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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(Mark One) FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-11166
AXA FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3623351
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1290 Avenue of the Americas, New York, New York 10104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 554-1234
Securities registered pursuant to Section 12(b) of the
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
Yes [ ] No [X]
No voting or non-voting common equity of the registrant is held by
non-affiliates of the registrant as of June 30, 2005.
As of March 16, 2006, 436,192,949 shares of the registrant's Common Stock were
outstanding.
REDUCED DISCLOSURE FORMAT:
Registrant meets the conditions set forth in General Instruction I (1)(a) and
(b) of Form 10-K and is therefore filing this form with the Reduced Disclosure
Format.
TABLE OF CONTENTS
Part I Page
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Item 1. Business........................................................................ 1-1
Overview........................................................................ 1-1
Recent Events................................................................... 1-1
Segment Information............................................................. 1-2
Wind-up Annuities............................................................... 1-6
General Account Investment Portfolio............................................ 1-6
Employees and Financial Professionals........................................... 1-7
Competition..................................................................... 1-7
Regulation...................................................................... 1-8
Parent Company.................................................................. 1-11
Other Information............................................................... 1-11
Item 1A. Risk Factors.................................................................... 1A-1
Item 1B. Unresolved Staff Comments....................................................... 1B-1
Item 2. Properties...................................................................... 2-1
Item 3. Legal Proceedings............................................................... 3-1
Item 4. Submission of Matters to a Vote of Security Holders*............................ 4-1
Part II
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Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities......................................... 5-1
Item 6. Selected Financial Data*........................................................ 6-1
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ("Management Narrative")................................ 7-1
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................... 7A-1
Item 8. Financial Statements and Supplementary Data..................................... FS-1
Item 9. Changes In and Disagreements With Accountants On Accounting and
Financial Disclosure.......................................................... 9-1
Item 9A. Controls and Procedures......................................................... 9A-1
Item 9B. Other Information............................................................... 9B-1
Part III
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Item 10. Directors and Executive Officers of the Registrant*............................. 10-1
Item 11. Executive Compensation*......................................................... 11-1
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters*.................................................. 12-1
Item 13. Certain Relationships and Related Transactions*................................. 13-1
Item 14. Principal Accounting Fees and Services.......................................... 14-1
Part IV
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Item 15. Exhibits, Financial Statement Schedules ........................................ 15-1
Signatures ................................................................................ S-1
Index to Exhibits ................................................................................ E-1
*Omitted pursuant to General Instruction I to Form 10-K
i
FORWARD-LOOKING STATEMENTS
Some of the statements made in this report, including statements made in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", may constitute forward-looking statements. Forward-looking
statements include, among other things, discussions concerning potential
exposure of AXA Financial, Inc. and its subsidiaries to market risks, as well as
statements expressing management's expectations, beliefs, estimates, forecasts,
projections and assumptions, as indicated by words such as "believes,"
"estimates," "intends," "anticipates," "plans," "expects," "projects," "should,"
"probably," "risk," "target," "goals," "objectives," or similar expressions. AXA
Financial, Inc. claims the protection afforded by the safe harbor for
forward-looking statements contained in Section 21E of the Securities Exchange
Act of 1934, and assumes no duty to update any forward-looking statement.
Forward-looking statements are based on management's expectations and beliefs
concerning future developments and their potential effects and are subject to
risks and uncertainties. Forward-looking statements are not a guarantee of
future performance. Actual results could differ materially from those
anticipated by forward-looking statements due to a number of important factors,
including those discussed under "Risk Factors" and elsewhere in this report.
ii
Part I, Item 1.
BUSINESS(1)
OVERVIEW
AXA Financial Group is a diversified financial services organization offering a
broad spectrum of financial advisory, insurance and investment management
products and services. It is one of the world's largest asset managers, with
total assets under management of approximately $643.44 billion at December 31,
2005, of which approximately $578.55 billion were assets under management at
AllianceBernstein. Through its insurance company subsidiaries, AXA Financial
Group is also among the oldest and largest life insurance organizations in the
United States. AXA Financial Group conducts operations in two business segments.
The financial advisory and insurance business conducted by AXA Equitable, AXA
Advisors, AXA Network, AXA Distributors and their subsidiaries and the MONY
Companies is reported in the Financial Advisory/Insurance segment. The
Investment Management segment is comprised principally of the investment
management business of AllianceBernstein, a leading global investment management
firm. For additional information on AXA Financial Group's business segments, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results Of Continuing Operations By Segment" and Note 23 of Notes
to Consolidated Financial Statements. AXA Financial is a wholly owned subsidiary
of AXA, a French holding company for an international group of insurance and
related financial services companies. AXA is subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and files annual reports on Form 20-F. For additional information
regarding AXA, see "Parent Company".
RECENT EVENTS
AXA Financial substantially completed the integration of the MONY Companies in
2005, including the combination of MONY's and AXA Financial's retail and
wholesale distribution forces and key service operations.
On December 2, 2005, AXA Financial completed the sale of all of the issued and
outstanding capital stock of The Advest Group, Inc. ("Advest"), a wholly owned
subsidiary of AXA Financial, to Merrill Lynch, Pierce, Fenner & Smith
Incorporated for $400 million in cash, subject to adjustments in certain
circumstances. AXA Financial's post-tax proceeds from the Advest sale were
$300.6 million. AXA Financial's pre-tax loss on the sale was $1.4 million, with
a post-tax loss to AXA Financial of $85.4 million.
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(1) As used in this Form 10-K, the term "AXA Financial Group" refers to AXA
Financial, Inc., a Delaware corporation incorporated in 1991 ("AXA Financial"),
and its consolidated subsidiaries. The term "MONY" refers to The MONY Group
Inc., a Delaware corporation acquired by AXA Financial on July 8, 2004 that
merged with and into AXA Financial on July 22, 2004, and the term "MONY
Companies" means MONY Life Insurance Company ("MONY Life"), MONY Life Insurance
Company of America ("MLOA"), U.S. Financial Life Insurance Company ("USFL") and
the other subsidiaries of MONY acquired by AXA Financial in the MONY
Acquisition. The term "Financial Advisory/Insurance Group" refers collectively
to AXA Equitable Life Insurance Company ("AXA Equitable"), a New York stock life
insurance corporation, to AXA Equitable's wholly owned subsidiaries, AXA Life
and Annuity Company ("AXA Life"), and AXA Distributors, LLC and its subsidiaries
(collectively, "AXA Distributors"), to AXA Advisors, LLC, a Delaware limited
liability company ("AXA Advisors"), to AXA Network, LLC, a Delaware limited
liability company, and its subsidiaries (collectively, "AXA Network"), AXA
Financial (Bermuda) Ltd. ("AXA Bermuda") and the MONY Companies. The term
"AllianceBernstein" refers to AllianceBernstein L.P. (formerly Alliance Capital
Management, L.P.), a Delaware limited partnership, and its subsidiaries. The
term "Insurance Group" refers collectively to AXA Equitable, MONY Life, MLOA,
USFL, AXA Life and AXA Bermuda. The term "General Account" refers to the assets
held in the respective general accounts of AXA Equitable, MONY Life, MLOA, AXA
Life, USFL and AXA Bermuda and all of the investment assets held in certain of
AXA Equitable's, MONY Life's and MLOA's separate accounts on which the Insurance
Group bears the investment risk. The term "Separate Accounts" refers to the
separate account investment assets of AXA Equitable, MONY Life and MLOA
excluding the assets held in those separate accounts on which the Insurance
Group bears the investment risk. The term "General Account Investment Assets"
refers to assets held in the General Account associated with the Insurance
Group's continuing operations (which includes the Closed Blocks described below)
and does not include assets held in the General Account associated primarily
with the Insurance Group's discontinued Wind-up Annuity line of business
("Wind-up Annuities").
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SEGMENT INFORMATION
FINANCIAL ADVISORY/INSURANCE
The Financial Advisory/Insurance segment offers a variety of traditional,
variable and interest-sensitive life insurance products, variable and
fixed-interest annuity products, mutual funds and other investment products and
asset management, financial planning and other services principally to
individuals and small and medium-size businesses. It also administers
traditional participating group annuity contracts, generally for corporate
qualified pension plans, and association plans that provide full service
retirement programs for individuals affiliated with professional and trade
associations. The Financial Advisory/Insurance segment, which also includes
Separate Accounts for individual and group life insurance and annuity products,
accounted for approximately $7.80 billion (or 71.1%) of total revenues, after
intersegment eliminations, for the year ended December 31, 2005.
Financial Advisory/Insurance segment products are offered on a retail basis in
all 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands
by financial professionals associated with AXA Advisors, an affiliated
broker-dealer, and AXA Network, an affiliated insurance general agency. AXA
Distributors, a broker-dealer and insurance general agency subsidiary of AXA
Equitable, distributes the Insurance Group's products on a wholesale basis in
all 50 states, the District of Columbia and Puerto Rico through national and
regional securities firms, independent financial planning and other
broker-dealers, banks and brokerage general agencies. Association plans are
marketed directly to clients by the Insurance Group.
As of December 31, 2005, the Insurance Group had approximately 3.5 million
insurance policies and annuity contracts in force. For additional information on
the Financial Advisory/Insurance segment, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of
Continuing Operations by Segment - Financial Advisory/Insurance", Note 23 of
Notes to Consolidated Financial Statements, as well as "- Employees and
Financial Professionals", "- Competition" and "-Regulation".
PRODUCTS
VARIABLE ANNUITIES AND VARIABLE LIFE INSURANCE. The Insurance Group is among the
country's leading issuers of variable annuity and variable life insurance
products. Variable annuity and variable life insurance products offer purchasers
the opportunity to invest some or all of their account values in various
Separate Account investment options.
Variable annuity products accounted for 71.5% of the Insurance Group's total
premiums and deposits in 2005. Variable annuity products offered by the
Insurance Group principally include deferred variable annuities sold in the
individual (non-qualified) markets, as individual retirement annuities, in
public school systems as tax sheltered annuities and as group annuities in the
employer-sponsored retirement plan markets. A significant portion of the
variable annuities sold by the Insurance Group offer one or more enhanced
guarantee features in addition to the standard return of principal death benefit
guarantee. Such enhanced guarantee features may include an enhanced guaranteed
minimum death benefit ("GMDB") and/or guaranteed minimum living benefits.
Guaranteed minimum living benefits include guaranteed minimum income benefits
("GMIB"), guaranteed minimum accumulation benefits and guaranteed minimum
withdrawal benefits ("GMWB"). For additional information regarding these
guaranteed minimum benefit features, see Notes 3, 11, 16 and 18 of Notes to
Consolidated Financial Statements.
Variable life insurance products accounted for 8.9% of the Insurance Group's
total premiums and deposits in 2005. Variable life insurance products offered by
the Insurance Group include single-life products, second-to-die policies (which
pay death benefits following the death of both insureds) and products for the
corporate-owned life insurance ("COLI") market.
As noted above, variable annuity and variable life products offer purchasers the
opportunity to direct the investment of their account values into various
Separate Account investment options. Over the past five years, Separate Account
assets for individual variable life insurance policies and variable annuities
have increased by $29.77 billion to $69.43 billion at December 31, 2005, which
increase includes $4.46 billion attributable to the MONY Companies. Of this
year-end amount, approximately $48.08 billion was invested through EQ Advisors
Trust ("EQAT") and approximately $18.40 billion was invested through AXA Premier
VIP Trust ("VIP Trust"). EQAT and VIP Trust are mutual funds for which AXA
Equitable serves as Investment Manager and Administrator. The balance of such
Separate Account assets is invested through various other mutual funds for which
third parties serve as investment manager.
EQAT is a mutual fund offering variable life and annuity contractholders a
choice of single-advisor equity, bond and money market investment portfolios.
Day-to-day portfolio management services for each investment portfolio are
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provided, on a subadvisory basis, by various affiliated and unaffiliated
investment subadvisors. AllianceBernstein provided investment advisory services
to investment portfolios representing approximately 50% of the total assets in
EQAT portfolios at December 31, 2005 and unaffiliated investment subadvisors
provided investment advisory services in respect of the balance of the assets in
EQAT portfolios.
VIP Trust is a mutual fund offering variable life and annuity contractholders a
choice of multi-advisor equity and bond investment portfolios, as well as asset
allocation portfolios that invest exclusively in other portfolios of EQAT and/or
VIP Trust. Day-to-day portfolio management services for each investment
portfolio are provided, on a subadvisory basis, by various affiliated and
unaffiliated investment subadvisors. AllianceBernstein and AXA Rosenberg
Investment Management LLC, an AXA affiliate ("AXA Rosenberg"), provided
investment advisory services in respect of investment portfolios representing
approximately 9% of the total assets in the VIP Trust portfolios at December 31,
2005 and unaffiliated investment subadvisors provided investment advisory
services in respect of the balance of the assets in the VIP Trust portfolios.
The continued growth of third-party assets under management remains a strategic
objective of AXA Financial Group, which seeks to increase the percentage of its
income that is fee-based and derived from managing funds, including Separate
Account assets, for its clients (who bear the investment risk and reward).
FIXED ANNUITIES AND FIXED LIFE INSURANCE. In addition to variable annuity and
variable life insurance products, the Insurance Group issues a variety of fixed
annuity products, including individual single premium deferred annuities, which
credit an initial and subsequent annually declared interest rate, and payout
annuity products, including traditional immediate annuities. Fixed annuity
products accounted for 2.1% of the Insurance Group's total premium and deposits
in 2005.
The Insurance Group also issues an array of traditional and interest-sensitive
life insurance products, including whole life, universal life, term life and
level premium term life insurance. Traditional and interest-sensitive life
insurance products accounted for 13.4% of the Insurance Group's total premium
and deposits in 2005 and represent an increasingly significant product line for
the Insurance Group. Included among these products are term life and
interest-sensitive life insurance products issued by USFL, which are designed
for the impaired risk market, focusing on customers with treatable medical
conditions. USFL specializes in underwriting life insurance policies for
individuals considered special medical risks using its proprietary Clinical
Underwriting(R) risk evaluation process.
RETAIL MUTUAL FUNDS. The Financial/Advisory/Insurance Group also sponsors
various retail mutual funds.
AXA Enterprise Multimanager Funds Trust (formerly AXA Premier Funds Trust)
("Multimanager Trust") is a retail multi-manager mutual fund consisting of
equity and bond investment portfolios, as well as asset allocation portfolios
that invest exclusively in other retail funds managed by AXA Equitable or
Enterprise Capital Management, Inc. ("Enterprise Capital"), a subsidiary of AXA
Financial. At December 31, 2005, Multimanager Trust had total assets of $484
million. AXA Equitable serves as the Investment Manager and Administrator of
Multimanager Trust. Day-to-day portfolio management services for each investment
portfolio are provided, on a subadvisory basis, by various affiliated and
unaffiliated investment subadvisors. AllianceBernstein and AXA Rosenberg
provided investment advisory services to investment portfolios representing
approximately 13% of the total assets in Multimanager Trust portfolios at
December 31, 2005 and unaffiliated investment subadvisors provided investment
advisory services in respect of the balance of the assets in the Multimanager
Trust portfolios.
AXA Enterprise Funds Trust ("AEFT") is a retail mutual fund consisting of
equity, bond and money market funds. At December 31, 2005, AEFT had total assets
of $2.57 billion. AXA Equitable serves as investment manager and administrator
to AEFT. Day-to-day portfolio management services for each investment portfolio
are provided on a subadvisory basis by various affiliated and unaffiliated
subadvisors. AllianceBernstein provided investment advisory services to
investment portfolios representing 1.7% of the total assets in AEFT at December
31, 2005 and unaffiliated investment subadvisors provided investment advisory
services to the balance of the assets in the AEFT portfolios.
The Enterprise Group of Funds, Inc. ("EGF") is a retail mutual fund comprised of
equity investment portfolios. At December 31, 2005, EGF portfolios had total
assets of $1.75 billion. Enterprise Capital serves as the investment manager to
each series of EGF. Day-to-day portfolio management services for each investment
portfolio are provided, on a subadvisory basis, by various unaffiliated
investment advisors.
For additional information on assets under management, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Continuing Operations by Segment", "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Assets Under
Management".
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MARKETS. The Insurance Group targets primarily affluent and emerging affluent
individuals such as professionals and business owners, as well as employees of
public schools, universities, not-for-profit entities and certain other
tax-exempt organizations, and existing customers. Variable annuity products are
targeted at individuals saving for retirement, seeking retirement income (using
either qualified programs, such as individual retirement annuities, or
non-qualified investments) or seeking the enhanced guarantees offered in these
products, as well as employers (including, among others, educational and
not-for-profit entities, and small and medium-sized businesses) seeking to offer
retirement savings programs such as 401(k) or 403(b) plans. Variable and
interest-sensitive life insurance is targeted at individuals in middle-to-upper
income levels for protection and estate planning purposes, and at business
owners to assist in, among other things, business continuation planning and
funding for executive benefits. Mutual funds and other investment products are
intended for a broad spectrum of clients to meet a variety of asset accumulation
and investment needs. Mutual funds and their investment products add breadth and
depth to the range of needs-based services and products the Financial
Advisory/Insurance Group is able to provide.
DISTRIBUTION. The Insurance Group distributes its annuity, life insurance and
mutual fund products directly to the public through financial professionals
associated with AXA Advisors and AXA Network. These financial professionals also
have access to and can offer a broad array of annuity, life insurance and
investment products and services from unaffiliated insurers and other financial
service providers. In 2005, MONY Life financial professionals became financial
professionals of AXA Advisors and AXA Network.
The Insurance Group also distributes its annuity and life insurance products on
a wholesale basis through AXA Distributors. AXA Distributors distributes the
Insurance Group's annuity products through third-party national and regional
securities firms, independent financial planning and other broker-dealers and
banks. Sales of annuities through AXA Distributors accounted for 38.4% of the
Insurance Group's total premiums and deposits in 2005. AXA Distributors also
distributes the Insurance Group's life insurance products through third-party
brokerage general agencies. Sales of life insurance through AXA Distributors
accounted for 1.3% of the Insurance Group's total premiums and deposits in 2005.
Sales of life insurance through AXA Distributors increased significantly in
2005. The Insurance Group believes that a portion of such increase was
attributable to certain sales of life insurance policies instigated and/or
financed by persons or entities with no relationship to the insured, with the
expectation that such persons or entities will eventually acquire the policies
from the insured as an investment. Due in part to the potential for adverse
selection in these circumstances, the profitability of such sales may be lower
than the Insurance Group might otherwise expect from sales to typical
non-investor purchasers. Based on a review of a sampling of 2005 life insurance
sales, however, management does not believe that any sales to date to persons or
entities with no relationship to the insured will have a significant impact on
the future profitability of the Insurance Group. Nevertheless, to help protect
its product profit margin targets with regard to future sales and to evidence
its concern over the appropriateness, from a public policy perspective, of the
sales described above, the Insurance Group is implementing changes to certain of
its commission rates and underwriting practices. These steps are expected to
slow the rate of growth of (and may in fact reduce somewhat) sales of life
insurance through AXA Distributors in 2006.
Enterprise Fund Distributors, Inc. ("EFD"), an affiliate of AXA Financial,
serves as the principal underwriter of retail mutual funds sponsored by the
Financial Advisory/Insurance Group. EFD has selling agreements with AXA Advisors
as well as third-party national and regional securities firms, independent
financial planning and other broker-dealers and banks. AXA Advisors and two
major national securities firms were responsible for 16.7%, 10.8% and 9.9%,
respectively, of EFD's 2005 sales.
REINSURANCE AND HEDGING. In 2005, the Insurance Group retained up to a maximum
of $25 million of risk on single-life policies and $30 million of risk on
second-to-die policies, except for USFL for which the Insurance Group retained
up to a maximum of $2.5 million of risk on single-life policies and $3.0 million
of risk on second-to-die policies. For amounts issued in excess of those limits,
the Insurance Group obtained reinsurance from unaffiliated third parties. The
reinsurance arrangements obligate the reinsurer to pay a portion of any death
claim in excess of the amount retained by the Insurance Group in exchange for an
agreed-upon premium. A contingent liability exists with respect to such
reinsurance should the reinsurers be unable to meet their obligations. The
Insurance Group evaluates the financial condition of its reinsurers in an effort
to minimize its exposure to significant losses from reinsurer insolvencies. The
Insurance Group is not a party to any risk reinsurance arrangement with any
reinsurer pursuant to which the amount of reserves on reinsurance ceded to such
reinsurer equals more than 3.3% of the total policy reserves of the Insurance
Group (including Separate Accounts).
The Insurance Group also reinsures a percentage of its exposure on variable
annuity products that offer a GMIB feature and/or GMDB features. At December 31,
2005, the Insurance Group had reinsured, subject to certain maximum amounts or
caps in any one period, approximately 74.8% of its net amount at risk resulting
from the GMIB feature and approximately 29.7% of its net amount at risk to the
GMDB obligation on annuity contracts in
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force as of December 31, 2005. The Insurance Group has adopted certain
hedging strategies that are designed to reduce exposure to GMIB, GMDB and GMWB,
liabilities that have not been reinsured for policies issued after April 2002.
For additional information about reinsurance and hedging strategies implemented
by AXA Financial Group, see "Quantitative and Qualitative Disclosures about
Market Risk" and Notes 3, 11, 16 and 18 of Notes to Consolidated Financial
Statements.
The Insurance Group also acts as a retrocessionaire by assuming life reinsurance
from reinsurers. Mortality risk through reinsurance assumed is managed using the
same corporate retention limits noted above (i.e., $25 million on single-life
policies and $30 million on second-to-die policies), although, in practice, the
Insurance Group is currently using lower internal retention limits for life
reinsurance assumed. The Insurance Group has also assumed accident, health,
aviation and space risks by participating in or reinsuring various reinsurance
pools and arrangements. The Insurance Group generally discontinued its
participation in new accident, health, aviation and space reinsurance pools and
arrangements for years following 2000, but continues to be exposed to claims in
connection with pools it participated in prior to that time. The Insurance Group
is in the process of auditing or otherwise reviewing the records of many of
these reinsurance pools and arrangements as part of its ongoing efforts to
manage its claims risk.
INVESTMENT MANAGEMENT
GENERAL. The Investment Management segment is principally comprised of the
investment management business of AllianceBernstein. AllianceBernstein offers a
broad range of investment products and services to its clients, including the
following: (a) to its institutional clients, including unaffiliated corporate
and public employee pension funds, endowment funds, domestic and foreign
institutions and governments and various affiliates, AllianceBernstein offers
separately managed accounts, subadvisory relationships, structured products,
group trusts, mutual funds and other investment vehicles, (b) to its retail
clients, AllianceBernstein offers retail mutual funds sponsored by
AllianceBernstein and affiliated joint venture companies, subadvisory
relationships in respect of mutual funds sponsored by third parties, separately
managed account programs that are sponsored by registered broker-dealers and
other investment vehicles, (c) to its private clients, including high-net-worth
individuals, trusts and estates, charitable foundations, partnerships, private
and family corporations and other entities, AllianceBernstein offers separately
managed accounts, hedge funds, mutual funds and other investment vehicles, and
(d) to its institutional investors seeking institutional research,
AllianceBernstein offers in-depth research, portfolio strategy, trading and
brokerage-related services.
AllianceBernstein's portfolio managers oversee a number of different types of
investment products within various vehicles and strategies. AllianceBernstein's
investment strategies include: (a) growth and value equity, the two predominant
equity investment strategies; (b) blend, combining growth and value equity
components and systematic rebalancing between the two; (c) fixed income,
including both taxable and tax-exempt securities; (d) balanced, combining equity
and fixed income components; and (e) passive, including both index and enhanced
index strategies.
The Investment Management segment in 2005 accounted for approximately $3.27
billion (or 29.8%) of total revenues, after intersegment eliminations. As of
December 31, 2005, AllianceBernstein had approximately $578.55 billion in assets
under management, including approximately $358.55 billion from institutional
investors, approximately $145.13 billion from retail mutual fund accounts and
approximately $74.87 billion from private clients. As of December 31, 2005,
assets of AXA, AXA Financial and the Insurance Group, including investments in
EQAT, VIP Trust and Multimanager Trust, represented approximately 18.6% of
AllianceBernstein's total assets under management, and fees and other charges
for the management of those assets accounted for approximately 7.2% of
AllianceBernstein's total revenues. The Investment Management segment continues
to add third-party assets under management, and to provide asset management
services to the Insurance Group.
INTEREST IN ALLIANCEBERNSTEIN. In October 2000, AllianceBernstein acquired SCB
Inc., formerly known as Sanford C. Bernstein, Inc. ("Bernstein"). In connection
with this acquisition (the "Bernstein Acquisition"), Bernstein and SCB Partners
Inc. were granted the right to sell limited partnership interests in
AllianceBernstein L.P. ("AllianceBernstein Units") to AXA Financial or an entity
designated by AXA Financial (the "AllianceBernstein Put"). Since November 2002,
AXA Financial, either directly or indirectly through wholly owned subsidiaries,
has acquired a total of 24.48 million AllianceBernstein Units for an aggregate
purchase price of approximately $885.4 million through several purchases made
pursuant to the AllianceBernstein Put. After giving effect to the Bernstein
Acquisition and such subsequent purchases, AXA Financial Group's consolidated
economic interest in AllianceBernstein L.P. as of December 31, 2005 was
approximately 61.1%, including the general partnership
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interest held indirectly by AXA Equitable as the sole shareholder of the
general partner of AllianceBernstein Holding L.P. and AllianceBernstein L.P.
For additional information about AllianceBernstein, including its results of
operations, see "Business - Regulation" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of
Continuing Operations by Segment - Investment Management" and AllianceBernstein
L.P.'s Annual Report on Form 10-K for the year ended December 31, 2005.
WIND-UP ANNUITIES
Wind-up Annuities consists primarily of group non-participating wind-up annuity
products. At December 31, 2005, $817.2 million of related policyholder
liabilities were outstanding. For additional information about Wind-up
Annuities, see Notes 3 and 10 of Notes to Consolidated Financial Statements.
GENERAL ACCOUNT INVESTMENT PORTFOLIO
GENERAL. The General Account consists of a diversified portfolio of principally
fixed-income investments.
The following table summarizes General Account Investment Assets of the
Insurance Group by asset category at December 31, 2005:
INSURANCE GROUP
GENERAL ACCOUNT INVESTMENT ASSETS
NET AMORTIZED COST (1)
(DOLLARS IN MILLIONS)
AMOUNT % OF TOTAL
-------------- -----------
Fixed maturities (2)................... $ 38,846.2 74.9%
Mortgages.............................. 4,708.5 9.1
Equity real estate..................... 784.8 1.5
Other equity investments............... 1,364.7 2.6
Policy loans........................... 5,104.7 9.8
Cash and short-term investments (3).... 1,103.1 2.1
-------------- -----------
Total............................... $ 51,912.0 100.0%
============== ===========
(1) Net amortized cost is the cost of the General Account Investment Assets
(adjusted for impairments in value deemed to be other than temporary, if
any) less depreciation and amortization, where applicable, and less
valuation allowances on mortgage and real estate portfolios.
(2) Excludes net unrealized gains of $946.4 million on fixed maturities
classified as available for sale. Fixed maturities include approximately
$1.1 billion net amortized cost of below investment grade securities.
(3) Comprised of "Cash and cash equivalents" and short-term investments
included within the "Other invested assets" caption on the consolidated
balance sheet.
The Insurance Group has an asset/liability management approach with separate
investment objectives for specific classes of product liabilities, such as
insurance, annuity and group pension. The Insurance Group has investment
guidelines for each product line that form the basis for investment strategies
to manage such product line's investment return and liquidity requirements,
consistent with management's overall investment objectives for the General
Account investment portfolio. Investments frequently meet the investment
objectives of more than one class of product liabilities; each such class may be
allocated an interest in such investments and the returns therefrom.
INVESTMENT SURVEILLANCE. As part of the Insurance Group's investment management
process, management, with the assistance of its investment advisors, constantly
monitors General Account investment performance. This internal review process
culminates with a quarterly review of assets by the Insurance Group's
Surveillance Committee that evaluates whether any investments are other than
temporarily impaired and whether specific investments should be put on an
interest non-accrual basis.
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EMPLOYEES AND FINANCIAL PROFESSIONALS
As of December 31, 2005, AXA Financial Group had approximately 10,161 employees.
Of these, approximately 5,849 and 4,312 were employed full-time by the Financial
Advisory/Insurance Group and AllianceBernstein, respectively. In addition to
these employees, as of December 31, 2005, the Financial Advisory/Insurance Group
had a sales force consisting of approximately 5,980 AXA Advisors financial
professionals, including 340 field managers.
COMPETITION
FINANCIAL ADVISORY/INSURANCE. There is strong competition among insurers, banks,
brokerage firms and other financial institutions and providers seeking clients
for the types of products and services provided by the Financial
Advisory/Insurance Group, including insurance, annuity and other investment
products and services. Competition is particularly intense among a broad range
of financial institutions and other financial service providers for retirement
and other savings dollars. The principal competitive factors affecting the
Financial Advisory/Insurance Group's business are financial and claims-paying
ratings; access to diversified sources of distribution; size and scale; product
quality, range, features/functionality and price; crediting rates on fixed
products; visibility and brand recognition in the marketplace; reputation and
quality of service; and, with respect to variable insurance and annuity
products, mutual funds and other investment products, investment management
performance.
As noted above, ratings are an important factor in establishing the competitive
position of insurance companies. As of March 16, 2006 the financial strength or
claims-paying rating of AXA Equitable was "AA-" from Standard & Poor's
Corporation (4th highest of 21 ratings; with positive outlook), "Aa3" from
Moody's Investors Service (4th highest of 21 ratings; with stable outlook), "A+"
from A.M. Best Company, Inc. (2nd highest of 15 ratings; with stable outlook),
and "AA" from Fitch Investors Service, L.P. (3rd highest of 24 ratings; with
stable outlook). As of March 16, 2006, the financial strength or claims-paying
ratings of MONY Life and MLOA were "AA-" from Standard & Poor's Corporation (4th
highest of 21 ratings; with positive outlook), "Aa3" from Moody's Investors
Service (4th highest of 21 ratings; with stable outlook), "A+" from A.M. Best
Company, Inc. (2nd highest of 15 ratings; with stable outlook), and "AA" from
Fitch Investors Service, L.P. (3rd highest of 24 ratings; with stable outlook).
As of March 16, 2006, the financial strength or claims-paying rating of USFL was
"A+" from A.M. Best Company, Inc. (2nd highest of 15 ratings; with stable
outlook) and "AA" from Fitch Investors Service, L.P. (3rd highest of 24 ratings;
with stable outlook). As of March 16, 2006, AXA Financial's long-term debt
rating was "A" from Standard & Poor's Corporation (6th highest of 22 ratings;
with positive outlook), "A2" from Moody's Investors Service (6th highest of 21
ratings; with stable outlook), "a-" from A.M. Best Company, Inc. (7th highest of
22 ratings; with stable outlook) and "A+" from Fitch Investors Service, L.P.
(5th highest of 24 ratings; with stable outlook).
INVESTMENT MANAGEMENT. The financial services business is intensely competitive
and new entrants are continually attracted to it. No single or small group of
competitors is dominant in the industry. AllianceBernstein competes in all
aspects of its business with numerous investment management firms, mutual fund
complexes, brokerage and investment banking firms, insurance companies, banks,
savings and loan associations, and other financial institutions that often
provide investment products that have similar features and objectives as those
AllianceBernstein offers. AllianceBernstein's competitors offer a wide range of
financial services to the same customers that AllianceBernstein seeks to serve.
Some of AllianceBernstein's competitors are larger, have a broader range of
product choices and investment capabilities, conduct business in more markets,
and have substantially greater resources than AllianceBernstein does. These
factors may place AllianceBernstein at a competitive disadvantage. To grow its
business, AllianceBernstein must be able to compete effectively for assets under
management. Key competitive factors include (i) AllianceBernstein's commitment
to place the interests of its clients first; (ii) the quality of
AllianceBernstein's research; (iii) AllianceBernstein's investment performance;
(iv) the array of investment products AllianceBernstein offers; (v) the fees
AllianceBernstein charges; (vi) AllianceBernstein's ability to further develop
and market its brand; and (vii) AllianceBernstein's global presence.
AXA, AXA Equitable and certain of their direct and indirect subsidiaries offer
financial services, some of which compete with those offered by
AllianceBernstein. AllianceBernstein's partnership agreement specifically allows
AXA Equitable and its subsidiaries (other than the general partner of
AllianceBernstein L.P.) to compete with AllianceBernstein. AXA has substantially
greater resources than AllianceBernstein does and is not obligated to provide
resources to AllianceBernstein.
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REGULATION
INSURANCE SUPERVISION. Members of the Insurance Group are licensed to transact
insurance business in, and are subject to extensive regulation and supervision
by, insurance regulators in all 50 states of the United States, the District of
Columbia, Puerto Rico, the U.S. Virgin Islands and nine of Canada's twelve
provinces and territories. AXA Equitable and MONY Life are domiciled in New York
and are primarily regulated by the Superintendent (the "Superintendent") of the
New York Insurance Department (the "NYID"). AXA Life is domiciled in Colorado
and is primarily regulated by the Commissioner of Insurance of the Colorado
Division of Insurance. MLOA is domiciled in Arizona and is primarily regulated
by the Director of Insurance of the Arizona Department of Insurance. USFL is
domiciled in Ohio and is primarily regulated by the Director of Insurance of the
Ohio Department of Insurance. AXA Bermuda is domiciled in Bermuda and is
primarily regulated by the Bermuda Monetary Authority. The extent of regulation
varies, but most jurisdictions have laws and regulations governing sales
practices, standards of solvency, levels of reserves, risk-based capital,
permitted types and concentrations of investments, and business conduct to be
maintained by insurance companies as well as agent licensing, approval of policy
forms and, for certain lines of insurance, approval or filing of rates.
Additionally, the New York Insurance Law limits sales commissions and certain
other marketing expenses that may be incurred by AXA Equitable or MONY Life.
Each of the members of the Insurance Group is required to file detailed annual
financial statements, prepared on a statutory accounting basis, with supervisory
agencies in each of the jurisdictions in which it does business. Such agencies
may conduct regular or targeted examinations of the operations and accounts of
the members of the Insurance Group, and make requests for particular information
from them. In recent years, the insurance industry has seen an increase in
inquiries from state attorneys general and insurance commissioners regarding
compliance with certain state insurance and securities laws. For example,
certain attorneys general and insurance commissioners have requested information
from the Insurance Group and other insurance companies regarding collusive
bidding, revenue sharing and market timing practices and practices associated
with replacements and exchanges of life insurance and annuities.
HOLDING COMPANY AND SHAREHOLDER DIVIDEND REGULATION. Several states, including
New York, regulate transactions between an insurer and its affiliates under
insurance holding company acts. These acts contain certain reporting
requirements and restrictions on provision of services and on transactions, such
as intercompany service agreements, asset transfers, reinsurance, loans and
shareholder dividend payments by insurers. Depending on their size, such
transactions and payments may be subject to prior notice to, or approval by, the
insurance department of the applicable state. In 2005, AXA Equitable and MONY
Life paid an aggregate of $500 million and $75 million, respectively, in
shareholder dividends.
STATUTORY SURPLUS AND CAPITAL. Insurance regulators have the discretionary
authority to limit or prohibit new issuances of business to policyholders within
their jurisdiction when, in their judgment, such regulators determine that the
issuing company is not maintaining adequate statutory surplus or capital.
FEDERAL TAX INITIATIVES. Although the Federal government generally does not
directly regulate the insurance business, many Federal tax laws affect the
business in a variety of ways. There are a number of existing, newly enacted or
recently proposed Federal tax initiatives that may significantly affect the
Insurance Group. In June 2001, legislation was enacted which, among other
things, provides several years of lower rates for estate, gift and generation
skipping taxes ("GST") as well as one year of estate and GST repeal (in 2010)
before a return to 2001 law for the year 2011 and thereafter. Legislation has
been proposed regarding extending or making permanent the repeal of the estate
and generation skipping taxes. If enacted, this legislation would have an
adverse impact on sales and surrenders of life insurance in connection with
estate planning. Other provisions of the 2001 legislation increased amounts
which may be contributed to tax qualified retirement plans and allowed increased
funding levels for tax qualified retirement products. In 2003, reductions in
income tax rates on long-term capital gains and qualifying corporate dividends
were enacted which adversely impacted the attractiveness of cash value life
insurance and annuity products relative to other investment alternatives that
may qualify for these lower rates. While set to expire, there are proposals to
extend or make such reduced rates permanent. Other provisions of recently
enacted and proposed legislation and Treasury regulations relate to the business
use of life insurance, split-dollar arrangements, creation of new tax favored
savings accounts and modifications to both nonqualified deferred compensation
plan and qualified plan (including tax sheltered annuities) rules. These
provisions, to the extent enacted, could adversely affect the sale of life
insurance to businesses, as well as the attractiveness of qualified plan
arrangements, cash value life insurance and annuities. The U.S. Congress may
also consider proposals such as Social Security reform or comprehensive overhaul
of the Federal tax law (whether in response to recommendations of a Presidential
Advisory Panel on Federal Tax Reform or otherwise), which, if enacted, could
adversely impact the attractiveness of cash value life insurance, annuities and
tax qualified retirement products. The President's Advisory Panel on Federal Tax
Reform recently announced its tax reform options. If enacted by Congress, these
options would make sweeping changes to many longstanding tax rules. These
changes would include the creation of new tax-favored savings accounts that
would replace many existing qualified plan arrangements and would eliminate
certain tax benefits currently
1-8
available to cash value life insurance and deferred annuity products by
annually taxing any withdrawable cash value build-up in such products.
Management believes that the enactment of these options into law in their
current or similar form would adversely affect sales, funding and persistency of
cash value life insurance and deferred annuity products. Management cannot
predict what, if any, legislation will actually be proposed or enacted based on
these options or what other proposals or legislation, if any, may be introduced
or enacted relating to AXA Financial Group's business or what the effect of any
such legislation might be.
SECURITIES LAWS. AXA Financial, certain of its subsidiaries, and certain
policies and contracts offered by the Insurance Group are subject to regulation
under the Federal securities laws administered by the Securities and Exchange
Commission (the "SEC") and under certain state securities laws. The SEC conducts
regular examinations of the Insurance Group's operations, and from time to time
makes requests for particular information from the Insurance Group.
AXA Advisors, AXA Distributors, AllianceBernstein Investments, Inc. (formerly
AllianceBernstein Investment Research and Management, Inc.), Sanford C.
Bernstein & Co., LLC, EFD and certain other subsidiaries of AXA Financial are
registered as broker-dealers (collectively the "Broker-Dealers") under the
Exchange Act. The Broker-Dealers are subject to extensive regulation by the SEC,
and are members of, and subject to regulation by, the National Association of
Securities Dealers, Inc. (the "NASD"). As broker-dealers registered with the
SEC, the Broker-Dealers are subject to the capital requirements of the SEC
and/or the NASD. These capital requirements specify minimum levels of capital,
computed in accordance with regulatory requirements ("net capital"), that the
Broker-Dealers are required to maintain and also limit the amount of leverage
that the Broker-Dealers are able to obtain in their businesses. The SEC and the
NASD also regulate the sales practices of the Broker-Dealers. In recent years,
the SEC and the NASD have intensified their scrutiny of sales practices relating
to variable annuities, variable life insurance and mutual funds, among other
products. In addition, the Broker-Dealers are also subject to regulation by
state securities administrators in those states in which they conduct business.
The SEC, the NASD and other governmental regulatory authorities, including state
securities administrators, may institute administrative or judicial proceedings
which may result in censure, fines, the issuance of cease-and-desist orders, the
suspension or expulsion of a broker-dealer or member, its officers or employees
or other similar sanctions. In June 2005, without admitting or denying the
allegations, AXA Advisors entered into an agreement with the NASD and paid a
$900,000 fine to resolve charges relating to its receipt of directed brokerage
fees from certain mutual fund companies during the period 2001 through the date
of discontinuance of the practice in late 2003.
AXA Financial and certain subsidiaries have provided, and in certain cases
continue to provide, information and documents to the SEC, the NASD, state
attorneys general and other regulators on a wide range of issues, including
supervisory issues, market timing, late trading, valuation, suitability, email
retention policies, replacements and exchanges of variable life insurance and
annuities, collusive bidding and other inappropriate solicitation activities,
"revenue sharing" and directed brokerage arrangements, investment company
directed brokerage arrangements, fund portfolio brokerage commissions, mutual
fund sales and marketing and "networking arrangements". For example, AXA
Equitable is currently providing information to the New York Attorney General
(the "NYAG") in response to a subpoena and information requests relating to
possible market timing activities conducted through AXA Equitable's variable
insurance products. Ongoing or future regulatory investigations could result in
fines, other sanctions and/or other costs.
Certain Separate Accounts of AXA Equitable, MONY Life and MLOA are registered as
investment companies under the Investment Company Act of 1940, as amended (the
"Investment Company Act"). Separate Account interests under certain annuity
contracts and insurance policies issued by AXA Equitable and MLOA are also
registered under the Securities Act of 1933, as amended (the "Securities Act").
EQAT, Multimanager Trust, VIP Trust, AEFT and EGF are registered as investment
companies under the Investment Company Act and shares offered by these
investment companies are also registered under the Securities Act. Many of the
investment companies managed by AllianceBernstein, including a variety of mutual
funds and other pooled investment vehicles, are registered with the SEC under
the Investment Company Act.
AXA Equitable, AXA Advisors, Enterprise Capital and certain affiliates and
AllianceBernstein and certain affiliates of AllianceBernstein also are
registered as investment advisors under the Investment Advisers Act of 1940, as
amended (the "Investment Advisers Act"). The investment advisory activities of
such registered investment advisors are subject to various Federal and state
laws and regulations and to the laws in those foreign countries in which they
conduct business. These laws and regulations generally grant supervisory
agencies broad administrative powers, including the power to limit or restrict
the carrying on of business for failure to comply with such laws and
regulations. In case of such an event, the possible sanctions that may be
imposed include the suspension of
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individual employees, limitations on engaging in business for specific periods,
revocation of registration as an investment advisor, censures and fines.
Regulators, including the SEC, the NASD and state attorneys general, continue to
focus attention on various practices in or affecting the investment management
and/or mutual fund industries, including market timing and late trading. The SEC
recently initiated a series of examinations of a number of investment advisors
and their affiliated funds, including AXA Equitable and its funds regarding
distribution payments made to broker-dealers. As is the case with many
investment advisors, AXA Equitable makes payments to enhance the distribution of
its mutual funds, a practice commonly referred to as revenue sharing. The SEC,
during a recent examination, found that AXA Equitable used fund brokerage
commissions to offset its payments to broker-dealers for fund sales,
distribution, shelf space, marketing support or exposure to third party sales
forces. Prior to such finding, AXA Equitable voluntarily reimbursed $7 million
to the funds and has terminated the use of recaptured commissions for
distribution. The SEC has finalized its examination and has issued no further
sanctions.
ALLIANCEBERNSTEIN REGULATORY MATTERS
MARKET TIMING INVESTIGATIONS. On December 18, 2003, AllianceBernstein settled
with the SEC and the NYAG regarding their investigations into trading practices
in shares of certain of AllianceBernstein's sponsored mutual funds.
AllianceBernstein's agreement with the SEC was reflected in an Order of the
Commission ("SEC Order") dated December 18, 2003 (amended and restated January
15, 2004), while AllianceBernstein's final agreement with the NYAG was reflected
in an Assurance of Discontinuance ("AoD") dated September 1, 2004.
AllianceBernstein has taken a number of important initiatives to resolve these
matters. Specifically, AllianceBernstein: (i) established a $250 million
restitution fund to compensate fund shareholders for the adverse effects of
market timing (the "Restitution Fund"); (ii) reduced by 20% (on a weighted
average basis) the advisory fees on U.S. long-term open-end retail mutual funds
by reducing its advisory fee rates (resulting in an approximate $63 million
reduction in 2005 advisory fees and a $70 million reduction in 2004 advisory
fees), and AllianceBernstein will maintain these reduced fee rates for at least
the five-year period that commenced January 1, 2004; (iii) appointed a new
management team and specifically charged it with responsibility for ensuring
that AllianceBernstein maintains a fiduciary culture in its retail services
business; (iv) revised its code of ethics to better align the interests of
AllianceBernstein's employees with those of its clients; (v) formed two new
committees composed of executive management to oversee and resolve code of
ethics and compliance-related issues; (vi) instituted a substantially
strengthened policy designed to detect and block market timing and material
short duration trading; (vii) created an ombudsman office, where employees can
voice concerns about work-related issues on a confidential basis; and (viii)
initiated firm-wide compliance and ethics training programs.
AllianceBernstein retained an Independent Compliance Consultant ("ICC") to
conduct a comprehensive review of supervisory, compliance and other policies
designed to detect and prevent conflicts of interest, breaches of fiduciary duty
and violations of law. The ICC has completed its review, and submitted its
report to the SEC in December 2004. By December 31, 2005, AllianceBernstein had
implemented substantially all of the ICC's recommendations. Also, beginning in
2005, AllianceBernstein had, and biannually thereafter will continue to have, an
independent third party perform a comprehensive compliance review.
With the approval of the independent directors of AllianceBernstein's U.S.
registered mutual fund boards and the staff of the SEC, AllianceBernstein
retained an Independent Distribution Consultant ("IDC") to develop a plan for
the distribution of the Restitution Fund. To the extent it is determined that
the harm to mutual fund shareholders caused by market timing exceeds $200
million, AllianceBernstein will be required to contribute additional monies to
the Restitution Fund. In September 2005, the IDC submitted to the SEC staff the
portion of his report concerning his methodology for determining damages. The
IDC will, in coming months, formally submit to the SEC staff the remainder of
his proposed distribution plan, which addresses the mechanics of distribution.
Once the SEC staff has approved both portions of the plan, it will be submitted
to the SEC for final approval. The Restitution Fund proceeds will not be
distributed until after the SEC has approved the distribution plan and issued an
order doing so. Until then it is not possible to predict the exact timing,
method or amount of the distribution.
AllianceBernstein L.P. recorded charges totaling $330 million during the second
half of 2003, of which (i) $250 million was paid to the Restitution Fund (the
$250 million was funded out of operating cash flow and paid to the SEC in
January 2004), (ii) $30 million was used to settle a private civil mutual fund
litigation unrelated to any regulatory agreements and (iii) $50 million was
reserved for estimated expenses related to AllianceBernstein's market-timing
settlements with the SEC and the NYAG and AllianceBernstein's market
timing-related liabilities (excluding the complaint entitled The Attorney
General of the State of West Virginia v. AIM Advisors, Inc., et al.
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(the "WVAG Complaint")). AllianceBernstein L.P. paid $8 million during 2005
related to market timing and has cumulatively paid $310 million (excluding WVAG
Complaint-related expenses).
For additional information regarding market timing matters involving
AllianceBernstein, see "Alliance Litigation - Market Timing-Related Matters" in
Note 20 of Notes to Consolidated Financial Statements.
PRIVACY OF CUSTOMER INFORMATION. Federal and state law and regulation require
financial institutions to protect the security and confidentiality of customer
information and to notify customers about their policies and practices relating
to their collection, disclosure and protection of customer information. Federal
and state laws also regulate disclosures of customer information. Congress and
state legislatures are expected to consider additional laws relating to the use
and protection of customer information.
PARENT COMPANY
AXA, the ultimate parent company of AXA Financial, is the holding company for an
international group of insurance and related financial services companies
engaged in the financial protection and wealth management business. AXA is one
of the largest insurance groups in the world. AXA operates primarily in Western
Europe, North America, and the Asia/Pacific region and, to a lesser extent, in
other regions including Eastern Europe, the Middle East, Africa and South
America. AXA has five operating business segments: life and savings, property
and casualty, international insurance (including reinsurance), asset management,
and other financial services.
Neither AXA nor any affiliate of AXA has any obligation to provide additional
capital or credit support to AXA Financial or any of its subsidiaries.
VOTING TRUST. In connection with AXA's application to the Superintendent for
approval of its acquisition of capital stock of AXA Financial, AXA and the
initial Trustees of the Voting Trust entered into a Voting Trust Agreement dated
as of May 12, 1992 (as amended by the First Amendment, dated January 22, 1997,
and as amended and restated by the Amended and Restated Voting Trust Agreement,
dated May 12, 2002, the "Voting Trust Agreement"). Pursuant to the Voting Trust
Agreement, AXA and its affiliates ("AXA Parties") have deposited the shares of
AXA Financial's Common Stock held by them in the Voting Trust. The purpose of
the Voting Trust is to ensure for insurance regulatory purposes that certain
indirect minority shareholders of AXA will not be able to exercise control over
AXA Financial or AXA Equitable.
AXA and any other holder of voting trust certificates will remain the beneficial
owner of the shares deposited by it, except that the Trustees will be entitled
to exercise all voting rights attached to the deposited shares so long as such
shares remain subject to the Voting Trust. In voting the deposited shares, the
Trustees must act to protect the legitimate economic interests of AXA and any
other holders of voting trust certificates (but with a view to ensuring that
certain indirect minority shareholders of AXA do not exercise control over AXA
Financial or AXA Equitable). All dividends and distributions (other than those
which are paid in the form of shares required to be deposited in the Voting
Trust) in respect of deposited shares will be paid directly to the holders of
voting trust certificates. If a holder of voting trust certificates sells or
transfers deposited shares to a person who is not an AXA Party and is not (and
does not, in connection with such sale or transfer, become) a holder of voting
trust certificates, the shares sold or transferred will be released from the
Voting Trust. The initial term of the Voting Trust ended in 2002 and the term of
the Voting Trust has been extended, with the prior approval of the
Superintendent, until May 12, 2012. Future extensions of the term of the Voting
Trust remain subject to the prior approval of the Superintendent.
OTHER INFORMATION
All of AXA Financial's officers and employees, including its chief executive
officer, chief financial officer and controller, are subject to the Policy
Statement on Ethics (the "Code"), a code of ethics as defined under Regulation
S-K.
The Code complies with Section 406 of the Sarbanes-Oxley Act of 2002 and is
available on AXA Financial's website at www.axa-financial.com. AXA Financial
intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K
regarding certain amendments to or waivers from provisions of the Code that
apply to its chief executive officer, chief financial officer and controller by
posting such information on its website at the above address.
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PART I, ITEM 1A.
RISK FACTORS
In the course of conducting our business operations, we could be exposed to a
variety of risks. This "Risk Factors" section provides a summary of some of the
significant risks that could affect our business, financial condition or results
of operations. In this section, the terms "we," "us" and "our" refer to the
Financial Advisory/Insurance Group.
EQUITY MARKET DECLINES AND VOLATILITY MAY ADVERSELY IMPACT OUR PROFITABILITY.
Declines or volatility in equity markets can negatively impact the investment
returns we earn in those markets as well as our business and profitability.
Examples of the effects of declines or volatility in equity markets include the
following:
o Sustained equity market declines that result in decreases in the account
values of our variable life and annuity contracts could reduce the amount
of revenue we derive from fees charged on those account and asset values;
o Sustained equity market declines that result in decreases in the account
values of our variable life and annuity contracts that provide guaranteed
benefits would increase the size of our potential obligations related to
such guaranteed benefits. This could result in an increase in claims and
reserves related to those contracts, net of any reinsurance reimbursements
or proceeds from our hedging program;
o Increased volatility of equity markets may result in changes to the fair
value of our GMIB reinsurance contracts, which could result in increased
volatility of our earnings;
o Increased volatility of equity markets may increase surrenders and
withdrawals of our variable life and annuity contracts, which could
negatively impact our future profitability;
o Equity market declines could negatively impact the value of equity
securities we hold for investment, thereby reducing our capital;
o Equity price declines may decrease the value of assets held to fund
payments to employees from our qualified pension plan, which could result
in increased pension plan costs; and
o Deferred acquisition costs, referred to as DAC, and value of business
acquired, referred to as VOBA, are accounting methods for amortizing the
sales costs related to the acquisition of new life insurance and annuity
business over the period in which that business will generate earnings for
us. DAC and VOBA amortization rates are based in part on investment return
and related estimates that, in turn, are based on actual market trends and
reasonable expectations as to future performance drawn from those trends.
Equity market declines could lead to reductions in these estimates that, in
turn, could accelerate our DAC and VOBA amortization and reduce our current
earnings.
INTEREST RATE FLUCTUATIONS MAY ADVERSELY AFFECT OUR MARGINS ON INTEREST-
SENSITIVE ANNUITY AND LIFE INSURANCE CONTRACTS AND INCREASE SURRENDERS AND
WITHDRAWALS FROM THOSE CONTRACTS.
Our margin or "spread" on interest-sensitive annuity and life insurance
contracts is the difference between the yield we derive from portfolio
investments that are intended to support our required payments under these
contracts and the interest rates we credit to holders of these contracts. This
spread is a significant part of our earnings.
If interest rates fall and remain at significantly lower levels, the minimum
interest rates that we guarantee on interest-sensitive annuity and life
insurance contracts would cause our spreads on these contracts to deteriorate
and possibly become negative, which could have a material adverse effect on our
profitability. Also, such a fall in interest rates could result in increased
reserve requirements for those contracts.
A rapid and sustained rise in interest rates poses risks of deteriorating
spreads and high surrenders of our interest-sensitive annuity and life insurance
contracts. In such an environment, we may face pressure to increase credited
rates on those contracts to match rates offered by our competitors on new
deposits. Such changes in our credited rates on these contracts generally occur
more quickly than corresponding changes to the rates we earn on related
portfolio investments, thereby reducing our spreads on such contracts. Also, a
high level of surrenders associated with a rapid and sustained rise in interest
rates could require us to liquidate portfolio investments to fund surrender
payments at a time when the value of those investments has decreased.
1A-1
AN OVERALL ECONOMIC DOWNTURN COULD ADVERSELY AFFECT OUR REVENUES AND FINANCIAL
POSITION.
An overall economic downturn could negatively affect the value of our portfolio
investments, reduce new sales of our products and increase surrenders and
withdrawals from our existing life insurance and annuity contracts. In
particular, an economic downturn could significantly affect the value of our
portfolio investments since the majority of our portfolio is invested in bonds
and mortgage loans that may suffer credit and value deterioration during such a
downturn. Reductions in the value of our portfolio investments and sales of our
products coupled with increased surrenders and withdrawals from our existing
contracts could adversely affect our revenues and financial position.
OUR RESERVES COULD BE INADEQUATE DUE TO DIFFERENCES BETWEEN OUR ACTUAL
EXPERIENCE AND MANAGEMENT'S ESTIMATES AND ASSUMPTIONS.
Our reserve requirements for our direct and reinsurance assumed business are
calculated based on a number of estimates and assumptions, including estimates
and assumptions related to future mortality, morbidity, persistency, interest
rates, claims experience and reinvestment rates. For a description of some of
these estimates, see "Management's Discussion and Analysis of Financial
Conditions and Results of Operations - Critical Accounting Estimates." Our
reserves could be inadequate if actual results differ significantly from our
estimates and assumptions. If so, we will be required to increase reserves
resulting in a charge to our earnings.
LOSSES DUE TO DEFAULTS, ERRORS OR OMISSIONS BY THIRD PARTIES COULD ADVERSELY
IMPACT OUR BUSINESS AND RESULTS OF OPERATIONS.
We depend on third parties that owe us money, securities or other assets to pay
or perform under their obligations. These parties include the issuers whose
securities we hold in our investment portfolios, borrowers under the mortgage
loans we make, customers, trading counterparties, counterparties under swap and
other derivative contracts, clearing agents, exchanges, clearing houses and
other financial intermediaries. These parties may default on their obligations
to us due to bankruptcy, lack of liquidity, downturns in the economy or real
estate values, operational failure or other reasons.
We also depend on third parties in other contexts. For example, in establishing
the amount of the liabilities and reserves associated with the risks assumed in
connection with reinsurance pools and arrangements, we rely on the accuracy and
timely delivery of data and other information from ceding companies. In
addition, as investment manager and administrator of several mutual funds, we
rely on various affiliated and unaffiliated subadvisors to provide day-to-day
portfolio management services for each investment portfolio. We also rely on
outside vendors pursuant to various outsourcing arrangements to maintain and
operate certain technology platforms and information systems used in our
businesses.
Losses associated with defaults or other failures by these third parties upon
whom we rely could adversely impact our business and results of operations.
REINSURANCE MAY BE INADEQUATE TO PROTECT US AGAINST LOSSES AND WE MAY INCUR
LOSSES FROM OUR REINSURERS' FAILURE TO MEET THEIR OBLIGATIONS.
In the normal course of business, we seek to reduce risk through reinsurance.
Under our reinsurance arrangements, other insurers assume a portion of the
claims and related expenses on certain business we underwrite; however, we
remain liable as the direct insurer on all risks we reinsure. These reinsurance
arrangements do not eliminate our obligation to pay related claims and we are
subject to our reinsurers' credit risk with respect to our ability to recover
amounts due from them. Although we evaluate periodically the financial condition
of our reinsurers, our reinsurers may become financially unsound by the time
their financial obligation to us becomes due. The inability of any reinsurer to
meet its financial obligations to us could negatively impact our results of
operations. See "Business - Reinsurance and Hedging" and Note 16 of Notes to
Consolidated Financial Statements for additional information regarding our
reinsurance arrangements.
OUR EARNINGS ARE IMPACTED BY DAC AND VOBA CALCULATIONS THAT ARE BASED ON
ESTIMATES THAT ARE SUBJECT TO CHANGE.
Our earnings for any period depend in part on the amount of our life insurance
and annuity product acquisition costs (including commissions, underwriting,
agency and policy issue expenses) that can be deferred as DAC rather than
expensed immediately. They also depend in part on the pattern of DAC and VOBA
amortization and the recoverability of DAC and VOBA which are both based on
models involving numerous estimates and subjective judgments, including those
regarding investment, mortality and expense margins, expected market rates of
return,
1A-2
lapse rates and anticipated surrender charges. Revisions to our estimates are
reflected in our earnings for the period in which the estimates are revised.
A DOWNGRADE IN THE FINANCIAL STRENGTH AND CLAIMS-PAYING RATINGS OF OUR INSURANCE
COMPANIES COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS.
Claims paying and financial strength ratings are important factors in
establishing the competitive position of insurance companies. A downgrade in
these ratings could adversely affect our business and results of operations by
reducing new sales of our products or increasing surrenders and withdrawals from
our existing contracts. A downgrade in our ratings may also adversely affect our
cost of raising capital or limit our access to sources of capital. See "Business
- - Competition" for a full description of the ratings for our insurance
companies.
LEGAL AND REGULATORY ACTIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESSES.
A number of lawsuits have been filed against life and health insurers and
affiliated distribution companies involving insurers' sales practices, alleged
agent misconduct, failure to properly supervise agents and other matters. Some
of these 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.
Our insurance subsidiaries and related companies, like other life and health
insurers, are involved in such litigation and our results of operations and
financial position could be affected by defense and settlement costs and any
unexpected material adverse outcomes in such litigations as well as in other
material litigations pending against them. 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.
In addition to the litigation described above, examinations by Federal and state
regulators and other governmental and self-regulatory agencies including, among
others, the SEC, state attorneys general, insurance and securities regulators
and the NASD could result in adverse publicity, sanctions, fines and other
costs. We have provided, and in certain cases, continue to provide, information
and documents to the SEC, the NASD, state attorneys general and other regulators
on a wide range of issues, including supervisory issues, market timing, late
trading, valuation, suitability, email retention policies, replacements and
exchanges of variable life insurance and annuities, collusive bidding and other
inappropriate solicitation activities, "revenue sharing" and directed brokerage
arrangements, investment company directed brokerage arrangements, fund portfolio
brokerage commissions, mutual fund sales and marketing and "networking
arrangements". At this time, management cannot predict what other actions the
SEC, NASD and/or other regulators may take or what the impact of such actions
might be. Fines, other sanctions and/or other costs could result from ongoing or
future regulatory matters. For further information, see "Business - Regulation"
and Note 20 of Notes to Consolidated Financial Statements.
OUR BUSINESSES MAY BE ADVERSELY AFFECTED TO THE EXTENT THAT WE, THIRD-PARTY
FIRMS THAT DISTRIBUTE OUR PRODUCTS OR UNAFFILIATED INSURERS FACE INCREASED
REGULATION AND/OR HEIGHTENED REGULATORY SCRUTINY.
Our businesses are subject to extensive regulation and supervision by state
insurance departments and Federal and state agencies regulating, among other
things, insurance and annuities, securities transactions, investment companies,
investment advisors and anti-money laundering compliance programs. The
activities of our insurance companies, in particular, are subject to the
supervision of the insurance regulators of each of the 50 states, the District
of Columbia, Puerto Rico, the U.S. Virgin Islands, Bermuda and nine of Canada's
twelve provinces and territories. These various insurance regulators can and
frequently do impose different requirements and standards which can place
insurers at a significant competitive disadvantage compared to other financial
services businesses that are primarily regulated on a national basis. Among
other things, disparate state insurance regulations complicate, delay and
increase the costs of designing, selling and administering new products, and
also add considerable complexity and cost to compliance programs. To the extent
that the amount of state and Federal regulation continues to increase, our costs
of compliance will continue to increase. Such increases in our compliance
obligations could materially increase our costs and adversely affect our
earnings. In addition, changes in the regulatory environment, including
increased activism by state attorneys general, insurance commissioners and other
regulators, could have a material adverse impact on our business and results of
operations. For additional information, see "Business - Regulation".
Our sales of insurance products could also be adversely affected to the extent
that some or all of the third-party firms that distribute our products or
unaffiliated insurance companies face heightened regulatory scrutiny and/or
increased regulation and thereby cause the types of products issued by our
insurance companies to become disfavored in the marketplace.
1A-3
CHANGES IN U.S. TAX LAWS MAY ADVERSELY AFFECT SALES OF OUR PRODUCTS AND OUR
PROFITABILITY.
Currently, special US tax law provisions apply to life insurance and annuity
products. The nature and extent of competition and the markets for our life
insurance and annuity products and our profitability may be materially affected
by changes in tax laws and regulations, including changes relating to savings,
retirement funding and taxation. Adverse changes could include the introduction
of taxation of annual increases in the account value of life insurance and
annuity products, improved tax treatment of mutual funds or other investments as
compared to insurance products or repeal of the Federal estate tax. Management
cannot predict what proposals may be made, what legislation, if any, may be
introduced or enacted or what the effect of any such legislation might be. For
additional information, see "Business - Regulation - Federal Tax Initiatives".
WE FACE INTENSE COMPETITION FROM OTHER INSURANCE COMPANIES, BANKS AND OTHER
FINANCIAL INSTITUTIONS, WHICH MAY ADVERSELY IMPACT OUR MARKET SHARE AND
PROFITABILITY.
There is intense competition among insurers, banks, brokerage firms and other
financial institutions and providers seeking clients for the types of products
and services we provide, including insurance, annuity and other investment
products and services. Competition is particularly intense among a broad range
of financial institutions and other financial service providers for retirement
and other savings dollars. This intense competition makes it especially
difficult to provide unique insurance products since, once such products are
made available to the public, they may be reproduced and offered by our
competitors. Also, this intense competition may adversely impact our market
share and profitability.
Our ability to compete is dependent on numerous factors including, among others,
the successful implementation of our strategy; our financial and claims-paying
ratings; our access to diversified sources of distribution; our size and scale;
our product quality, range, features/functionality and price; crediting rates on
our fixed products; visibility and recognition or our brands in the marketplace;
our reputation and quality of service; and our investment management program.
AN INABILITY TO RECRUIT AND RETAIN EXPERIENCED AND PRODUCTIVE FINANCIAL
PROFESSIONALS AND KEY EMPLOYEES MAY ADVERSELY AFFECT OUR SALES.
Our sales force and key employees are key factors driving our sales. Intense
competition exists among insurers and other financial services companies for
financial professionals and key employees. We compete principally with respect
to compensation policies, products and support provided to financial
professionals. Competition is particularly intense in the hiring and retention
of experienced financial professionals. Although we believe that we offer
financial professionals and employees a strong value proposition, we cannot
provide assurances that we will be successful in our efforts to recruit and
retain top financial professionals and key employees.
THE ABILITY OF OUR FINANCIAL PROFESSIONALS TO SELL OUR COMPETITORS' PRODUCTS
COULD RESULT IN REDUCED SALES OF OUR PRODUCTS AND REVENUES.
Most of our financial professionals are not captive agents or employees and can
sell annuity and life insurance products of competing unaffiliated insurance
companies. To the extent our financial professionals sell our competitors'
products rather than our products, we will experience reduced sales and
revenues.
RESTRICTIONS ON THE PAYMENT OF DIVIDENDS TO AXA FINANCIAL BY OUR INSURANCE
SUBSIDIARIES COULD ADVERSELY AFFECT AXA FINANCIAL'S FINANCIAL POSITION.
AXA Financial's cash requirements include debt service, operating expenses,
taxes, shareholder dividends to AXA, certain employee benefits and the provision
of funding to certain of our non-insurance company subsidiaries to meet their
capital requirements. A primary source of liquidity for AXA Financial is
dividend payments from its insurance subsidiaries. However, insurance
subsidiaries may be restricted by operation of applicable insurance laws from
making such dividend payments. In that case, AXA Financial may be required to
raise cash by incurring additional debt or selling some of its assets. Such
additional debt or forced sale of assets could adversely affect AXA Financial's
financial position.
CHANGES IN STATUTORY RESERVE REQUIREMENTS AND ADVERSE MARKET CONDITIONS COULD
NEGATIVELY IMPACT OUR SALES.
Changes in statutory reserve requirements, increased costs of hedging, other
risk mitigation techniques and financing and other adverse market conditions
could result in certain products becoming less profitable. These circumstances
could cause us to modify certain features of these products or to cease offering
these products.
1A-4
CHANGES IN ACCOUNTING STANDARDS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
RESULTS OF OPERATION AND/OR FINANCIAL POSITION.
Our financial statements are prepared in accordance with generally accepted
accounting principles that are revised from time to time. In the future, new
accounting pronouncements, as well as new interpretations of existing accounting
pronouncements, may have material adverse effects on our results of operations
and/or financial position. For information about recent accounting
pronouncements, see Note 3 of Notes to Consolidated Financial Statements.
OUR LOSSES PROVIDED FOR DISCONTINUED OPERATIONS MAY DIFFER FROM THE LOSSES
ULTIMATELY REALIZED.
The determination of the allowance for future losses from our discontinued
operations involves numerous estimates and subjective judgments, including those
regarding expected performance of investment assets, asset reinvestment rates,
ultimate mortality experience and other factors that affect investment and
benefit projections. In particular, significant estimates and judgments are made
with respect to the income, sales proceeds and holding periods for equity real
estate. To the extent actual results or future projections of discontinued
operations differ from management's current best estimates underlying the
allowance, the difference would be reflected as earnings or loss from
discontinued operations.
OUR DISCLOSURE AND INTERNAL CONTROL SYSTEM CANNOT GUARANTEE THAT OUR PUBLIC
DISCLOSURE AND FINANCIAL STATEMENTS DO NOT CONTAIN ERRORS.
There are inherent limitations in the effectiveness of any system of disclosure
and internal controls, including the possibilities of faulty judgments in
decision-making, simple error or mistake, fraud, the circumvention of controls
by individual acts or the collusion of two or more people, or management
override of controls. Accordingly, even an effective disclosure and internal
control system can provide only reasonable assurance with respect to disclosures
and financial statement preparation. Also, the effectiveness of a disclosure and
internal control system may vary over time due to changes in conditions.
WE COULD EXPERIENCE SIGNIFICANT DIFFICULTIES WITH RESPECT TO OUR PROPRIETARY
TECHNOLOGY AND INFORMATION SYSTEMS AS WELL AS THOSE PROVIDED BY OUTSIDE VENDORS.
We utilize numerous technology and information systems in our businesses, some
of which are proprietary and some of which are provided by outside vendors
pursuant to outsourcing arrangements. These systems are central to, among other
things, designing and pricing products, marketing and selling products and
services, processing policyholder and investor transactions, client
recordkeeping, communicating with retail sales associates, employees and
clients, and recording information for accounting and management purposes in a
secure and timely manner. The systems are maintained to provide customer privacy
and are tested to ensure the viability of business resumption plans.
We commit significant resources to maintain and enhance our existing information
systems that, in some cases, are advancing in age and to develop new ones. Any
significant difficulty associated with the operation of our systems, or any
material delay, disruption or inability to develop needed system capabilities,
could have a material adverse effect on our results of operations and,
ultimately, our ability to achieve our strategic goals.
AXA FINANCIAL GROUP'S RESULTS OF OPERATION AND FINANCIAL POSITION DEPEND IN
SIGNIFICANT PART ON THE PERFORMANCE OF ALLIANCEBERNSTEIN'S BUSINESS.
AllianceBernstein L.P. is a principal subsidiary of AXA Financial and,
consequently, AXA Financial Group's results of operations and financial position
depend in significant part on the performance of Alliance Bernstein's business.
For information regarding risk factors associated with AllianceBernstein and its
business, see "Item 1A - Risk Factors" included in AllianceBernstein L.P.'s
Annual Report on Form 10-K for the fiscal year ended December 31, 2005, which
item is incorporated by reference in this section.
1A-5
PART I, ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
1B-1
PART I, ITEM 2.
PROPERTIES
FINANCIAL ADVISORY/INSURANCE
AXA Financial Group leases on a long-term basis approximately 810,000 square
feet of office space located at 1290 Avenue of the Americas, New York, NY, which
serves as AXA Financial's, AXA Equitable's and MONY Life's headquarters. AXA
Financial Group also has the following significant office space leases: 570,000
square feet in Syracuse, NY, under a lease that expires in 2008 for use as an
annuity operations and service center; 244,000 square feet in Secaucus, NJ,
under a lease that expires in 2007 for use as an annuity operations and service
center; and 185,000 square feet in Charlotte, NC, under a lease that expires in
2013 for use as a life insurance operations and service center. AXA Financial
Group owns an office building of approximately 22,000 square feet in Harrisburg,
PA that houses AXA Network personnel. Management believes its facilities are
adequate for its present needs in all material respects. For additional
information, see Note 21 of Notes to Consolidated Financial Statements.
AXA Financial Group subleases its office space at 1290 Avenue of the Americas to
the New York City Industrial Development Agency (the "IDA"), and sub-subleases
that space back from the IDA, in connection with the IDA's granting of sales tax
benefits to AXA Equitable.
INVESTMENT MANAGEMENT
AllianceBernstein's principal executive offices at 1345 Avenue of the Americas,
New York, NY are occupied pursuant to a lease that extends until 2019.
AllianceBernstein currently occupies approximately 783,321 square feet of space
at this location. AllianceBernstein also occupies approximately 114,097 square
feet of space at 135 West 50th Street, New York, NY under a lease expiring in
2016, approximately 143,409 square feet of space at One North Lexington, White
Plains, NY under a lease expiring in 2008. AllianceBernstein also occupies
approximately 134,261 square feet of space in Secaucus, NJ and approximately
92,067 square feet of space in San Antonio, TX under leases expiring in 2016 and
2009, respectively. AllianceBernstein also leases other property both
domestically and abroad for its operations.
2-1
PART I, ITEM 3.
LEGAL PROCEEDINGS
The matters set forth in Note 20 of Notes to Consolidated Financial Statements
for the year ended December 31, 2005 (Part II, Item 8 of this report) are
incorporated herein by reference.
3-1
PART I, ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction I to Form 10-K.
4-1
PART II, ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
At December 31, 2005, AXA Financial was an indirect wholly owned subsidiary of
AXA and there is no established public market for AXA Financial's common equity.
AXA Financial did not pay any shareholder dividends in 2005 or 2004. For
information on AXA Financial's present and future ability to pay dividends, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" (Part II, Item 7 of this report) and Note 22 to Notes to
Consolidated Financial Statements (Part II, Item 8 of this report).
5-1
PART II, ITEM 6.
SELECTED FINANCIAL DATA
Omitted pursuant to General Instruction I to Form 10-K.
6-1
Part II, Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis is omitted pursuant to General Instruction
I(2)(a) of Form 10-K. The management narrative for AXA Financial Group that
follows should be read in conjunction with the consolidated financial statements
and related notes to consolidated financial statements and information discussed
under "Forward-looking Statements" and "Risk Factors" included elsewhere in this
Form 10-K.
GENERAL
In December 2005, AXA Financial Group sold all of the issued and outstanding
capital stock of its wholly owned subsidiary, Advest, to Merrill Lynch for $400
million in cash subject to adjustment in certain circumstances. AXA Financial
Group recognized a pre-tax loss of $1.4 million, a post-tax loss of $85.4
million and a $189.1 million reduction in goodwill. This reduction in goodwill
represented approximately 31% of total goodwill related to the MONY Acquisition
in 2004. Formerly part of the Financial Advisory/Insurance segment, Advest's
results of operations in 2005 and 2004 and the loss on its sale are reported as
discontinued operations in the consolidated financial statements and related
footnotes. For further information, see Note 2 of Notes to Consolidated
Financial Statements, contained elsewhere herein. Unless otherwise indicated,
amounts in this management narrative exclude the effects of Advest.
The consolidated and segment earnings narratives that follow discuss the results
for 2005 compared to the 2004 results. The results of the MONY Companies for
2005 and for the third and fourth quarters of 2004 are included in the Financial
Advisory/Insurance segment's 2005 and 2004 results, respectively.
CONSOLIDATED RESULTS OF OPERATIONS
Net earnings for AXA Financial Group totaled $1.07 billion for 2005 compared to
$944.9 million for 2004. Net earnings included the net (loss) earnings of Advest
of $(6.7) million in 2005 and $1.2 million in the second half of 2004 and the
post-tax loss of $85.4 million on the sale of Advest in 2005 all reported as
discontinued operations. Net earnings for 2004 included a $53.2 million net gain
related to a reduction of certain state tax liabilities associated with the 2000
sale of Donaldson, Lufkin and Jenrette, Inc., and post-tax gains of $31.1
million from the sale of real estate held-for-sale, reported as discontinued
operations. In first quarter 2004, AXA Financial Group recorded a $4.0 million
charge (net of related income taxes of $2.2 million) for the cumulative effect
of the January 1, 2004 adoption of SOP 03-1. For further information, see Note 3
of Notes to Consolidated Financial Statements included elsewhere herein.
Earnings from continuing operations were $1.15 billion, an increase of $295.2
million from 2004. This increase in 2005 included an after-tax increase of
$152.7 million related to the incremental impact of the MONY Companies'
operations acquired on July 7, 2004, from $21.1 million in the second half of
2004 to $173.8 million in 2005. The incremental impact of the MONY Companies'
operations included management's estimate of the expense savings of the
Financial Advisory/Insurance segment resulting from the integration of MONY's
operations and excluded MONY-related integration expenses and the cost of
funding the acquisition.
Earnings from continuing operations before income taxes and minority interest
were $2.09 billion for 2005, an increase of $541.9 million from the $1.54
billion reported in 2004. The increase resulted from a $187.9 million increase
in the Investment Management segment and a $353.1 million increase in the
Financial Advisory/Insurance segment. The increase for the Financial
Advisory/Insurance segment in 2005 included an increase of approximately $229.6
million related to the incremental impact of the MONY Companies' operations
acquired on July 7, 2004. The 2005 contribution was $273.0 million as compared
to $41.4 million for the second half of 2004. The references to the MONY
Companies below in this management narrative reflect the contribution of the
MONY Companies' to the consolidated results of operations on a legal entity
basis.
Income tax expense totaled $597.0 million in 2005 as compared to the $395.1
million reported in 2004. The $104.0 million and $97.9 million respective tax
increases in the Financial Advisory/Insurance and Investment Management segments
resulted principally from increased earnings in both business segments.
Total revenues increased $1.45 billion to $10.96 billion in 2005 from $9.51
billion in 2004 primarily due to a $1.27 billion increase in the Financial
Advisory/Insurance segment, with the MONY Companies contributing $843.4
7-1
million to that increase with revenues of $1.76 billion in 2005 and $915.2
million in the second half of 2004. Excluding the effect of the MONY Companies,
the remaining 2005 increase of $424.7 million principally resulted from $293.9
million higher policy fee income, $106.8 million higher commissions, fees and
other income, $38.8 million higher net investment income and $31.4 million
higher premiums in 2005 as compared to 2004, partially offset by $46.2 million
lower investment gains. The $177.5 million increase in investment advisory and
services fees at AllianceBernstein contributed to the $200.3 million increase in
the Investment Management segment's revenues.
Total benefits and other deductions were $8.88 billion in 2005, a $910.6 million
increase as compared to $7.97 billion in 2004. The Financial Advisory/Insurance
segment increase of $915.0 million was primarily due to the $668.0 million MONY
Companies increase in benefits and other deductions to $1.54 billion in 2005
from $875.1 million in the second half of 2004. There was a $12.4 million
increase in the Investment Management segment's benefits and other deductions as
higher compensation and benefits at AllianceBernstein were offset by lower
distribution plan payments, amortization of deferred sales commissions and other
operating expenses.
RESULTS OF CONTINUING OPERATIONS BY SEGMENT
FINANCIAL ADVISORY/INSURANCE.
FINANCIAL ADVISORY/INSURANCE - RESULTS OF OPERATIONS
(IN MILLIONS)
2005 2004
--------------- --------------
Universal life and investment-type product policy fee income......... $ 2,090.2 $ 1,697.8
Premiums............................................................. 1,648.8 1,275.8
Net investment income................................................ 3,152.6 2,732.5
Investment gains, net................................................ 13.6 73.0
Commissions, fees and other income................................... 890.9 748.9
--------------- --------------
Total revenues.................................................. 7,796.1 6,528.0
--------------- --------------
Policyholders' benefits.............................................. 2,842.4 2,405.7
Interest credited to policyholders' account balances................. 1,206.9 1,108.3
Compensation and benefits............................................ 1,019.8 967.8
Commissions.......................................................... 1,123.3 934.1
Interest expense..................................................... 189.8 147.4
Amortization of DAC and VOBA......................................... 682.0 510.1
Capitalization of DAC................................................ (1,347.6) (1,116.1)
Rent expense......................................................... 113.7 102.8
Amortization of other intangible assets, net......................... 11.7 7.7
All other operating costs and expenses............................... 728.3 587.5
--------------- --------------
Total benefits and other deductions.......................... 6,570.3 5,655.3
--------------- --------------
Earnings from Continuing Operations before Income Taxes.............. $ 1,225.8 $ 872.7
=============== ==============
In 2005, pre-tax earnings from continuing operations in the Financial
Advisory/Insurance segment increased $353.1 million to $1.23 billion as compared
to $872.7 million in 2004. Pre-tax earnings increased by $175.4 million due to
the increase in MONY Companies' earnings and higher policy fee income,
commissions, fees and other income and premiums partially offset by increases in
commissions and all other operating costs and expenses.
Revenues. In 2005, segment revenues increased $1.27 billion over the prior year
with $843.4 million which included revenues from MONY Companies of $1.76 billion
and $915.2 million during 2005 and the second half of 2004, respectively. When
the MONY Companies' contributions are excluded, the segment's remaining $424.7
million increase was due to higher policy fee income, commissions, fees and
other income, net investment income and premiums, partially offset by lower
investment gains, net.
Excluding the $98.5 million increase in MONY Companies' policy fee income
($200.9 million in 2005 from $102.4 million for the second half of 2004), policy
fee income grew to $1.89 billion in 2005 as compared to $1.60 billion in the
prior year. This $293.9 million increase resulted from fees earned on higher
average Separate Account balances resulting from positive net cash flows and
market appreciation.
7-2
Premiums totaled $1.65 billion for 2005, $373.0 million higher than in 2004,
principally due to the $341.6 million increase in MONY Companies' premiums to
$709.1 million from $367.5 million, respectively, in 2005 and the second half of
2004.
Net investment income increased $420.1 million, with $381.3 million of the
increase attributed to the MONY Companies. When the MONY Companies' investment
income of $694.1 million and $310.1 million earned in 2005 and the second half
of 2004, respectively, are excluded, the remaining $38.8 million increase was
primarily due to $16.2 million of income in 2005 related to interest rate swaps
as compared to $12.9 million of losses in 2004, and $4.9 million lower net
losses on derivative instruments including those related to hedging programs
implemented to mitigate certain risks associated with the GMDB/GMIB features of
certain variable annuity contracts. AXA Equitable's investment income on its
portfolio decreased slightly principally due to lower yields on higher fixed
maturities and mortgage portfolio balances resulting from lower reinvestment
rates.
Investment gains totaled $13.6 million in 2005 as compared with $73.0 million in
2004. The MONY Companies investment gains decreased $13.2 million, to $1.7
million in 2005 from $14.9 million in the last six months of 2004. When the MONY
Companies' investment gains are excluded, the remaining $46.2 million decrease
in investment gains was principally due to lower gains on sales of other equity
investments. Lower gains on sales of fixed maturities, $42.3 million in 2005 as
compared to $65.3 million in 2004, were partially offset by lower writedowns on
AXA Equitable's General Account fixed maturity securities, $31.2 million in 2005
compared to $36.4 million in 2004.
The commissions, fees and other income increase of $142.0 million to $890.9
million in 2005 included the $35.2 million increase for the MONY Companies, to
$155.5 million in 2005 and from $120.3 million in the second half of 2004. When
the MONY Companies' commissions, fees and other income are excluded, the
remaining $106.8 million increase was principally due to higher gross investment
management fees received from EQAT and VIP Trust due to a higher asset base and
to higher fees related to higher mutual fund sales partially offset by a smaller
increase in the fair value of the GMIB reinsurance contracts. As required by
SFAS No. 133, the GMIB contracts are considered derivatives and are reported at
fair value. The 2005 increase in fair value was $42.7 million as compared to the
$61.0 million increase recorded in 2004.
Benefits and Other Deductions. Total benefits and other deductions for the
Financial Advisory/Insurance segment increased $915.0 million to $6.57 billion
in 2005 as compared to $5.67 billion in 2004. The MONY Companies' total benefits
and other deductions in 2005 and the second half of 2004 were $1.54 billion and
$875.1 million, an increase of $668.0 million. When the MONY Companies' total
benefits and other deductions are excluded, the remaining $247.0 million
increase was principally the result of an increase of $121.5 million in all
other operating costs and expenses and $112.6 million higher commissions.
Policyholders' benefits were $2.84 billion in 2005, a $436.7 million increase
from 2004. This increase included a $428.5 million increase for the MONY
Companies, to $950.9 million in 2005 from $522.4 million during the second half
of 2004. When the MONY Companies' impact is excluded, policyholders' benefits
for the segment increased $8.2 million as the $16.8 million settlement of
outstanding issues with one life reinsurer in third quarter 2005 resulting in
the release of $46.8 million of reserves and lower individual death claims were
more than offset by higher GMDB/GMIB benefits and reserves due to the growth in
business and higher benefits and reserves in the reinsurance assumed and
individual health product lines.
Interest credited to policyholders' account balances increased $98.6 million to
$1.21 billion in 2005 primarily due to the $71.2 million increase for the MONY
Companies, to $141.4 million in 2005 as compared to $70.2 million for the second
half of 2004. When the MONY Companies' increase is excluded, interest credited
increased $27.4 million as the impact of lower crediting rates was more than
offset by higher policyholder account balances.
Compensation and benefits for the Financial Advisory/Insurance segment increased
$52.0 million to $1.02 billion in 2005 as compared to $967.8 million in 2004.
The MONY Companies' compensation related costs for 2005 and the second half of
2004 totaled $127.8 million and $83.3 million, respectively, an increase of
$44.5 million. When the MONY Companies' compensation and benefits amounts are
excluded, the remaining $7.5 million increase was primarily due to higher
benefits and taxes resulting from an adjustment of the survivor income benefits
liability of $28.5 million related to prior periods, an increase of $35.8
million in the Stock Appreciation Rights liability in 2005 as compared to the
$16.2 million increase in 2004 offset by a decrease in employee compensation.
Employee compensation and benefits in 2004 included a $45.6 million charge for
severance costs and benefits related to non- MONY staff reductions associated
with the MONY integration in 2004.
7-3
For 2005, commissions increased $189.2 million to $1.12 billion from $934.1
million in 2004, with the MONY Companies' accounting for $76.6 million of the
increase ($206.6 million in commissions in 2005 as compared to $130.0 million in
the second half of 2004). When the MONY Companies' commissions are excluded, the
remaining $112.6 million increase was due to higher sales of life and annuity
products and higher asset-based commissions.
Deferred policy acquisition costs ("DAC") and valuation of business acquired
("VOBA") amortization increased to $682.0 million in 2005, up $171.9 million
from $510.1 million in 2004. When the $80.5 million and $37.3 million of DAC and
VOBA amortization for the MONY Companies in 2005 and the second half of 2004,
respectively, are excluded, the remaining increase of $128.7 million was
primarily attributed to higher current margins in products that are DAC reactive
and lower favorable DAC unlocking in 2005 compared to 2004. In 2005, DAC
unlocking related to higher estimated future margins due to revised expectations
regarding lapses on certain variable annuity contracts based upon the completion
of a comprehensive lapse study. In 2004, DAC unlocking resulted from the
recognition of higher estimated future margins driven by higher fees related to
variable life insurance and annuity contracts. Both years also reflect DAC
unlocking associated with higher estimated future margins due to expectations of
life mortality improvement based on emerging experience, which resulted in a
deceleration of DAC amortization. However, the deceleration of DAC amortization
resulting from these revised mortality projections was lower in 2005 than in
2004.
DAC and VOBA for universal life, investment-type and participating traditional
life policies are amortized over the expected total life of the contract group
as a constant percentage of estimated gross profits (for universal life and
investment-type contracts) or margins (for participating traditional life
policies). Estimates and assumptions underlying these DAC and VOBA amortization
rates are reassessed and updated at the end of each reporting period ("DAC and
VOBA unlocking"). The effect of DAC and VOBA unlocking is reflected in earnings
in the period such estimated gross profits are revised. A decrease in expected
gross profits would accelerate DAC and VOBA amortization. Conversely, an
increase in expected gross profits would slow DAC and VOBA amortization.
Expected gross profits for variable and interest-sensitive life insurance and
variable annuities arise principally from investment results, Separate Account
fees, mortality and expense margins and surrender charges based on historical
and anticipated future experience. Other significant assumptions underlying
gross profit estimates relate to contract persistency and General Account
investment spread. A significant assumption in the development of expected gross
profits and, therefore, the amortization of DAC and VOBA on these products
relates to projected future Separate Account performance. Management sets
expected future gross profit assumptions related to Separate Account performance
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% (6.88% net of product
weighted average Separate Account fees), and the gross maximum and minimum
annual rate of return limitations are 15.0% (12.88% net of product weighted
average Separate Account fees) and 0% (-2.12% 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 and VOBA
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 and VOBA amortization. As of December 31, 2005, current
projections of future average gross market returns for purposes of this approach
assume a 3.5% return for 2006, which is within the maximum and minimum
limitations, and assume a reversion to the mean of 9.0% after 5 quarters.
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 and VOBA amortization.
Conversely, deterioration of life mortality in future periods from that
currently projected would result in future acceleration of DAC and VOBA
amortization. Generally, life mortality experience has improved in recent
periods.
DAC capitalization increased $231.5 million from $1.12 billion in 2004 to $1.35
billion in 2005 with the MONY Companies accounting for $148.2 million and $100.2
million in 2005 and the second half of 2004, respectively. When the MONY
Companies' $48.0 million increase is excluded, the remaining $183.5 million
increase was
7-4
principally due to higher sales of interest sensitive life products partially
offset by lower variable annuity sales primarily in the wholesale distribution
channel.
Interest expense increased $42.4 million to $189.8 million in 2005. There was a
$12.4 million increase in the MONY Companies interest expense, to $30.5 million
from $18.1 million in 2005 and the second half of 2004, respectively; the
remaining increase was due to the allocation of higher interest expense related
to higher debt at AXA Financial due to debt incurred and assumed in connection
with the MONY Acquisition in third quarter 2004 and the purchase of AXA ADR call
options and AllianceBernstein units in fourth quarter 2004.
All other operating cost and expenses totaled $728.3 million in 2005, an
increase of $140.8 million, with the MONY Companies contributing $114.3 million
and $95.0 million in 2005 and the second half of 2004, respectively. When the
MONY Companies' $19.3 million increase in these expenses are excluded, the
remaining $121.5 million difference was primarily due to increases in EQAT and
VIP Trust subadvisory fees due to higher asset levels, higher premium taxes due
to higher life premiums, higher medical fees related to new business and
increases in consulting and travel expenditures. These increases were partially
offset by the absence of the $33.0 million write-off of capitalized software by
AXA Equitable in 2004 related to the MONY integration.
Premiums and Deposits. First year premiums and deposits for life insurance and
annuity products in 2005 increased from prior year levels by $774.8 million to
$10.22 billion while total premiums and deposits increased $1.32 billion to
$15.75 billion. The MONY Companies' first year premium and deposits for these
product lines were $644.7 million and $355.7 million, respectively, while total
premiums and deposits were $1.72 billion and $900.3 million, respectively, in
2005 and the second half of 2004. When the MONY Companies' totals are excluded
from the comparison, total annuity premiums and deposits in 2005 increased
$565.3 million with higher first year sales of $269.6 million and $179.7 million
in the retail and wholesale distribution channels, respectively. First year life
premiums and deposits increased $167.5 million to $582.5 million including the
MONY distribution channels' sales of $257.8 million and higher sales of interest
sensitive life products. Total sales of mutual funds and fee-based assets
gathered increased $852.3 million to $5.08 billion in 2005, including $1.40
billion and $749.2 million attributed to the MONY Companies in 2005 and the
second half of 2004, respectively.
Surrenders and Withdrawals. Total policy and contract surrenders and withdrawals
increased $1.37 billion to $7.83 billion during 2005 compared to $6.46 billion
in 2004. For 2005, the MONY Companies product surrenders and withdrawals were
$1.05 billion as compared to $447.2 million for the six months ended December
31, 2004. When the MONY product surrenders and withdrawals are excluded,
surrenders and withdrawals in 2005 totaled $6.78 billion as an increase of $1.07
billion for individual annuity products was partially offset by decreases of
$287.4 million and $12.2 million being reported for variable and interest
sensitive life and traditional life products, respectively. The annuity
surrender rates increased from 8.2% in 2004 to 8.6% in 2005, including the
impact of two large surrenders in 2005. The segment's individual life surrender
rate decreased to 4.2% in 2005 from 5.0% in the prior year. The 2005 individual
life surrender rate included the impact of the surrender of a single large MONY
company owned life insurance ("COLI") policy in fourth quarter 2005 while the
2004 surrender rate included the impact of the surrender of a single large AXA
Equitable COLI policy in first quarter 2004 and a large partial withdrawal from
an AXA Equitable COLI contract in third quarter 2004. The trends in surrenders
and withdrawals continue to fall within the range of expected experience.
7-5
INVESTMENT MANAGEMENT.
The table that follows presents the operating results of the Investment
Management segment, consisting principally of AllianceBernstein's operations.
INVESTMENT MANAGEMENT - RESULTS OF OPERATIONS
(IN MILLIONS)
2005 2004
------------ ------------
Revenues:
Investment advisory and services fees (1)......... $ 2,290.9 $ 2,113.4
Distribution revenues............................. 397.8 447.3
Institutional research services................... 321.3 303.6
Shareholder servicing fees........................ 99.4 116.0
Other revenues, net (1)........................... 158.0 86.8
------------ ------------
Total revenues................................ 3,267.4 3,067.1
------------ ------------
Expenses:
AllianceBernstein employee compensation
and benefits.................................... 1,263.5 1,085.1
Promotion and servicing:
Distribution plan payments..................... 292.0 374.2
Amortization of deferred sales commissions..... 132.0 177.4
Other promotion and servicing expenses......... 198.0 202.3
AllianceBernstein interest expense................ 25.1 24.2
Amortization of other intangible assets, net...... 20.7 20.7
Other operating expenses.......................... 475.5 510.5
------------ ------------
Total expenses................................ 2,406.8 2,394.4
------------ ------------
Earnings from Continuing Operations before
Income Taxes and Minority Interest.............. $ 860.6 $ 672.7
============ ============
(1) Includes fees earned by AllianceBernstein totaling $41.3 million and $38.9
million in 2005 and 2004, respectively, for services provided to the
Insurance Group.
In 2005, AllianceBernstein completed three dispositions. In June 2005, Federated
Investors, Inc. acquired AllianceBernstein's cash management services. As a
result of this transaction, $19.3 billion in assets under management ("AUM")
from 22 of the third-party distributed money market funds were transitioned into
Federated money market funds. Gross proceeds of $25.0 million were offset by a
gain contingency of $7.5 million and approximately $6.1 million of transaction
expenses resulting in a net gain of $11.4 million reported in Other revenues,
net in this segment's results of operations. The gain contingency is a
"clawback" provision that requires AllianceBernstein to pay Federated up to $7.5
million if average daily transferred assets for the six-month period ended June
29, 2006 fall below a certain percentage of initial assets transferred at
closing.
In third quarter 2005, a 75% owned Indian subsidiary whose principal activity
was acting as an investment advisor to AllianceBernstein sponsored mutual funds,
transferred its rights to manage the mutual funds to Birla Sun Life. The gross
gain of $11.7 million, reported in Other revenues, net, was offset by severance,
incentive compensation, fixed asset writedowns, minority interest, and income
tax expenses totaling approximately $6.4 million.
On December 31, 2005, Investec Asset Management (Proprietary) Ltd. acquired
AllianceBernstein's interest in its South African domestic fund management
subsidiary. The $8.9 million proceeds consisted of a $7.4 million initial cash
payment received in January 2006 and an additional $1.5 million to be received
upon completion of an audit of the subsidiary's net assets at closing. In
addition, a performance fee price adjustment will be made based on the impact of
the positive or negative performance on selected institutional accounts being
shared pro rata between AllianceBernstein and Investec. In fourth quarter 2005,
a $7.0 million net gain after deducting transaction expenses was reported in
Other revenues, net for the Investment Management segment.
Revenues. The Investment Management segment's pre-tax earnings from continuing
operations for 2005 were $860.6 million, an increase of $187.9 million from the
prior year. Revenues totaled $3.27 billion in 2005, an increase of $200.3
million from 2004, as a $177.5 million increase in investment advisory and
services fees, $17.7 million higher institutional research services revenues and
the $71.2 million increase in other revenues, net were
7-6
partially offset by $49.5 million lower distribution revenues and $16.6 million
lower shareholder servicing fees. Investment advisory and services fees include
base fees, brokerage transaction charges and performance fees. The 2005 increase
in investment advisory and services fees primarily resulted from higher average
AUM in the institutional and private client distribution channels partially
offset by the disposition of its cash management services in the retail channel.
These increases were partially offset by $85.0 million lower transaction charges
in 2005 as management implemented a restructuring in the first half of 2005 that
eliminated transaction charges for most private clients while raising base fees.
The increase in performance fees from $92.6 million in 2004 to $131.9 million in
2005 was principally due to strong investment performance in hedge funds, equity
value and style blend investment services in 2005. The increase in institutional
research services revenues was due to higher market share, higher average daily
volumes in both the U.S. and U.K. stock markets and pricing increases in the
U.K. partially offset by pricing declines in the U.S. The increase in Other
revenues, net in 2005 was principally due to gains from the three 2005
dispositions as well as a $23.8 million increase in brokerage interest and
dividends and interest on AllianceBernstein's deferred compensation investments.
The decrease in distribution revenues in 2005 was principally due the
disposition of AllianceBernstein's cash management services in second quarter
2005.
Other Operating Expenses. The segment's total expenses were $2.41 billion in
2005, compared to $2.39 billion in 2004, an increase of $12.4 million as the
$178.4 million increase in AllianceBernstein employee compensation and benefits
was partially offset by a $131.9 million decrease in promotion and servicing
expenses. The increase in AllianceBernstein employee compensation and benefits
in 2005 as compared to 2004 was due to increases in all components of
compensation and benefits. Base compensation, fringe benefits and other
employment costs increased $44.7 million in 2005 primarily due to merit
increases and additional headcount. Incentive compensation in 2005 increased
$90.8 million due to higher short-term incentive compensation reflecting higher
earnings and higher amortization of deferred compensation, due to vesting of
prior year awards. Commission expense increased $42.9 million in 2005 reflecting
higher revenues across all distribution channels. The $131.9 million decrease in
2005 promotion and servicing expenses was primarily due to $82.2 million lower
distribution plan payments largely due to the disposition of its cash management
services in second quarter 2005 and $45.4 million lower amortization of deferred
sales commissions resulting from lower sales of back-end load shares. Other
operating expenses decreased $35.0 million primarily due to $14.6 million lower
legal costs as a result of insurance recoveries, a $12.9 million lower loss on
disposal of fixed assets and the absence of minority interests on a FIN 46 (R)
VIE deconsolidated in 2004.
ASSETS UNDER MANAGEMENT
A breakdown of AXA Financial Group's AUM follows:
ASSETS UNDER MANAGEMENT
(IN MILLIONS)
DECEMBER 31,
--------------------------------
2005 2004
--------------- ---------------
Third party (1)........................... $ 513,499 $ 473,791
General Account and other (2)............. 55,389 56,505
Insurance Group Separate Accounts......... 74,552 65,890
--------------- ---------------
Total Assets Under Management......... $ 643,440 $ 596,186
=============== ===============
(1) Includes $24.08 billion and $22.62 billion of assets managed on behalf of
AXA affiliates at December 31, 2005 and 2004, respectively. Also included
in 2005 and 2004 are $13.30 billion and $12.48 billion, respectively, in
assets related to an Australian joint venture between AllianceBernstein and
an AXA affiliate.
(2) Includes invested assets of AXA Financial Group not managed by
AllianceBernstein, principally cash and short-term investments and policy
loans, totaling approximately $9.39 billion and $12.37 billion at December
31, 2005 and 2004, respectively, as well as mortgages and equity real
estate totaling $5.71 billion and $5.96 billion at December 31, 2005 and
2004, respectively.
Third party AUM increased $39.71 billion to $513.50 billion in 2005 primarily
due to increases at AllianceBernstein, with the MONY Companies contributing
$4.79 billion and $6.83 billion at December 31, 2005 and 2004, respectively.
General Account and other AUM decreased $1.12 billion from the total reported in
2004 primarily due to a $1.22 billion decrease in the General Account due to the
effect of the rising interest rate environment in 2005 on the fair value of the
bond portfolio. The $8.66 billion increase in Insurance Group Separate Accounts
AUM in 2005 resulted from market appreciation and net new deposits.
7-7
AllianceBernstein's AUM increased $39.79 billion to $578.55 billion in 2005 from
$538.76 billion in 2004; with $42.7 billion of the increase resulting from
market appreciation due to equity market gains and $27.5 billion due to net
asset inflows offset by the $30.4 billion in dispositions resulting from the
three divestures during 2005. Active equity growth and active equity value
account AUM, which comprise 66.4% of AllianceBernstein's total AUM at December
31, 2005, increased by 21.7%, while active fixed income account AUM decreased by
15.1%. Net inflows in 2005 were $19.7 million, $6.7 million and $1.1 million,
respectively, in the institutional investment management private client and
retail channels. Non-U.S. clients accounted for 30.8% of AllianceBernstein's
December 31, 2005 AUM total.
DISCONTINUED OPERATIONS - WIND-UP ANNUITIES
Earnings from Wind-up Annuities of $15.2 million in 2005 as compared to $7.9
million in 2004 reflect releases of the allowance for future losses due
primarily to improved actual and projected investment results.
LIQUIDITY AND CAPITAL RESOURCES
AXA FINANCIAL
AXA Financial paid no cash dividends in 2005 and 2004.
On July 7, 2004, AXA Financial issued Subordinated Notes to AXA, AXA Group Life
Insurance (Japan) and AXA Insurance Co. (Japan) in the amounts of $510.0
million, $500.0 million and $270.0 million, respectively. The $1.28 billion in
proceeds from these borrowings were used to fund the MONY acquisition. The
Subordinated Notes have a maturity date of July 15, 2019 and a floating interest
rate, which resets semiannually on July 15 and January 15. Concurrently, AXA
Financial entered into an interest rate swap with AXA, converting the floating
rate on these Subordinated Notes to a fixed rate of 5.11% for the first three
years. Including the impact of the swap, the 2005 and 2004 interest costs
related to these Subordinated Notes were approximately $65.4 million and $32.2
million, respectively.
On July 8, 2004, AXA Financial Group completed its acquisition of MONY and paid,
or made provisions to pay, MONY shareholders approximately $1.5 billion,
representing $31 in cash for each share of MONY common stock. MONY shareholders
also received a dividend from MONY totaling $0.34755 per share.
At December 31, 2005, former MONY stockholders holding approximately 3.6 million
shares of MONY common stock, representing approximately 7.1% of MONY common
stock outstanding at July 8, 2004 (the effective date of the MONY acquisition),
have demanded appraisal rights pursuant to Section 262 of the General
Corporation Law of the State of Delaware and have not withdrawn their demands.
The fair value of shares of MONY common stock to be determined in the appraisal
process, which is the amount that will be payable by AXA Financial Group to the
holders of shares subject to the appraisal, could be greater or less than the
$31.00 per share paid to former MONY stockholders who did not demand appraisal
under Delaware law. See Notes 2 and 20 of Notes to Consolidated Financial
Statements.
On July 9, 2004, AXA and certain of its subsidiaries, including AXA Financial
Group, entered into a (a)3.5 billion global revolving credit facility and a $650
million letter of credit facility, which mature on July 9, 2009, with a group of
30 commercial banks and other lenders. Under the terms of the revolving credit
facility, up to $500.0 million is available to AXA Financial Group for general
corporate purposes, while the letter of credit facility makes up to $500 million
available to AXA Financial (Bermuda) Ltd., an AXA Financial subsidiary. On June
8, 2005, AXA and its subsidiaries amended their 2004 global revolving credit
facility and letter of credit facility: the maturity was extended to June 8,
2012 and the letter of credit was increased to $1.0 billion with a group of 27
banks and other lenders. Under the amended agreements, the amount available to
AXA Financial (Bermuda) Ltd. under the letter of credit facility increased to
$850.0 million.
On November 29, 2004, AXA Financial borrowed an additional $88.9 million from
AXA. This short-term note, repaid on May 29, 2005, bore interest at a rate of
2.76%. Proceeds were used to fund the purchase of AXA ADR call options to hedge
options to purchase AXA ADRs granted to employees and financial professionals by
AXA Financial.
In connection with AllianceBernstein's acquisition of Bernstein, AXA Financial
agreed to provide liquidity to the former Bernstein shareholders after a
two-year lockout period that ended October 2002. In fourth quarter 2002, a
subsidiary of AXA Equitable, as designee of AXA Financial, acquired 8.16 million
of these AllianceBernstein Units
7-8
at the aggregate market price of $249.7 million; there were no acquisitions in
calendar 2003. In March and December 2004, AXA Financial Group acquired a total
of 16.3 million AllianceBernstein Units for an aggregate market price of $635.7
million, increasing its economic interest in AllianceBernstein to 61.1% at
December 31, 2005. There were no acquisitions in calendar year 2005. The
remaining 16.3 million AllianceBernstein Units still held by the former
Bernstein shareholders at December 31, 2005 may be sold to AXA Financial at the
prevailing market price over the remaining four years ending in 2009. Generally,
not more than 20% of the original Units issued to the former Bernstein
shareholders may be put to AXA Financial in any one annual period.
To fund its December 2004 AllianceBernstein Units purchase, AXA Financial
borrowed an additional $200.0 million from AXA on December 20, 2004. This loan
has a maturity date of June 20, 2006 and a floating interest rate of 6 month
LIBOR plus 15 basis points that resets every 6 months. AXA Financial paid
interest of approximately $6.8 million in 2005.
During the third and fourth quarters of 2004, MONY Life and its subsidiaries,
MLOA and USFL, experienced declines in statutory surplus caused by first year
statutory business strain, costs associated with integration following the
acquisition by AXA Financial and the establishment of additional liabilities for
statutory purposes on level term business written by USFL due to updated
mortality assumptions. Until fourth quarter 2004, USFL had addressed its
statutory surplus requirements for level premium term life insurance through a
90% modified coinsurance ("MODCO") arrangement with MLOA.
In order to strengthen the statutory surplus positions of MONY Life, MLOA and
USFL, AXA Financial completed the following transactions in December 2004:
o USFL recaptured all of the term life policies in force as of December 31,
2004 that had previously been assumed by MLOA under the MODCO
agreement.
o AXA Financial contributed AllianceBernstein Units to MLOA that increased
MLOA's statutory surplus by $37.2 million.
o AXA Financial contributed cash to USFL, increasing USFL's statutory
surplus by $22 million.
o AXA Financial contributed cash and AllianceBernstein Units to MONY Life
(including the contributions made to MLOA and USFL) that increased MONY
Life's statutory surplus by $220.3 million.
o USFL reinsured 100% of its level premium term business in force as of
December 31, 2004 with AXA Financial (Bermuda), Ltd., a wholly owned
subsidiary of AXA Financial Group.
USFL's MODCO reinsurance arrangement with MLOA remained in effect for the
interest-sensitive life insurance policies in force at December 31, 2004, as
well as for new interest-sensitive life and level premium term life insurance
business issued during 2005. This MODCO agreement was terminated as of December
31, 2005. In connection with the termination, USFL recaptured the reinsured
universal life business in force as of December 31, 2005 and unwound the
reinsurance to MLOA of the level premium term business issued during 2005. USFL
reinsured 100% of its 2005 level premium term business in-force at year-end with
AXA Financial (Bermuda), Ltd. These 2004 and 2005 intercompany transactions and
adjustments to statutory liabilities mentioned above had no impact on AXA
Financial Group's consolidated results of operations or financial position.
In December 2005, AXA Financial issued a note to AXA in the amount of $100.0
million with an interest rate of 4.59% and a maturity date of February 13, 2006.
The proceeds from this borrowing were used to pay for the exercise of the call
options on AXA ADRs to fund employee stock benefit plans.
In February 2006, management received board authorization to prepay the $300.0
million Insured Notes issued by MONY Holdings. AXA Financial intends to cause
these Insured Notes to be prepaid in full during 2006 with a combination of
available funds and affiliate borrowings.
AXA Financial's cash requirements include debt service, operating expenses,
taxes, shareholder dividends to AXA, certain employee benefits, the obligation
to provide liquidity to the former Bernstein shareholders and providing funding
to certain non-Insurance Group subsidiaries to meet their capital requirements.
In 2005, AXA Financial repaid its $88.9 million short-term note to AXA. In 2004,
AXA Financial repaid $300.0 million of its long-term debt. Pre-tax debt service
totaled $170.2 million and $130.0 million in 2005 and 2004, respectively, while
general and administrative expenses were $28.7 million and $43.4 million,
respectively. Due to AXA Financial's December 1999 assumption of primary
liability from AXA Equitable for all current and future obligations of certain
of its benefit plans, AXA Financial paid $71.2 million and $67.9 million in
benefits, all of which was reimbursed by subsidiaries of AXA Financial, in 2005
and 2004, respectively.
Sources of Liquidity. At December 31, 2005 and 2004, respectively, AXA Financial
held cash and short-term investments and U.S. Treasury securities of
approximately $83.7 million and $299.5 million as well as investment grade
publicly traded bonds totaling $2.2 million and $0.4 million. Other primary
sources of liquidity for AXA Financial include (i) dividends from AXA Equitable
and the MONY Companies (ii) distributions from AllianceBernstein, (iii)
dividends, distributions or sales proceeds from less liquid investment assets
and (iv) borrowings from AXA. In both 2005 and 2004, AXA Financial received $500
million of dividends from AXA
7-9
Equitable. Cash distributions from AllianceBernstein totaled $101.7 million and
$49.0 million in 2005 and 2004, respectively. Cash distributions in 2004 were
lower as a result of the market timing settlements at AllianceBernstein. Cash
dividends of $38.0 million and $18 million were paid to AXA Financial by the
MONY Companies in 2005 and 2004, respectively, since their acquisition in July
2004. AXA Financial held common stock and less liquid investment assets having
an aggregate carrying value of approximately $7.5 million at December 31, 2005
as compared to $25.1 million at December 31, 2004.
Management from time to time explores selective acquisition opportunities in
financial advisory, insurance and investment management businesses.
THE INSURANCE GROUP
The principal sources of the Insurance Group's cash flows are premiums, deposits
and charges on policies and contracts, investment income, repayments of
principal and proceeds from sales of fixed maturities, sales of other General
Account Investment Assets, borrowings from third-parties and affiliates and
dividends and distributions from subsidiaries.
The Insurance Group's liquidity requirements principally relate to the
liabilities associated with its various life insurance, annuity and group
pension products in its continuing operations; the liabilities of discontinued
operations; shareholder dividends to AXA Financial; and operating expenses,
including debt service. The Insurance Group's liabilities include the payment of
benefits under life insurance, annuity and group pension products, as well as
cash payments in connection with policy surrenders, withdrawals and loans.
Sources of Liquidity. The Insurance Group's primary source of short-term
liquidity to support continuing and discontinued insurance operations is a pool
of liquid, high quality short-term instruments structured to provide liquidity
in excess of the expected cash requirements.
Other liquidity sources include dividends and distributions from
AllianceBernstein. In 2005, the Insurance Group received cash distributions from
AllianceBernstein and AllianceBernstein Holding of $387.1 million as compared to
$174.2 million in 2004. Cash distributions in 2004 were lower as a result of the
market timing settlements at AllianceBernstein.
Liquidity Requirements. The Insurance Group's liquidity needs are affected by
fluctuations in mortality, other benefit payments and policyholder directed
transfers from General Account to Separate Account investment options and in the
level of surrenders and withdrawals previously discussed in "Results of
Continuing Operations by Segment - Financial Advisory/Insurance," as well as by
dividends to its shareholder. In both 2005 and 2004, AXA Equitable paid
shareholder dividends totaling $500.0 million.
In December 2005, AXA Equitable repaid its $400.0 million 6.95% Surplus Note at
maturity using the proceeds from the $325.0 million 6% Surplus Note issued to
AXA Financial, which matures in 2035.
ALLIANCEBERNSTEIN
AllianceBernstein's principal sources of liquidity have been cash flows from
operations and proceeds from the issuance, both publicly and privately, of debt
and AllianceBernstein Units. AllianceBernstein requires financial resources to
fund commissions paid on certain back-end load mutual fund sales, to fund
distributions to Unitholders, to fund capital expenditures and for general
working capital purposes. On January 4, 2006 and 2005, respectively,
AllianceBernstein deposited an additional $49.1 million and $340.8 million in
U.S. Treasury Bills in a special reserve account pursuant to Rule 15c3-3
requirements. AllianceBernstein's $400 million 5.625% Senior Notes mature in
August 2006 and are redeemable at any time. AllianceBernstein intends to use
cash flow from operations to retire its Senior Notes at maturity.
In 2005, AllianceBernstein completed several transactions involving its domestic
and foreign business operations. These dispositions, described in "Results of
Continuing Operations by Segment - Investment Management" included elsewhere in
this management narrative, are not expected to have a material impact on the
Investment Management segment's future results of operations, cash flow or
liquidity.
AllianceBernstein has an $800.0 million five-year revolving credit facility
entered into in September 2002 with a group of commercial banks and other
lenders. Of the total, $425.0 million provides back-up liquidity for
AllianceBernstein's $425.0 million commercial paper program, with the balance
available for general purposes. The facility's interest rate, at
AllianceBernstein's option, is a floating rate generally based on a defined
prime rate, a rate related to LIBOR or the Federal funds rate. On February 17,
2006, AllianceBernstein replaced the existing
7-10
arrangement with a new $800.0 million five-year revolving credit facility with
substantially the same terms. To supplement its commercial paper program,
AllianceBernstein maintains a $100 million Extendible Commercial Notes ("ECN")
program. ECNs are short-term uncommitted debt instruments that do not require
back-up liquidity support. No amounts were outstanding at December 31, 2005
under any of these programs.
Certain of AllianceBernstein's deferred and other compensation plans provide for
the election by participants to notionally invest in AllianceBernstein Holding
units or AllianceBernstein sponsored mutual funds. From time to time,
AllianceBernstein will fund participant elections. In 2005 and 2004,
respectively, subsidiaries of AllianceBernstein purchased AllianceBernstein
Holding units totaling $33.3 million and $45.1 million for such plans.
Management believes AllianceBernstein's substantial equity base, its access to
public and private debt and its cash flows from operations will provide the
financial resources to meet its capital and general business requirements. For
further information, see AllianceBernstein's Annual Report on Form 10-K for the
year ended December 31, 2005.
SUPPLEMENTARY INFORMATION
AXA Financial Group is involved in several ventures and transactions with AXA
and certain of its affiliates. At December 31, 2005, AXA Equitable had
outstanding a $400.0 million, 5.89% loan to AXA Insurance Holding Co., Ltd., a
Japanese subsidiary of AXA. All payments, including interest, are guaranteed by
AXA. AllianceBernstein provides investment management and related services to
AXA, AXA Financial Group and certain of their subsidiaries and affiliates. In
2001, AllianceBernstein entered into joint ventures with an Australian affiliate
of AXA and recognized management fees of $20.6 million, $19.8 million and $15.0
million in 2005, 2004 and 2003, respectively. AXA Financial, AXA Equitable and
AllianceBernstein, along with other AXA affiliates, participate in certain cost
sharing and servicing agreements, which include technology and professional
development arrangements. Payments by AXA Financial and AXA Equitable to AXA
totaled approximately $33.8 million and $31.6 million in 2005 and 2004,
respectively. See Notes 15 and 23 of Notes to the Consolidated Financial
Statements contained elsewhere herein and AllianceBernstein's Report on Form
10-K for the year ended December 31, 2005 for information on related party
transactions.
A schedule of future payments under certain of AXA Financial Group's
consolidated contractual obligations follows:
CONTRACTUAL OBLIGATIONS - DECEMBER 31, 2005
(IN MILLIONS)
Payments Due by Period
-------------------------------------------------
Less than Over
Total 1 year 1 - 3 years 4 - 5 years 5 years
------------- ----------- ----------- ----------- ----------
Contractual obligations:
Long-term debt.................. $ 2,289.6 $ 400.0 $ 284.3 $ 833.4 $ 771.9
Operating leases................ 1,520.7 186.4 344.3 281.9 708.1
Employee benefits............... 3,011.2 280.5 585.8 613.3 1,531.6
------------- ----------- ----------- ----------- ----------
Total Contractual
Obligations................. $ 6,821.5 $ 866.9 $ 1,214.4 $ 1,728.6 $ 3,011.6
============= =========== =========== =========== ==========
Interest on long-term debt will be approximately $148.3 million, $131.9 million,
$117.3 million, $110.9 million and $97.0 million in 2006, 2007, 2008, 2009 and
2010, respectively, while interest on borrowings from AXA and other AXA
affiliates will be approximate $75.1 million in 2006 and $65.4 million per annum
in 2007 through 2010. AXA Financial has long-term loans outstanding from AXA and
certain AXA affiliated totaling $1.28 billion with a 2019 maturity date. AXA
Financial Group also has contractual obligations to the policy and
contractholders of its various life insurance and annuity products and/or their
designated beneficiaries. These obligations include paying death claims and
making annuity payments. The timing of such payments depends upon such factors
as the mortality and persistency of its customer base.
Certain of AllianceBernstein's deferred compensation plans provide for election
by participants to have their deferred compensation awards invested notionally
in AllianceBernstein Holding units and in company-sponsored mutual funds. Since
January 1, 2006, AllianceBernstein made purchases of mutual funds totaling $208
million to fund its future obligations resulting from participant elections with
respect to 2005 awards. During fourth quarter
7-11
2005, AllianceBernstein purchased AllianceBernstein Holding units with an
aggregate value of approximately $16.3 million; these units were held in a
deferred compensation trust at December 31, 2005 to fund its future obligations
to participants who elected to notionally invest a portion of their 2005 awards
in such units. At year-end 2005, AllianceBernstein had a $173.9 million accrual
for compensation and benefits, of which $115.1 million is expected to be paid in
2007-2008, $29.0 million in 2009-2010 and the rest thereafter. Further,
AllianceBernstein expects to make contributions to its qualified profit sharing
plan of approximately $22.0 million in each of the next four years.
AllianceBernstein currently expects to contribute an estimated $3.0 million to
its qualified, noncontributory, defined benefit plan during 2006.
In addition, AXA Financial Group has obligations under contingent commitments at
December 31, 2005, including: AXA Financial's and AllianceBernstein's respective
revolving credit facilities and commercial paper programs; AllianceBernstein's
$100.0 million ECN program; the Insurance Group's $1.17 billion of undrawn
letters of credit; AllianceBernstein's $125.0 million guarantee on behalf of SCB
LLC; and AXA Financial Group's guarantees or commitments to provide equity
financing to certain limited partnerships of $687.4 million. Information on
these contingent commitments can be found in Notes 12, 15 and 19 of Notes to
Consolidated Financial Statements.
Further, AXA Financial Group is exposed to potential risk related to its own
ceded reinsurance agreements with other insurers and to insurance guaranty fund
laws in all 50 states, the District of Columbia and Puerto Rico. Under these
laws, insurers doing business in these states can be assessed amounts up to
prescribed limits to protect policyholders of companies that become impaired or
insolvent.
CRITICAL ACCOUNTING ESTIMATES
AXA Financial Group's management narrative is based upon AXA Financial Group's
consolidated financial statements that have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements 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. On an on-going basis, AXA
Financial Group evaluates its estimates, including those related to investments,
recognition of insurance income and related expenses, DAC and VOBA, future
policy benefits, recognition of Investment Management revenues and related
expenses and pension cost. AXA Financial Group bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. The results of such factors form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results could differ from those
estimates under different assumptions or conditions.
AXA Financial Group believes the following critical accounting policies affect
its more significant judgments and estimates used in the preparation of its
consolidated financial statements.
Investments - AXA Financial Group records an investment impairment charge when
it believes an investment has experienced a decline in fair value that is other
than temporary. Identifying those situations requires management's careful
consideration of the facts and circumstances, including but not limited to the
duration and extent to which the fair value has been depressed, the financial
position, cash flows, and near-term earnings potential of the issuer, as well as
AXA Financial Group's ability and intent to retain the investment to allow
sufficient time for any anticipated recovery in fair value. The basis for
measuring fair value may require utilization of investment valuation
methodologies, such as discounted cash flow analysis, if quoted market prices
are not readily available.
Recognition of Insurance Income and Related Expenses - Profits on
non-participating traditional life policies and annuity contracts with life
contingencies emerge from the matching of benefits and other expenses against
the related premiums. Profits on participating traditional life, universal life
and investment-type contracts emerge from the matching of benefits and other
expenses against the related contract margins. This matching is accomplished by
means of the provision for liabilities for future policy benefits and the
deferral, and subsequent amortization, of policy acquisition costs. Secular
trends and AXA Financial Group's own mortality, morbidity, persistency and
claims experience have a direct impact on the benefits and expenses reported in
any given period.
DAC and VOBA - For universal life and investment-type contracts and
participating traditional life policies, DAC and VOBA amortization may be
affected by changes in estimated gross profits and margins principally related
to investment results, Separate Account fees, mortality and expense margins,
lapse rates and anticipated surrender charges. Should revisions to estimated
gross profits or margins be required, the effect is reflected in earnings in the
period such estimated gross profits are revised. Additionally, the level of
operating expenses of the Insurance Group
7-12
that can be deferred is another significant factor in that business' reported
earnings in any given period. VOBA was recorded in conjunction with the
acquisition of MONY and represents the present value of estimated future profits
from the insurance and annuity policies in-force when the business was acquired
by AXA Financial Group.
Future Policy Benefits - Future policy benefit liabilities for traditional
policies are based on actuarial assumptions as to such factors as mortality,
morbidity, persistency, interest and expenses and, in the case of participating
policies, expected annual and terminal dividends. Determination of the GMDB/GMIB
liabilities is based on models that 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. Premium deficiency reserves are based upon estimates of future
gross premiums, expected policy benefits and other expenses. The allowance for
future losses for the discontinued Wind-Up Annuities business is based upon
numerous estimates and subjective judgments regarding the expected performance
of the related invested assets, future asset reinvestment rates and future
benefit payments.
Recognition of Investment Management Revenues and Related Expenses - The
Investment Management segment's revenues are largely dependent on the total
value and composition of assets under management. The most significant factors
that could affect this segment's results include, but are not limited to, the
performance of the financial markets and the investment performance and
composition of sponsored investment products and separately managed accounts.
Performance fees are recorded as revenue at the end of the specified period and
will generally be higher in favorable markets and lower in unfavorable markets,
which may increase the volatility of the segment's revenues and earnings.
Capitalized sales commissions paid to financial intermediaries in connection
with the sale of shares of open-end mutual funds sold without a front-end sales
charge are expected to be recovered from distribution plan payments received
from those funds and from contingent deferred sales charges received from
shareholders of those funds upon redemption of their shares. The recoverability
of these commissions is estimated based on management's assessment of these
future revenue flows.
Pension Cost - Net periodic pension cost is the aggregation of the compensation
cost of benefits promised, interest cost resulting from deferred payment of
those benefits, and investment results of assets dedicated to fund those
benefits. Each cost component is based on AXA Financial Group's best estimate of
long-term actuarial and investment return assumptions. Actual experience
different from that assumed generally is recognized prospectively over future
periods; however, significant variances could result in immediate recognition if
they exceed certain prescribed thresholds or in conjunction with a
reconsideration of the related assumptions.
Stock-based Compensation - Prior to the adoption of SFAS No. 123(R),
"Share-based Payments," on January 1, 2006, equity settled stock option awards
only resulted in compensation expense if the current market price of the
underlying stock exceeded the option strike price at the grant date.
Compensation expense for cash settled award programs, such as tandem Stock
Appreciation Rights and Performance Units, is recorded based upon changes in the
fair value of the AXA ADRs or AXA shares. In connection with the adoption of
SFAS No. 123(R) at January 1, 2006, AXA Financial Group will begin recognizing
compensation expense for the unvested portion of awards outstanding on January
1, 2006 over the balance of the vesting period and for new awards after January
1, 2006, for the fair values of the option awards over the vesting period.
Significant factors that could affect results include, but are not limited to,
assumptions incorporated in the option pricing models, changes in the market
price of AXA ADRs and AXA ordinary shares and grants of additional awards.
Consolidation - AXA Financial Group includes in its consolidated financial
statements the accounts and activities of AXA Financial, AXA Equitable, those of
their subsidiaries engaged in insurance related businesses including the MONY
Companies since July 1, 2004; other subsidiaries, principally AllianceBernstein,
AXA Advisors and AXA Network; and those investment companies, partnerships and
joint ventures in which AXA Financial Group has control and a majority economic
interest as well as those VIEs that meet the requirements for consolidation. All
significant intercompany transactions and balances except those with
discontinued operations have been eliminated in consolidation.
7-13
PART II, ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
AXA Financial Group's businesses are subject to financial, market, political and
economic risks, as well as to risks inherent in its business operations. The
discussion that follows provides additional information on market risks arising
from its insurance asset/liability management and asset management activities.
Such risks are evaluated and managed by each business on a decentralized basis.
Primary market risk exposure results from interest rate fluctuations, equity
price movements and changes in credit quality.
INSURANCE GROUP AND AXA FINANCIAL
Insurance Group results significantly depend on profit margins between
investment results from assets held in the General Account associated with the
continuing operations ("General Account Investment Assets") and Wind-up
Annuities of the Insurance Group and interest credited on individual insurance
and annuity products. Management believes its fixed rate liabilities should be
supported by a portfolio principally composed of fixed rate investments that
generate predictable, steady rates of return. Although these assets are
purchased for long-term investment, the portfolio management strategy considers
them available for sale in response to changes in market interest rates, changes
in prepayment risk, changes in relative values of asset sectors and individual
securities and loans, changes in credit quality outlook and other relevant
factors. See the "Investments" section of Note 3 of Notes to Consolidated
Financial Statements for the accounting policies for the investment portfolios.
The objective of portfolio management is to maximize returns, taking into
account interest rate and credit risks. Insurance asset/liability management
includes strategies to minimize exposure to loss as interest rates and economic
and market conditions change. As a result, the fixed maturity portfolio has
modest exposure to call and prepayment risk and the vast majority of mortgage
holdings are fixed rate mortgages that carry yield maintenance and prepayment
provisions.
Insurance Group assets with interest rate risk include fixed maturities and
mortgage loans that make up 85.8% of the carrying value of General Account
Investment Assets at December 31, 2005. As part of its asset/liability
management, quantitative analyses are used to model the impact various changes
in interest rates have on assets with interest rate risk. The table that follows
shows the impact an immediate 100 basis point increase in interest rates at
December 31, 2005 and 2004 would have on the fair value of fixed maturities and
mortgage loans:
INTEREST RATE RISK EXPOSURE
(IN MILLIONS)
DECEMBER 31, 2005 December 31, 2004
---------------------------------- --------------------------------
BALANCE AFTER Balance After
FAIR +100 BASE Fair +100 Basis
VALUE POINT CHANGE Value Point Change
--------------- --------------- -------------- ---------------
Insurance Group
---------------
Continuing Operations:
Fixed maturities:
Fixed rate....................... $ 38,899.7 $ 36,837.9 $ 39,193.4 $ 37,233.6
Floating rate.................... 386.3 382.4 394.3 392.6
Mortgage loans..................... 4,813.3 4,619.8 5,136.8 4,942.3
Wind-up Annuities:
Fixed maturities:
Fixed rate....................... $ 823.5 $ 787.0 $ 702.1 $ 673.9
Mortgage loans..................... 7.1 6.9 23.0 22.6
AXA Financial:
-------------
Fixed maturities:
Fixed rate....................... $ 14.6 $ 14.4 $ 29.2 $ 28.6
Floating rate.................... - - - -
A 100 basis point fluctuation in interest rates is a hypothetical rate scenario
used to demonstrate potential risk; it does not represent management's view of
future market changes. While these fair value measurements provide a
representation of interest rate sensitivity of fixed maturities and mortgage
loans, they are based on various portfolio exposures at a particular point in
time and may not be representative of future market results. These exposures
will
7A-1
change as a result of ongoing portfolio activities in response to management's
assessment of changing market conditions and available investment opportunities.
The investment portfolios also have direct holdings of public and private equity
securities. The following table shows the potential exposure from those equity
security investments, measured in terms of fair value, to an immediate 10% drop
in equity prices from those prevailing at December 31, 2005 and 2004:
EQUITY PRICE RISK EXPOSURE
(IN MILLIONS)
DECEMBER 31, 2005 December 31, 2004
----------------------------- ------------------------------
BALANCE AFTER Balance After
FAIR -10% EQUITY Fair -10% Equity
VALUE PRICE CHANGE Value Price Change
------------ ------------- -------------- --------------
Insurance Group:
Continuing operations........... $ 200.7 $ 180.6 $ 275.1 $ 247.5
Wind-up Annuities............... .1 .1 .3 .2
AXA Financial..................... $ 1.7 $ 1.6 $ 1.9 $ 1.7
A 10% decrease in equity prices is a hypothetical scenario used to calibrate
potential risk and does not represent management's view of future market
changes. The fair value measurements shown are based on the equity securities
portfolio exposures at a particular point in time and these exposures will
change as a result of ongoing portfolio activities in response to management's
assessment of changing market conditions and available investment opportunities.
At years end 2005 and 2004, the aggregate carrying value of policyholders
liabilities were $54,250.7 million and $54,100.5 million, respectively,
including $19,496.3 million and $19,307.6 million of liabilities, respectively,
related to the General Account's investment contracts. The aggregate fair value
of those investment contracts at years end 2005 and 2004 were $19,885.9 million
and $19,913.9 million, respectively. The impact of a relative 1% decrease in
interest rates would be an increase in the fair value of those investment
contracts to $20,428.2 million and $20,724.9 million, respectively. Those
investment contracts represent only a portion of total policyholders
liabilities. As such, meaningful assessment of net market risk exposure cannot
be made by comparing the results of the invested assets sensitivity analyses
presented herein to the potential exposure from the policyholders liabilities
quantified in this paragraph.
Asset/liability management is integrated into many aspects of the Insurance
Group's operations, including investment decisions, product development and
determination of crediting rates. As part of its risk management process,
numerous economic scenarios are modeled, including cash flow testing required
for insurance regulatory purposes, to determine if existing assets would be
sufficient to meet projected liability cash flows. Key variables include
policyholder behavior, such as persistency, under differing crediting rate
strategies. On the basis of these more comprehensive analyses, management
believes there is minimal solvency risk to Insurance Group from interest rate
movements of 100 basis points and from equity price changes of 10% from year-end
2005 levels.
The Insurance Group primarily uses derivatives for asset/liability risk
management, for hedging individual securities and to reduce the Insurance
Group's exposure to equity market decline and interest rate fluctuations.
Similarly, AXA Financial utilizes derivatives to reduce the fixed interest cost
of its long-term debt obligations. As more fully described in Notes 3 and 18 of
Notes to Consolidated Financial Statements, various traditional derivative
financial instruments are used to achieve these objectives, including interest
rate 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, AXA Financial Group periodically enters into
forward and futures contracts to hedge certain equity and interest rate
exposures, including the program to hedge certain risks associated with the GMDB
and GMIB features of the Accumulator(R) series of annuity products. To minimize
credit risk exposure associated with its derivative transactions, each
counterparty's credit is appraised and approved and risk control limits and
monitoring procedures are applied. Credit limits are established and monitored
on the basis of potential exposures that take into consideration current market
values and estimates of potential future movements in market values given
potential fluctuations in market interest rates.
7A-2
While notional amount is the most commonly used measure of volume in the
derivatives market, it is not used by the Insurance Group as a measure of risk
because the notional amount greatly exceeds the possible credit and market loss
that could arise from such transactions. Mark to market exposure is a
point-in-time measure of the value of a derivative contract in the open market.
A positive value indicates existence of credit risk for the Insurance Group
because the counterparty would owe money to the Insurance Group if the contract
were closed. Alternatively, a negative value indicates the Insurance Group would
owe money to the counterparty if the contract were closed. If there is more than
one derivative transaction outstanding with a counterparty, a master netting
arrangement exists with the counterparty. In that case, the market risk
represents the net of the positive and negative exposures with the single
counterparty. In management's view, the net potential exposure is the better
measure of credit risk.
At years end 2005 and 2004, the fair values of the Insurance Group's and AXA
Financial's derivatives were $7.5 million and $(41.1) million, respectively. The
table that follows shows the interest rate or equity sensitivities of those
derivatives, measured in terms of fair value. These exposures will change as a
result of ongoing portfolio and risk management activities.
7A-3
DERIVATIVE FINANCIAL INSTRUMENTS
(IN MILLIONS, EXCEPT FOR WEIGHTED AVERAGE TERM)
INTEREST RATE SENSITIVITY
-----------------------------------------------------
WEIGHTED
AVERAGE BALANCE AFTER BALANCE AFTER
NOTIONAL TERM -100 BASIS FAIR +100 BASIS
AMOUNT (YEARS) POINT CHANGE VALUE POINT CHANGE
------------- ----------- ----------------- -------------- -----------------
DECEMBER 31, 2005
Insurance Group:
Options:
Floors.............. $ 24,000.0 2.55 $ 43.9 $ 12.3 $ 7.0
Swaps............... 300.0 11.06 (29.3) (18.1) (3.9)
Futures............... 286.6 0.22 17.0 0.0 (17.0)
AXA Financial:
Swaps with AXA........ 1,280.0 3.0 65.5 32.2 (2.3)
3rd party swaps ...... 2,160.0 0.79 (9.3) (18.9) (29.4)
------------ ----------------- -------------- ----------------
Total.................... $ 28,026.6 $ 87.8 $ 7.5 $ (45.6)
============ ================= ============== ================
December 31, 2004
Insurance Group:
Options:
Floors.............. $ 12,000.0 2.60 $ 38.0 $ 5.8 $ 1.8
Swaps............... 300.0 12.06 (51.8) (30.9) (13.7)
Futures............... 156.7 .22 9.5 -- (9.5)
AXA Financial:
Swaps with AXA........ 1,280.0 3.91 31.4 (15.1) (61.5)
3rd party swaps ...... 2,700.0 1.49 7.8 (0.9) (14.7)
------------ ---------------- -------------- ----------------
Total.................... $ 16,436.7 $ 34.9 $ (41.1) $ (97.6)
============ ================ ============== ================
EQUITY SENSITIVITY
---------------------------------
BALANCE AFTER
FAIR -10% EQUITY
VALUE PRICE SHIFT
------------- ----------------
DECEMBER 31, 2005:
Insurance Group:
Futures............... $ (1,921.3) .21 $ - $ 192.1
============ ============= ================
December 31, 2004
Insurance Group:
Futures............... $ (956.6) .22 $ - $ 95.7
AXA Financial:
Futures............... 55.0 .22 - 5.5
------------- ------------- ----------------
Total.................... $ (901.6) $ - $ 101.2
============= ============= ================
In addition to the traditional derivatives discussed above, the Insurance Group
has entered into reinsurance contracts to mitigate the risk associated with the
impact of potential market fluctuations on future policyholder elections of GMIB
features contained in certain annuity contracts. These reinsurance contracts are
considered derivatives under SFAS No. 133 and were reported at their fair values
of $132.6 million and $90.0 million at December 31, 2005 and 2004, respectively.
The potential fair value exposure to an immediate 10% drop in equity prices from
those prevailing at December 31, 2005 and 2004, respectively, would increase the
balance of these reinsurance contracts to $211.8 million and $153.8 million.
7A-4
At the end of 2005 and of 2004, the aggregate fair values of long-term debt
issued by the Insurance Group and AXA Financial were $2.06 billion and $2.16
billion, respectively. The table below shows the potential fair value exposure
to an immediate 100 basis point decrease in interest rates from those prevailing
at the end of 2005 and of 2004.
INTEREST RATE RISK EXPOSURE
(IN MILLIONS)
DECEMBER 31, 2005 December 31, 2004
-------------------------------------- --------------------------------------
BALANCE AFTER Balance After
FAIR -100 BASIS Fair -100 Basis
VALUE POINT CHANGE Value Point Change
----------------- -------------------- ------------------ ------------------
Insurance Group
Continuing Operations:
Fixed rate..................... $ 235.6 $ 253.3 $ 246.7 $ 266.9
Floating rate.................. 300.0 300.0 300.0 300.0
AXA Financial:
Fixed rate....................... $ 1,526.7 $ 1,618.0 $ 1,569.0 $ 1,672.1
INVESTMENT MANAGEMENT
AllianceBernstein's investments consist of investments, trading and
available-for-sale, and other investments. AllianceBernstein's trading and
available-for-sale investments include U.S. Treasury bills and equity and fixed
income mutual funds investments. Trading investments are purchased for
short-term investment, principally to fund liabilities related to deferred
compensation plans. Although available-for-sale investments are purchased for
long-term investment, the portfolio strategy considers them available-for-sale
from time to time due to changes in market interest rates, equity prices and
other relevant factors. Other investments include investments in hedge funds
sponsored by AllianceBernstein
The table below provides AllianceBernstein's potential exposure, measured in
terms of fair value, to an immediate 100 basis point increase in interest rates
at all maturities from the levels prevailing at December 31, 2005 and 2004:
INTEREST RATE RISK EXPOSURE
(IN MILLIONS)
DECEMBER 31, 2005 December 31, 2004
------------------------------ -------------------------------
BALANCE AFTER Balance After
FAIR +100 BASIS POINT Fair +100 Basis Point
VALUE CHANGE Value Change
--------- ------------------- ----------- ------------------
Fixed Income Investments:
Trading......................... $30.5 $29.1 $30.0 $28.6
Available-for-sale and other
investments................. 2.5 2.4 2.1 2.0
Such a fluctuation in interest rates is a hypothetical rate scenario used to
calibrate potential risk and does not represent AllianceBernstein management's
view of future market changes. While these fair value measurements provide a
representation of interest rate sensitivity of fixed income mutual funds and
fixed income hedge funds, they are based on AllianceBernstein's exposures at a
particular point in time and may not be representative of future market results.
These exposures will change as a result of ongoing changes in investments in
response to AllianceBernstein management's assessment of changing market
conditions and available investment opportunities.
7A-5
The following table presents AllianceBernstein's potential exposure from its
equity investments, including equity mutual funds and equity hedge funds,
measured in terms of fair value, to an immediate 10% drop in equity prices from
those prevailing at December 31, 2005 and 2004:
EQUITY PRICE RISK EXPOSURE
(IN MILLIONS)
DECEMBER 31, 2005 December 31, 2004
-------------------------------------- -------------------------------
BALANCE AFTER Balance After
FAIR -10% EQUITY PRICE Fair -10% Equity Price
VALUE CHANGE Value Change
----------- ------------------------- ---------- -------------------
Equity Investments:
Trading.......................... $282.7 $254.4 $126.9 $114.3
Available for-sale and other
investments.................... 115.7 104.1 94.5 85.0
A 10% decrease in equity prices is a hypothetical scenario used to calibrate
potential risk and does not represent AllianceBernstein management's view of
future market changes. While these fair value measurements provide a
representation of equity price sensitivity of equity mutual funds and equity
hedge funds, they are based on AllianceBernstein's exposure at a particular
point in time and may not be representative of future market results. These
exposures will change as a result of ongoing portfolio activities in response to
AllianceBernstein management's assessment of changing market conditions and
available investment opportunities.
At December 31, 2005 and 2004, respectively, AllianceBernstein's fixed rate debt
had an aggregate fair value of $409.7 million and $422.2 million. The table
below provides the potential fair value exposure to an immediate 100 basis point
decrease in interest rates at all maturities and a ten percent decrease in
exchange rates from those prevailing at year-end 2005 and 2004:
INTEREST RATE RISK EXPOSURE
(IN MILLIONS)
DECEMBER 31, 2005 December 31, 2004
------------------------------------------ -----------------------------------
Balance
After
BALANCE BALANCE Balance -10%
AFTER-100 AFTER-10% After -100 Exchange
BASIS POINT EXCHANGE Basis Point Rate
FAIR VALUE POINT CHANGE RATE CHANGE Fair Value Change Change
--------- ------------- ------------ ----------- ------------ ---------
Debt: non-trading....... $409.7 $427.9 $410.4 $422.1 $439.5 $423.0
For further information on AllianceBernstein's market risk, see
AllianceBernstein and AllianceBernstein Holding's Annual Reports on Form 10-K
for the year ended December 31, 2005.
7A-6
PART II, ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
AXA FINANCIAL, INC.
Reports of Independent Registered Public Accounting Firms:
Report of PricewaterhouseCoopers LLP on AXA Financial, Inc............................................. F-1
Report of KPMG LLP on AllianceBernstein L.P............................................................ F-2
Report of KPMG LLP on AllianceBernstein Holding L.P.................................................... F-3
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 2005 and 2004................................................. F-4
Consolidated Statements of Earnings, Years Ended December 31, 2005, 2004 and 2003....................... F-5
Consolidated Statements of Shareholder's Equity and Comprehensive Income,
Years Ended December 31, 2005, 2004 and 2003.......................................................... F-6
Consolidated Statements of Cash Flows, Years Ended December 31, 2005, 2004 and 2003..................... F-7
Notes to Consolidated Financial Statements.............................................................. F-9
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statement Schedules..... F-68
Consolidated Financial Statement Schedules:
Schedule I - Summary of Investments - Other than Investments in Related Parties,
December 31, 2005....................................................................................... F-69
Schedule II - Balance Sheets (Parent Company), December 31, 2005 and 2004................................. F-70
Schedule II - Statements of Earnings (Parent Company),
Years Ended December 31, 2005, 2004 and 2003............................................................ F-71
Schedule II - Statements of Cash Flows (Parent Company),
Years Ended December 31, 2005, 2004 and 2003............................................................ F-72
Schedule III - Supplementary Insurance Information,
Years Ended December 31, 2005, 2004 and 2003............................................................ F-73
Schedule IV - Reinsurance, Years Ended December 31, 2005, 2004 and 2003................................... F-76
FS-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of
AXA Financial Inc.
In our opinion, based on our audits and the reports of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of earnings, of shareholder's equity and comprehensive income and of cash flows
present fairly, in all material respects, the financial position of AXA
Financial, Inc. and its subsidiaries ("AXA Financial Group") at December 31,
2005 and December 31, 2004, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2005 in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the AXA Financial
Group's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of AllianceBernstein L.P. and AllianceBernstein Holding L.P.,
subsidiaries of AXA Financial Group, as of and for the year ended December 31,
2005, whose statements reflect total assets of six percent of the related
consolidated total as of December 31, 2005 and total revenues of thirty percent
of the related consolidated total for the year ended December 31, 2005. Those
statements were audited by other auditors whose reports thereon have been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for AllianceBernstein L.P. and AllianceBernstein Holding L.P.,
is based solely on the reports of the other auditors. We conducted our audits of
these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards 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 and the reports of other auditors provide a
reasonable basis for our opinion.
As discussed in Note 3 of the Notes to Consolidated Financial Statements, in
2004, AXA Financial Group changed its method of accounting for variable interest
entities and certain nontraditional long-duration contracts and for Separate
Accounts.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 17, 2006
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The General Partner and Unitholders
AllianceBernstein L.P.:
We have audited the accompanying consolidated statements of financial condition
of AllianceBernstein L.P. and subsidiaries ("AllianceBernstein"), formerly
Alliance Capital Management L.P., as of December 31, 2005 and 2004, and the
related consolidated statements of income, changes in partners' capital and
comprehensive income and cash flows for each of the years in the three-year
period ended December 31, 2005. These consolidated financial statements are the
responsibility of the management of the General Partner. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AllianceBernstein as
of December 31, 2005 and 2004, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
2005, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of
AllianceBernstein's internal control over financial reporting as of December 31,
2005, based on criteria established in Internal Control--Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated February 24, 2006 expressed an unqualified opinion
on management's assessment of, and the effective operation of, internal control
over financial reporting.
/s/ KPMG LLP
New York, New York
February 24, 2006
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The General Partner and Unitholders
AllianceBernstein Holding L.P.:
We have audited the accompanying statements of financial condition of
AllianceBernstein Holding L.P. ("AllianceBernstein Holding"), formerly Alliance
Capital Management Holding L.P., as of December 31, 2005 and 2004, and the
related statements of income, changes in partners' capital and comprehensive
income and cash flows for each of the years in the three-year period ended
December 31, 2005. These financial statements are the responsibility of the
management of the General Partner. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AllianceBernstein Holding as of
December 31, 2005 and 2004, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2005, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of
AllianceBernstein Holding's internal control over financial reporting as of
December 31, 2005, based on criteria established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 24, 2006 expressed an
unqualified opinion on management's assessment of, and the effective operation
of, internal control over financial reporting.
/s/ KPMG LLP
New York, New York
February 24, 2006
F-3
AXA FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2005 AND 2004
2005 2004
---------------- -----------------
(IN MILLIONS)
ASSETS
Investments:
Fixed maturities available for sale, at estimated fair value.............. $ 38,902.8 $ 39,301.2
Mortgage loans on real estate............................................. 4,702.5 4,909.8
Equity real estate, held for the production of income..................... 797.8 791.1
Policy loans.............................................................. 4,946.5 4,968.0
Other equity investments.................................................. 1,337.9 1,263.2
Other invested assets..................................................... 1,486.4 1,251.6
---------------- -----------------
Total investments............................................... 52,173.9 52,484.9
Cash and cash equivalents................................................... 1,905.6 2,626.8
Cash and securities segregated, at estimated fair value..................... 1,720.8 1,489.0
Broker-dealer related receivables........................................... 2,929.1 2,187.7
Deferred policy acquisition costs........................................... 7,781.9 6,908.6
Goodwill and other intangible assets, net................................... 4,993.7 5,026.2
Value of business acquired.................................................. 780.4 817.4
Amounts due from reinsurers................................................. 3,216.1 3,149.2
Loans to affiliates......................................................... 400.0 400.0
Other assets................................................................ 3,925.7 4,525.1
Separate Accounts' assets................................................... 74,458.8 66,411.7
---------------- -----------------
TOTAL ASSETS................................................................ $ 154,286.0 $ 146,026.6
================ =================
LIABILITIES
Policyholders' account balances............................................. $ 30,756.3 $ 30,367.3
Future policy benefits and other policyholders liabilities.................. 22,677.2 22,888.6
Broker-dealer related payables.............................................. 1,233.1 956.7
Customers related payables.................................................. 2,924.3 2,658.7
Short-term and long-term debt............................................... 2,569.9 3,263.4
Loans from affiliates....................................................... 1,580.0 1,568.9
Income taxes payable........................................................ 2,224.1 2,015.6
Other liabilities........................................................... 4,877.0 5,144.2
Separate Accounts' liabilities.............................................. 74,458.8 66,411.7
Minority interest in equity of consolidated subsidiaries.................... 1,467.8 1,421.1
Minority interest subject to redemption rights.............................. 271.6 266.6
---------------- -----------------
Total liabilities...................................................... 145,040.1 136,962.8
---------------- -----------------
Commitments and contingencies (Notes 14, 17, 18, 19 and 20)
SHAREHOLDER'S EQUITY
Common stock, $.01 par value, 500 million shares authorized,
436.2 million shares issued and outstanding............................. 3.9 3.9
Capital in excess of par value.............................................. 1,047.8 1,073.5
Retained earnings .......................................................... 8,213.5 7,139.7
Accumulated other comprehensive income...................................... 345.5 866.1
Treasury shares, at cost ................................................... (364.8) (19.4)
---------------- -----------------
Total Shareholder's equity............................................. 9,245.9 9,063.8
---------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.................................. $ 154,286.0 $ 146,026.6
================ =================
See Notes to Consolidated Financial Statements
F-4
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
2005 2004 2003
----------------- ----------------- -----------------
(IN MILLIONS)
REVENUES
Universal life and investment-type product
policy fee income............................................. $ 2,090.2 $ 1,697.8 $ 1,376.7
Premiums........................................................ 1,648.8 1,275.8 898.4
Net investment income........................................... 3,219.8 2,800.7 2,397.1
Investment gains (losses), net.................................. 56.4 77.2 (67.5)
Commissions, fees and other income.............................. 3,949.6 3,660.8 2,973.3
----------------- ----------------- -----------------
Total revenues............................................ 10,964.8 9,512.3 7,578.0
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Policyholders' benefits......................................... 2,842.4 2,405.7 1,711.0
Interest credited to policyholders' account balances............ 1,206.9 1,108.3 969.7
Compensation and benefits....................................... 2,300.3 2,073.5 1,745.3
Commissions..................................................... 1,123.3 934.1 757.8
Distribution plan payments...................................... 292.0 374.2 370.6
Amortization of deferred sales commissions...................... 132.0 177.4 208.6
Interest expense................................................ 256.9 219.8 193.9
Amortization of deferred policy acquisition costs and value of
business acquired........................................... 682.0 510.1 434.6
Capitalization of deferred policy acquisition costs............. (1,347.6) (1,116.1) (990.7)
Rent expense.................................................... 227.6 216.9 189.5
Amortization of other intangible assets......................... 39.3 33.8 25.1
AllianceBernstein charge for mutual fund matters
and legal proceedings....................................... - - 330.0
Other operating costs and expenses.............................. 1,123.3 1,030.1 817.6
----------------- ----------------- -----------------
Total benefits and other deductions....................... 8,878.4 7,967.8 6,763.0
----------------- ----------------- -----------------
Earnings from continuing operations before
income taxes and minority interest............................ 2,086.4 1,544.5 815.0
Income taxes.................................................... (597.0) (395.1) (215.0)
Minority interest in net income of consolidated subsidiaries.... (338.7) (293.9) (146.2)
----------------- ----------------- -----------------
Earnings from continuing operations............................. 1,150.7 855.5 453.8
Earnings from discontinued operations,
net of income taxes ......................................... 8.5 9.1 3.4
(Losses) gains on disposal of discontinued operations,
net of income taxes.......................................... (85.4) 84.3 -
Cumulative effect of accounting changes,
net of income taxes.......................................... - (4.0) -
----------------- ----------------- -----------------
Net Earnings.................................................... $ 1,073.8 $ 944.9 $ 457.2
================= ================= =================
See Notes to Consolidated Financial Statements
F-5
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
2005 2004 2003
----------------- ----------------- -----------------
(IN MILLIONS)
SHAREHOLDER'S EQUITY
Common stock, at par value, beginning and end of year........... $ 3.9 $ 3.9 $ 3.9
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year .............. 1,073.5 1,122.2 1,104.1
Changes in capital in excess of par value....................... (25.7) (48.7) 18.1
----------------- ----------------- -----------------
Capital in excess of par value, end of year..................... 1,047.8 1,073.5 1,122.2
----------------- ----------------- -----------------
Retained earnings, beginning of year............................ 7,139.7 6,194.8 5,967.6
Net earnings.................................................... 1,073.8 944.9 457.2
Dividends on common stock....................................... - - (230.0)
----------------- ----------------- -----------------
Retained earnings, end of year.................................. 8,213.5 7,139.7 6,194.8
----------------- ----------------- -----------------
Accumulated other comprehensive income,
beginning of year............................................ 866.1 872.7 655.1
Other comprehensive (loss) income............................... (520.6) (6.6) 217.6
----------------- ----------------- -----------------
Accumulated other comprehensive income, end of year............. 345.5 866.1 872.7
----------------- ----------------- -----------------
Treasury shares at cost, beginning of year ..................... (19.4) (19.9) (16.5)
Changes in treasury shares ..................................... (345.4) .5 (3.4)
----------------- ----------------- -----------------
Treasury shares at cost, end at of year ........................ (364.8) (19.4) (19.9)
----------------- ----------------- -----------------
Total Shareholder's Equity, End of Year......................... $ 9,245.9 $ 9,063.8 $ 8,173.7
================= ================= =================
2005 2004 2003
----------------- ----------------- -----------------
(IN MILLIONS)
COMPREHENSIVE INCOME
Net earnings.................................................... $ 1,073.8 $ 944.9 $ 457.2
----------------- ----------------- -----------------
Change in unrealized gains (losses), net of reclassification
adjustment................................................... (501.9) 11.4 215.3
Cumulative effect of accounting changes......................... - 12.4 -
Minimum pension liability adjustment............................ (18.7) (30.4) 2.3
----------------- ----------------- -----------------
Other comprehensive (loss) income............................... (520.6) (6.6) 217.6
----------------- ----------------- -----------------
Comprehensive Income............................................ $ 553.2 $ 938.3 $ 674.8
================= ================= =================
See Notes to Consolidated Financial Statements.
F-6
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
2005 2004 2003
---------------- ----------------- -----------------
(IN MILLIONS)
Net earnings.................................................... $ 1,073.8 $ 944.9 $ 457.2
Adjustments to reconcile net earnings to net cash provided
(used) by operating activities:
Interest credited to policyholders' account balances.......... 1,206.9 1,108.3 969.7
Universal life and investment-type product
policy fee income.......................................... (2,090.2) (1,697.8) (1,376.7)
Net change in broker-dealer and customer
related receivables/payables............................... (352.2) 311.9 21.3
Investment (gains) losses, net................................ (56.4) (77.2) 67.5
Change in deferred policy acquisition costs and value of
business acquired.......................................... (665.6) (606.0) (556.1)
Change in future policy benefits.............................. 153.3 154.6 (94.6)
Change in property and equipment.............................. (24.8) (92.8) (78.1)
Change in income tax payable.................................. 467.3 257.3 262.0
Change in segregated cash and securities, net................. (231.8) (203.2) (111.5)
Change in fair value of guaranteed minimum income
benefit reinsurance contract............................... (42.7) (61.0) 91.0
Amortization of deferred sales commission..................... 132.0 177.4 208.6
Other depreciation and amortization........................... 165.3 214.8 212.7
Amortization of other intangible assets....................... 39.3 33.8 25.1
Losses (gains) on disposal of discontinued operations
segment.................................................... 85.4 (53.2) -
Minority interest in net income of consolidated subsidiaries.. 338.7 293.9 146.2
Other, net.................................................... (131.9) (73.8) 438.9
---------------- ----------------- -----------------
Net cash provided by operating activities....................... 66.4 631.9 683.2
---------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments..................................... 4,189.0 4,112.2 4,225.9
Sales......................................................... 2,748.9 3,894.7 4,824.8
Purchases..................................................... (7,748.0) (9,288.0) (11,551.6)
Change in short-term investments.............................. 59.2 328.5 336.7
Purchase of minority interest in consolidated subsidiary...... - (635.7) -
Acquisition of the MONY Group Inc., net of cash and
cash equivalents acquired.................................. - (775.0) -
Disposition of The Advest Group, Inc.......................... 400.0 - -
Other, net.................................................... (153.4) 271.9 362.3
---------------- ----------------- -----------------
Net cash used by investing activities........................... (504.3) (2,091.4) (1,801.9)
---------------- ----------------- -----------------
F-7
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(CONTINUED)
2005 2004 2003
----------------- ----------------- -----------------
(IN MILLIONS)
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. $ 4,649.9 $ 4,061.0 $ 5,639.1
Withdrawals from and transfers to Separate Accounts....... (3,630.2) (2,605.0) (3,181.1)
Increase in loans from affiliates........................... 11.1 1,568.9 --
Net change in short-term financings......................... -- 118.3 (22.6)
Repayments of long-term debt................................ (675.0) (300.0) (76.8)
(Purchase) sale of treasury shares.......................... (372.6) .4 (3.4)
Dividends paid on common stock.............................. -- -- (230.0)
Other, net.................................................. (266.5) (52.0) (213.5)
----------------- ----------------- -----------------
Net cash (used) provided by financing activities.............. (283.3) 2,791.6 1,911.7
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (721.2) 1,332.1 793.0
Cash and cash equivalents, beginning of year.................. 2,626.8 1,294.7 501.7
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 1,905.6 $ 2,626.8 $ 1,294.7
================= ================= =================
Supplemental cash flow information:
Interest Paid............................................... $ 217.5 $ 223.6 $ 202.0
================= ================= =================
Income Taxes Paid (Refunded)................................ $ 164.4 $ 114.1 $ (45.7)
================= ================= =================
See Notes to Consolidated Financial Statements.
F-8
AXA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
AXA Financial, Inc. ("AXA Financial," and, collectively with its
consolidated subsidiaries, "AXA Financial Group") is a diversified
financial services organization serving a broad spectrum of insurance
and investment management customers. AXA Financial is a wholly owned
subsidiary of AXA, a French Parent Company for an international group of
insurance and related financial services companies.
AXA Financial Group conducts operations in two business segments. The
financial advisory and insurance business is conducted by its insurance
companies, its insurance general agency, AXA Network, LLC (collectively
with its subsidiaries, "AXA Network"), its broker dealers and other
affiliated companies and is reported in the Financial Advisory/Insurance
segment. The investment management and related services business
conducted by AllianceBernstein L.P. (formerly Alliance Capital
Management L.P.), a Delaware limited partnership, and its subsidiaries
("AllianceBernstein") is reported in the Investment Management segment.
AXA Financial's direct and indirect wholly-owned insurance subsidiaries
(collectively the "Insurance Group") are AXA Equitable Life Insurance
Company ("AXA Equitable"), AXA Equitable's wholly-owned life insurance
subsidiary, AXA Life and Annuity Company ("AXA Life"), and AXA Financial
(Bermuda) Ltd. ("AXA Bermuda") and, effective July 2004, MONY Life
Insurance Company ("MONY Life") and its wholly-owned subsidiaries, MONY
Life Insurance Company of America ("MLOA") and U.S. Financial Life
Insurance Company ("USFL").
In October 2000, AllianceBernstein 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, AXA
Financial Group acquired 8.16 million units in AllianceBernstein L.P.
("AllianceBernstein Units") at the aggregate market price of $249.7
million from SCB Inc. and SCB Partners, Inc. under a preexisting
agreement (see Note 3 of Notes to Consolidated Financial Statements). In
March and December 2004, AXA Financial Group acquired a total of 16.3
million AllianceBernstein Units at the aggregated market price of $635.7
million from SCB Inc. and SCB Partners, Inc. under this preexisting
agreement. As a result of the 2004 transactions, AXA Financial Group
recorded additional goodwill of $341.0 million and other intangible
assets of $42.2 million. At December 31, 2005 and 2004, AXA Financial
Group's beneficial ownership in AllianceBernstein L.P. was approximately
61.1% and 61.3%, respectively.
2) ACQUISITION OF MONY
On July 8, 2004, AXA Financial completed its acquisition of The MONY
Group Inc. ("MONY") and, under terms of the related merger agreement,
paid or made provision to pay MONY shareholders approximately $1.5
billion in cash, representing $31 for each share of MONY common stock.
MONY shareholders also received a dividend from MONY totaling $0.34755
per share. On July 22, 2004, MONY was merged into AXA Financial. AXA
Financial funded the acquisition of MONY (the "MONY Acquisition") by
using available cash and issuing $1.28 billion of Subordinated Notes to
AXA and two AXA affiliates. The Subordinated Notes have a floating
interest rate, payable semiannually, and mature in 2019. The interest
rate resets semiannually on July 15 and January 15. Concurrently, AXA
Financial entered into an interest swap agreement with AXA, converting
the floating rate on these Subordinated Notes to a fixed rate of 5.11%
for the first three years. The acquisition provides AXA Financial Group
with additional scale in distribution, client base and assets under
management.
As of December 31, 2005, former MONY stockholders holding approximately
3.6 million shares of MONY common stock, representing approximately 7.1%
of MONY common stock outstanding at July 8, 2004 (the effective date of
the MONY Acquisition), have demanded appraisal pursuant to Section 262
of the General Corporation Law of the State of Delaware and have not
withdrawn their demands. For further information, see Note 20 of Notes
to Consolidated Financial Statements. The fair value of shares of MONY
common stock to be determined in the appraisal process, which is the
amount that will be payable by AXA Financial
F-9
Group to the holders of shares subject to the appraisal, could be
greater or less than the $31.00 per share paid to former MONY
stockholders who did not demand appraisal under Delaware law.
The acquisition was accounted for using the purchase method under
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets".
For accounting purposes (due to convenience and the immateriality of the
results of MONY from July 1, 2004 through July 8, 2004), AXA Financial
Group has consolidated MONY and reflected its results from July 1, 2004
through December 31, 2004 and for 2005 in its 2004 and 2005 consolidated
statements of earnings and cash flows, respectively. Under the purchase
method of accounting, the assets acquired and liabilities assumed were
recorded at estimated fair value at the date of acquisition. Purchase
adjustments required significant management estimates and assumptions.
The purchase adjustments related to value of business acquired ("VOBA")
and liabilities including policyholder reserves required management to
exercise judgment to assess the value of these items.
AXA Financial Group's consolidated balance sheet at December 31, 2005
and 2004 included the accounts of MONY and its subsidiaries acquired in
this acquisition (the "MONY Companies"), including its principal
subsidiaries, MONY Life, MLOA, USFL and Enterprise Capital Management,
Inc. ("Enterprise"), as well as The Advest Group, Inc. ("Advest")
through December 2, 2005, the date of Advest's sale.
The following table presents the estimated fair values of the assets of
MONY and its consolidated subsidiaries acquired and liabilities assumed,
including Advest:
Fair Value
at July 1, 2004
-----------------
(In Millions)
ASSETS ACQUIRED
Investments
Fixed maturities................................. $ 7,804.6
Mortgage loans on real estate.................... 1,943.2
Policy loans..................................... 1,162.6
Other equity investments......................... 253.7
Other invested assets............................ 1,492.8
-----------------
Total investments............................ 12,656.9
Cash and cash equivalents........................... 791.4
Reinsurance recoverable............................. 602.9
Goodwill............................................ 616.6
Value of business acquired.......................... 868.8
Other intangible assets............................. 172.0
Other assets........................................ 406.9
Separate Accounts' assets........................... 4,950.3
-----------------
Total Assets Acquired............................... $ 21,065.8
=================
LIABILITIES ASSUMED
Policyholders liabilities........................... $ 12,083.3
Short-term and long-term debt....................... 940.8
Other liabilities................................... 1,524.9
Separate Accounts' liabilities...................... 4,950.4
-----------------
Total Liabilities Assumed........................... $ 19,499.4
=================
Net Assets Acquired................................. $ 1,566.4
=================
F-10
All of MONY's results are reported in the Financial Advisory/Insurance
segment. Of the $616.6 million in goodwill, none is expected to be
deductible for tax purposes.
In addition to goodwill, intangible assets of $1,040.8 million,
including $27.1 million related to Advest's brokerage distribution
system, were recorded as a result of the acquisition. Intangibles assets
subject to amortization include the following:
Fair Value Assigned
As Of July 1, 2004 Amortization Range
----------------------- -----------------------
(IN MILLIONS)
VOBA............................................... $ 868.8 10-30 years
Insurance distribution network..................... 64.0 10-20 years
Brokerage distribution system...................... 27.1 8 years
Mutual fund distribution fees...................... 20.9 5-6 years
In addition, mutual fund investment management contracts were assigned a
fair value of $60.0 million as of July 1, 2004, which is not subject to
amortization.
In 2004, as a result of the integration of MONY, AXA Financial Group
restructured certain operations to reduce expenses and recorded pre-tax
provisions of $45.6 million related to severance and $33.0 million
related to the write-off of capitalized software in connection with the
integration. During 2005 and 2004, total severance payments made to
employees totaled $19.2 million and $5.0 million, respectively. At
December 31, 2005, the remaining severance liability totaled $24.7
million.
Included in liabilities assumed in the purchase business combination of
MONY were liabilities for change in control and other employee
agreements of $139.3 million, severance of $32.9 million and $88.7
million for vacating certain MONY leases. During 2005 and 2004, total
payments made related to these liabilities totaled $43.8 million and
$150.3 million, respectively. At December 31, 2005, the remaining $57.4
million of liabilities were primarily related to MONY Companies' leases.
On December 2, 2005, AXA Financial Group sold Advest to Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). Advest was a
wholly owned subsidiary of AXA Financial Group and part of its Financial
Advisory/Insurance segment. In accordance with the terms of the
agreement, Merrill Lynch purchased all of the issued and outstanding
capital stock of Advest for $400 million in cash subject to adjustments
in certain circumstances. AXA Financial Group's post-tax proceeds from
the sale were $300.6 million. AXA Financial Group's pre-tax loss is $1.4
million, with a post-tax loss to AXA Financial Group of $85.4 million.
This transaction reduced AXA Financial Group's goodwill by $189.1
million, representing approximately 31% of the total goodwill related to
the MONY Acquisition in 2004.
Results of Advest are now reported as discontinued operations in these
consolidated financial statements and related footnotes. Unless
otherwise indicated, amounts in these notes exclude the effects of
Advest. At December 31, 2004, Advest's total assets were $739.8 million
and total liabilities were $347.1 million and were included in Other
assets and Other liabilities, respectively. Total revenues for Advest
for the eleven months ended November 30, 2005 and for the six months
ended December 31, 2004 were $297.6 million and $166.5 million,
respectively. Total benefits and deductions for Advest for the eleven
months ended November 30, 2005 and the six months ended December 31,
2004 were $308.6 million and $166.3 million, respectively. Net (loss)
earnings for Advest for 2005 and 2004 were $(6.7) million and $1.2
million, respectively.
3) SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
The preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles in the United
States of America ("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
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opinion of management to present fairly the consolidated financial
position of AXA Financial Group and its consolidated results of
operations and cash flows for the periods presented.
The accompanying consolidated financial statements include the accounts
of: AXA Financial; AXA Equitable and MONY Life; those of their
subsidiaries engaged in insurance related businesses; other
subsidiaries, principally AllianceBernstein; and those investment
companies, partnerships and joint ventures in which AXA Financial Group
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
"2005," "2004" and "2003" refer to the years ended December 31, 2005,
2004 and 2003, respectively. Certain reclassifications have been made in
the amounts presented for prior periods to conform those periods to the
current presentation.
Closed Blocks
-------------
As a result of demutualization, Closed Blocks were established by AXA
Equitable and MONY Life in 1992 and 1998, respectively, for the benefit
of certain individuals' participating policies in force as of respective
dates of demutualization. Assets, liabilities and earnings of each
Closed Block are specifically identified to support its own
participating policyholders.
Assets allocated to the Closed Block inure solely to the benefit of each
Closed Block's policyholders and will not revert to the benefit of AXA
Financial. No reallocation, transfer, borrowing or lending of assets can
be made between each insurance company's Closed Block and other portions
of that company's General Account, any of its Separate Accounts or any
affiliate of that insurer 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 that would be recognized in
income over the period the policies and contracts in the Closed Block
remain in force.
Discontinued Operations
-----------------------
Discontinued Operations includes certain pension operations principally
consisting of group non-participating wind-up annuity products ("Wind-up
Annuities"), equity real estate held-for-sale, the discontinued
Investment Banking and Brokerage segment and Advest. The following table
reconciles the earnings (losses) from discontinued operations, net of
income taxes and (losses) gains on disposal of discontinued operations,
net of income taxes to the amounts reflected in the consolidated
statements of earnings for the three years ended December 31, 2005:
2005 2004 2003
------------- ------------ -------------
(IN MILLIONS)
Wind-up Annuities............................................ $ 15.2 $ 7.9 $ 3.4
Advest....................................................... (6.7) 1.2 -
----------- ------------ ------------
Earnings from Discontinued Operations,
Net of Income Taxes.................................... $ 8.5 $ 9.1 $ 3.4
============ ============ ============
Advest....................................................... $ (85.4) $ - $ -
Real estate held-for-sale.................................... - 31.1 -
Discontinued Investment Banking and Brokerage segment........ - 53.2 -
------------ ------------ ------------
(Losses) Gains on Disposal of Discontinued Operations,
Net of Income Taxes.................................... $ (85.4) $ 84.3 $ -
============ ============ ============
In 1991, management discontinued the business of Wind-up Annuities, the
terms of which were fixed at issue, which were sold to corporate
sponsors of terminated qualified defined benefit plans, 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, 2005 is adequate to provide for all future
losses; however, the determination of the allowance involves numerous
estimates and subjective judgments regarding the expected performance of
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invested assets held by Wind-up Annuities ("Discontinued Operations
Investment Assets"). There can be no assurance the losses provided for
will not differ from the losses ultimately realized. To the extent
actual results or future projections of Wind-up Annuities differ from
management's current estimates and assumptions underlying the allowance
for future losses, the difference would be reflected in the consolidated
statements of earnings in Wind-up Annuities. In particular, to the
extent income, sales proceeds and holding periods for equity real estate
differ from management's previous assumptions, periodic adjustments to
the allowance are likely to result. See Note 10 of Notes to Consolidated
Financial Statements.
Accounting Changes
------------------
On May 19, 2004, the Financial Accounting Standards Board (the "FASB")
approved the issuance of FASB Staff Position ("FSP") No. 106-2,
"Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug Improvement and Modernization Act of 2003", that
provides guidance on employers' accounting for the effects of the
Medicare Prescription Drug, Improvement and Modernization Act of 2003
("MMA") signed into law in December 2003. FSP No. 106-2 became effective
for the first interim or annual period beginning after June 15, 2004 and
required the effects of the MMA, including estimates of the Federal
subsidy to employers whose plans provide a prescription drug benefit
that is at least as valuable as (i.e., "actuarially equivalent" to) the
new Medicare Part D benefit, to be reflected in measurements of the
accumulated postretirement benefits obligation and net periodic
postretirement benefit cost made on or after the date of enactment. As
permitted by FSP No. 106-2, AXA Financial Group initially elected to
defer these remeasurements and to provide required disclosures pending
regulations regarding the determination of eligibility for the Federal
subsidy under the MMA. As more fully described in Note 17 of Notes to
Consolidated Financial Statements, following consideration of
regulations and guidance issued by the Center for Medicare and Medicaid
Services, AXA Financial Group completed its transition to FSP No. 106-2
in fourth quarter 2005 by reducing the accumulated benefits obligations
of AXA Financial Group's retiree medical plans as at January 1, 2005 to
give effect to the subsidy expected to be received in 2006 and future
years. These remeasurements resulted in an aggregate decrease in the
annual net periodic postretirement benefits costs for 2005 of
approximately $8.7 million.
At March 31, 2004, AXA Financial Group completed its transition to the
consolidation and disclosure requirements of FASB Interpretation ("FIN")
No. 46(R), "Consolidation of Variable Interest Entities, Revised".
At December 31, 2005 and 2004, the Insurance Group's General Account
held $5.8 million and $34.1 million of investment assets issued by VIEs
and determined to be significant variable interests under FIN No. 46(R).
At December 31, 2005 and 2004, as reported in the consolidated balance
sheet, these investments included $4.7 million and $32.9 million of
fixed maturities (collateralized debt and loan obligations) and $1.1
million and $1.2 million of other equity investments (principally
investment limited partnership interests) and are subject to ongoing
review for impairment in value. These VIEs do not require consolidation
because management has determined that the Insurance Group is not the
primary beneficiary. These variable interests at December 31, 2005
represent the Insurance Group's maximum exposure to loss from its direct
involvement with the VIEs. The Insurance Group has no further economic
interest in these VIEs in the form of related guarantees, commitments,
derivatives, credit enhancements or similar instruments and obligations.
Management of AllianceBernstein has reviewed its investment management
agreements and its investments in and other financial arrangements with
certain entities that hold client assets under management to determine
the entities that AllianceBernstein is required to consolidate under FIN
No. 46(R). These include certain mutual fund products domiciled in
Luxembourg, India, Japan, Singapore and Australia (collectively, the
"Offshore Funds"), hedge funds, structured products, group trusts and
joint ventures.
As a result of its review, in second and third quarters of 2004,
AllianceBernstein had consolidated an investment in a joint venture and
its funds under management. At December 31, 2004, AllianceBernstein sold
this investment and accordingly, no longer consolidates this investment
and its funds under management.
AllianceBernstein derived no direct benefit from client assets under
management of these entities other than investment management fees and
cannot utilize those assets in its operations.
AllianceBernstein has significant variable interests in certain other
VIEs with approximately $403.0 million in client assets under
management. However, these VIEs do not require consolidation because
management
F-13
has determined that AllianceBernstein is not the primary beneficiary.
AllianceBernstein's maximum exposure to loss in these entities is
limited to its nominal investments in and prospective investment
management fees earned from these entities.
Effective January 1, 2004, AXA Financial Group adopted 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 required a change in AXA Financial Group's
accounting policies relating to (a) General Account interests in
Separate Accounts, (b) assets and liabilities associated with market
value adjusted fixed rate investment options available in certain
variable annuity contracts, (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 interest-sensitive life policies.
The adoption of SOP 03-1 required changes in several of AXA Financial
Group's accounting policies relating to separate account assets and
liabilities. AXA Financial Group now reports the General Account's
interests in separate accounts as trading account securities in the
consolidated balance sheet; prior to the adoption of SOP 03-1, such
interests were included in Separate Accounts' assets. Also, the assets
and liabilities of two Separate Accounts are now presented and accounted
for as General Account assets and liabilities, effective January 1,
2004. Investment assets in these Separate Accounts principally consist
of fixed maturities that are classified as available for sale in the
accompanying consolidated financial statements. These two Separate
Accounts hold assets and liabilities associated with market value
adjusted fixed rate investment options available in certain variable
annuity contracts. In addition, liabilities associated with the market
value adjustment feature are now reported at the accrued account
balance. Prior to the adoption of SOP 03-1, such liabilities had been
reported at market adjusted value.
Prior to the adoption of SOP 03-1, the liabilities for group pension
participating contracts were adjusted only for changes in the fair value
of certain related investment assets that were reported at fair value in
the balance sheet (including fixed maturities and equity securities
classified as available for sale, but not equity real estate or mortgage
loans) with changes in the liabilities recorded directly in Accumulated
other comprehensive income to offset the unrealized gains and losses on
the related assets. SOP 03-1 required an adjustment to the liabilities
for group pension participating contracts to reflect the fair value of
all the assets on which those contracts' returns are based, regardless
of whether those assets are reported at fair value in the balance sheet.
Changes in the liability related to fluctuations in asset fair values
are now reported as Interest credited to policyholders' account balances
in the consolidated statements of earnings.
In addition, the adoption of SOP 03-1 resulted in a change in the method
of determining liabilities associated with the no lapse guarantee
feature contained in variable and interest-sensitive life contracts.
While both AXA Financial Group's previous method of establishing the no
lapse guarantee reserve and the SOP 03-1 method are based on
accumulation of a portion of the charges for the no lapse guarantee
feature, SOP 03-1 specifies a different approach for identifying the
portion of the fee to be accrued and establishing the related reserve.
The adoption of SOP 03-1 as of January 1, 2004 resulted in a decrease in
2004 net earnings of $4.0 million and an increase in other comprehensive
income of $12.4 million related to the cumulative effect of the required
changes in accounting. 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.
New Accounting Pronouncements
-----------------------------
On May 30, 2005, the FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections," a replacement of Accounting Principles Board Opinion
("APB") No. 20, "Accounting Changes," and SFAS No. 3, "Reporting
Accounting Changes in Interim Financial Statements". SFAS No. 154
applies to all voluntary changes in accounting principle as well as to
changes required by an accounting pronouncement that does not include
transition provisions. To enhance comparability, this statement requires
retrospective application to prior periods' financial statements of
changes in accounting principle, unless it is impracticable to determine
either the period-specific effects or the cumulative effect of the
change. The cumulative effect of the change is reported in the carrying
value of assets and liabilities as of the first period presented, with
the offset applied to opening retained earnings. Each period presented
is adjusted to show the period specific effects of the change. Only
direct effects of the change will be retrospectively recognized;
indirect effects
F-14
will be recognized in the period of change. SFAS No. 154 carries forward
without change APB No. 20's guidance for reporting the correction of an
error and a change in accounting estimate as well as SFAS No. 3's
provisions governing reporting accounting changes in interim financial
statements. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15,
2005.
AXA Financial Group accounts for its stock option and other stock-based
compensation plans using the intrinsic value method in accordance with
the provisions of 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 14 of Notes to Consolidated Financial Statements
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".
On December 16, 2004, the FASB issued SFAS No. 123(R), "Share-Based
Payment," requiring the cost of all share-based payments to employees,
including stock options, stock appreciation rights, and certain employee
stock purchase plans, to be recognized in the financial statements based
on their fair values. By ruling of the Securities and Exchange
Commission ("SEC"), effective April 21, 2005, public companies were
permitted to delay their initial adoption of SFAS No. 123(R) from the
first interim period to the first annual period beginning on or after
June 15, 2005. Consequently, AXA Financial Group implemented SFAS 123(R)
effective January 1, 2006 and will reflect the resulting impacts of
adoption in its financial reporting for first quarter 2006. As more
fully described in Note 14 of Notes to Consolidated Financial
Statements, AXA Financial Group elected under SFAS No. 123, "Accounting
for Stock-Based Compensation," to continue to account for stock-based
compensation using the intrinsic value method prescribed by APB No. 25,
and its related interpretations, and to provide only pro-forma
disclosure of the effect on net earnings from applying the fair value
based method. Accordingly, adoption of SFAS No. 123(R) will result in
compensation expense for certain types of AXA Financial Group's
equity-settled award programs for which no cost previously would have
been charged to net earnings under APB No. 25, such as for employee
options to purchase AXA American Depository Receipts ("ADRs") and AXA
ordinary shares and for employee stock purchase plans. Similarly,
certain types of AXA Financial Group's cash-settled award programs, such
as stock appreciation rights, may be expected to result in different
amounts of compensation expense or different patterns of expense
recognition under SFAS No. 123(R) as compared to APB No. 25.
To effect its adoption of SFAS No. 123(R) on January 1, 2006, AXA
Financial Group elected the "modified prospective method" of transition
to the new accounting and reporting requirements for share-based
payments. Consequently, the resulting impacts of adoption to be
reflected in AXA Financial Group's financial reporting for first quarter
2006 will not include a restatement of prior-period results to reflect
the original recognition provisions of SFAS No. 123 as would be required
under the alternative "modified retrospective method" of transition.
Under the modified prospective method, AXA Financial Group will be
required to apply the measurement, recognition, and attribution
requirements of SFAS 123(R) to new awards and to awards modified,
repurchased or cancelled after January 1, 2006. In addition, the
modified prospective method will require AXA Financial Group to
recognize compensation expense over the remaining future service/vesting
periods for the unvested portions of awards outstanding at January 1,
2006, applying the same estimates of fair value and the same attribution
method used previously to prepare SFAS No. 123 pro forma disclosures.
The unrecognized compensation cost associated with unvested stock option
awards as at January 1, 2006 was approximately $48.8 million ($31.7
million after-tax) and, under SFAS No. 123(R), will result in
incremental expense in the Consolidated Statements of Earnings of AXA
Financial Group over a weighted average remaining service/vesting period
of approximately 2.0 years. Absent additional forfeiture considerations,
results for 2006 would be expected to include approximately $26.6
million ($17.3 million after-tax) of additional compensation expense as
related to unvested stock option awards at January 1, 2006 as a result
of the adoption of SFAS 123(R).
The full impact of adoption of SFAS 123(R) cannot be predicted at this
time because it is largely dependent upon the nature and levels of
share-based payments granted in the future. Nonetheless, while there
exist differences between certain requirements of SFAS Nos. 123 and
123(R), the estimated impacts in previous periods of applying a
fair-value approach to accounting for share-based awards made to
employees of AXA Financial Group are described and/or disclosed on a
pro-forma basis in Note 14 of Notes to Consolidated Financial
Statements. Management is continuing to assess the impacts of adoption
of SFAS 123(R), including accounting for the income tax effects of
share-based compensation, for which AXA Financial
F-15
Group likely will elect the transition alternative available for income
taxes provided by the November 10, 2005 issuance of FSP No. 123(R)-3,
"Transition Election Related to Accounting For the Tax Effects of
Share-Based Payment Awards". In addition, management is continuing to
assess the impacts of the related amendment to SFAS No. 95, "Statement
of Cash Flows," that in periods subsequent to adoption of SFAS 123(R)
will require tax deductions in excess of recognized compensation cost to
be classified as resulting from a financing activity rather than as an
operating cash flow as currently required.
Neither SFAS No. 123 nor SFAS No. 123(R) prescribe or specify a
preference for a particular valuation technique or model for estimating
the fair value of employee stock options and similar awards but instead
require consideration of certain factors in selecting one that is
appropriate for the unique substantive characteristics of the
instruments awarded and one that can be supported by information that is
available, such as exercise behavior. In its implementation of SFAS
123(R), AXA Financial Group expects to continue to use the
Black-Scholes-Merton formula to estimate the fair values of employee
stock options. As more fully described in Note 14 of Notes to
Consolidated Financial Statements, and consistent with the fair value
measurement objectives of SFAS 123 and SFAS 123 (R), beginning with
awards granted in 2005, AXA Financial Group modified its methodologies
for developing the expected stock price volatility and expected dividend
assumptions used in this pricing formula. With respect to the valuation
of options to purchase AXA ADRs, these changes each represent a change
in accounting estimate under SFAS No. 154, "Accounting Changes and Error
Corrections," and, accordingly, will be applied prospectively in
determining the fair values of employee stock options to be measured and
accounted for in accordance with SFAS No. 123(R).
On September 19, 2005, the American Institute of Certified Public
Accountants ("AICPA") released SOP 05-1, "Accounting by Insurance
Enterprises for Deferred Acquisition Costs in Connection with
Modifications or Exchanges of Insurance Contracts". The SOP requires
identification of transactions that result in a substantial change in an
insurance contract. Transactions subject to review include internal
contract exchanges, contract modifications via amendment, rider or
endorsement and elections of benefits, features or rights contained
within the contract. If determined that a substantial change has
occurred, the related DAC/VOBA and other related balances must be
written off. The SOP is effective for transactions occurring in fiscal
years beginning after December 15, 2006, with earlier adoption
encouraged. Restatement of previously issued annual financial statements
is not permitted, and disclosure of the pro forma effects of retroactive
application or the pro forma effect on the year of adoption is not
required. Management is currently assessing the potential impact of this
new guidance on the consolidated financial results of AXA Financial
Group.
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. 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.
F-16
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.
Real estate held-for-sale is included in the Other assets line in the
consolidated balance sheets. The results of operations for real estate
held-for-sale in each of the three years ended December 31, 2005 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
AXA Financial Group 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 AXA Financial Group 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 that approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities owned including 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.
F-17
Unrealized investment gains and losses on fixed maturities and equity
securities available for sale held by AXA Financial Group are accounted
for as a separate component of accumulated comprehensive income, net of
related deferred income taxes, amounts attributable to Wind-up
Annuities, Closed Blocks policyholders dividend obligation, deferred
policy acquisition costs ("DAC") and VOBA 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 revenue 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.
DAC and VOBA
------------
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.
VOBA, which arose from the acquisition of MONY, was established in
accordance with business combination purchase accounting guidance. VOBA
is the actuarially determined present value of estimated future gross
profits of insurance contracts in force at the date of the acquisition.
VOBA is amortized over the expected life of the contracts (approximately
10-30 years) according to the type of contract using the methods
described below as applicable. VOBA is subject to loss recognition
testing at the end of each accounting period.
For universal life products and investment-type products, DAC and VOBA
are 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 and VOBA 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 and
VOBA amortization. Conversely, an increase in expected gross profits
would slow DAC and VOBA amortization. The effect on the DAC and VOBA
assets that would result from realization of unrealized gains (losses)
is recognized with an offset to accumulated comprehensive income in
consolidated shareholder's equity as of the balance sheet date.
A significant assumption in the amortization of DAC and VOBA on variable
and interest-sensitive life insurance and variable annuities relates to
projected future Separate Account performance. Management sets expected
future gross profit assumptions related to Separate Account performance
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
F-18
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% (6.88% net of product weighted average Separate Account fees), and
the gross maximum and minimum annual rate of return limitations are
15.0% (12.88% net of product weighted average Separate Account fees) and
0% (-2.12% 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 and VOBA 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 and VOBA
amortization. As of December 31, 2005, current projections of future
average gross market returns assume a 3.5% return for 2006, which is
within the maximum and minimum limitations, and assume a reversion to
the mean of 9.0% after 5 quarters.
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 and VOBA amortization. Conversely, deterioration of
life mortality in future periods from that currently projected would
result in future acceleration of DAC and VOBA amortization. Generally,
life mortality experience has been improving in recent years.
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 Blocks), DAC and VOBA are 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, 2005, the average rate of assumed investment
yields, excluding policy loans, for AXA Equitable was 6.8% grading to
6.3% over 10 years and for MONY Life was 5.0%. 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 and VOBA of revisions to estimated gross margins is reflected in
earnings in the period such estimated gross margins are revised. The
effect on the DAC and VOBA assets that would result from realization of
unrealized gains (losses) is recognized with an offset to accumulated
comprehensive income in consolidated shareholder's equity as of the
balance sheet date.
For non-participating traditional life policies, DAC and VOBA are
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.
AXA Equitable, MONY Life and MLOA issue certain variable annuity
products with a Guaranteed Minimum Death Benefit ("GMDB") feature. AXA
Equitable, MONY Life and MLOA also issue certain variable annuity
products that contain a Guaranteed Minimum Income Benefit ("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 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
F-19
using assumptions consistent with those used in estimating gross profits
for purposes of amortizing DAC and VOBA. 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 and VOBA amortization. There can be no assurance that ultimate
actual experience will not differ from management's estimates.
Reinsurance contracts covering GMIB exposure are considered derivatives
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133"), and, therefore, are required to be reported
in the balance sheet at their fair value. GMIB reinsurance fair values
are reported in the consolidated balance sheets in Other assets. Changes
in GMIB reinsurance 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 and VOBA are 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 9.7% 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 assumption 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 $92.0 million and $72.6
million at December 31, 2005 and 2004, respectively. At December 31,
2005 and 2004, respectively, $1,390.0 million and $1,434.4 million of DI
reserves and associated liabilities were ceded through indemnity
reinsurance agreements with a singular reinsurance group. Incurred
benefits (benefits paid plus changes in claim reserves) and benefits
paid for individual DI and major medical policies are summarized below:
F-20
2005 2004 2003
----------------- ----------------- -----------------
(IN MILLIONS)
Incurred benefits related to current year.......... $ 35.7 $ 35.2 $ 33.8
Incurred benefits related to prior years........... 50.4 13.2 (2.8)
----------------- ----------------- -----------------
Total Incurred Benefits............................ $ 86.1 $ 48.4 $ 31.0
================= ================= =================
Benefits paid related to current year.............. $ 14.9 $ 13.0 $ 12.1
Benefits paid related to prior years............... 44.9 33.5 34.9
----------------- ----------------- -----------------
Total Benefits Paid................................ $ 59.8 $ 46.5 $ 47.0
================= ================= =================
Policyholders' Dividends
------------------------
The amount of policyholders' dividends to be paid (including dividends
on policies included in the Closed Blocks) is determined annually by AXA
Equitable and MONY Life's boards 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 levels of statutory surplus to be retained by AXA Equitable
and MONY Life.
At December 31, 2005, participating policies, including those in the
Closed Blocks, represent approximately 16.7% ($53.9 billion) of directly
written life insurance in-force, net of amounts ceded.
Separate Accounts
-----------------
Generally, Separate Accounts established under New York State and
Arizona State Insurance Law 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. Assets held
in the 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 assets and liabilities of four
Separate Accounts are presented and accounted for as General Account
assets and liabilities due to the fact that not all of the investment
performance in those Separate Accounts is passed through to
policyholders. Two of those Separate Accounts were reclassified to the
general account in connection with the adoption of SOP 03-1 as of
January 1, 2004.
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 2005, 2004 and 2003, investment
results of such Separate Accounts were gains (losses) of $3,533.7
million, $2,308.0 million and $(466.2) million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all policies including those
funded 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
service 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 received by Sanford C. Bernstein & Co., LLC ("SCB
LLC"), a wholly owned subsidiary of AllianceBernstein, for certain
retail, private client and institutional investment client transactions.
Certain investment advisory contracts provide for a performance-based
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-based fees are recorded as revenue
at the end of each measurement period. Institutional research services
revenue consists of brokerage transaction charges received by SCB LLC
and Sanford C. Bernstein Limited, a wholly owned subsidiary of
AllianceBernstein, for in-depth research and other services provided to
institutional investors. Brokerage transaction charges earned and
related expenses
F-21
are recorded on a trade date basis. Distribution revenues and
shareholder servicing fees are accrued as earned.
Sales commissions paid to financial intermediaries in connection with
the sale of shares of open-end AllianceBernstein 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 the deferred sales commission
asset is expected to be 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,
2005 and 2004, respectively, net deferred sales commissions totaled
$196.6 million and $254.5 million and are included within Other assets.
The estimated amortization expense of deferred sales commissions, based
on the December 31, 2005 net asset balance for each of the next five
years is $84.9 million, $52.4 million, $34.3 million, $18.8 million and
$5.5 million.
AllianceBernstein's management tests the deferred sales commission asset
for recoverability quarterly, or monthly when events or changes in
circumstances occur that could significantly increase the risk of
impairment of the asset. AllianceBernstein'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 and undiscounted future cash flows from 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 one-year, three-year and five-year
periods ended December 31, 2005. 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 and the aggregate undiscounted cash flows are compared
to the recorded value of the deferred sales commission asset.
AllianceBernstein's management considers the results of these analyses
performed at various dates. If AllianceBernstein'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
AllianceBernstein's management's best estimate of future cash flows
discounted to a present value amount.
Other Accounting Policies
-------------------------
In accordance with SEC regulations, securities with a fair value of
$1.72 billion and $1.49 billion have been segregated in a special
reserve bank custody account at December 31, 2005 and 2004,
respectively, for the exclusive benefit of securities broker-dealer or
brokerage customers under Rule 15c3-3 of the Securities Exchange Act of
1934, as amended (the "Exchange Act").
Goodwill represents the excess of the purchase price over the fair value
of identifiable assets of acquired companies, less accumulated
amortization and relates principally to the Bernstein acquisition and
purchases of AllianceBernstein units. Goodwill is tested annually for
impairment. Goodwill, less accumulated amortization related to the
Bernstein acquisition and purchases of AllianceBernstein units totaled
$4.0 billion at December 31, 2005 and 2004, respectively.
Intangible assets related to the Bernstein acquisition and purchases of
AllianceBernstein units 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. The
gross carrying amount of AllianceBernstein related intangible assets
were $643.9 million at December 31, 2005 and 2004, respectively and the
accumulated amortization of these intangible assets were $218.8 million
and $191.3 million at December 31, 2005 and 2004, respectively.
Amortization expense related to the AllianceBernstein intangible assets
totaled $27.5 million, $26.1 million and $25.1 million for 2005, 2004
and 2003, respectively. See Note 5 of Notes to
F-22
Consolidated Financial Statements for a description of AXA Financial
Group's intangible assets related to the MONY Acquisition.
Capitalized internal-use software is amortized on a straight-line basis
over the estimated useful life of the software and evaluated for
impairment each reporting period.
AXA Financial, and certain of its consolidated subsidiaries and
affiliates file a consolidated Federal income tax return. MONY Life,
MLOA and USFL file a consolidated Federal income tax return. Certain
non-life insurance subsidiaries of MONY Life file a separate
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 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
16.3 million of private AllianceBernstein Units issued to former
Bernstein shareholders in connection with AllianceBernstein's
acquisition of Bernstein. AXA Financial agreed to provide liquidity to
these former Bernstein shareholders after a two-year lockout period that
ended October 2002. AXA Financial Group acquired 16.32 million of the
former Bernstein shareholders' AllianceBernstein Units in 2004. The
outstanding 16.3 million AllianceBernstein Units may be sold to AXA
Financial at the prevailing market price over the remaining four years
ending in 2009. Generally, not more than 20% of the original
AllianceBernstein Units issued to the former Bernstein shareholders may
be put to AXA Financial in any one annual period.
F-23
4) INVESTMENTS
The following table provides additional information relating to fixed
maturities and equity securities.
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------------- ----------------- ----------------- ----------------
(IN MILLIONS)
DECEMBER 31, 2005
-----------------
Fixed Maturities:
Available for Sale:
Corporate..................... $ 30,764.0 $ 1,037.8 $ 286.2 $ 31,515.6
Mortgage-backed............... 2,685.3 9.3 42.2 2,652.4
U.S. Treasury, government
and agency securities....... 2,169.3 52.4 11.7 2,210.0
States and political
subdivisions................ 204.6 19.9 .3 224.2
Foreign governments........... 336.1 41.8 .5 377.4
Redeemable preferred stock.... 1,833.3 106.1 16.2 1,923.2
----------------- ----------------- ----------------- ----------------
Total Available for Sale.... $ 37,992.6 $ 1,267.3 $ 357.1 $ 38,902.8
================= ================= ================= ================
Equity Securities:
Available for sale.............. $ 88.0 $ 5.1 $ 2.3 $ 90.8
Trading securities.............. .3 .9 .1 1.1
----------------- ----------------- ----------------- ----------------
Total Equity Securities........... $ 88.3 $ 6.0 $ 2.4 $ 91.9
================= ================= ================= ================
December 31, 2004
-----------------
Fixed Maturities:
Available for Sale:
Corporate..................... $ 29,439.5 $ 1,855.1 $ 60.1 $ 31,234.5
Mortgage-backed............... 3,873.9 53.3 9.7 3,917.5
U.S. Treasury, government
and agency securities....... 1,536.1 72.5 1.5 1,607.1
States and political
subdivisions................ 196.1 21.3 .8 216.6
Foreign governments........... 346.6 48.8 .7 394.7
Redeemable preferred stock.... 1,775.4 160.2 4.8 1,930.8
----------------- ----------------- ----------------- ----------------
Total Available for Sale.... $ 37,167.6 $ 2,211.2 $ 77.6 $ 39,301.2
================= ================= ================= ================
Equity Securities:
Available for sale.............. $ 48.8 $ 3.1 $ 1.2 $ 50.7
Trading securities.............. .4 1.0 .2 1.2
----------------- ----------------- ----------------- ----------------
Total Equity Securities........... $ 49.2 $ 4.1 $ 1.4 $ 51.9
================= ================= ================= ================
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, AXA Financial
Group 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, 2005 and 2004, securities without a readily
ascertainable market value having an amortized cost of $6,600.6 million
and $6,327.2 million, respectively, had estimated fair values of
$6,782.2 million and $6,695.5 million, respectively.
F-24
The contractual maturity of bonds at December 31, 2005 is shown below:
AVAILABLE FOR SALE
-------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
-------------- --------------
(IN MILLIONS)
Due in one year or less................ $ 1,769.0 $ 1,780.5
Due in years two through five.......... 6,717.3 6,863.0
Due in years six through ten........... 15,150.3 15,423.6
Due after ten years.................... 9,837.4 10,260.1
Mortgage-backed securities............. 2,685.3 2,652.4
-------------- --------------
Total.................................. $ 36,159.3 $ 36,979.6
============== ==============
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
AXA Financial Group's management, with the assistance of its investment
advisors, monitors the investment performance of its portfolio. This
review process includes 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.
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 other than temporarily impaired, then the
appropriate provisions are taken.
The following table discloses fixed maturities (2,495 issues) 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,
2005:
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.............. $ 10,355.3 $ 221.9 $ 1,797.9 $ 64.3 $ 12,153.2 $ 286.2
Mortgage-backed........ 1,910.4 30.3 300.3 11.9 2,210.7 42.2
U.S. Treasury,
government and
agency securities.... 1,024.4 9.1 141.6 2.6 1,166.0 11.7
States and political
subdivisions......... 25.0 .3 -- -- 25.0 .3
Foreign governments.... 43.5 .3 30.3 .2 73.8 .5
Redeemable
preferred stock...... 595.9 14.7 21.9 1.5 617.8 16.2
-------------- ------------ -------------- ---------- -------------- --------------
Total Temporarily
Impaired Securities ... $ 13,954.5 $ 276.6 $ 2,292.0 $ 80.5 $ 16,246.5 $ 357.1
============== ============ ============== ========== ============== ==============
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting primarily of public high
yield bonds. 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, 2005,
approximately $1,088.5 million, or 2.9%, of the $37,992.6 million
aggregate amortized cost of fixed maturities held by AXA Financial Group
was considered to be other than investment grade.
F-25
At December 31, 2005, the carrying value of fixed maturities which were
non-income producing for the twelve months preceding that date was $8.1
million.
The Insurance Group holds equity in limited partnership interests and
other equity method investments. The carrying values at December 31,
2005 and 2004 were $1,123.1 million and $1,091.9 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 $5.3 million
and $31.5 million at December 31, 2005 and 2004, respectively. Gross
interest income on these loans included in net investment income
aggregated $1.0 million, $7.1 million and $7.8 million in 2005, 2004 and
2003, 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 $1.3 million, $8.8 million and
$10.0 million in 2005, 2004 and 2003, respectively.
Impaired mortgage loans along with the related investment valuation
allowances follow:
DECEMBER 31,
----------------------------------------
2005 2004
------------------ -------------------
(IN MILLIONS)
Impaired mortgage loans with investment valuation allowances....... $ 93.0 $ 94.3
Impaired mortgage loans without investment valuation allowances.... 13.4 22.6
------------------ -------------------
Recorded investment in impaired mortgage loans..................... 106.4 116.9
Investment valuation allowances.................................... (13.4) (11.8)
------------------ -------------------
Net Impaired Mortgage Loans........................................ $ 93.0 $ 105.1
================== ===================
During 2005, 2004 and 2003, respectively, AXA Financial Group's average
recorded investment in impaired mortgage loans was $115.0 million,
$165.1 million and $180.9 million. Interest income recognized on these
impaired mortgage loans totaled $10.9 million, $11.8 million and $12.3
million for 2005, 2004 and 2003, 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, 2005 and 2004, respectively, the carrying value
of mortgage loans on real estate that had been classified as nonaccrual
loans was $74.8 million and $79.2 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, 2005, $3.5 million of equity real estate was held for sale
and at December 31, 2004, there was no equity real estate held-for-sale.
For 2003, real estate of $2.8 million was acquired in satisfaction of
debt; none was acquired in either 2005 or 2004. At December 31, 2005 and
2004, AXA Financial Group owned $230.4 million and $231.6 million,
respectively, of real estate acquired in satisfaction of debt of which
$-0- million and $2.2 million, respectively, are held as real estate
joint ventures.
Accumulated depreciation on real estate was $239.3 million and $211.5
million at December 31, 2005 and 2004, respectively. Depreciation
expense on real estate totaled $30.7 million, $24.8 million and $38.8
million for 2005, 2004 and 2003, respectively.
F-26
Investment valuation allowances for mortgage loans and equity real
estate and changes thereto follow:
2005 2004 2003
----------------- ----------------- ----------------
(IN MILLIONS)
Balances, beginning of year.......................... $ 11.8 $ 20.5 $ 55.0
Additions charged to income.......................... 5.2 3.9 12.2
Deductions for writedowns and
asset dispositions................................. (3.6) (12.6) (15.2)
Deduction for transfer of real estate held-for-sale
to real estate held for the production of income... - - (31.5)
----------------- ----------------- ----------------
Balances, End of Year................................ $ 13.4 $ 11.8 $ 20.5
================= ================= ================
Balances, end of year comprise:
Mortgage loans on real estate...................... $ 13.4 $ 11.8 $ 18.8
Equity real estate................................. - - 1.7
----------------- ----------------- ----------------
Total................................................ $ 13.4 $ 11.8 $ 20.5
================= ================= ================
5) INTANGIBLE ASSETS
The following presents a summary of AXA Financial Group's intangible
assets, including VOBA (see Note 2 of Notes to Consolidated Financial
Statements), as of December 31, 2005 and 2004 related to the MONY
Acquisition:
GROSS
CARRYING ACCUMULATED
AMOUNT AMORTIZATION NET
-------------- ---------------- ------------
(IN MILLIONS)
DECEMBER 31, 2005
-----------------
Intangible assets subject to amortization:
VOBA.................................................... $ 868.8 $ (88.4)(1) $ 780.4
Insurance distribution network.......................... 64.0 (7.3) 56.7
Mutual fund distribution fees........................... 20.9 (12.1) 8.8
--------------- ---------------- ---------------
Total intangible assets subject to amortization........... 953.7 (107.8) 845.9
--------------- ---------------- ---------------
Intangible assets not subject to amortization:
Investment management contracts........................ 60.0 - 60.0
--------------- ---------------- ---------------
Total Intangible Assets................................... $ 1,013.7 $ (107.8) $ 905.9
=============== ================ ===============
December 31, 2004
-----------------
Intangible assets subject to amortization:
VOBA.................................................... $ 868.8 $ (51.4)(1) $ 817.4
Insurance distribution network.......................... 64.0 (2.4) 61.6
Mutual fund distribution fees........................... 20.9 (5.2) 15.7
--------------- ---------------- ---------------
Total intangible assets subject to amortization........... 953.7 (59.0) 894.7
--------------- ---------------- ---------------
Intangible assets not subject to amortization:
Investment management contracts........................ 60.0 - 60.0
--------------- ---------------- ---------------
Total Intangible Assets................................... $ 1,013.7 $ (59.0) $ 954.7
=============== ================ ===============
(1) Includes reactivity to unrealized investment gains/losses reflected
in other comprehensive income.
For 2005 and the six months ended December 31, 2004, total amortization
expense related to these intangible assets was $72.2 million and $40.1
million, respectively. Intangible assets amortization expense is
estimated to range from $82.3 million in 2006 to $59.2 million in 2010.
F-27
6) EQUITY METHOD INVESTMENTS
Included in equity real estate or other equity investments, as
appropriate, are interests in real estate joint ventures, limited
partnership interests and investment companies accounted for under the
equity method with a total carrying value of $1,242.8 million and
$1,211.7 million, respectively, at December 31, 2005 and 2004. AXA
Financial Group's total equity in net earnings (losses) for these real
estate joint ventures and limited partnership interests was $187.9
million, $63.4 million and $(4.3) million, respectively, for 2005, 2004
and 2003.
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 AXA Financial Group has
an investment of $10.0 million or greater and an equity interest of 10%
or greater (8 and 12 individual ventures at December 31, 2005 and 2004,
respectively) and AXA Financial Group's carrying value and equity in net
earnings for those real estate joint ventures and limited partnership
interests:
DECEMBER 31,
------------------------------------
2005 2004
---------------- ----------------
(IN MILLIONS)
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 527.4 $ 537.1
Investments in securities, generally at estimated fair value........... 118.4 351.9
Cash and cash equivalents.............................................. 27.5 13.9
Other assets........................................................... 18.6 31.3
---------------- ----------------
Total Assets........................................................... $ 691.9 $ 934.2
================ ================
Borrowed funds - third party........................................... $ 282.7 $ 349.9
Other liabilities...................................................... 12.4 20.1
---------------- ----------------
Total liabilities...................................................... 295.1 370.0
---------------- ----------------
Partners' capital...................................................... 396.8 564.2
---------------- ----------------
Total Liabilities and Partners' Capital................................ $ 691.9 $ 934.2
================ ================
AXA Financial Group's Carrying Value in
These Entities Included Above..................................... $ 135.6 $ 208.8
================ ================
2005 2004 2003
----------------- ----------------- ----------------
(IN MILLIONS)
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures................. $ 98.2 $ 102.1 $ 95.6
Net revenues of other limited partnership interests.... 6.3 19.8 26.0
Interest expense - third party......................... (18.2) (17.8) (18.0)
Other expenses......................................... (62.2) (65.3) (61.7)
----------------- ----------------- -----------------
Net Earnings........................................... $ 24.1 $ 38.8 $ 41.9
================= ================= =================
AXA Financial Group's Equity in Net Earnings of
These Entities Included Above..................... $ 11.6 $ 13.9 $ 5.0
================= ================= =================
F-28
7) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income follow:
2005 2004 2003
----------------- ----------------- -----------------
(IN MILLIONS)
Fixed maturities................................... $ 2,319.8 $ 2,090.4 $ 1,797.2
Mortgage loans on real estate...................... 363.2 325.3 279.5
Equity real estate................................. 209.8 162.4 136.9
Other equity investments........................... 105.6 73.1 35.1
Policy loans....................................... 317.0 286.7 260.1
Short-term investments............................. 143.3 70.4 56.0
Other investment income............................ 55.9 9.4 34.7
----------------- ----------------- -----------------
Gross investment income.......................... 3,514.6 3,017.7 2,599.5
Investment expenses................................ (294.8) (217.0) (202.4)
----------------- ----------------- -----------------
Net Investment Income.............................. $ 3,219.8 $ 2,800.7 $ 2,397.1
================= ================= =================
Investment gains (losses), net, including changes in the valuation
allowances, follow:
2005 2004 2003
----------------- ----------------- -----------------
(IN MILLIONS)
Fixed maturities................................... $ 6.9 $ 24.3 $ (105.6)
Mortgage loans on real estate...................... (.1) 7.5 1.3
Equity real estate................................. 4.0 11.7 26.8
Other equity investments........................... 31.1 30.5 1.9
Other.............................................. 14.5 3.2 8.1
----------------- ----------------- -----------------
Investment Gains (Losses), Net..................... $ 56.4 $ 77.2 $ (67.5)
================= ================= =================
Writedowns of fixed maturities amounted to $38.0 million, $54.2 million
and $198.1 million for 2005, 2004 and 2003, respectively. Writedowns of
mortgage loans on real estate and equity real estate amounted $2.4
million and zero, respectively, for 2005, $10.8 million and $0.8
million, respectively, for 2004 and $5.2 million and zero, respectively,
for 2003.
For 2005, 2004 and 2003, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $2,498.8
million, $3,864.7 million and $4,774.6 million. Gross gains of $58.0
million, $63.2 million and $105.1 million and gross losses of $40.2
million, $11.3 million and $39.5 million were realized on these sales in
2005, 2004 and 2003, respectively. The change in unrealized investment
gains (losses) related to fixed maturities classified as available for
sale for 2005, 2004 and 2003 amounted to $(1,223.6) million, $188.4
million and $414.4 million, respectively.
In 2005, 2004 and 2003, respectively, net unrealized and realized
holding gains on trading account equity securities of $6.0 million, $9.7
million and $2.1 million were included in net investment income in the
consolidated statements of earnings. These trading securities had a
carrying value of $120.0 million and $117.4 million and costs of $103.7
million and $107.2 million at December 31, 2005 and 2004, respectively.
For 2005, 2004, and 2003, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $72.4 million, $77.6 million
and $76.5 million, respectively.
The 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 Wind-up Annuities on a line-by-line basis, follow:
F-29
2005 2004 2003
---------------- ----------------- -----------------
(IN MILLIONS)
Balance, beginning of year......................... $ 925.3 $ 901.5 $ 686.2
Changes in unrealized investment gains (losses).... (1,227.1) 168.7 441.7
Changes in unrealized investment (gains) losses
attributable to:
Participating group annuity contracts,
Closed Blocks policyholder dividend
obligation and other......................... 289.5 (103.7) (50.1)
DAC and VOBA.................................... 171.3 (22.1) (65.8)
Deferred income taxes........................... 264.4 (19.1) (110.5)
---------------- ----------------- -----------------
Balance, End of Year............................... $ 423.4 $ 925.3 $ 901.5
================ ================= =================
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities............................. $ 936.3 $ 2,192.6 $ 2,017.3
Other equity investments..................... 2.9 1.7 8.3
Other........................................ - (28.0) (28.0)
---------------- ----------------- -----------------
Total........................................ 939.2 2,166.3 1,997.6
Amounts of unrealized investment (gains) losses
attributable to:
Participating group annuity contracts,
Closed Blocks policyholder dividend
obligation and other..................... (85.5) (375.0) (271.3)
DAC and VOBA............................... (190.6) (361.9) (339.8)
Deferred income taxes...................... (239.7) (504.1) (485.0)
---------------- ----------------- -----------------
Total.............................................. $ 423.4 $ 925.3 $ 901.5
================ ================= =================
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.
8) 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:
DECEMBER 31,
-------------------------------------------------------
2005 2004 2003
----------------- ----------------- ----------------
(IN MILLIONS)
Unrealized gains on investments.................... $ 423.4 $ 925.3 $ 901.5
Minimum pension liability.......................... (77.9) (59.2) (28.8)
----------------- ----------------- ----------------
Total Accumulated Other
Comprehensive Income ............................ $ 345.5 $ 866.1 $ 872.7
================= ================= ================
The components of other comprehensive income for the past three years
follow:
F-30
2005 2004 2003
----------------- ----------------- -----------------
(IN MILLIONS)
Net unrealized gains (losses) on investments:
Net unrealized gains arising during the period.. $ (1,182.4) $ 271.8 $ 417.3
(Gains) losses reclassified into net earnings
during the period............................ (44.7) (103.1) 24.4
----------------- ----------------- -----------------
Net unrealized gains on investments................ (1,227.1) 168.7 441.7
Adjustments for policyholders liabilities, DAC
and VOBA and deferred income taxes.............. 725.2 (144.9) (226.4)
----------------- ----------------- -----------------
Change in unrealized gains, net of adjustments..... (501.9) 23.8 215.3
Change in minimum pension liability................ (18.7) (30.4) 2.3
----------------- ----------------- -----------------
Total Other Comprehensive Income................... $ (520.6) $ (6.6) $ 217.6
================= ================= =================
9) CLOSED BLOCKS
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 that 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, AXA Financial Group
has developed an actuarial calculation of the expected timing of the AXA
Equitable Closed Block's earnings. Further, in connection with the
acquisition of MONY, AXA Financial Group has developed an actuarial
calculation of the expected timing of the MONY Life Closed Block
earnings as of July 1, 2004.
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 and VOBA, 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.
The operations of the AXA Equitable and MONY Life Closed Blocks are
managed separately.
AXA Equitable Closed Block
--------------------------
Summarized financial information for the AXA Equitable Closed Block
follows:
F-31
DECEMBER 31, December 31,
2005 2004
--------------- ---------------
(IN MILLIONS)
CLOSED BLOCK LIABILITIES:
Future policy benefits, policyholders' account balances and other.... $ 8,866.1 $ 8,911.5
Policyholder dividend obligation..................................... 73.7 264.3
Other liabilities.................................................... 28.6 25.9
--------------- ---------------
Total Closed Block liabilities....................................... 8,968.4 9,201.7
--------------- ---------------
ASSETS DESIGNATED TO THE CLOSED BLOCK:
Fixed maturities, available for sale, at estimated fair value
(amortized cost of $5,761.5 and $5,488.6)......................... 5,908.7 5,823.2
Mortgage loans on real estate........................................ 930.3 1,098.8
Policy loans......................................................... 1,284.4 1,322.5
Cash and other invested assets....................................... 56.2 37.1
Other assets......................................................... 304.4 348.7
--------------- ---------------
Total assets designated to the Closed Block.......................... 8,484.0 8,630.3
--------------- ---------------
Excess of Closed Block liabilities over assets designated to
the Closed Block.................................................. 484.4 571.4
Amounts included in accumulated other comprehensive income:
Net unrealized investment gains, net of deferred income tax
expense of $25.7 and $24.6 and policyholder dividend
obligation of $73.7 and $264.3.................................. 47.8 45.7
--------------- ---------------
Maximum Future Earnings To Be Recognized From Closed Block
Assets and Liabilities............................................ $ 532.2 $ 617.1
=============== ===============
AXA Equitable Closed Block revenues and expenses were as follows:
2005 2004 2003
-------------- --------------- ---------------
(IN MILLIONS)
REVENUES:
Premiums and other income............................ $ 449.3 $ 471.0 $ 508.5
Investment income (net of investment
expenses of $0, $0.3, and $2.4)................... 525.9 554.8 559.2
Investment gains (losses), net....................... 1.2 18.6 (35.7)
-------------- --------------- ---------------
Total revenues....................................... 976.4 1,044.4 1,032.0
-------------- --------------- ---------------
BENEFITS AND OTHER DEDUCTIONS:
Policyholders' benefits and dividends................ 842.5 883.8 924.5
Other operating costs and expenses................... 3.4 3.5 4.0
-------------- --------------- ---------------
Total benefits and other deductions.................. 845.9 887.3 928.5
-------------- --------------- ---------------
Net revenues before income taxes..................... 130.5 157.1 103.5
Income tax expense................................... (45.6) (56.4) (37.5)
-------------- --------------- ---------------
Net Revenues......................................... $ 84.9 $ 100.7 $ 66.0
============== =============== ===============
Reconciliation of the policyholder dividend obligation is as follows:
F-32
DECEMBER 31,
--------------------------------------
2005 2004
----------------- ------------------
(IN MILLIONS)
Balance, beginning of year............................................. $ 264.3 $ 242.1
Unrealized investment (losses) gains .................................. (190.6) 22.2
----------------- ------------------
Balance, End of Year .................................................. $ 73.7 $ 264.3
================= ==================
Impaired mortgage loans along with the related investment valuation
allowances follows:
DECEMBER 31,
-------------------------------------
2005 2004
----------------- -----------------
(IN MILLIONS)
Impaired mortgage loans with investment valuation allowances........... $ 59.1 $ 59.5
Impaired mortgage loans without investment valuation allowances........ 4.0 2.3
----------------- -----------------
Recorded investment in impaired mortgage loans......................... 63.1 61.8
Investment valuation allowances........................................ (7.1) (4.2)
----------------- -----------------
Net Impaired Mortgage Loans............................................ $ 56.0 $ 57.6
================= =================
During 2005, 2004 and 2003, AXA Equitable's Closed Block's average
recorded investment in impaired mortgage loans was $59.9 million, $64.2
million and $51.9 million, respectively. Interest income recognized on
these impaired mortgage loans totaled $4.1 million, $4.7 million and
$2.7 million for 2005, 2004 and 2003, respectively.
Valuation allowances amounted to $7.1 million and $4.0 million on
mortgage loans on real estate at December 31, 2005 and 2004,
respectively. Writedowns of fixed maturities amounted to $7.7 million,
$10.8 million and $37.8 million for 2005, 2004 and 2003, respectively.
MONY Life Closed Block
----------------------
Summarized financial information for the MONY Life Closed Block is as
follows:
DECEMBER 31,
--------------------------------------
2005 2004
---------------- -----------------
(IN MILLIONS)
CLOSED BLOCK LIABILITIES:
Future policy benefits, policyholders' account balances and other.... $ 7,332.4 $ 7,360.9
Policyholder dividend obligation..................................... 142.5 250.8
Other liabilities.................................................... 31.0 28.7
---------------- -----------------
Total Closed Block liabilities....................................... 7,505.9 7,640.4
---------------- -----------------
ASSETS DESIGNATED TO THE CLOSED BLOCK:
Fixed maturities, available for sale, at estimated fair value
(amortized cost of $4,399.0 and $4,338.0).......................... 4,397.8 4,440.9
Mortgage loans on real estate........................................ 560.1 592.5
Policy loans......................................................... 1,003.7 1,025.0
Cash and other invested assets....................................... 135.8 91.1
Other assets......................................................... 295.1 314.0
---------------- -----------------
Total assets designated to the Closed Block.......................... 6,392.5 6,463.5
---------------- -----------------
Excess of Closed Block liabilities over assets designated to
the Closed Block .................................................. 1,113.4 1,176.9
Amounts included in accumulated other comprehensive income:
Net unrealized (losses) gains, net of policyholder dividend
obligation of $(1.2) million and $102.9 million ................. - -
---------------- -----------------
Maximum Future Earnings To Be Recognized From
Closed Block Assets and Liabilities................................ $ 1,113.4 $ 1,176.9
================ =================
F-33
MONY Life Closed Block revenues and expenses follow:
Six Months
Ended
December 31,
2005 2004
-------------- ---------------
(IN MILLIONS)
REVENUES:
Premiums and other income............................................ $ 410.0 $ 229.9
Investment income (net of investment expenses of $5.8 and $2.9)...... 340.9 172.3
Investment (losses) gains net........................................ (3.9) 13.1
-------------- ---------------
Total revenues....................................................... 747.0 415.3
-------------- ---------------
BENEFITS AND OTHER DEDUCTIONS:
Policyholders' benefits and dividends................................ 644.8 362.8
Other operating costs and expenses................................... 4.5 2.6
-------------- ---------------
Total benefits and other deductions.................................. 649.3 365.4
-------------- ---------------
Net revenues before income taxes..................................... 97.7 49.9
Income tax expense................................................... (34.2) (17.4)
-------------- ---------------
Net Revenues......................................................... $ 63.5 $ 32.5
============== ===============
Reconciliation of the MONY Life policyholder dividend obligation is as
follows:
Six Months
Ended
December 31,
2005 2004
-------------- ---------------
(IN MILLIONS)
MONY Life policyholder dividend obligation, beginning of period...... $ 250.8 $ 147.7
Applicable to net revenues........................................ (4.1) .2
Unrealized investment (losses) gains.............................. (104.2) 102.9
-------------- ---------------
MONY Life Policyholder Dividend Obligation, End of Period............ $ 142.5 $ 250.8
============== ===============
MONY Life Closed Block valuation allowances amounted to $0.0 million and
$0.2 million on mortgage loans on real estate at December 31, 2005 and
2004, respectively. Writedowns of fixed maturities amounted to $2.5
million and $.3 million for 2005 and the six months ended December 31,
2004, respectively.
F-34
10) WIND-UP ANNUITIES
Summarized financial information for Wind-up Annuities follows:
DECEMBER 31,
--------------------------------------
2005 2004
---------------- -----------------
(IN MILLIONS)
BALANCE SHEETS
Fixed maturities, available for sale, at estimated fair value
(amortized cost of $796.9 and $643.6).............................. $ 823.5 $ 702.1
Equity real estate................................................... 197.5 190.1
Mortgage loans on real estate........................................ 6.7 21.4
Other invested assets................................................ 3.2 4.7
---------------- -----------------
Total investments.................................................. 1,030.9 918.3
Cash and cash equivalents............................................ - 150.2
Other assets......................................................... 13.6 33.3
---------------- -----------------
Total Assets......................................................... $ 1,044.5 $ 1,101.8
================ =================
Policyholders liabilities............................................ $ 817.2 $ 844.6
Allowance for future losses.......................................... 60.1 132.7
Other liabilities.................................................... 167.2 124.5
---------------- -----------------
Total Liabilities.................................................... $ 1,044.5 $ 1,101.8
================ =================
2005 2004 2003
--------------- --------------- --------------
(In Millions)
STATEMENTS OF EARNINGS
Investment income (net of investment
expenses of $18.4, $17.2 and $21.0).............. $ 70.0 $ 68.5 $ 70.6
Investment gains, net.............................. (.3) 3.6 5.4
Policy fees, premiums and other income............. - - -
--------------- --------------- --------------
Total revenues..................................... 69.7 72.1 76.0
Benefits and other deductions...................... 87.1 99.4 89.4
(Losses charged) earnings credited to the
allowance for future losses...................... (17.4) (27.3) (13.4)
--------------- --------------- --------------
Pre-tax loss from operations....................... - - -
Pre-tax earnings from releasing the allowance
for future losses................................ 23.2 12.0 5.2
Income tax expense................................. (8.0) (4.1) (1.8)
--------------- --------------- --------------
Earnings from Wind-up Annuities.................... $ 15.2 $ 7.9 $ 3.4
=============== =============== ==============
AXA Financial Group's quarterly process for evaluating the allowance for
future losses applies the current period's results of Wind-up Annuities
against the allowance, re-estimates future losses and adjusts the
allowance, if appropriate. Additionally, as part of AXA Financial
Group'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.
During 2005, 2004 and 2003, Wind-up Annuities' average recorded
investment in impaired mortgage loans was $-0- million, $8.4 million and
$16.2 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $-0- million, $1.0 million and $1.3
million for 2005, 2004 and 2003, respectively.
F-35
11) GMDB, GMIB AND NO LAPSE GUARANTEE FEATURES
A) Variable Annuity Contracts - GMDB and GMIB
------------------------------------------
AXA Equitable, MONY Life and MLOA issue certain variable annuity
contracts with GMDB and GMIB features that guarantee one of the
following:
o Return of Premium: the benefit is the greater of current account
value or premiums paid (adjusted for withdrawals);
o 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);
o 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
o 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 2005:
GMDB GMIB 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
MONY Life and MLOA balances at acquisition....... 1.1 - 1.1
Paid guarantee benefits.......................... (48.6) - (48.6)
Other changes in reserve......................... 46.7 32.1 78.8
----------------- ----------------- -----------------
Balance at December 31, 2004....................... 68.5 117.7 186.2
Paid guarantee benefits......................... (42.7) (2.2) (44.9)
Other changes in reserve........................ 90.0 58.3 148.3
----------------- ----------------- -----------------
Balance at December 31, 2005....................... $ 115.8 $ 173.8 $ 289.6
================= ================= =================
Related GMDB reinsurance ceded amounts were:
GMDB
-----------------
(IN MILLIONS)
Balance at January 1, 2003......................... $ 21.5
Paid guarantee benefits ceded.................... (18.5)
Other changes in reserve......................... 14.2
-----------------
Balance at December 31, 2003....................... 17.2
MONY Life and MLOA balances at acquisition....... (.4)
Paid guarantee benefits ceded.................... (11.5)
Other changes in reserve......................... 4.0
-----------------
Balance at December 31, 2004....................... 9.3
Paid guarantee benefits.......................... (12.2)
Other changes in reserve......................... 25.8
-----------------
Balance at December 31, 2005....................... $ 22.9
=================
The GMIB reinsurance contracts are considered derivatives and are
reported at fair value; see Note 16 of Notes to Consolidated Financial
Statements.
F-36
The December 31, 2005 values for those variable annuity contracts with
GMDB and GMIB features currently in-force are presented in the following
table. 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 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. Since variable
annuity contracts with GMDB guarantees may also offer GMIB guarantees in
the same contract, the GMDB and GMIB amounts listed are not mutually
exclusive:
RETURN
OF
PREMIUM RATCHET ROLL-UP COMBO TOTAL
-------------- ------------- -------------- ------------- ---------------
(DOLLARS IN MILLIONS)
GMDB:
-----
Account values invested in:
General Account.................. $ 12,008 $ 618 $ 120 $ 587 $ 13,333
Separate Accounts................ $ 22,043 $ 8,740 $ 7,802 $ 15,551 $ 54,136
Net amount at risk, gross........... $ 590 $ 703 $ 1,800 $ 91 $ 3,184
Net amount at risk, net of amounts
reinsured......................... $ 588 $ 502 $ 1,091 $ 56 $ 2,237
Average attained age of
contractholders................... 49.9 60.7 63.4 60.8 52.8
Percentage of contractholders
over age 70....................... 7.7% 20.0% 30.9% 20.8% 11.6%
Range of contractually specified
interest rates.................. N/A N/A 3% - 6% 3% - 6%
GMIB:
-----
Account values invested in:
General Account.................. N/A N/A $ 34 $ 775 $ 809
Separate Accounts................ N/A N/A $ 5,682 $ 21,165 $ 26,847
Net amount at risk, gross........... N/A N/A $ 389 $ - $ 389
Net amount at risk, net of amounts
reinsured......................... N/A N/A $ 98 $ - $ 98
Weighted average years remaining
until annuitization............... N/A N/A 3.1 8.8 7.3
Range of contractually specified
interest rates.................... N/A N/A 3% - 6% 3% - 6%
B) Separate Account Investments by Investment Category Underlying GMDB
and GMIB Features
-------------------------------------------------------------------
The total account values of variable annuity contracts with GMDB and GMIB
features include amounts allocated to the guaranteed interest option
which is part of the General Account and variable investment options
which invest through Separate Accounts in variable insurance trusts. The
following table presents the aggregate fair value of assets, by major
investment category, held by Separate Accounts that support variable
annuity contracts with GMDB and GMIB benefits and guarantees. The
investment performance of the assets impacts the related account values
and, consequently, the net amount of risk associated with the GMDB and
GMIB benefits and guarantees. Since variable annuity contracts with GMDB
benefits and guarantees may also offer GMIB benefits and guarantees in
each contract, the GMDB and GMIB amounts listed are not mutually
exclusive:
F-37
INVESTMENT IN VARIABLE INSURANCE TRUST MUTUAL FUNDS
DECEMBER 31, December 31,
2005 2004
---------------- ------------------
(IN MILLIONS)
GMDB:
-----
Equity.................................................................. $ 38,207 $ 34,574
Fixed income............................................................ 4,817 4,713
Balanced................................................................ 9,193 5,415
Other................................................................... 1,919 1,678
---------------- ------------------
Total................................................................... $ 54,136 $ 46,380
================ ==================
GMIB:
-----
Equity.................................................................. $ 17,668 $ 14,453
Fixed income............................................................ 2,642 2,463
Balanced................................................................ 5,852 2,772
Other................................................................... 685 569
---------------- ------------------
Total................................................................... $ 26,847 $ 20,257
================ ==================
C) Hedging Programs for GMDB and GMIB Features
-------------------------------------------
In 2003, AXA Equitable initiated a program intended to hedge certain
risks associated with the GMDB feature of the Accumulator(R) series of
variable annuity products sold beginning in April 2002. In 2004, the
program was expanded to include hedging for certain risks associated with
the GMIB feature of the Accumulator(R) series of variable annuity
products sold beginning in 2004. This program currently utilizes
exchange-traded futures contracts that are dynamically managed in an
effort to reduce the economic impact of unfavorable changes in GMDB and
GMIB exposures attributable to movements in the equity and fixed income
markets. At December 31, 2005, the total account value and net amount at
risk of the hedged Accumulator(R) series of variable annuity contracts
were $29,290 million and $71 million, respectively, with the GMDB feature
and $14,164 million and zero, respectively, with the GMIB feature.
Although these programs are designed to provide economic protection
against the impact adverse market conditions may have with respect to
GMDB and GMIB guarantees, they do not qualify for hedge accounting
treatment under SFAS No. 133. Therefore, SFAS No. 133 requires gains or
losses on the futures contracts used in these programs, including current
period changes in fair value, to be recognized in investment income in
the period in which they occur, and may contribute to earnings
volatility.
D) Variable and Interest-Sensitive Life Insurance Policies - No Lapse
Guarantee
------------------------------------------------------------------
The no lapse guarantee feature contained in variable and
interest-sensitive life insurance policies keeps them in force in
situations where the policy value is not sufficient to cover monthly
charges then due. The no lapse guarantee remains in effect so long as the
policy meets a contractually specified premium funding test and certain
other requirements.
The following table summarizes the no lapse guarantee liabilities
reflected in the General Account in future policy benefits and other
policyholders liabilities, and related reinsurance ceded:
F-38
REINSURANCE
DIRECT LIABILITY CEDED NET
------------------- ----------------- --------------------
(IN MILLIONS)
Balance at January 1, 2004......................... $ 37.4 $ - $ 37.4
Impact of adoption of SOP 03-1................... (23.4) - (23.4)
MONY Life and MLOA balances at acquisition....... .5 - .5
Other changes in reserves........................ 6.5 - 6.5
------------------- ----------------- --------------------
Balance at December 31, 2004....................... 21.0 - 21.0
Other changes in reserves........................ 14.0 - 14.0
------------------- ----------------- --------------------
Balance at December 31, 2005....................... $ 35.0 $ - $ 35.0
=================== ================= ====================
12) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
DECEMBER 31,
--------------------------------------
2005 2004
---------------- -----------------
(IN MILLIONS)
Short-term debt:
Promissory note, 3.84%............................................... $ 248.3 $ 248.3
Current portion of long-term debt.................................... 399.7 686.2
---------------- -----------------
Total short-term debt................................................ 648.0 934.5
---------------- -----------------
Long-term debt:
AXA Financial:
Senior Notes, 7.75%, due through 2010.............................. 478.1 477.7
Senior Notes, 6.5%, due 2008....................................... 249.8 249.7
Senior Debentures, 7.0%, due 2028.................................. 348.0 347.9
Senior Notes, 8.35%, due 2010...................................... 336.7 344.3
---------------- -----------------
Total AXA Financial............................................ 1,412.6 1,419.6
---------------- -----------------
MONY Companies:
Surplus Notes, 11.25%, due 2024.................................... 1.9 1.9
Senior Notes, 4.73%, due 2017...................................... 300.0 300.0
---------------- -----------------
Total MONY Companies........................................... 301.9 301.9
---------------- -----------------
AXA Equitable:
Surplus Notes, 7.70%, due 2015..................................... 199.8 199.8
---------------- -----------------
Total AXA Equitable............................................ 199.8 199.8
---------------- -----------------
AllianceBernstein:
Senior Notes, 5.625%, due 2006..................................... - 399.2
Other.............................................................. 7.6 8.4
---------------- -----------------
Total AllianceBernstein........................................ 7.6 407.6
---------------- -----------------
Total long-term debt................................................. 1,921.9 2,328.9
---------------- -----------------
Total Short-term and Long-term Debt.................................. $ 2,569.9 $ 3,263.4
================ =================
Short-term Debt
---------------
AXA Equitable discontinued its commercial paper program concurrent with
the maturity of AXA Equitable's credit facility during the fourth
quarter of 2004.
On July 9, 2004, AXA and certain of its subsidiaries, including AXA
Financial Group, entered into a (euro)3.5 billion global revolving
credit facility and a $650 million letter of credit facility, which
mature on July 9,
F-39
2009, with a group of 30 commercial banks and other lenders. Under the
terms of the revolving credit facility, up to $500.0 million is
available to AXA Financial Group for general corporate purposes, while
the letter of credit facility makes up to $500 million available to AXA
Bermuda.
AXA Equitable has a $350.0 million, one-year promissory note, of which
$101.7 million is included within Wind Up Annuities. The promissory
note, which matures in March 2006, is related to wholly owned real
estate. Certain terms of the promissory note, such as interest rate and
maturity date, are negotiated annually. At December 31, 2005 and 2004,
AXA Financial Group had pledged real estate of $320.8 million and $307.1
million, respectively, as collateral for certain short-term debt.
Since 1998, AllianceBernstein has had a $425.0 million commercial paper
program. In September 2002, AllianceBernstein entered into an $800.0
million five-year revolving credit facility with a group of commercial
banks and other lenders. Of the $800.0 million total, $425.0 million is
intended to provide back-up liquidity for AllianceBernstein's $425.0
million commercial paper program, with the balance available for general
purposes. Under this revolving credit facility, the interest rate, at
the option of AllianceBernstein, 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 revolving credit facility
contains covenants that, among other things, require AllianceBernstein
to meet certain financial ratios. AllianceBernstein was in compliance
with the covenants at December 31, 2005. At December 31, 2005, no
borrowings were outstanding under AllianceBernstein's commercial paper
program or revolving credit facilities. On February 17, 2006,
AllianceBernstein replaced the existing agreement with a new $800
million five-year revolving credit facility with substantially the same
terms.
At December 31, 2005, AllianceBernstein 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, 2005, no amounts were outstanding under the ECN program.
Long-term Debt
--------------
At December 31, 2005, AXA Financial Group was not in breach of any debt
covenants.
In second quarter 2004, AXA Financial Group entered into a series of
interest rate swaps on AXA Financial long-term debt to reduce fixed
interest payments on these obligations through mid-2006, resulting in
net swap (losses) revenues of $(10.5) million and $2.2 million for 2005
and 2004, respectively reported in Net investment income, including
amounts accrued at December 31, 2005.
Upon completion of the merger, AXA Financial assumed the $300.0 million
in senior notes issued by MONY. Principal on these notes is payable upon
maturity on March 15, 2010 while the 8.35% interest is paid
semi-annually.
On February 17, 2006, AllianceBernstein replaced the existing agreement
with a new $800.0 million five-year revolving credit facility with
substantially identical terms.
In April 2002, MONY Holdings, LLC ("MONY Holdings"), then a wholly owned
subsidiary of MONY, issued $300.0 million of floating rate insured debt
securities (the "Insured Notes") through a structured financing tied to
the performance of MONY Life's Closed Block. Maturing on January 21,
2017, the Insured Notes pay interest only through January 21, 2008, at
which time principal payments will begin based on an amortization
schedule. Interest is payable quarterly at an annual rate equal to three
month LIBOR plus 55 basis points ("BPs"). Concurrent with the issuance
of the Insured Notes, MONY Holdings entered into an interest rate swap
contract, fixing the interest rate at 6.44%. When the 75 BPs for the
cost of insurance to guarantee the scheduled principal and interest
payments and the debt issuance costs are added, the annual cost of the
Insured Notes is 7.36%. Management received board authorization in
February 2006 to prepay the Insured Notes. AXA Financial intends to
cause the Insured Notes to be prepaid in full during 2006 with a
combination of available funds and affiliate borrowings.
AXA Financial is a holding company and is a legal entity separate and
distinct from its subsidiaries. The rights of AXA Financial to
participate in any distribution of assets of any subsidiary, including
upon its liquidation or reorganization, are subject to the prior claims
of creditors of that subsidiary, except to the extent that AXA Financial
may itself be a creditor of that subsidiary and its claims are
recognized. MONY Holdings, a wholly owned subsidiary of AXA Financial,
and its subsidiaries have entered into covenants and arrangements with
third parties in connection with the issuance of the Insured Notes which
are intended to confirm their separate, "bankruptcy-remote" status, by
assuring that the assets of MONY Holdings and its subsidiaries are not
available to creditors of AXA Financial or its other subsidiaries,
except and to the extent that AXA Financial and its other subsidiaries
are, as shareholders or creditors of MONY Holdings and its subsidiaries,
or would be, entitled to those assets.
F-40
At December 31, 2005, $1.9 million of MONY Life's 11.25 % surplus notes
remained outstanding.
At December 31, 2005, aggregate maturities of the long-term debt,
including the current portion of long-term debt, based on required
principal payments at maturity were $400.0 million for 2006, $7.6
million for 2007, $276.7 million for 2008, $26.7 million for 2009,
$806.7 million for 2010 and $771.9 million thereafter.
In August 2001, AllianceBernstein issued $400.0 million 5.625% notes
pursuant to a shelf registration statement under which AllianceBernstein
may issue up to $600.0 million in senior debt securities. These
AllianceBernstein notes mature in August 2006 and are redeemable at any
time. The proceeds from the AllianceBernstein notes were used to reduce
commercial paper and credit facility borrowings and for other general
partnership purposes.
See Note 15 of Notes to Consolidated Financial Statements for
information on borrowings from AXA.
13) INCOME TAXES
A summary of the income tax expense in the consolidated statements of
earnings follows:
2005 2004 2003
----------------- ----------------- -----------------
(IN MILLIONS)
Income tax expense:
Current expense.................................. $ 287.6 $ 342.4 $ 93.1
Deferred expense................................. 309.4 52.7 121.9
----------------- ----------------- -----------------
Total.............................................. $ 597.0 $ 395.1 $ 215.0
================= ================= =================
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
income taxes and minority interest by the expected Federal income tax
rate of 35%. The sources of the difference and their tax effects follow:
2005 2004 2003
----------------- ----------------- -----------------
(IN MILLIONS)
Expected income tax expense........................ $ 730.2 $ 540.6 $ 285.3
Minority interest.................................. (127.2) (110.5) (53.3)
Separate Account investment activity............... (91.4) (63.3) (29.1)
Non-taxable investment income...................... (20.7) (22.6) (22.7)
Non-deductible penalty............................. 1.1 - 19.5
Adjustment of tax audit reserves................... 19.1 7.7 (9.9)
Non-deductible goodwill and other
intangible assets................................ 4.8 4.3 3.8
State income taxes................................. 34.9 3.9 -
Alliance Federal and foreign taxes................. 43.6 25.6 12.8
Other.............................................. 2.6 9.4 8.6
----------------- ----------------- -----------------
Income Tax Expense................................. $ 597.0 $ 395.1 $ 215.0
================= ================= =================
The components of the net deferred Federal income taxes are as follows:
F-41
DECEMBER 31, 2005 December 31, 2004
-------------------------------- ---------------------------------
ASSETS LIABILITIES Assets Liabilities
--------------- --------------- --------------- ----------------
(IN MILLIONS)
Compensation and related benefits...... $ 248.3 $ - $ 240.4 $ -
Reserves and reinsurance............... 1,221.3 - 1,304.6 -
DAC and VOBA........................... - 2,421.5 - 2,193.3
Unrealized investment gains............ - 242.2 - 504.0
Investments............................ - 762.9 - 659.5
Other.................................. 212.7 - 123.1 -
--------------- --------------- --------------- ----------------
Total.................................. $ 1,682.3 $ 3,426.6 $ 1,668.1 $ 3,356.8
=============== =============== =============== ================
In 2003, the IRS commenced examinations of AXA Financial Group's
consolidated Federal income tax returns for the years 1997 through 2001
and MONY's consolidated Federal income tax returns for the years 1998
through 2001. While that audit process is not yet complete, the IRS
began an examination of AXA Financial Group's 2002 and 2003 returns
during 2005. Management believes these audits will have no material
adverse effect on AXA Financial Group's consolidated results of
operations or financial position.
14) CAPITAL STOCK AND OTHER SHARE-BASED PROGRAMS
Under The AXA Financial, Inc. 1997 Stock Incentive Plan (the "Stock
Incentive Plan"), AXA Financial grants nonstatutory options to purchase
AXA American Depository Receipts ("ADRs") to employees and associates of
its subsidiaries. Under The Equity Plan for Directors (the "Equity
Plan"), AXA Financial grants non-officer directors nonstatutory AXA ADR
options each year. The exercise price of options awarded under these
plans is equal to the closing market price for an AXA ADR on the grant
date. In 2005, AXA granted nonstatutory stock options to purchase AXA
ordinary shares to employees of AXA Financial subsidiaries under The AXA
Stock Option Plan for AXA Financial Employees and Associates (the "Stock
Option Plan"). The exercise price of options granted under this plan in
2005 was equal to the higher of (i) the average of the opening prices of
the AXA ordinary share quoted on Euronext Paris over the 20 days
immediately preceding the grant date or (ii) the Euro amount equal to
the closing market price of an AXA ordinary share on the grant date. All
options awarded in 2004 and subsequent thereto generally have a 4-year
vesting schedule, with one third vesting on each of the second, third
and fourth anniversaries of the grant; options granted in periods prior
to 2004 generally vested ratably over the 3 years following the date of
the award. Options currently issued and outstanding generally have a
10-year contractual term.
Following completion of the merger of AXA Merger Corp. with and into AXA
Financial in January 2001, certain employees exchanged fully-vested AXA
ADR options for tandem Stock Appreciation Rights and at-the-money AXA
ADR options of then-equivalent intrinsic value. AXA Financial recorded
compensation expense for these awards of $35.2 million, $16.2 million
and $13.5 million for 2005, 2004 and 2003, respectively, reflecting the
impact in those periods of the change in the market price of the AXA ADR
on the cash-settlement value of the outstanding tandem Stock
Appreciation Rights. The value of these tandem Stock Appreciation Rights
at December 31, 2005 and 2004 was $57.5 million and $29.7 million,
respectively, and included in other liabilities in the consolidated
balance sheets. At December 31, 2005, 4.3 million tandem Stock
Appreciation Rights were outstanding, having a weighted average
remaining contractual term of 3.4 years and for which the tandem Stock
Appreciation Rights component had maximum value of $72.6 million.
AXA Financial Group has elected to continue to account for stock-based
compensation using the intrinsic value method prescribed in APB No. 25.
Accordingly, no compensation expense for employee stock option awards is
recognized in the consolidated statements of earnings for the years
2005, 2004, and 2003, respectively, as all are for a fixed number of
shares and their exercise price equals the market value of the
underlying shares on the date of grant. The following table illustrates
the effect on net income had compensation expense for employee stock
option awards been measured and recognized by AXA Financial Group under
the fair-value-based method of SFAS No. 123.
F-42
2005 2004 2003
----------------- ---------------- -------------------
(IN MILLIONS)
Net income as reported............................. $ 1,073.8 $ 944.9 $ 457.2
Less: total stock-based employee compensation
expense determined under fair value method for
all awards, net of income tax benefit............ (23.4) (25.0) (36.5)
----------------- ---------------- -------------------
Pro Forma Net Earnings............................. $ 1,050.4 $ 919.9 $ 420.7
================= ================ ===================
For purpose of preparing the SFAS 123 pro-forma disclosures above, the
Black-Scholes-Merton formula was used by AXA Financial to estimate the
fair values of the option awards. Shown below are the relevant input
assumptions used to derive those values. For the 2005 awards of options
to purchase AXA ordinary shares and AXA ADRs, implied volatilities were
considered in determining the stock price volatility assumption and the
expected dividend was calculated as a yield. With respect to the
valuation of options to purchase AXA ADRs, these methodologies each
constitute a change in accounting estimate. The assumptions applied in
previous years primarily considered historical realized stock price
volatility and defined the expected dividend as an annual amount. These
changes are consistent with the fair value measurement objectives of
SFAS Nos. 123 and 123(R) and, accordingly, will be applied prospectively
in determining the fair values of employee stock options to be measured
and accounted for in accordance with SFAS 123(R).
AXA AXA Financial AllianceBernstein
----------- ------------------------------ -----------------------
2005 2005 2004 2003 2005 2004 2003
----------- ---------- ---------- -------- ------- ------ --------
Dividend yield.............. 3.15% 3.01% 2.24% 2.48% 6.2% 3.5% 6.1%
Expected volatility......... 25% 25% 43% 46% 31% 32% 32%
Risk-free interest rate..... 3.09% 4.27% 2.86% 2.72% 3.7% 4.0% 3.0%
Expected life in years...... 5 5 5 5 3 5 5
Weighted average fair
value per option at
grant date................ $4.30 $4.85 $6.94 $4.39 $7.04 $8.00 $5.96
A summary of the activity in the option shares of AXA Financial and
AllianceBernstein's option plans follows, including information about
options outstanding and exercisable at December 31, 2005. In addition to
the activity presented below, approximately 3.5 million options to
purchase AXA ordinary shares were granted on March 29, 2005 under the
Stock Option Plan at an exercise price of 20.87 euros. These awards have
a contractual life of 10 years; none are exercisable at December 31,
2005.
F-43
AXA FINANCIAL ALLIANCEBERNSTEIN
----------------------------------- ---------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AXA ADRS EXERCISE UNITS EXERCISE
(IN MILLIONS) PRICE (IN MILLIONS) PRICE
------------------ --------------- --------------- ---------------
Balance at January 1, 2003....... 35.3 16.4 $34.92
$25.14
Granted........................ 9.1 $12.60 .1 $35.01
Exercised...................... (1.7) $ 7.85 (1.2) $17.26
Forfeited...................... (1.8) $25.16 (1.5) $43.27
------------------ ---------------
Balance at December 31, 2003..... 40.9 $23.04 13.8 $35.55
Granted........................ 7.2 $20.66 .1 $33.00
Exercised...................... (2.5) $14.82 (2.5) $18.43
Forfeited...................... (1.6) $23.74 (1.8) $46.96
------------------ ---------------
Balance at December 31, 2004..... 44.0 $23.03 9.6 $37.82
Granted........................ 1.8 $26.77 - (1) $45.45
Exercised...................... (5.7) $15.58 (1.7) $24.13
Forfeited...................... (1.5) $29.22 (.4) $47.10
------------------ ---------------
Balance at December 31, 2005..... 38.6 $24.06 7.5 $40.45
================== ===============
(1) The 2005 AllianceBernstein grants totaled 17,604 units
Information about options outstanding and exercisable at December 31,
2005 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
---------------------
$ 6.33 - $ 8.97 .1 .61 $ 8.13 .1 $ 8.13
$10.13 - $15.12 7.4 6.45 $12.67 4.3 $12.79
$15.91 - $22.84 12.3 6.63 $19.62 8.0 $19.06
$25.96 - 32.86 14.5 3.57 $30.16 12.1 $30.64
$35.85 4.3 3.43 $35.85 4.3 $35.85
----------------- ------------------
$ 6.33 - $35.85 38.6 5.08 $24.06 28.8 $24.06
================= ==================
AllianceBernstein
Holding Units
---------------------
$12.56 - $18.47 .6 1.59 $16.28 .6 $16.28
$25.63 - $30.25 1.2 3.54 $28.61 1.2 $28.62
$32.52 - $48.50 2.8 5.96 $39.62 2.0 $41.85
$50.15 - $50.56 1.6 5.92 $50.25 1.3 $50.25
$51.10 - $58.50 1.3 4.95 $53.77 1.3 $53.77
----------------- ------------------
$12.56 - $58.50 7.5 5.02 $40.45 6.4 $40.79
================= ==================
AXA Financial Group's ownership interest in AllianceBernstein will
continue to be reduced upon the exercise of unit options granted to
certain AllianceBernstein employees. Options are exercisable over
periods of up to ten years.
On November 22, 2004, AXA Financial purchased approximately 25.5 million
call options on AXA ADRs to mitigate the U.S. dollar price and foreign
exchange risks associated with funding exercises of employee stock
options. As more fully described in Note 15 of Notes to Consolidated
Financial Statements, the total premium of approximately $88.9 million
paid by AXA Financial to purchase these call options was funded
F-44
by a short-term borrowing from AXA. The after-tax cost of the call
options has been recognized by AXA Financial Group in its consolidated
statement of shareholder's equity for the year ended December 31, 2004
as a direct reduction of capital in excess of par value in the amount of
$57.8 million after-tax and does not require adjustment in future
periods for changes in value.
The purchased call options have strike prices ranging from $24.00 to
$33.00 per share, with an aggregate average strike price of $26.70 per
share, and maturities ranging from 3.5 to 5.0 years, with an aggregate
average maturity of 4.6 years. In addition, each call option has a cap
equal to approximately 150% of its strike price, at which time the
option automatically would be exercised.
During 2005, as a direct result of the market price of the AXA ADR
equaling or exceeding the caps on certain of these call option
contracts, AXA Financial was obliged to exercise call options to
purchase 15.7 million AXA ADRs, which is reflected as Treasury Shares in
the accompanying Consolidated 2005 balance sheet at a strike price of
$24.00, for an aggregate cost of $376.9 million. As of December 31,
2005, approximately 1.1 million of these AXA ADRs had been utilized to
fund exercises of employee stock options, leaving approximately 14.3
million designated for future exercises of specific outstanding employee
stock options and the remainder of approximately 0.3 million available
for general corporate purpose, including funding other stock-based
compensation programs.
Under the Stock Incentive Plan, AXA Financial grants restricted AXA ADRs
to employees of its subsidiaries. Generally, all restricted AXA ADRs
granted in 2003 and thereafter have a 7-year vesting schedule with
potential accelerated vesting based on performance. Under the Equity
Plan, AXA Financial grants non-officer directors restricted AXA ADRs and
unrestricted AXA ADRs annually. Under these plans, AXA Financial granted
AXA ADRs having an aggregate grant-date value of $6.3 million, $10.5
million, and $12.1 million in 2005, 2004, and 2003, respectively, and
recognized related compensation expense in those years of $12.7 million,
$13.0 million, and $9.8 million.
Under the terms of the AXA Performance Unit Plans of 2005 and 2004, the
AXA Management Board awarded 520,561 and 365,015 unearned performance
units, respectively, to employees of AXA Financial subsidiaries. During
each year that the performance unit awards are outstanding, a pro-rata
portion of the units may be earned based on criteria measuring the
performance of AXA and AXA Financial Group. The extent to which
performance targets are met determines the number of performance units
earned, which may vary between 0% and 130% of the number of performance
units at stake. Performance units earned under the 2005 and 2004 plans
cliff-vest on the second and third anniversary of their date of award,
respectively. When fully-vested, the performance units earned will be
settled in cash, or in some cases, a combination of cash (70%) and stock
(30%), the latter equity portion having transfer restrictions for a
two-year period. For 2005 awards, the price used to value the
performance units will be the average opening price of the AXA ordinary
share for the last 20 trading days of the vesting period converted to
U.S. dollars using the euro to U.S. dollar exchange rate on March 28,
2007. For 2004 awards, the price used to value the performance units
will be the average opening price of the AXA ADR for the last 20 trading
days of the vesting period. AXA Financial Group recorded compensation
expense for these awards of $8.1 million and $1.0 million for 2005 and
2004, respectively, including the incremental cost of performance units
earned under the 2004 plan from having exceeded the targeted performance
criteria established for 2004 by 14.6%. The value of performance units
earned as at December 31, 2005 and 2004 was $9.1 million and $1.0
million, respectively, and included in Other liabilities in the
consolidated balance sheets.
Under the terms of AXA Shareplan 2005, a plan similar to the AXA
Shareplan programs previously offered in 2001 through 2004, eligible
employees and associates of AXA Financial's subsidiaries participated in
AXA's global offering to purchase newly-issued AXA stock, subject to
plan limits. The plan offered two different investment alternatives
that, with limited exceptions, require a five-year holding period.
"Investment Option A" permitted participants to purchase AXA ADRs at a
20% formula discounted price. "Investment Option B" permitted
participants to purchase AXA ordinary shares at a 17.5% formula
discounted price on a leveraged basis with a guaranteed return of
initial investment plus 84.5% of any appreciation in the value of the
total shares purchased. The discounted pricing offered to participants
for AXA ordinary shares purchased under Investment Option B in AXA
Shareplan offerings made in years 2004 and 2003, was 20% and the
appreciation percentage was 77.5% and 69.7232%, respectively. AXA
Financial Group participants primarily invested in AXA Shareplans 2005,
2004 and 2003 under Investment Option B for the purchase of
approximately 5.7 million, 6.8 million, and 4.5 million AXA ordinary
shares, respectively. No compensation expense was recorded in connection
with this plan.
F-45
Under the terms of the AXA Financial, Inc. Qualified Stock Purchase
Plan, eligible employees of AXA Financial's subsidiaries may authorize
payroll deductions of up to 15% of eligible annual compensation (subject
to plan limits) to purchase AXA ADRs at a discount of 15% from the
closing market value at the purchase dates defined in the annual
offering document (generally on or about the close of each month). The
AXA ADRs purchased generally are subject to a six-month holding period
and may qualify for certain preferential tax treatment. During 2005,
2004, and 2003, respectively, payroll deductions authorized under this
plan were applied to purchase AXA ADRs of 168,721, 189,112, and 107,920
at an aggregate discount of $0.7 million, $0.7 million, and $0.3
million. No compensation expense was recorded in connection with this
plan. Similarly, under the terms of the AXA Financial, Inc.
Non-Qualified Stock Purchase Plan, eligible associates of AXA
Financial's subsidiaries may authorize payroll deductions of up to 15%
of eligible annual compensation (subject to plan limits) to purchase AXA
ADRs and receive a 15% matching contribution in the form of additional
AXA ADRs when the purchases made with such deductions are held for a
period of six months. Total AXA ADRs of 426,768, 469,236, and 828,866
were purchased under this plan during 2005, 2004, and 2003,
respectively, including those purchased with employer match-funding
contributions for which AXA Financial Group recorded incremental
compensation expense of $1.2 million, $1.2 million, and $1.7 million,
respectively. All cash dividends or other cash distributions on the AXA
ADRs purchased under these plans are reinvested in additional AXA ADRs
and do not qualify either for the discount or for the matching
contribution.
In 1997, AllianceBernstein Holding established a long-term incentive
compensation plan under which grants are made to key employees for terms
established by AllianceBernstein Holding at the time of grant. These
awards include options, restricted AllianceBernstein Holding units and
phantom restricted AllianceBernstein Holding units, performance awards,
other AllianceBernstein Holding unit based awards, or any combination
thereof. At December 31, 2005, approximately 10.9 million
AllianceBernstein Holding units of a maximum 41.0 million units were
subject to options granted and 0.2 million AllianceBernstein Holding
units were subject to awards made under this plan.
15) RELATED PARTY TRANSACTIONS
In September 2001, AXA Equitable 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.
In July 2004, AXA Financial issued Subordinated Notes to AXA, AXA Group
Life Insurance (Japan) and AXA Insurance Co. (Japan) in the amounts of
$510.0 million, $500.0 million and $270.0 million, respectively. The
$1.28 billion in proceeds from these borrowings were used to fund the
MONY Acquisition. The Subordinated Notes have a maturity date of July
15, 2019 and a floating interest rate, which resets semiannually on July
15 and January 15. Concurrently, AXA Financial entered into an interest
rate swap with AXA, converting the floating rate on these Subordinated
Notes to a fixed rate of 5.11% for the first three years. Including the
impact of the swap, the 2005 and 2004 interest cost related to the
Subordinated Notes totaled approximately $73.4 million and $32.2 million
respectively.
In November 2004, AXA Financial issued a note to AXA in the amount of
$88.9 million with an interest rate of 2.76% that matured on May 29,
2005. The proceeds from this borrowing were used to purchase AXA ADR
call options to hedge the cost of funding the exercise of employee
options currently issued and outstanding.
In December 2004, AXA Financial issued Subordinated Notes to AXA in the
amount of $200.0 million. The proceeds from this borrowing were used to
fund the acquisition of additional AllianceBernstein Units. The
Subordinated Notes have a maturity date of June 20, 2006 and a floating
interest rate, which resets semiannually on July 15 and January 15.
In December 2005, AXA Financial issued a note to AXA in the amount of
$100.0 million with an interest rate of 4.59% and a maturity date of
February 13, 2006. The proceeds from this borrowing were used to pay for
the exercise of the call options on AXA ADRs to fund employee stock
benefit plans.
AXA Financial, AXA Equitable, MONY Life and AllianceBernstein, along
with other AXA affiliates, participate in certain intercompany cost
sharing and service agreements including technology and professional
development arrangements. Payments by AXA Financial Group to AXA under
such agreements
F-46
totaled approximately $33.8 million, $31.6 million and $17.7 million in
2005, 2004 and 2003, respectively. Payments by AXA and AXA affiliates to
AXA Financial Group under such agreements totaled approximately $36.2
million, $39.2 million and $32.5 million in 2005, 2004 and 2003,
respectively.
Commissions, fees and other income includes certain revenues for
services provided to mutual funds managed by AllianceBernstein described
below:
2005 2004 2003
----------------- ---------------- ------------------
(IN MILLIONS)
Investment advisory and services fees.............. $ 729.3 $ 746.6 $ 748.2
Distribution revenues.............................. 397.8 447.3 436.0
Shareholder servicing fees......................... 99.3 116.0 126.4
Other revenues..................................... 8.0 8.8 11.4
Brokerage.......................................... 2.4 4.2 4.4
16) 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 Insurance Group reinsured most of its new variable life, universal
life and term life policies on an excess of retention basis. Through
October 2005, the Insurance Group retained mortality risk up to a
maximum of $15 million on single-life policies and $20 million on
second-to-die policies with any excess being 100% reinsured. In November
2005, the Insurance Group increased its maximum retention on single-life
policies to $25 million and on second-to-die policies to $30 million,
again with any excess being 100% reinsured. For certain segments of its
business, the Insurance Group ceded a proportional share of its
mortality risk, as follows: 50% of the business underwritten by AXA
Equitable on a guaranteed or simplified issue basis was ceded on a
yearly renewable term basis; 85% of the business underwritten by MONY
Life and MLOA on a guaranteed or simplified issue basis was ceded on a
yearly renewable term basis; and up to 65% of the term insurance
business underwritten by MONY Life and MLOA was ceded on a coinsurance
basis. In addition, for business underwritten by USFL, amounts in excess
of its retention were ceded on a yearly renewable term basis; in 2005,
the maximum retention amounts were increased from $750,000 for single-
life policies and $1.0 million for second-to-die policies to $1.5
million for single-life policies and $2.0 million for second-to-die
policies. The Insurance Group also reinsures the entire risk on certain
substandard underwriting risks and in certain other cases. Likewise,
certain risks that would otherwise be reinsured on a proportional basis
have been retained.
At December 31, 2005, AXA Financial Group had reinsured in the aggregate
approximately 29.7% 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 74.8% of its current liability
exposure resulting from the GMIB feature. See Note 11 of Notes to
Consolidated Financial Statements.
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, 2005 and 2004
were $132.7 million and $90.0 million, respectively. The increase
(decrease) in estimated fair value was $42.7 million, $61.0 million and
$(91.0) million for 2005, 2004 and 2003, respectively.
At December 31, 2005 and 2004, respectively, reinsurance recoverables
related to insurance contracts amounted to $3.22 billion and $3.15
billion. Reinsurance payables related to insurance contracts totaling
$29.2 million and $27.9 million are included in other liabilities in the
consolidated balance sheets at December 31, 2005 and 2004, respectively.
The Insurance Group cedes substantially all of its group life and health
business to a third party insurer. Insurance liabilities ceded totaled
$288.4 million and $381.1 million at December 31, 2005 and 2004,
respectively.
F-47
The Insurance Group also cedes a portion of its extended term insurance
and paid up life insurance and substantially all of its individual
disability income business through various coinsurance agreements.
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 has also
assumed accident, health, aviation and space risks by participating in
or reinsuring various reinsurance pools and arrangements. Reinsurance
assumed reserves at December 31, 2005 and 2004 were $646.1 million and
$669.5 million, respectively.
The following table summarizes the effect of reinsurance (excluding
group life and health):
2005 2004 2003
----------------- ----------------- -----------------
(IN MILLIONS)
Direct premiums.................................... $ 1,647.6 $ 1,290.4 $ 913.8
Reinsurance assumed................................ 171.9 183.7 153.0
Reinsurance ceded.................................. (170.7) (198.3) (168.4)
----------------- ----------------- -----------------
Premiums........................................... $ 1,648.8 $ 1,275.8 $ 898.4
================= ================= =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 169.3 $ 134.8 $ 100.3
================= ================= =================
Policyholders' Benefits Ceded...................... $ 441.8 $ 422.5 $ 389.4
================= ================= =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 50.9 $ 50.2 $ 49.7
================= ================= =================
17) EMPLOYEE BENEFIT PLANS
AXA Financial Group (other than AllianceBernstein) sponsors qualified
and non-qualified defined benefit plans covering substantially all
employees (including certain qualified part-time employees), managers
and certain agents. These pension plans are non-contributory and their
benefits are based on a cash balance formula, and/or for certain
participants, years of service and average earnings, over a specified
period in the plans. AllianceBernstein maintains a qualified,
non-contributory, defined benefit retirement plan covering current and
former employees who were employed by AllianceBernstein in the United
States prior to October 2, 2000. AllianceBernstein's benefits are based
on years of credited service, average final base salary and primary
social security benefits. AXA Financial Group uses a December 31
measurement date for its pension and postretirement plans.
In connection with the MONY Acquisition and consistent with the terms of
the related merger agreement, continuing employees of MONY are being
provided with employee benefit plans substantially comparable in the
aggregate to those provided to them as employees of MONY, including
postretirement health and welfare plans of MONY and its principal
subsidiaries. MONY's qualified and non-qualified pension benefits
generally are based on years of service and final average annual
compensation.
Generally, AXA Financial Group's funding policy is to make the minimum
contribution required by the Employee Retirement Income Security Act of
1974 ("ERISA"). AXA Financial Group made cash contributions of $78.7
million in 2005. No significant cash contributions to AXA Financial
Group's qualified plans are expected to be required to satisfy their
minimum funding requirements for the year ended 2006.
F-48
Components of net periodic pension expense for AXA Financial Group's
qualified and non-qualified plans including MONY's qualified and
non-qualified plans since its date of acquisition by AXA Financial Group
in 2004 were as follows:
2005 2004 2003
----------------- ----------------- -----------------
(IN MILLIONS)
Service cost....................................... $ 54.9 $ 47.5 $ 38.8
Interest cost on projected benefit obligations..... 178.1 161.5 148.0
Expected return on assets.......................... (207.1) (187.3) (174.0)
Net amortization and deferrals..................... 97.3 79.1 64.8
----------------- ----------------- -----------------
Net Periodic Pension Expense....................... $ 123.2 $ 100.8 $ 77.6
================= ================= =================
The plans' projected benefit obligations under AXA Financial Group's
qualified and non-qualified plans were comprised of:
DECEMBER 31,
-------------------------------------
2005 2004
----------------- -----------------
(IN MILLIONS)
Benefit obligations, beginning of year................................. $ 3,156.8 $ 2,425.6
Benefit obligations assumed from the MONY Acquisition.................. - 455.3
Service cost........................................................... 48.9 41.5
Interest cost.......................................................... 178.1 161.5
Actuarial losses ...................................................... 219.2 259.8
Benefits paid.......................................................... (195.6) (186.9)
----------------- -----------------
Benefit Obligations, End of Year....................................... $ 3,407.4 $ 3,156.8
================= =================
The change in plan assets and the funded status of the AXA Financial
Group's qualified and non-qualified pension plans was as follows:
DECEMBER 31,
-----------------------------------
2005 2004
---------------- -----------------
(IN MILLIONS)
Plan assets at fair value, beginning of year.............................. $ 2,530.0 $ 2,016.5
Plan assets acquired from the MONY Acquisition............................ - 387.7
Actual return on plan assets.............................................. 233.1 292.8
Contributions............................................................. 78.7 11.5
Benefits paid and fees.................................................... (170.7) (178.5)
---------------- -----------------
Plan assets at fair value, end of year.................................... 2,671.1 2,530.0
Projected benefit obligations............................................. 3,407.4 3,156.8
---------------- -----------------
Underfunding of plan assets over projected benefit obligations............ (736.3) (626.8)
Unrecognized prior service cost........................................... (3.1) (3.6)
Unrecognized net loss from past experience different
from that assumed....................................................... 1,203.3 1,105.5
Unrecognized net asset at transition...................................... (1.1) (1.2)
Additional minimum pension liability...................................... (141.2) (117.2)
---------------- -----------------
Prepaid Pension Cost, Net................................................. $ 321.6 $ 356.7
================ =================
The prepaid pension costs for pension plans with projected benefit
obligations in excess of plan assets of were $868.3 million and $852.4
million and the accrued liabilities for pension plans with accumulated
benefit obligations in excess of plan assets were $543.9 million and
$491.1 million at December 31, 2005 and 2004, respectively.
The additional minimum pension liability at December 31, 2005 and 2004
is reflected in AXA Financial Group's consolidated balance sheet as an
intangible asset to the extent of unrecognized prior service cost of
$21.3 million and $26.2 million, respectively, with the remainder
recognized as a reduction of shareholder's equity, net of tax, of $77.9
million and $59.2 million, respectively. The aggregate accumulated
benefit
F-49
obligation and fair value of plan assets for pension plans with
accumulated benefit obligations in excess of plan assets were $583.2
million and $48.7 million, respectively, at December 31, 2005, and
$517.7 million and $42.0 million, respectively, at December 31, 2004.
The accumulated benefit obligations for all defined benefit pension
plans were $3,188.7 million and $2,952.6 million at December 31, 2005
and 2004, respectively. The aggregate projected benefit obligations for
pension plans with projected benefit obligations in excess of plan
assets were $3,407.4 million at December 31, 2005 and $3,156.8 million
at December 31, 2004.
The following table discloses the estimated fair value of plan assets
and the percentage of estimated fair value to total plan assets for the
qualified plans of AXA Financial Group at December 31, 2005 and 2004.
DECEMBER 31,
-------------------------------------------------------
2005 2004
---------------------------- -------------------------
(DOLLARS IN MILLIONS)
ESTIMATED Estimated
FAIR VALUE % Fair Value %
--------------------- ----- ----------------- -----
Corporate and government debt securities........ $ 542.2 20.3 $ 559.1 22.1
Equity securities............................... 1,825.2 68.3 1,756.3 69.4
Equity real estate ............................. 221.8 8.3 192.8 7.6
Short-term investments.......................... 81.9 3.1 16.2 .6
Other........................................... - - 5.6 .3
--------------------- -----------------
Total Plan Assets............................... $ 2,671.1 $ 2,530.0
===================== =================
The primary investment objective of the qualified plans of AXA Financial
Group is to maximize return on assets, giving consideration to prudent
risk. 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 higher 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.
A secondary investment objective of the qualified plans of AXA Financial
Group 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 contributions.
The assumed discount rates for measurement of the benefit obligations at
December 31, 2005 and 2004 each reflect the rates at which pension
benefits then could be effectively settled. Specifically at December 31,
2005, projected nominal cash outflows to fund expected annual benefits
payments under AXA Financial's and MONY's qualified and non-qualified
pension and postretirement benefit plans were discounted using a
published high-quality bond yield curve. The discount rate of 5.25%
disclosed below as having been used to measure the benefits obligation
at December 31, 2005 represents the level equivalent discount
rate that produces the same present value measure of the benefits
obligation as the aforementioned discounted cash flow analysis. This
methodology is a refinement from that employed at December 31, 2004 and
years prior for the purpose of measuring the benefits obligation, for
which the assumed discount rate was estimated by benchmarking off of a
published long-term bond index determined to be consistent with the
timing and amount of expected benefit payments. The following table
discloses the weighted-average assumptions used to measure AXA Financial
Group's pension benefit obligations and net periodic pension cost at and
for the years ended December 31, 2005 and 2004.
F-50
AXA FINANCIAL GROUP
--------------------------------
2005 2004
------------- -------------
Discount rate:
Benefit obligation............................................... 5.25% 5.75%
Periodic cost.................................................... 5.75% 6.25%
Rate of compensation increase:
Benefit obligation and periodic cost............................. 6.00% 5.75%
Expected long-term rate of return on plan assets (periodic cost)... 8.50% 8.50%
As noted above, the qualified pension plans' target asset allocation is
65% equities, 25% fixed maturities, and 10% real estate. Management
reviewed the historical investment returns and future expectation for
returns from these asset classes to conclude that a long-term expected
rate of return of 8.5% is reasonable.
Prior to 1987, the qualified plan of AXA Equitable funded participants'
benefits through the purchase of non-participating annuity contracts
from AXA Equitable. Benefit payments under these contracts were
approximately $21.7 million, $23.2 million and $24.5 million for 2005,
2004 and 2003, respectively.
In addition to the pension plans described above, the AXA Financial
Group and its subsidiaries maintain a number of qualified defined
contribution plans, including the 401(k) Plan. MONY also provides
substantially all financial professionals of MONY Life with a qualified
money purchase pension plan and non-qualified excess defined
contribution plans. The aggregate cost recognized for these plans in the
consolidated financial statements of AXA Financial Group for the years
2005 and 2004 amounted to $26.2 million and $23.8 million, respectively.
AXA Financial Group provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from AXA Financial Group based on years of
service and age. The life insurance benefits are related to age and
salary at retirement for certain grandfathered retirees, and a flat
dollar amount for others. AXA Financial Group continues to fund the
postretirement benefits costs for these plans on a pay-as-you-go basis.
For 2005, 2004 and 2003, postretirement benefits payments were made in
the amounts of $48.1 million, $35.0 million and $34.5 million,
respectively, net of employee contributions.
The Medicare Prescription Drug, Improvement and Modernization Act of
2003 introduced a prescription drug benefit under Medicare Part D that
would go into effect in 2006 as well as a Federal subsidy to employers
whose plans provide an "actuarially equivalent" prescription drug
benefit. In 2005, following the issuance of regulations, management and
its actuarial advisors concluded that the prescription drug benefits
provided under AXA Financial Group's retiree medical plans are
actuarially equivalent to the new Medicare prescription drug benefits.
Consequently, the estimated subsidy has been reflected in measurements
of the accumulated postretirement benefits obligations for these plans
as of January 1, 2005, and the resulting aggregate reduction of $63.9
million is accounted for prospectively as an actuarial experience gain
in accordance with FSP No. 106-2. The impact of the MMA, including the
effect of the subsidy, resulted in a decrease in the annual net periodic
postretirement benefits costs for 2005 of approximately $8.7 million.
Components of AXA Financial Group's net postretirement benefits costs
follow:
2005 2004 2003
----------------- ----------------- -----------------
(IN MILLIONS)
Service costs..................................... $ 7.1 $ 5.6 $ 5.0
Interest cost on accumulated postretirement
benefits obligation............................. 37.3 36.7 36.7
Amortization of unrecognized prior service cost... (6.6) (6.0) (8.4)
Net amortization and deferrals.................... 9.9 11.6 13.4
Plan recalculation adjustment (1) ................ 28.5 - -
----------------- ----------------- -----------------
Net Periodic Postretirement Benefits Costs........ $ 76.2 $ 47.9 $ 46.7
================= ================= =================
(1) In third quarter 2005, an adjustment to the survivor income benefits
liability related to prior periods was recorded.
F-51
The following table sets forth the postretirement benefits plans'
status, reconciled to amounts recognized in AXA Financial Group's
consolidated financial statements:
DECEMBER 31,
-------------------------------------
2005 2004
----------------- -----------------
(IN MILLIONS)
Accumulated postretirement benefits obligation,
beginning of year.................................................... $ 699.1 $ 586.0
Accumulated postretirement benefit obligation assumed
as a result of the MONY Acquisition.................................. - 102.8
Service cost........................................................... 7.1 5.6
Interest cost.......................................................... 37.3 36.7
Contributions and benefits paid........................................ (48.1) (35.0)
Actuarial (gains) losses .............................................. (12.3) (16.2)
Plan amendments........................................................ 21.5 19.2
----------------- -----------------
Accumulated postretirement benefits obligation, end of year............ 704.6 699.1
Unrecognized prior service cost........................................ 45.1 44.8
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (185.2) (207.4)
----------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 564.5 $ 536.5
================= =================
The assumed discount rates for measuring the postretirement benefit
obligations at December 31, 2005 and 2004 were determined in
substantially the same manner as earlier described for measuring the
pension benefit obligations. The following table discloses the
weighted-average assumptions used to measure AXA Financial Group's
postretirement benefit obligations and related net periodic cost at and
for the years ended December 31, 2005 and 2004.
2005 2004
----------------- ----------------
Discount rate:
Benefit obligation............................................... 5.25% 5.75%
Periodic cost.................................................... 5.75% 6.25%
In 1993 and 1992, AXA Financial and MONY, respectively, announced a
limit on the amount that would be contributed toward retiree healthcare.
AXA Financial's contribution limit was reached in 2003, and MONY's limit
was reached in 2002. Thus, for 2003 and 2004, no healthcare cost trend
was assumed since it had no material effect on the liability or expense
of the postretirement healthcare plans. In 2005, the postretirement
healthcare plans of AXA Financial and MONY reflected an anticipated
subsidy from Medicare Part D, which is assumed to increase with the
healthcare cost trend. Since the subsidy is used to offset the plans'
obligations, an increase in the healthcare cost trend rate results in a
decrease in the liability and the corresponding expense. For AXA
Financial, if the health care cost trend rate assumptions were increased
by 1.0%, the accumulated postretirement benefits obligation as of
December 31, 2005 would be decreased by 1.3% and the sum of the service
cost and interest cost would be a decrease of 1.3%. For MONY, if the
healthcare cost trend rate assumptions were increased by 1.0%, the
accumulated postretirement benefits obligation as of December 31, 2005
would be decreased by 0.9% and a decrease of 0.5% on the sum of the
service cost and interest cost.
AXA Financial Group sponsors a postemployment health and life insurance
continuation plan for disabled former employees. The accrued liabilities
for these postemployment benefits were $39.7 million and $36.9 million,
respectively, at December 31, 2005 and 2004. Components of net
postemployment benefits cost follow:
F-52
2005 2004 2003
----------------- ----------------- -----------------
(IN MILLIONS)
Service cost ...................................... $ 5.8 $ 7.2 $ 9.4
Interest cost on projected benefit obligations..... 1.8 2.2 2.8
Net amortization and deferrals..................... - .1 15.7
----------------- ------------- -----------------
Net Periodic Postemployment Benefits Cost.......... $ 7.6 $ 9.5 $ 27.9
================= ================= =================
The following table sets forth an estimate of future benefits expected
to be paid in each of the next five years, beginning January 1, 2006,
and in the aggregate for the five years thereafter. These estimates are
based on the same assumptions used to measure the respective benefit
obligations at December 31, 2005 and include benefits attributable to
estimated future employee service.
Postretirement Benefits
-------------------------------------------------------
Gross Estimated Net
Pension Estimated Medicare Part D Estimated
Benefits Payment Subsidy Payment
--------------- --------------- --------------------- ---------------
(In Millions)
2006........................... $ 218.6 $ 59.3 $ 4.6 $ 54.7
2007........................... 231.7 58.9 5.0 53.9
2008........................... 231.4 58.6 5.5 53.1
2009........................... 243.9 58.3 5.9 52.4
2010........................... 239.5 57.8 6.3 51.5
Years 2011 - 2015.............. 1,242.5 278.2 39.2 239.0
AllianceBernstein maintains several unfunded deferred compensation plans
for the benefit of certain eligible employees and executives. The
AllianceBernstein 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 AXA Financial Group, is obligated to make capital contributions to
AllianceBernstein 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,
AllianceBernstein agreed to invest $96.0 million per annum for three
years to fund purchases of AllianceBernstein Holding units or an
AllianceBernstein sponsored money market fund in each case for the
benefit of certain individuals who were stockholders or principals of
Bernstein or hired to replace them. AXA Financial Group has recorded
compensation and benefit expenses in connection with these deferred
compensation plans totaling $186.2 million, $146.7 million and $124.2
million for 2005, 2004 and 2003, respectively (including $29.1 million,
$61.3 million and $85.1 million for 2005, 2004 and 2003, respectively,
relating to the Bernstein deferred compensation plan).
18) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Insurance Group primarily uses derivatives for asset/liability risk
management, for hedging individual securities and certain equity
exposures and to reduce the Insurance Group's exposure of interest rate
fluctuations. Similarly, AXA Financial utilizes derivatives relative to
its long-term debt obligations. Various derivative instruments are used
to achieve these objectives, including interest rate floors and interest
rate swaps. In addition, AXA Financial Group periodically enters into
futures contracts to hedge certain equity exposures, including the
program to hedge certain risks associated with the GMDB/GMIB features of
the Accumulator series of annuity products. At December 31, 2005, AXA
Financial Group's outstanding equity-based futures contracts were
exchanged-traded and net settled each day. Also, AXA Financial Group 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 AXA Financial Group. See Note 16 to Notes to Consolidated Financial
Statements. In 2004, AXA Financial purchased call options on the AXA
ADRs. These contracts are excluded from the definition of derivative
financial instruments subject to SFAS No. 133 and disclosures about the
fair value of financial instruments. See Note 14 to Notes to
Consolidated Financial Statements.
Margins on individual insurance and annuity contracts are affected by
interest rate fluctuations. If interest rates fall, crediting interest
rates and dividends would be adjusted subject to competitive pressures.
In
F-53
addition, policies are subject to minimum rate guarantees. To hedge
exposure to lower interest rates, AXA Financial Group has used interest
rate floors. At December 31, 2005 and 2004 the outstanding notional
amount of interest rate floors was $24.0 billion and $12.0 billion,
respectively. For 2005 and 2004, respectively, net unrealized losses of
$3.7 million and $3.9 million were recognized from floor contracts.
These derivatives do not qualify for hedge accounting treatment under
GAAP.
AXA Financial Group issues certain variable annuity products with GMDB
and GMIB features. The risk associated with the GMDB feature is that
under-performance of the financial markets could result in GMDB
benefits, in the event of death, being higher than what accumulated
policyholder account balances would support. The risk associated with
the GMIB feature is that under-performance of the financial markets
could result in GMIB benefits, in the event of election, being higher
than what accumulated policyholders account balances would support. AXA
Financial Group initiated a dynamic hedging program in the third quarter
2003, utilizing exchange traded futures contracts, to hedge certain
risks associated with the GMDB feature of certain annuity products with
a total account value of $29,290 million at December 31, 2005 and, in
2004, initiated a similar program to hedge certain risks associated with
the GMIB feature of certain annuity products with a total account value
of $14,164 million at December 31, 2005. The futures contracts are
managed to correlate with changes in the value of the GMDB and GMIB
feature that result from financial markets movements. AXA Financial
Group retains basis risk and risk associated with actual versus expected
assumptions for mortality, lapse and election rate. This program does
not qualify for hedge accounting treatment under GAAP. At December 31,
2005, AXA Financial Group had open exchange-traded futures positions on
the S&P 500, Russell 1000 and NASDAQ 100 indices, having aggregate
notional totals of $1,848.0 million and initial margin requirements of
$99.4 million. Contracts are net settled daily. At December 31, 2005,
AXA Financial Group had open exchange-traded futures positions on the
10-year U.S. Treasury Note, having aggregate notional totals $286.6
million and initial margin requirements of $5.0. Contracts are net
settled daily. For 2005 and 2004, net realized gains (losses) of
$(140.9) million and $(63.1) million and net unrealized gains (losses)
of $59.2 million and (20.6) million were recognized from futures
contracts utilized in this program. AXA Equitable is exposed to equity
market fluctuations through investments in its variable annuity Separate
Accounts. In 2005, AXA Equitable initiated a program utilizing exchange
traded equity futures designed to minimize such risk. In 2005, AXA
Equitable had open exchange-traded futures positions with an aggregate
notional amount of $73.3 million and an initial margin requirement of
$4.0 million.
AXA Financial Group is exposed to counterparty risk attributable to
hedging transactions entered into with counterparties. Exposure to
credit risk is controlled with respect to each counterparty through a
credit appraisal and approval process. Each counterparty is currently
rated 1 by the National Association of Insurance Commissioners ("NAIC").
All derivatives outstanding at December 31, 2005 and 2004 are recognized
on the balance sheet at their fair values. The outstanding notional
amounts of derivative financial instruments purchased and sold were:
DECEMBER 31,
-------------------------------------
2005 2004
----------------- -----------------
(IN MILLIONS)
Notional Amount by Derivative Type:
Options:
Floors.......................................................... $ 24,000 $ 12,000
Exchange traded U.S. Treasuries and equity index futures........ 2,208 1,168
Interest rate swaps................................................. 3,740 4,280
----------------- -----------------
Total............................................................... $ 29,948 $ 17,448
================= =================
At December 31, 2005 and 2004 and during the years 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 AXA
Financial Group in 2005, 2004 and 2003 were reported in earnings. None
of the derivatives were designated as qualifying hedges under SFAS No.
133. For 2005, 2004 and 2003, respectively, investment results on
derivative positions, principally in Net investment income, included
gross gains of $127.9 million $47.0 million and $25.2 million and gross
losses of $196.6 million, $164.4 million and $60.7 million that were
recognized.
F-54
Fair Value of Financial Instruments
-----------------------------------
AXA Financial Group 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 AXA Financial Group'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, 2005 and 2004.
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 AXA Financial Group'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 that
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 AXA Financial Group. AXA Financial Group's carrying value of
short-term borrowings approximates their estimated fair value.
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The carrying values and estimated fair values for financial instruments
not previously disclosed in Notes 4, 9, 10 and 12 of Notes to
Consolidated Financial Statements are presented below:
DECEMBER 31,
--------------------------------------------------------------------
2005 2004
-------------------------------- ---------------------------------
CARRYING ESTIMATED Carrying Estimated
VALUE FAIR VALUE Value Fair Value
--------------- --------------- --------------- ----------------
(IN MILLIONS)
AXA Financial Group:
Mortgage loans on real estate........ $ 4,702.5 $ 4,813.3 $ 4,909.8 $ 5,136.9
Other limited partnership interests.. 1,019.6 1,019.6 1,066.5 1,066.5
Policy loans......................... 4,946.5 5,415.0 4,968.0 5,550.2
Policyholders liabilities:
Investment contracts............... 19,532.1 19,900.5 19,332.9 19,951.9
Long-term debt....................... 1,921.9 2,069.9 2,328.9 2,538.0
Closed Blocks:
Mortgage loans on real estate........ $ 1,490.5 $ 1,528.0 $ 1,691.2 $ 1,775.6
Other equity investments............. 3.3 3.3 3.8 3.8
Policy loans......................... 2,288.2 2,483.8 2,347.6 2,598.0
SCNILC liability..................... 11.4 11.6 13.1 13.1
Wind-up Annuities:
Mortgage loans on real estate........ $ 6.7 $ 7.1 $ 21.4 $ 23.1
Other equity investments............. 3.1 3.1 4.4 4.4
Guaranteed interest contracts........ 6.5 6.4 6.8 6.8
Long-term debt....................... 101.7 101.7 101.7 101.7
19) COMMITMENTS AND CONTINGENT LIABILITIES
In addition to its debt and lease commitments discussed in Notes 12 and
21 of Notes to Consolidated Financial Statements, from time to time, AXA
Financial Group has provided certain guarantees or commitments to
affiliates, investors and others. At December 31, 2005, these
arrangements include commitments by AXA Financial Group, to provide
equity financing of $562.0 million to certain limited partnerships under
certain conditions. Management believes AXA Financial Group will not
incur material losses as a result of these commitments.
AXA Equitable 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, AXA
Equitable owns single premium annuities issued by previously wholly
owned life insurance subsidiaries. AXA Equitable 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 AXA Equitable to satisfy those obligations is remote.
AXA Financial Group had $1,167.1 million of undrawn letters of credit
related to reinsurance at December 31, 2005. AXA Financial Group had
$186.6 million in commitments under existing mortgage loan agreements at
December 31, 2005.
In February 2002, AllianceBernstein 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, 2005,
AllianceBernstein was not required to perform under the agreement and
had no liability outstanding in connection with the agreement.
20) LITIGATION
A number of lawsuits have been filed against life and health insurers in
the jurisdictions in which AXA Equitable, MONY Life, and their
respective insurance subsidiaries do business involving insurers' sales
F-56
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. AXA Equitable, AXA Life, MONY Life, MLOA and USFL, like other
life and health insurers, from time to time are involved in such
litigations.
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, in connection
with certain annuities issued by AXA Equitable (i) breached an agreement
with the plaintiffs involving the execution of subaccount 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 March 2001, plaintiffs
filed an amended complaint. The District Court granted defendants'
motion to dismiss AXA Client Solutions and AXA Financial from the
amended complaint, and dismissed the conversion claims in June 2001. In
July 2004, the court dismissed EMERALD's complaint for lack of subject
matter (diversity) jurisdiction. In June 2004, EMERALD filed a new
complaint that was substantially similar to the complaint filed in the
dismissed action against AXA Equitable, AXA Client Solutions, LLC, and
AXA Financial in the United States District Court for the Northern
District of Illinois. In July 2004, EMERALD filed an amended complaint
and AXA Equitable filed a partial motion to dismiss the amended
complaint, which was granted. In September 2004, the Court granted
Emerald's motion to dismiss several affirmative defenses asserted by AXA
Equitable. In December 2005, the Court granted summary judgment on
liability with respect to three of EMERALD's causes of action. In
January 2006, AXA Equitable filed a motion for reconsideration. 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 AXA Financial Group, management believes that
the ultimate resolution of this litigation should not have a material
adverse effect on AXA Financial Group's consolidated financial position.
After the District Court denied defendants' motion to assert certain
defenses and counterclaims in AMERICAN NATIONAL BANK, AXA Equitable
commenced a separate 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. AXA
Equitable's complaint alleges common law fraud and equitable rescission
in connection with certain annuities issued by AXA Equitable. AXA
Equitable seeks unspecified money damages, rescission, punitive damages
and attorneys' fees. Defendants' counterclaims, filed in March 2002,
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 AXA Equitable's motion to dismiss defendants'
counterclaims, dismissing defendants' Illinois Securities Act and New
York Consumer Fraud Act claims. In September 2004, the court granted AXA
Equitable's motion to dismiss this action and retained jurisdiction over
EMERALD's counterclaims in the action.
In January 2004, DH2, Inc., an entity related to Emerald Investments LP
filed a lawsuit in the United States District Court for the Northern
District of Illinois against AXA Equitable and EQ Advisors Trust
("EQAT"), 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 AXA
Equitable and EQAT 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 AXA Equitable and EQAT implemented fair
value pricing for an improper purpose and without adequate disclosure.
The complaint further alleges that AXA Equitable and EQAT are not
permitted to implement fair value pricing of securities. In July 2004,
DH2 filed an amended complaint adding the individual trustees of EQAT as
defendants. In March 2005, the Court granted all defendants' motion to
dismiss, dismissing DH2's claims for alleged violations of the
Investment Company Act of 1940, as amended (the "Investment Company
Act") with prejudice and dismissing the remaining claims without
prejudice on the ground that DH2 failed to state a claim under the
Federal securities laws. In April 2005, DH2 filed a second amended
complaint, which alleges claims substantially similar to those included
in the original amended complaint. In December 2005, the court granted
in part and denied in part, defendant's motion to dismiss the second
amended complaint.
F-57
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. 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. 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 2004, the
parties filed cross motions for summary judgment asking the court to
find in their respective favors on plaintiffs' claim that (1) the cash
balance formula of the retirement plan violates ERISA's age
discrimination provisions and (2) the notice of plan amendment
distributed by AXA Equitable violated ERISA's notice rules. Following a
hearing on the motions, the court ordered a limited amount of additional
discovery to be conducted followed by a subsequent hearing. In April
2005, the Court denied the cross motions for summary judgment without
prejudice. In July 2005, the parties refiled cross motions for summary
judgment, and an evidentiary hearing was held in August 2005 on one of
the claims.
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 July 2003, the United States District Court
for the Northern District of Illinois granted in part and denied in part
AXA Equitable's motion to dismiss the complaint. AXA Equitable has
answered plaintiffs' remaining claim for violation of ERISA. In March
2004, the District Court entered an order certifying a class consisting
of "[a]ll present, former and retired Equitable agents who (a) lost
eligibility for benefits under any Equitable ERISA plan during any
period on or after January 1, 1999 because of the application of the
policy adopted by Equitable of using compliance with specified sales
goals as the test of who was a "full time life insurance salesman" and
thereby eligible for benefits under any such plan, or (b) remain subject
to losing such benefits in the future because of the potential
application to them of that policy". In May 2005, the Court granted AXA
Equitable's motion for summary judgment and dismissed the remaining
claim of violation of ERISA. In May 2005, the plaintiffs filed an appeal
to the 7th Circuit Court of Appeals.
In September 2004, a petition for appraisal entitled CEDE & CO. V. AXA
FINANCIAL, INC. was filed in the Delaware Court of Chancery by an
alleged former MONY stockholder. The petition seeks a judicial appraisal
of the value of the MONY shares held by former MONY stockholders holding
approximately 3.6 million shares of MONY common stock who demanded
appraisal pursuant to Section 262 of the General
F-58
Corporation Law of the State of Delaware and have not withdrawn their
demands. The parties are engaged in discovery. On or about November 4,
2004, a petition for appraisal entitled HIGHFIELDS CAPITAL LTD. V. AXA
FINANCIAL, INC. was filed in the Delaware Court of Chancery by another
alleged former MONY stockholder. The relief sought by the Highfields
Capital petition is substantially identical to that sought pursuant to
the Cede & Co. petition. The parties are engaged in discovery. In
February 2005, the Delaware Court of Chancery consolidated the two
actions for all purposes.
In April 2004, a purported nationwide class action lawsuit was filed in
the Circuit Court for Madison County, Illinois entitled MATTHEW
WIGGENHORN V. EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES. The
lawsuit alleges that AXA Equitable uses stale prices for the foreign
securities within the investment divisions of its variable insurance
products. The complaint further alleges that AXA Equitable's use of
stale pricing diluted the returns of the purported class. The complaint
also alleges that AXA Equitable breached its fiduciary duty to the class
by allowing market timing in general within AXA Equitable's variable
insurance products, thereby diluting the returns of the class. In June
2005, this case was transferred by the Judicial Panel on Multidistrict
Litigation to the U.S. District Court in Maryland, where other
market-timing related litigation is pending. In June 2005, plaintiff
filed an amended complaint. In July 2005, AXA Equitable filed a motion
to dismiss the amended complaint, which is pending.
Since late 1995, a number of purported class actions have been commenced
in various state and Federal courts against MONY Life and MLOA alleging
that they engaged in deceptive sales practices in connection with the
sale of whole and universal life insurance policies from the early 1980s
through the mid 1990s. Although the claims asserted in each case are not
identical, they seek substantially the same relief under essentially the
same theories of recovery (i.e., breach of contract, fraud, negligent
misrepresentation, negligent supervision and training, breach of
fiduciary duty, unjust enrichment and/or violation of state insurance
and/or deceptive business practice laws). Plaintiffs in these cases seek
primarily equitable relief (e.g., reformation, an accounting, specific
performance, mandatory injunctive relief prohibiting MONY Life and MLOA
from canceling policies for failure to make required premium payments,
imposition of a constructive trust and/or creation of a claims
resolution facility to adjudicate any individual issues remaining after
resolution of all class-wide issues) as opposed to compensatory damages,
although they also seek compensatory damages in unspecified amounts.
MONY Life and MLOA have answered the complaints in each action (except
for one being voluntarily held in abeyance). MONY Life and MLOA have
denied any wrongdoing and have asserted numerous affirmative defenses.
In June 1996, the New York State Supreme Court certified one of those
cases, GOSHEN V. THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK AND MONY
LIFE INSURANCE COMPANY OF AMERICA (now known as DEFILLIPPO, ET AL. V.
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK AND MONY LIFE INSURANCE
COMPANY OF AMERICA), a class action filed as a nationwide class
consisting of all persons or entities who have, or at the time of the
policy's termination had, an ownership interest in a whole or universal
life insurance policy issued by MONY Life and MLOA and sold on an
alleged "vanishing premium" basis during the period January 1, 1982 to
December 31, 1995. After extensive motion practice that led to the
dismissal of most of the claims and a decertification of the class with
respect to one remaining claim, in December 2005, the case was settled
on an individual basis.
With the exception of one putative class action currently pending in the
Eastern District of Michigan (STOCKLER V. MONY LIFE INSURANCE COMPANY OF
AMERICA), all other similar putative class actions, of which there are
two remaining, were consolidated and transferred by the Judicial Panel
on Multidistrict Litigation to the United States District Court for the
District of Massachusetts. In Stockler, MLOA has filed a motion for
summary judgment that is currently pending.
ALLIANCE LITIGATION
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 AllianceBernstein. The principal
allegations of the Enron Complaint, as they pertain to
AllianceBernstein, are that AllianceBernstein 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 Zero
Coupon Convertible Notes due 2021. Plaintiffs allege the registration
statement was materially misleading and that Frank Savage, a director of
Enron, who was at that time an employee of AllianceBernstein and a
director of the general partner of AllianceBernstein (the "General
Partner"), signed the registration statement at issue. Plaintiffs
therefore
F-59
assert that AllianceBernstein is itself liable for the allegedly
misleading registration statement. Plaintiffs seek rescission or a
rescissionary measure of damages. In June 2002, AllianceBernstein 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, with substantially identical allegations as to
AllianceBernstein, was filed. AllianceBernstein 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, AllianceBernstein filed its opposition to class
certification. AllianceBernstein's motion is pending. The case is
currently in discovery.
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 AllianceBernstein, Alfred Harrison
(a former director) and the AllianceBernstein Premier Growth Fund (now
known as the AllianceBernstein Large Cap Growth Fund ("Large Cap Growth
Fund") alleging violation of the Investment Company Act. Plaintiff seeks
damages equal to Large Cap Growth Fund's losses as a result of Large Cap
Growth Fund's investment in shares of Enron and a recovery of all fees
paid by Large Cap Growth Fund to AllianceBernstein beginning November 1,
2000. In March 2003, the court granted AllianceBernstein's motion to
transfer the JAFFE COMPLAINT to the United States District Court for the
District of New Jersey for coordination with the now dismissed BENAK V.
ALLIANCE CAPITAL MANAGEMENT L.P. AND ALLIANCE PREMIER GROWTH FUND action
then pending. 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 Investment Company Act, 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 Large Cap Growth Fund by
causing Large Cap 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 Large Cap Growth Fund's
investment objective and policies. In January 2004, defendants moved to
dismiss the AMENDED JAFFE COMPLAINT. In May 2005, the court granted
defendant's motion and dismissed the case on the ground that plaintiff
failed to make a demand on the Large Cap Growth Fund's Board of
Directors ("LCG Board") pursuant to Rule 23.1 of the Federal Rules of
Civil Procedure. Plaintiff's time to file an appeal has expired. In June
2005, plaintiff made a demand on the LCG Board, requesting that the LCG
Board take action against AllianceBernstein for the reasons set forth in
the AMENDED JAFFE COMPLAINT. In December 2005, the LCG Board rejected
plaintiff's demand.
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 AllianceBernstein, Large Cap
Growth Fund and individual directors and certain officers of Large Cap
Growth Fund. In August 2003, the court granted AllianceBernstein'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, which alleges that
defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act
because Large Cap 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 Large
Cap Growth Fund's investment in Enron was inconsistent with the Large
Cap Growth Fund's stated strategic objectives and investment strategies.
Plaintiffs seek rescissionary relief or an unspecified amount of
compensatory damages on behalf of a class of persons who purchased
shares of Large Cap Growth Fund during the period October 31, 2000
through February 14, 2002. In January 2004, AllianceBernstein moved to
dismiss the AMENDED GOGGINS COMPLAINT. In December 2004, the court
granted AllianceBernstein's motion and dismissed the case. In January
2005, plaintiffs appealed the court's decision. In January 2006, the
U.S. Court of Appeals for the Third Circuit affirmed the dismissal.
Plaintiffs' time to seek further review of the court's decision expires
on April 13, 2006.
In October 2003, a purported class action complaint entitled ERB ET AL.
V. ALLIANCE CAPITAL MANAGEMENT L.P. ("ERB COMPLAINT") was filed in the
Circuit Court of St. Clair County, Illinois against AllianceBernstein.
Plaintiff, purportedly a shareholder in the Large Cap Growth Fund,
alleged that AllianceBernstein breached unidentified provisions of Large
Cap Growth Fund's prospectus and subscription and confirmation
agreements that allegedly required that every security bought for Large
Cap Growth Fund's portfolio must be a "1-rated" stock, the highest
rating that AllianceBernstein's research analysts could assign.
Plaintiff alleges that AllianceBernstein impermissibly purchased shares
of stocks that were not 1-rated. In June 2004, plaintiff filed an
amended complaint ("AMENDED ERB COMPLAINT") in the Circuit Court of St.
Clair
F-60
County, Illinois. The AMENDED ERB COMPLAINT allegations are
substantially similar to those contained in the previous complaint,
however, the AMENDED ERB COMPLAINT adds a new plaintiff and seeks to
allege claims on behalf of a purported class of persons or entities
holding an interest in any portfolio managed by AllianceBernstein's
Large Cap Growth Team. The AMENDED ERB COMPLAINT alleges that
AllianceBernstein breached its contracts with these persons or entities
by impermissibly purchasing shares of stocks that were not 1-rated.
Plaintiffs seek rescission of all purchases of any non-1-rated stocks
AllianceBernstein made for Large Cap Growth Fund and other Large Cap
Growth Team clients' portfolios over the past eight years, as well as an
unspecified amount of damages. In July 2004, AllianceBernstein removed
the Erb action to the United States District Court for the Southern
District of Illinois on the basis that plaintiffs' claims are preempted
under the Securities Litigation Uniform Standards Act. In August 2004,
the District Court remanded the action to the Circuit Court. In
September 2004, AllianceBernstein filed a notice of appeal with respect
to the District Court's order. In December 2004, plaintiffs moved to
dismiss AllianceBernstein's appeal. In September 2005,
AllianceBernstein's appeal was denied.
Market Timing-Related Matters
In October 2003, a purported class action complaint entitled HINDO, ET
AL. V. ALLIANCEBERNSTEIN GROWTH & INCOME FUND, ET AL. ("HINDO
COMPLAINT") was filed against AllianceBernstein, AllianceBernstein
Holding, the General Partner, AXA Financial, the U.S. Funds, the
registrants and issuers of those funds, certain officers of
AllianceBernstein (the "AllianceBernstein defendants"), and certain
other unaffiliated defendants, 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 U.S.
Funds. The HINDO COMPLAINT alleges that certain of the AllianceBernstein
defendants failed to disclose that they improperly allowed certain hedge
funds and other unidentified parties to engage in "late trading" and
"market timing" of U.S. 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 AllianceBernstein,
including recovery of all fees paid to AllianceBernstein pursuant to
such contracts.
Since October 2003, forty-three additional lawsuits making factual
allegations generally similar to those in the Hindo Complaint were filed
in various Federal and state courts against AllianceBernstein and
certain other defendants, and others may be filed. Such lawsuits have
asserted a variety of theories for recovery including, but not limited
to, violations of the Securities Act, the Exchange Act, the Advisers
Act, the Investment Company Act, the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), certain state securities statutes and
common law. All state court actions against AllianceBernstein either
were voluntarily dismissed or removed to Federal court.
In February 2004, the Judicial Panel on Multidistrict Litigation ("MDL
Panel") transferred all Federal actions to the United States District
Court for the District of Maryland ("Mutual Fund MDL"). All of the
actions removed to the Federal court also were transferred to the Mutual
Fund MDL. The plaintiffs in the removed actions have since moved for
remand, and that motion is pending.
In September 2004, plaintiffs filed consolidated amended complaints with
respect to four claim types: mutual fund shareholder claims; mutual fund
derivative claims; derivative claims brought on behalf of
AllianceBernstein Holding; and claims brought under ERISA by
participants in the Profit Sharing Plan for Employees of
AllianceBernstein. All four complaints include substantially identical
factual allegations, which appear to be based in large part on the SEC
Order and the NYAG Assurance of Discontinuance (the "NYAG AoD"). The
claims in the mutual fund derivative consolidated amended complaint are
generally based on the theory that all fund advisory agreements,
distribution agreements and 12b-1 plans between AllianceBernstein and
the U.S. Funds should be invalidated, regardless of whether market
timing occurred in each individual fund, because each was approved by
fund trustees on the basis of materially misleading information with
respect to the level of market timing permitted in funds managed by
AllianceBernstein. The claims asserted in the other three consolidated
amended complaints are similar to those that the respective plaintiffs
asserted in their previous Federal lawsuits. All of these lawsuits seek
an unspecified amount of damages.
In February 2004, AllianceBernstein received (i) a subpoena duces tecum
from the Office of the Attorney General of the State of West Virginia
and (ii) a request for information from the Office of the State Auditor,
Securities Commission, for the State of West Virginia ("WV Securities
Commissioner") (subpoena and request together, the "Information
Requests"). Both Information Requests required AllianceBernstein to
F-61
produce documents concerning, among other things, any market timing or
late trading in its sponsored mutual funds. AllianceBernstein responded
to the Information Requests and has been cooperating fully with the
investigation.
In April 2005, a complaint entitled THE ATTORNEY GENERAL OF THE STATE OF
WEST VIRGINIA V. AIM ADVISORS, INC., ET AL. ("WVAG COMPLAINT") was filed
against AllianceBernstein, AllianceBernstein Holding, and various other
unaffiliated defendants. THE WVAG COMPLAINT was filed in the Circuit
Court of Marshall County, West Virginia by the Attorney General of the
State of West Virginia. THE WVAG COMPLAINT makes factual allegations
generally similar to those in the HINDO COMPLAINT. In May 2005,
defendants removed the WVAG Complaint to the U.S. District Court for the
Northern District of West Virginia. In July 2005, plaintiff moved to
remand. In October 2005, the WVAG COMPLAINT was transferred to the
Mutual Fund MDL. In August 2005, the WV Securities Commissioner signed a
"Summary Order to Cease and Desist, and Notice of Right to Hearing"
addressed to AllianceBernstein and AllianceBernstein Holding. The
Summary Order claims that AllianceBernstein and AllianceBernstein
Holding violated the West Virginia Uniform Securities Act and makes
factual allegations generally similar to those in the SEC Order and NYAG
AoD. In January 2006, AllianceBernstein, AllianceBernstein Holding and
various unaffiliated defendants filed a Petition for Writ of Prohibition
and Order Suspending Proceedings in West Virginia state court seeking to
vacate the Summary Order and for other relief.
AXA Financial, AXA S.A. and AXA Equitable are named as defendants in the
mutual fund shareholder complaint and the AllianceBernstein Holding
unitholder derivative complaint. Claims have been asserted against all
these companies that include both control person and direct liability.
AXA Financial is named as a defendant in the mutual fund complaint and
the ERISA complaint. As previously disclosed, AllianceBernstein recorded
charges to income totaling $330 million during the second half of 2003
in connection with establishing the $250 million restitution fund and
certain other matters. During 2005, AllianceBernstein paid $8 million
related to market timing and has cumulatively paid $310 million related
to these matters (excluding the WVAG COMPLAINT-related expenses).
Revenue Sharing-Related Matters
In June 2004, a purported class action complaint entitled AUCOIN, ET AL.
V. ALLIANCE CAPITAL MANAGEMENT L.P., ET AL. ("AUCOIN COMPLAINT") was
filed against AllianceBernstein, AllianceBernstein Holding, the General
Partner, AXA Financial, AllianceBernstein, Investments, Inc., a
wholly-owned subsidiary of AllianceBernstein, certain current and former
directors of the U.S. Funds, and unnamed Doe defendants. The AUCOIN
COMPLAINT names the U.S. Funds as nominal defendants. The AUCOIN
COMPLAINT was filed in the United States District Court for the Southern
District of New York by an alleged shareholder of the AllianceBernstein
Growth & Income Fund. The AUCOIN COMPLAINT alleges, among other things,
(i) that certain of the defendants improperly authorized the payment of
excessive commissions and other fees from U.S. Fund assets to
broker-dealers in exchange for preferential marketing services, (ii)
that certain of the defendants misrepresented and omitted from
registration statements and other reports material facts concerning such
payments, and (iii) that certain defendants caused such conduct as
control persons of other defendants. The AUCOIN COMPLAINT asserts claims
for violation of Sections 34(b), 36(b) and 48(a) of the Investment
Company Act, Sections 206 and 215 of the Advisers Act, breach of common
law fiduciary duties, and aiding and abetting breaches of common law
fiduciary duties. Plaintiffs seek an unspecified amount of compensatory
damages and punitive damages, rescission of their contracts with
AllianceBernstein, including recovery of all fees paid to
AllianceBernstein pursuant to such contracts, an accounting of all U.S.
Fund-related fees, commissions and soft dollar payments, and restitution
of all unlawfully or discriminatorily obtained fees and expenses.
Since June 22, 2004, nine additional lawsuits making factual allegations
substantially similar to those in the AUCOIN COMPLAINT were filed
against AllianceBernstein and certain other defendants. All nine of the
lawsuits (i) were brought as class actions filed in the United States
District Court for the Southern District of New York, (ii) assert claims
substantially identical to the Aucoin Complaint, and (iii) are brought
on behalf of shareholders of U.S. Funds.
In February 2005, plaintiffs filed a consolidated amended class action
complaint (the "AUCOIN CONSOLIDATED AMENDED COMPLAINT") that asserts
claims substantially similar to the AUCOIN COMPLAINT and the nine
additional lawsuits referenced above. In October 2005, the District
Court dismissed each of the claims set forth in the AUCOIN CONSOLIDATED
AMENDED COMPLAINT, except for plaintiffs' claim under Section 36(b) of
the Investment Company Act. In January 2006, the District Court granted
defendants' motion for reconsideration
F-62
and dismissed the remaining claim under Section 36(b) of the Investment
Company Act. Plaintiffs have moved for leave to amend their consolidated
complaint.
-----------------------------------
Although the outcome of litigation generally cannot be predicted with
certainty, management believes that, except as otherwise noted, the
ultimate resolution of the litigations described above involving AXA
Financial and/or its subsidiaries should not have a material adverse
effect on the consolidated financial position of AXA Financial Group.
Except as noted above, 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 AXA Financial Group's
consolidated results of operations in any particular period.
In addition to the matters previously reported and those described
above, AXA Financial 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 AXA Financial Group'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.
21) LEASES
AXA Financial Group 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 2006 and the four successive years
are $185.7 million, $176.4 million, $166.8 million, $143.0 million,
$137.8 million and $708.0 million thereafter. Minimum future sublease
rental income on these noncancelable operating leases for 2006 and the
four successive years is $9.8 million, $7.8 million, $6.5 million, $2.5
million, $2.5 million and $15.8 million thereafter.
At December 31, 2005, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 2006
and the four successive years is $109.6 million, $105.3 million, $114.4
million, $113.3 million, $113.1 million and $1,001.4 million thereafter.
AXA Financial Group has entered into capital leases for certain
information technology equipment. Future minimum payments under
noncancelable capital leases for 2006 and the four successive years are
$0.5 million, $0.5 million, $0.3 million, $0.2 million and zero,
respectively.
22) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
AXA Equitable and MONY Life are restricted as to the amounts they may
pay as dividends to AXA Financial. 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 AXA Equitable
and MONY Life to pay shareholder dividends not greater than $511.2
million and $96.9 million, respectively, during 2006. 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 2005, 2004 and 2003, the
AXA Equitable and MONY Life statutory net income totaled $901.3 million,
$135.9 million and $549.4 million, respectively. Statutory surplus,
capital stock and Asset Valuation Reserve ("AVR") totaled $7,351.2
million and $6,132.1 million at December 31, 2005 and 2004,
respectively. In 2005, 2004 and 2003, respectively, AXA Equitable paid
$500.0 million, $500.0 million and $400.0 million in shareholder
dividends. In 2005 and 2004, respectively, MONY Life paid $75.0 million
and $33.0 million in shareholder dividends.
At December 31, 2005, the AXA Equitable and MONY Life, in accordance
with various government and state regulations, had $51.5 million of
securities deposited with such government or state agencies.
F-63
At December 31, 2005 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, 2005.
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 shareholder's 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 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
AllianceBernstein and AllianceBernstein 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; (j)
certain assets, primarily pre-paid assets, are not admissible under SAP
but are admissible under GAAP and (k) the fair valuing of all acquired
assets and liabilities including VOBA and intangible assets required for
GAAP purchase accounting.
The following reconciles the AXA Equitable and MONY Life'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 AXA Financial Group's consolidated net earnings and equity
on a GAAP basis.
2005 2004 2003
----------------- ----------------- -----------------
(IN MILLIONS)
Net change in statutory surplus and
capital stock.................................... $ 917.3 $ 104.0 $ 43.4
Change in AVR...................................... 301.8 510.8 152.2
----------------- ----------------- -----------------
Net change in statutory surplus, capital stock
and AVR.......................................... 1,219.1 614.8 195.6
Adjustments:
Future policy benefits and policyholders'
account balances............................... 104.3 (403.2) (245.7)
DAC and VOBA..................................... 663.2 563.3 556.1
Deferred income taxes............................ 131.6 126.8 30.9
Valuation of investments......................... (48.1) 2.0 39.6
Valuation of investment subsidiary............... (1,340.1) (460.3) (321.6)
Acquisition costs associated with the
integration of MONY............................ - 367.9 -
Capital contribution to the MONY Companies....... - (277.9) -
Change in fair value of guaranteed minimum
income benefit reinsurance contracts........... 42.7 61.0 (91.0)
Shareholder dividends paid....................... 575.0 533.0 400.0
Changes in non-admitted assets................... (59.3) (97.7) (35.1)
AXA Financial and other subsidiaries............. (161.5) (18.2) (67.2)
Other, net....................................... (84.0) (81.5) (2.1)
GAAP adjustments for Wind-up Annuities........... 30.9 14.9 (2.3)
----------------- ----------------- -----------------
AXA Financial Group's Consolidated Net Earnings.... $ 1,073.8 $ 944.9 $ 457.2
================= ================= =================
F-64
DECEMBER 31,
-------------------------------------------------------
2005 2004 2003
---------------- ---------------- ------------------
(IN MILLIONS)
Statutory surplus and capital stock................... $ 6,079.7 $ 5,162.4 $ 4,134.7
AVR................................................... 1,271.5 969.7 341.9
---------------- ---------------- ------------------
Statutory surplus, capital stock and AVR.............. 7,351.2 6,132.1 4,476.6
Adjustments:
Future policy benefits and policyholders'
account balances.................................. (2,450.0) (2,554.3) (1,483.3)
DAC and VOBA........................................ 8,562.3 7,731.5 6,290.4
Deferred income taxes............................... (1,250.8) (1,670.0) (1,729.8)
Valuation of investments............................ 1,429.8 2,640.3 2,196.3
Valuation of investment subsidiary.................. (3,313.4) (1,973.3) (1,513.0)
Fair value of guaranteed minimum income benefit
reinsurance contracts............................ 132.7 90.0 29.0
Non-admitted assets................................. 1,112.5 1,171.8 1,130.2
Issuance of surplus notes........................... (739.8) (816.6) (599.6)
Goodwill related to acquisition of
MONY.............................................. 427.5 616.6 --
AXA Financial and other subsidiaries................ (1,795.8) (2,184.3) (596.9)
Other, net.......................................... (139.7) (23.6) 77.7
GAAP adjustments for Wind Up Annuities.............. (80.6) (96.4) (103.9)
---------------- ---------------- ------------------
AXA Financial Group's Consolidated
Shareholder's Equity................................ $ 9,245.9 $ 9,063.8 $ 8,173.7
================ ================ ==================
23) BUSINESS SEGMENT INFORMATION
AXA Financial Group's operations consist of the Financial
Advisory/Insurance and Investment Management segments. AXA Financial
Group's management evaluates the performance of each of these segments
independently and allocates resources based on current and future
requirements of each segment.
The Financial Advisory/Insurance segment offers a variety of
traditional, variable and interest-sensitive life insurance products,
annuity products, mutual funds, asset management accounts and other
investment products to individuals and small groups and provides
financial planning services for individuals. 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 also includes Separate Accounts for individual insurance and
annuity products.
The Investment Management segment is principally comprised of the
investment management business of AllianceBernstein. AllianceBernstein
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, mutual 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 principally managed by AllianceBernstein
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 $123.7
million, $118.4 million and $103.0 million for 2005, 2004 and 2003,
respectively, are included in total revenues of the Investment
Management segment.
The following tables reconcile segment revenues and earnings from
continuing operations before 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.
F-65
2005 2004 2003
----------------- ----------------- ------------------
(IN MILLIONS)
SEGMENT REVENUES:
Financial Advisory/Insurance....................... $ 7,796.1 $ 6,528.0 $ 4,905.3
Investment Management.............................. 3,267.4 3,067.1 2,742.9
Consolidation/elimination.......................... (98.7) (82.8) (70.2)
----------------- ----------------- ------------------
Total Revenues..................................... $ 10,964.8 $ 9,512.3 $ 7,578.0
================= ================= ==================
SEGMENT EARNINGS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTEREST:
Financial Advisory/Insurance....................... $ 1,225.8 $ 872.7 $ 556.5
Investment Management.............................. 860.6 672.7 258.5
Consolidation/elimination.......................... - (.9) -
----------------- ----------------- ------------------
Total Earnings from Continuing Operations before
Income Taxes and Minority Interest.............. $ 2,086.4 $ 1,544.5 $ 815.0
================= ================= ==================
DECEMBER 31,
--------------------------------------------------------
2005 2004 2003
----------------- ----------------- ------------------
(IN MILLIONS)
SEGMENT ASSETS:
Financial Advisory/Insurance....................... $ 138,361.3 $ 131,431.3 $ 99,382.3
Investment Management.............................. 15,853.4 14,575.4 15,750.2
Consolidation/elimination.......................... 71.3 19.9 56.7
----------------- ----------------- ------------------
Total Assets....................................... $ 154,286.0 $ 146,026.6 $ 115,189.2
================= ================= ==================
24) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 2005 and 2004 are summarized
below:
THREE MONTHS ENDED
------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------------- --------------- ----------------- -----------------
(IN MILLIONS)
2005
----
Total Revenues...................... $ 2,754.0 $ 2,681.7 $ 2,653.5 $ 2,875.6
=============== =============== ================= =================
Earnings from Continuing
Operations........................ $ 277.5 $ 296.5 $ 299.4 $ 277.3
=============== =============== ================= =================
Net Earnings ....................... $ 276.4 $ 297.7 $ 215.2 $ 284.5
=============== =============== ================= =================
2004
----
Total Revenues...................... $ 2,197.9 $ 2,058.8 $ 2,553.7 $ 2,701.9
=============== =============== ================= =================
Earnings from Continuing
Operations........................ $ 232.6 $ 244.6 $ 181.8 $ 196.5
=============== =============== ================= =================
Net Earnings........................ $ 230.7 $ 299.0 $ 196.3 $ 218.9
=============== =============== ================= =================
F-66
25) DISCONTINUED INVESTMENT BANKING AND BROKERAGE SEGMENT
In June 2004, AXA Financial Group recorded a gain on disposal of the
discontinued Investment Banking and Brokerage segment of $53.2 million,
net of income taxes of $28.7 million. The gain resulted from the
reduction of state tax liabilities related to the 2000 sale of
Donaldson, Lufkin & Jenrette, Inc.
F-67
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Shareholder of
AXA Financial, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated March 17, 2006 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, based on our audits and the reports
of other auditors, 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 17, 2006
F-68
AXA FINANCIAL, INC.
SCHEDULE I
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2005
ESTIMATED CARRYING
TYPE OF INVESTMENT COST (A) FAIR VALUE VALUE
- ------------------ ---------------- ---------------- ----------------
(IN MILLIONS)
Fixed maturities:
U.S. government, agencies and authorities........... $ 2,169.3 $ 2,210.0 $ 2,210.0
State, municipalities and political subdivisions.... 204.6 224.2 224.2
Foreign governments................................. 336.1 377.4 377.4
Public utilities.................................... 3,656.2 3,794.6 3,794.6
All other corporate bonds........................... 29,793.1 30,373.4 30,373.4
Redeemable preferred stocks......................... 1,833.3 1,923.2 1,923.2
---------------- ---------------- ----------------
Total fixed maturities.............................. 37,992.6 38,902.8 38,902.8
---------------- ---------------- ----------------
Equity securities:
Common stocks:
Industrial, miscellaneous and all other............ 88.3 91.9 91.9
Mortgage loans on real estate.......................... 4,702.5 4,813.3 4,702.5
Real estate............................................ 447.7 xxx 447.7
Real estate acquired in satisfaction of debt........... 230.4 xxx 230.4
Real estate joint ventures............................. 119.7 xxx 119.7
Policy loans........................................... 4,946.5 5,415.0 4,946.5
Other limited partnership interests and equity
investments......................................... 1,246.0 1,246.0 1,246.0
Other invested assets.................................. 1,486.4 1,486.4 1,486.4
---------------- ---------------- ----------------
Total Investments...................................... $ 51,260.1 $ 51,955.4 $ 52,173.9
================ ================ ================
(A) Cost for fixed maturities represents original cost, reduced by repayments
and writedowns and adjusted for amortization of premiums or accretion of
discount; cost for equity securities represents original cost reduced by
writedowns; cost for other limited partnership interests represents
original cost adjusted for equity in earnings and reduced by distributions.
F-69
AXA FINANCIAL, INC.
SCHEDULE II
BALANCE SHEETS (PARENT COMPANY)
DECEMBER 31, 2005 AND 2004
2005 2004
----------------- ----------------
(IN MILLIONS)
ASSETS
Investment in consolidated subsidiaries................................ $ 11,764.2 $ 11,711.5
Fixed maturities available for sale, at estimated fair value
(amortized costs, $8.0 and $23.3)................................... 8.4 29.2
Other invested assets.................................................. 15.7 5.7
----------------- ----------------
Total investments................................................ 11,788.3 11,746.4
Cash and cash equivalents.............................................. 83.7 188.5
Loans to affiliates.................................................... 540.5 216.5
Intangible assets, net................................................. 577.7 563.3
Income taxes receivable................................................ 327.3 373.0
Other assets........................................................... 477.6 449.0
----------------- ----------------
Total Assets........................................................... $ 13,795.1 $ 13,536.7
================= ================
LIABILITIES
Short-term and long-term debt.......................................... $ 1,412.6 $ 1,490.9
Loans from affiliates.................................................. 1,580.0 1,568.9
Liability for employee benefit plans................................... 1,171.4 1,084.4
Accrued liabilities.................................................... 385.2 328.7
----------------- ----------------
Total liabilities................................................ 4,549.2 4,472.9
----------------- ----------------
SHAREHOLDER'S EQUITY
Common stock, $.01 par value, 500 million shares authorized,
436.2 million shares issued and outstanding......................... 3.9 3.9
Capital in excess of par value......................................... 1,047.8 1,073.5
Retained earnings...................................................... 8,213.5 7,139.7
Accumulated other comprehensive income................................. 345.5 866.1
Treasury shares, at cost............................................... (364.8) (19.4)
----------------- ----------------
Total shareholder's equity....................................... 9,245.9 9,063.8
----------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY............................. $ 13,795.1 $ 13,536.7
================= ================
The financial information of AXA Financial, Inc. ("AXA Financial") should be
read in conjunction with the Consolidated Financial Statements and Notes
thereto. For information regarding Capital Stock, see Note 12 of Notes to
Consolidated Financial Statements.
F-70
AXA FINANCIAL, INC.
SCHEDULE II
STATEMENTS OF EARNINGS (PARENT COMPANY)
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
2005 2004 2003
---------------- ----------------- -----------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
REVENUES
Equity in earnings from continuing operations
of consolidated subsidiaries before cumulative
effect of accounting change........................... $ 1,306.8 $ 1,018.6 $ 569.5
Net investment income (loss)............................. 39.7 (8.5) 13.0
Investment losses, net................................... (0.7) (1.2) (5.2)
---------------- ----------------- -----------------
Total revenues..................................... 1,345.8 1,008.9 577.3
---------------- ----------------- -----------------
EXPENSES
Interest expense......................................... 170.2 130.0 111.7
Amortization of goodwill and intangible assets........... 4.6 3.2 3.1
General and administrative expenses...................... 28.7 43.4 37.6
---------------- ----------------- -----------------
Total expenses..................................... 203.5 176.6 152.4
---------------- ----------------- -----------------
Earnings from continuing operations before
income taxes ......................................... 1,142.3 832.3 424.9
Income tax benefit....................................... 8.4 23.2 28.9
---------------- ----------------- -----------------
Earnings from continuing operations...................... 1,150.7 855.5 453.8
Earnings from discontinued operations, net of
income taxes.......................................... 8.5 9.1 3.4
(Losses) gains on disposal of discontinued
operations net of income taxes........................ (85.4) 84.3 -
Cumulative effect of accounting changes, net of
income taxes.......................................... - (4.0) -
---------------- ----------------- -----------------
Net Earnings............................................. $ 1,073.8 $ 944.9 $ 457.2
================ ================= =================
F-71
AXA FINANCIAL, INC.
SCHEDULE II
STATEMENTS OF CASH FLOWS (PARENT COMPANY)
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
2005 2004 2003
----------------- ----------------- -----------------
(DOLLARS IN MILLIONS)
Net earnings............................................. $ 1,073.8 $ 944.9 $ 457.2
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Equity in net earnings of subsidiaries.............. (1,315.5) (1,054.8) (572.9)
Dividends from subsidiaries......................... 639.7 554.9 473.7
Investment losses, net.............................. 0.7 1.2 5.2
Change in income tax receivable..................... (8.0) (138.3) 5.9
Other............................................... 98.9 96.2 102.0
----------------- ----------------- -----------------
Net cash provided by operating activities................ 489.6 404.1 471.1
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments.............................. 3.8 2.6 2.5
Sales.................................................. 14.4 26.7 5.8
Loans to affiliates.................................... - - 3.0
Acquisition of the MONY Group, Inc..................... - (1,369.2) -
Purchase of AllianceBernstein Units.................... - (225.0) -
Purchases.............................................. (2.8) - (68.6)
Net change in short-term investments................... - - 2.4
Contribution to subsidiaries........................... - (118.6) (22.0)
Other.................................................. (18.9) 17.8 (7.7)
----------------- ----------------- -----------------
Net cash (used) provided by investing activities......... (3.5) (1,665.7) (84.6)
----------------- ----------------- -----------------
Cash flows from financing activities:
Repayment of long-term debt............................ (275.0) (300.0) (76.8)
Increase (decrease) in short-term debt................. 17.8 - (0.5)
Dividends paid to shareholders......................... - - (230.0)
Increase in loans from affiliates...................... 11.1 1,568.9 -
Purchase (sale) of treasury shares..................... (372.6) 0.4 (3.4)
Other ................................................. 27.8 (29.8) (9.5)
----------------- ----------------- -----------------
Net cash (used) provided by financing activities......... (590.9) 1,239.5 (320.2)
----------------- ----------------- -----------------
Change in cash and cash equivalents...................... (104.8) (22.1) 66.3
Cash and cash equivalents, beginning of year............. 188.5 210.6 144.3
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year................... $ 83.7 $ 188.5 $ 210.6
================= ================= =================
Supplemental cash flow information:
Interest Paid.......................................... $ 123.5 $ 105.0 $ 110.6
================= ================= =================
Income Taxes Refunded.................................. $ - $ - $ -
================= ================= =================
F-72
AXA FINANCIAL, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 2005
FUTURE POLICY POLICY AMORTIZATION
DEFERRED BENEFITS CHARGES (1) POLICYHOLDERS' OF DEFERRED (2)
POLICY POLICYHOLDERS' AND OTHER AND NET BENEFITS AND POLICY OTHER
ACQUISITION ACCOUNT POLICYHOLDERS' PREMIUM INVESTMENT INTEREST ACQUISITION OPERATING
SEGMENT COSTS BALANCES FUNDS REVENUE INCOME CREDITED COSTS EXPENSE
- --------------------- ------------- -------------- -------------- --------- ---------- ------------- ------------- ---------
(IN MILLIONS)
Financial Advisory/
Insurance............ $ 7,781.9 $ 30,756.3 $ 22,677.2 $ 3,739.0 $ 3,152.6 $ 4,049.3 $ 682.0 $ 1,839.0
Investment
Management.......... - - - - 50.8 - - 2,406.8
Consolidation/
Elimination.......... - - - - 16.4 - - (98.7)
------------- -------------- -------------- --------- ---------- ------------- ------------- ---------
Total.................. $ 7,781.9 $ 30,756.3 $ 22,677.2 $ 3,739.0 $ 3,219.8 $ 4,049.3 $ 682.0 $ 4,147.1
============= ============== ============== ========= ========== ============= ============= =========
(1) Net investment income is based upon specific identification of portfolios
within segments.
(2) Operating expenses are principally incurred directly by a segment.
F-73
AXA FINANCIAL, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 2004
Future Policy Policy Amortization
Deferred Benefits Charges (1) Policyholders' of Deferred (2)
Policy Policyholders' and Other and Net Benefits and Policy Other
Acquisition Account Policyholders' Premium Investment Interest Acquisition Operating
Segment Costs Balances Funds Revenue Income Credited Costs Expense
- --------------------- ------------- -------------- -------------- --------- ---------- ------------- ------------- ---------
(In Millions)
Financial Advisory/
Insurance............ $ 6,908.6 $ 30,367.3 $ 22,888.6 $ 2,973.6 $ 2,732.5 $ 3,514.0 $ 510.1 $ 1,579.0
Investment
Management.......... - - - - 39.2 - - 2,344.3
Consolidation/
Elimination.......... - - - - 29.0 - - 20.4
------------- -------------- -------------- --------- ---------- ------------- ------------- ---------
Total.................. $ 6,908.6 $ 30,367.3 $ 22,888.6 $ 2,973.6 $ 2,800.7 $ 3,514.0 $ 510.1 $ 3,943.7
============= ============== ============== ========= ========== ============= ============= =========
(1) Net investment income is based upon specific identification of portfolios
within segments.
(2) Operating expenses are principally incurred directly by a segment.
F-74
AXA FINANCIAL, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 2003
Policy Amortization
Charges (1) Policyholders' of Deferred (2)
and Net Benefits and Policy Other
Premium Investment Interest Acquisition Operating
Segment Revenue Income Credited Costs Expense
- ---------------------------------------------- --------------- --------------- ---------------- ---------------- ----------------
(In Millions)
Financial Advisory/Insurance................. $ 2,275.1 $ 2,345.2 $ 2,680.7 $ 434.6 $ 1,233.5
Investment Management........................ - 22.5 - - 2,484.4
Consolidation/Elimination.................... - 29.4 - - (70.2)
--------------- --------------- ---------------- ---------------- ----------------
Total........................................ $ 2,275.1 $ 2,397.1 $ 2,680.75 $ 434.6 $ 3,647.7
=============== =============== ================ ================ ================
(1) Net investment income is based upon specific identification of portfolios
within segments.
(2) Operating expenses are principally incurred directly by a segment.
F-75
AXA FINANCIAL, INC.
SCHEDULE IV
REINSURANCE (A)
AT AND FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
---------------- ----------------- ---------------- --------------- ---------------
(DOLLARS IN MILLIONS)
2005
- ----
Life Insurance In-force...... $ 437,434.5 $ 143,078.7 $ 50,606.1 $ 344,961.9 14.67%
================ ================= ================ ===============
Premiums:
Life insurance and
annuities............... $ 1,513.9 $ 82.4 $ 153.2 $ 1,584.7 9.67%
Accident and health....... 133.7 88.3 18.7 64.1 29.17%
---------------- ----------------- ---------------- ---------------
Total Premiums............... $ 1,647.6 $ 170.7 $ 171.9 $ 1,648.8 10.43%
================ ================= ================ ===============
2004
- ----
Life Insurance In-force...... $ 414,777.2 $ 130,202.9 $ 49,405.1 $ 333,979.4 14.79%
================ ================= ================ ===============
Premiums:
Life insurance and
annuities............... $ 1,095.4 $ 43.8 $ 158.3 $ 1,209.9 13.08%
Accident and health....... 195.0 154.5 25.4 65.9 38.54%
---------------- ----------------- ---------------- ---------------
Total Premiums............... $ 1,290.4 $ 198.3 $ 183.7 $ 1,275.8 14.40%
================ ================= ================ ===============
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%
================ ================= ================ ===============
(A) Includes amounts related to the discontinued group life and health business.
F-76
Part II, Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
9-1
Part II, Item 9A.
CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of
management, including the Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of AXA Financial
Group's disclosure controls and procedures as of December 31, 2005. Based on
that evaluation, management, including the Chief Executive Officer and Chief
Financial Officer, concluded that AXA Financial Group's disclosure controls and
procedures are effective. There has been no change in the AXA Financial Group's
internal control over financial reporting that occurred during the period
covered by this report that has materially affected, or is reasonably likely to
materially affect, AXA Financial Group's internal control over financial
reporting.
9A-1
Part II, Item 9B.
OTHER INFORMATION
None.
9B-1
Part III, Item 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted pursuant to General Instruction I to Form 10-K.
10-1
Part III, Item 11.
EXECUTIVE COMPENSATION
Omitted pursuant to General Instruction I to Form 10-K.
11-1
Part III, Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Omitted pursuant to General Instruction I to Form 10-K.
12-1
Part III, Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted pursuant to General Instruction I to Form 10-K.
13-1
Part III, Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table presents fees for professional audit services rendered by
PricewaterhouseCoopers LLP ("PwC") for the audit of AXA Financial's annual
financial statements for 2005 and 2004, and fees for other services rendered by
PwC:
2005 2004
----------------- -----------------
(IN THOUSANDS)
Principal Accounting Fees and Services:
Audit fees ..................................... $ 8,851 $ 9,640
Audit related fees.............................. 1,234 2,092
Tax fees........................................ 993 1,971
All other fees.................................. 52 65
----------------- -----------------
Total.............................................. $ 11,130 $ 13,768
================= =================
Audit fees for AXA Financial and AXA Equitable are paid pursuant to a single
engagement letter with PwC.
Audit related fees in both years principally consist of fees for Sarbanes-Oxley
Section 404 implementation and internal control reviews.
Tax fees consist of fees for tax preparation and tax consultation services.
All other fees consist of fees for miscellaneous non-audit services.
AXA Financial's audit committee has determined that all services to be provided
by PwC must be reviewed and approved by the audit committee on a case-by-case
basis; provided, however, that the audit committee has delegated to its
chairperson the ability to pre-approve any non-audit engagement where the fees
are expected to be less than or equal to $100,000 per engagement. Any exercise
of this delegated authority by the audit committee chairperson is required to be
reported at the next audit committee meeting.
14-1
Part IV, Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) The following documents are filed as part of this report:
1. Financial Statements
The financial statements are listed in the Index to Consolidated
Financial Statements and Schedules on page FS-1.
2. Consolidated Financial Statement Schedules
The consolidated financial statement schedules are listed in the Index
to Consolidated Financial Statements and Schedules on page FS-1.
3. Exhibits
The exhibits are listed in the Index to Exhibits that begins on page
E-1.
15-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, AXA Financial, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 17, 2006 AXA FINANCIAL, INC.
By: /s/ Christopher M. Condron
---------------------------------
Name: Christopher M. Condron
President and Chief Executive
Officer, Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Henri de Castries Chairman of the Board, Director March 17, 2006
- ----------------------------------
Henri de Castries
/s/ Christopher M. Condron President and Chief Executive Officer, March 17, 2006
- ---------------------------------- Director
Christopher M. Condron
/s/ Stanley B. Tulin Vice Chairman of the Board and March 17, 2006
- ---------------------------------- Chief Financial Officer, Director
Stanley B. Tulin
/s/ Richard S. Dziadzio Executive Vice President and March 17, 2006
- ---------------------------------- Deputy Chief Financial Officer
Richard S. Dziadzio
/s/ Alvin H. Fenichel Senior Vice President and Controller March 17, 2006
- ----------------------------------
Alvin H. Fenichel
/s/ Bruce W. Calvert Director March 17, 2006
- ----------------------------------
Bruce W. Calvert
/s/ Denis Duverne Director March 17, 2006
- ----------------------------------
Denis Duverne
/s/ Anthony J. Hamilton Director March 17, 2006
- ---------------------------------
Anthony J. Hamilton
/s/ Mary R. Henderson Director March 17, 2006
- ---------------------------------
Mary R. Henderson
S-1
/s/ James F. Higgins Director March 17, 2006
- ---------------------------------
James F. Higgins
/s/ W. Edwin Jarmain Director March 17, 2006
- ---------------------------------
W. Edwin Jarmain
/s/ Christina Johnson Director March 17, 2006
- ---------------------------------
Christina Johnson
/s/ Scott D. Miller Director March 17, 2006
- ---------------------------------
Scott D. Miller
/s/ Joseph H. Moglia Director March 17, 2006
- ---------------------------------
Joseph H. Moglia
/s/ Peter J. Tobin Director March 17, 2006
- ---------------------------------
Peter J. Tobin
S-2
INDEX TO EXHIBITS
Number Description Method of Filing
------ ----------- ----------------
2.1 Acquisition Agreement dated as of June 20, Filed as Exhibit 2.1 to Alliance's Annual
2000, amended and restated as of October 2, Report on Form 10-K for the year ended
2000 among AllianceBernstein, December 31, 2000 and incorporated herein
AllianceBernstein Holding, Alliance Capital reference
Management LLC, Bernstein, Bernstein
Technologies Inc., SCB Partners , Inc.,
Sanford C. Bernstein & Co., LLC, and SCB LLC
2.2 Purchase Agreement dated as of June 20, Filed as Exhibit 10.18 to Alliance's Annual
2000 and among Alliance, AXA Report on Form 10-K for the year ended
Financial and Bernstein December 31, 2000 and incorporated herein by
reference
2.3 Financing Agreement dated as of June 20, Filed as Exhibit 10.19 to Alliance's Annual
2000 between AXA Financial and Alliance Report on Form 10-K for the year ended
December 31, 2000 and incorporated herein by
reference
2.4 Letter Agreement dated as of June 20, 2000 Filed as Exhibit 10.20 to Alliance's Annual
between AXA Financial and Bernstein Report on Form 10-K for the year ended
December 31, 2000 and incorporated herein by
reference
2.5 Agreement and Plan of Merger dated as of Filed as Exhibit 2.1 to the registrant's
September 17, 2003 among AXA Financial, Current Report on Form 8-K dated September 18,
AIMA Acquisition Co. and MONY 2003 and incorporated herein by reference
2.6 Amendment No.1 to the Agreement and Plan Filed as Exhibit 2.1 to the registrant's
of Merger dated as of February 22, 2004 Current Report on Form 8-K dated February 23,
among AXA Financial, AIMA Acquisition Co. 2004 and incorporated herein by reference
and MONY
2.7 Acquisition agreement dated as September Filed as Exhibit 99.1 to the registrant's
14, 2005 between AXA Financial, Inc. and Current Report on Form 8-K dated September 14,
Merrill Lynch, Pierce, Fenner & Smith 2005 and incorporated herein by reference.
Incorporated.
3.2 Amendment to Restated Certificate of Filed as Exhibit 4.01(g) to Post-Effective
Incorporation of AXA Financial Amendment No. 1 to the registrant's
Form S-3 Registration Statement
(No. 333-03224), dated May 27, 1997 and
incorporated herein by reference
3.3 Corrected Certificate of Amendment of Filed as Exhibit 3 to the registrant's Current
Restated Certificate of Incorporation of Report on Form 8-K dated September 1, 1999 and
AXA Financial incorporated herein by reference
3.4 Amendment to the Restated Certificate of Filed as Exhibit 3.4 to the registrant's
Incorporation of AXA Financial dated May Form 10-Q for the quarter ended June 30, 2000
19, 2000 and incorporated herein by reference
E-1
Number Description Method of Filing
------ ----------- ----------------
3.5 By-laws of AXA Financial, as amended Filed as Exhibit 3.3 to the registrant's
effective March 23, 2000 Annual Report on Form 10-K for the year ended
December 31, 1999 and incorporated herein by
reference
4.1 Form of Certificate for AXA Financial's Filed as Exhibit 4(c) to the registrant's
Common Stock, par value $.01 per share Form S-1 Registration Statement
(No. 33-48115), dated May 26, 1992 and
incorporated herein by reference
4.2 Indenture, dated as of December 1, 1993, Filed as Exhibit 4.02 to the registrant's
from AXA Financial to Chemical Bank, as Form S-4 Registration Statement
Trustee (No. 33-73102), dated December 17, 1993 and
incorporated herein by reference
4.3 Form of Second Supplemental Indenture Filed as Exhibit 4.04 to the registrant's
Form S-4 Registration Statement
(No. 33-73102), dated December 17, 1993 and
incorporated herein by reference
4.4 Form of Third Supplemental Indenture, Filed as Exhibit 4.05 to the registrant's Current
dated as of December 8, 1994 from AXA Report on Form 8-K dated December 1, 1994
Financial to Chemical Bank, as Trustee and incorporated herein by reference
4.5 Fourth Supplemental Indenture, dated Filed as Exhibit 4.18(a) to the registrant's
April 1, 1998, from AXA Financial to The Current Report on Form 8-K dated April 7,
Chase Manhattan Bank (formerly known as 1998 and incorporated herein by reference
Chemical Bank), as Trustee, together with
forms of global Senior Note and global
Senior Indenture
4.6 Subordinated Indenture, dated as of Filed as Exhibit 4.10 to the registrant's Current
October 22, 1994, between AXA Financial Report on Form 8-K dated December 19, 1994
and Shawmut Bank Connecticut, National and incorporated herein by reference
Association, as Trustee
4.7 First Supplemental Indenture, dated as of Filed as Exhibit 4.11 to the registrant's Current 4.8
October 22, 1994, between AXA Financial Report on Form 8-K dated December 19, 1994
and Shawmut Bank Connecticut, National and incorporated herein by reference
Association, as Trustee
4.8 Fifth Supplemental Indenture, dated July 28, Filed as Exhibit 4.18(d) to the registrant's
2000, from AXA Financial to The Chase Current Report on Form 8-K dated July 31,
Manhattan Bank (formerly known as 2000 and incorporated herein by reference
Chemical Bank), as Trustee, together with
the form of global Senior Note
9.1(a) Voting Trust Agreement dated as of May Filed as Exhibit 9 to the registrant's
12, 1992, among AXA, Claude Bebear, Form S-1 Registration Statement
Patrice Garnier and Henri de Clermont- (No. 33-48115), dated May 26, 1992 and
Tonnerre incorporated herein by reference
9.1(b) First Amendment dated January 22, 1997 to Filed as Exhibit 9(b) to the registrant's Annual
the Voting Trust Agreement dated as of Report on Form 10-K for the year ended
May 12, 1992 December 31, 1997 and incorporated herein by
reference
E-2
Number Description Method of Filing
------ ----------- ----------------
9.1(c) Amended and Restated Voting Trust Filed as Exhibit 9.1(c) to the registrant's
Agreement dated May 12, 2002 Annual Report on Form 10-K for the year ended
December 31, 2002 and incorporated herein by
reference
10.1 Cooperation Agreement, dated as of July Filed as Exhibit 10(d) to the registrant's
18, 1991, as amended among AXA Equitable, Form S-1 Registration Statement
AXA Financial and AXA (No. 33-48115), dated May 26, 1992 and
incorporated herein by reference
10.2 Letter Agreement, dated May 12, 1992, Filed as Exhibit 10(e) to the registrant's
among AXA Equitable, AXA Financial and AXA Form S-1 Registration Statement
(No. 33-48115), dated May 26, 1992 and
incorporated herein by reference
10.3 Amended and Restated Reinsurance Filed as Exhibit 10(o) to the registrant's
Agreement, dated as of March 29, 1990, Form S-1 Registration Statement
between AXA Equitable and First Equicor (No. 33-48115), dated May 26, 1992 and
Life Insurance Company incorporated herein by reference
10.4 The Amended and Restated Transfer Filed as Exhibit 19 to the registrant's
Agreement dated as of February 23, 1993, Statement on Schedule 13D dated July 29, 1993
as amended and restated on May 28, 1993, and incorporated herein by reference
among Alliance, Equitable Capital and
Equitable Investment Corporation
10.5 Management Compensation Arrangements with Filed as Exhibit 10.22 to the registrant's
Messrs. Bebear and de Castries and Ms. Annual Report on Form 10-K for the year ended
Colloc'h December 31, 1997 and incorporated herein by
reference
10.6 Exchange Agreement dated as of Filed as Exhibit 10.01 to registrant's Form
September 27, 1994, between AXA and AXA S-4 Registration Statement (No. 33-84462),
Financial dated September 28, 1994 and incorporated
herein by reference
10.7(a) Lease, dated as of July 20, 1995, between Filed as Exhibit 10.26(a) to the registrant's
1290 Associates, L.L.C. and AXA Equitable Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by
reference
10.7(b) First Amendment of Lease Agreement, Filed as Exhibit 10.26(b) to the registrant's
dated as of December 28, 1995, between Annual Report on Form 10-K for the year
1290 Associates, L.L.C. and AXA Equitable ended December 31, 1996 and incorporated
herein by reference
10.7(c) Amended and Restated Company Lease Filed as Exhibit 10.26(c) to the registrant's
Agreement (Facility Realty), made as of Annual Report on Form 10-K for the year
May 1, 1996, by and between AXA ended December 31, 1996 and incorporated herein
Equitable and the IDA by reference
10.7(d) Amended and Restated Company Lease Filed as Exhibit 10.26(d) to the registrant's
Agreement (Project Property), made and Annual Report on Form 10-K for the year
entered into as of May 1, 1996, by and ended December 31, 1996 and incorporated
between the IDA, AXA Equitable and herein by reference
EVLICO
E-3
Number Description Method of Filing
------ ----------- ----------------
10.7(e) Second Amendment of Lease, dated as of May Filed as Exhibit 10.1 to the registrant's
1, 1997, between 1290 Partners L.P. and Form 10-Q for the quarter ended June 30, 1997
AXA Equitable and incorporated herein by reference
10.8 Agreement dated April 24, 1996, between Filed as Exhibit 10.27 to the registrant's
AXA Equitable and Mr. Stanley B. Tulin Form 10-Q for the quarter ended March 31, 1997
and incorporated herein by reference
10.9 Employment Agreement dated May 11, 2001 Filed as Exhibit 10.16 to the registrant's
between AXA Financial, AXA Equitable and Form 10-Q for the quarter ended June 30, 2001
Christopher M. Condron and incorporated herein by reference
10.10 Restated Employment Agreement dated as of Filed as Exhibit 10.17 to the registrant's
July 5, 2001 between AXA Financial, AXA Form 10-Q for the quarter ended September 30,
Equitable and Stanley B. Tulin 2001 and incorporated herein by reference
10.11 Amended and Restated Employment Agreement, Filed as Exhibit 10.1 to the registrant's Form
dated as of September 27, 2004, between 8-K dated October 1, 2004 and incorporated
AXA Financial, AXA Equitable, and Stanley herein by reference
B. Tulin
10.12 Employment Letter Agreement, dated as of Filed as Exhibit 10.2 to the registrant's Form
September 27, 2004, between AXA Equitable 8-K dated October 1, 2004 and incorporated
and Stanley B. Tulin herein by reference
10.13 Employment Letter Agreement Dated as of Filed as Exhibit 10.3 to the registrant's Form
September 27, 2004, between AXA Equitable 8-K dated October 1, 2004 and incorporated
and Stanley B. Tulin herein by reference
10.14 Employment Agreement dated as of March Filed as Exhibit 10.14 to the registrant's Annual
14, 2005 between AXA Financial, AXA Report on Form 10-K dated March 31, 2005
Equitable and John A. Graf and incorporated herein by reference.
10.15 Employment Letter Agreement dated March Filed as Exhibit 10.15 to registrant's Annual
14, 2005 between AXA Financial and John A. Report on Form 10-K dated March 31, 2005 and
Graf incorporated herein by reference.
13.1 AllianceBernstein Risk Factors Filed herewith
18 Preferability Letter from Filed as Exhibit 18 to the Registrant's Annual
PricewaterhouseCoopers LLP Report on Form 10-K for the year ended
December 31, 2002 and incorporated herein by
reference
21 Subsidiaries of the registrant Omitted pursuant to General Instruction I of
Form 10-K
23.1 Consent of PricewaterhouseCoopers LLP Filed herewith
23.2 Consent of KPMG LLP (regarding Filed herewith
AllianceBernstein L.P. and
subsidiaries)
23.3 Consent of KPMG LLP (regarding Filed herewith
AllianceBernstein Holding L.P.)
E-4
31.1 Section 302 Certification made by the Filed herewith
registrant's Chief Executive Officer
31.2 Section 302 Certification made by the Filed herewith
registrant's Chief Financial Officer
32.1 Section 906 Certification made by the Filed herewith
registrant's Chief Executive Officer
32.2 Section 906 Certification made by the Filed herewith
registrant's Chief Financial Officer
E-5