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Structured Capital Strategies(SM)
A variable and index-linked deferred annuity contract
PROSPECTUS DATED September 27, 2010
Please read and keep this Prospectus for future reference. It contains
important information that you should know before purchasing or taking any
other action under your contract. You should read the prospectuses for each
Trust which contain important information about the portfolios.
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WHAT IS STRUCTURED CAPITAL STRATEGIES(SM)?
Structured Capital Strategies(SM) is a variable and index-linked deferred
annuity contract issued by AXA Equitable Life Insurance Company. It provides
for the accumulation of retirement savings. The contract also offers a number
of payout options. You invest to accumulate value on a tax-deferred basis in
one or more of our variable investment options and/or in one or more of the
Segments comprising the Structured Investment Option. See "Definition of key
terms" later in this Prospectus for a more detailed explanation of terms
associated with the Structured Investment Option.
Your contract (including any endorsements, riders and data pages as identified
in your contract) is the entire contract between you and AXA Equitable and
governs, for contract purposes, all features, benefits, rights and obligations.
This Prospectus is not your contract, although this Prospectus describes all of
your contract's material features, benefits, rights and obligations. The
description of the contract's material provisions in this Prospectus is current
as of the date of this Prospectus. If certain material provisions under the
contract are changed after the date of this Prospectus in accordance with the
contract, those changes will be described in a supplement to this Prospectus.
You should carefully read this Prospectus in conjunction with any applicable
supplements.
The contract may not currently be available in all states. In addition, certain
features described in this Prospectus may vary in your state. Not all indices
are available under all contracts, and may not be available in all states. For
a state-by-state description of all material variations to this contract, see
"Appendix I" later in this Prospectus. We can refuse to accept any application
or contribution from you at any time, including after you purchase the
contract.
WE RESERVE THE RIGHT TO DISCONTINUE THE ACCEPTANCE OF, AND/OR PLACE ADDITIONAL
LIMITATIONS ON, CONTRIBUTIONS INTO CERTAIN INVESTMENT OPTIONS, INCLUDING ANY OR
ALL OF THE SEGMENTS COMPRISING THE STRUCTURED INVESTMENT OPTION. IF WE EXERCISE
THIS RIGHT, YOUR ABILITY TO INVEST IN YOUR CONTRACT, INCREASE YOUR CONTRACT
VALUE AND, CONSEQUENTLY, INCREASE YOUR DEATH BENEFIT WILL BE LIMITED.
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PLEASE REFER TO PAGE 14 OF THIS PROSPECTUS FOR A DISCUSSION OF RISK FACTORS.
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Our variable investment options are subaccounts offered through Separate
Account No. 49. Each variable investment option, in turn, invests in a
corresponding securities portfolio ("portfolio") of the EQ Advisors Trust (the
"Trust"). Your investment results in a variable investment option will depend
on the investment performance of the related portfolio. Below is a complete
list of the variable investment options:
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VARIABLE INVESTMENT OPTIONS
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o EQ/Core Bond Index o EQ/Equity 500 Index o EQ/Money Market
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We also offer our Structured Investment Option, which permits you to invest in
one or more segments, each of which provides performance tied to the
performance of a securities or commodities index for a set period (1 year, 3
years or 5 years). The Structured Investment Option does not involve an
investment in any underlying portfolio. Instead, it is an obligation of AXA
Equitable Life Insurance Company. Unlike an index fund, the Structured
Investment Option provides a return at maturity designed to provide a
combination of protection against certain decreases in the index and a
limitation on participation in certain increases in the index. The extent of
the downside protection at maturity varies by segment, ranging from the first
10%, 20% or 30% of loss. THERE IS A RISK OF A SUBSTANTIAL LOSS OF YOUR
PRINCIPAL BECAUSE YOU AGREE TO ABSORB ALL LOSSES TO THE EXTENT THEY EXCEED THE
PROTECTION PROVIDED BY THE STRUCTURED INVESTMENT OPTION AT MATURITY. IF YOU
WOULD LIKE A GUARANTEE OF PRINCIPAL, WE OFFER OTHER PRODUCTS THAT PROVIDE SUCH
GUARANTEES.
The total amount earned on an investment in a segment of the Structured
Investment Option is only applied at maturity. If you take a withdrawal from a
segment on any date prior to maturity, we calculate the interim value of the
segment as described in "Appendix II -- Segment Interim Value". This amount may
be less than the amount invested and may be less than the amount you would
receive had you held the investment until maturity. The Segment Interim Value
will generally be negatively affected by increases in the expected volatility of
index prices, interest rate decreases, and by poor market performance. All other
factors being equal, the Segment Interim Value would be lower the earlier a
withdrawal or surrender is made during a Segment. Also, participation in upside
performance for early withdrawals is pro-rated based on the period those amounts
were invested in a Segment. This means you participate to a lesser extent in
upside performance the earlier you take a withdrawal.
We currently offer the Structured Investment Option using the following
indices:
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INDICES
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o S&P 500 Price o Russell 2000 Price o MSCI EAFE Price
Return Index Return Index Return Index
o London Gold Market o NYMEX West Texas
Fixing Ltd PM Intermediate Crude
Fix Price/USD Oil Generic
(the "Gold Index")* Front-Month Futures
(the "Oil Index")*
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* Available in IRA contract only
TYPES OF CONTRACTS. We offer the contracts for use as:
o A nonqualified annuity ("NQ") for after-tax contributions only.
o An individual retirement annuity ("IRA"), either traditional IRA or Roth
IRA.
A minimum contribution of $25,000 is required to purchase a contract.
You can purchase this contract in one of two ways: (i) as a Series B contract,
which has withdrawal charges, or (ii) as a Series ADV contract, if you are a
participant in an account established under a fee-based program sponsored by a
registered investment adviser that we accept.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THE CONTRACTS ARE NOT INSURED BY THE FDIC OR ANY OTHER
AGENCY. THEY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK
GUARANTEED. THEY ARE SUBJECT TO INVESTMENT RISKS AND POSSIBLE LOSS OF
PRINCIPAL.
X03028
SCS
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STRUCTURED INVESTMENT o The Segment Rate of Return could be positive, zero, or negative. THERE IS A RISK OF A SUBSTANTIAL
OPTION (CONTINUED) LOSS OF YOUR PRINCIPAL BECAUSE YOU AGREE TO ABSORB ALL LOSSES TO THE EXTENT THEY EXCEED THE
APPLICABLE SEGMENT BUFFER.
o On any date prior to maturity, we calculate the Segment Interim Value for each Segment as described in
"Appendix II -- Segment Interim Value". This amount may be less than the amount invested and may be
less than the amount you would receive had you held the investment until maturity. The Segment Interim
Value will generally be negatively affected by increases in the expected volatility of index prices,
interest rate decreases, and by poor market performance. All other factors being equal, the Segment
Interim Value would be lower the earlier a withdrawal or surrender is made during a Segment. Also,
participation in upside performance for early withdrawals is pro-rated based on the period those
amounts were invested in a Segment. This means you participate to a lesser extent in upside
performance the earlier you take a withdrawal.
o BOTH THE PERFORMANCE CAP RATE AND THE SEGMENT BUFFER ARE RATES OF RETURN FROM THE SEGMENT START DATE
TO THE SEGMENT MATURITY DATE, NOT ANNUAL RATES OF RETURN, EVEN IF THE SEGMENT DURATION IS LONGER THAN
ONE YEAR. THEREFORE YOUR PERFORMANCE CAP THRESHOLD IS ALSO NOT AN ANNUAL RATE, AS IT IS BASED ON THE
SEGMENT DURATION.
o THE HIGHEST LEVEL OF PROTECTION AT MATURITY IS THE -30% SEGMENT BUFFER AND LOWEST LEVEL OF PROTECTION
IS THE -10% SEGMENT BUFFER.
o THIS PRODUCT GENERALLY OFFERS GREATER UPSIDE POTENTIAL, BUT LESS DOWNSIDE PROTECTION, AT MATURITY
THAN FIXED INDEXED ANNUITIES, WHICH PROVIDE A GUARANTEED MINIMUM RETURN.
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TAX CONSIDERATIONS o On earnings inside the No tax until you make withdrawals from your contract or receive annuity
contract payments.
o On transfers inside the No tax on transfers among investment options, including on a Segment
contract Maturity Date.
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If you are purchasing an annuity contract as an Individual Retirement Annuity (IRA), you should be aware
that such annuities do not provide tax deferral benefits beyond those already provided by the Internal
Revenue Code for individual retirement arrangements. Before purchasing this contract, 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 this contract with any other investment
that you may use in connection with your individual retirement arrangement. You should also be aware
that income received under the contract is taxable as ordinary income and not as capital gain. For more
information, see "Tax information" later in this Prospectus.
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CONTRIBUTION AMOUNTS o NQ
$25,000 (initial) (minimum)
$500 (additional) (minimum)
o Traditional or Roth IRA
$25,000 (initial) (minimum)
$50 (subsequent) (minimum)
o Maximum contribution limitations apply to all contracts.
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In general, contributions are limited to $1.5 million under all Structured Capital Strategies(SM)
contracts with the same owner or annuitant and $2.5 million under all AXA Equitable annuity accumulation
contracts with the same owner or annuitant. Upon advance notice to you, we may exercise certain rights
we have under the contract regarding contributions, including our rights to (i) change minimum and
maximum contribution requirements and limitations, and (ii) discontinue acceptance of contributions
including contributions in general, or to particular investment options. For more information, see "How
you can purchase and contribute to your contract" in "Contract features and benefits" later in this
Prospectus.
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ACCESS TO YOUR MONEY o Partial withdrawals
o Contract surrender
o You may be subject to tax on any income you receive and, unless you are 59-1/2 or another exception
applies, an additional 10% federal income tax penalty. For Series B, you may also incur a withdrawal
charge for certain withdrawals or if you surrender your contract.
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Structured Capital Strategies(SM) at a glance -- key features 9
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1. Risk factors
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This section discusses risks associated with some features of the the contract.
See "Definition of key terms" earlier in this Prospectus and "Contract features
and benefits" later in this Prospectus for more detailed explanations of terms
associated with the Structured Investment Option.
o There is a risk of a substantial loss of your principal because you agree to
absorb all losses from the portion of any negative Index Performance Rate
that exceeds the Segment Buffer for any Segment at maturity. The highest
level of protection is the -30% Segment Buffer and the lowest level of
protection is the -10% Segment Buffer at maturity.
o Your Segment Rate of Return for any Segment is limited by its Performance Cap
Rate, which could cause your Segment Rate of Return to be lower than it would
otherwise be if you invested in a mutual fund or exchange-traded fund
designed to track the performance of the applicable Index.
o The Performance Cap Rate is determined on the Segment Start Date. You will
not know the rate in advance. Prior to the Segment Start Date, you may elect
a Performance Cap Threshold. The threshold represents the minimum Performance
Cap Rate you find acceptable for a particular Segment. If we declare a cap
that is lower than the threshold you specify, you will not be invested in
that Segment and your contribution will remain in that Segment Type Holding
Account, until the next available Segment for which your threshold is met or
you provide us with alternative instructions. If you do not specify a
threshold, you risk the possibility that the Performance Cap Rate established
will have a lower cap than you would find acceptable. Currently, we will not
establish a Segment if the Performance Cap Rate would be less than 2% for a
1-Year Segment, 6% for a 3-Year Segment or 10% for a 5-Year Segment. The
Performance Cap Rate is a rate of return from the Segment Start Date to the
Segment Maturity Date, NOT an annual rate of return, even if the Segment
Duration is longer than one year. We reserve the right to reduce or remove
our current minimum threshold for setting the Performance Cap Rate. Please
see "Appendix I" later in this Prospectus for state variations.
o The method we use in calculating your Segment Interim Value may result in an
amount lower than your Segment Investment, even if the corresponding Index
has experienced positive investment performance since the Segment Start Date.
Also, this amount may be less than the amount you would receive had you held
the investment until maturity.
o If you take a withdrawal, including required minimum distribu tions, and
there is insufficient value in the variable investment options and the
Segment Type Holding Accounts, we will withdraw amounts from any active
Segments in your contract. Amounts withdrawn from active Segments will be
valued using the formula for calculating the Segment Interim Value.
o If you die or cancel or surrender your contract before the Sego ment
Maturity Date, we will pay the Segment Interim Value.
o Any calculation of the Segment Interim Value will generally be affected by
changes in both the volatility and level of the relevant Index, as well as
interest rates. The calculation of the Segment Interim Value is linked to
various factors, including the value of a basket of put and call options
on the relevant Index as described in "Appendix II" of this Prospectus.
The Segment Interim Value will generally be negatively affected by
increases in the expected volatility of index prices, interest rate
decreases, and by poor market performance. All other factors being equal,
the Segment Interim Value would be lower the earlier a withdrawal or
surrender is made during a Segment. Also, participation in upside
performance for early withdrawals is pro-rated based on the period those
amounts were invested in a Segment. This means you participate to a lesser
extent in upside performance the earlier you take a withdrawal.
o You cannot transfer out of a Segment prior to its maturity to another
investment option. You can only make withdrawals out of a Segment or
surrender your contract. The amount you would receive would be calculated
using the formula for the Segment Interim Value.
o We may not offer new Segments of any or all Segment Types, so a Segment may
not be available for you to transfer your Segment Maturity Value into after
the Segment Maturity Date.
o We have the right to substitute an alternative index prior to Segment
Maturity if the publication of one or more Indices is discontinued or at
our sole discretion we determine that our use of such Indices should be
discontinued or if the calculation of one or more of the Indices is
substantially changed. If we substitute an index for an existing Segment,
we would not change the Segment Buffer or Performance Cap Rate. We would
attempt to choose a substitute index that has a similar investment
objective and risk profile to the replaced index.
o If a Segment cannot be matured until after the scheduled Segment Start Date
for a particular month, we may create new Segments of Segment Types that
utilize unaffected Indices on the scheduled Segment Start Date. This may
occur if the Segment Maturity Date for a Segment is delayed more than once
because the value for the relevant underlying Index of the Segment is not
published on the designated Segment Maturity Date. If your instructions
include an allocation from a Segment whose Segment Maturity Date has been
delayed to a new Segment whose underlying Index is unaffected, we will not be
able to transfer that portion of your Segment Maturity Value from the
affected Segment to the unaffected Segment. We will use reasonable efforts to
allocate your Segment Maturity Value in accordance with your instructions,
which may include holding amounts in Segment Type Holding Accounts until the
next Segment Start Date.
o The amounts held in a Segment Type Holding Account may earn a return that is
less than the return you might have earned if those amounts were held in
another variable investment option.
14 Risk factors
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4. Determining your contract's value
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YOUR ACCOUNT VALUE AND CASH VALUE
Your "account value" is the total of: (i) the values you have in the variable
investment options, (ii) the values you have in the Segment Type Holding
Accounts and (iii) your Segment Interim Values.
Your Series B contract also has a "cash value." At any time before annuity
payments begin, your contract's cash value is equal to the account value less
any applicable withdrawal charges. Please see "Surrender of your contract to
receive its cash value" in "Accessing your money" later in this Prospectus.
For Series ADV contracts, at any time before annuity payments begin, your
contract's cash value is equal to its account value.
If you have a Series ADV contract, disregard any references to "withdrawal
charges" or "free withdrawal amount" in this section; these terms only apply to
Series B contracts, not Series ADV contracts.
YOUR CONTRACT'S VALUE IN THE VARIABLE INVESTMENT OPTIONS AND SEGMENT TYPE
HOLDING ACCOUNTS
Each variable investment option and Segment Type Holding Account invests in
shares of a corresponding portfolio. Your value in each variable investment
option and Segment Type Holding Account is measured by "units." The value of
your units will increase or decrease as though you had invested it in the
corresponding portfolio's shares directly. Your value, however, will be reduced
by the amount of the fees and charges that we deduct under the contract.
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Units measure your value in each variable investment option.
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The unit value for each variable investment option and Segment Type Holding
Account depends on the investment performance of that option minus daily
charges for the Contract fee. Each Segment Type Holding Account is part of the
EQ/Money Market variable investment option. On any day, your value in any
variable investment option or Segment Type Holding Account equals the number of
units credited to that option, adjusted for any units purchased for or deducted
from your contract under that option, multiplied by that day's value for one
unit. The number of your contract units in any variable investment option or
Segment Type Holding Account does not change unless it is:
(i) increased to reflect additional contributions;
(ii) decreased to reflect a withdrawal (including applicable withdrawal
charges); or
(iii) increased to reflect a transfer into, or decreased to reflect a transfer
out of a variable investment option and Segment Type Holding Account.
A description of how unit values are calculated is found in the SAI.
YOUR CONTRACT'S VALUE IN THE STRUCTURED INVESTMENT OPTION
Your value in each Segment on the Segment Maturity Date is calculated as
described under "Segment Rate of Return" in "Contract Features and Benefits"
earlier in this Prospectus.
In setting the Performance Cap Rate that we use in calculating the Segment
Maturity Value, we assume that you are going to hold a Segment until the
Segment Maturity Date. However, you have the right under the contract to access
amounts in the Segments before the Segment Maturity Date under certain
circumstances. Therefore, we calculate a Segment Interim Value on each business
day, which is also a Segment Business Day, between the Segment Start Date and
the Segment Maturity Date. The method we use to calculate the Segment Interim
Value is different than the method we use to calculate the value of the Segment
on the Segment Maturity Date. Prior to the Segment Maturity Date, we use the
Segment Interim Value to calculate (1) your account value; (2) the amount your
beneficiary would receive as a death benefit; (3), the amount you would receive
if you make a withdrawal from a Segment; (4) the amount you would receive if
you surrender your contract; or (5) the amount you would receive if you cancel
your contract and return it to us for a refund within your state's "free look"
period (unless your state requires that we refund the full amount of your
contribution upon cancellation).
The Segment Interim Value is calculated based on a formula that provides a
treatment for an early distribution that is designed to be consistent with how
distributions at the end of a Segment are treated. Appendix II later in this
Prospectus sets forth in detail the specific calculation formula as well as
numerous hypothetical examples. The formula is calculated by adding the fair
value of three components. These components provide us with a market value
estimate of the risk of loss and the possibility of gain at the end of a
Segment. As detailed in Appendix II, these components are used to calculate the
Segment Interim Value, as well as, the Segment Maturity Value. The three
components are:
(1) Fair value of fixed instruments is calculated as the present value of the
Segment Investment (using a risk-free swap interest rate for the remaining
duration of the Segment). This is because we are forgoing the opportunity
to earn interest on the Segment Investment by having to make an early
distribution.
PLUS
(2) Fair value of derivatives is calculated by using the Black Scholes model,
as described in Appendix II, to value three hypothetical options (one put
and two call options) on the index underlying the Segment. The put option
is used to estimate the potential losses at Segment Maturity. The call
options are used to estimate the potential gains at Segment Maturity. The
value of these options also reflects the limits on positive performance
(i.e., the Performance Cap Rate) and some protection against negative
performance (i.e., the Segment Buffer).
30 Determining your contract's value
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CONTRACT YEAR
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1 2 3 4 5 6+
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Percentage of
contribution 5% 5% 5% 4% 3% 0%
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For purposes of calculating the withdrawal charge, we treat the contract year
in which we receive a contribution as "contract year 1." Amounts withdrawn up
to the free withdrawal amount are not considered a withdrawal of any
contribution. We also treat contributions that have been invested the longest
as being withdrawn first. We treat contributions as withdrawn before earnings
for purposes of calculating the withdrawal charge. However, federal income tax
rules treat earnings under most NQ contracts as withdrawn first. See "Tax
information" later in this Prospectus.
In order to give you the exact dollar amount of the withdrawal you request, we
deduct the amount of the withdrawal and the amount of the withdrawal charge
from your account value. Any amount deducted to pay withdrawal charges is also
subject to that same withdrawal charge percentage.
We deduct the withdrawal amount and the withdrawal charge pro rata from the
variable investment options (excluding the Segment Type Holding Accounts). If
those amounts are insufficient, we will deduct all or a portion of the required
amounts pro rata from the Segment Type Holding Accounts. If the amounts in the
Segment Type Holding Accounts are still insufficient, we deduct all or a portion
of the required amounts from the Segments on a pro rata basis. If you specify
that your withdrawal be taken from specific investment options, the amount of
the withdrawal charge will first be taken from the investment options you
specify. If there is insufficient value in those options to pay the withdrawal
charge after your withdrawal is deducted, then the remainder of the withdrawal
charge is deducted as described above.
Withdrawals for a Segment or a Segment Type Holding Account are subject to the
same withdrawal charge calculations as a withdrawal from any other investment
option. Any withdrawal from a Segment will trigger the calculation of the
Segment Interim Value, which is in addition to any applicable withdrawal charge.
A withdrawal from a Segment Type Holding Account reduces the amount that will be
transferred to a Segment. For more information, see "Structured Investment
Option" in "Contract features and benefits," earlier in this Prospectus.
The withdrawal charge does not apply in the circumstances described below.
10% FREE WITHDRAWAL AMOUNT. For Series B contracts, each contract year you can
withdraw up to 10% of your account value without paying a withdrawal charge. No
withdrawal charge applies to Series ADV contracts. The 10% free withdrawal
amount is determined using your account value at the beginning of the contract
year. When a contract is surrendered in certain states, the free withdrawal
amount is not taken into account when calculating the amount of the withdrawal.
DEATH. The withdrawal charge does not apply if the owner dies and a death
benefit is payable to the beneficiary.
DISABILITY, TERMINAL ILLNESS, OR CONFINEMENT TO NURSING HOME. The withdrawal
charge also does not apply if:
(i) An owner (or older joint owner, if applicable) has qualified to receive
Social Security disability benefits as certified by the Social Security
Administration; or
(ii) We receive proof satisfactory to us (including certification by a licensed
physician) that an owner's (or older joint owner's, if applicable) life
expectancy is six months or less; or
(iii) An owner (or older joint owner, if applicable) has been confined to a
nursing home for more than 90 days (or such other period, as required in
your state) as verified by a licensed physician. A nursing home for this
purpose means one that is (a) approved by Medicare as a provider of
skilled nursing care service, or (b) licensed as a skilled nursing home by
the state or territory in which it is located (it must be within the
United States, Puerto Rico, or U.S. Virgin Islands) and meets all of the
following:
- its main function is to provide skilled, intermediate, or custodial
nursing care;
- it provides continuous room and board to three or more persons;
- it is supervised by a registered nurse or licensed practical nurse;
- it keeps daily medical records of each patient;
- it controls and records all medications dispensed; and
- its primary service is other than to provide housing for residents.
We reserve the right to impose a withdrawal charge, in accordance with your
contract and applicable state law, if the conditions described in (i), (ii) or
(iii) above existed at the time a contribution was remitted or if the condition
began within 12 months of the period following remittance. Some states may not
permit us to waive the withdrawal charge in the above circumstances, or may
limit the circumstances for which the withdrawal charge may be waived. Your
financial professional can provide more information or you may contact our
processing office.
CHARGES FOR STATE PREMIUM AND OTHER APPLICABLE TAXES
We deduct a charge designed to approximate certain taxes that may be imposed on
us, such as premium taxes in your state. Generally, we deduct the charge from
the amount applied to provide an annuity payout option. The current tax charge
that might be imposed varies by jurisdiction and ranges from 0% to 3.5%.
ADJUSTMENTS WITH RESPECT TO EARLY WITHDRAWALS FROM SEGMENTS
We calculate the Segment Interim Value when a withdrawal is taken, whether a
partial withdrawal or a full contract surrender, from a Segment prior to the
Segment Maturity Date. The Segment Interim Value is calculated based on a
formula that provides a treatment for an early distribution that is designed to
be consistent with how distributions at the end of a Segment are treated. For
more information on the calculation of the Segment Interim Value, please see
Appendix II.
CHARGES THAT THE TRUST DEDUCTS
The Trust deducts charges for the following types of fees and expenses:
o Management fees.
o 12b-1 fees of 0.25%.
o Operating expenses, such as trustees' fees, independent auditors' fees, legal
counsel fees, administrative service fees, custodian fees, and liability
insurance.
o Investment-related expenses, such as brokerage commissions.
Charges and expenses 39
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11. Incorporation of certain documents by reference
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AXA Equitable's Annual Report on Form 10-K for the period ended December 31,
2009 (the "Annual Report") and as amended on Form 10-K/A on September 16, 2010,
and quarterly reports on Form 10-Q for the periods ended March 31, 2010 and
June 30, 2010 are considered to be part of this Prospectus because they are
incorporated by reference.
AXA Equitable files reports and other information with the SEC, as required by
law. You may read and copy this information at the SEC's public reference
facilities at Room 1580, 100 F Street, NE, Washington, DC 20549, or by
accessing the SEC's website at www.sec.gov. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. Under the Securities Act of 1933, AXA Equitable has filed with
the SEC a registration statement relating to the Structured Investment Option
(the "Registration Statement"). This Prospectus has been filed as part of the
Registration Statement and does not contain all of the information set forth in
the Registration Statement.
After the date of this Prospectus and before we terminate the offering of the
securities under the Registration Statement, all documents or reports we file
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"), will
be considered to become part of this Prospectus because they are incorporated
by reference.
Any statement contained in a document that is or becomes part of this
Prospectus, will be considered changed or replaced for purposes of this
Prospectus if a statement contained in this Prospectus changes or is replaced.
Any statement that is considered to be a part of this Prospectus because of its
incorporation will be considered changed or replaced for the purpose of this
Prospectus if a statement contained in any other subsequently filed document
that is considered to be part of this Prospectus changes or replaces that
statement. After that, only the statement that is changed or replaced will be
considered to be part of this Prospectus.
We file the Registration Statement and our Exchange Act documents and reports,
including our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q,
electronically according to EDGAR under CIK No. 0000727920. The SEC maintains a
website that contains reports, proxy and information statements, and other
information regarding registrants that file electronically with the SEC. The
address of the site is www.sec.gov.
Upon written or oral request, we will provide, free of charge, to each person
to whom this Prospectus is delivered, a copy of any or all of the documents
considered to be part of this Prospectus because they are incorporated herein.
In accordance with SEC rules, we will provide copies of any exhibits
specifically incorporated by reference into the text of the Exchange Act
reports (but not any other exhibits). Requests for documents should be directed
to AXA Equitable Life Insurance Company, 1290 Avenue of the Americas, New York,
New York 10104. Attention: Corporate Secretary (telephone: (212) 554-1234). You
can access our website at www.axa-equitable.com.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The consolidated financial statements of AXA Equitable at December 31, 2009 and
2008 and for each of the three years in the period ended December 31, 2009 are
incorporated by reference herein in reliance on the reports of
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and accounting.
PricewaterhouseCoopers LLP provides independent audit services and certain
other non-audit services to AXA Equitable as permitted by the applicable SEC
independence rules, and as disclosed in AXA Equitable's Form 10-K.
PricewaterhouseCoopers LLP's address is 300 Madison Avenue, New York, New York
10017.
Incorporation of certain documents by reference 61
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Appendix II: Segment Interim Value
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We calculate the Segment Interim Value for each Segment on each business day,
which is also a Segment Business Day, between the Segment Start Date and Segment
Maturity Date. The calculation is based on a formula designed to measure the
fair value of your Segment Investment on the particular interim date based on
the downside protection provided by the Segment Buffer, the limit on
participation in investment gain provided by the Performance Cap Rate, and an
adjustment for the effect of a withdrawal prior to the Segment Maturity Date.
The formula we use, in part, derives the fair value of hypothetical investments
in fixed instruments and derivatives (put and call options). These values
provide us with protection from the risk that we will have to pay out account
value related to a Segment prior to the Segment Maturity Date. The hypothetical
put option provides us with a market value of the potential loss at Segment
Maturity and the hypothetical call options provide us with a market value of the
potential gain at Segment Maturity. This formula provides a treatment for an
early distribution that is designed to be consistent with how distributions at
the end of a Segment are treated. We may hold such investments in relation to
Segments but are not required to do so. You have no interest in the performance
of any of our investments relating to Segments. The formula also includes an
adjustment relating to the Cap Calculation Factor. This is a positive adjustment
of the percentage of the estimated expenses corresponding to the portion of the
Segment Duration that has not elapsed. Appendix II sets forth the actual
calculation formula, an overview of the purposes and impacts of the calculation,
and detailed descriptions of the specific inputs into the calculation. You
should note, even if a corresponding Index has experienced positive growth, the
calculation of your Segment Interim Value may result in an amount lower than
your Segment Investment because of other market conditions, such as the
volatility of index prices and interest rates. Finally, Appendix II includes
examples of calculations of Segment Interim Values under various hypothetical
situations.
CALCULATION FORMULA
Your Segment Interim Value is equal to the lesser of (A) or (B).
(A) equals the sum of the following three components:
(1) Fair Value of Fixed Instruments; plus
(2) Fair Value of Derivatives; plus
(3) Cap Calculation Factor.
(B) equals the Segment Investment multiplied by (1 + the Performance Cap Rate
limiting factor).
OVERVIEW OF THE PURPOSES AND IMPACTS OF THE CALCULATION
FAIR VALUE OF FIXED INSTRUMENTS. The Segment Interim Value formula includes an
element designed to compensate us for the fact that when we have to pay out
account value related to a Segment before the Segment Maturity Date we forgo the
opportunity to earn interest on the Segment Investment from the date of
withdrawal or surrender until the Segment Maturity Date. We accomplish this
estimate by calculating the present value of the Segment Investment using a
risk-free swap interest rate widely used in derivative markets.
FAIR VALUE OF DERIVATIVES. We use put and call options that are designated for
each Segment to estimate the market value, at the time the Segment Interim
Value is calculated, of the risk of loss and the possibility of gain at the end
of the Segment. This calculation reflects the value of the downside protection
that would be provided at maturity by the Segment Buffer as well as the upper
limit that would be placed on gains at maturity due to the Performance Cap
Rate.
At the time the Segment Interim Value is determined, the Fair Value of
Derivatives is calculated using the three different hypothetical options. These
options are designated for each Segment and are described in more detail later
in this Appendix.
At-the-Money Call Option. (strike price equals the index value at Segment
inception) The potential for gain is estimated using the value of this
hypothetical option.
Out-of-the-Money Call Option. (strike price equals the index increased by the
Performance Cap Rate established at Segment inception) The potential for gain
in excess of the Performance Cap Rate is estimated using the value of this
hypothetical option.
o The net amount of the At-the-Money Call Option less the value of the
Out-of-the-Money Call Option is an estimate of the market value of the pos-
sibility of gain at the end of the Segment as limited by the Performance
Cap Rate.
Out-of-the-Money Put Option. (strike price equals the index decreased by the
Segment Buffer) The risk of loss is estimated using the value of this hypo-
thetical option.
B-1 Appendix II: Segment Interim Value
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o It is important to note that this value will almost always reduce the
principal you receive, even where the Index is higher at the time of the
withdrawal than at the time of the original investment. This is because the
risk that the Index could have been lower at the end of a Segment is
present to some extent whether or not the Index has increased at the
earlier point in time that the Segment Interim Value is calculated.
CAP CALCULATION FACTOR. In setting the Performance Cap Rate, we take into
account that we incur expenses in connection with a contract, including
insurance and administrative expenses. The Segment Interim Value formula
includes item (3) above, the Cap Calculation Factor, which is designed to
reflect the fact that we will not incur those expenses for the entire duration
of the Segment if you withdraw your investment prior to the Segment Maturity
Date. Therefore, the Cap Calculation Factor is always positive and declines
during the course of the Segment.
PERFORMANCE CAP RATE LIMITING FACTOR. The formula provides that the Segment
Interim Value is never greater than (B) above, which is the portion of the
Performance Cap Rate corresponding to the portion of the Segment Duration that
has elapsed. This limitation is imposed to discourage owners from withdrawing
from a Segment before the Segment Maturity Date where there may have been
significant increases in the relevant Index early in the Segment Duration.
Although the Performance Cap Rate limiting factor pro-rates the upside
potential on amounts withdrawn early, there is no similar adjustment to
pro-rate the downside protection. This means, if you surrender or cancel your
contract, die or make a withdrawal from a Segment before the Segment Maturity
Date, the Segment Buffer will not necessarily apply to the extent it would on
the Segment Maturity Date, and any upside performance will be limited to a
percentage lower than the Performance Cap Rate.
DETAILED DESCRIPTIONS OF SPECIFIC INPUTS TO THE CALCULATION
(A)(1) FAIR VALUE OF FIXED INSTRUMENTS. The Fair Value of Fixed Instrument in a
Segment is based on the swap rate associated with the Segment's remaining time
to maturity. Swap rates are the risk-free interest rates widely used in
derivative markets. There is no standard quote for swap rates. However, because
of their high liquidity and popularity, swap rate quotes from different dealers
generally fall within a close range, the differences among which are not
meaningful. Swap rates can be obtained from inter-dealer systems or financial
data vendors who have feeds from swap dealers. For example, "Bloomberg
Composite" swap rates are the weighted average of swap rates provided by a
number of dealers to Bloomberg. Individual dealers and brokers also publish swap
rates of their own on Bloomberg or Reuters. We may, in the future, utilize
exchange traded swaps that become available. These exchange traded swaps would
have a standard quote associated with them. The Fair Value of Fixed Instruments
is defined as its present value, as expressed in the following formula:
(Segment Investment)/(1 + swap rate)(time to maturity)
The time to maturity is expressed as a fraction, in which the numerator is the
number of days remaining in the Segment Duration and the denominator is the
average number of days in each year of the Segment Duration for that Segment.
(A)(2) FAIR VALUE OF DERIVATIVES. We utilize a fair market value methodology to
determine the Fair Value of Derivatives.
For each Segment, we designate and value three hypothetical options, each of
which is tied to the performance of the Index underlying the Segment in which
you are invested: (1) the At-the-Money Call Option, (2) the Out-of-the-Money
Call Option and (3) the Out-of-the-Money Put Option. At Segment Maturity the
Put Option is designed to value the loss below the buffer, while the call
options are designed to provide gains up to the Performance Cap Rate. These
options are described in more detail below.
In a put option on an index, the seller will pay the buyer, at the maturity of
the option, the difference between the strike price - which was set at issue -
and the underlying index closing price, in the event that the closing price is
below the strike price. In a call option on an index, the seller will pay the
buyer, at the maturity of the option, the difference between the underlying
index closing price and the strike price, in the event that the closing price
is above the strike price. Generally, a put option has an inverse relationship
with its underlying Index, while a call option has a direct relationship. In
addition to the inputs discussed above, the Fair Value of Derivatives is also
affected by the time remaining until the Segment Maturity Date. More
information about the three designated options is set forth below:
(1) At-the-Money Call Option: This is an option to buy a position in the
relevant Index equal to the Segment Investment on the scheduled Seg ment
Maturity Date, at the price of the Index on the Segment Start Date. At any
time during the Segment Duration, the fair value of the At-the-Money Call
Option represents the market value of the potential to receive an amount in
excess of the Segment Investment on the Segment Maturity Date equal to the
percentage growth in the Index between the Segment Start Date and the
Segment Maturity Date, multiplied by the Segment Investment.
(2) Out-of-the-Money Call Option: This is an option to buy a position in the
relevant Index equal to the Segment Investment on the scheduled Segment
Maturity Date, at the price of the Index on the Segment Start Date
increased by a percentage equal to the Performance Cap Rate. At any time
during the Segment Duration, the fair value of the Out-of-the-Money Call
Option represents the market value of the potential to receive an amount in
excess of the Segment Investment equal to the percentage growth in the
Index between the Segment Start Date
Appendix II: Segment Interim Value B-2
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and the Segment Maturity Date in excess of the Performance Cap Rate,
multiplied by the Segment Investment. The value of this option is used to
offset the value of the At-the-Money Call Option, thus recognizing in the
Interim Segment Value a ceiling on gains at Segment Maturity imposed by the
Performance Cap Rate.
(3) Out-of-the-Money Put Option: This is an option to sell a position in the
relevant Index equal to the Segment Investment on the scheduled Segment
Maturity Date, at the price of the Index on the Segment Start Date
decreased by a percentage equal to the Segment Buffer. At any time during
the Segment Duration, the fair value of the Out-of-the-Money Put Option
represents the market value of the potential to receive an amount equal to
the excess of the negative return of the Index between the Segment Start
Date and the Segment Maturity Date beyond the Segment Buffer, multiplied by
the Segment Investment. The value of this option reduces the Interim
Segment Value, as it reflects losses that may be incurred in excess of the
Segment Buffer at Segment Maturity.
The Fair Value of Derivatives is equal to (1) minus (2) minus (3), as defined
above.
We determine the fair value of each of the three designated options using the
Black Scholes model for valuing a European option on the Index, assuming a
continuous dividend yield or net convenience value, with inputs that are
consistent with current market prices. Each option has a notional value on the
Segment Start Date equal to the Segment Investment on that date. The notional
value is the price of the underlying Index at the inception of the contract. In
the event that a number of options, or a fractional number of options was
purchased, the notional value would be the number of options multiplied by the
price of the Index at inception.
For Securities Indices, we use the following inputs to the Black Scholes model:
(1) Implied Volatility of the Index -- This input varies with (i) how much time
remains until the Segment Maturity Date of the Segment, which is determined
by using an expiration date for the designated option that corresponds to
that time remaining and (ii) the relationship between the strike price of
that option and the level of the Index at the time of the calculation.
This relationship is referred to as the "moneyness" of the option described
above, and is calculated as the ratio of current price to the strike price.
Direct market data for these inputs for any given early distribution are
generally not available, because options on the Index that actually trade
in the market have specific maturity dates and moneyness values that are
unlikely to correspond precisely to the Segment Maturity Date and moneyness
of the designated option that we use for purposes of the calculation.
Accordingly, we use the following method to estimate the implied volatility
of the Index. We receive daily quotes of implied volatility from banks
using the same Black Scholes model described above and based on the market
prices for certain options. Specifically, implied volatility quotes are
obtained for options with the closest maturities above and below the actual
time remaining in the Segment at the time of the calculation and, for each
maturity, for those options having the closest moneyness value above and
below the actual moneyness of the designated option, given the level of the
Index at the time of the calculation. In calculating the Segment Interim
Value, we will derive a volatility input for your Segment's time to
maturity and strike price by linearly interpolating between the implied
volatility quotes that are based on the actual adjacent maturities and
moneyness values described above, as follows:
(a) We first determine the implied volatility of an option that has the
same moneyness as the designated option but with the closest avail able
time to maturity shorter than your Segment's remaining time to
maturity. This volatility is derived by linearly interpolating between
the implied volatilities of options having the times to maturity that
are above and below the moneyness value of the hypothetical option.
(b) We then determine the implied volatility of an option that has the same
moneyness as the designated option but with the closest available time
to maturity longer than your Segment's remaining time to maturity. This
volatility is derived by linearly interpolating between the implied
volatilities of options having the times to maturity that are above and
below the moneyness value of the designated option.
(c) The volatility input for your Segment's time to maturity will then be
determined by linearly interpolating between the volatilities derived
in steps (a) and (b).
(2) Swap Rate -- Key duration Swap rates are retrieved from a recognized
financial reporting vendor. Swap rates are retrieved for maturities
adjacent to the actual time remaining in the Segment at the time of the
early distribution. We use linear interpolation to derive the exact
remaining duration rate needed as the input.
(3) Index Dividend Yield -- On a daily basis, we obtain the projected annual
dividend yield across the entire Index. This value is a widely used
assumption and is readily available from recognized financial reporting
vendors.
For Commodities Indices, we use the first two inputs listed above (Implied
Volatility of the Index and Swap Rate), but for the third input, instead of
using the Index Dividend Yield, we use the Net Convenience Value. This approach
is based on standard option pricing methodology, which recognizes that
commodities do not pay dividends. Instead, Net Convenience Value represents the
market's valuation of two offsetting factors: (1) the fact that the option does
not give the holder the ability to use the commodity itself (much like a
security option does not give the holder the right to receive dividends); and
(2) the fact that the holder does not have the obligation to store the
commodity.
B-3 Appendix II: Segment Interim Value
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(3) Net Convenience Value - On a daily basis, we calculate the net convenience
value for the commodity underlying the Index. The net convenience value for
a commodity equals the spot price minus the present value of the futures
price (with the present value based on the Swap Rate). The spot prices and
futures prices are available from a variety of recognized financial
reporting vendors, the differences among which are not meaningful.
Generally, a put option has an inverse relationship with its underlying Index,
while a call option has a direct relationship. In addition to the inputs
discussed above, the Fair Value of Derivatives is also affected by the time to
the Segment Maturity Date.
(A)(3) CAP CALCULATION FACTOR. In setting the Performance Cap Rate, we take
into account that we incur expenses in connection with a contract, including
insurance and administrative expenses. In particular, if there were no such
expenses, the Performance Cap Rate might have been greater. If you withdraw
account value prior to the Segment Maturity Date, we will not incur expenses
for the entire duration of the Segment. If you withdraw your investment prior
to the Segment Maturity Date, we provide a positive adjustment as part of the
calculation of Segment Interim Value, which we call the Cap Calculation Factor.
The Cap Calculation Factor is a portion of the estimate annual expenses that we
used in calculating the Performance Cap Rate, which is approximately 1.80% of
the Segment Investment for Series B contracts and approximately 1.20% of the
Segment Investment for Series ADV contracts. The calculation includes not only
anticipated expenses, but an element of profit as well. The Cap Calculation
Factor is a percentage of the estimated expenses corresponding to the portion
of the Segment Duration that has not elapsed. For example, if we estimated
expenses for a one year Segment at $10, then at the end of 146 days (with 219
days remaining in the Segment), the Cap Calculation Factor would be $6, because
$10 x 219/365 (60%) = $6. The Cap Calculation Factor is not used at the time we
calculate your Segment Maturity Value. Instead, for any Segment held to its
Segment Maturity Date, the values are provided by the contractual guarantees
based on Index performance as adjusted by the Performance Cap Rate and the
Segment Buffer. A Segment is not a variable investment option with an
underlying portfolio, and therefore the percentages we use in setting the
performance caps do not reflect a daily charge against assets held on your
behalf in a separate account.
(B) PRO RATA SHARE OF PERFORMANCE CAP RATE. In setting the Performance Cap
Rate, we assume that you are going to hold the Segment for the entire Segment
Duration. If you hold a Segment until its Segment Maturity Date, the Segment
Return will be calculated subject to the Performance Cap Rate. Prior to the
Segment Maturity Date, your Segment Interim Value will be limited by the
portion of the Performance Cap Rate corresponding to the portion of the Segment
Duration that has elapsed. For example, if the Performance Cap Rate for a
one-year Segment is 10%, then at the end of 146 days, the Pro Rata Share of the
Performance Cap Rate would be 4%, because 10% x 146/365 = 4%; as a result, the
Interim Value at the end of the 146 days could not exceed 104% of the Segment
Investment.
EXAMPLES
On the following pages are hypothetical examples of how the Segment Interim
Value would be calculated for three different Segments. On the first page,
Segments 1, 2 and 3 all have the same Index and Segment Start Date, but have
different Segment Durations. The Segments are each shown on the same date,
approximately 8-1/2 months after the Segment Start Date. On the second page,
Segments 2 and 3 are valued again, but this time on later dates, with
approximately 3-1/2 months remaining until their respective Segment Maturity
Dates. On the third page, Segments 1, 2 and 3 all have the same Index and
Segment Start Date, but have different Segment Durations. The Segments are each
shown making a partial withdrawal on the same date, approximately 8-1/2 months
after the Segment Start Date.
Appendix II: Segment Interim Value B-4