dividends not greater than $413.2 million during 2004. Payment of dividends exceeding this amount requires the insurer to file notice of its intent to declare such dividends with the Superintendent who then has 30 days to disapprove the distribution. For 2003, 2002 and 2001, the Insurance Group statutory net income totaled $549.4 million, $451.6 million and $547.7 million, respectively. Statutory surplus, capital stock and Asset Valuation Reserve ("AVR") totaled $4,476.6 million and $4,281.0 million at December 31, 2003 and 2002, respectively. In 2003, 2002 and 2001, respectively, $400.0 million, $500.0 million and $1.7 billion in shareholder dividends were paid by Equitable Life. At December 31, 2003, the Insurance Group, in accordance with various government and state regulations, had $27.2 million of securities deposited with such government or state agencies. In 1998, the NAIC approved a codification of statutory accounting practices ("Codification"), which provides regulators and insurers with uniform statutory guidance, addresses areas where statutory accounting previously was silent and changes certain existing statutory positions. Equitable Life and Equitable of Colorado became subject to Codification rules for all state filings upon adoption of Codification by the respective states. On December 27, 2000, an emergency rule was issued by the New York Insurance Department (NYID), which adopted Codification in New York effective on January 1, 2001 except where the guidance conflicted with New York Law. Differences in the New York regulation adopted in 2000 from Codification were in accounting for deferred taxes and goodwill, which are required to be disclosed in the notes to the Annual Statement, as well as the Annual Audited Report. On September 24, 2002, the bill authorizing the admissibility of deferred taxes by New York insurers was signed into law and was effective as of January 1, 2002. The impact of adopting the accounting for deferred taxes at January 1, 2002 was a $363.6 million decrease to surplus. The implementation of Codification in 2001 resulted in a $1,630.9 million increase to surplus and capital stock, principally due to the $1,660.8 million valuation adjustment related to Alliance. The application of the Codification rules as adopted by the State of Colorado had no significant effect on Equitable Life or Equitable of Colorado. At December 31, 2003 and for the year then ended, there were no differences in net income and capital and surplus resulting from practices prescribed and permitted by the State of New York and those prescribed by NAIC Accounting Practices and Procedures effective at December 31, 2003. Accounting practices used to prepare statutory financial statements for regulatory filings of stock life insurance companies differ in certain instances from GAAP. The differences between statutory surplus and capital stock determined in accordance with Statutory Accounting Principles ("SAP") and total shareholders' equity under GAAP are primarily: (a) the 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) under SAP, Federal income taxes are provided on the basis of amounts currently payable with provisions made for deferred F-48 amounts that reverse within one year while under GAAP, deferred taxes are recorded for temporary differences between the financial statements and tax basis of assets and liabilities where the probability of realization is reasonably assured, (e) the 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; (f) the valuation of the investment in Alliance and Alliance Holding under SAP reflects a portion of the market value appreciation rather than the equity in the underlying net assets as required under GAAP; (g) the provision for future losses of the discontinued Wind-Up Annuities business is only required under GAAP; (h) reporting the surplus notes as a component of surplus in SAP but as a liability in GAAP; (i) computer software development costs are capitalized under GAAP but expensed under SAP; and (j) certain assets, primarily pre-paid assets, are not admissible under SAP but are admissible under GAAP. The following reconciles the Insurance Group's statutory change in surplus and capital stock and statutory surplus and capital stock determined in accordance with accounting practices prescribed by the NYID with net earnings and equity on a GAAP basis.
2003 2002 2001 ----------------- ---------------- ----------------- (In Millions) Net change in statutory surplus and capital stock.................................... $ 43.4 $ (1,354.7) $ 104.1 Change in AVR...................................... 152.2 (464.7) (230.2) ----------------- ---------------- ----------------- Net change in statutory surplus, capital stock and AVR.......................................... 195.6 (1,819.4) (126.1) Adjustments: Future policy benefits and policyholders' account balances............................... (245.7) 255.2 270.8 DAC.............................................. 556.1 458.1 458.5 Deferred Federal income taxes.................... 30.9 (634.6) (354.8) Valuation of investments......................... 39.6 (74.8) 67.9 Valuation of investment subsidiary............... (321.6) 1,399.4 (1,507.9) Change in fair value of guaranteed minimum income benefit reinsurance contracts.................. (91.0) 120.0 - Shareholder dividends paid...................... 400.0 500.0 1,700.0 Changes in non-admitted assets................... (35.1) 384.2 138.3 Other, net....................................... (2.1) (23.7) 5.4 GAAP adjustments for Other Discontinued Operations..................................... (2.3) 23.0 (5.1) ----------------- ---------------- ----------------- Net Earnings of the Insurance Group................ $ 524.4 $ 587.4 $ 647.0 ================= ================ ================= F-49 December 31, --------------------------------------------------------- 2003 2002 2001 ----------------- ---------------- ------------------ (In Millions) Statutory surplus and capital stock................ $ 4,134.7 $ 4,091.3 $ 5,446.0 AVR................................................ 341.9 189.7 654.4 ----------------- ---------------- ------------------ Statutory surplus, capital stock and AVR........... 4,476.6 4,281.0 6,100.4 Adjustments: Future policy benefits and policyholders' account balances............................... (1,483.3) (1,237.6) (1,492.8) DAC.............................................. 6,290.4 5,801.0 5,513.7 Deferred Federal income taxes.................... (1,729.8) (1,835.8) (1,252.2) Valuation of investments......................... 2,196.3 1,629.6 635.9 Valuation of investment subsidiary............... (1,513.0) (1,191.4) (2,590.8) Fair value of guaranteed minimum income benefit reinsurance contracts.......................... 29.0 120.0 - Non-admitted assets.............................. 1,130.2 1,162.3 778.1 Issuance of surplus notes........................ (599.6) (599.6) (539.4) Other, net....................................... 77.7 157.2 536.6 GAAP adjustments for Other Discontinued Operations..................................... (103.9) (108.7) (123.8) ----------------- ---------------- ------------------ Equity of the Insurance Group...................... $ 8,770.6 $ 8,178.0 $ 7,565.7 ================= ================ ==================
19) ALLIANCE CHARGE FOR MUTUAL FUND MATTERS AND LEGAL PROCEEDINGS On December 18, 2003, Alliance reached terms with the SEC for the resolution of regulatory claims against Alliance with respect to market timing. The SEC accepted an Offer of Settlement submitted by Alliance. Alliance concurrently reached an agreement in principle with the New York Attorney General ("NYAG"), which is subject to final definitive documentation. The key provisions of the settlement with the SEC and NYAG are that Alliance must establish a $250 million fund to compensate fund shareholders for the adverse effect of market timing. Of the $250 million fund, $150 million is characterized as disgorgement and $100 million is characterized as a penalty. In addition, the agreement with the NYAG requires a weighted average reduction in fees of 20% on Alliance's U.S. long-term open-end retail funds for a minimum of five years, which commenced January 1, 2004. This reduction in fees is expected to reduce Alliance Capital revenues by approximately $70 million in 2004. Alliance recorded pre-tax charges to income of $190 million and a $140 million for the quarters ended September 30, 2003 and December 31, 2003, respectively, or $330 million for the year 2003, to cover restitution, litigation and other costs associated with these investigations and other litigation. The effect of this settlement on the Company's 2003 net earnings after reflecting its impact on incentive compensation, income taxes and minority interest was $90.1 million. 20) BUSINESS SEGMENT INFORMATION The Company's operations consist of Insurance and Investment Services segments. 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. The Insurance segment offers a variety of traditional, variable and interest-sensitive life insurance products, disability income, annuity products, mutual funds, 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. F-50 The Investment Services segment principally includes Alliance. Alliance provides diversified investment management and related services globally to a broad range of clients including: (a) institutional clients, including pension funds, endowment funds and domestic and foreign financial institutions and governments, (b) private clients, including high net worth individuals, trusts and estates, charitable foundations and other entities, by means of separately managed accounts, hedge funds and other investment vehicles, (c) individual investors, principally through a broad line of mutual funds, and (d) institutional investors by means of in-depth research, portfolio strategy, trading and other services. This segment also includes institutional Separate Accounts that provide various investment options for large group pension clients, primarily defined benefit and contribution plans, through pooled or single group accounts. Intersegment investment advisory and other fees of approximately $103.0 million, $102.2 million and $116.6 million for 2003, 2002 and 2001, respectively, are included in total revenues of the Investment Services segment. The following tables reconcile segment revenues and earnings from continuing operations before Federal income taxes to total revenues and earnings as reported on the consolidated statements of earnings and segment assets to total assets on the consolidated balance sheets, respectively.
2003 2002 2001 ----------------- ---------------- ------------------ (In Millions) Segment revenues: Insurance.......................................... $ 4,734.4 $ 4,673.4 $ 4,763.3 Investment Services................................ 2,738.5 2,744.9 2,994.4 Consolidation/elimination.......................... (70.4) (71.3) (90.0) ----------------- ---------------- ------------------ Total Revenues..................................... $ 7,402.5 $ 7,347.0 $ 7,667.7 ================= ================ ================== Segment earnings (loss) from continuing operations before Federal income taxes and minority interest: Insurance.......................................... $ 631.6 $ 437.9 $ 707.5 Investment Services................................ 318.6 590.7 585.4 ----------------- ---------------- ------------------ Total Earnings from Continuing Operations before Federal Income Taxes and Minority Interest........................... $ 950.2 $ 1,028.6 $ 1,292.9 ================= ================ ================== December 31, 2003 2002 2001 ----------------- ---------------- ------------------ (In Millions) Assets: Insurance.......................................... $ 98,822.1 $ 80,638.7 $ 84,572.2 Investment Services................................ 15,410.1 14,160.3 15,808.8 Consolidation/elimination.......................... 33.1 27.3 (94.4) ----------------- ---------------- ------------------ Total Assets....................................... $ 114,265.3 $ 94,826.3 $ 100,286.6 ================= ================ ==================
F-51 21) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The quarterly results of operations for 2003 and 2002 are summarized below:
Three Months Ended ------------------------------------------------------------------------------ March 31 June 30 September 30 December 31 ----------------- ----------------- ------------------ ------------------ (In Millions) 2003 Total Revenues................ $ 1,674.7 $ 1,826.8 $ 1,857.8 $ 2,043.2 ================= ================= ================== ================== Earnings from Continuing Operations....... $ 35.7 $ 209.7 $ 134.8 $ 140.8 ================= ================= ================== ================== Net Earnings.................. $ 35.7 $ 209.8 $ 135.5 $ 143.4 ================= ================= ================== ================== 2002 Total Revenues................ $ 1,883.9 $ 2,072.1 $ 1,860.9 $ 1,530.1 ================= ================= ================== ================== Earnings from Continuing Operations.................. $ 162.6 $ 206.5 $ 267.1 $ (21.3) ================= ================= ================== ================== Net Earnings.................. $ 130.4 $ 205.1 $ 286.5 $ (34.6) ================= ================= ================== ==================
22) ACCOUNTING FOR STOCK-BASED COMPENSATION The Holding Company sponsors a stock incentive plan for employees of Equitable Life. Alliance sponsors its 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. Stock-based employee compensation expense is not reflected in the statement of earnings as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. The following table illustrates the effect on net income had compensation expense as related to options awarded under the Company's Stock Incentive Plans been determined based on SFAS No. 123's fair value based method, including the cost of the amendments and modifications made in connection with AXA's acquisition of the minority interest in the Holding Company:
2003 2002 2001 ----------------- ---------------- ------------------- (In Millions) Net income, as reported............................ $ 524.4 $ 587.4 $ 647.0 Less: total stock-based employee compensation expense determined under fair value method for all awards, net of Federal income tax benefit... (35.8) (36.0) (22.2) ----------------- ---------------- ------------------- Pro Forma Net Earnings............................. $ 488.6 $ 551.4 $ 624.8 ================= ================ ===================
In conjunction with approval of the agreement for AXA's acquisition of the minority interest in the Holding Company's Common Stock, generally all outstanding options awarded under the 1997 and 1991 Stock Incentive Plans were amended to become immediately and fully exercisable pursuant to their terms upon expiration of the initial tender offer. In addition, the agreement provided that at the effective time of the merger, the terms of all outstanding options granted under those Plans would be further amended and converted into options of equivalent intrinsic value to acquire a number of AXA ordinary shares in the form of ADRs. Also pursuant to the agreement, holders of non-qualified options were provided with an alternative to elect cancellation of those options at the effective time of the merger in exchange for a cash payment from the Holding Company. For the year ended December 31, 2000, the Company recognized compensation expense of $493.9 million, representing the cost of these Plan amendments and modifications offset by an addition to capital in excess of par value. F-52 Beginning in 2001, under the 1997 Stock Incentive Plan, the Holding Company can grant AXA ADRs and options to purchase AXA ADRs. The options, which include Incentive Stock Options and Nonstatutory Stock Options, are issued at the fair market value of the AXA ADRs on the date of grant. Generally, one-third of stock options granted vest and become exercisable on each of the first three anniversaries of the date such options were granted. Options are currently exercisable up to 10 years from the date of grant. Following completion of the merger of AXA Merger Corp. with and into the Holding Company, certain employees exchanged AXA ADR options for tandem Stock Appreciation Rights and at-the-money AXA ADR options of equivalent intrinsic value. The maximum obligation for the Stock Appreciation Rights is $73.3 million, based upon the underlying price of AXA ADRs at January 2, 2001, the closing date of the aforementioned merger. The Company recorded an increase (reduction) in the Stock Appreciation Rights liability of $12.0 million and $(10.2) million for 2003 and 2002, respectively, reflecting the variable accounting for the Stock Appreciation Rights, based on the change in the market value of AXA ADRs in 2003 and 2002. The Black-Scholes option pricing model was used in determining the fair values of option awards used in the pro-forma disclosures above. The option pricing assumptions for 2003, 2002 and 2001 follow:
Holding Company Alliance ----------------------------------------- ------------------------------- 2003 2002 2001 2003 2002 2001 ------------- ------------- ------------ -------------------- ---------- Dividend yield.... 2.48% 2.54% 1.52% 6.1% 5.80% 5.80% Expected volatility...... 46% 46% 29% 32% 32% 33% Risk-free interest rate............ 2.72% 4.04% 4.98% 3.0% 4.2% 4.5% Expected life in years........ 5 5 5 7.0 7.0 7.2 Weighted average fair value per option at grant-date...... $4.39 $6.30 $9.42 $5.96 $5.89 $9.23
A summary of the activity in the option shares of the Holding Company and Alliance's option plans follows, including information about options outstanding and exercisable at December 31, 2003. Outstanding options at January 2, 2001 to acquire AXA ADRs reflect the conversion of 11.5 million share options of the Holding Company that remained outstanding following the above-described cash settlement made pursuant to the agreement for AXA's acquisition of the minority interest in the Holding Company's Common Stock. All information presented below as related to options to acquire AXA ADRs gives appropriate effect to AXA's May 2001 four-for-one stock split and the related changes in ADR parity for each Holding Company share option: F-53
Holding Company Alliance ------------------------------------ --------------------------------- Weighted Weighted Average Average AXA ADRs Exercise Units Exercise (In Millions) Price (In Millions) Price ------------------- ---------------- --------------- ----------------- : Balance at January 2, 2001 18.3 $21.65 15.4 $28.73 Granted........................ 17.0 $31.55 2.5 $50.34 Exercised...................... (2.2) $11.57 (1.7) $13.45 Forfeited...................... (3.1) $32.02 (.3) $34.51 ------------------- --------------- Balance at December 31, 2001..... 30.0 $31.55 15.9 $33.58 Granted........................ 6.7 $17.24 2.4 $33.32 Exercised...................... (.2) $10.70 (1.4) $14.83 Forfeited...................... (1.2) $27.12 (.5) $42.99 ------------------- --------------- Balance at December 31, 2002 35.3 $25.14 16.4 $34.92 Granted......................... 9.1 $12.60 .1 $35.01 Exercised....................... (1.7) $7.85 (1.2) $17.26 Forfeited....................... (1.8) $25.16 (1.5) $43.26 ------------------- --------------- Balance at December 31, 2003 40.9 $23.04 13.8 $35.55 =================== ===============
Information about options outstanding and exercisable at December 31, 2003 follows:
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 --------------------------------------- ---------------- --------------- ------------------ ---------------- AXA ADRs ---------------------- $ 6.325 - $ 9.01 .4 1.86 $ 7.64 .4 $ 7.63 $10.195 - $15.20 11.8 8.35 $12.73 2.1 $13.23 $15.995 - $22.84 9.9 6.82 $18.50 6.3 $18.66 $26.095 - $33.025 13.8 4.63 $30.85 9.6 $30.48 $36.031 5.0 5.48 $36.03 5.0 $36.03 ----------------- ------------------ $ 6.325 - $36.031 40.9 6.31 $23.04 23.4 $26.52 ================= ==================
Alliance ---------------------- $ 8.81 - $18.47 2.6 2.48 $13.19 2.6 $13.19 $24.84 - $30.25 3.2 5.35 $27.90 2.9 $27.69 $30.94 - $48.50 4.3 7.76 $40.63 1.8 $44.85 $50.15 - $50.56 2.0 7.92 $50.25 .8 $50.25 $51.10 - $58.50 1.7 6.95 $53.77 1.0 $53.76 ----------------- ------------------ $ 8.81 - $58.50 13.8 6.13 $35.55 9.1 $31.89 ================= ==================
The Company's ownership interest in Alliance will continue to be reduced upon the exercise of unit options granted to certain Alliance employees. Options are exercisable over periods of up to ten years. In 1997, Alliance Holding established a long-term incentive compensation plan under which grants are made to key employees for terms established by Alliance Holding at the time of grant. These awards include options, restricted Alliance Holding units and phantom restricted Alliance Holding units, performance awards, other Alliance Holding unit based awards, or any combination thereof. At December 31, 2003, approximately 13.0 million Alliance Holding units of a maximum 41.0 million units were subject to options granted and 103,262 Alliance Holding units were subject to awards made under this plan. F-54 23) RELATED PARTY TRANSACTIONS Beginning January 1, 2000, the Company reimburses the Holding Company for expenses relating to the Excess Retirement Plan, Supplemental Executive Retirement Plan and certain other employee benefit plans that provide participants with medical, life insurance, and deferred compensation benefits. Such reimbursement was based on the cost to the Holding Company of the benefits provided which totaled $57.6 million and $39.7 million, respectively, for 2003 and 2002. The Company paid $639.1 million and $596.6 million, respectively, of commissions and fees to AXA Distribution and its subsidiaries for sales of insurance products for 2003 and 2002. The Company charged AXA Distribution's subsidiaries $304.4 million and $411.9 million, respectively, for their applicable share of operating expenses for 2003 and 2002, pursuant to the Agreements for Services. In September 2001, Equitable Life loaned $400.0 million to AXA Insurance Holding Co. Ltd., a subsidiary of AXA. This investment has an interest rate of 5.89% and matures on June 15, 2007. All payments, including interest payable semi-annually, are guaranteed by AXA. Both Equitable Life and Alliance, along with other AXA affiliates, participate in certain intercompany cost sharing and service agreements which include technology and professional development arrangements. Payments by Equitable Life and Alliance to AXA under such agreements totaled approximately $16.7 million and $17.9 million in 2003 and 2002, respectively. Payments by AXA and AXA affiliates to Equitable Life under such agreements totaled $32.5 million and $17.6 million in 2003 and 2002, respectively. In 2003, Equitable Life entered into a reinsurance agreement with AXA Financial Reinsurance Company (Bermuda), LTD ("AXA Bermuda"), an indirect wholly owned subsidiary of the Holding Company, to cede certain term insurance policies written after December 2002. Equitable Life ceded $9.0 million of premiums and $2.8 million of reinsurance reserves to AXA Bermuda in 2003. Commissions, fees and other income includes certain revenues for services provided to mutual funds managed by Alliance described below:
2003 2002 2001 ----------------- ---------------- ------------------ (In Millions) Investment advisory and services fees.............. $ 824.6 $ 854.5 $ 997.1 Distribution revenues.............................. 436.0 467.5 544.6 Shareholder servicing fees......................... 82.3 89.7 87.2 Other revenues..................................... 11.4 10.2 11.0 Brokerage.......................................... 3.6 7.0 5.7
F-55 REPORT OF INDEPENDENT AUDITORS ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULES To the Board of Directors of The Equitable Life Assurance Society of the United States Our audits of the consolidated financial statements referred to in our report dated March 9, 2004 appearing on page F-1 of this Annual Report on Form 10-K also included an audit of the financial statement schedules listed in Item 15(a)2 of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/PricewaterhouseCoopers LLP New York, New York March 9, 2004 F-56 THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES SCHEDULE I SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES DECEMBER 31, 2003
Estimated Carrying Type of Investment Cost (A) Fair Value Value ------------------- ----------------- ---------------- --------------- (In Millions) Fixed maturities: U.S. government, agencies and authorities.............. $ 812.3 $ 870.5 $ 870.5 State, municipalities and political subdivisions....... 188.2 200.3 200.3 Foreign governments.................................... 248.4 294.0 294.0 Public utilities....................................... 2,994.1 3,214.1 3,214.1 All other corporate bonds.............................. 21,496.6 22,957.7 22,957.7 Redeemable preferred stocks............................ 1,412.0 1,558.9 1,558.9 ----------------- ---------------- --------------- Total fixed maturities.................................... 27,151.6 29,095.5 29,095.5 ----------------- ---------------- --------------- Equity securities: Common stocks: Industrial, miscellaneous and all other............... 13.5 13.6 13.6 Mortgage loans on real estate............................. 3,503.1 3,761.7 3,503.1 Real estate............................................... 310.8 XXX 310.8 Real estate acquired in satisfaction of debt.............. 275.8 XXX 275.8 Real estate joint ventures................................ 69.9 XXX 69.9 Policy loans.............................................. 3,894.3 4,481.9 3,894.3 Other limited partnership interests....................... 775.5 775.5 775.5 Other invested assets..................................... 1,101.6 1,101.6 1,101.6 ----------------- ---------------- --------------- Total Investments......................................... $ 37,096.1 $ 39,229.8 $ 39,040.1 ================= ================ ===============
(A) Cost for fixed maturities represents original cost, reduced by repayments and writedowns and adjusted for amortization of premiums or accretion of discount; for equity securities, cost represents original cost reduced by writedowns; for other limited partnership interests, cost represents original cost adjusted for equity in earnings and distributions. F-57 THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES SCHEDULE II BALANCE SHEETS (PARENT COMPANY) DECEMBER 31, 2003 AND 2002
2003 2002 ----------------- ----------------- (In Millions) ASSETS Investment: Fixed maturities: Available for sale, at estimated fair value (amortized cost of $26,874.1 and $24,480.4, respectively)........................ $ 28,787.4 $ 25,981.9 Mortgage loans on real estate............................................. 3,503.1 3,746.2 Equity real estate........................................................ 656.4 717.3 Policy loans.............................................................. 3,670.4 3,805.8 Investments in and loans to affiliates.................................... 1,246.9 1,359.3 Other equity investments.................................................. 789.0 720.2 Other invested assets..................................................... 590.7 892.4 ----------------- ----------------- Total investments..................................................... 39,243.9 37,223.1 Cash and cash equivalents................................................... 402.4 15.3 Deferred policy acquisition costs........................................... 6,248.6 5,749.8 Amounts due from reinsurers................................................. 1,510.8 1,482.4 Other assets................................................................ 2,228.8 2,289.2 Loans to affiliates......................................................... 400.0 413.0 Prepaid pension asset....................................................... 838.3 865.1 Separate Accounts assets.................................................... 54,438.1 39,012.1 ----------------- ----------------- Total Assets................................................................ $ 105,310.9 $ 87,050.0 ================= ================= LIABILITIES Policyholders' account balances............................................. $ 24,907.5 $ 22,630.6 Future policy benefits and other policyholders liabilities.................. 13,831.4 13,892.5 Short-term and long-term debt............................................... 847.9 847.8 Federal income taxes payable................................................ 1,775.9 1,474.2 Other liabilities........................................................... 877.0 922.0 Separate Accounts liabilities............................................... 54,300.6 38,883.8 ----------------- ----------------- Total liabilities..................................................... 96,540.3 78,650.9 ----------------- ----------------- 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.............................................. 4,848.2 4,812.8 Retained earnings........................................................... 3,027.1 2,902.7 Accumulated other comprehensive income...................................... 892.8 681.1 ----------------- ----------------- Total shareholder's equity............................................ 8,770.6 8,399.1 ----------------- ----------------- Total Liabilities and Shareholder's Equity.................................. $ 105,310.9 $ 87,050.0 ================= =================
The financial information of The Equitable Life Assurance Society of the United States (Parent Company) should be read in conjunction with the Consolidated Financial Statements and Notes thereto. For information regarding capital in excess of par value refer to Note 1 of Notes to Consolidated Financial Statements. F-58 THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES SCHEDULE II STATEMENTS OF EARNINGS (PARENT COMPANY) YEARS ENDED DECEMBER 31, 2003, 2002, 2001
2003 2002 2001 ----------------- ----------------- --------------- (In Millions) REVENUES Universal life and investment-type product policy fee income........................................................ $ 1,373.1 $ 1,312.3 $ 1,337.4 Premiums........................................................ 882.8 936.7 1,010.0 Net investment income........................................... 2,338.3 2,321.7 2,301.9 Investment losses, net.......................................... (70.6) (264.1) (201.4) Equity in earnings of subsidiaries ............................. 44.3 113.1 134.2 Commissions, fees and other income.............................. 163.2 337.6 244.1 ----------------- ----------------- ---------------- Total revenues............................................ 4,731.1 4,757.3 4,826.2 ----------------- ----------------- ---------------- BENEFITS AND OTHER DEDUCTIONS Policyholders' benefits......................................... 1,691.0 2,025.7 1,878.9 Interest credited to policyholders' account balances............ 946.6 945.5 957.1 Compensation and benefits....................................... 379.1 310.2 371.3 Commissions..................................................... 1,072.4 835.5 825.0 Interest expense................................................ 58.8 72.5 71.5 Amortization of deferred policy acquisition costs............... 424.9 292.6 284.0 Capitalization of deferred policy acquisition costs............. (990.0) (753.2) (743.4) Rent expense.................................................... 67.9 66.7 62.8 Amortization and depreciation................................... 98.1 88.0 92.1 Premium taxes................................................... 35.7 36.3 36.9 Other operating costs and expenses.............................. 242.7 248.0 159.0 ----------------- ----------------- ---------------- Total benefits and other deductions....................... 4,027.2 4,167.8 3,995.2 ----------------- ----------------- ---------------- Earnings from continuing operations before Federal income taxes.......................................... 703.9 589.5 831.0 Federal income tax (expense) benefit............................ (182.9) 25.4 (224.4) ----------------- ----------------- ---------------- Earnings from continuing operations............................. 521.0 614.9 606.6 Earnings from discontinued operations, net of Federal income taxes......................................... 3.4 5.6 43.9 Cumulative effect of accounting changes, net of Federal income taxes......................................... - (33.1) (3.5) ----------------- ----------------- ---------------- Net Earnings.................................................... $ 524.4 $ 587.4 $ 647.0 ================= ================= ================
F-59 THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES SCHEDULE II STATEMENTS OF CASH FLOWS (PARENT COMPANY) YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
2003 2002 2001 ----------------- ----------------- ---------------- (In Millions) Net earnings.................................................... $ 524.4 $ 587.4 $ 647.0 Adjustments to reconcile net earnings to net cash provided by operating activities: Interest credited to policyholders' account balances.......... 946.6 945.5 957.1 Universal life and investment-type policy fee income.......... (1,373.1) (1,312.3) (1,337.4) Investment losses net......................................... 70.6 264.1 201.4 Equity in net earnings of subsidiaries........................ (44.3) (113.1) (134.2) Dividends from subsidiaries................................... 181.8 213.6 1,289.4 Change in deferred policy acquisition costs................... (565.1) (460.6) (459.4) Change in future policy benefits and other policyholder funds....................................................... (98.7) 216.1 (15.6) Change in prepaid pension asset............................... 26.8 (363.0) (56.7) Change in fair value of guaranteed minimum income benefit reinsurance contract.............................. 91.0 (120.0) - Change in property and equipment.............................. (23.9) (23.2) (121.7) Change in Federal income tax payable.......................... 193.0 93.2 573.9 Amortization and depreciation................................. 98.1 88.0 92.1 Other, net.................................................... 187.2 118.2 57.9 ----------------- ----------------- ----------------- Net cash provided by operating activities....................... 214.4 133.9 1,693.8 ----------------- ----------------- ----------------- Cash flows from investing activities: Maturities and repayments..................................... 4,180.6 2,973.1 2,429.1 Sales......................................................... 4,778.7 7,624.4 7,470.3 Purchases..................................................... (11,403.4) (12,609.2) (11,775.1) Increase in loans to discontinued operations.................. 2.5 38.1 14.7 Change in short-term investments.............................. 357.0 (570.9) 123.1 Change in policy loans........................................ 135.6 71.5 (52.2) Loans to affiliates........................................... - - (400.0) Other, net.................................................... (61.7) 97.5 (60.3) ----------------- ----------------- ----------------- Net cash used by investing activities........................... (2,010.7) (2,375.5) (2,250.4) ----------------- ----------------- ----------------- Cash flows from financing activities: Policyholders' account balances: Deposits.................................................... 5,689.6 4,384.9 3,252.1 Withdrawals and transfers to Separate Accounts.............. (3,141.6) (1,995.9) (2,445.4) Net decrease in short-term financings......................... (.2) (.2) (.2) Shareholder dividends paid.................................... (400.0) (500.0) (1,700.0) Other, net.................................................... 35.6 59.1 (29.3) ----------------- ----------------- ----------------- Net cash provided (used) by financing activities................ 2,183.4 1,947.9 (922.8) ----------------- ----------------- ----------------- Change in cash and cash equivalents............................. 387.1 (293.7) (1,479.4) Cash and cash equivalents, beginning of year.................... 15.3 309.0 1,788.4 ----------------- ----------------- ----------------- Cash and Cash Equivalents, End of Year.......................... $ 402.4 $ 15.3 $ 309.0 ================= ================= ================= Supplemental cash flow information Interest Paid................................................. $ 43.2 $ 43.6 $ 43.4 ================= ================= ================= Income Taxes (Refunded) Paid.................................. $ (58.8) $ (153.6) $ 517.0 ================= ================= =================
F-60 THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION AT AND FOR THE YEAR ENDED DECEMBER 31, 2003
Future Policy Policy Deferred Benefits Charges (1) Policy Policyholders' and Other and Net Acquisition Account Policyholders' Premium Investment Segment Costs Balance Funds Revenue Income -------------------------- --------------- ------------------ ----------------- -------------- --------------- (In Millions) Insurance.............. $ 6,290.4 $ 25,307.7 $ 13,934.7 $ 2,266.1 $ 2,340.8 Investment Services............. - - - - 16.9 Consolidation/ elimination.......... - - - - 29.2 --------------- ------------------ ----------------- -------------- --------------- Total.................. $ 6,290.4 $ 25,307.7 $ 13,934.7 $ 2,266.1 $ 2,386.9 =============== ================== ================= ============== =============== Amortization Policyholders' of Deferred (2) Benefits and Policy Other Interest Acquisition Operating Segment Credited Cost Expense -------------------------- ----------------- ------------------ --------------- Insurance.............. $ 2,677.9 $ 434.6 $ 990.3 Investment Services............. - - 2,419.9 Consolidation/ elimination.......... - - (70.4) ----------------- ------------------ --------------- Total.................. $ 2,677.9 $ 434.6 $ 3,339.8 ================= ================== ===============
(1) Net investment income is based upon specific identification of portfolios within segments. (2) Operating expenses are principally incurred directly by a segment. F-61 THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION AT AND FOR THE YEAR ENDED DECEMBER 31, 2002
Future Policy Policy Deferred Benefits Charges (1) Policy Policyholders' and Other and Net Acquisition Account Policyholders' Premium Investment Segment Costs Balance Funds Revenue Income -------------------------- -------------- ------------------- ----------------- -------------- --------------- (In Millions) Insurance.............. $ 5,801.0 $ 23,037.5 $ 13,975.7 $ 2,260.7 $ 2,331.2 Investment Services............. - - - - 18.0 Consolidation/ elimination.......... - - - - 28.0 -------------- ------------------- ----------------- -------------- --------------- Total.................. $ 5,801.0 $ 23,037.5 $ 13,975.7 $ 2,260.7 $ 2,377.2 ============== =================== ================= ============== =============== Amortization Policyholders' of Deferred (2) Benefits and Policy Other Interest Acquisition Operating Segment Credited Cost Expense -------------------------- ----------------- ------------------ --------------- Insurance.............. $ 3,008.5 $ 296.7 $ 930.3 Investment Services............. - - 2,154.2 Consolidation/ elimination.......... - - (71.3) ----------------- ------------------ --------------- Total.................. $ 3,008.5 $ 296.7 $ 3,013.2 ================= ================== ===============
(1) Net investment income is based upon specific identification of portfolios within segments. (2) Operating expenses are principally incurred directly by a segment. F-62 THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2001
Policy Charges (1) Policyholders' and Net Benefits and Premium Investment Interest Segment Revenue Income Credited --------------------------------------------------------------- --------------- ----------------- ---------------------- (In Millions) Insurance................................................... $ 2,362.2 $ 2,337.9 $ 2,870.5 Investment Services.................................................. - 39.9 - Consolidation/ elimination............................................... - 26.5 - --------------- ----------------- ---------------------- Total....................................................... $ 2,362.2 $ 2,404.3 $ 2,870.5 =============== ================= ====================== Amortization of Deferred (2) Policy Other Acquisition Operating Cost Expense -------------------- -------------------- Insurance................................................... $ 287.9 $ 897.4 Investment Services.................................................. - 2,409.0 Consolidation/ elimination............................................... - (90.0) -------------------- -------------------- Total....................................................... $ 287.9 $ 3,216.4 ===================== ====================
(1) Net investment income is based upon specific identification of portfolios within segments. (2) Operating expenses are principally incurred directly by a segment. F-63 THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES SCHEDULE IV REINSURANCE (A) AT AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
Assumed Percentage Ceded to from of Amount Gross Other Other Net Assumed Amount Companies Companies Amount to Net ----------------- ---------------- ----------------- --------------- --------------- (Dollars In Millions) 2003 ---- Life Insurance In-Force...... $ 266,115.8 $ 90,031.1 $ 41,078.1 $ 217,162.8 18.92% ================= ================ ================= =============== Premiums: Life insurance and annuities.................. $ 769.0 $ 70.2 $ 140.9 $ 839.7 16.78% Accident and health.......... 144.8 98.2 12.1 58.7 20.61% ----------------- ---------------- ----------------- --------------- Total Premiums............... $ 913.8 $ 168.4 $ 153.0 $ 898.4 17.03% ================= ================ ================= =============== 2002 ---- Life Insurance In-Force...... $ 264,456.6 $ 89,413.1 $ 42,228.6 $ 217,281.1 19.44% ================= ================ ================= =============== Premiums: Life insurance and annuities.................. $ 803.3 $ 86.8 $ 145.7 $ 862.2 16.90% Accident and health.......... 151.3 104.0 35.7 83.0 43.01% ----------------- ---------------- ----------------- --------------- Total Premiums............... $ 954.6 $ 190.8 $ 181.4 $ 945.2 19.19% ================= ================ ================= =============== 2001 ---- Life Insurance In-Force...... $ 263,375.6 $ 75,190.5 $ 42,640.4 $ 230,825.5 18.47% ================= ================ ================= =============== Premiums: Life insurance and annuities.................. $ 830.2 $ 63.6 $ 138.5 $ 905.1 15.30% Accident and health.......... 159.8 109.5 64.5 114.8 56.18% ----------------- ---------------- ----------------- --------------- Total Premiums............... $ 990.0 $ 173.1 $ 203.0 $ 1,019.9 19.90% ================= ================ ================= ===============
(A) Includes amounts related to the discontinued group life and health business. F-64 * Supplement dated May 1, 2004 to Prospectus dated May 1, 2004 ------------------------------------------------------------------------ MEMBERS RETIREMENT PROGRAMS funded under contracts with THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES 1290 Avenue of the Americas, New York, New York 10104 Toll-Free Telephone 800-223-5790 ---------------------------------- VARIABLE ANNUITY BENEFITS ---------------------------------- This Prospectus Supplement should be read and retained for future reference by Participants in the Members Retirement Programs who are considering variable annuity payment benefits after retirement. This Prospectus Supplement is not authorized for distribution unless accompanied or preceded by the Prospectus dated May 1, 2004 for the appropriate Members Retirement Program. ------------------------------------------------------------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS: ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------------------------------------------------------------ RETIREMENT BENEFITS When you become eligible to receive benefits under a Members Retirement Program, you may select one or more of the following forms of distribution, which are available in variable or fixed form. The law requires that if the value of your Account Balance is more than $5,000, you must receive a Qualified Joint and Survivor Annuity unless your Spouse consents to a different election. Life Annuity - annuity providing monthly payments for your life. No payments will be made after your death, even if you have received only one payment. Life Annuity Period Certain - an annuity providing monthly payments for your life or, if longer, a specified period of time. If you die before the end of that specified period, payments will continue to your beneficiary until the end of the period. Subject to legal limitations, you may specify a minimum payment period of 5, 10, 15 or 20 years; the longer the specified period, the smaller the monthly payments will be. Joint and Survivor Annuity - Period Certain - an annuity providing monthly payments for your life and that of your beneficiary or, if longer, a specified period of time. If you and your beneficiary both die before the end of the specified period, payments will continue to your contingent beneficiary until the end of the period. Subject to legal limitations, you may specify a minimum payment period of 5, 10, 15 or 20 years; the longer the specified period, the smaller the monthly payments will be. How Annuity Payments are Made When your distribution of benefits under an annuity begins, your Units in the Funds are redeemed. Part or all of the proceeds, plus part or all of your Account Balance in the General Account Options, may be used to purchase an annuity. The minimum amount that can be used to purchase any type of annuity is $5,000. Usually, a $350 charge will be deducted from the amount used to purchase the annuity to reimburse us for administrative expenses associated with processing the application and with issuing each month's annuity payment. Applicable premium taxes will also be deducted. Annuity payments may be fixed or variable. FIXED ANNUITY PAYMENTS. Fixed annuity payments are determined from our annuity rate tables in effect at the time the first annuity payment is made. The minimum amount of the fixed payments is determined from tables in our contract with the Trustees, which show the amount of proceeds necessary to purchase each $1 of monthly annuity payments (after deduction of any applicable taxes and the annuity administrative charge). These tables are designed to determine the amounts required to pay for the annuity selected, taking into account our administrative and investment expenses and mortality and expense risks. The size of your payment will depend upon the form of annuity chosen, your age and the 2 age of your beneficiary if you select a joint and survivor annuity. If our current group annuity rates for payment of proceeds would produce a larger payment, those rates will apply instead of the minimums in the contract tables. If we give any group pension client with a qualified plan a better annuity rate than those currently available for the Program, we will also make those rates available to Program participants. The annuity administrative charge may be greater than $350 in that case. Under our contract with the Trustees, we may change the tables but not more frequently than once every five years. Fixed annuity payments will not fluctuate during the payment period. VARIABLE ANNUITY PAYMENTS. Variable annuity payments are funded through our Separate Account No. 4 (Pooled) (the "Fund"), through the purchase of Annuity Units. The number of Annuity Units purchased is equal to the amount of the first annuity payment divided by the Annuity Unit Value for the due date of the first annuity payment. The amount of the first annuity payment is determined in the same manner for a variable annuity as it is for a fixed annuity. The number of Annuity Units stays the same throughout the payment period for the variable annuity but the Annuity Unit Value changes to reflect the investment income and the realized and unrealized capital gains and losses of the Fund, after adjustment for an assumed base rate of return of 5-3/4%, described below. The amounts of variable annuity payments are determined as follows: Payments normally start as of the first day of the second calendar month following our receipt of the proper forms. The first two monthly payments are the same. Payments after the first two will vary according to the investment performance of the Fund. Each monthly payment will be calculated by multiplying the number of Annuity Units credited to you by the Annuity Unit Value for the first business day of the calendar month before the due date of the payment. The Annuity Unit Value was set at $1.1553 as of July 1, 1969, the first day that Separate Account No. 4 (Pooled) was operational. For any month after that date, it is the Annuity Unit Value for the preceding month multiplied by the change factor for the current month. The change factor gives effect to the assumed annual base rate of return of 4-3/4% and to the actual investment experience of the Fund. Because of the adjustment for the assumed base rate of return, the Annuity Unit Value rises and falls depending on whether the actual rate of investment return is higher or lower than 5-3/4%. Illustration of Changes in Annuity Payments. To show how we determine variable annuity payments from month to month, assume that the amount you applied to purchase an annuity is enough to fund an annuity with a monthly payment of $363 and that the Annuity Unit Value for the due date of the first annuity payment is $1.05. The number of annuity units credited under your certificate would be 345.71 (363 divided by 1.05 = 345.71). If the 3 third monthly payment is due on March 1, and the Annuity Unit Value for February was $1.10, the annuity payment for March would be the number of units (345.71) times the Annuity Unit Value ($1.10), or $380.28. If the Annuity Unit Value was $1.00 on March 1, the annuity payment for April would be 345.71 times $1.00 or $345.71. Summary of Annuity Unit Values for the Fund This table shows the Annuity Unit Values with an assumed based rate of return of 5 3/4%. First Business Day of Annuity Unit Value --------------------- ------------------ October 1987 $4.3934 October 1988 $3.5444 October 1989 $4.8357 October 1990 $3.8569 October 1991 $5.4677 October 1992 $5.1818 October 1993 $6.3886 October 1994 $6.1563 October 1995 $7.4970 October 1996 $8.0828 October 1997 $11.0300 October 1998 $7.5963 October 1999 $9.8568 October 2000 $10.6810 October 2001 $7.3761 October 2002 $5.3455 October 2003 $6.3322 THE FUND The Fund (Separate Account No. 4 (Pooled)) was established pursuant to the Insurance law of the State of New York in 1969. It is an investment account used to fund benefits under group annuity contracts and other agreements for tax-deferred retirement programs administered by us. For a full description of the Fund, its investment policies, the risks of an investment in the Fund and information relating to the valuation of Fund assets, see the description of the Fund in our May 1, 2004 prospectus and the Statement of Additional Information. INVESTMENT MANAGER The Manager We, Equitable Life, act as Investment Manager to the Fund. As such, we have complete discretion over Fund assets and we invest and reinvest these assets in accordance with the investment policies described in our May 1, 2004 prospectus and Statement of Additional Information. 4 We are a New York stock life insurance company with our Home Office at 1290 Avenue of the Americas, New York, New York 10104. Founded in 1859, we are one of the largest insurance companies in the United States. Equitable Life, our sole stockholder AXA Financial, Inc., and their subsidiaries managed assets of approximately $508.31 billion as of December 31, 2003, including third party assets of $413.96 billion. Investment Management In providing investment management to the Fund, we currently use the personnel and facilities of our majority owned subsidiary, Alliance Capital Management L.P. ("Alliance"), for portfolio selection and transaction services. For a description of Alliance, see our May 1, 2004 Members Retirement Program prospectuses. Fund Transactions The Fund is charged for securities brokers commissions, transfer taxes and other fees relating to securities transactions. Transactions in equity securities for the Fund are executed primarily through brokers which are selected by Alliance/Equitable Life and receive commissions paid by the Fund. For 2003, 2002, and 2001, the Fund paid $929,767, $1,298,849 and $3,576,437, respectively, in brokerage commissions. For a full description of our policies relating to the selection of brokers, see the description of the fund in our May 1, 2004 Statement of Additional Information. 5 FINANCIAL STATEMENTS The financial statements of the Fund reflect applicable fees, charges and other expenses under the Members Retirement Programs as in effect during the periods covered, as well as the charges against the account made in accordance with the terms of all other contracts participating in the account. Separate Account No. 4 (Pooled): Page Report of Independent Auditors - PricewaterhouseCoopers LLP 7 Statement of Assets and Liabilities, December 31, 2003 8 Statement of Operations for the Year Ended December 31, 2003 9 Statements of Changes in Net Assets for the Years Ended December 31, 2003 and 2002 10 Portfolio of Investments December 31, 2003 11 Notes to Financial Statements 13 6 -------------------------------------------------------------------------------- Report of Independent Auditors -------------------------------------------------------------------------------- To the Board of Directors of The Equitable Life Assurance Society of the United States and the Contractowners of Separate Account No. 4 of The Equitable Life Assurance Society of the United States In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets present fairly, in all material respects, the financial position of Separate Account No. 4 (Pooled) (The Growth Equity Fund) of The Equitable Life Assurance Society of the United States ("Equitable Life") at December 31, 2003, the results of its operations for the year then ended and the changes in its net assets for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America, 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 securities at December 31, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP New York, New York March 9, 2004 7 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NO. 4 (POOLED) (THE GROWTH EQUITY FUND) OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Statement of Assets and Liabilities DECEMBER 31, 2003 --------------------------------------------------------------------------------
ASSETS: Investments (Notes 2 and 3): Common stocks -- at value (cost: $544,355,567)........................... $688,441,577 Short-term debt securities -- at value (amortized cost: $2,899,903)...... 2,899,903 Cash ..................................................................... 28,861 Interest and dividends receivable ........................................ 173,513 ------------------------------------------------------------------------------------------ Total assets ............................................................. 691,543,854 ------------------------------------------------------------------------------------------ LIABILITIES: Due to Equitable Life's General Account .................................. 1,479,136 Due to custodian ......................................................... 158,346 Accrued expenses ......................................................... 634,709 ------------------------------------------------------------------------------------------ Total liabilities ........................................................ 2,272,191 ------------------------------------------------------------------------------------------ NET ASSETS ............................................................... $689,271,663 ========================================================================================== Amount retained by Equitable Life in Separate Account No. 4 .............. $ 1,900,151 Net assets attributable to contract owners ............................... 650,055,629 Net assets allocated to contracts in payout period ....................... 37,315,883 ------------------------------------------------------------------------------------------ NET ASSETS ............................................................... $689,271,663 ==========================================================================================
UNITS OUTSTANDING UNIT VALUES ------------------- -------------- Institutional ............................ 57,451 $ 6,324.43 RIA ...................................... 38,302 602.90 Momentum Strategy ........................ 5,481 79.38 MRP ...................................... 153,077 251.02 ADA ...................................... 827,037 302.18 EPP ...................................... 22,647 617.58
The accompanying notes are an integral part of these financial statements. 8 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NO. 4 (POOLED) (THE GROWTH EQUITY FUND) OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Statement of Operations YEAR ENDED DECEMBER 31, 2003 --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 2): Dividends (net of foreign taxes withheld of $2,550)..................... $ 2,841,875 Interest ............................................................... 31,716 ------------------------------------------------------------------------------------------ Total investment income ................................................ 2,873,591 ------------------------------------------------------------------------------------------ EXPENSES (NOTE 5): Investment management fees ............................................. (1,133,660) Operating and expense charges .......................................... (2,010,575) ------------------------------------------------------------------------------------------ Total expenses ......................................................... (3,144,235) ------------------------------------------------------------------------------------------ Net investment loss .................................................... (270,644) ------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 2): Realized loss from security and foreign currency transactions .......... (17,379,109) Change in unrealized appreciation /depreciation of investments ......... 208,381,402 ------------------------------------------------------------------------------------------ Net realized and unrealized gain on investments ........................ 191,002,293 ------------------------------------------------------------------------------------------ NET INCREASE IN NET ASSETS ATTRIBUTABLE TO OPERATIONS .................. $ 190,731,649 ==========================================================================================
The accompanying notes are an integral part of these financial statements. 9 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NO. 4 (POOLED) (THE GROWTH EQUITY FUND) OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Statements of Changes in Net Assets --------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2003 2002 -------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment loss .......................................................... $ (270,644) $ (702,786) Net realized loss on investments and foreign currency transactions ........... (17,379,109) (232,393,293) Change in unrealized appreciation/depreciation of investments ................ 208,381,402 (71,538) -------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets attributable to operations ............. 190,731,649 (233,167,617) -------------------------------------------------------------------------------------------------------------------- FROM CONTRIBUTIONS AND WITHDRAWALS: Contributions ................................................................ 93,626,844 115,415,532 Withdrawals .................................................................. (129,176,442) (240,773,263) Asset management fees ........................................................ (1,011,672) (1,363,796) Administrative fees .......................................................... (434,123) (629,647) -------------------------------------------------------------------------------------------------------------------- Net decrease in net assets attributable to contributions and withdrawals ..... (36,995,393) (127,351,174) -------------------------------------------------------------------------------------------------------------------- Net increase in net assets attributable to Equitable Life's transactions ..... 11,716 19,350 -------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS ............................................ 153,747,972 (360,499,441) NET ASSETS -- BEGINNING OF YEAR .............................................. 535,523,691 896,023,132 -------------------------------------------------------------------------------------------------------------------- NET ASSETS -- END OF YEAR .................................................... $ 689,271,663 $ 535,523,691 ====================================================================================================================
The accompanying notes are an integral part of these financial statements. 10 SEPARATE ACCOUNT NO. 4 (POOLED) (THE GROWTH EQUITY FUND) OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Portfolio of Investments -- December 31, 2003
-------------------------------------------------------------------------------- NUMBER OF VALUE SHARES (NOTE 2) -------------------------------------------------------------------------------- COMMON STOCKS: AEROSPACE & DEFENSE (0.5%) DEFENSE ELECTRONICS (0.5%) L-3 Communications Holdings, Inc.* ................... 71,800 $ 3,687,648 ----------- CAPITAL GOODS (0.9%) ENGINEERING & CONSTRUCTION (0.9%) Jacobs Engineering Group, Inc.* 129,100 6,198,091 ----------- CONSUMER MANUFACTURING (14.9%) BUILDING & RELATED (5.5%) Centex Corp. ......................... 106,300 11,443,195 D. R. Horton, Inc. ................... 212,300 9,184,098 Lennar Corp. (Class A) ............... 112,600 10,809,600 NVR, Inc. * .......................... 14,500 6,757,000 ----------- 38,193,893 ----------- CONSUMER SERVICES (14.9%) BROADCASTING & CABLE (2.3%) Comcast Corp. SPL (Class A)* ......... 518,300 16,212,424 ----------- ENTERTAINMENT & LEISURE (3.0%) Harley-Davidson, Inc. ................ 440,600 20,941,718 ----------- RETAIL-GENERAL MERCHANDISE (3.2%) Bed Bath & Beyond, Inc.* ............. 249,000 10,794,150 Lowe's Companies, Inc. ............... 142,300 7,881,997 Tiffany & Co. ........................ 65,300 2,951,560 ----------- 21,627,707 ----------- MISCELLANEOUS (6.4%) Apollo Group, Inc.* .................. 21,300 1,448,400 Career Education Corp.* .............. 460,600 18,456,242 CDW Corp. ............................ 130,700 7,549,232 Education Management Corp.* .......... 119,600 3,712,384 Iron Mountain, Inc.* ................. 252,600 9,987,804 Strayer Education, Inc. .............. 26,400 2,873,112 ----------- 44,027,174 ----------- 102,809,023 ----------- ENERGY (1.2%) DOMESTIC PRODUCERS (1.2%) Apache Corp. ......................... 97,180 7,881,298 -----------
-------------------------------------------------------------------------------- NUMBER OF VALUE SHARES (NOTE 2) -------------------------------------------------------------------------------- FINANCE (24.1%) BROKERAGE & MONEY MANAGEMENT (9.4%) Goldman Sachs Group, Inc. ............ 130,700 $12,904,011 Legg Mason, Inc. ..................... 399,700 30,848,846 Merrill Lynch & Co., Inc. ............ 152,300 8,932,395 Morgan Stanley Dean Witter & Co. ...................... 206,700 11,961,729 ----------- 64,646,981 ----------- INSURANCE (5.1%) American International Group, Inc. ....................... 377,900 25,047,212 Everest Re Group Ltd. ................ 122,400 10,355,040 ----------- 35,402,252 ----------- MISCELLANEOUS (9.6%) AMBAC Financial Group, Inc. .......... 242,700 16,840,953 Citigroup, Inc. ...................... 634,400 30,793,776 MBNA Corp. ........................... 733,750 18,233,688 ----------- 65,868,417 ----------- 165,917,650 ----------- HEALTH CARE (21.8%) BIOTECHNOLOGY (1.4%) Cephalon, Inc.* ...................... 69,600 3,369,336 Gilead Sciences, Inc.* ............... 106,300 6,180,282 ----------- 9,549,618 ----------- DRUGS (5.3%) Forest Laboratories, Inc.* ........... 456,600 28,217,880 Teva Pharmaceutical Industries Ltd .................... 140,200 7,950,742 ----------- 36,168,622 ----------- MEDICAL PRODUCTS (5.2%) Alcon, Inc. .......................... 95,100 5,757,354 Patterson Dental Company* ............ 104,700 6,717,552 St. Jude Medical, Inc.* .............. 43,300 2,656,455 Stryker Corp. ........................ 219,700 18,676,697 Zimmer Holdings, Inc.* ............... 29,100 2,048,640 ----------- 35,856,698 -----------
11 SEPARATE ACCOUNT NO. 4 (POOLED) (THE GROWTH EQUITY FUND) OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Portfolio of Investments -- December 31, 2003 (Concluded)
-------------------------------------------------------------------------------- NUMBER OF VALUE SHARES (NOTE 2) -------------------------------------------------------------------------------- MEDICAL SERVICES (9.9%) Anthem, Inc.* ...................... 90,700 $ 6,802,500 Caremark Rx, Inc.* ................. 174,900 4,430,217 Express Scripts, Inc. * ............ 268,900 17,863,027 Health Management Associates, Inc. (Class A) ...... 511,500 12,276,000 Stericycle, Inc.* .................. 152,600 7,126,420 Wellpoint Health Networks, Inc.* ................. 207,600 20,135,124 ----------- 68,633,288 ----------- 150,208,226 ----------- MULTI-INDUSTRY COMPANIES (1.3%) Danaher Corp. ...................... 97,200 8,918,100 ----------- TECHNOLOGY (29.7%) COMMUNICATION EQUIPMENT (4.5%) Cisco Systems, Inc.* ............... 372,180 9,040,252 Juniper Networks, Inc.* ............ 1,177,600 21,997,568 ----------- 31,037,820 ----------- COMPUTER HARDWARE/STORAGE (3.0%) Dell, Inc.* ........................ 611,600 20,769,936 ----------- COMPUTER SERVICES (0.5%) Affiliated Computer Services, Inc. (Class A)* ....... 57,450 3,128,727 ----------- INTERNET INFRASTRUCTURE (3.6%) eBay, Inc.* ........................ 384,800 24,854,232 ----------- SEMICONDUCTOR COMPONENTS (7.4%) Broadcom Corp.* .................... 440,200 15,006,418 Intel Corp. ........................ 84,000 2,704,800 Linear Technology Corp. ............ 201,600 8,481,312 Marvell Technology Group Ltd.* 502,820 19,071,962 Maxim Integrated Products, Inc...... 109,800 5,468,040 ----------- 50,732,532 -----------
-------------------------------------------------------------------------------- NUMBER OF VALUE SHARES (NOTE 2) -------------------------------------------------------------------------------- SOFTWARE (8.9%) Electronic Arts, Inc.* ............. 231,750 $11,073,015 Intuit, Inc.* ...................... 127,500 6,746,025 Mercury Interactive Corp.* ......... 204,250 9,934,720 Symantec Corp.* .................... 406,800 14,095,620 Veritas Software Corp.* ............ 541,100 20,107,276 ----------- 61,956,656 ----------- MISCELLANEOUS (1.8%) Amphenol Corp. (Class A)* .......... 126,500 8,087,145 Tektronix, Inc. .................... 128,500 4,060,600 ----------- 12,147,745 ----------- 204,627,648 ----------- TOTAL COMMON STOCKS (99.9%) (Cost $544,355,567).............. 688,441,577 -----------
PRINCIPAL AMOUNT ------------- SHORT-TERM DEBT SECURITIES: U. S. GOVERNMENT AGENCY (0.4%) Federal Home Loan Bank 0.60%, 1/02/04 ............... $2,900,000 2,899,903 --------- TOTAL SHORT-TERM DEBT SECURITIES (0.4%) (Amortized Cost $2,899,903)................... 2,899,903 --------- TOTAL INVESTMENTS (100.3%) (Cost/Amortized Cost $547,255,470)................. 691,341,480 OTHER ASSETS LESS LIABILITIES (--0.3%) ......... (2,069,817) ----------- NET ASSETS (100.0%) ............. $689,271,663 ============
---------------------- * Non-income producing security. The accompanying notes are an integral part of these financial statements. 12 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NO. 4 (POOLED) OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Notes to Financial Statements -------------------------------------------------------------------------------- 1. GENERAL Separate Account No. 4 (Pooled) (the Growth Equity Fund) (the Fund) of The Equitable Life Assurance Society of the United States (Equitable Life), a wholly-owned subsidiary of AXA Financial, Inc., was established in conformity with the New York State Insurance Law. Pursuant to such law, to the extent provided in the contracts, the net assets in the Fund are not chargeable with liabilities arising out of any other business of Equitable Life. The excess of assets over reserves and other contract liabilities, if any, in Separate Account No. 4 may be transferred to Equitable Life's General Account. Equitable Life's General Account is subject to creditor rights. These financial statements reflect the total net assets and results of operations for the Separate Account No. 4. The American Dental Association Members Retirement Program is one of the many products participating in this Fund. At December 31, 2003, interests of retirement and investment plans for employees, managers and agents of Equitable Life in Separate Account No. 4 aggregated $187,234,548 (27.2%) of the net assets of the Fund. Equitable Life is the investment manager for the Fund. Alliance Capital Management L.P. (Alliance) serves as the investment adviser to Equitable Life with respect to the management of the Fund. Alliance is indirectly majority-owned by Equitable Life and AXA Financial, Inc. Equitable Life and Alliance seek to obtain the best price and execution of all orders placed for the portfolios of the Equitable Funds considering all circumstances. In addition to using brokers and dealers to execute portfolio security transactions for accounts under their management, Equitable Life and Alliance may also enter into other types of business and securities transactions with brokers and dealers, which will be unrelated to allocation of the Fund's portfolio transactions. Equitable Life performs all marketing and service functions under the contract. No commissions are paid for these services. The amount retained by Equitable Life in Separate Account No. 4 arises principally from (1) contributions from Equitable Life, (2) expense risk 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 expense risks. 2. SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. On December 29, 2003, the American Institute of Certified Public Accountants issued Statement of Position 03-05, "Financial Highlights of Separate Accounts: An Amendment to the Audit and Accounting Guide "Audits of Investment Companies," which was effective for the December 31, 2003 financial statements. Adoption of the new requirements did not have a significant impact on the financial position or results of operations of the Fund. Investment securities are valued as follows: Stocks listed on national securities exchanges and certain over-the-counter issues traded on the National Association of Securities Dealers, Inc. Automated Quotation (NASDAQ) national market system are valued at the last sale price, or, if there is no sale, at the latest available bid price. Foreign securities not traded directly, or in American Depository Receipt (ADR) form in the United States, are valued at the last sale price in the local currency on an exchange in the country of origin. Foreign currency is converted into its U.S. dollar equivalent at current exchange rates. Futures and forward contracts are valued at their last sale price or, if there is no sale, at the latest available bid price. 13 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NO. 4 (POOLED) OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Notes to Financial Statements (Continued) -------------------------------------------------------------------------------- United States Treasury securities and other obligations issued or guaranteed by the United States Government, its agencies or instrumentalities are valued at representative quoted prices. Long-term (i.e., maturing in more than a year) publicly-traded corporate bonds are valued at prices obtained from a bond pricing service of a major dealer in bonds when such prices are available; however, in circumstances where Equitable Life and Alliance deem it appropriate to do so, an over-the-counter or exchange quotation may be used. Convertible preferred stocks listed on national securities exchanges are valued at their last sale price or, if there is no sale, at the latest available bid price. Convertible bonds and unlisted convertible preferred stocks are valued at bid prices obtained from one or more major dealers in such securities; where there is a discrepancy between dealers, values may be adjusted based on recent premium spreads to the underlying common stock. Other assets that do not have a readily available market price are valued at fair value as determined in good faith by Equitable Life's investment officers. Short-term debt securities which mature in 60 days or less are valued at amortized cost. Short-term debt securities which mature in more than 60 days are valued at representative quoted prices. Security transactions are recorded on the trade date. Amortized cost of debt securities, where applicable, are adjusted for amortization of premium or accretion of discount. Dividend income is recorded on the ex-dividend date; interest income (including amortization of premium and discount on securities using the effective yield method) is accrued daily. Realized gains and losses on the sale of investments are computed on the basis of the identified cost of the related investments sold. Transactions denominated in foreign currencies are recorded at the rate prevailing at the date of such transactions. Asset and liability accounts that are denominated in a foreign currency are adjusted to reflect the current exchange rate at the end of the period. Transaction gains or losses resulting from changes in the exchange rate during the reporting period or upon settlement of the foreign currency transactions are reflected under "Realized and Unrealized Gain (Loss) on Investments" in the Statement of Operations. Net assets allocated to contracts in the payout period are computed according to various mortality tables, depending on the year the benefits were purchased. The tables used are the 1971 GAM table, the 1983 GAM table, and the 1994 GAR. The assumed investment returns vary by contract and range from 4 percent to 6.5 percent. The contracts are participating group annuities, and, thus, the mortality risk is borne by the contract holder, as long as the contract has not been discontinued. Equitable Life retains the ultimate obligation to pay the benefits if the contract funds become insufficient and the contractholder elects to discontinue the contract. Amounts due to/from the General Account represent receivables/payables for policy related transactions predominately related to premiums, surrenders and death benefits. 3. INVESTMENT TRANSACTIONS For the year ended December 31, 2003, investment security transactions, excluding short-term debt securities, were as follows:
--------------------------------------------------------------------------------------------------------------------- PURCHASES SALES --------------------------------------- -------------------------------------- STOCKS AND DEBT U.S. GOVERNMENT STOCKS AND DEBT U.S. GOVERNMENT FUND SECURITIES AND AGENCIES SECURITIES AND AGENCIES ---------------------------------- ----------------- ------------------- ----------------- ------------------ The Growth Equity Fund ......... $313,803,848 $ - $354,208,351 $ -
14 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NO. 4 (POOLED) OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Notes to Financial Statements (Continued) -------------------------------------------------------------------------------- 4. EXPENSES Charges and fees relating to the Funds are deducted in accordance with the terms of the various contracts which participate in the Fund. Depending upon the terms of a contract, sales-related fees and operating expenses are paid (i) by a reduction of an appropriate number of Fund Units or (ii) by a direct payment. These charges and fees are paid to Equitable Life and are recorded as expenses in the accompanying Statement of Operations. Fees with respect to the American Dental Association Members Retirement Program are as follows: Investment Management and Administration Fees (Investment Management Fees): Equitable Life receives a fee based on the value of the Growth Equity Fund at a monthly rate of 1/12 of (i) 0.29 of 1% of the first $100 million and (ii) 0.20 of 1% of the excess over $100 million of its ADA Program assets. An Administrative fee is charged at a daily rate of 0.15% of average daily net assets. Operating and Expense Charges: Program Expense Charge -- In the year prior to May 1, 2003 the expense charge was made on the combined value of all investment options maintained under the contract with Equitable Life at a monthly rate 1/12 of (i) 0.655 of 1% of the first $400 million and (ii) 0.650 of 1% of the excess over $400 million. Effective May 1, 2003 an expense charge is made on the combined value of all investment options maintained under the contract with Equitable Life at a monthly rate of 1/12 of (i) 0.655 of 1% of the first $400 million and (ii) 0.650 of 1% of the excess over $400 million. A portion of the Program Expense Charge assessed by Equitable Life is made on behalf of the ADA and is equal to a monthly rate of 1/12 for (i) 0.025 of 1% of the first $400 million and (ii) 0.020 of 1% of the excess over $400 million. For 2003 and 202, respectively, the portion of the Program Expense Charge paid to the ADA has been reduced to 0.00% for all asset levels but the ADA's portion could be increased in the future. Other Expenses -- In addition to the charges and fees mentioned above, the Fund is charged for certain costs and expenses directly related to its operations. These may include transfer taxes, SEC filing fees and certain related expenses including printing of SEC filings, prospectuses and reports. A record maintenance and report fee of $3 is deducted quarterly from each participant's aggregate account balance. For clients with Investment Only plans, a record maintenance fee of $1 is deducted quarterly. 5. TAXES No Federal income tax based on net income or realized and unrealized capital gains was applicable to contracts participat ing in the Fund by reason of applicable provisions of the Internal Revenue Code and no federal income tax payable by Equitable Life will affect such contracts. Accordingly, no provision for Federal income taxes is required. 6. CHANGES IN UNITS OUTSTANDING Accumulation units issued and redeemed during periods indicated were (in thousands): YEAR ENDED DECEMBER 31, --------------------- 2003 2002 --------- --------- THE GROWTH EQUITY FUND Issued ............................................... 147 119 Redeemed ............................................. (137) (201) ---- ---- Net Decrease ......................................... 10 (82) ---- ---- 15 -------------------------------------------------------------------------------- SEPARATE ACCOUNT NO. 4 (POOLED) OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Notes to Financial Statements (Concluded) -------------------------------------------------------------------------------- 7. INVESTMENT INCOME RATIO The investment income ratio is calculated by taking the gross investment income earned divided by the average net assets of a fund during the report period. Shown below is the investment income ratio throughout the periods indicated.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 2003 2002 2001 2000 1999 ---------- ---------- ---------- ---------- ---------- The Growth Equity Fund ......... 0.47% 0.40% 0.46% 0.45% 0.54%
8. ACCUMULATION UNIT VALUES Equitable Life issues a number of group annuity contracts that allow employer plan assets to accumulate on a tax-deferred basis. The contracts are typically designed for employers wishing to fund defined benefit, defined contribution and/or 401(k) plans. Annuity contracts available through Equitable Life are the American Dental Association Members Retirement Program ("ADA"), Retirement Investment Account ("RIA"), Momentum Strategy ("Momentum"), Members Retirement Program ("MRP") and Equi-Pen-Plus ("EPP") (collectively, the Plans). Assets of the Plans are invested in a number of investment Funds (available Funds vary by Plan). Institutional units presented on the Statement Assets and Liabilities reflect investments in the Fund by clients other than contractholders of group annuity contracts issued by Equitable Life. Institutional unit value is determined at the end of each business day. Institutional unit value reflects the investment performance of the underlying Fund for the day and charges and expenses deducted by the Fund. Contract unit values (ADA, RIA, MRP, Momentum and EPP) reflect the same investment results as the Institutional unit value presented on the Statement of Assets and Liabilities. In addition, contract unit values reflect certain investment management and accounting fees, which vary by contract. These fees are charged as a percentage of net assets and are disclosed below for ADA contracts in percentage terms. Shown below is accumulation unit value information for the American Dental Association Members Retirement Program units outstanding of Separate Account 4. Expense as a percentage of average net assets excludes charges made directly to contractholder accounts through redemption of units.
YEAR ENDED DECEMBER 31, -------------------------- 2003 2002 ------------ ------------ THE GROWTH EQUITY FUND ADA, 1.10% Unit Value, end of period .................................. $ 302.18 $ 223.76 Net Assets (000's) ......................................... $249,918 $182,907 Number of units outstanding, end of period (000's) ......... 827 817 Total Return ............................................... 35.05% (27.87)%
16 PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) Financial Statements included in Part B. The following are included in the Statement of Additional Information relating to the American Dental Association Members Retirement Program: 1. Separate Account No. 195: -Report of Independant Auditors -Statement of Assets and Liabilities, December 31, 2003 -Statements of Operations and Changes in Net Assets for the Years Ended December 31, 2003 and 2002 -Notes to Financial Statements 2. Separate Account No. 197: -Report of Independant Auditors -Statement of Assets and Liabilities, December 31, 2003 -Statements of Operations and Changes in Net Assets for the Years Ended December 31, 2003 and 2002 -Notes to Financial Statements 3. Separate Account No. 198: -Report of Independant Auditors -Statement of Assets and Liabilities, December 31, 2003 -Statements of Operations and Changes in Net Assets for the Years Ended December 31, 2003 and 2002 -Notes to Financial Statements 4. The Equitable Life Assurance Society of the United States: -Report of Independent Auditors - Pricewaterhouse LLP -Consolidated Balance Sheets, December 31, 2003 and 2002 -Consolidated Statements of Earnings for the Years Ended December 31, 2003, 2002 and 2001 -Consolidated Statements of Equity for Years Ended December 31, 2003, 2002 and 2001 -Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001 -Notes to Consolidated Financial Statements 5. Lifecycle Group Trust - Conservative: -Report of Independent Auditors - Lifecycle Group Trust Conservative -Statements of Assets and Liabilities, December 31, 2003 -Statements of Operations for the Year Ended December 31, 2003 -Statements of Changes in Net Assets for the Years Ended December 31, 2003 and 2002 -Selected Per Unit Data -Notes to Financial Statements -Schedule of Investments, December 31, 2003 C-1 6. Lifecycle Group Trust - Moderate: -Report of Independent Auditors - Lifecycle Group Trust - Moderate -Statements of Assets and Liabilities, December 31, 2003 -Statements of Operations for the Year Ended December 31, 2003 -Statements of Changes in Net Assets for the Years Ended December 31, 2003 and 2002 -Selected Per Unit Data -Notes to Financial Statements -Schedule of Investments, December 31, 2003 7. S&P 500 Flagship Fund: -Report of Independent Auditors - S&P 500 Index with Futures: -Combined Statements of Assets and Liabilities Ended December 31, 2003 -Combined Statements of Operations for the Years Ended December 31, 2003 and 2002 -Combined Statements of Changes in Net Assets for the Years Ended December 31, 2003 and 2002 Schedule of Investments, December 31, 2003 8. Russell 2000 Fund: -Report of Independent Auditors - Russell 2000 Fund -Statements of Assets and Liabilities, December 31, 2003 -Statements of Operations for the Year Ended December 31, 2003 -Statements of Changes in Net Assets for the Years Ended December 31, 2003 and 2002 -Selected Per Unit Data -Notes to Financial Statements -Schedule of Investments, December 31, 2003 9. Daily EAFE Fund: -Report of Independent Auditors - Daily EAFE Fund -Statements of Assets and Liabilities, December 31, 2003 -Statements of Operations for the Year Ended December 31, 2003 -Statements of Changes in Net Assets for the Years Ended December 31, 2003 and 2002 -Selected Per Unit Data -Notes to Financial Statements -Schedule of Investments, December 31, 2003 10. Daily Government/Corporate Bond Fund: -Report of Independent Auditors - Daily Government/Corporate Bond Fund -Statements of Assets and Liabilities, December 31, 2003 -Statements of Operations for the Year Ended December 31, 2003 -Statements of Changes in Net Assets for the Years Ended December 31, 2003 and 2002 -Selected Per Unit Data -Notes to Financial Statements -Schedule of Investments, December 31, 2003 C-2 11. Short Term Investment Fund: -Report of Independent Auditors - Short Term Investment Fund -Statements of Assets and Liabilities, December 31, 2003 -Statements of Operations for the Year Ended December 31, 2003 -Statements of Changes in Net Assets for the Years Ended December 31, 2003 and 2002 -Selected Per Unit Data -Notes to Financial Statements -Schedule of Investments, December 31, 2003 (b) Exhibits. The following Exhibits are filed herewith: 1.(a) Resolutions of the Board of Directors of The Equitable Life Assurance Society of the United States ("Equitable") authorizing the establishment of Separate Accounts Nos. 197 and 198, incorporated by reference to Registration Statement No. 33-75616 on Form N-4 of Registrant, filed on February 27, 1995. (b) Action by Brian S. O'Neil, Executive Vice President and Chief Investment Officer of Equitable, dated October, 1993 establishing Separate Account No. 195 and copies of resolutions of the Board of Directors of Equitable referenced in said action, incorporated by reference to Registration Statement No. 33-75616 on Form N-4 of Registrant, filed on February 27, 1995. 2. Not applicable. 3. (a)(1)Service Agreement, effective as of February 1, 1994, among The Seven Seas Series Fund, Russell Fund Distributors, Inc. in its capacity as distributor of the Seven Seas Series Fund and The Equitable Life Assurance Society of the United States, incorporated by reference to Registration No.33-75614 on Form N-4 of Registrant, filed on February 23, 1994. (a)(2)Service Agreement, effective as of February 1, 1994, between State Street Bank and Trust Company and The Equitable Life Assurance Society of The United States, incorporated by reference to Registration No.33-75614 on Form N-4 of Registrant, filed on February 23, 1994. (b) Letter Agreement between The Equitable Life Assurance Society of the United States and the Trustees of the American Dental Association Members Retirement Trust and Trustees of the American Dental Association Members Pooled Trust for Retirement, incorporated by reference to Registration No. 33-75616 on Form N-4 of Registrant, filed on April 29, 1994. (c) Letter Agreement between The Equitable Life Assurance Society of the United States and the Trustees of the American Dental Association Members Retirement Trust and Trustees of the American Dental Association Members Pooled Trust for Retirement, incorporated by reference to C-3 Registration No. 33-75616 on Form N-4 of Registrant, filed on April 28, 1995. (d) Form of Agreement, effective as of May 1, 1995, between State Street Bank and Trust Company and The Equitable Life Assurance Society of the United States regarding Lifecycle Fund Group Trusts and Underlying Funds, incorporated by reference to Registration No. 33-75616 on Form N-4 of Registrant, filed on April 28, 1995. 4. (a) Exhibit 6(a)(2) (Group Annuity Contract AC 2100, as amended and restated effective February 1, 1991 on contract Form No. APC 1,000-91, among the Trustees of the American Dental Association Members Retirement Trust, the American Dental Association Members Pooled Trust for Retirement Plans and The Equitable Life Assurance Society of the United States), incorporated by reference to Post-Effective Amendment No. 1 on Form N-3 to Registration Statement 33-40162, filed on December 20, 1991. (b) Rider No. 1 to Group Annuity Contract AC 2100 among the Trustees of the American Dental Association Members Retirement Trust, the American Dental Association Members Pooled Trust for Retirement Plans and The Equitable Life Assurance Society of the United States, incorporated by reference to Registration No. 33-46995 on Form N-3 of Registrant, filed on April 8, 1992. (c) Form of Rider No. 2 to Group Annuity Contract AC 2100 among the Trustees of the American Dental Association Members Retirement Trust, the American Dental Association Members Pooled Trust for Retirement Plans and The Equitable Life Assurance Society of the United States, incorporated by reference to Registration No. 33-46995 on Form N-3 of Registrant, filed on April 8, 1992. (d) Rider No. 3 to Group Annuity Contract AC 2100 among the Trustees of the American Dental Association Members Retirement Trust, the American Dental Association Members Pooled Trust for Retirement Plans and The Equitable Life Assurance Society of the United States incorporated by reference to Exhibit No. 4(i) to Registration No. 33-75616 on Form N-4 of Registrant, filed on April 29, 1994. (e) Form of Rider No. 4 to Group Annuity Contract AC 2100 among the Trustees of the American Dental Association Members Retirement Trust, the American Dental Association Members Pooled Trust for Retirement Plans and The Equitable Life Assurance Society of the United States, incorporated by reference to Registration No. 33-75616 on Form N-4 of Registrant, filed on April 29, 1994. (f) Form of Rider No. 5 to Group Annuity Contract AC 2100 among the Trustees of the American Dental Association Members Retirement Trust, the American Dental Association Members Pooled Trust for Retirement Plans and The Equitable Life Assurance Society of the United States, incorporated by C-4 reference to Registration No. 33-75616 on Form N-4 of Registrat, filed on February 27, 1995. (g) Form of Rider No. 6 to Group Annuity Contract 2100 among the Trustees of the American Dental Association Members Retirement Trust, the American Dental Association Members Pooled Trust for Retirement Plans and The Equitable Life Assurance Society of the United States, incorporated by reference to Post-Effective Amendment No. 3 to Registration No. 33-75616 on Form N-4 of Registrant, filed on April 30, 1996. (h) Form of Rider No. 7 to Group Annuity Contract 2100 among the Trustees of the American Dental Association Members Retirement Trust, the American Dental Association Members Pooled Trust for Retirement Plans and The Equitable Life Assurance Society of the United States, incorporated by reference to Post-Effective Amendment No. 3 to Registration No. 33-75616 on Form N-4 of Registrant, filed on April 30, 1996. (i) Form of Rider No. 8 to Group Annuity Contract 2100 among the Trustees of the American Dental Association Members Retirement Trust, the American Dental Association Members Pooled Trust for Retirement Plans and The Equitable Life Assurance Society of the United States, incorporated by reference to Post-Effective Amendment No. 3 to Registration No. 33-75616 on Form N-4 of Registrant, filed on April 30, 1996. (j) Form of Rider No. 9 to Group Annuity Contract 2100 among the Trustees of the American Dental Association Members Retirement Trust, the American Dental Association Members Pooled Trust for Retirement Plans and The Equitable Life Assurance Society of the United States, incorporated by reference to Post-Effective Amendment No. 4 to Registration Statement No. 33-75616 on Form N-4, filed on April 30, 1997. 5. (a) Exhibit 7(a) (Form of Participation Agreement for the standardized Profit-Sharing Plan under the ADA Program), incorporated by reference to Post-Effective Amendment No. 1 on Form N-3 to Registration Statement on Form S-1 of Registrant, filed on April l6, 1986. (b) Exhibit 7(b) (Form of Participation Agreement for the non-standardized Profit-Sharing Plan under the ADA Program), incorporated by reference to Post-Effective Amendment No. 1 on Form N-3 to Registration Statement on Form S-1 of Registrant, filed on April l6, 1986. (c) Exhibit 7(e) (Copy of Attachment to Profit Sharing Participation Agreement under the American Dental Association Members Retirement Plan), incorporated by reference to Registration No. 33-21417 on Form N-3 of Registrant, filed on April 26, 1988. (d) Exhibit 7(e)(2) (Form of Participant Enrollment Form under the ADA Program), incorporated by reference to Post-Effective Amendment No. 2 on Form N-3 to Registration C-5 Statement on Form S-1 of Registrant, filed on April 2l, l987. (e) Exhibit 7(v) (Form of Simplified Participation Agreement for the Profit-Sharing Plan under the ADA Program, as filed with the Internal Revenue Service), incorporated by reference to Post-Effective Amendment No. 2 to Registration No. 33-21417 on Form N-3 of Registrant, filed on April 26, 1989. (f) Exhibit 7(w) (Form of Non-Standardized Participation Agreement for the Profit-Sharing Plan under the ADA Program, as filed with the Internal Revenue Service), incorporated by reference to Post-Effective Amendment No. 2 to Registration No. 33-21417 on Form N-3 of Registrant, filed on April 26, 1989. (g) Exhibit 7(x) (Form of Standardized Participation Agreement for the Profit-Sharing Plan under the ADA Program, as filed with the Internal Revenue Service), incorporated by reference to Post-Effective Amendment No. 2 to Registration No. 33-21417 on Form N-3 of Registrant, filed on April 26, 1989. 6. (a) Copy of the Restated Charter of The Equitable Life Assurance Society of the United States, as amended January 1, 1997, incorporated by reference to Post-Effective Amendment No. 4 to Registration Statement No. 33-75616, filed on April 29, 1997. (b) By-Laws of The Equitable Life Assurance Society of the United States, as amended November 21, 1996, incorporated by reference to Post-Effective Amendment No. 4 to Registration Statement No. 33-75616, filed on April 29, 1997. 7. Not applicable 8. (a) Exhibit 11(a)(2) (Form of American Dental Association Members Retirement Plan, as filed with the Internal Revenue Service), incorporated by reference to Post-Effective Amendment No. 2 to Registration No. 33-21417 on Form N-3 of Registrant, filed on April 26, 1989. C-6 (b) Exhibit 11(g)(2) (Form of American Dental Association Members Retirement Trust, as filed with the Internal Revenue Service), incorporated by reference to Post-Effective Amendment No. 2 to Registration No. 33-21417 on Form N-3 of Registrant, filed on April 26, 1989. (c) Exhibit 11(i) (Form of First Amendment to the American Dental Association Members Retirement Trust), incorporated by reference to Post-Effective Amendment No. 1 to Registration No. 33-40162 on Form N-3 of Registrant, filed on December 20, 1991. (d) Exhibit 11(g) (Copy of Administration Services Agreement, dated January 10, 1986, among The Equitable Life Assurance Society of the United States, the Trustees of the Trust maintained under the American Dental Association Members Retirement Plan, the Trustees of the Pooled Trust maintained by the American Dental Association and the Council of Insurance of the American Dental Association), incorporated by reference to Post-Effective Amendment No. 1 on Form N-3 to Registration Statement on Form S-1 of Registrant, filed on April l6, 1986. (e) Exhibit 11(j) (Copy of American Dental Association Members Pooled Trust for Retirement Plans, dated as of January 1, 1984), incorporated by reference to Post-Effective Amendment No. 1 to Registration No. 33-40162 on Form N-3 of Registrant on Form N-3 of Registrant, filed on December 20, 1991. (f) Exhibit 11(k) (Form of First Amendment to the American Dental Association Members Pooled Trust for Retirement Plans, dated as of January 1, 1984), incorporated by reference to Post-Effective Amendment No. 1 to Registration No. 33-40162 on Form N-3 of Registrant, filed on December 20, 1991. (g) Administrative Services Agreement among The Equitable Life Assurance Society of the United States, the Trustees of the American Dental Association Members Retirement Trust and of the American Dental Association Member Retirement Trust for Retirement Plans and the Council on Insurance of the American Dental Association, incorporated by reference to Registration No. 33-75616 on Form N-4 of Registrant, filed on April 29, 1994. (h) Declaration of Trust dated February 21, 1991 for the State Street Bank and Trust Company Investment Funds for Tax Exempt Retirement Plans, incorporated by reference to Registration No. 33-75616 on Form N-4 of Registrant, filed on February 27, 1995. (i) First Amendment to the Declaration of Trust dated as of July 19, 1991, incorporated by reference to Registration No. 33-75616 on Form N-4 of Registrant, filed on February 27, 1995. C-7 (j) Fund Declaration of State Street Bank and Trust Company establishing the Lifecycle Fund Group Trust-Conservative dated February 1, 1995, incorporated by reference to Registration No. 33-75616 on Form N-4 of Registrant, filed on February 27, 1995. (j)(j) Second Amended and restated Declaration of Trust of the State Street Bank and Trust Company Investment Funds for Tax Exempt Retirement Plans, dated as of March 13, 1997 filed with this Registration Statement No. 333-35596 on April 30, 2001. (j)(j)(j) Third Amended and Restated Declaration of Trust of the State Street Bank and Trust Company Investment Funds for Tax Exempt Retirement Plans, dated as of February 1, 2004. (k) First Amendment and Fund Declaration for the Lifecycle Group Trust-Conservative, effective April 26, 1995, incorporated by reference to Registration No. 33-75616, filed on April 28, 1995. (k)(k) Amendment and Fund Declaration for the Lifecycle Fund Group Trust -- Conservative, effective June 30, 2003. (l) Fund Declaration of State Street Bank and Trust Company establishing the Lifecycle Fund Group Trust-Moderate dated February 1, 1995, incorporated by reference to Registration No. 33-75616 on Form N-4 of Registrant, filed on February 27, 1995. (m) First Amendment and Fund Declaration for the Lifecycle Fund Group Trust-Moderate, effective April 26, 1995, incorporated by reference to Registration No. 33-75616, filed on April 28, 1995. (m)(m) Amendment and Fund Declaration for the Lifecycle Fund Group Trust -- Moderate, effective June 30, 2003. (n) Amendment and Fund Declaration for the S&P 500 Flagship Fund effective September 1, 1991, incorporated by reference to Registration No. 33-75616 on Form N-4 of Registrant, filed on February 27, 1995. (n)(n) Amendment and Fund Declaration for S&P 500 Flagship Fund, effective January 1, 2000, filed with this Registration Statement No. 333-35596 on April 30, 2001. (o) Amendment and Fund Declaration for the Short Term Investment Fund effective September 1, 1991, incorporated by reference to Registration No. 33-75616 on Form N-4 of Registrant, filed on February 27, 1995. (o)(o) Second Amendment and Fund Declaration for Short Term Investment Fund, effective November 1, 1998, filed with this Registration Statement No. 333-35596 on April 30, 2001. (o)(o)(o) Third Amendment and Fund Declaration for the Short Term Investment Fund, effective January 1, 2003. (p) Fund Declaration for the Daily EAFE Fund effective September 16, 1993, incorporated by reference to Registration No. 33-75616 on Form N-4 of Registrant, filed on February 27, 1995. (p)(p) Amendment and Fund Declaration for the Daily EAFE Fund, effective January 1, 2000, filed with this Registration Statement No. 333-35596 on April 30, 2001. (q) First Amendment and Fund Declaration for the Daily Government/Corporate Bond Fund effective November 30, 1994, incorporated by reference to Registration No. 33-75616 on Form N-4 of Registrant, filed on February 27, 1995. (q)(q) Amendment and Fund Declaration for the Government Corporate Bond Fund, effective September 1, 2000, filed with this Registration Statement No. 333-35596 on April 30, 2001. (q)(q)(q) Amendment and Fund Declaration for the Government Credit Bond Fund, effective March 15, 2003. (r) Second Amendment and Fund Declaration for the Russell 2000 Fund effective February 1, 1995, incorporated by reference to Registration No. 33-75616 on Form N-4 of Registrant, filed on February 27, 1995. (r)(r) Amendment and Fund Declaration for the Russell 2000 Index Fund, effective January 1, 2000, filed with this Registration Statement No. 333-35596 on April 30, 2001. (s) Fund Declaration for the Russell 2000 Growth Fund effective February 1, 1995, incorporated by reference to Registration No. 33-75616 on Form N-4 of Registrant, filed on February 27, 1995. (s)(s) Amendment and Fund Declaration for the Russell 2000 Growth Index Securities Lending Fund, effective January 1, 2000, filed with this Registration Statement No. 333-35596 on April 30, 2001. (t) Fund Declaration for the Russell 2000 Value Fund effective February 1, 1995, incorporated by reference to Registration No. 33-75616 on Form N-4 of Registrant, filed on February 27, 1995. (t)(t) Amendment and Fund Declaration for the Russell 2000 Value Index Securities Lending Fund, effective January 1, 2000, filed with this Registration Statement No. 333-35596 on April 30, 2001. (u) Form of Basic Plan Document (No. 1) for the Volume Submitter Plan as filed with the Internal Revenue Service in November 2003, incorporated herein by reference to Exhibit 7(m) to the Registration Statement on Form N-3 covering Separate Account 4, filed on April 23, 2004. C-8 9. (a) Opinion and Consent of Peter A. Weinberg, Vice President and Counsel and The Equitable Life Assurance Society, incorporated by reference to Pre-Effective Amendment No. 1 to Registration No. 33-75616 of Registrant, filed on April 29, 1994. (b) Opinion and Consent of Mary P. Breen, Vice President and Associate General Counsel of The Equitable Life Assurance Society of the United States, incorporated herein by reference to Registration Statement File No. 333-51031 filed April 24, 1998. (c) Opinion and Consent of Mary Joan Hoene, Vice President and Counsel of the Equitable Life Assurance Society of the United States, incorporated herein by reference to Exhibit No. 9(c) to Registration Statement No. 333-77113, filed on April 26, 1999. (d) Opinion and Consent of Robin Wagner, Vice President and Counsel of the Equitable Life Assurance Society of the United States previously filed with this Registration Statement, File No. 333-35596, on April 26, 2000. (e) Opinion and Consent of Robin Wagner, Vice President and Counsel of the Equitable Life Assurance Society of the United States previously filed with this Registration Statement, File No. 333-86572, on April 18, 2002. (f) Opinion and Consent of Robin Wagner, Vice President and Counsel of the Equitable Life Assurance Society of the United States, previously filed with the Registration Statement, File No. 333-104775 on April 25, 2003. (g) Opinion and Consent of Dodie Kent, Vice President and Counsel of Equitable Life Assurance Society of the United States. 10. (a) Consent of Peter A. Weinberg (included within Exhibit 9(a) above). (b) Consent of Mary P. Breen (included within Exhibit 9(b) above). (b)(i) Consent of Mary Joan Hoene (included within Exhibit 9(c)). (b)(ii) Consent of Robin Wagner (included within Exhibit 9(d) above). (b)(iii)Consent of Robin Wagner (included within Exhibit 9(e). (b)(iv) Consent of Dodie Kent (included within Exhibit 9(f). (d) Consent of PricewaterhouseCoopers LLP. (e) Consent of PricewaterhouseCoopers LLP (Boston) State Street. (f) Powers of Attorney (Equitable), incorporated herein by reference to Exhibit No. 10(a) to the Registration Statement on Form N-4, File No. 2-30070, filed on April 19, 2004. (g) Powers of Attorney (State Street). Incorporated by reference to Exhibit 10(f) to the Registration Statement, File No. 333-86572, filed on April 18, 2002. 11. Not applicable. 12. Not applicable. C-9 Item 25. Directors and Officers of Equitable. Set forth below is information regarding the directors and principal officers of Equitable. Equitable's address is 1290 Avenue of Americas, New York, New York 10104. The business address of the persons whose names are preceded by an asterisk is that of Equitable. POSITIONS AND NAME AND PRINCIPAL OFFICES WITH BUSINESS ADDRESS EQUITABLE ---------------- --------- DIRECTORS Bruce W. Calvert Director Alliance Capital Management Corporation 1345 Avenue of the Americas New York, NY 10105 Claus-Michael Dill Director AXA Konzern AG Gereonsdriesch 9-11 50670 Cologne, Germany Henri de Castries Director AXA 25, Avenue Matignon 75008 Paris, France Joseph L. Dionne Director 198 North Wilton Rd. New Canaan, CT 06840 Denis Duverne Director AXA 25, Avenue Matignon 75008 Paris, France Jean-Rene Fourtou Director Vivendi Universal 42, avenue de Friedland 75008 Paris France John C. Graves Director Graves Ventures, LLC 130 Fifth Avenue New York, NY 10011 C-10 POSITIONS AND NAME AND PRINCIPAL OFFICES WITH BUSINESS ADDRESS EQUITABLE ---------------- --------- Donald J. Greene Director c/o LeBouef, Lamb, Greene & MacRae 125 West 55th Street New York, NY 10019-4513 Mary R. (Nina) Henderson Director 425 East 86th Street Apt 12-C New York, NY 10028 W. Edwin Jarmain Director Jarmain Group Inc. 77 King Street West Toronto, M5K 1K2 Canada James F. Higgins Director Morgan Stanley Harborside Financial Center Plaza Two, Second Floor Jersey City, NJ 07311 Christina Johnson Director 230 Byram Shore Road Greenwich, CT 06830 Scott D. Miller Director Hyatt Hotels Corporation 200 West Madison Street Chicago, IL 60606 C-11 POSITIONS AND NAME AND PRINCIPAL OFFICES WITH BUSINESS ADDRESS EQUITABLE ---------------- --------- Joseph H. Moglia Director Ameritrade Holding Corporation 4211 South 102nd Street Omaha, NE 68127 Peter J. Tobin Director St. John's University 101 Murray Street New York, NY 10007 OFFICER-DIRECTORS ----------------- *Christopher M. Condron Chairman of the Board, President, Chief Executive Officer and Director *Stanley B. Tulin Vice Chairman of the Board, Chief Financial Officer and Director OTHER OFFICERS -------------- *Leon Billis Executive Vice President and AXA Group Deputy Chief Information Officer *Harvey Blitz Senior Vice President *Kevin R. Byrne Senior Vice President and Treasurer *Stuart L. Faust Senior Vice President and Deputy General Counsel *Alvin H. Fenichel Senior Vice President and Controller *Jennifer Blevins Executive Vice President *Mary Beth Farrell Executive Vice President *Deanna M. Mulligan Executive Vice President *Jerald E. Hampton Executive Vice President C-12 POSITIONS AND NAME AND PRINCIPAL OFFICES WITH BUSINESS ADDRESS EQUITABLE ---------------- --------- *Paul J. Flora Senior Vice President and Auditor *James D. Goodwin Senior Vice President *Edward J. Hayes Senior Vice President *Donald R. Kaplan Senior Vice President, Chief Compliance Officer and Associate General Counsel *William I. Levine Executive Vice President and Chief Information Officer *Peter D. Noris Executive Vice President and Chief Investment Officer *Anthony C. Pasquale Senior Vice President *Pauline Sherman Senior Vice President, Secretary and Associate General Counsel *Richard V. Silver Executive Vice President and General Counsel *Naomi J. Weinstein Vice President *Charles A. Marino Senior Vice President and Actuary C-13 Item 26. Persons Controlled by or Under Common Control with the Insurance Company or Registrant: Separate Account Nos. 195, 197 and 198 of The Equitable Life Assurance Society of the United States (the "Separate Accounts") are separate accounts of Equitable. Equitable, a New York stock life insurance company, is a wholly owned subsidiary of AXA Financial, Inc. (the "Holding Company") (formerly the Equitable Companies, Incorporated). AXA owns 100% of the Holding Company's outstanding common stock. AXA is able to exercise significant influence over the operations and capital structure of the Holding Company and its subsidiaries, including Equitable Life. AXA, a French company, is the holding company for an international group of insurance and related financial services companies. C-14 Consolidated companies as at December 31, 2002 AXA GROUP CONSOLIDATED COMPANIES AS AT DECEMBER 31, 2002
------------------------------------------------------------------------------------------------------------------------------------ ACTIVITY COUNTRY CONSOLIDATED COMPANY SHAREHOLDERS OWNERSHIP ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL SERVICES BELGIUM IPPA VASTGOED AXA HOLDINGS BELGIUM 100.00 & REAL ESTATE FINANCIAL SERVICES BELGIUM AXA INVESTMENT MANAGERS BENELUX AXA ASSET MANAGEMENT LIMITED 0.01 & REAL ESTATE FINANCIAL SERVICES BELGIUM AXA INVESTMENT MANAGERS BENELUX AXA INVESTMENT MANAGERS SA 99.99 & REAL ESTATE FINANCIAL SERVICES BELGIUM ROYALE BELGE INVESTISSEMENT AXA HOLDINGS BELGIUM 0.00 & REAL ESTATE FINANCIAL SERVICES BELGIUM AXA BANK BELGIUM AXA HOLDINGS BELGIUM 100.00 & REAL ESTATE FINANCIAL SERVICES BELGIUM AXA REAL ESTATE INVESMENT MANAGERS AXA BANK BELGIUM 0.10 & REAL ESTATE BENELUX FINANCIAL SERVICES BELGIUM AXA REAL ESTATE INVESMENT MANAGERS AXA REAL ESTATE INVESMENT 99.90 & REAL ESTATE BENELUX MANAGERS SA FINANCIAL SERVICES FRANCE AXA INVESTMENT MANAGEMENT PRIVATE AXA INVESTMENT MANAGERS SA 99.93 & REAL ESTATE EQUITY SA FINANCIAL SERVICES FRANCE AXA INVESTMENT MANAGEMENT PRIVATE AXA INVESTMENT MANAGERS PARIS 0.01 & REAL ESTATE EQUITY SA FINANCIAL SERVICES FRANCE AXA INVESTMENT PRIVATE EQUITY AXA INVESTMENT MANAGEMENT PRIVATE 100.00 & REAL ESTATE EUROPE SA EQUITY SA FINANCIAL SERVICES FRANCE AXA REAL ESTATE MANAGEMENT AXA REAL ESTATE INVESMENT 99.96 & REAL ESTATE INVESTMENT MANAGERS France MANAGERS SA FINANCIAL SERVICES FRANCE AXA REAL ESTATE MANAGEMENT INVEST AXA INVESTMENT MANAGERS SA 0.01 & REAL ESTATE MANAGERS France FINANCIAL SERVICES FRANCE AXA ASSET MANAGEMENT PRIVATE EQUITY AXA INVESTMENT MANAGERS PARIS 0.01 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA ASSET MANAGEMENT PRIVATE EQUITY AXA INVESTMENT PRIVATE EQUITY 85.46 & REAL ESTATE EUROPE SA FINANCIAL SERVICES FRANCE AXA ASSET MANAGEMENT PRIVATE EQUITY AXA INVESTMENT MANAGERS SA 0.01 & REAL ESTATE FINANCIAL SERVICES FRANCE COLISEE SURESNES JOUR FINANCE 20.63 & REAL ESTATE FINANCIAL SERVICES FRANCE COLISEE SURESNES COMPAGNIE FINANCIERE DE PARIS 51.07 & REAL ESTATE FINANCIAL SERVICES FRANCE COLISEE SURESNES SOCIETE BEAUJON 0.92 & REAL ESTATE FINANCIAL SERVICES FRANCE COLISEE SURESNES AXA ASSURANCES IARD 23.72 & REAL ESTATE FINANCIAL SERVICES FRANCE SOFAPI COMPAGNIE FINANCIERE DE PARIS 100.00 & REAL ESTATE FINANCIAL SERVICES FRANCE HOLDING SOFFIM COMPAGNIE FINANCIERE DE PARIS 100.00 & REAL ESTATE FINANCIAL SERVICES FRANCE SOFINAD COMPAGNIE FINANCIERE DE PARIS 100.00 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA CREDIT AXA BANQUE 65.00 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA BANQUE AXA ASSURANCES VIE 37.38 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA BANQUE AXA FRANCE ASSURANCE 62.62 & REAL ESTATE FINANCIAL SERVICES FRANCE COMPAGNIE FINANCIERE DE PARIS AXA 100.00 & REAL ESTATE FINANCIAL SERVICES FRANCE BANQUE DE MARCHES ET D'ARBITRAGE AXA ASSURANCES IARD 8.20 & REAL ESTATE FINANCIAL SERVICES FRANCE BANQUE DE MARCHES ET D'ARBITRAGE AXA 19.51 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA ASSET MANAGEMENT CONSULTANT AXA INVESTMENT MANAGERS SA 99.94 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA ASSET MANAGEMENT CONSULTANT AXA GRANDE ARMEE 0.01 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA ASSET MANAGEMENT CONSULTANT AXA INVESTMENT MANAGERS PARIS 0.02 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA INVESTMENT MANAGERS SA AXA 47.42 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA INVESTMENT MANAGERS SA AXA ROYALE BELGE 3.81 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA INVESTMENT MANAGERS SA AXA LEVEN NV 1.90 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA INVESTMENT MANAGERS SA AXA UK PLC 16.66 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA INVESTMENT MANAGERS SA AXA RE 0.73 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA INVESTMENT MANAGERS SA NATIONAL MUTUAL FUND MANAGEMENT VIE 3.68 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA INVESTMENT MANAGERS SA AXA KONZERN AG 6.68 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA INVESTMENT MANAGERS SA AXA ASSURANCES IARD 14.50 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA INVESTMENT MANAGERS SA DIRECT ASSURANCES IARD 0.18 & REAL ESTATE FINANCIAL SERVICES FRANCE CFP - CREDIT COMPAGNIE FINANCIERE DE PARIS 100.00 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA INVESTMENT MANAGERS PARIS AXA INVESTMENT MANAGERS SA 100.00 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA GESTION FCP AXA INVESTMENT MANAGERS PARIS 100.00 & REAL ESTATE FINANCIAL SERVICES FRANCE GIE AXA GESTION DES ACTIFS AXA INVESTMENT MANAGERS SA 100.00 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA FUNDS MANAGEMENT LUXEMBOURG AXA INVESTMENT MANAGERS SA 98.84 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA FUNDS MANAGEMENT LUXEMBOURG AXA INVESTMENT MANAGERS PARIS 1.16 & REAL ESTATE FINANCIAL SERVICES FRANCE FONDS IMMOBILIERS PARIS OFFICE AXA COLLECTIVES 15.00 & REAL ESTATE FUNDS
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------------------------------------------------------------------------------------------------------------------------------------ ACTIVITY COUNTRY CONSOLIDATED COMPANY SHAREHOLDERS OWNERSHIP ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL SERVICES FRANCE FONDS IMMOBILIERS PARIS OFFICE AXA ASSURANCES VIE 20.00 & REAL ESTATE FUNDS FINANCIAL SERVICES FRANCE FONDS IMMOBILIERS PARIS OFFICE AXA ASSURANCES IARD 15.00 & REAL ESTATE FUNDS FINANCIAL SERVICES FRANCE AXA REAL ESTATE INVESMENT AXA INVESTMENT MANAGERS SA 99.99 & REAL ESTATE MANAGERS SA FINANCIAL SERVICES FRANCE AXA MULTIMANAGER SA AXA MULTIMANAGER LIMITED 99.98 & REAL ESTATE FINANCIAL SERVICES FRANCE AXA GESTION INTERESSEMENT AXA INVESTMENT MANAGERS PARIS 100.00 & REAL ESTATE FINANCIAL SERVICES GERMANY AXA INVESTMENT MANAGERS AXA INVESTMENT MANAGERS SA 85.00 & REAL ESTATE DEUTSCHLAND GMBH FINANCIAL SERVICES GERMANY AXA ASSET MANAGEMENT DEUTSCHLAND AXA INVESTMENT MANAGERS SA 100.00 & REAL ESTATE GMBH FINANCIAL SERVICES GERMANY AXA FUNDS TRUST GMBH AXA INVESTMENT MANAGERS SA 100.00 & REAL ESTATE FINANCIAL SERVICES GERMANY AXA REAL ESTATE MANAGERS AXA INVESTMENT IMOBILIEN 100.00 & REAL ESTATE DEUTSCHLAND FINANCIAL SERVICES GERMANY AXA MERKENS FONDS GMBH AXA INVESTMENT IMOBILIEN 100.00 & REAL ESTATE FINANCIAL SERVICES GERMANY AXA IMOBILIEN AG AXA REAL ESTATE INVESMENT 100.00 & REAL ESTATE MANAGERS SA FINANCIAL SERVICES GERMANY AXA PRIVATE EQUITY DEUTSCHLAND AXA INVESTMENT PRIVATE EQUITY 100.00 & REAL ESTATE GMBH EUROPE SA FINANCIAL SERVICES GERMANY AXA VORSORGEBANK AXA KONZERN AG 100.00 & REAL ESTATE FINANCIAL SERVICES GERMANY AXA BAUSPARKASSE AG AXA LEBENSVERSICHERING AG 33.02 & REAL ESTATE FINANCIAL SERVICES GERMANY AXA BAUSPARKASSE AG AXA KONZERN AG 66.67 & REAL ESTATE FINANCIAL SERVICES GREAT BRITAIN AXA INVESTMENTS MANAGERS LIMITED AXA INVESTMENT MANAGERS SA 100.00 & REAL ESTATE FINANCIAL SERVICES GREAT BRITAIN AXA MULTIMANAGER LIMITED AXA INVESTMENT MANAGERS SA 100.00 & REAL ESTATE FINANCIAL SERVICES GREAT BRITAIN AXA INVESTMENT MANAGERS UK AXA ASSET MANAGEMENT LIMITED 33.33 & REAL ESTATE FINANCIAL SERVICES GREAT BRITAIN AXA INVESTMENT MANAGERS UK AXA INVESTMENT MANAGERS SA 66.67 & REAL ESTATE FINANCIAL SERVICES GREAT BRITAIN AXA INVESTMENT MANAGERS AWF AXA ASSET MANAGEMENT LIMITED 100.00 & REAL ESTATE SERVICES LIMITED FINANCIAL SERVICES GREAT BRITAIN AXA INVESTMENT MANAGERS DEUTSCHLAND AXA ASSET MANAGEMENT LIMITED 100.00 & REAL ESTATE LIMITED FINANCIAL SERVICES GREAT BRITAIN AXA INVESTMENT MANAGERS GLOBAL AXA INVESTMENT MANAGERS SA 100.00 & REAL ESTATE SERVICES FINANCIAL SERVICES GREAT BRITAIN SUN LIFE GLOBAL MANAGEMENT LIMITED AXA ASSET MANAGEMENT LIMITED 100.00 & REAL ESTATE FINANCIAL SERVICES GREAT BRITAIN AXA ASSET MANAGEMENT LIMITED AXA INVESTMENT MANAGERS SA 100.00 & REAL ESTATE FINANCIAL SERVICES GREAT BRITAIN AXA FUNDS MANAGEMENT UK LIMITED AXA INVESTMENT MANAGERS UK 100.00 & REAL ESTATE FINANCIAL SERVICES GREAT BRITAIN AXA REAL ESTATE INVESMENT AXA REAL ESTATE INVESMENT 100.00 & REAL ESTATE MANAGERS LIMITED MANAGERS SA FINANCIAL SERVICES HONG KONG AXA ROSENBERG INVESTMENT MANAGERS AXA ROSENBERG IM ASIA PACIFIC 100.00 & REAL ESTATE ASIA PACIFIC HONG KONG HOLD. LLC FINANCIAL SERVICES HONG KONG AXA INVESTMENT MANAGERS HK SAR AXA INVESTMENT MANAGERS SA 100.00 & REAL ESTATE FINANCIAL SERVICES HUNGARY AXA BIZTOSITO PENSION FUND AXA NORDSTERN HOLDING 100.00 & REAL ESTATE FINANCIAL SERVICES IRELAND AXA INVESTMENT MANAGERS IRELAND AXA INVESTMENT MANAGERS SA 100.00 & REAL ESTATE FINANCIAL SERVICES ITALY AXA INVESTMENT MANAGERS ITALIA AXA INVESTMENT MANAGERS SA 99.77 & REAL ESTATE FINANCIAL SERVICES ITALY AXA INVESTMENT MANAGERS ITALIA AXA ASSICURAZIONI 0.23 & REAL ESTATE FINANCIAL SERVICES ITALY AXA REAL ESTATE INVESMENT AXA REAL ESTATE INVESMENT 100.00 & REAL ESTATE MANAGERS ITALIA MANAGERS SA FINANCIAL SERVICES JAPAN AXA INVESTMENT MANAGERS TOKYO AXA INVESTMENT MANAGERS SA 100.00 & REAL ESTATE FINANCIAL SERVICES JAPAN AXA ROSENBERG IM AXA INVESTMENT MANAGERS ROSENBERG 28.00 & REAL ESTATE FINANCIAL SERVICES JAPAN AXA ROSENBERG IM AXA INVESTMENT MANAGERS SA 59.99 & REAL ESTATE FINANCIAL SERVICES SINGAPORE AXA ROSENBERG INVESTMENT MANAGERS AXA ROSENBERG IM ASIA PACIFIC 100.00 & REAL ESTATE ASIA PACIFIC SINGAPORE HOLD. LLC FINANCIAL SERVICES SPAIN AXA REAL ESTATE INVESMENT AXA REAL ESTATE INVESMENT 100.00 & REAL ESTATE MANAGERS IBERICA MANAGERS SA FINANCIAL SERVICES THE NETHERLANDS AXA INVESTMENT MANAGERS DEN HAAG AXA INVESTMENT MANAGERS SA 100.00 & REAL ESTATE FINANCIAL SERVICES UNITED STATES AXA INVESTMENT MANAGERS ROSE AXA INVESTMENT MANAGERS SA 90.00 & REAL ESTATE FINANCIAL SERVICES UNITED STATES AXA INVESTMENT MANAGERS ROSE AXA INVESTMENT MANAGERS HOLDING INC. 10.00 & REAL ESTATE FINANCIAL SERVICES UNITED STATES AXA INVESTMENT MANAGERS NORTH AXA INVESTMENT MANAGERS ROSE 100.00 & REAL ESTATE AMERICA FINANCIAL SERVICES UNITED STATES AXA INVESTMENT MANAGER PRIVATE AXA INVESTMENT MANAGEMENT PRIVATE 100.00 & REAL ESTATE EQUITY US EQUITY SA FINANCIAL SERVICES UNITED STATES ALLIANCE CAPITAL MANAGEMENT LLP AXA FINANCIAL INC. 25.09 & REAL ESTATE FINANCIAL SERVICES UNITED STATES ALLIANCE CAPITAL MANAGEMENT LLP THE EQUITABLE LIFE ASSURANCE 74.91 & REAL ESTATE SOCIETY FINANCIAL SERVICES UNITED STATES AXA INVESTMENT MANAGERS AXA INVESTMENT MANAGERS SA 100.00 & REAL ESTATE HOLDING INC. FINANCIAL SERVICES UNITED STATES AXA ROSENBERG LLC AXA INVESTMENT MANAGERS ROSE 75.00 & REAL ESTATE FINANCIAL SERVICES UNITED STATES AXA INVESTMENT MANAGERS AXA ASSET MANAGEMENT LIMITED 100.00 & REAL ESTATE & ADVISOR LIMITED FINANCIAL SERVICES UNITED STATES AXA ROSENBERG INVESTMENT MANAGERS AXA ROSENBERG LLC 80.40 & REAL ESTATE ASIA PACIFIC HOLD. LLC FINANCIAL SERVICES UNITED STATES AXA ROSENBERG INVESTMENT MANAGERS AXA INVESTMENT MANAGERS SA 19.60 & REAL ESTATE ASIA PACIFIC HOLD. LLC FINANCIAL SERVICES UNITED STATES AXA ALTERNATIVE ADVISORS INC AXA INVESTMENT MANAGERS SA 100.00
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------------------------------------------------------------------------------------------------------------------------------------ ACTIVITY COUNTRY CONSOLIDATED COMPANY SHAREHOLDERS OWNERSHIP ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE & REINSURANCE AUSTRALIA NATIONAL MUTUAL FUND MANAGEMENT AXA ASIA PACIFIC HOLDINGS LIMITED 100.00 INSURANCE & REINSURANCE AUSTRALIA NATIONAL MUTUAL FINANCIAL SERVICES AXA ASIA PACIFIC HOLDINGS LIMITED 100.00 INSURANCE & REINSURANCE AUSTRALIA NATIONAL MUTUAL INTERNATIONAL AXA ASIA PACIFIC HOLDINGS LIMITED 100.00 INSURANCE & REINSURANCE AUSTRIA AXA NORDSTERN LEBEN AXA NORDSTERN HOLDING 100.00 INSURANCE & REINSURANCE AUSTRIA AXA NORDSTERN VERSICHERUNG AXA NORDSTERN HOLDING 100.00 INSURANCE & REINSURANCE BELGIUM ARDENNE PREVOYANTE AXA BELGIUM 0.05 INSURANCE & REINSURANCE BELGIUM ARDENNE PREVOYANTE AXA HOLDINGS BELGIUM 99.95 INSURANCE & REINSURANCE BELGIUM AXA BELGIUM UAB 0.42 INSURANCE & REINSURANCE BELGIUM AXA BELGIUM AXA HOLDINGS BELGIUM 99.58 INSURANCE & REINSURANCE BELGIUM UAB AXA HOLDINGS BELGIUM 100.00 INSURANCE & REINSURANCE BELGIUM ASSURANCES DE LA POSTE VIE AXA HOLDINGS BELGIUM 50.00 INSURANCE & REINSURANCE BELGIUM ASSURANCES DE LA POSTE AXA HOLDINGS BELGIUM 50.00 INSURANCE & REINSURANCE CANADA AXA CANADA AXA 100.00 INSURANCE & REINSURANCE CANADA ACS CANADA VIE AXA RE 100.00 INSURANCE & REINSURANCE CANADA ACS CANADA NON VIE AXA RE 100.00 INSURANCE & REINSURANCE CANADA AXA CS ASSURANCE CANADA AXA CORPORATE SOLUTION ASSURANCE 100.00 INSURANCE & REINSURANCE CANADA AXA CANADA ADP AXA CANADA 100.00 INSURANCE & REINSURANCE FRANCE AXA FRANCE IARD AXA FRANCE ASSURANCE 99.92 INSURANCE & REINSURANCE FRANCE AXA CORPORATE SOLUTION ASSURANCE AXA RE 98.49 INSURANCE & REINSURANCE FRANCE ARGOVIE AXA FRANCE VIE 94.03 INSURANCE & REINSURANCE FRANCE AXA FRANCE VIE AXA COLLECTIVES 8.35 INSURANCE & REINSURANCE FRANCE AXA FRANCE VIE AXA FRANCE ASSURANCE 91.65 INSURANCE & REINSURANCE FRANCE AXA RE FINANCE AXA RE 79.00 INSURANCE & REINSURANCE FRANCE COMPAGNIE GENERALE REASSURANCE AXA RE 99.99 MONTE-CARLO INSURANCE & REINSURANCE FRANCE NATIO ASSURANCES AXA FRANCE IARD 50.00 INSURANCE & REINSURANCE FRANCE NSM VIE AXA FRANCE ASSURANCE 39.93 INSURANCE & REINSURANCE FRANCE AXA COLLECTIVES AXA FRANCE ASSURANCE 95.71 INSURANCE & REINSURANCE FRANCE AXA COLLECTIVES AXA FRANCE IARD 3.69 INSURANCE & REINSURANCE FRANCE AXA RE AXA COLLECTIVES 0.02 INSURANCE & REINSURANCE FRANCE AXA RE AXA FRANCE ASSURANCE 0.10 INSURANCE & REINSURANCE FRANCE AXA RE AXA ASSURANCES IARD 4.90 INSURANCE & REINSURANCE FRANCE AXA RE AXA 94.99 INSURANCE & REINSURANCE FRANCE DIRECT ASSURANCES IARD AXA FRANCE ASSURANCE 100.00 INSURANCE & REINSURANCE FRANCE JURIDICA AXA FRANCE ASSURANCE 98.51 INSURANCE & REINSURANCE FRANCE SAINT GEORGES RE AXA 100.00 INSURANCE & REINSURANCE FRANCE AXA CESSIONS AXA RE 100.00 INSURANCE & REINSURANCE FRANCE SPS RE AXA RE 69.95 INSURANCE & REINSURANCE FRANCE NSM VIE AXA ASSURANCES IARD 0.14 INSURANCE & REINSURANCE FRANCE AXA ASSISTANCE AXA 100.00 INSURANCE & REINSURANCE GERMANY AXA VERSICHERUNG AG AXA KONZERN AG 74.41 INSURANCE & REINSURANCE GERMANY AXA VERSICHERUNG AG GRE CONTINENTAL EUROPE HOLDING GMBH 25.59 INSURANCE & REINSURANCE GERMANY AXA LEBEN AXA VERSICHERUNG AG 52.19 INSURANCE & REINSURANCE GERMANY AXA LEBEN AXA KONZERN AG 47.81 INSURANCE & REINSURANCE GERMANY AXA KRANKENVERSICHERUNG AG AXA KONZERN AG 52.69 INSURANCE & REINSURANCE GERMANY AXA KRANKENVERSICHERUNG AG AXA LEBEN 35.32 INSURANCE & REINSURANCE GERMANY AXA KRANKENVERSICHERUNG AG DEUTSCHE AERZTEVERSICHERUNG 11.41 INSURANCE & REINSURANCE GERMANY AXA NORDSTERN ART AXA KONZERN AG 100.00 INSURANCE & REINSURANCE GERMANY DEUTSCHE AERZTEVERSICHERUNG AG AXA KONZERN AG 97.87 INSURANCE & REINSURANCE GERMANY PRO BAV PENSIONSKASSE AXA KONZERN AG 100.00
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------------------------------------------------------------------------------------------------------------------------------------ ACTIVITY COUNTRY CONSOLIDATED COMPANY SHAREHOLDERS OWNERSHIP ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE & REINSURANCE GERMANY ACS ASSURANCE ALLEMAGNE AXA CORPORATE SOLUTION ASSURANCE 100.00 INSURANCE & REINSURANCE GREAT BRITAIN AXA UK HOLDING PLC AXA RE 100.00 INSURANCE & REINSURANCE GREAT BRITAIN PPP GROUP PLC GUARDIAN ROYAL EXCHANGE PLC 100.00 INSURANCE & REINSURANCE GREAT BRITAIN PPP HEALTHCARE PROFESSIONAL SERVICES AXA INSURANCE UK 100.00 LIMITED INSURANCE & REINSURANCE GREAT BRITAIN AXA SUN LIFE PLC AXA UK PLC 100.00 INSURANCE & REINSURANCE GREAT BRITAIN ROYAL EXCHANGE ASSURANCE PLC GUARDIAN ROYAL EXCHANGE PLC 100.00 INSURANCE & REINSURANCE GREAT BRITAIN AXA INSURANCE UK DISCONTINUED BUSINESS AXA INSURANCE UK 100.00 INSURANCE & REINSURANCE GREAT BRITAIN AXA REINSURANCE UK PLC - INSURANCE AXA REINSURANCE UK PLC - REINSURANCE 100.00 INSURANCE & REINSURANCE GREAT BRITAIN ACS ASSURANCES UK BRANCH - REINSURANCE ACS ASSURANCE UK BRANCH - INSURANCE 100.00 INSURANCE & REINSURANCE GREAT BRITAIN ACS ASSURANCE UK BRANCH - INSURANCE AXA CORPORATE SOLUTION ASSURANCE 100.00 INSURANCE & REINSURANCE GREAT BRITAIN AXA UK PLC AXA 100.00 INSURANCE & REINSURANCE GREAT BRITAIN AXA GLOBAL RISKS (U.K.) LIMITED AXA RE 100.00 INSURANCE & REINSURANCE GREAT BRITAIN ENGLISH & SCOTTISH AXA UK 100.00 INSURANCE & REINSURANCE GREAT BRITAIN AXA REINSURANCE UK PLC - REINSURANCE AXA UK HOLDING PLC 100.00 INSURANCE & REINSURANCE GREAT BRITAIN AXA INSURANCE UK GUARDIAN ROYAL EXCHANGE PLC 100.00 INSURANCE & REINSURANCE HONG KONG AXA GENERAL INSURANCE HK AXA 100.00 INSURANCE & REINSURANCE HONG KONG AXA INSURANCE HONG-KONG AXA INSURANCE INVESTMENT HOLDING 82.50 INSURANCE & REINSURANCE HONG KONG AXA INSURANCE HONG-KONG AXA 17.50 INSURANCE & REINSURANCE HONG KONG AXA CHINA REGION LIMITED NATIONAL MUTUAL INTERNATIONAL 100.00 INSURANCE & REINSURANCE HUNGARY AXA BIZTOSITO AXA KONZERN AG 100.00 INSURANCE & REINSURANCE IRELAND GUARDIAN PMPA GROUP LIMITED GUARDIAN ROYAL EXCHANGE PLC 100.00 INSURANCE & REINSURANCE ITALY AXA INTERLIFE AXA ITALIA S.P.A 100.00 INSURANCE & REINSURANCE ITALY UAP VITA AXA ITALIA S.P.A 100.00 INSURANCE & REINSURANCE ITALY AXA ASSICURAZIONI AXA ITALIA S.P.A 98.12 INSURANCE & REINSURANCE ITALY AXA ASSICURAZIONI AXA COLLECTIVES 1.88 INSURANCE & REINSURANCE JAPAN AXA GROUP LIFE JAPAN AXA INSURANCE HOLDING JAPAN 100.00 INSURANCE & REINSURANCE JAPAN AXA LIFE JAPAN AXA INSURANCE HOLDING JAPAN 100.00 INSURANCE & REINSURANCE JAPAN AXA NON LIFE INSURANCE CO LIMITED AXA 100.00 INSURANCE & REINSURANCE LUXEMBOURG AXA ASSURANCE VIE LUXEMBOURG AXA LUXEMBOURG SA 100.00 INSURANCE & REINSURANCE LUXEMBOURG AXA ASSURANCES LUXEMBOURG AXA LUXEMBOURG SA 100.00 INSURANCE & REINSURANCE LUXEMBOURG FUTUR RE AXA CORPORATE SOLUTION ASSURANCE 100.00 INSURANCE & REINSURANCE LUXEMBOURG CREALUX AXA HOLDINGS BELGIUM 100.00 INSURANCE & REINSURANCE MOROCCO AXA ASSURANCE MAROC AXA ONA 100.00 INSURANCE & REINSURANCE MOROCCO EPARGNE CROISSANCE AXA ASSURANCE MAROC 99.59 INSURANCE & REINSURANCE PORTUGAL AXA PORTUGAL COMPANHIA DE SEGUROS AXA ASSURANCES VIE 87.63 VIDA SA INSURANCE & REINSURANCE PORTUGAL AXA PORTUGAL COMPANHIA DE SEGUROS AXA 7.46 VIDA SA INSURANCE & REINSURANCE PORTUGAL AXA PORTUGAL COMPANHIA DE SEGUROS AXA ASSURANCES VIE 5.37 INSURANCE & REINSURANCE PORTUGAL AXA PORTUGAL COMPANHIA DE SEGUROS AXA 83.01 INSURANCE & REINSURANCE PORTUGAL AXA PORTUGAL COMPANHIA DE SEGUROS AXA PORTUGAL SEGUROS VIDA 2.15 INSURANCE & REINSURANCE PORTUGAL AXA PORTUGAL COMPANHIA DE SEGUROS AXA CORPORATE SOLUTION ASSURANCE 9.07 INSURANCE & REINSURANCE SINGAPORE AXA LIFE SINGAPOUR NATIONAL MUTUAL INTERNATIONAL 100.00 INSURANCE & REINSURANCE SINGAPORE AXA INSURANCE SINGAPORE AXA INSURANCE INVESTMENT HOLDING 74.23 INSURANCE & REINSURANCE SINGAPORE AXA INSURANCE SINGAPORE AXA 25.77 INSURANCE & REINSURANCE SINGAPORE AXA CORPORATE SOLUTIONS ASIA PACIFIC AXA RE 100.00 PRIVATE LIMITED INSURANCE & REINSURANCE SPAIN AXA AURORA VIDA DE SEGUROS Y AXA AURORA 99.68 REASEGUROS INSURANCE & REINSURANCE SPAIN AXA AURORA VIDA SA AXA 1.45 INSURANCE & REINSURANCE SPAIN AXA AURORA VIDA SA AXA AURORA IBERICA 98.51 INSURANCE & REINSURANCE SPAIN AYUDA LEGAL SA DE SEGUROS Y REASEGUROS AXA AURORA IBERICA 88.00 INSURANCE & REINSURANCE SPAIN AYUDA LEGAL SA DE SEGUROS Y REASEGUROS AXA AURORA VIDA 12.00
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------------------------------------------------------------------------------------------------------------------------------------ ACTIVITY COUNTRY CONSOLIDATED COMPANY SHAREHOLDERS OWNERSHIP ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE & REINSURANCE SPAIN AXA AURORA IBERICA AXA AURORA 99.68 INSURANCE & REINSURANCE SPAIN HILO DIRECT SA DE SEGUROS Y REASEGUROS AXA AURORA 50.00 INSURANCE & REINSURANCE SWITZERLAND AXA COMPAGNIE D'ASSURANCE SUR LA VIE AXA COMPAGNIE D'ASSURANCES 5.00 INSURANCE & REINSURANCE SWITZERLAND AXA COMPAGNIE D'ASSURANCE SUR LA VIE AXA 95.00 INSURANCE & REINSURANCE SWITZERLAND AXA COMPAGNIE D'ASSURANCES AXA 100.00 INSURANCE & REINSURANCE THE NETHERLANDS AXA ZORG NV AXA VERZEKERINGEN BV 100.00 INSURANCE & REINSURANCE THE NETHERLANDS AXA SCHADE AXA VERZEKERINGEN BV 100.00 INSURANCE & REINSURANCE THE NETHERLANDS UNIROBE GROEP AXA NEDERLAND BV 100.00 INSURANCE & REINSURANCE THE NETHERLANDS AXA LEVEN NV AXA VERZEKERINGEN BV 100.00 INSURANCE & REINSURANCE TURKEY AXA OYAK SIGORTA AXA OYAK HOLDING AS 70.91 INSURANCE & REINSURANCE TURKEY AXA OYAK HAYAT SIGORTA AXA OYAK HOLDING AS 100.00 INSURANCE & REINSURANCE UNITED STATES AXA AMERICA CORPORATE SOLUTIONS, INC AXA RE 100.00 INSURANCE & REINSURANCE UNITED STATES AXA CORPORATE SOLUTION INSURANCE CO AXA CORPORATE SOLUTIONS REINSURANCE CY 100.00 INSURANCE & REINSURANCE UNITED STATES AXA RE AMERICA INSURANCE COMPANY AXA CORPORATE SOLUTIONS PROPERTY 100.00 & CASUALTY INSURANCE & REINSURANCE UNITED STATES AXA CORPORATE SOLUTIONS PROPERTY AXA CORPORATE SOLUTIONS REINSURANCE CY 100.00 & CASUALTY INSURANCE & REINSURANCE UNITED STATES THE EQUITABLE LIFE ASSURANCE SOCIETY AXA FINANCIAL INC. 100.00 INSURANCE & REINSURANCE UNITED STATES AXA CORPORATE SOLUTIONS LIFE AXA CORPORATE SOLUTIONS REINSURANCE CY 100.00 REINSURANCE COMPANY INSURANCE & REINSURANCE UNITED STATES AXA CORPORATE SOLUTIONS REINSURANCE CY AXA AMERICA CORPORATE SOLUTIONS, INC 100.00
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------------------------------------------------------------------------------------------------------------------------------------ ACTIVITY COUNTRY CONSOLIDATED COMPANY SHAREHOLDERS OWNERSHIP ------------------------------------------------------------------------------------------------------------------------------------ HOLDINGS & MISC. BUSINESSES AUSTRALIA AXA ASIA PACIFIC HOLDINGS AXA 42.65 LIMITED HOLDINGS & MISC. BUSINESSES AUSTRALIA AXA ASIA PACIFIC HOLDINGS AXA EQUITY & LAW ASSURANCE 9.01 LIMITED SOCIETY HOLDINGS & MISC. BUSINESSES AUSTRIA AXA NORDSTERN HOLDING AXA LEBENSVERSICHERUBG AG 10.05 HOLDINGS & MISC. BUSINESSES AUSTRIA AXA NORDSTERN HOLDING AXA VERSICHERUNG AG 89.95 HOLDINGS & MISC. BUSINESSES BELGIUM AXA HOLDINGS BELGIUM AXA 84.28 HOLDINGS & MISC. BUSINESSES BELGIUM AXA HOLDINGS BELGIUM AXA ASSURANCES IARD 5.41 HOLDINGS & MISC. BUSINESSES BELGIUM AXA HOLDINGS BELGIUM VINCI BV 4.07 HOLDINGS & MISC. BUSINESSES BELGIUM AXA HOLDINGS BELGIUM AXA CORPORATE SOLUTION 6.21 ASSURANCE HOLDINGS & MISC. BUSINESSES FRANCE JOUR FINANCE AXA ASSURANCES IARD 39.53 HOLDINGS & MISC. BUSINESSES FRANCE JOUR FINANCE AXA ASSURANCES VIE 60.47 HOLDINGS & MISC. BUSINESSES FRANCE SOCIETE BEAUJON AXA 99.77 HOLDINGS & MISC. BUSINESSES FRANCE MOFIPAR AXA 99.90 HOLDINGS & MISC. BUSINESSES FRANCE SOCIETE BEAUJON AXA ASSURANCES IARD 0.22 HOLDINGS & MISC. BUSINESSES FRANCE COLISEE EXCELLENCE AXA PARTICIPATION II 100.00 HOLDINGS & MISC. BUSINESSES FRANCE AXA CHINA AXA 51.00 HOLDINGS & MISC. BUSINESSES FRANCE AXA CHINA AXA CHINA REGION LIMITED 49.00 HOLDINGS & MISC. BUSINESSES FRANCE FDR PARTICIPATIONS FINAXA 100.00 HOLDINGS & MISC. BUSINESSES FRANCE AXA TECHNOLOGY SERVICES AXA 99.78 HOLDINGS & MISC. BUSINESSES FRANCE AXA TECHNOLOGY SERVICES ALLIANCE CAPITAL MANAGEMENT 0.01 LLP HOLDINGS & MISC. BUSINESSES FRANCE AXA TECHNOLOGY SERVICES AXA KONZERN AG 0.04 HOLDINGS & MISC. BUSINESSES FRANCE AXA TECHNOLOGY SERVICES THE EQUITABLE LIFE ASSURANCE 0.02 SOCIETY HOLDINGS & MISC. BUSINESSES FRANCE AXA TECHNOLOGY SERVICES NATIONAL MUTUAL FINANCIAL 0.01 SERVICES HOLDINGS & MISC. BUSINESSES FRANCE AXA TECHNOLOGY SERVICES AXA UK PLC 0.04 HOLDINGS & MISC. BUSINESSES FRANCE AXA TECHNOLOGY SERVICES AXA FRANCE ASSURANCE 0.06 HOLDINGS & MISC. BUSINESSES FRANCE AXA TECHNOLOGY SERVICES AXA ROYALE BELGE NON VIE 0.01 HOLDINGS & MISC. BUSINESSES FRANCE AXA TECHNOLOGY SERVICES AXA ROYALE BELGE 0.01 HOLDINGS & MISC. BUSINESSES FRANCE AXA TECHNOLOGY SERVICES AXA LIFE JAPAN 0.01 HOLDINGS & MISC. BUSINESSES FRANCE AXA TECHNOLOGY SERVICES AXA RE 0.01 HOLDINGS & MISC. BUSINESSES FRANCE AXA TECHNOLOGY SERVICES AXA INVESTMENT MANAGERS SA 0.01 HOLDINGS & MISC. BUSINESSES FRANCE AXA PARTICIPATION II AXA 100.00 HOLDINGS & MISC. BUSINESSES FRANCE AXA FRANCE ASSURANCE AXA 100.00 HOLDINGS & MISC. BUSINESSES GERMANY AXA KONZERN AG VINCI BV 39.73 HOLDINGS & MISC. BUSINESSES GERMANY AXA KONZERN AG AXA 25.49 HOLDINGS & MISC. BUSINESSES GERMANY AXA KONZERN AG KOLNISCHE VERWALTUNGS 25.63 HOLDINGS & MISC. BUSINESSES GERMANY GRE CONTINENTAL EUROPE AXA KONZERN AG 100.00 HOLDING GMBH HOLDINGS & MISC. BUSINESSES GERMANY KOLNISCHE VERWALTUNGS VINCI BV 67.72 HOLDINGS & MISC. BUSINESSES GERMANY KOLNISCHE VERWALTUNGS AXA 8.83 HOLDINGS & MISC. BUSINESSES GERMANY KOLNISCHE VERWALTUNGS AXA KONZERN AG 23.02 HOLDINGS & MISC. BUSINESSES GREAT BRITAIN GUARDIAN ROYAL EXCHANGE PLC AXA UK PLC 100.00 HOLDINGS & MISC. BUSINESSES GREAT BRITAIN AXA UK PLC AXA EQUITY & LAW PLC 21.69 HOLDINGS & MISC. BUSINESSES GREAT BRITAIN AXA UK PLC AXA 78.31 HOLDINGS & MISC. BUSINESSES GREAT BRITAIN AXA EQUITY & LAW PLC AXA 99.95 HOLDINGS & MISC. BUSINESSES ITALY AXA ITALIA S.P.A AXA 98.24 HOLDINGS & MISC. BUSINESSES ITALY AXA ITALIA S.P.A AXA ASSURANCES VIE 1.76 HOLDINGS & MISC. BUSINESSES JAPAN AXA INSURANCE HOLDING JAPAN AXA 96.42 HOLDINGS & MISC. BUSINESSES LUXEMBOURG AXA LUXEMBOURG SA AXA HOLDINGS BELGIUM 100.00 HOLDINGS & MISC. BUSINESSES MOROCCO AXA ONA AXA 51.00 HOLDINGS & MISC. BUSINESSES SINGAPORE AXA HOLDINGS PTE LTD AXA 100.00 HOLDINGS & MISC. BUSINESSES SPAIN AXA AURORA AXA 100.00
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------------------------------------------------------------------------------------------------------------------------------------ ACTIVITY COUNTRY CONSOLIDATED COMPANY SHAREHOLDERS OWNERSHIP ------------------------------------------------------------------------------------------------------------------------------------ HOLDINGS & MISC. BUSINESSES THE NETHERLANDS AXA NEDERLAND BV ROYALE BELGE INVESTISSEMENT 14.10 HOLDINGS & MISC. BUSINESSES THE NETHERLANDS AXA NEDERLAND BV AXA BELGIUM 40.20 HOLDINGS & MISC. BUSINESSES THE NETHERLANDS AXA NEDERLAND BV AXA HOLDINGS BELGIUM 45.70 HOLDINGS & MISC. BUSINESSES THE NETHERLANDS VINCI BV AXA 100.00 HOLDINGS & MISC. BUSINESSES THE NETHERLANDS AXA VERZEKERINGEN GELDERLAND 100.00 HOLDINGS & MISC. BUSINESSES TURKEY AXA OYAK HOLDING AS AXA 50.00 HOLDINGS & MISC. BUSINESSES UNITED STATES AXA FINANCIAL INC. SOCIETE BEAUJON 0.44 HOLDINGS & MISC. BUSINESSES UNITED STATES AXA FINANCIAL INC. AXA CORPORATE SOLUTIONS 0.03 REINSURANCE CY HOLDINGS & MISC. BUSINESSES UNITED STATES AXA FINANCIAL INC. AXA BELGIUM 0.47 HOLDINGS & MISC. BUSINESSES UNITED STATES AXA FINANCIAL INC. AXA RE 2.95 HOLDINGS & MISC. BUSINESSES UNITED STATES AXA FINANCIAL INC. AXA 96.10
Page 2 de 2 AXA FINANCIAL, INC. - SUBSIDIARY ORGANIZATION CHART- 2003 03/29/04 LAST UPDATED: 9/30/03
State of State of Type of Incorp. or Principal Federal Subsidiary Domicile Operation Tax ID # ---------- -------- --------- -------- AXA Financial, Inc. (Notes 1 & 2) ** DE NY 13-3623351 Frontier Trust Company, FSB (Note 7) ND ND 45-0373941 AXA Financial Services, LLC (Note 2) DE NY 52-2197822 AXA Distribution Holding Corporation (Note 2) DE NY 13-4078005 AXA Advisors, LLC (Note 5) DE NY 13-4071393 AXA Network, LLC (Note 6) Operating DE NY 06-1555494 AXA Network of Alabama, LLC Operating AL AL 06-1562392 AXA Network of Connecticut, Maine and New York, LLC Operating DE NY 13-4085852 AXA Network Insurance Agency of Massachusetts, LLC Operating MA MA 04-3491734 AXA Network of Nevada, Inc. Operating NV NV 13-3389068 AXA Network of Puerto Rico, Inc. Operating P.R. P.R. 66-0577477 AXA Network Insurance Agency of of Texas, Inc. Operating TX TX 75-2529724 Paramount Planners, LLC Operating DE NY 06-1602479 The Equitable Life Assurance Society of the United States (Note 2) * Insurance NY NY 13-5570651 The Equitable of Colorado, Inc. * Insurance CO CO 13-3198083 Equitable Deal Flow Fund, L.P. Investment DE NY 13-3385076 Equitable Managed Assets, L.P. Investment DE NY 13-3385080 Real Estate Partnership Equities (various) Investment ** - Equitable Holdings, LLC (Notes 3 & 4) HCO NY NY 22-2766036 See Attached Listing A ACMC, Inc. (Note 4) HCO DE NY 13-2677213 Wil-Gro, Inc Investment PA PA 23-2702404 STCS, Inc. Investment DE NY 13-3761592 Fox Run, Inc. Investment MA NY 23-2762596 FTM Corp. Investment MD MD 13-3778225 EVSA, Inc. Investment DE PA 23-2671508 Equitable Rowes Wharf, Inc. Investment MA MA 04-3272826 Prime Property Funding II, Inc. Operating DE NY 13-3961599 Sarasota Prime Hotels, LLC Investment FL GA 58-2330533 ECLL, Inc. Investment MI GA 58-2377569 Parent's Number of Percent of Shares Ownership Comments Owned or Control (e.g., Basis of Control) ----- ---------- ------------------------ AXA Financial, Inc. (Notes 1 & 2) ** Frontier Trust Company, FSB (Note 7) 1,000 100.00% AXA Financial Services, LLC (Note 2) - 100.00% AXA Distribution Holding Corporation (Note 2) 1,000 100.00% AXA Advisors, LLC (Note 5) - 100.00% AXA Network, LLC (Note 6) - 100.00% AXA Network of Alabama, LLC - 100.00% AXA Network of Connecticut, Maine and New York, LLC - 100.00% AXA Network Insurance Agency of Massachusetts, LLC - 100.00% AXA Network of Nevada, Inc. 100.00% AXA Network of Puerto Rico, Inc. 100.00% AXA Network Insurance Agency of of Texas, Inc. 1,050 100.00% Paramount Planners, LLC - 100.00% The Equitable Life Assurance Society of the United States (Note 2) * 2,000,000 100.00% NAIC # 62944 The Equitable of Colorado, Inc. * 1,000,000 100.00% NAIC # 62880 Equitable Deal Flow Fund, L.P. - - G.P & L.P. Equitable Managed Assets, L.P. - - G.P. Real Estate Partnership Equities (various) - - ** Equitable Holdings, LLC (Notes 3 & 4) - 100.00% See Attached Listing A ACMC, Inc. (Note 4) 5,000,000 100.00% Wil-Gro, Inc 1,000 100.00% STCS, Inc. 1,000 100.00% Fox Run, Inc. 1,000 100.00% FTM Corp. 1,000 100.00% EVSA, Inc. 50 100.00% Equitable Rowes Wharf, Inc. 1,000 100.00% Prime Property Funding II, Inc. 100.00% Sarasota Prime Hotels, LLC - 100.00% ECLL, Inc. 100.00%
Page 1 of 6 AXA FINANCIAL, INC. - SUBSIDIARY ORGANIZATION CHART- 2003 03/29/04 * Affiliated Insurer ** Information relating to Equitable's Real Estate Partnership Equities is disclosed in Schedule BA, Part 1 of Equitable Life's Annual Statement, which has been filed with the N.Y.S. Insurance Department. *** All subsidiaries are corporations, except as otherwise noted. 1. The Equitable Companies Incorporated changed its name to AXA Financial, Inc. on Sept. 3, 1999. 2. Effective Sept. 20, 1999, AXA Financial, Inc. transferred ownership of Equitable Life to AXA Client Solutions, LLC, which was formed on July 19, 1999. Effective January 1, 2002, AXA Client Solutions, LLC transferred ownership of Equitable Life and AXA Distribution Holding Corp. to AXA Financial, Inc. Effective May 1, 2002, AXA Client Solutions, LLC changed its name to AXA Financial Services, LLC. Effective June 1, 2002, AXA Financial, Inc. transferred ownership of Equitable Life and AXA Distribution Holding Corp. to AXA Financial Services, LLC. 3. Equitable Holding Corp. was merged into Equitable Holdings, LLC on Dec. 19, 1997. 4. In October 1999, Alliance Capital Management Holding L.P. ("Alliance Holding") reorganized by transferring its business and assets to Alliance Capital Management L.P., a newly formed private partnership ("Alliance Capital"). As of June 25, 2003, AXF and its subsidiaries owned 54.6% of the issued and outstanding units of limited partnership interest in Alliance Capital (the "Alliance Capital Units"), as follows: AXF held directly 32,699,154 Alliance Capital Units (13.05%), Equitable Life directly owned 5,219,396 Alliance Capital Units (2.08%), ACMC, Inc. owned 66,220,822 Alliance Capital Units (26.42%), and ECMC, LLC owned 32,720,227 Alliance Capital Units (13.05%). Alliance Capital Management Corporation also owns a 1% general partnership interest in Alliance Capital. In addition, ECMC, LLC and ACMC, Inc. each own 722,178 units (0.29% each), representing assignments of beneficial ownership of limited partnership interests in Alliance Holding (the "Alliance Holding Units"). Alliance Capital Management Corp. owns 100,000 units of general partnership interest (0.04%), in Alliance Holding. Alliance Holding Units are publicly traded on the New York Stock exchange. 5. EQ Financial Consultants (formerly, Equico Securities, Inc.) was merged into AXA Advisors, LLC on Sept. 20, 1999. AXA Advisors, LLC was transferred from Equitable Holdings, LLC to AXA Distribution Holding Corporation on Sept. 21, 1999. 6. Effective March 15, 2000, Equisource of New York, Inc. and 14 of its subsidiaries were merged into AXA Network, LLC, which was then sold to AXA Distribution Holding Corp. EquiSource of Alabama, Inc. became AXA Network of Alabama, LLC. EquiSource Insurance Agency of Massachusetts, Inc. became AXA Network Insurance Agency of Massachusetts, LLC. Equisource of Nevada, Inc., of Puerto Rico, Inc., and of Texas, Inc., changed their names from "EquiSource" to become "AXA Network", respectively. Effective February 1, 2002, Equitable Distributors Insurance Agency of Texas, Inc. changed its name to AXA Distributors Insurance Agency of Texas, Inc. Effective February 13, 2002 Equitable Distributors Insurance Agency of Massachusetts, LLC changed its name to AXA Distributors Insurance Agency of Massachusetts, LLC. 7. Effective June 6, 2000, Frontier Trust Company was sold by ELAS to AXF and merged into Frontier Trust Company, FSB. 8. Effective June 1, 2001, Equitable Structured Settlement Corp was transferred from ELAS to Equitable Holdings, LLC. Page 2 of 6 AXA FINANCIAL, INC. - SUBSIDIARY ORGANIZATION CHART- 2003 03/29/04 Dissolved: - On November 3, 2000, Donaldson, Lufkin & Jenrette, Inc. was sold to Credit Suisse Group. - 100 Federal Street Funding Corporation was dissolved August 31, 1998. - 100 Federal Street Realty Corporation was dissolved December 20, 2001. - CCMI Corp. was dissolved on October 7, 1999. - ELAS Realty, Inc. was dissolved January 29, 2002. - EML Associates, L.P. was dissolved March 27, 2001. - EQ Services, Inc. was dissolved May 11, 2001. - Equitable BJVS, Inc. was dissolved October 3, 1999. - Equitable Capital Management Corp. became ECMC, LLC on November 30, 1999. - Equitable JV Holding Corp. was dissolved on June 1, 2002.F142 - Equitable JVS II, Inc. was dissolved December 4, 1996 - Equitable Underwriting & Sales Agency (Bahamas) Ltd. was dissolved on December 31, 2000. - EREIM LP Associates (L.P.) was dissolved March 27, 2001. - EREIM Managers Corporation was dissolved March 27, 2001. - EVLICO East Ridge, Inc. was dissolved Jan. 13, 2001 - EVLICO, Inc. was dissolved in 1999. - Franconom, Inc. was dissolved on December 4, 2000. - GP/EQ Southwest, Inc. was dissolved October 21, 1997 - HVM Corp. was dissolved on Feb. 16, 1999. - ML/EQ Real Estate Portfolio, L.P. was dissolved March 27, 2001. - Prime Property Funding, Inc. was dissolved in Feb. 1999. - Sarasota Prime Hotels, Inc. became Sarasota Prime Hotels, LLC. - Six-Pac G.P., Inc. was dissolved July 12,1999 Page 3 of 6 AXA FINANCIAL, INC. - SUBSIDIARY ORGANIZATION CHART- 2003 03/29/04 LISTING A - Equitable Holdings, LLC
State of State of Type of Incorp. or Principal Federal Subsidiary Domicile Operation Tax ID # ---------- -------- --------- -------- AXA Financial, Inc. AXA Financial Services, LLC (Note 2) The Equitable Life Assurance Society of the United States * Equitable Holdings, LLC ELAS Securities Acquisition Corporation Operating DE NY 13-3049038 Equitable Casualty Insurance Company * Operating VT VT 06-1166226 ECMC, LLC (See Note 4 on Page 2) Operating DE NY 13-3266813 Equitable Capital Private Income & Equity Partnership II, L.P. Investment DE NY 13-3544879 Alliance Capital Management Corporation (See Note 4 on Page 2) Operating DE NY 13-3633538 See Attached Listing B Equitable JVS, Inc. Investment DE GA 58-1812697 Astor Times Square Corp. Investment NY NY 13-3593699 Astor/Broadway Acquisition Corp. Investment NY NY 13-3593692 PC Landmark, Inc. Investment TX TX 75-2338215 EJSVS, Inc. Investment DE NJ 58-2169594 AXA Distributors, LLC Operating DE NY 52-2233674 AXA Distributors Insurance Agency of Alabama, LLC Operating DE AL 52-2255113 AXA Distriburors Insurance Agency, LLC Operating DE CT, ME,NY 06-1579051 AXA Distributors Insurance Agency of Massachusetts, LLC Operating MA MA 04-3567096 AXA Distributors Insurance Agency of Texas, Inc. Operating TX TX 74-3006330 J.M.R. Realty Services, Inc. Operating DE NY 13-3813232 Equitable Structured Settlement Corp. (See Note 8 on Page 2) Operating DE NJ 22-3492811 Parent's Number of Percent of Shares Ownership Comments Owned or Control (e.g., Basis of Control) ----- ---------- ------------------------ AXA Financial, Inc. AXA Financial Services, LLC (Note 2) The Equitable Life Assurance Society of the United States * Equitable Holdings, LLC ELAS Securities Acquisition Corporation 500 100.00% Equitable Casualty Insurance Company * 1,000 100.00% ECMC, LLC (See Note 4 on Page 2) - 100.00% Equitable Capital Private Income & Equity ECMC is G.P. Partnership II, L.P. - - ("Deal Flow Fund II") Alliance Capital Management Corporation (See Note 4 on Page 2) 100 100.00% See Attached Listing B Equitable JVS, Inc. 1,000 100.00% Astor Times Square Corp. 100 100.00% Astor/Broadway Acquisition Corp. 100 100.00% G.P. of Astor Acquisition. L.P. PC Landmark, Inc. 1,000 100.00% EJSVS, Inc. 1,000 100.00% AXA Distributors, LLC - 100.00% AXA Distributors Insurance Agency of Alabama, LLC - 100.00% AXA Distriburors Insurance Agency, LLC - 100.00% AXA Distributors Insurance Agency of Massachusetts, LLC - 100.00% AXA Distributors Insurance Agency of Texas, Inc. 1,000 100.00% J.M.R. Realty Services, Inc. 1,000 100.00% Equitable Structured Settlement Corp. (See Note 8 on Page 2) 100 100.00%
* Affiliated Insurer Equitable Investment Corp merged into Equitable Holdings, LLC on November 30, 1999. Equitable Capital Management Corp. became ECMC, LLC on November 30, 1999. Effective March 15, 2000, Equisource of New York, Inc. and its subsidiaries were merged into AXA Network, LLC, which was then sold to AXA Distribution Holding Holding Corp. Efective January 1, 2002, Equitable Distributors, Inc. merged into AXA Distributors, LLC. Page 4 of 6 AXA FINANCIAL, INC. - SUBSIDIARY ORGANIZATION CHART- 2003 03/29/04 LISTING B - Alliance Capital Management Corp.
State of State of Type of Incorp. or Principal Federal Subsidiary Domicile Operation Tax ID # ---------- -------- --------- -------- AXA Financial, Inc. AXA Financial Services, LLC (Note 2) The Equitable Life Assurance Society of the United States Equitable Holdings, LLC Alliance Capital Management Corporation Alliance Capital Management Holding L.P. (See Note 4 on Page 2) Operating DE NY Alliance Capital Management L.P. (See Note 4 on Page 2) Operating DE NY 13-3434400 Albion Alliance LLC Operating DE NY 13-3903734 Cursitor Alliance LLC HCO DE MA 22-3424339 Alliance Capital Management LLC HCO DE NY Sanford C. Bernstein & Co., LLC Operating DE NY Alliance Capital Management Corp. of Delaware HCO DE NY 13-2778645 ACAM Trust Company Private Ltd. Operating India India - ACM Global Investor Services S.A. Operating Lux. Lux. - ACM New-Alliance (Luxembourg) S.A. Operating Lux. Lux. - ACM Fund Services (Espana) S.L. Operating Spain Spain - ACM International (France) SAS Operating France France - ACM Software Services Ltd. Operating DE NY 13-3910857 Alliance Barra Research Institute, Inc. Operating DE NY 13-3548918 Alliance Capital Asset Management (Japan) Ltd Operating Japan Japan - Alliance Capital Australia Limited Operating Aust. Aust. - Far Eastern Alliance Asset Management Operating Taiwan Taiwan - Alliance Capital Global Derivatives Corp. Operating DE NY 13-3626546 Alliance Capital Latin America Ltd. Operating Brazil Brazil - Alliance Capital Limited Operating U.K. U.K. - Alliance Capital Services Ltd. Operating U.K. U.K. - Dimensional Trust Management Ltd. Operating U.K. U.K. - Alliance Capital (Luxembourg) S.A. Operating Lux. Lux. - Alliance Capital Management (Asia) Ltd. Operating DE Singapore 13-3752293 Alliance Capital Management Australia Limited Operating Aust. Aust. - Alliance Capital Management Canada, Inc. Operating DE Canada 13-3630460 Alliance Capital Management New Zealand Limited Operating N.Z. N.Z. - Parent's Number of Percent of Shares Ownership Comments Owned or Control (e.g., Basis of Control) ----- ---------- ------------------------ AXA Financial, Inc. AXA Financial Services, LLC (Note 2) The Equitable Life Assurance Society of the United States Equitable Holdings, LLC Alliance Capital Management Corporation owns 1% GP interest in Alliance Capital Management L.P. and 100,000 GP units in Alliance Capital Management Holding L.P. Alliance Capital Management Holding L.P. (See Note 4 on Page 2) - Alliance Capital Management L.P. (See Note 4 on Page 2) Albion Alliance LLC 37.60% Equitable Life = 4.7%; 3rd parties = 57.7% Cursitor Alliance LLC 100.00% Alliance Capital Management LLC 100.00% Sanford C. Bernstein & Co., LLC 100.00% Alliance Capital Management Corp. of Delaware 10 100.00% ACAM Trust Company Private Ltd. 100.00% ACM Global Investor Services S.A. 99.00% Alliance Capital Oceanic Corp. owns 1% ACM New-Alliance (Luxembourg) S.A. 1.00% New Alliance Asset Mngmnt (Asia) Ltd owns 99% ACM Fund Services (Espana) S.L. 100.00% ACM International (France) SAS 100.00% ACM Software Services Ltd. 100.00% Alliance Barra Research Institute, Inc. 1,000 100.00% Alliance Capital Asset Management (Japan) Ltd 100.00% Alliance Capital Australia Limited 100.00% Far Eastern Alliance Asset Management 20.00% 3rd parties = 80% Alliance Capital Global Derivatives Corp. 1,000 100.00% Alliance Capital Latin America Ltd. 99.00% Alliance Capital Oceanic Corp. owns 1% Alliance Capital Limited 250,000 100.00% Alliance Capital Services Ltd. 1,000 100.00% Dimensional Trust Management Ltd. 50,000 100.00% Alliance Capital (Luxembourg) S.A. 3,999 99.98% Alliance Cap. Oceanic Corp. owns 0.025% Alliance Capital Management (Asia) Ltd. 100.00% Alliance Capital Management Australia Limited 50.00% 3rd parties = 50% Alliance Capital Management Canada, Inc. 18,750 100.00% Alliance Capital Management New Zealand Limited 50.00% 3rd parties = 50%
Page 5 of 6 AXA FINANCIAL, INC. - SUBSIDIARY ORGANIZATION CHART- 2003 03/29/04 LISTING B - Alliance Capital Management Corp.
State of State of Type of Incorp. or Principal Federal Subsidiary Domicile Operation Tax ID # ---------- -------- --------- -------- AXA Financial, Inc. AXA Financial Services, LLC (Note 2) The Equitable Life Assurance Society of the United States Equitable Holdings, LLC Alliance Capital Management Corporation Alliance Capital Management L.P. Alliance Capital Management Corp. of Delaware (Cont'd) Alliance Capital Management (Proprietary) Ltd. Operating So Africa So Africa - Alliance-Odyssey Capital Mgmt. (Nambia) (Proprietary) Ltd. Operating Nambia Nambia - Alliance Capital Management (Singapore) Ltd. Operating Singapore Singapore - Alliance Capital (Mauritius) Private Ltd. Operating Mauritius Mauritius - Alliance Capital Asset Management (India) Private Ltd Operating India India - Alliance Capital Oceanic Corp. Operating DE NY 13-3441277 Alliance Corporate Finance Group Inc. Operating DE NY 52-1671668 Alliance Eastern Europe, Inc. Operating DE NY 13-3802178 AllianceBernstein Investment Research and Management, Inc., (Alliance Fund Distributors, Inc.) Operating DE NY 13-3191825 Alliance Global Investor Services, Inc. Operating DE NJ 13-3211780 Alliance SBS-AGRO Capital Management Co. Operating Russia Russia - Hanwha Investment Trust Mgmt. Co., Ltd Operating So Korea So Korea - New Alliance Asset Management (Asia) Ltd Operating H.K. H.K. - Alliance Capital Taiwan Limited Operating Taiwan Taiwan - ACM New-Alliance (Luxembourg) S.A. Operating Lux. Lux. - Meiji - Alliance Capital Corp. Operating DE NY 13-3613617 Sanford C. Bernstein Ltd. Operating U.K. U.K. - Sanford C. Bernstein (CREST Nominees) Ltd. Operating U.K. U.K. - Sanford C. Bernstein Proprietary Ltd. Operating Aust. Aust. - Whittingdale Holdings Ltd. Operating U.K. U.K. - ACM Investments Ltd. Operating U.K. U.K. - Alliance Asset Allocation Ltd. Operating U.K. U.K. - Alliance Capital Whittingdale Ltd. Operating U.K. U.K. - Alliance Cecogest S.A. Operating France France - Cursitor Alliance Services Ltd. Operating U.K. U.K. - Cursitor Holdings Ltd. Operating U.K. U.K. - Whittingdale Nominees Ltd. Operating U.K. U.K. - Parent's Number of Percent of Shares Ownership Comments Owned or Control (e.g., Basis of Control) ----- ---------- ------------------------ AXA Financial, Inc. AXA Financial Services, LLC (Note 2) The Equitable Life Assurance Society of the United States Equitable Holdings, LLC Alliance Capital Management Corporation Alliance Capital Management L.P. Alliance Capital Management Corp. of Delaware (Cont'd) Alliance Capital Management (Proprietary) Ltd. 80.00% 3rd parties = 20% Alliance-Odyssey Capital Mgmt. (Nambia) (Proprietary) Ltd. 100.00% Alliance Capital Management (Singapore) Ltd. 100.00% Alliance Capital (Mauritius) Private Ltd. 100.00% Alliance Capital Asset Management (India) Private Ltd 75.00% 3rd parties = 25% Alliance Capital Oceanic Corp. 1,000 100.00% inactive Alliance Corporate Finance Group Inc. 1,000 100.00% Alliance Eastern Europe, Inc. 100.00% AllianceBernstein Investment Research and Management, Inc., (Alliance Fund Distributors, Inc. 100 1 Alliance Global Investor Services, Inc. 100 100.00% formerly, Alliance Fund Services, Inc. Alliance SBS-AGRO Capital Management Co. 49.00% 3rd parties = 51% Hanwha Investment Trust Mgmt. Co., Ltd 20.00% 3rd parties = 80% New Alliance Asset Management (Asia) Ltd 50.00% 3rd parties = 50% Alliance Capital Taiwan Limited 99.00% Others owns 1% ACM New-Alliance (Luxembourg) S.A. 99.00% ACM Global Investor Svcs owns 1% Meiji - Alliance Capital Corp. 50,000 50.00% Meiji Mutual Life owns 50% Sanford C. Bernstein Ltd. 100.00% Sanford C. Bernstein (CREST Nominees) Ltd. 100.00% Sanford C. Bernstein Proprietary Ltd. 100.00% Whittingdale Holdings Ltd. 100.00% ACM Investments Ltd. 100.00% Alliance Asset Allocation Ltd. 100.00% Alliance Capital Whittingdale Ltd. 100.00% Alliance Cecogest S.A. 100.00% Cursitor Alliance Services Ltd. 100.00% Cursitor Holdings Ltd. 100.00% Whittingdale Nominees Ltd. 100.00%
Page 6 of 6 Item 27. Number of Contractowners. As of February 29, 2004 the number of participants in the American Dental Association Members Program offered by the Registrant was 24,910. Item 28. Indemnification (a) Indemnification of Directors and Officers The By-Laws of The Equitable Life Assurance Society of the United States ("Equitable Life") provide, in Article VII, as follows: 7.4 Indemnification of Directors, Officers and Employees. (a) To the extent permitted by the law of the State of New York and subject to all applicable requirements thereof: (i) any person made or threatened to be made a party to any action or proceeding, whether civil or criminal, by reason of the fact that he or she, or his or her testator or intestate, is or was a director, officer or employee of the Company shall be indemnified by the Company; (ii) any person made or threatened to be made a party to any action or proceeding, whether civil or criminal, by reason of the fact that he or she, or his or her testator or intestate serves or served any other organization in any capacity at the request of the Company may be indemnified by the Company; and (iii) the related expenses of any such person in any of said categories may be advanced by the Company. (b) To the extent permitted by the law of the State of New York, the Company may provide for further indemnification or advancement of expenses by resolution of shareholders of the Company or the Board of Directors, by amendment of these By-Laws, or by agreement. (Business Corporation Law ss. 721-726; Insurance Law ss. 1216) The directors and officers of Equitable Life are insured under policies issued by Lloyd's of London, X.L. Insurance Company and ACE Insurance Company. The annual limit on such policies is $150 million, and the policies insure that officers and directors against certain liabilities arising out of their conduct in such capacities. (b) Indemnification of Principal Underwriter. Not applicable Presently, there is no Principal Underwriter of the contracts. Under Rule 34a-1 of the Securities Exchange Act of 1934, Equitable Life provides marketing and sales services for distribution of the contracts. No commissions are paid. (c) Undertaking Insofar as indemnification for liability arising under the Securities Act of 1933 ("Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will by governed by the final adjudication of such issue. Item 29. Principal Underwriters -- (a) Not applicable. Presently, there is no Principal Underwriter of the contracts. See Item 28(b). (b) See Item 25 of this Part C, which is incorporated by reference. (c) Not applicable. C-16 Item 30. Location of Accounts and Records The records required to be maintained by Section 31(a) of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are maintained by The Equitable Life Assurance Society of the United States at: 135 West 50th Street New York, New York 10020; 1290 Avenue of the Americas, New York, New York 10104; and 200 Plaza Drive, Secaucus, New Jersey 07094. Item 31. Management Services Not applicable. Item 32. Undertakings The Registrant hereby undertakes: (a) to file a post-effective amendment to this registration statement as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than 16 months old for so long as payments under the variable annuity contracts may be accepted; (b) to include either (1) as part of any application to purchase a contract offered by the prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a postcard or similar written communication affixed to or included in the prospectus that the applicant can remove to send for a Statement of Additional Information; (c) to deliver any Statement of Additional Information and any financial statements required to be made available under this Form promptly upon written or oral request. C-17 SIGNATURES As required by the Securities Act of 1933, the Registrant has caused this Registration Statement to be signed on its behalf, in the City and State of New York, on the 26th day of April, 2004. THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES (Registrant) By: The Equitable Life Assurance Society of the United States By: /s/ Dodie Kent ----------------------- Dodie Kent Vice President and Counsel C-18 SIGNATURES As required by the Securities Act of 1933, the Depositor has caused this Registration Statement to be signed on its behalf in the City and State of New York, on this 26th day of April, 2004. THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES (Depositor) By: /s/ Dodie Kent ----------------------- Dodie Kent Vice President and Counsel As required by the Securities Act of 1933, this Amendment to the Registration Statement has been signed by the following persons in the capacities and on the date indicated: PRINCIPAL EXECUTIVE OFFICERS: *Christopher M. Condron Chairman of the Board, Chief Executive Officer and Director PRINCIPAL FINANCIAL OFFICER: *Stanley B. Tulin Vice Chairman of the Board and Chief Financial Officer PRINCIPAL ACCOUNTING OFFICER: *Alvin H. Fenichel Senior Vice President and Controller *DIRECTORS: Bruce W. Calvert Donald J. Greene George T. Lowy Christopher M. Condron John T. Hartley Edward D. Miller Henri de Castries John H.F. Haskell, Jr. Didier Pineau-Valencienne Claus-Michael Dill Mary R. (Nina) Henderson George J. Sella, Jr. Joseph L. Dionne Peter J. Tobin Stanley B. Tulin Denis Duverne W. Edwin Jarmain Jean-Rene Fourtou Norman C. Francis /s/ Dodie Kent ------------------ Dodie Kent Attorney-in-Fact April 26, 2004 C-19 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, State Street Bank and Trust Company, in its capacity as Trustee of the undersigned collective investment trusts, has, as to the disclosures as to such collective investment trusts, duly caused this Amendment to the Registration Statement to be signed by the undersigned, thereto duly authorized, in the City of Boston and Commonwealth of Massachusetts, on this 26th day of April, 2004. LIFECYCLE FUND GROUP TRUST - CONSERVATIVE LIFECYCLE FUND GROUP TRUST - MODERATE S&P 500 FLAGSHIP FUND RUSSELL 2000 INDEX SECURITIES LENDING FUND DAILY EAFE FUND GOVERNMENT CORPORATE BOND FUND SHORT TERM INVESTMENT FUND STATE STREET BANK AND TRUST COMPANY By: /s/ John R. Towers ------------------------------------ John R. Towers Executive Vice President By: /s/ Timothy B. Harbert ------------------------------------ Timothy B. Harbert Executive Vice President C-20 Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed on behalf of the following persons in the capacities and on this 26th of April, 2004. PRINCIPAL EXECUTIVE OFFICER: David A. Spina PRINCIPAL FINANCIAL OFFICER: Edward J. Resch PRINCIPAL ACCOUNTING OFFICER: Stefan Gavell Directors: David A. Spina* Tenley E. Albright, M.D.* Kennett F. Burnes Truman S. Casner, Esq.* Nader F. Darehshori* Arthur L. Goldstein* David P. Gruber* Linda A. Hill* Charles R. LaMantia* Ronald E. Logue* Richard P. Sergel* Ronald L. Skates Gregory L. Summe* Diana Chapman Walsh Robert E. Weissman By: /s/ John R. Towers ------------------------------ John R. Towers Attorney-in-Fact By: /s/ Timothy B. Harbert ------------------------------ Timothy B. Harbert* Attorney-in-Fact By: /s/ Edward J. Resch ------------------------------------ Edward J. Resch Executive Vice President and Chief Financial Officer By: /s/ Stefan M. Gavell ------------------------------------ Stefan M. Gavell Executive Vice President and Treasurer C-21 EXHIBIT INDEX EXHIBIT NO. ---------- 8(j)(j)(j) Third Amended and Restated Declaration of Trust of the State Street Bank and Trust Company Investment Funds for Tax Exempt Retirement Plans 8(k)(k) Amendment and Fund Declaration for the Lifecycle Fund Group Trust -- Conservative 8(m)(m) Amendment and Fund Declaration for the Lifecycle Fund Group Trust -- Moderate 8(o)(o)(o) Third Amendment and Fund Declaration for the Short Term Investment Fund 8(q)(q)(q) Amendment and Fund Declaration for the Government Credit Bond Fund 9(g) Opinion and Consent 10(d) Consent of Independent Auditors 10(e) Consent of PricewaterhouseCooper LLP (Boston) State Street