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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
[X] OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
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 Act:
Title of each class Name of each exchange on which registered
------------------------------------ ----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
None
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 an accelerated filer (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, 2004.
As of March 30, 2005, 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.
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TABLE OF CONTENTS
Part I Page
Item 1. Business........................................................................ 1-1
Overview........................................................................ 1-1
Recent Events................................................................... 1-1
Segment Information............................................................. 1-2
Other Discontinued Operations................................................... 1-5
General Account Investment Portfolio............................................ 1-6
Employees and Financial Professionals........................................... 1-6
Competition..................................................................... 1-7
Regulation...................................................................... 1-7
Parent Company.................................................................. 1-11
Other Information............................................................... 1-12
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
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
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
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
PART I, ITEM 1.
BUSINESS(1)
OVERVIEW
AXA Financial 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 $598.01 billion at December 31, 2004, of which
approximately $538.76 billion are assets under management at Alliance (as
defined below). Through its insurance company subsidiaries, AXA Financial is
also among the largest life insurance organizations in the United States. AXA
Financial 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 Alliance Capital
Management L.P., a Delaware limited partnership, and its subsidiaries
("Alliance"). Alliance is a leading global investment management firm. For
additional information on AXA Financial's business segments, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results Of Continuing Operations By Segment" below and Note 23 of Notes to
Consolidated Financial Statements. The Holding Company 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
On July 8, 2004, the Holding Company completed its acquisition of MONY (the
"MONY Acquisition") and, under the terms of the related merger agreement, paid
or made provisions 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. The Holding Company
funded the MONY Acquisition by using available cash and issuing $1.28 billion of
subordinated notes to AXA and two AXA affiliates. The MONY Acquisition provides
AXA Financial with additional scale in distribution, client base and assets
under management. The process of integrating the business operations of the MONY
Companies with those of AXA Financial is expected to continue through 2005. To
date, most of the business operations of MONY Life and MLOA have been combined
with those of AXA Financial. For additional information regarding the MONY
Acquisition, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 2 of Notes to Consolidated
Financial Statements.
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(1) As used in this Form 10-K, the term "AXA Financial" refers to AXA Financial,
Inc., a Delaware corporation incorporated in 1991 (the "Holding Company") and
its consolidated subsidiaries. The term "MONY" refers to The MONY Group Inc., a
Delaware corporation acquired by the Holding Company on July 8, 2004 that merged
with and into the Holding Company on July 22, 2004, and the term "MONY
Companies" means MONY Life Insurance Company ("MONY Life"), MONY Life Insurance
Company of America ("MLOA"), Advest, Inc. ("Advest"), U.S. Financial Life
Insurance Company ("USFL") and the other subsidiaries of MONY acquired by the
Holding Company in the MONY Acquisition. The term "Financial Advisory/Insurance
Group" refers collectively to AXA Equitable Life Insurance Company (formerly The
Equitable Life Assurance Society of the United States) ("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, successor to Equitable Distributors, Inc.
(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") and to the
MONY Companies. The term "Insurance Group" refers collectively to AXA Equitable,
MONY Life, MLOA, USFL, AXA Life and AXA Financial (Bermuda) Ltd. ("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 ("Other
Discontinued Operations").
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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 services to individuals, small groups, small and medium-size
businesses, state and local governments and not-for-profit organizations, as
well as financial planning services to individuals. It also administers
traditional participating group annuity contracts, generally for corporate
qualified pension plans, and association plans which 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 insurance and annuity products,
accounted for approximately $6.68 billion of revenues (or 69.4% of total
revenues, after intersegment eliminations) for the year ended December 31, 2004.
Financial Advisory/Insurance segment products are offered on a retail basis in
all 50 states, the District of Columbia, Puerto Rico, Guam and the U.S. Virgin
Islands by AXA Advisors and MONY Securities Corporation ("MSC"), both
broker-dealers, and AXA Network and MONY Brokerage, Inc. ("MBI"), both insurance
general agencies. AXA Distributors, a broker-dealer subsidiary of AXA Equitable,
distributes AXA Equitable products on a wholesale basis in all 50 states, the
District of Columbia and Puerto Rico through major national securities firms,
independent financial planners, other broker-dealers and banks. Association and
corporate pension plans are marketed directly to clients by the Insurance Group.
In addition, Advest is a regional broker/dealer that provides securities
brokerage, investment banking, institutional sales, trading and asset management
services to retail and institutional investors in 18 states and the District of
Columbia. Advest also distributes Financial Advisory/Insurance segment products
on a retail basis.
As of December 31, 2004, the Insurance Group had approximately 3.7 million
insurance policies and 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 AND SERVICES. The Insurance Group is among the country's leading
issuers of variable life insurance and variable annuity products. Variable life
insurance and annuity products offer purchasers the opportunity to invest some
or all of their account values in equity and fixed income investment options.
Variable life insurance products offered by the Insurance Group include single
life products and second-to-die policies and products for the corporate owned
life insurance ("COLI") market. Variable annuity products offered by the
Insurance Group include individual variable deferred annuities and group
annuities for the employer retirement plan market. Most individual variable
annuity products offer one or more enhanced features, which may include an
extra-credit to the initial account value, dollar cost averaging programs,
enhanced death benefits and various guaranteed minimum benefits. These
guaranteed minimum benefits include a guaranteed minimum death benefit ("GMDB"),
a guaranteed minimum income benefit ("GMIB") and a guaranteed minimum withdrawal
benefit. For additional information regarding these guaranteed minimum benefit
features, see Notes 3, 11, 16 and 18 of Notes to Consolidated Financial
Statements.
In 2004, individual variable and interest-sensitive life insurance policies and
variable annuity contracts accounted for 12.7% and 70.5%, respectively, of total
premiums and deposits of life insurance and annuity products.
During periods of sustained market downturns, demand for variable products like
the ones emphasized by the Insurance Group typically declines relative to fixed
products. In recognition of this, in recent years, the Insurance Group has
placed increasing emphasis on the development and sale of new fixed products,
particularly universal life and term life insurance policies, to further
diversify its product offerings. The Insurance Group expects to continue to
develop and enhance its fixed insurance products. In addition, through USFL, the
Insurance Group offers term life and universal life insurance products designed
for the special 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. USFL primarily distributes its products
through brokerage general agencies. The Insurance Group also offers individual
single premium fixed deferred annuities, which credit an initial and subsequent
annually declared interest rates, and payout annuity products, including
traditional immediate annuities, immediate annuities with cash value and
variable immediate annuities.
1-2
The continued growth of third-party assets under management remains a strategic
objective of AXA Financial, 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). Over the past
five years, Separate Account assets for individual variable life and variable
annuities have increased by $17.09 billion to $61.45 billion at December 31,
2004, which increase includes $4.85 billion attributable to the MONY Companies.
Of this year end amount, approximately $42.93 billion was invested through EQ
Advisors Trust ("EQAT") and approximately $14.22 billion was invested through
AXA Premier VIP Trust ("VIP Trust").
EQAT is a mutual fund offering variable life and annuity contractholders a
choice of single-advisor equity, bond, "hybrid" and money market investment
portfolios that are available in AXA Equitable's variable life and annuity
products. AXA Equitable serves as the Investment Manager and Administrator of
EQAT. Day-to-day portfolio management services for each investment portfolio are
provided, on a subadvisory basis, by various affiliated and unaffiliated
investment advisors. Alliance and Boston Advisors, Inc. ("Boston Advisors"), an
AXA Financial company, provided investment advisory services to investment
portfolios representing approximately 61% of the total assets in EQAT portfolios
at December 31, 2004 and unaffiliated investment advisers 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, bond, "hybrid", money market and "fund of funds"
investment portfolios that are available in AXA Equitable's variable life and
annuity products. These "fund of funds" investment portfolios pursue their
investment objectives by investing exclusively in other funds managed by EQAT
and VIP Trust. AXA Equitable serves as the Investment Manager and Administrator
of VIP Trust. Day-to-day portfolio management services for each investment
portfolio are provided, on a subadvisory basis, by various affiliated and
unaffiliated investment advisors. Alliance and AXA Rosenberg Investment
Management LLC, an AXA affiliate, provided investment advisory services in
respect of investment portfolios representing approximately 28% of the total
assets in the VIP Trust portfolios at December 31, 2004 and unaffiliated
investment advisors provided investment advisory services in respect of the
balance of the assets in the VIP Trust portfolios.
AXA Enterprise Multimanager Funds Trust (formerly AXA Premier Funds Trust)
("Multimanager Trust") is a retail multi-manager mutual fund consisting of
equity investment, bond investment, money market and "fund-of-funds" investment
portfolios. These "fund of funds" investment portfolios pursue their investment
objectives by investing exclusively in other retail funds managed by AXA
Equitable or Enterprise Capital Management, Inc. ("Enterprise Capital"), a
subsidiary of the Holding Company. At December 31, 2004, Multimanager Trust had
total assets of $145 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 advisors. Alliance and AXA Rosenberg
Investment Management LLC provided investment advisory services to investment
portfolios representing approximately 26% of the total assets in Multimanager
Trust portfolios at December 31, 2004 and unaffiliated investment advisors
provided investment advisory services in respect of the balance of the assets in
the VIP Trust portfolios.
The Enterprise Group of Funds, Inc. ("EGF") is a retail mutual fund comprised of
equity, bond, "hybrid" and money market investment portfolios. At December 31,
2004, EGF had total assets of $5.0 billion. Enterprise Capital, acquired in the
MONY Acquisition, serves as the Investment Manager to each series of EGF, except
the Enterprise Money Market Fund, for which AXA Equitable serves as the
Investment Manager. Day-to-day portfolio management services for each investment
portfolio are provided, on a sub-advisory basis, by various affiliated and
unaffiliated investment advisors. Alliance and Boston Advisors provided
investment advisory services to investment portfolios representing approximately
5% of the total assets in EGF portfolios at December 31, 2004 and unaffiliated
investment advisors provided investment advisory services in respect of the
balance of the assets in EGF portfolios.
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".
MARKETS. The Financial Advisory/Insurance Group's targeted customers primarily
include affluent and emerging affluent individuals who are seeking financial
planning advice, such as professionals and owners of small businesses, as well
as employees of public schools, universities, not-for-profit entities and
certain other tax-exempt organizations, and existing customers. Variable and
universal life insurance is targeted at individuals in middle-to-
1-3
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. Target markets for variable annuities
include, in addition to the personal retirement savings market, retirement plans
for educational and not-for-profit organizations, corporate pension plans
(particularly 401(k) defined contribution plans for small to mid-size groups)
and the IRA retirement planning market. Mutual funds and other investment
products are intended for a broad spectrum of clients and add breadth and depth
to the range of needs-based services and products the Financial Advisory/
Insurance Group is able to provide.
DISTRIBUTION. Retail distribution of the Insurance Group's insurance products is
accomplished by financial professionals associated with AXA Advisors, AXA
Network, MONY Life, MSC, MBI, Advest and/or other MONY Companies. These
financial professionals have access to and can offer a broad array of insurance
and investment products and services from affiliated and unaffiliated
insurers and other financial service providers.
Wholesale distribution of the Insurance Group's insurance products is
accomplished through AXA Financial's wholesale distribution companies,
principally AXA Distributors, which at December 31, 2004 had selling agreements
with major national securities firms, banks or similar financial institutions,
broker-dealers and financial planners. In 2004, three major national securities
firms were responsible for approximately 16.9%, 7.0% and 5.5%, respectively, of
AXA Distributors' 2004 premiums and deposits. In 2004, AXA Distributors was
responsible for approximately 40.6% of the Financial Advisory/Insurance Group's
total premiums and deposits. MONY Life and MLOA also distribute their products
on a wholesale basis, principally through MONY Life's MONY Partners division.
Enterprise Fund Distributors, Inc. ("EFD"), an affiliate of the Holding Company,
is the principal distributor of AXA Financial's retail mutual funds. At December
31, 2004, EFD had selling agreements with major national securities firms,
regional securities firms, insurance company-affiliated broker-dealers and
financial planning firms, other broker-dealers, banks, clearing firms and other
financial institutions. In 2004, three major national securities firms were
responsible for approximately 14.78%, 6.05% and 2.56%, respectively, of EFD's
2004 sales.
During the second quarter of 2005, MONY Life financial professionals are
expected to become financial professionals of AXA Network and AXA Advisors. In
addition, AXA Distributors is expected to replace MONY Partners as the wholesale
distributors of insurance products of MONY Life and MLOA during the second
quarter of 2005.
REINSURANCE AND HEDGING. During 2004, the Insurance Group (other than USFL)
reinsured most of its new variable life, universal life and term life policies
on an excess of retention basis, retaining up to a maximum of $15 million on
single-life policies and $20 million on second-to-die policies. In 2004, USFL
retained up to a maximum of $750,000 on single-life policies and $1.0 million on
second-to-die policies. For amounts issued in excess of those limits,
reinsurance from unaffiliated third parties is sought. 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 2.2% of the total policy life 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,
2004, the Insurance Group had reinsured, subject to certain maximum amounts or
caps in any one period, approximately 75.3% of its net amount at risk resulting
from the GMIB feature and approximately 25.8% of its net amount at risk to the
GMDB obligation on annuity contracts in force as of December 31, 2004. The
Insurance Group has adopted certain hedging strategies that are designed to
further mitigate exposure to GMDB and GMIB liabilities.
For additional information about reinsurance and hedging strategies implemented
by AXA Financial, 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., $15 million on single life
policies and $20 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
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generally discontinued its participation in new accident,
health, aviation and space reinsurance pools and arrangements for years
following 2000. The Insurance Group is in the process of auditing or otherwise
reviewing the records of many of these reinsurance pools and arrangements.
INVESTMENT MANAGEMENT
GENERAL. The Investment Management segment is principally comprised of the
investment management business of Alliance. Alliance provides diversified
investment management and related services globally to a broad range of clients,
including (a) institutional investors, including unaffiliated, corporate and
public employee pension funds, endowment funds, domestic and foreign
institutions and governments and affiliates such as AXA and its insurance
company subsidiaries, by means of separately managed accounts, institutional
sub-advisory relationships, structured products, group trusts, mutual funds and
other investment vehicles, (b) individual investors, primarily by means of
retail mutual funds sponsored by Alliance, its subsidiaries and affiliated joint
venture companies, sub-advisory relationships in respect of mutual funds
sponsored by third parties, "separately managed account programs" and other
investment vehicles, (c) private clients, including high-net-worth individuals,
trusts and estates, charitable foundations, partnerships, private and family
corporations and other entities, by means of separately managed accounts, hedge
funds, mutual funds and other investment vehicles, and (d) institutional
investors desiring institutional research services by means of in-depth
research, portfolio strategy, trading and brokerage-related services. Alliance
and its subsidiaries also provide distribution and/or shareholder and
administrative services to Alliance-sponsored mutual funds.
Alliance offers diverse investment services with expertise in both growth and
value oriented strategies, the two predominant equity investment styles, blend
strategies that combine growth and value, fixed income strategies, including
both taxable and tax exempt securities, balanced strategies that combine equity
and fixed income, and passive strategies, including both index and enhanced
index portfolios. Alliance's product line includes international, global and
emerging markets services, as well as local and regional services in major
markets around the world.
The Investment Management segment in 2004 accounted for approximately $3.03
billion (or 31.5%) of total revenues, after intersegment eliminations. As of
December 31, 2004, Alliance had approximately $538.76 billion in assets under
management, including approximately $311.26 billion from institutional
investors, approximately $163.55 billion from retail mutual fund accounts and
approximately $63.95 billion from private clients. As of December 31, 2004,
assets of AXA, the Holding Company and the Insurance Group, including
investments in EQAT, VIP Trust and Multimanager Trust, represented approximately
19.9% of Alliance's total assets under management, and fees and other charges
for the management of those assets accounted for approximately 7.3% of
Alliance's total revenues. AXA Financial plans to continue to pursue its
strategy of increasing third-party assets under management. The Investment
Management segment continues to add third-party assets under management, and to
provide asset management services to the Insurance Group.
INTEREST IN ALLIANCE. In October 2000, Alliance 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 Alliance ("Alliance
Units") to the Holding Company or an entity designated by the Holding Company
(the "Bernstein Put"). Since November 2002, the Holding Company, either directly
or indirectly through wholly owned subsidiaries, has acquired a total of 24.48
million Alliance Units for an aggregate purchase price of approximately $885.4
million through several purchases made pursuant to the Bernstein Put. After
giving effect to the Bernstein Acquisition and such subsequent purchases, AXA
Financial's consolidated economic interest in Alliance as of December 31, 2004
was approximately 61.3%, including the general partnership interest held
indirectly by AXA Equitable as the sole shareholder of the general partner of
Alliance Capital Management Holding L.P. ("Alliance Holding") and Alliance
Capital Management L.P. ("Alliance Capital").
For additional information about Alliance, 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 Alliance Capital's Annual Report on Form
10-K for the year ended December 31, 2004.
OTHER DISCONTINUED OPERATIONS
Other Discontinued Operations includes primarily Wind-Up Annuity products, the
terms of which were fixed at issue, which were sold to corporate sponsors of
terminating qualified defined benefit plans. At December 31, 2004,
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$1.10 billion of contractholder liabilities were outstanding. For additional
information about Other Discontinued Operations, 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, 2004:
INSURANCE GROUP
GENERAL ACCOUNT INVESTMENT ASSETS
NET AMORTIZED COST (1)
(DOLLARS IN MILLIONS)
AMOUNT % OF TOTAL
Fixed maturities (2)................... $ 37,950.6 73.8%
Mortgages.............................. 4,922.2 9.6
Equity real estate..................... 815.9 1.6
Other equity investments............... 1,279.7 2.5
Policy loans........................... 5,129.0 10.0
Cash and short-term investments (3).... 1,288.7 2.5
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Total.................................. $ 51,386.1 100.0%
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(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 $2.13 billion on fixed maturities
classified as available for sale. Fixed maturities include approximately
$1.48 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 which 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.
EMPLOYEES AND FINANCIAL PROFESSIONALS
As of December 31, 2004, AXA Financial had approximately 11,800 employees. Of
these, approximately 7,300 and 4,100 were employed full-time by the Financial
Advisory/Insurance Group and Alliance, respectively. In addition to these
employees, the Financial Advisory/Insurance Group had a sales force consisting
of approximately 5,200 AXA Advisors financial professionals, 920 MONY financial
professionals, 500 Advest financial professionals and 400 field managers.
1-6
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 price; financial and
claims-paying ratings; size, strength, professionalism and objectivity of the
sales force; product quality, range and features/functionality; 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 30, 2005 the financial strength or
claims-paying rating of AXA Equitable was "AA-" from Standard & Poor's
Corporation (4th highest of 21 ratings; with stable 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 30, 2005, the financial strength or claims-paying ratings
of MONY Life and MLOA were "A+" from Standard & Poor's Corporation (5th highest
of 20 ratings; with stable 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 30,
2005, 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). As of March
30, 2005, the Holding Company's long-term debt rating was "A" from Standard &
Poor's Corporation (6th highest of 22 ratings; with stable outlook), "A3" from
Moody's Investors Services (7th 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 investment management business is highly competitive
and new entrants are continually attracted to it. No single or small group of
competitors is dominant in the industry. Alliance 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 Alliance
offers. Alliance's competitors offer a wide range of financial services to the
same customers that Alliance seeks to serve. Many of Alliance'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
Alliance does. These factors may place Alliance at a competitive disadvantage.
To grow its business, Alliance must be able to compete effectively for assets
under management. Key competitive factors include (i) the array of investment
products Alliance offers; (ii) the thoroughness of Alliance's research; (iii)
Alliance's investment performance; (iv) the fees Alliance charges; (v)
Alliance's ability to further develop and market its brand; (vi) Alliance's
global presence; and (vii) Alliance's commitment to place the interests of its
clients first. AXA and its subsidiaries are not obligated to provide resources
to Alliance.
AXA, AXA Equitable and certain of their direct and indirect subsidiaries provide
financial products and services, some of which are competitive with those
offered by Alliance. Alliance's partnership agreement specifically allows AXA
Equitable and its subsidiaries (other than the general partner of Alliance) to
compete with Alliance and to exploit opportunities that may be available to
Alliance. In addition, Alliance provides investment management services to
unaffiliated insurance companies, some or all of which compete with AXA
Equitable.
REGULATION
STATE 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, Guam, 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. The extent of state 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
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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. Recently, 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 insurance
companies regarding collusive bidding and revenue sharing practices and
practices associated with replacements and exchanges of life insurance and
annuities. For additional information, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Forward Looking Statements
and Risk Considerations".
A number of states, including New York, California and Florida, have enacted
legislation requiring disclosure of extensive information concerning Holocaust
era insurance policies sold in Europe prior to and during the Second World War.
While these statutes vary and certain of them provide exemption for companies
such as AXA that participate in the International Commission on Holocaust Era
Insurance Claims, the ultimate sanction under certain of these statutes for
failure to disclose the required information is revocation of an insurer's
license to engage in the insurance business in the concerned state. Although the
members of the Insurance Group intend to comply with these laws with respect to
their own activities, the ability of AXA and its European affiliates to comply
may be impacted by various factors including the availability of relevant
information after the passage of more than 50 years and privacy laws in effect
in various European countries. Any failure to comply with these laws could
result in state regulatory authorities seeking to take enforcement actions
against AXA and its U.S. affiliates, including AXA Equitable, even though none
of the members of the Insurance Group controls AXA.
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. AXA Equitable has agreed with the
NYID that similar approval requirements also apply to transactions between (i)
material subsidiaries of AXA Equitable and (ii) the Holding Company (and certain
affiliates, including AXA). In 2004, AXA Equitable paid an aggregate of $500
million 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. Recently,
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 could have a
positive impact on funding levels of tax qualified retirement products. In 2003,
reductions in income tax rates on long-term capital gains and qualifying
corporate dividends were enacted which could adversely impact the relative
attractiveness of cash value life insurance and annuity products (and may
adversely impact the sales of such 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 nonqualified deferred
compensation plan and qualified plan rules. These provisions 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.
Management cannot predict what other proposals may be made, what legislation, if
any, may be introduced or enacted or what the effect of any such legislation
might be.
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SECURITIES LAWS. The Holding Company, 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, MSC, AllianceBernstein Investment Research and
Management, Inc. (formerly known as Alliance Fund Distributors, Inc.), Sanford
C. Bernstein & Co., LLC, Enterprise Fund Distributors, Inc. 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. ("NASD"). As
broker-dealers registered with the SEC, the Broker-Dealers are subject to the
capital requirements of the SEC and/or 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 NASD also regulate the sales practices of the
Broker-Dealers. In addition, the Broker-Dealers are also subject to regulation
by state securities administrators in those states in which they conduct
business. For additional information, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Forward-Looking Statements
and Risk Considerations - Legal Environment".
Sales of variable insurance and annuity products are regulated by the SEC and
NASD. Currently, the SEC, the NASD and other regulators are investigating
certain sales practices involving certain sales of variable annuities and
transactions in which an existing variable annuity is replaced by, or exchanged
for, a new variable annuity. The SEC has recently requested from AXA Advisors
information and documents regarding the replacement and exchange of variable
annuities. AXA Advisors has complied with this request.
The SEC, other governmental regulatory authorities, including state securities
administrators, and the NASD 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 February 2004, without admitting or
denying the allegations, AXA Advisors entered into an agreement with the NASD to
resolve charges that AXA Advisors failed to inform investors that they were
entitled to the waiver of certain sales charges and certain related matters.
Under the terms of the settlement agreement, AXA Advisors paid fines totaling
$300,000, agreed to provide restitution to those customers who paid such sales
charges from February 2002 to February 2004, and agreed to retain an independent
consultant to review and recommend revisions to its supervisory and compliance
procedures and systems. In addition, in November 2004, without admitting or
denying the allegations, AXA Advisors entered into an agreement with the NASD to
resolve charges that it had made late disclosures of certain reportable
information about its registered representatives. Under the terms of the
settlement agreement AXA Advisors paid a fine of $250,000 and agreed to conduct
certain internal reviews to evaluate its reporting systems and to certify that
the firm has established systems and procedures reasonably designed to achieve
compliance with reporting requirements. The Broker-Dealers and other AXA
Financial subsidiaries have also provided information and documents to the SEC,
NASD and other regulators on a wide range of issues, including supervisory
issues, market timing, late trading, valuation, suitability, 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". Fines and other sanctions could result from pending regulatory
matters. For additional information, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Forward-Looking Statements
and Risk Considerations - Legal Environment".
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 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 Alliance, 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, MONY Life, Enterprise Capital and certain
affiliates and Alliance and certain affiliates of Alliance 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.
Recently, regulators, including the SEC, the NASD and state attorneys general,
have focused attention on various practices in or affecting the investment
management and/or mutual fund industries, including market timing and late
trading. The SEC defines market timing as the practice of short-term buying and
selling of mutual fund shares in a manner that exploits pricing inefficiencies
and market movements. Rule 22c-1 of the Investment Company Act (often referred
to as the "forward pricing" rule) requires mutual funds to sell and redeem fund
shares at a price based on current net asset value ("NAV") which is computed
after receipt of an order to buy or redeem. This rule also requires mutual funds
to calculate their NAV at least once a day, and most mutual funds do so when the
major U.S. stock exchanges close at 4 p.m. Eastern Time. Late trading refers to
the illegal practice of permitting a purchase or redemption order received after
the 4 p.m. pricing time to receive the share price calculated as of 4 p.m.,
thereby allowing the late trader to take advantage of news or events that occur
after 4 p.m. but which are not yet reflected in the day's price. AXA Equitable,
EQAT, Multimanager Trust, VIP Trust, AXA Advisors, AXA Distributors and certain
of the MONY Companies have received various requests for information and
documents from the SEC and the NASD regarding these practices. Each of the
requests has been responded to and the requested documents have been provided.
In January 2004, the SEC completed an onsite examination of EQAT, Multimanager
Trust, VIP Trust, AXA Equitable, as the investment manager to the Trusts, and
the Trusts' distributors. The SEC has advised AXA Equitable that no deficiencies
or violations came to the SEC's attention during this examination.
In addition, the SEC, the NASD and other regulators have requested from a number
of entities, including AXA Equitable, AXA Advisors, AXA Distributors, EQAT, VIP
Trust and Multimanager Trust, information relating to certain practices often
referred to as "revenue sharing" and the use of fund portfolio brokerage
commissions. Such requests have been responded to.
For additional information, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Forward-Looking Statements and
Risk Considerations".
ALLIANCE REGULATORY MATTERS.
Market Timing Investigations. Alliance settled with the SEC and the New York
State Attorney General (the "NYAG") regarding their investigations into trading
practices in certain of Alliance's sponsored mutual funds on December 18, 2003.
Alliance'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 Alliance's final agreement with the NYAG was entered into on September 1,
2004.
Alliance has taken a number of important initiatives to resolve these matters.
Specifically: (i) Alliance established a $250 million restitution fund to
compensate fund shareholders for the adverse effects of market timing; (ii)
Alliance reduced by 20% (on a weighted average basis) the advisory fees on U.S.
long-term open-end retail mutual funds (resulting in an approximate $70 million
reduction in 2004 advisory fees); (iii) Alliance appointed a new management team
and specifically charged it with responsibility for ensuring that Alliance
maintains a fiduciary culture in its retail services business; (iv) Alliance
revised its code of ethics to better align the interests of Alliance's employees
with those of its clients; (v) Alliance formed two new committees composed of
executive management to oversee and resolve code of ethics and
compliance-related issues; (vi) Alliance instituted a substantially strengthened
policy designed to detect and block market timing and material short duration
trading; (vii) Alliance created an ombudsman office, where employees can voice
concerns about work-related issues on a confidential basis; (viii) Alliance
initiated firm-wide compliance and ethics training programs; and (ix) beginning
later in 2005, and biannually thereafter, Alliance will have an independent
third party perform a comprehensive compliance review.
Alliance 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. Alliance has implemented a number of the ICC's
recommendations and intends to implement all recommendations by the end of 2005.
With the approval of the independent directors of the BernsteinAlliance Fund
boards and the staff of the SEC, Alliance retained an Independent Distribution
Consultant ("IDC") to develop a plan for the distribution of the $250 million
restitution fund. To the extent it is determined that the harm to mutual fund
shareholders caused by market timing exceeds $200 million, Alliance will be
required to contribute additional monies to the restitution fund. The IDC will
submit the plan to the SEC and Alliance for approval. After the SEC and
Alliance's management approve
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the distribution plan, it will be published and the public will be afforded an
opportunity to comment. After the comment period has ended, the SEC will issue
an order approving the final plan. The timing of the distribution will be
determined by the SEC and Alliance expects this to occur sometime in 2005.
On February 10, 2004, Alliance 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 (together, the "Information Requests"). Both
Information Requests call for Alliance to produce documents concerning, among
other things, any market timing or late trading in its sponsored mutual funds.
Alliance responded to the Information Requests and is cooperating with the
investigation.
Alliance Capital 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. Alliance Capital paid $296 million (including
$250 million to the restitution fund) during 2004 and has cumulatively paid
$302 million related to these matters. However, Alliance cannot determine at
this time the eventual outcome, timing or impact of these matters. Accordingly,
it is possible that additional charges in the future may be required, the timing
and impact of which Alliance cannot determine at this time.
Directed Brokerage. Alliance Capital and approximately twelve other investment
management firms were mentioned publicly in connection with the settlement by
the SEC of charges that Morgan Stanley violated federal securities laws relating
to its receipt of compensation for selling specific mutual funds and the
disclosure of such compensation. The SEC has indicated publicly that, among
other things, it is considering enforcement action in connection with mutual
funds' disclosure of such arrangements and in connection with the practice of
considering mutual fund sales in the direction of brokerage commissions from
fund portfolio transactions. The SEC has issued subpoenas, and the NASD has
issued requests for information, to Alliance in connection with this matter and
Alliance has provided documents and other information to the SEC and the NASD
and is cooperating fully with their investigations. On March 11, 2005,
discussions commenced with the NASD that Alliance management believes will
conclude these investigations. Accordingly, Alliance Capital recorded a $5
million charge against 2004 earnings.
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 regulation relating to
privacy and other aspects of customer information.
PARENT COMPANY
AXA, the ultimate parent company of the Holding Company, 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 the
largest French insurance group and 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 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 the Holding Company 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 the Holding Company, 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
the Holding Company'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
the Holding Company 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 the
Holding Company 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
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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 2.
PROPERTIES
FINANCIAL ADVISORY/INSURANCE
AXA Financial 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 the Holding Company's, AXA Equitable's and MONY Life's headquarters. AXA
Financial also has the following significant office space leases: 570,000 square
feet in Syracuse, NY, under a lease that expires in 2008 for use by its Syracuse
Operations Center; 244,000 square feet in Secaucus, NJ, under a lease that
expires in 2011 for its Annuity Operations; 185,000 square feet in Charlotte,
NC, under a lease that expires in 2013 for use by its National Operations
Center; 113,000 square feet in Alpharetta, GA, under a lease that expires in
2006 for its Distribution Organizations' training and support use; and 105,000
square feet in Hartford, CT under a lease that expires in 2010 that serves as
Advest's headquarters. AXA Financial owns an office building of approximately
22,000 square feet in Harrisburg, PA that houses AXA Network personnel. AXA
Financial also leases property both domestically and abroad for its operations.
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 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
Alliance's principal executive offices at 1345 Avenue of the Americas, New York,
NY are occupied pursuant to a lease that extends until 2019. Alliance currently
occupies approximately 783,321 square feet of space at this location. Alliance
also occupies approximately 114,097 square feet of space at 135 West 50th
Street, New York, NY, under a lease expiring in 2016, approximately 141,002
square feet of space at One North Lexington, White Plains, NY under a lease
expiring in 2008 and approximately 134,261 square feet of space in Secaucus, NJ
under a lease expiring in 2016. Alliance also leases other property both
domestically and abroad for its operations.
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PART I, ITEM 3.
LEGAL PROCEEDINGS
The matters set forth in Note 20 of Notes to the Registrant's Consolidated
Financial Statements for the year ended December 31, 2004 (Part II, Item 8 of
this report) are incorporated herein by reference.
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PART I, ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction I to Form 10-K.
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PART II, ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Prior to the close of business on January 2, 2001, the Holding Company's Common
Stock was listed on the New York Stock Exchange ("NYSE") under the symbol AXF.
Following January 2, 2001, all of the Holding Company's Common Stock is owned by
AXA and certain of its affiliates and there is no longer a public trading market
for the Holding Company's Common Stock.
In 2003, the Holding Company paid shareholder dividends of $230.0 million; no
shareholder dividends were paid by the Holding Company in 2004. For information
on the Holding Company'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).
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PART II, ITEM 6.
SELECTED FINANCIAL DATA
Omitted pursuant to General Instruction I to Form 10-K.
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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 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 included elsewhere in this Form 10-K.
GENERAL
The consolidated and segment earnings narratives that follow discuss the results
for 2004 compared to the 2003 results. The results of the MONY Companies for
third and fourth quarters of 2004 are included in the Financial
Advisory/Insurance segment's 2004 results.
CONSOLIDATED RESULTS OF OPERATIONS
Earnings from continuing operations before income taxes and minority interest
were $1.54 billion for 2004, an increase of $729.7 million from the $815.0
million reported in 2003. The increase resulted from a $414.2 million increase
in the Investment Management segment principally due to the absence of the 2003
charge of $330.0 million by Alliance for mutual fund matters and legal
proceedings and by a $316.4 million increase for the Financial
Advisory/Insurance segment, of which $40.3 million was due to earnings of the
MONY Companies in the second half of 2004.
Total revenues increased $2.07 billion to $9.64 billion in 2004 from $7.58
billion in 2003 primarily due to a $1.79 billion increase in the Financial
Advisory/Insurance segment, $1.08 billion of which was due to MONY Companies
revenues. Excluding the effect of the MONY Companies, the remaining 2004
increase principally resulted from $272.7 million higher commissions, fees and
other income, $219.0 million higher policy fee income and $58.1 million in
investment gains in 2004 as compared to $70.4 million in investment losses in
2003. The $231.0 million increase in investment advisory and services fees at
Alliance contributed to the $290.4 million increase in the Investment Management
segment's revenues.
Total benefits and other deductions were $8.10 billion in 2004, a $1.34 billion
increase as compared to $6.76 billion in 2003. The Financial Advisory/Insurance
segment increase of $1.47 billion principally resulted from the $1.04 billion of
MONY Companies' benefits and other deductions in the second half of 2004. The
$123.8 million decrease in the Investment Management segment's benefits and
other deductions was primarily due to the absence of the 2003 Alliance charge
for mutual fund matters and legal proceedings partially offset by a $170.7
million increase in compensation and benefits at Alliance.
Income tax expense totaled $394.1 million in 2004 as compared to the $215.0
million reported in 2003. The $92.6 million and $86.5 million respective tax
increases in the Financial Advisory/Insurance and Investment Management segments
resulted principally from increased earnings in both segments.
Net earnings for AXA Financial totaled $944.9 million for 2004 compared to
$457.2 million for 2003, with the MONY Companies contributing $24.8 million to
the $487.7 million increase. 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., reported as discontinued
operations. During the second half of 2004, post-tax gains of $31.1 million were
recognized on the sale of real estate held-for-sale, reported as discontinued
operations. In first quarter 2004, AXA Financial 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 "Accounting
Changes" in Note 3 of Notes to Consolidated Financial Statements.
7-1
RESULTS OF CONTINUING OPERATIONS BY SEGMENT
FINANCIAL ADVISORY/INSURANCE.
FINANCIAL ADVISORY/INSURANCE - RESULTS OF OPERATIONS
(IN MILLIONS)
2004 2003
----------------- ------------------
Universal life and investment-type product policy fee income...................... $ 1,697.8 $ 1,376.7
Premiums.......................................................................... 1,275.8 898.4
Net investment income............................................................. 2,732.6 2,345.2
Investment gains (losses), net.................................................... 73.0 (70.4)
Commissions, fees and other income................................................ 914.8 355.4
---------------- ---------------------
Total revenues............................................................... 6,694.0 4,905.3
------------------ ---------------------
Policyholders' benefits........................................................... 2,405.7 1,711.0
Interest credited to policyholders' account balances.............................. 1,108.3 969.7
Compensation and benefits......................................................... 1,076.8 807.6
Commissions....................................................................... 928.5 757.8
Interest expense ................................................................. 153.7 117.0
Amortization of DAC and VOBA...................................................... 510.1 434.6
Capitalization of DAC............................................................. (1,116.1) (990.7)
Rent expense ..................................................................... 103.3 91.6
Amortization of other intangible assets, net ..................................... 9.3 -
All other operating costs and expenses............................................ 641.5 450.2
----------------- ------------------
Total benefits and other deductions....................................... 5,821.1 4,348.8
------------------ ------------------
Earnings from Continuing Operations before Income Taxes........................... $ 872.9 $ 556.5
================== ===================
In 2004, pre-tax earnings from continuing operations in the Financial
Advisory/Insurance segment increased $316.4 million to $872.9 million as
compared to $556.5 million in 2003. Pre-tax earnings in 2004 included $40.3
million of the MONY Companies' earnings in the second half of 2004. The
remaining $276.1 million increase was principally due to higher commissions,
fees and other income, higher policy fees and net investment gains in 2004 as
compared to net losses in 2003 partially offset by increases in policyholders'
benefits, compensation and benefits and interest credited to policyholders'
account balances.
Segment revenues increased $1.79 billion over the prior year as the MONY
Companies added $1.08 billion in revenues during the second half of 2004. When
the MONY Companies' contribution is excluded, policy fee income, net investment
income, investment gains (losses), net and commissions, fees and other income
all increased in 2004.
Excluding the $102.4 million in MONY Companies' policy fee income for the second
half of 2004, policy fee income totaled $1.60 billion in 2004, as compared to
$1.38 billion in the prior year, reflecting fees earned on higher average
Separate Account balances resulting from market appreciation and positive net
cash flows. Premiums totaled $1.28 billion for 2004, $377.4 million higher than
in 2003, principally due to the $367.5 million addition of the MONY Companies'
premiums in the second half of 2004.
Net investment income increased $387.4 million primarily due to the MONY
Companies $310.2 million earned in the second half of 2004. When this amount is
excluded, the remaining $77.2 million increase was due to higher fixed
maturities asset balances in the General Account, including the $34.7 million
transfer of certain Separate Account assets due to the implementation of SOP
03-1, $95.9 million higher income from equity limited partnerships due to
improved market conditions and prepayment gains of $54.3 million partially
offset by $106.3 million in unrealized depreciation on derivative instruments
including those related to hedging programs implemented to mitigate certain
risks associated with the GMDB/GMIB features of certain contracts and interest
rate swap contracts as well as lower yields due to lower reinvestment rates.
Investment gains, net were $73.0 million in 2004, as compared with $70.4 million
of net losses in 2003. The MONY Companies investment gains, net totaled $14.9
million in the last six months of 2004. When the MONY Companies'
7-2
contribution is excluded, the remaining $128.5 million increase was due to
writedowns on fixed maturities of $54.2 million in 2004 compared to $198.1
million in 2003 partially offset by lower net gains on sales of fixed
maturities.
Commissions, fees and other income increased $559.4 million to $914.8 million in
2004, including the MONY Companies' six months income of $286.7 million, when
compared to 2003. When the MONY Companies total is excluded, the remaining
$272.7 million increase was principally due to the $61.0 million increase in the
fair value of the GMIB reinsurance contracts accounted for as derivatives as
compared to the $91.0 million decrease recorded in 2003 and 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.
Total benefits and other deductions in 2004 increased $1.47 billion from 2003
and included $1.04 billion of MONY Companies benefits and other deductions
during the second half of 2004. When the MONY Companies' total is excluded, the
$430.9 million increase was principally the result of $172.3 million higher
policyholder benefits, a $76.9 million increase in compensation and benefits and
$68.4 million higher interest credited.
Excluding the MONY Companies' $522.4 million of benefits, the $172.3 million
increase in policyholders' benefits was principally due to higher GMDB/GMIB
benefits and reserves due to the growth of the business, higher individual life
death claims as compared to very favorable mortality in 2003, and higher
benefits and reserves in the reinsurance assumed product line due to an increase
in reserves under one life insurance agreement, partially offset by lower
policyholder dividends due to reductions in the dividend scale in AXA Equitable.
Interest credited to policyholders' account balances totaled $1.11 billion in
2004 of which $70.2 million was attributed to the MONY Companies. When the
impact of the MONY Companies is excluded, the remaining $68.4 million increase
from 2003 was due to interest credited on higher account balances including
certain Separate Account policyholder account balances reclassified under SOP
03-1 as General Account balances and the increase related to unrealized
investment gains now credited for Pension Par contracts pursuant to SOP 03-1,
partially offset by the impact of lower crediting rates at AXA Equitable.
Compensation and benefits for the Financial Advisory/Insurance segment increased
$269.2 million to $1.08 billion in 2004 as compared to $807.6 million in 2003.
The MONY Companies compensation expenses for the second half of 2004 totaled
$192.3 million; the remaining $76.9 million of the increase principally due to a
$45.6 million charge for severance costs and benefits associated with non-MONY
staff reductions resulting from the MONY Companies' integration and to higher
benefit costs.
Commissions increased $170.7 million in 2004 from $757.8 million in 2003 with
the MONY Companies' accounting for $130.0 million of that increase. The
remaining $40.7 million in higher commissions was due to higher sales of
interest sensitive life products partially offset by lower variable annuity
sales primarily in the wholesale distribution channel.
Deferred policy acquisition costs ("DAC") and valuation of business acquired
("VOBA") amortization increased to $510.1 million in 2004, up $75.5 million from
$434.6 million in 2003. When the $37.3 million of DAC and VOBA amortization for
the MONY Companies is excluded, the remaining increase was primarily attributed
to higher margins in products that are DAC reactive partially offset by the DAC
and VOBA unlocking impact from recognition of higher expected future margins
driven by higher fees related to variable insurance and annuity contracts.
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. Expected future gross
profit assumptions related to Separate Account performance are set by management
using a long-term view of expected average market returns by applying a
reversion to the mean
7-3
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% (6.94% net of product
weighted average Separate Account fees), and the gross maximum and minimum
annual rate of return limitations are 15.0% (12.94% net of product weighted
average Separate Account fees) and 0% (-2.06% 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, 2004, current
projections of future average gross market returns for purposes of this approach
assume a 2.3% return for 2005 which is within the maximum and minimum
limitations and assume a reversion to the mean of 9.0% after 1.5 years.
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 $125.4 million from $990.7 million in 2003 to $1.12
billion in 2004 with the MONY Companies accounting for $100.2 million of the
2004 increase. When the MONY Companies' impact is excluded, the remaining
increase was 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 $36.7 million to $153.7 million in 2004 principally
due to the $24.5 million of MONY Companies' interest expense as well as the
increase in Holding Company interest expense allocations due to the increase in
its debt during 2004.
All other operating cost and expenses totaled $641.5 million in 2004 with MONY
Companies responsible for $143.8 million of the $191.3 million increase over
2003. The $47.5 million difference was primarily due to a $33.0 million
write-off of capitalized software by AXA Equitable related to the MONY
integration and to an increase in EQAT and VIP Trust subadvisory fees due to
higher asset levels.
Premiums and Deposits. First year premiums and deposits for insurance and
annuity products in 2004 decreased from prior year levels by $980.7 million to
$9.43 billion while total premiums and deposits decreased $193.9 million to
$14.23 billion. The MONY Companies' first year and total premium and deposits
for these product lines were $355.7 million and $927.7 million, respectively, in
the second half of 2004. When the MONY Companies' totals are excluded from the
comparison, total annuity premiums and deposits in 2004 decreased 9.3% from the
strong 2003 results, but increased by 34.9% over 2002's amount. The 2004
decreases were primarily due to $1.27 billion lower first year sales of
individual annuities in the wholesale channel, partially offset by higher sales
in the retail channel. First year life premiums and deposits increased $201.2
million to $415.0 million including the MONY distribution channels' sales of
$124.6 million and higher sales of interest sensitive life products. Total sales
of mutual funds and fee-based assets gathered increased $1.38 billion to $4.23
billion in 2004, including $749.2 million attributed to the MONY Companies.
Surrenders and Withdrawals. Total policy and contract surrenders and withdrawals
increased $1.52 billion to $6.46 billion during 2004 compared to $4.94 billion
in 2003. The MONY Companies' surrenders and withdrawals for the second half of
2004, included in the 2004 total, were $447.2 million: $242.5 million related to
annuity contracts and $170.0 million and $34.7 million, respectively, for
traditional and variable and interest sensitive life products. When the MONY
product surrenders and withdrawals are excluded, surrenders and withdrawals in
2004 totaled $6.01 billion with increases of $803.8 million, $255.9 million and
$9.0 million being reported for individual annuity, variable and interest
sensitive life and traditional life products, respectively. The annuity
surrender rates decreased from 8.4% in 2003 to 8.2% in 2004. The individual life
surrender rate increased to 5.0% from 4.4% in the prior year. AXA Equitable's
individual life surrender rate included the impact of the surrender of a single
large company
7-4
owned life insurance ("COLI") policy in first quarter 2004 and a
large partial withdrawal from a COLI contract in third quarter 2004. The trends
in surrenders and withdrawals continue to fall within the range of expected
experience.
INVESTMENT MANAGEMENT.
The table that follows presents the operating results of the Investment
Management segment, consisting principally of Alliance's operations.
INVESTMENT MANAGEMENT - RESULTS OF OPERATIONS
(IN MILLIONS)
2004 2003
--------------- ----------------
Revenues:
Investment advisory and services fees (1)............................. $ 2,113.4 $ 1,882.4
Distribution revenues................................................. 447.3 436.0
Institutional research services....................................... 303.6 267.9
Shareholder servicing fees............................................ 87.5 94.3
Other revenues, net (1)............................................... 81.5 62.3
--------------- ----------------
Total revenues.................................................... 3,033.3 2,742.9
--------------- ----------------
Expenses:
Alliance employee compensation and benefits........................... 1,085.2 914.5
Promotion and servicing:
Distribution plan payments......................................... 374.2 370.6
Amortization of deferred sales commissions......................... 177.4 208.6
Other promotion and servicing expenses............................. 173.8 165.0
Alliance interest expense............................................. 24.2 25.3
Amortization of other intangible assets, net.......................... 20.7 25.1
Other operating expenses.............................................. 505.1 445.3
Charge for mutual fund matters and legal proceedings.................. - 330.0
--------------- ----------------
Total expenses.................................................... 2,360.6 2,484.4
--------------- ----------------
Earnings from Continuing Operations before
Income Taxes and Minority Interest.................................. $ 672.7 $ 258.5
=============== ================
(1) Includes fees earned by Alliance totaling $38.9 million and $37.6 million
in 2004 and 2003, respectively, for services provided to the Insurance
Group.
Investment Management's pre-tax earnings from continuing operations for 2004
were $672.7 million, an increase of $414.2 million from the prior year. Revenues
totaled $3.03 billion in 2004, an increase of $290.4 million from 2003, as a
$231.0 million increase in investment advisory and services fees, $35.7 million
higher institutional research services revenues, the $19.2 million increase in
other revenues, net and $11.3 million higher distribution revenues were
partially offset by $6.8 million lower shareholder servicing fees due to
outsourcing certain services and a lower number of accounts serviced. Investment
advisory and services fees include fees based on the value of assets under
management ("AUM"), performance fees and brokerage transaction charges for SCB
LLC. The 2004 increase in investment advisory and services fees primarily
resulted from a 14.7% increase in average AUM resulting from market appreciation
of AUM and net asset inflows as well as an increase in performance fees from
$81.8 million in 2003 to $92.5 million in 2004. Higher performance fees in 2004
were attributable to higher global and fixed income fees from strong investment
outperformance. The 2003 performance fees were earned primarily by certain value
equity and fixed income based hedge funds. The increase in institutional
research services revenues was due to higher market share of NYSE volume and
higher revenues from growth in European operations, partly offset by lower
domestic pricing. The increase in other revenues, net in 2004 was principally a
result of interest income and net investment gains recorded in connection with
the consolidation of a joint venture and its funds under management as a result
of the application of FIN 46(R). The increase in distribution revenues in 2004
was principally due to higher average daily mutual fund AUM.
The segment's total expenses were $2.36 billion in 2004, compared to $2.48
billion in 2003, a decrease of $123.8 million. The 2003 total included the
$330.0 million charge related to Alliance's charge for mutual fund matters and
7-5
legal proceedings. When this charge is excluded, the Investment Management
segment's total expenses would have increased $206.2 million in 2004 as higher
Alliance compensation and benefits and an increase in other operating expenses
were partially offset by a decrease in promotion and servicing expenses. This
$18.8 million decrease in 2004 reflect lower amortization of deferred sales
commissions resulting from lower B-share mutual funds sales, partially offset by
higher travel and entertainment and printing costs. There was a $170.7 million
increase in Alliance employee compensation and benefits in 2004 as compared to
2003 as a result of increases in all components of employee compensation and
benefits. Base compensation, fringes and other compensation increased in 2004
primarily due to merit increases and higher recruitment costs. Incentive
compensation in 2004 increased as a result of higher short-term incentive
compensation expense reflecting the increase in net income caused by the 2003
charge to income for mutual fund matters and legal proceedings and higher
amortization of deferred compensation expense, due to vesting of prior year
awards. Commission expense was higher in 2004 primarily due to higher revenues
in institutional investment management, private client and institutional
research services. Other operating expenses increased $59.8 million principally
due to a $16.9 million loss on disposal of fixed assets, higher occupancy costs,
higher Sarbanes-Oxley 404 related costs and higher information technology costs.
On March 11, 2005, discussions commenced between Alliance and the NASD that
Alliance's management believes will conclude the SEC and NASD directed brokerage
investigations. Accordingly, Alliance recorded a $5.0 million charge, reported
in other operating expenses in 2004.
In relation to the settlement with the SEC and the New York Attorney General
("NYAG") regarding their investigations into trading practices in certain of
Alliance's sponsored mutual funds in December 2003, Alliance recorded $330.0
million charges to income in connection with establishing the $250.0 million
restitution fund and certain other matters. During 2004, Alliance paid $296
million (including the $250 million to the restitution fund) and has
cumulatively paid $302 million related to these matters. However, Alliance's
management cannot determine at this time the eventual outcome, timing or impact
of these matters. Accordingly, it is possible additional changes may be required
in the future.
ASSETS UNDER MANAGEMENT
A breakdown of AXA Financial's AUM follows:
ASSETS UNDER MANAGEMENT
(IN MILLIONS)
DECEMBER 31,
-------------------------------------
2004(3) 2003
------------------ -----------------
Third party (1)........................... $ 473,791 $ 413,956
General Account and other (2)............. 58,333 42,059
Insurance Group Separate Accounts......... 65,890 54,438
------------------ -----------------
Total Assets Under Management......... $ 598,014 $ 510,453
================== =================
(1) Includes $22.62 billion and $15.97 billion of assets managed on behalf of
AXA affiliates at December 31, 2004 and 2003, respectively. Also included
in 2004 and 2003 are $12.48 billion and $10.00 billion, respectively, in
assets related to an Australian joint venture between Alliance and an AXA
affiliate.
(2) Includes invested assets of AXA Financial not managed by Alliance,
principally cash and short-term investments and policy loans, totaling
approximately $12.37 billion and $8.24 billion at December 31, 2004 and
2003, respectively, as well as mortgages and equity real estate totaling
$5.96 billion and $4.49 billion at December 31, 2004 and 2003,
respectively.
(3) Includes the assets of and those managed by the MONY Companies beginning
third quarter 2004.
Third party AUM increased $59.84 billion to $473.79 billion in 2004 primarily
due to increases at Alliance, with the MONY Companies contributing $6.83 billion
at December 31, 2004. General Account and other AUM increased $16.27 billion
from the total reported in 2003 primarily due to the MONY Companies' $13.02
billion impact as well as higher sales of AXA Equitable General Account based
products. The $11.52 billion increase in Insurance Group Separate Accounts AUM
in 2004 resulted from $5.77 billion in appreciation due to improving market
conditions and $4.07 billion in net new deposits in addition to the MONY
Companies' addition of $4.85 billion, partially offset by the conversion of an
institutional real estate Separate Account into an unaffiliated private REIT in
second quarter 2004.
7-6
Alliance's AUM increased $61.49 billion to $538.76 billion in 2004 from $477.27
billion in 2003; $55.2 billion of the increase resulted from significant market
appreciation due to equity market gains principally during fourth quarter 2004
and $6.33 billion to net asset inflows. Active equity growth and active equity
value account AUM, which comprise 58.6% of Alliance's total AUM at December 31,
2004, increased by 16.1%, while fixed income and passive account AUM increased
by 9.5%. Net inflows of $7.7 million and $4.7 million, respectively, in the
institutional investment management and the private client categories were
partially offset by net outflows of $6.1 million in the retail channel.
On October 28, 2004, Alliance announced that Alliance and Federated Investors,
Inc. ("Federated") had reached a definitive agreement for Federated to acquire
Alliance's cash management services. Under the agreement, up to $29 billion in
assets from 22 of Alliance's third-party-distributed money market funds will be
transitioned into Federated money market funds. The boards of directors at both
Federated and Alliance have approved the transaction, but it is still subject to
customary closing considerations. The transaction, which is expected to close in
phases occurring between the first and third quarters of 2005, includes initial
cash payments to Alliance of $26 million due at the transaction closing dates,
and additional payments consisting of annual contingent purchase price payments
payable over five years and a final contingent $10 million payment.
The transaction does not include the assets of AllianceBernstein Exchange
Reserves, Inc., which will continue to be available to investors in other retail
products. In addition, Alliance will continue to meet the liquidity needs of
clients in its private client services, managed account programs and
institutional investment management services. The capital gain, net of income
taxes and minority interest, which would be recognized upon the closing of the
transaction in 2005 is not expected to be material to AXA Financial. Estimated
contingent payments received from Federated in the five years following the
closing are expected to be similar in amount to the business's anticipated
profit contribution over that period. The overall effect on earnings is,
therefore, expected to be immaterial.
OTHER DISCONTINUED OPERATIONS
Earnings from Other Discontinued Operations of $7.9 million in 2004 as compared
to $3.4 million in 2003 reflect releases of the allowance for future losses due
primarily to improved actual and projected investment results.
LIQUIDITY AND CAPITAL RESOURCES
THE HOLDING COMPANY
In 2003, the Holding Company paid cash dividends of $230.0 million; no dividends
were paid in 2004.
In connection with its then proposed acquisition of MONY, on December 2, 2003,
the Holding Company bought warrants to purchase 2,228,574 shares of MONY common
stock from Goldman Sachs Group Inc. for $16.3 million. On December 29, 2003, the
Holding Company exercised those warrants, paying $52.4 million to MONY.
On July 7, 2004, the Holding Company 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, the
Holding Company 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 2004 interest cost related to
these Subordinated Notes was approximately $32.2 million, and the full year 2005
interest cost will be $65.4 million.
On July 9, 2004, AXA and certain of its subsidiaries, including AXA Financial,
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
7-7
available to AXA Financial 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 July 8, 2004, AXA Financial 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, 2004, 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. 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 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 Note 2 of Notes to Consolidated Financial Statements.
On November 29, 2004, the Holding Company borrowed an additional $88.9 million
from AXA. This short-term note, due May 29, 2005, bears interest at 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 the
Holding Company.
In connection with Alliance's acquisition of Bernstein, the Holding Company
agreed to provide liquidity to the former Bernstein shareholders after a
two-year lock-out period which ended October 2002. In fourth quarter 2002, a
subsidiary of AXA Equitable, as designee of the Holding Company, acquired 8.16
million of these Alliance Units at the aggregate market price of $249.7 million;
there were no acquisitions in calendar 2003. In March and December 2004, AXA
Financial acquired a total of 16.3 million Alliance Units for an aggregate
market price of $635.7 million, increasing its economic interest in Alliance to
61.3% at December 31, 2004. The remaining 16.3 million Alliance Units still held
by the former Bernstein shareholders at December 31, 2004 may be sold to the
Holding Company at the prevailing market price over the remaining five years
ending in 2009. Generally, not more than 20% of the original Units issued to the
former Bernstein shareholders may be put to the Holding Company in any one
annual period.
To fund its December 2004 Alliance Units purchase, the Holding Company borrowed
an additional $200.0 million from AXA on December 20, 2004. This loan has a
floating rate of 6 month LIBOR plus 15 basis points and resets every 6 months.
The current rate is 2.87%.
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 the Holding Company 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, the Holding Company 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.
USFL's MODCO reinsurance arrangement with MLOA remains in effect for the
universal life insurance policies previously assumed and for new level
term and universal life business issued on or subsequent to January 1,
2005.
o The Holding Company contributed Alliance Units to MLOA that increased
MLOA's statutory surplus by $37.2 million.
o The Holding Company contributed cash to USFL, increasing USFL's statutory
surplus by $22 million.
o The Holding Company contributed cash and Alliance
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.
Neither these intercompany transactions nor the adjustments to statutory
liabilities had any impact on AXA Financial's consolidated results of operations
or financial position.
7-8
The Holding Company's cash requirements include debt service, operating
expenses, taxes, shareholder dividends to AXA, certain employee benefits and
providing funding to certain non-Insurance Group subsidiaries to meet their
capital requirements. In 2004, the Holding Company repaid $300.0 million of its
long-term debt. Pre-tax debt service totaled $130.0 million in 2004, while
general and administrative expenses were $43.4 million. Due to the Holding
Company's December 1999 assumption of primary liability from AXA Equitable for
all current and future obligations of certain of its benefit plans, the Holding
Company paid $67.9 million and $69.7 million in benefits, all of which was
reimbursed by subsidiaries of the Holding Company, in 2004 and 2003,
respectively.
Sources of Liquidity. At December 31, 2004 and 2003, respectively, the Holding
Company held cash and short-term investments and U.S. Treasury securities of
approximately $299.5 million and $210.6 million as well as investment grade
publicly traded bonds totaling $0.4 million and $0.7 million. Other primary
sources of liquidity for the Holding Company include (i) dividends from AXA
Equitable and the MONY Companies (ii) distributions from Alliance, (iii)
dividends, distributions or sales proceeds from less liquid investment assets
and (iv) borrowings from AXA. In 2004 and 2003, respectively, the Holding
Company received $500.0 million and $400.0 million of dividends from AXA
Equitable. Cash distributions from Alliance totaled $49.0 million and $73.2
million in 2004 and 2003, respectively. Cash distributions in 2004 were lower as
a result of the market timing settlements at Alliance. Dividends of $18 million
were paid to the Holding Company by the MONY Companies since their acquisition
in July 2004. The Holding Company held common stock and less liquid investment
assets having an aggregate carrying value of approximately $25.1 million at
December 31, 2004 as compared to $128.4 million at December 31, 2003.
Management from time to time explores selective acquisition opportunities in
financial advisory, insurance and investment management businesses.
Management believes the primary sources of liquidity described above are
sufficient to meet the Holding Company's cash requirements for several years.
AXA EQUITABLE
The principal sources of AXA Equitable'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 and dividends and distributions from subsidiaries.
AXA Equitable'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. AXA Equitable'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. AXA Equitable's primary source of short-term liquidity to
support continuing and discontinued insurance operations is a pool of highly
liquid, high quality short-term instruments structured to provide liquidity in
excess of the expected cash requirements. At December 31, 2004, this asset pool
included an aggregate of $939.3 million in highly liquid short-term investments,
as compared to $826.3 million at December 31, 2003. In addition, a substantial
portfolio of public bonds including U.S. Treasury and agency securities and
other investment grade fixed maturities is available to meet AXA Equitable's
liquidity needs.
Other liquidity sources include dividends and distributions from Alliance. In
2004, AXA Equitable received cash distributions from Alliance and Alliance
Holding of $174.2 million as compared to $241.9 million in 2003. Cash
distributions in 2004 were lower as a result of the market timing settlements at
Alliance.
Management believes there is sufficient liquidity in the form of short-term
assets and its bond portfolio together with cash flows from operations,
scheduled maturities of fixed maturities and borrowings available under its
commercial paper program and bank credit facilities to satisfy AXA Equitable's
liquidity needs.
Liquidity Requirements. AXA Equitable's liquidity needs are affected by
fluctuations in mortality and other benefit payments 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 2004 and 2003, respectively, AXA Equitable paid
shareholder dividends totaling $500.0 million and $400.0 million. Management
believes the Insurance Group has adequate internal sources of funds for its
presently anticipated needs.
7-9
ALLIANCE
Alliance's principal sources of liquidity have been cash flows from operations
and proceeds from the issuance, both publicly and privately, of debt and
Alliance Units. Alliance 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.
Alliance 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 million provides back-up liquidity for Alliance's $425 million
commercial paper program, with the balance available for general purposes,
including capital expenditures and funding payment of deferred sales commissions
to financial intermediaries. The facility's interest rate, at Alliance's option,
is a floating rate generally based on a defined prime rate, a rate related to
LIBOR or the Federal funds rate. To supplement its commercial paper program,
Alliance 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, 2004 under any of
these programs.
Certain of Alliance's deferred and other compensation plans provide for the
election by participants to receive Alliance Holding units or Alliance sponsored
mutual funds. From time to time, Alliance will fund participant elections. In
2004 and 2003, respectively, subsidiaries of Alliance purchased Alliance Holding
units totaling $46.6 million and $72.4 million for such plans.
Management believes Alliance'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 Alliance's Annual Report on Form 10-K for the year ended
December 31, 2004.
SUPPLEMENTARY INFORMATION
AXA Financial is involved in a number of ventures and transactions with AXA and
certain of its affiliates. At December 31, 2004, 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.
Alliance provides investment management and related services to AXA and AXA
Financial and certain of their subsidiaries and affiliates. In 2001, Alliance
entered into joint ventures with an Australian affiliate of AXA and recognized
management fees of $19.8 million, $15.0 million and $12.4 million in 2004, 2003
and 2002, respectively. The Holding Company, AXA Equitable and Alliance, along
with other AXA affiliates, participate in certain cost sharing and servicing
agreements, which include technology and professional development arrangements.
Payments by the Holding Company and AXA Equitable to AXA totaled approximately
$31.6 million and $17.7 million in 2004 and 2003, respectively. See Notes 15 and
23 of Notes to the Consolidated Financial Statements and Alliance's Report on
Form 10-K for the year ended December 31, 2004 for information on related party
transactions.
A schedule of future payments under certain of AXA Financial's consolidated
contractual obligations follows:
CONTRACTUAL OBLIGATIONS - DECEMBER 31, 2004
(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.................. $ 2,965.2 $ 674.9 $ 408.4 $ 250.0 $ 1,631.9
OPERATING LEASES................ 1,504.8 168.4 299.1 243.0 794.3
------------- --------------- ---------- ------------ -----------------
TOTAL CONTRACTUAL
OBLIGATIONS................. $ 4,470.0 $ 843.3 $ 707.5 $ 493.0 $ 2,426.2
============= ================= ============ ============= =================
Interest on long-term debt will be approximately $278.3 million, $222.9 million,
$207.1 million, $189.5 million and $183.7 million in 2005, 2006, 2007, 2008 and
2009, respectively. AXA Financial 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.
7-10
Alliance funded participant elections under certain of its deferred compensation
plans during the first two months of 2005. Alliance made purchases of the cash
equivalent of the notional value of company-sponsored mutual funds totaling
$186.0 million. Alliance Holding units with an aggregate value of approximately
$35.0 million previously purchased and held in a deferred compensation trust at
December 31, 2004 were allocated towards this award. At year end 2004, Alliance
had a $148.0 million accrual for compensation and benefits, of which $48.4
million is expected to be paid in 2006-2007, $27.7 million in 2008-2009 and the
rest thereafter. Further, Alliance expects to make contributions to its
qualified profit sharing plan of approximately $21.0 million in each of the next
four years. Alliance is required to contribute additional amounts to its
qualified noncontributory defined retirement plan by January 15, 2006. The
current estimate of this payment is $3.5 million; Alliance expects to make this
contribution during 2005.
In addition, AXA Financial has obligations under contingent commitments at
December 31, 2004, including: the Holding Company's and Alliance's respective
revolving credit facilities and commercial paper programs; Alliance's $100.0
million ECN program; the Insurance Group's $711.1 million letters of credit;
Alliance's $125.0 million guarantee on behalf of SCB LLC; and AXA Financial's
guarantees or commitments to provide equity financing to certain limited
partnerships of $418.2 million. Information on these contingent commitments can
be found in Notes 12, 15 and 19 of Notes to Consolidated Financial Statements.
Further, AXA Financial 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's management narrative is based upon AXA Financial'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 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 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 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 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'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's own mortality, morbidity, persistency and claims
experience have a direct impact on the benefits and expenses reported in any
given period.
7-11
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 that can be deferred is another
significant factor in that business' reported profitability 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.
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 segment 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'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.
Consolidation - AXA Financial includes in its consolidated financial statements
the accounts and activities of the Holding Company, AXA Equitable, those of
their subsidiaries engaged in insurance related businesses including the MONY
Companies since July 1, 2004; other subsidiaries, principally Alliance, AXA
Advisors and AXA Network; and those investment companies, partnerships and joint
ventures in which AXA Financial 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.
FORWARD-LOOKING STATEMENTS AND RISK CONSIDERATIONS
AXA Financial's management has made in this report, and from time to time may
make in its public filings and press releases as well as in oral presentations
and discussions, forward-looking statements concerning AXA Financial's
operations, economic performance and financial position. Forward-looking
statements include, among other things, discussions concerning AXA Financial's
potential exposure 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," "expects," "projects," "should," "probably," "risk," "target,"
"goals," "objectives," or similar expressions. AXA Financial claims the
protection afforded by the safe harbor for forward-looking statements contained
in Section 21E of the Exchange Act, 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. Actual results
7-12
could differ materially from those anticipated by forward-looking statements due
to a number of important factors including those discussed elsewhere in this
report and in AXA Financial's other public filings, press releases, oral
presentations and discussions. The following discussion highlights some of the
more important risk and other factors that could cause such differences and/or,
if realized, could have a material adverse effect on AXA Financial's
consolidated financial position and/or results of operations.
Market Risk. AXA Financial's businesses are subject to market risks arising from
its insurance asset/liability management, investment management and trading
activities. The primary market risk exposures result from interest rate
fluctuations, equity price movements and changes in credit quality. The nature
of each of these risks is discussed under the caption "Quantitative and
Qualitative Disclosures About Market Risk" contained herein and in Note 18 of
Notes to Consolidated Financial Statements.
Increased volatility of equity markets can impact profitability of the Financial
Advisory/Insurance and Investment Management segments. For the Insurance Group,
in addition to impacts on equity securities held in the General Account,
significant changes in equity markets impact asset-based policy fees charged on
variable life and annuity products. Moreover, for variable life and annuity
products with GMDB/GMIB and other guaranteed features, sustained periods with
declines in the value of underlying Separate Account investments would increase
the Insurance Group's net exposure to guaranteed benefits under those contracts
(increasing claims and reserves, net of any reinsurance or hedging) at a time
when fee income for these benefits is also reduced from prior period levels.
Increased volatility of equity markets also will result in increased volatility
of the fair value of the GMIB reinsurance contracts.
Equity market volatility also may impact DAC and VOBA amortization on variable
and universal life insurance contracts, variable annuities and participating
traditional life contracts. To the extent that actual market trends, and
reasonable expectations as to future performance drawn from those trends, lead
to reductions in the investment return and/or other related estimates underlying
the DAC and VOBA amortization rates, DAC and VOBA amortization could be
accelerated. Volatile equity markets can also impact the level of contractholder
surrender activity, which, in turn, can impact future profitability.
Interest rate fluctuations, equity price movements and changes in credit quality
may also affect invested assets held in the qualified pension plan which could
impact future pension plan costs.
The effects of significant equity market fluctuations on the Insurance Group's
operating results can be complex and subject to a variety of estimates and
assumptions, such as assumed rates of long-term equity market performance,
making it difficult to reliably predict effects on operating earnings over a
broad range of equity markets performance alternatives. Further, these effects
may not always be proportional for market increases and market decreases.
Margins on interest-sensitive annuities and universal life insurance can be
affected by interest rate fluctuations. In a declining interest rate
environment, credited rates can generally be adjusted more quickly than the
related invested asset portfolio is affected by declining reinvestment rates,
tending to result in higher net interest margins on interest-sensitive products
in the short term. However, under scenarios in which interest rates fall and
remain at significantly lower levels, minimum guarantees on interest-sensitive
annuities and universal life insurance (generally 1.5% to 4.5%) could cause the
spread between the yield on the portfolio and the interest rate credited to
policyholders to deteriorate and in some cases, potentially, to become negative.
For both interest-sensitive annuities and universal life insurance, a rapid and
sustained rise in interest rates poses risks of deteriorating spreads and high
surrenders. In such an environment, there is pressure to increase credited rates
on interest-sensitive products to match competitors' new money rates. However,
such changes in credited rates generally occur more quickly than the earned
rates on the related invested asset portfolios reflect changes in market yields.
The greater and faster the rise in interest rates, the more the earned rates
will tend to lag behind market rates.
For the Investment Management segment, significant changes in equity markets can
impact revenues and the recoverability of deferred costs. See "Other Risks of
the Investment Management Segment" below.
Other Risks of the Financial Advisory/Insurance Segment. The Insurance Group's
future sales of life insurance and annuity products and financial planning
services are dependent on numerous factors including: successful implementation
of AXA Financial's strategy; the intensity of competition from other insurance
companies, banks and other financial institutions; conditions in the securities
markets; the strength and professionalism of distribution channels; the
continued development of existing and additional channels; the financial and
claims-paying ratings of AXA Equitable, MONY Life and MLOA; its reputation and
visibility in the market place; its ability to develop, distribute and
administer competitive products and services in a timely, cost-effective manner;
its ability to provide
7-13
effective financial planning services that meet its customers' expectations; its
ability to obtain reinsurance for certain products, the offering of which
products depends upon the ability to reinsure all or a substantial portion of
the risks; its investment management performance; and unanticipated changes in
industry trends.
In addition, the nature and extent of competition and the markets for products
sold by the Insurance Group may be materially affected by changes in laws and
regulations, including changes relating to savings, retirement funding and
taxation. 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. See "Business - Regulation" contained herein.
The profitability of the Insurance Group depends on a number of factors
including: levels of gross operating expenses and the amount which can be
deferred as DAC and software capitalization; successful implementation of
expense-reduction initiatives, including those anticipated from the integration
of the businesses of AXA Financial and the MONY Companies; secular trends;
increased costs and impact of compliance, regulatory examinations and oversight;
the ability to reach sales targets for key products including the continuing
market receptivity of its variable annuity product, Accumulator(R) `04; AXA
Financial's mortality, morbidity, persistency and claims experience; margins
between investment results from General Account Investment Assets and interest
credited on individual insurance and annuity products, which are subject to
contractual minimum guarantees; the level of claims and reserves on contracts
with GMDB/GMIB and other guaranteed features, the impact of related reinsurance
and the effectiveness of any program to hedge certain risks associated with such
features; the account balances against which policy fees are assessed on
universal and variable life insurance and variable annuity products; the pattern
of DAC and VOBA amortization which is based on models involving numerous
estimates and subjective judgments including those regarding investment,
mortality and expense margins, expected market rates of return, lapse rates and
anticipated surrender charges; the adequacy of reserves and the extent to which
subsequent experience differs from management's estimates and assumptions,
including future reinvestment rates, used in determining those reserves; and the
effects of any future terrorist attacks or the war on terrorism. With regard to
terrorism generally, in August 2004, the Federal government announced a
heightened threat level for financial institutions. In establishing the amount
of the liabilities and reserves of the Insurance Group associated with the risks
assumed in connection with reinsurance pools and arrangements, the Insurance
Group relies on the accuracy and timely delivery of data and other information
from ceding companies.
Recoverability of DAC and VOBA is dependent on future contract cash flows
(including premiums and deposits, contract charges, benefits, surrenders,
withdrawals, and expenses), which can be affected by equity market and interest
rate trends as well as changes in contract persistency levels. The performance
of General Account Investment Assets depends, among other things, on levels of
interest rates and the markets for equity securities and real estate, the need
for asset valuation allowances and writedowns, and the performance of equity
investments that have created, and in the future may create, significant
volatility in investment income.
Other Risks of the Investment Management Segment. Alliance's revenues are
largely dependent on the total value and composition of assets under its
management and are, therefore, affected by the performance of financial markets,
the investment performance of sponsored investment products and separately
managed accounts, additions and withdrawals of assets, purchases and redemptions
of mutual funds and shifts of assets between accounts or products with different
fee structures, as well as general economic conditions, future acquisitions,
competitive conditions and government regulations, including tax rates. See
"Results of Continuing Operations by Segment - Investment Management" contained
herein. Recently, a number of regulators have been focusing attention on various
practices in or affecting the investment management and/or mutual fund
industries, including, among others, late trading, market timing, revenue
sharing and directed brokerage. In December 2003, Alliance resolved regulatory
claims with the SEC and NYAG related to market timing in certain of its mutual
funds. Alliance's involvement in the market timing investigations and ongoing
litigation relating thereto, as well as other litigation, may have an adverse
effect on AXA Financial's and Alliance's assets under management, including an
increase in mutual fund redemptions, and may cause or prolong general
reputational damage, both of which could adversely affect AXA Financial's and
Alliance's results of operations.
Payments of sales commissions by Alliance to financial intermediaries in
connection with the sale of back-end load shares under Alliance's mutual fund
distribution system 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.
Contingent deferred sales charge ("CDSC") cash recoveries are recorded as
reductions of unamortized deferred sales commissions when received. The amount
recorded for the net deferred sales commission asset was $254.5 million and
$387.2 million at December 31, 2004 and 2003, respectively. Payments of sales
commissions made to financial intermediaries in connection with the sale of
back-end load shares under Alliance's
7-14
mutual fund distribution system, net of CDSC received of $32.9 million, $37.5
million and $52.8 million, respectively, totaled approximately $44.6 million,
$94.9 million and $81.6 million during 2004, 2003 and 2002, respectively.
Alliance'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.
Significant assumptions utilized to estimate the company's 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. At December 31, 2004, Alliance's
management used average market return assumptions of 5% for fixed income and 8%
for equity to estimate annual market returns. Higher actual average market
returns would increase undiscounted future cash flows, while lower actual
average market returns would decrease undiscounted future cash flows. Future
redemption rate assumptions were determined by reference to actual redemption
experience over the five-year, three-year and one-year periods ended December
31, 2004. Based on the actual redemption rates, including increased redemption
rates experienced more recently, Alliance's management used a range of possible
annual redemption rates of 19%, 23% and 25% at December 31, 2004, calculated as
a percentage of the company's average assets under management of back-end load
shares. An increase in the actual rate of redemptions would decrease
undiscounted future cash flows, while a decrease in the actual rate of
redemptions would increase undiscounted future cash flows. These assumptions are
reviewed and updated quarterly, or monthly when events or changes in
circumstances occur that could significantly increase the risk of impairment of
the asset. 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 future cash flows are compared to the recorded value of
the deferred sales commmission asset. Alliance's management considers the
results of these analyses performed at various dates. As of December 31, 2004,
Alliance's management determined that the deferred sales commission asset was
not impaired. If Alliance's management determines in the future that the
deferred sales commission asset is not recoverable, an impairment condition
would exist and a loss would be measured as the amount by which the recorded
amount of the asset exceeds its estimated fair value. Estimated fair value is
determined using Alliance management's best estimate of future cash flows
discounted to a present value amount.
During 2004, equity markets increased by approximately 11% as measured by the
change in the Standard & Poor's 500 Stock Index and fixed income markets
increased by approximately 4% as measured by the change in the Lehman Brothers'
Aggregate Bond Index. The redemption rate for domestic back-end load shares was
approximately 25.1% in 2004. Declines in financial markets or higher redemption
levels, or both, as compared to the assumptions used to estimate undiscounted
future cash flows, could result in the impairment of the deferred sales
commission asset. Due to the volatility of the capital markets and changes in
redemption rates, Alliance's management is unable to predict whether or when a
future impairment of the deferred sales commission asset might occur . Any
impairment would reduce materially the recorded amount of the deferred sales
commission asset with a corresponding charge to earnings.
Other Discontinued Operations. The determination of the allowance for future
losses for the discontinued Wind-Up Annuities continues to involve 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.
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 Other Discontinued Operations differ from management's current best estimates
underlying the allowance, the difference would be reflected as earnings or loss
from discontinued operations within the consolidated statements of earnings. 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.
Disclosure and Internal Control System. 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.
Furthermore, because of changes in conditions, the effectiveness of a disclosure
and internal control system may vary over time.
Technology and Information Systems. AXA Financial's information 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. These systems are maintained to provide
customer privacy and are tested to ensure the viability of business resumption
plans. Any significant difficulty associated with the operation of such systems,
or any material delay or inability to develop needed system capabilities, could
have a material adverse effect on AXA Financial's results of operations and,
ultimately, its ability to achieve its strategic goals.
Legal Environment. 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 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 Financial's insurance subsidiaries
and related companies, like other life and health insurers, are involved in such
litigation and the results of operations and financial position of AXA Financial
and such insurance subsidiaries and related companies 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, examinations by Federal
and state regulators and other regulatory and related agencies including, among
others, state attorneys general and insurance and securities regulators could
result in adverse publicity, sanctions and fines. In the last year, AXA
Equitable, EQAT, MONY
7-15
Life, MLOA, MSC, Multimanager Trust, VIP Trust, AXA Advisors, AXA Distributors
and other AXA Financial subsidiaries have provided information and documents to
the SEC, the NASD and state attorneys general and insurance and securities
regulators on a wide range of issues, including supervisory issues, market
timing, late trading, valuation, suitability, 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 and
other sanctions could result from pending regulatory matters. For further
information, see "Business - Regulation" and "Legal Proceedings" contained
herein.
Future Accounting Pronouncements. In the future, new accounting pronouncements,
as well as new interpretations of accounting pronouncements, may have material
effects on AXA Financial's consolidated statements of earnings and shareholders'
equity. See Note 3 of Notes to Consolidated Financial Statements for
pronouncements issued but not effective at December 31, 2004.
Regulation. The businesses conducted by AXA Financial's subsidiaries 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. Changes in the regulatory
environment, including increased activism by state attorneys general and
insurance commissioners, could have a material impact on operations and results.
The activities of the Insurance Group are subject to the supervision of the
insurance regulators of each of the 50 states, the District of Columbia, Puerto
Rico, Guam, the U.S. Virgin Islands and nine of Canada's twelve provinces and
territories. See "Business - Regulation" contained herein.
7-16
PART II, ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
AXA Financial'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 THE HOLDING COMPANY
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 Other
Discontinued Operations 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, 2004. 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, 2004 and 2003 would have on the fair value of fixed maturities and
mortgage loans:
INTEREST RATE RISK EXPOSURE
(IN MILLIONS)
DECEMBER 31, 2004 December 31, 2003
----------------------------------------- -----------------------------------
BALANCE AFTER Balance After
FAIR +100 BASE Fair +100 Basis
VALUE POINT CHANGE Value Point Change
------------------- -------------------- --------------- -------------------
Continuing Operations:
Fixed maturities:
Fixed rate........................ $ 39,193.4 $ 37,233.6 $ 29,144.7 $ 27,690.1
Floating rate..................... 394.3 392.6 350.8 349.9
Mortgage loans...................... 5,136.8 4,942.3 3,761.7 3,614.2
Other Discontinued Operations:
Fixed maturities:
Fixed rate........................ $ 702.1 $ 673.9 $ 716.4 $ 685.8
Mortgage loans...................... 23.0 22.6 69.4 68.0
Holding Company:
Fixed maturities:
Fixed rate........................ $ 29.2 $ 28.6 $ 46.9 $ 45.9
Floating rate..................... - - .7 .7
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. In 2003 prior to the implementation of SOP 03-1, the General Account
was exposed to equity price risk from the excess of Separate Accounts assets
over Separate Accounts liabilities. In 2004, such amounts are included in
General Account assets. 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, 2004
and 2003:
EQUITY PRICE RISK EXPOSURE
(IN MILLIONS)
DECEMBER 31, 2004 December 31, 2003
----------------------------------- ----------------------------------
BALANCE AFTER Balance After
FAIR -10% EQUITY Fair -10% Equity
VALUE PRICE CHANGE Value Price Change
-------------- ------------------ -------------- ----------------
Insurance Group:
Continuing operations.............. $ 275.1 $ 247.5 $ 13.5 $ 12.2
Other Discontinued Operations...... .3 .2 .5 .5
Excess of Separate Accounts assets
over Separate Accounts
Liabilities...................... - - 137.5 123.8
Holding Company...................... $ 1.9 $ 1.7 $ 94.3 $ 84.9
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 2004 and 2003, the aggregate carrying value of policyholders
liabilities were $54,085.9 million and $40,122.7 million, respectively,
including $19,307.6 million and $16,802.1 million of liabilities, respectively,
related to the General Account's investment contracts. The aggregate fair value
of those investment contracts at years end 2004 and 2003 were $19,913.9 million
and $17,219.9 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 $20,724.9 million and $17,891.8 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
2004 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 interest rate fluctuations. Similarly, the Holding Company
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 caps and floors to
hedge crediting rates on interest-sensitive individual annuity contracts,
interest rate futures to protect against declines in interest rates between
receipt of funds and purchase of appropriate assets, and interest rate swaps to
modify the duration and cash flows of fixed maturity investments and long-term
debt. In addition, AXA Financial periodically enters into forward and futures
contracts to hedge certain equity exposures, including the program to hedge
certain risks associated with the GMDB and GMIB
7A-2
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.
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 2004 and 2003, the fair values of the Insurance Group's and Holding
Company's derivatives were $(41.1) million and $18.4 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, 2004
Insurance Group:
Options:
Swaps............... $ 300.0 12.06 $ (51.8) $ (30.9) $ (13.7)
Floors.............. 12,000.0 2.60 38.0 5.8 1.8
Futures............. 156.7 .22 9.5 - (9.5)
Holding Company:
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)
=============== ================ ============= =================
December 31, 2003
Insurance Group:
Options:
Floors.............. $ 12,000.0 3.61 $ 20.1 $ 9.7 $ .5
Holding Company:
Swaps............... 3,000.0 1.97 27.2 8.7 (9.7)
--------------- ----------------- ------------ -------------------
Total.................... $ 15,000.0 $ 47.3 $ 18.4 $ (9.2)
=============== ================= ============ ===================
EQUITY SENSITIVITY
---------------------------------------
BALANCE AFTER
FAIR -10% EQUITY
VALUE PRICE SHIFT
------------------- -------------------
DECEMBER 31, 2004
Insurance Group:
Futures .............. $ (956.6) .22 $ - $ 95.7
Holding Company:
Futures............... 55.0 .22 - 5.5
--------------- ------------------- -------------------
Total.................... $ (901.6) $ - $ 101.2
=============== =================== ===================
December 31, 2003
Insurance Group:
Futures .............. $ 274.8 .22 $ - $ 27.5
Holding Company:
Futures .............. 52.2 .22 - 5.2
--------------- ------------------- -------------------
Total ................... $ 327.0 $ - $ 32.7
=============== =================== ===================
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 $90.4 million and $29.0 million at December 31, 2004 and 2003, respectively.
The potential fair value exposure to an immediate 10% drop in equity prices from
those prevailing at December 31, 2004 and 2003, respectively, would increase the
balance of these reinsurance contracts to $153.8 million and $94.4 million.
At the end of 2004 and of 2003, the aggregate fair values of long-term debt
issued by the Insurance Group and the Holding Company were $2.16 billion and
$1.90 billion, respectively. The table below shows the potential fair value
7A-4
exposure to an immediate 100 basis point decrease in interest rates from those
prevailing at the end of 2004 and of 2003.
INTEREST RATE RISK EXPOSURE
(IN MILLIONS)
DECEMBER 31, 2004 December 31, 2003
-------------------------------------- ------------------------------------
BALANCE AFTER Balance After
FAIR -100 BASIS Fair -100 Basis
VALUE POINT CHANGE Value Point Change
---------------- -------------------- ----------------- -----------------
Continuing Operations:
Fixed rate........................ $ 246.7 $ 266.9 $ 673.4 $ 701.8
Floating rate..................... 300.0 300.0
Holding Company:
Fixed rate...................... $ 1,569.0 $ 1,672.1 $ 1,225.9 $ 1,319.1
INVESTMENT MANAGEMENT
Alliance's investments consist of investments, trading and available-for-sale,
and other investments. Alliance's investments, trading and available-for-sale,
include U.S. Treasury bills, equity and fixed income mutual funds and money
market investments. Although investments, available-for-sale, 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.
The table below provides Alliance'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, 2004 and 2003:
EQUITY PRICE RISK EXPOSURE
(IN MILLIONS)
DECEMBER 31, 2004 December 31, 2003
---------------------------- ---------------------------------
BALANCE AFTER Balance After
FAIR +100 BASIS POINT Fair +100 Basis Point
VALUE CHANGE Value Change
---------- ----------------- ---------- --------------------
Fixed Income Investments:
Trading............................ $30.0 $28.6 $17.0 $16.1
Non trading........................ 2.1 2.0 2.8 2.7
Such a fluctuation in interest rates is a hypothetical rate scenario used to
calibrate potential risk and does not represent Alliance 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 Alliance'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 Alliance management's assessment of changing market conditions and available
investment opportunities.
7A-5
Other investments include Alliance's investments in hedge funds sponsored by
Alliance. The following table presents Alliance's potential exposure from its
investments in 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, 2004 and 2003:
EQUITY PRICE RISK EXPOSURE
(IN MILLIONS)
DECEMBER 31, 2004 December 31, 2003
---------------------------- -------------------------------
BALANCE AFTER Balance After
FAIR +100 BASIS POINT Fair +100 Basis Point
VALUE CHANGE Value Change
---------- ----------------- ---------- -------------------
Fixed Income Investments:
Trading............................ $126.9 $114.3 $58.8 $53.0
Non trading........................ 94.5 85.0 71.8 64.6
A 10% decrease in equity prices is a hypothetical scenario used to calibrate
potential risk and does not represent Alliance 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 Alliance'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 Alliance management's assessment
of changing market conditions and available investment opportunities. At
December 31, 2004, management believes Alliance's estimates of its derivative
and credit quality risks related to Alliance's investment portfolios were not
material to AXA Financial.
At December 31, 2004 and 2003, respectively, Alliance's fixed rate debt had an
aggregate fair value of $422.2 and $432.4 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 2004 and 2003:
INTEREST RATE RISK EXPOSURE
(IN MILLIONS)
DECEMBER 31, 2004 December 31, 2003
------------------------------------------ -----------------------------------
Balance
After -10%
BALANCE AFTER BALANCE AFTER After -100 Exchange
-100 BASIS -10% EXCHANGE Basis Point Rate
FAIR VALUE POINT CHANGE RATE CHANGE Fair Value Change Change
----------- ------------ ------------- ---------- ----------- ---------
Long-term debt-non-trading..... $422.1 $439.5 $423.0 $432.4 $451.9 $433.1
For further information on Alliance's market risk, see Alliance Holding's and
Alliance's Annual Reports on Form 10-K for the year ended December 31, 2004.
7A-6
PART II, ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
AXA FINANCIAL, INC.
Report of Independent Registered Public Accounting Firm................................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 2004 and 2003................................................. F-2
Consolidated Statements of Earnings, Years Ended December 31, 2004, 2003 and 2002....................... F-3
Consolidated Statements of Shareholders' Equity and Comprehensive Income,
Years Ended December 31, 2004, 2003 and 2002.......................................................... F-4
Consolidated Statements of Cash Flows, Years Ended December 31, 2004, 2003 and 2002..................... F-5
Notes to Consolidated Financial Statements.............................................................. F-7
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statement Schedules.... F-64
Consolidated Financial Statement Schedules:
Schedule I - Summary of Investments - Other than Investments in Related Parties,
December 31, 2004....................................................................................... F-65
Schedule II - Balance Sheets (Parent Company), December 31, 2004 and 2003................................. F-66
Schedule II - Statements of Earnings (Parent Company),
Years Ended December 31, 2004, 2003 and 2002............................................................ F-67
Schedule II - Statements of Cash Flows (Parent Company),
Years Ended December 31, 2004, 2003 and 2002............................................................ F-68
Schedule III - Supplementary Insurance Information,
Years Ended December 31, 2004, 2003 and 2002............................................................ F-69
Schedule IV - Reinsurance, Years Ended December 31, 2004, 2003 and 2002................................... F-72
FS-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
AXA Financial, Inc:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholders' 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") at
December 31, 2004 and December 31, 2003, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
2004 in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of AXA
Financial's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with 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 provide a reasonable basis for our opinion.
As discussed in Note 3 of Notes to the Consolidated Financial Statements, in
2004, AXA Financial changed its method of accounting for variable interest
entities and certain nontraditional long-duration contracts and for Separate
Accounts and in 2002 changed its method of accounting for variable annuity
products that contain guaranteed minimum income benefit features, and its method
of accounting for intangible and long-lived assets.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 31, 2005
F-1
AXA FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
2004 2003
----------------- --------------------
(IN MILLIONS)
ASSETS
Investments:
Fixed maturities available for sale, at estimated fair value.............. $ 39,301.6 $ 29,143.1
Mortgage loans on real estate............................................. 4,909.8 3,503.1
Equity real estate, held for the production of income..................... 835.1 656.5
Policy loans.............................................................. 4,968.0 3,894.3
Other equity investments.................................................. 1,219.8 886.4
Other invested assets..................................................... 1,682.7 836.0
----------------- --------------------
Total investments............................................... 52,917.0 38,919.4
Cash and cash equivalents................................................... 2,574.9 1,294.7
Cash and securities segregated, at estimated fair value..................... 1,489.0 1,285.8
Broker-dealer related receivables........................................... 2,187.7 2,284.7
Deferred policy acquisition costs........................................... 6,908.6 6,290.4
Goodwill and other intangible assets, net................................... 5,242.4 4,078.8
Value of business acquired.................................................. 817.4 -
Amounts due from reinsurers................................................. 3,149.2 2,455.6
Loans to affiliates, at estimated fair value................................ 400.0 400.0
Other assets................................................................ 3,930.1 3,741.7
Separate Accounts' assets................................................... 66,411.7 54,438.1
----------------- --------------------
TOTAL ASSETS................................................................ $ 146,028.0 $ 115,189.2
================= ====================
LIABILITIES
Policyholders' account balances............................................. $ 30,367.3 $ 25,307.7
Future policy benefits and other policyholders liabilities.................. 22,888.6 13,934.7
Broker-dealer related payables.............................................. 1,222.8 1,264.8
Customers related payables.................................................. 2,658.7 1,897.5
Short-term and long-term debt............................................... 3,263.4 2,628.1
Loans from affiliates....................................................... 1,568.9 -
Income taxes payable........................................................ 2,010.2 1,941.0
Other liabilities........................................................... 4,884.9 3,995.5
Separate Accounts' liabilities.............................................. 66,411.7 54,300.6
Minority interest in equity of consolidated subsidiaries.................... 1,421.1 1,257.5
Minority interest subject to redemption rights.............................. 266.6 488.1
----------------- --------------------
Total liabilities...................................................... 136,964.2 107,015.5
----------------- --------------------
Commitments and contingencies (Notes 14, 17, 18, 19 and 20)
SHAREHOLDERS' 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.............................................. 1,054.1 1,102.3
Retained earnings........................................................... 7,139.7 6,194.8
Accumulated other comprehensive income...................................... 866.1 872.7
----------------- --------------------
Total shareholders' equity............................................ 9,063.8 8,173.7
----------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................. $ 146,028.0 $ 115,189.2
================= ====================
See Notes to Consolidated Financial Statements
F-2
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
----------------- ----------------- -----------------
(IN MILLIONS)
REVENUES
Universal life and investment-type product
policy fee income............................................. $ 1,697.8 $ 1,376.7 $ 1,315.5
Premiums........................................................ 1,275.8 898.4 945.2
Net investment income........................................... 2,800.8 2,397.1 2,393.7
Investment gains (losses), net.................................. 77.2 (67.5) (287.7)
Commissions, fees and other income.............................. 3,792.9 2,973.3 3,158.6
----------------- ----------------- -----------------
Total revenues............................................ 9,644.5 7,578.0 7,525.3
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Policyholders' benefits......................................... 2,405.7 1,711.0 2,036.0
Interest credited to policyholders' account balances............ 1,108.3 969.7 972.5
Compensation and benefits....................................... 2,182.5 1,745.3 1,626.1
Commissions..................................................... 928.5 757.8 588.5
Distribution plan payments...................................... 374.2 370.6 392.8
Amortization of deferred sales commissions...................... 177.4 208.6 229.0
Interest expense................................................ 226.1 193.9 211.6
Amortization of deferred policy acquisition costs and value of
business acquired............................................. 510.1 434.6 296.7
Capitalization of deferred policy acquisition costs............. (1,116.1) (990.7) (754.8)
Rent expense.................................................... 217.4 189.5 194.5
Amortization of other intangible assets, net.................... 35.4 25.1 24.2
Alliance charge for mutual fund matters and legal proceedings... - 330.0 -
Other operating costs and expenses.............................. 1,050.3 817.6 858.5
----------------- ----------------- -----------------
Total benefits and other deductions....................... 8,099.8 6,763.0 6,675.6
----------------- ----------------- -----------------
Earnings from continuing operations before
income taxes and minority interest............................ 1,544.7 815.0 849.7
Income taxes.................................................... (394.1) (215.0) (9.8)
Minority interest in net income of consolidated subsidiaries.... (293.9) (146.2) (283.8)
----------------- ----------------- -----------------
Earnings from continuing operations............................. 856.7 453.8 556.1
Earnings from other discontinued operations, net of
income taxes................................................. 7.9 3.4 5.6
Gain on sale of real estate held-for-sale, net of income taxes.. 31.1 - -
Gains on disposal of the discontinued Investment Banking and
Brokerage segment, net of income taxes....................... 53.2 - -
Cumulative effect of accounting changes, net of
income taxes................................................. (4.0) - (33.1)
----------------- ----------------- -----------------
Net Earnings.................................................... $ 944.9 $ 457.2 $ 528.6
================= ================= =================
See Notes to Consolidated Financial Statements
F-3
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
----------------- ----------------- -----------------
(IN MILLIONS)
Common stock, at par value, beginning of year and end of year... $ 3.9 $ 3.9 $ 3.9
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year .............. 1,102.3 1,087.6 1,075.7
Other changes in additional capital in excess of par value...... (48.2) 14.7 11.9
----------------- ----------------- -----------------
Capital in excess of par value, end of year..................... 1,054.1 1,102.3 1,087.6
----------------- ----------------- -----------------
Retained earnings, beginning of year............................ 6,194.8 5,967.6 5,764.0
Net earnings.................................................... 944.9 457.2 528.6
Dividends on common stock....................................... - (230.0) (325.0)
----------------- ----------------- -----------------
Retained earnings, end of year.................................. 7,139.7 6,194.8 5,967.6
----------------- ----------------- -----------------
Accumulated other comprehensive income (loss),
beginning of year............................................ 872.7 655.1 202.1
Other comprehensive (loss) income............................... (6.6) 217.6 453.0
----------------- ----------------- -----------------
Accumulated other comprehensive income, end of year............. 866.1 872.7 655.1
----------------- ----------------- -----------------
TOTAL SHAREHOLDERS' EQUITY, END OF YEAR......................... $ 9,063.8 $ 8,173.7 $ 7,714.2
================= ================= =================
COMPREHENSIVE INCOME
Net earnings.................................................... $ 944.9 $ 457.2 $ 528.6
----------------- ----------------- -----------------
Change in unrealized gains (losses), net of reclassification
adjustment................................................... 11.4 215.3 470.4
Cumulative effect of accounting changes......................... 12.4 - -
Minimum pension liability adjustment............................ (30.4) 2.3 (17.4)
----------------- ----------------- -----------------
Other comprehensive (loss) income............................... (6.6) 217.6 453.0
----------------- ----------------- -----------------
COMPREHENSIVE INCOME............................................ $ 938.3 $ 674.8 $ 981.6
================= ================= =================
See Notes to Consolidated Financial Statements.
F-4
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
----------------- ----------------- -----------------
(IN MILLIONS)
Net earnings.................................................. $ 944.9 $ 457.2 $ 528.6
Adjustments to reconcile net earnings to net cash provided
(used) by operating activities:
Interest credited to policyholders' account balances........ 1,108.3 969.7 972.5
Universal life and investment-type product
policy fee income......................................... (1,697.8) (1,376.7) (1,315.5)
Net change in broker-dealer and customer
related receivables/payables.............................. 706.9 21.3 (237.8)
Investment (gains) losses, net.............................. (77.2) 67.5 287.7
Change in deferred policy acquisition costs and value of
business acquired......................................... (606.0) (556.1) (458.1)
Change in future policy benefits............................ 154.6 (94.6) 218.0
Change in property and equipment............................ (94.8) (78.1) (113.4)
Change in income tax payable................................ 268.8 262.0 252.0
Change in segregated cash and securities, net............... (203.2) (111.5) 240.8
Change in fair value of guaranteed minimum income
benefit reinsurance contract.............................. (61.0) 91.0 (120.0)
Amortization of deferred sales commission................... 177.4 208.6 229.0
Other depreciation and amortization......................... 214.8 212.7 188.2
Amortization of other intangible assets..................... 35.4 25.1 24.2
Gain on disposal of Investment Banking and Brokerage
segment................................................... (53.2) - -
Minority interest in net income of consolidated subsidiaries 296.0 146.2 283.8
Other, net.................................................. (72.5) 438.9 (461.5)
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 1,041.4 683.2 518.5
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 4,112.2 4,225.9 3,006.7
Sales....................................................... 3,894.7 4,824.8 8,039.2
Purchases................................................... (9,680.2) (11,551.6) (12,725.7)
Change in short-term investments............................ 259.3 336.7 (571.4)
Purchase of minority interest in consolidated subsidiary.... (635.7) - (249.7)
Acquisition of the MONY Group Inc., net of cash and cash
equivalents acquired...................................... (775.0) - -
Other, net.................................................. 271.9 362.3 156.8
----------------- ----------------- -----------------
Net cash used by investing activities......................... (2,552.8) (1,801.9) (2,344.1)
----------------- ----------------- -----------------
See Notes to Consolidated Financial Statements
F-5
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(CONTINUED)
2004 2003 2002
----------------- ----------------- -----------------
(IN MILLIONS)
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. $ 4,061.0 $ 5,639.1 $ 4,328.5
Withdrawals from and transfers to Separate Accounts....... (2,605.0) (3,181.1) (2,022.9)
Increase in loans from affiliates........................... 1,568.9 - -
Net change in short-term financings......................... 118.3 (22.6) (201.9)
Repayments of long-term debt................................ (300.0) (76.8) (56.4)
Dividends paid on common stock.............................. - (230.0) (325.0)
Other, net.................................................. (51.6) (216.9) (279.4)
----------------- ----------------- -----------------
Net cash (used) provided by financing activities.............. 2,791.6 1,911.7 1,442.9
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... 1,280.2 793.0 (382.7)
Cash and cash equivalents, beginning of year.................. 1,294.7 501.7 884.4
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 2,574.9 $ 1,294.7 $ 501.7
================= ================= =================
Supplemental cash flow information:
Interest Paid............................................... $ 223.6 $ 202.0 $ 195.2
================= ================= =================
Income Taxes Paid (Refunded)................................ $ 114.1 $ (45.7) $ (283.6)
================= ================= =================
See Notes to Consolidated Financial Statements.
F-6
AXA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
AXA Financial, Inc. (the "Holding Company," and, collectively with its
consolidated subsidiaries, "AXA Financial") is a diversified financial
services organization serving a broad spectrum of insurance and
investment management customers. The Holding Company is a wholly-owned
subsidiary of AXA, a French holding company for an international group
of insurance and related financial services companies. Two of the
Holding Company's subsidiaries had name changes in 2004: its
wholly-owned life insurance subsidiary, The Equitable Life Assurance
Society of the United States became AXA Equitable Life Insurance Company
("AXA Equitable") and AXA Equitable's wholly-owned life insurance
subsidiary, The Equitable of Colorado, Inc., became AXA Life and Annuity
Company ("AXA Life").
AXA Financial 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
Group. The investment management and related services business conducted
by Alliance Capital Management L.P., a Delaware limited partnership, and
its subsidiaries ("Alliance") is reported in the Investment Management
segment.
AXA Financial's direct and indirect wholly-owned insurance subsidiaries
(collectively the "Insurance Group") are AXA Equitable, 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, Alliance acquired substantially all of the assets and
liabilities of SCB Inc., formerly known as Sanford C. Bernstein, Inc.
("Bernstein"). In the fourth quarter of 2002, AXA Financial acquired
8.16 million units in Alliance ("Alliance Units") at the aggregate
market price of $249.7 million from SCB Inc. and SCB Partners, Inc.
under a preexisting agreement (see Note 3). In March and December 2004,
AXA Financial acquired a total of 16.3 million Alliance 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 recorded additional goodwill of $341.0
million and other intangible assets of $42.2 million. At December 31,
2004, AXA Financial's beneficial ownership in Alliance was approximately
61.3%.
2) ACQUISITION OF MONY
On July 8, 2004, the Holding Company 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 the Holding
Company. The Holding Company funded the 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, the Holding
Company 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 with
additional scale in distribution, client base and assets under
management.
As of December 31, 2004, 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. 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 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.
F-7
The acquisition was accounted for using the purchase method under
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 has consolidated MONY and reflected its
results from July 1, 2004 in its consolidated statements of earnings and
cash flows. 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 is in the process of completing
the valuations of a portion of the assets acquired and liabilities
assumed; thus, the allocation of the purchase price is subject to
refinement.
AXA Financial's consolidated balance sheet at December 31, 2004 included
the accounts of MONY and its subsidiaries acquired in this acquisition
(the "MONY Companies"), including its principal subsidiaries, MONY Life,
MLOA, USFL, The Advest Group, Inc. ("Advest") and Enterprise Capital
Management, Inc. ("Enterprise Capital").
The following table presents the estimated fair values of the assets of
MONY and its consolidated subsidiaries acquired and liabilities assumed:
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-8
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 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
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 2004, total severance payments made to employees
totaled $5.0 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 2004, total payments
made to MONY employees totaled $145.5 million.
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 opinion of management to present fairly the
consolidated financial position of AXA Financial and its consolidated
results of operations and cash flows for the periods presented.
The accompanying consolidated financial statements include the accounts
of: the Holding Company; AXA Equitable and MONY Life; those of their
subsidiaries engaged in insurance related businesses; other
subsidiaries, principally Alliance, AXA Advisors, AXA Network, Advest
and Enterprise; and those investment companies, partnerships and joint
ventures in which AXA Financial 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
Other Discontinued Operations have been eliminated in consolidation. The
years "2004," "2003" and "2002" refer to the years ended December 31,
2004, 2003 and 2002, respectively. Certain reclassifications have been
made in the prior period amounts to conform 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.
F-9
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 the
Holding Company. 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.
Other Discontinued Operations
-----------------------------
In 1991, management discontinued the business of certain pension
business operations ("Other Discontinued Operations"). Other
Discontinued Operations principally consist of the group
non-participating wind-up annuity products, the terms of which were
fixed at issue, which were sold to corporate sponsors of terminated
qualified defined benefit plans ("Wind-Up Annuities"), for which a
premium deficiency reserve has been established. Management reviews the
adequacy of the allowance for future losses each quarter and makes
adjustments when necessary. Management believes the allowance for future
losses at December 31, 2004 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
invested assets held by Other Discontinued Operations ("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 Other Discontinued
Operations 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 Other
Discontinued Operations. In particular, to the extent income, sales
proceeds and holding periods for equity real estate differ from
management's previous assumptions, periodic adjustments to the allowance
are likely to result. See Note 10 of Notes to Consolidated Financial
Statements.
Accounting Changes
------------------
At March 31, 2004, AXA Financial completed its transition to the
consolidation and disclosure requirements of FIN No. 46(R),
"Consolidation of Variable Interest Entities, Revised".
At December 31, 2004, the Insurance Group's General Account held $34.1
million of investment assets issued by VIEs and determined to be
significant variable interests under FIN No. 46(R). As reported in the
consolidated balance sheet, these investments included $32.9 million of
fixed maturities (collateralized debt and loan obligations) 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, 2004 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 Alliance 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 Alliance is required to consolidate under FIN No. 46(R).
These include certain mutual fund products domiciled in Luxembourg,
India, Japan, Singapore and Australia ("collectively "Offshore Funds"),
hedge funds, structured products, group trusts and joint ventures.
As a result of its review, Alliance Capital had consolidated an
investment in a joint venture and its funds under management. At
December 31, 2004, Alliance Capital sold this investment and
accordingly, no longer consolidates this investment and its funds under
management.
Alliance Capital 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.
Alliance has significant variable interests in certain other VIEs with
approximately $845 million in client assets under management. However,
these VIEs do not require consolidation because management has
determined that Alliance is not the primary beneficiary. Alliance's
maximum exposure to loss in these
F-10
entities is limited to its nominal investments in and prospective
investment management fees earned from these entities.
Effective January 1, 2004, AXA Financial adopted 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'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's
accounting policies relating to separate account assets and liabilities.
AXA Financial 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 2004 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'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 December 16, 2004, the FASB issued SFAS Statement No. 123(R),
"Share-Based Payment". SFAS Statement No. 123(R) eliminates the
alternative to apply the intrinsic value method of accounting for
employee stock-based compensation awards that was provided in FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123") as originally issued. SFAS No. 123(R) requires the cost of all
share-based payments to employees, including stock options, stock
appreciation rights, and most tax-qualified employee stock purchase
plans, to be recognized in the financial statements based on the fair
value of those awards. Under SFAS No. 123(R) the cost of equity-settled
awards generally is based on fair value at date of grant, adjusted for
subsequent modifications of terms or conditions, while cash-settled
awards require remeasurement of fair value at the end of each reporting
period. SFAS No. 123(R) does not 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 requires
consideration of certain factors in selecting one that is appropriate
for the unique substantive characteristics of the instruments awarded.
SFAS No. 123(R) is
F-11
effective as of the first interim or annual reporting
period beginning after June 15, 2005 and generally requires adoption
using a modified version of prospective application. Under "modified
prospective" application, SFAS No. 123(R) applies to new awards granted
and to awards modified, repurchased, or cancelled after the required
effective date. Additionally, compensation cost for unvested awards
outstanding as of the required effective date must be recognized
prospectively over the remaining requisite service/vesting period based
on the fair values of those awards as already calculated under SFAS No.
123. Entities may further elect to apply SFAS No. 123(R) on a "modified
retrospective" basis to give effect to the fair value based method of
accounting for awards granted, modified, or settled in cash in earlier
periods. The cumulative effect of initial application, if any, is
recognized as of the required effective date.
As more fully described in Note 14 of Notes to Consolidated Financial
Statements, AXA Financial elected under SFAS No. 123 to continue to
account for stock-based compensation using the intrinsic value method
and instead to provide only pro-forma disclosure of the effect on net
earnings from applying the fair value based method. Consequently,
adoption of SFAS No. 123(R) would be expected to result in recognition
of compensation expense for certain types of AXA Financial's
equity-settled awards, such as options to purchase AXA ADRs, for which
no cost previously would have been charged to net earnings under the
intrinsic value method. Similarly, certain types of AXA Financial's
cash-settled awards, such as stock appreciation rights, may be expected
to result either in different amounts of compensation expense or
different patterns of expense recognition under SFAS No. 123(R) as
compared to the intrinsic value method. Management of AXA Financial
currently is assessing the impact of adoption of SFAS No. 123(R),
including measurement and reporting of related income tax effects,
selection of an appropriate valuation model and determination of
assumptions, as well as consideration of plan design issues.
On May 19, 2004, 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", effective for the first interim or annual period beginning after
June 15, 2004. FSP 106-2 provides guidance on the accounting for the
effects of the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 ("MMA") for employers that sponsor postretirement health
care plans that provide prescription drug benefits. MMA introduced a new
prescription drug benefit under Medicare that will go into effect in
2006 and also includes a Federal subsidy payable to plan sponsors equal
to 28% of certain prescription drug benefits payable to
Medicare-eligible retirees. The subsidy only is available to an employer
that sponsors a retiree medical plan that includes a prescription drug
benefit that is at least as valuable as (i.e., actuarially equivalent
to) the new Medicare coverage. The subsidy is not subject to Federal
income tax.
Clarifying regulations are expected to be issued by the Centers for
Medicare and Medicaid Services to address the interpretation and
determination of actuarial equivalency under MMA. In accordance with the
provisions of FSP 106-2, management and its actuarial advisors will
re-evaluate actuarial equivalency as new information about its
interpretation or determination become available. Management and its
actuarial advisors have not as yet been able to conclude whether the
prescription drug benefits provided under AXA Financial's and MONY's
retiree medical plans are actuarially equivalent to the new Medicare
prescription drug benefits for 2006 and future years. Consequently,
measurements of the accumulated postretirement benefit obligation and
net periodic postretirement benefit cost for these plans at and for the
period ended December 31, 2004 do not reflect any amount associated with
enactment of MMA, including the subsidy.
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
F-12
accrued on the net carrying value amount of the loan at
the interest rate used to discount the cash flows. Changes in the
present value attributable to changes in the amount or timing of
expected cash flows are reported as investment gains or losses.
Real estate held for the production of income, including real estate
acquired in satisfaction of debt, is stated at depreciated cost less
valuation allowances. At the date of foreclosure (including in-substance
foreclosure), real estate acquired in satisfaction of debt is valued at
estimated fair value. Impaired real estate is written down to fair value
with the impairment loss being included in investment gains (losses),
net.
Depreciation of real estate held for production of income is computed
using the straight-line method over the estimated useful lives of the
properties, which generally range from 40 to 50 years.
Real estate investments meeting the following criteria are classified as
real estate held-for-sale:
o Management having the authority to approve the
action commits the organization to a plan to sell the property.
o The property is available for immediate sale in its present
condition subject only to terms that are usual and customary for
the sale of such assets.
o An active program to locate a buyer and other actions required to
complete the plan to sell the asset have been initiated and are
continuing.
o The sale of the asset is probable and transfer of the asset is
expected to qualify for recognition as a completed sale within one
year.
o The asset is being actively marketed for sale at a price that is
reasonable in relation to its current fair value.
o Actions required to complete the plan indicate that it is unlikely
that significant changes to the plan will be made or that the plan
will be withdrawn.
Real estate held-for-sale is stated at depreciated cost less valuation
allowances. Valuation allowances on real estate held-for-sale are
computed using the lower of depreciated cost or current estimated fair
value, net of disposition costs. Depreciation is discontinued on real
estate held-for-sale.
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, 2004 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 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 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.
F-13
Net Investment Income, Investment Gains (Losses), Net and Unrealized
Investment Gains (Losses)
--------------------------------------------------------------------
Net investment income and realized investment gains (losses), net
(together "investment results") related to certain participating group
annuity contracts which are passed through to the contractholders are
offset by amounts reflected as interest credited to policyholders'
account balances.
Realized investment gains (losses) are determined by identification with
the specific asset and are presented as a component of revenue. Changes
in the valuation allowances are included in investment gains or losses.
Realized and unrealized holding gains (losses) on trading securities are
reflected in net investment income.
Unrealized investment gains and losses on fixed maturities and equity
securities available for sale held by AXA Financial are accounted for as
a separate component of accumulated comprehensive income, net of related
deferred income taxes, amounts attributable to Other Discontinued
Operations, Closed Blocks policyholders dividend obligation,
participating group annuity contracts, 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 income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in-force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
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, is established in
accordance with business combination purchase accounting guidance, is
based on the present value of future profits embedded in the acquired
contracts. VOBA is determined by estimating the net present value of
future cash flows expected to result from contracts in force at the date
of the transaction. Future positive cash flows include investment
spreads, and fees and other charges assessed to the contracts for as
long as they remain in force, while future negative cash flows include
costs to administer the contracts and taxes. Contract balances, from
which the cash flows arise, are projected using assumptions for add-on
deposits, participant withdrawals, contract surrenders, and investment
returns. VOBA is further explicitly adjusted to reflect the cost
associated with the capital invested in the business. VOBA will be
amortized over the expected life of the contracts (approximately 10-30
years) according to the type of contract involved using the methods
described below as applicable. VOBA is subject to loss recognition
testing at the end of each accounting period.
F-14
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 shareholders' 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. Expected future gross
profit assumptions related to Separate Account performance are set by
management using a long-term view of expected average market returns by
applying a reversion to the mean approach. In applying this approach to
develop estimates of future returns, it is assumed that the market will
return to an average gross long-term return estimate, developed with
reference to historical long-term equity market performance and subject
to assessment of the reasonableness of resulting estimates of future
return assumptions. For purposes of making this reasonableness
assessment, management has set limitations as to maximum and minimum
future rate of return assumptions, as well as a limitation on the
duration of use of these maximum or minimum rates of return. Currently,
the average gross long-term annual return estimate is 9.0% (6.94% net of
product weighted average Separate Account fees), and the gross maximum
and minimum annual rate of return limitations are 15.0% (12.94% net of
product weighted average Separate Account fees) and 0% (-2.06% 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, 2004, current projections of future average gross market returns
assume a 2.3% return for 2005, which is within the maximum and minimum
limitations, and assume a reversion to the mean of 9.0% after 1.5 years.
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, 2004, the average rate of assumed investment
yields, excluding policy loans, for AXA Equitable was 7.0% 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 shareholders' 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.
F-15
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 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 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 8.85% 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,
F-16
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 $72.6 million and $69.9
million at December 31, 2004 and 2003, respectively. At December 31,
2004 and 2003, respectively, $1,434.4 million and $1,069.8 million of DI
reserves and associated liabilities were ceded through indemnity
reinsurance agreements with a singular reinsurance group (see Note 16).
Incurred benefits (benefits paid plus changes in claim reserves) and
benefits paid for individual DI and major medical policies are
summarized as follows:
2004 2003 2002
----------------- ---------------- -----------------
(IN MILLIONS)
Incurred benefits related to current year.......... $ 35.2 $ 33.8 $ 36.6
Incurred benefits related to prior years........... 13.2 (2.8) (6.3)
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 48.4 $ 31.0 $ 30.3
================= ================ =================
Benefits paid related to current year.............. $ 13.0 $ 12.1 $ 11.5
Benefits paid related to prior years............... 33.5 34.9 37.2
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 46.5 $ 47.0 $ 48.7
================= ================ =================
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's 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, 2004, participating policies, including those in the
Closed Blocks, represent approximately 18.0% ($56.0 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 2004, 2003 and 2002, investment
results of such Separate Accounts were gains (losses) of $2,308.0
million, $(466.2) million and $(4,740.7) million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
F-17
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 Alliance, for certain private client
and institutional investment management client transactions. Certain
investment advisory contracts provide for a performance fee, in addition
to or in lieu of a base fee, that is calculated as either a percentage
of absolute investment results or a percentage of the related investment
results in excess of a stated benchmark over a specified period of time.
Performance fees are recorded as revenue at the end of 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 Alliance, for in-depth research
and other services provided to institutional investors. Brokerage
transaction charges earned and related expenses are recorded on a trade
date basis. 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 Alliance mutual funds sold without a
front-end sales charge are capitalized as deferred sales commissions and
amortized over periods not exceeding five and one-half years, the
periods of time during which 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, 2004 and 2003,
respectively, net deferred sales commissions totaled $254.5 million and
$387.2 million and are included within Other assets. The estimated
amortization expense of deferred sales commissions, based on the
December 31, 2004 net balance for each of the next five years is
approximately $20.7 million.
Alliance'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. Alliance's management determines recoverability
by estimating undiscounted future cash flows to be realized from this
asset, as compared to its recorded amount, as well as the estimated
remaining life of the deferred sales commission asset over which
undiscounted future cash flows are expected to be received. Undiscounted
future cash flows consist of ongoing distribution services fees and
CDSC. Distribution services fees are calculated as a percentage of
average assets under management related to back-end load shares. CDSC is
based on the lower of cost or current value, at the time of redemption,
of back-end load shares redeemed and the point at which redeemed during
the applicable minimum holding period under the mutual fund distribution
system.
Significant assumptions utilized to estimate future average assets under
management of back-end load shares include expected future market levels
and redemption rates. Market assumptions are selected using a long-term
view of expected average market returns based on historical returns of
broad market indices. Future redemption rate assumptions are determined
by reference to actual redemption experience over the three-year and
five-year periods ended December 31, 2004. 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 estimated undiscounted cash flows
are compared to the recorded value of the deferred sales commission
asset. Alliance's management considers the results of these analyses
performed at various dates. If Alliance's management determines in the
future that the deferred sales commission asset is not recoverable, an
impairment condition would exist and a loss would be measured as the
amount by which the recorded amount of the asset exceeds its estimated
fair value. Estimated fair value is determined using Alliance's
management's best estimate of future cash flows discounted to a present
value amount.
Other Accounting Policies
-------------------------
In accordance with regulations of the Securities and Exchange Commission
("SEC"), securities with a fair value of $1.49 billion and $1.29 billion
have been segregated in a special reserve bank custody account at
December 31, 2004 and 2003, respectively for the exclusive benefit of
securities broker-dealer or brokerage customers under Rule 15c3-3 under
the Securities Exchange Act of 1934, as amended.
F-18
Intangible assets related to the Bernstein acquisition 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. See Note 5 of Notes to Consolidated Financial Statements for a
description of AXA Financial'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.
The Holding Company, 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 Alliance Units issued to former Bernstein
shareholders in connection with Alliance's acquisition of Bernstein. The
Holding Company agreed to provide liquidity to these former Bernstein
shareholders after a two-year lock-out period which ended October 2002.
AXA Financial acquired 16.32 million of the former Bernstein
shareholders' Alliance Units in 2004. The outstanding 16.3 million
Alliance Units may be sold to the Holding Company at the prevailing
market price over the remaining five years ending in 2009. Generally,
not more than 20% of the original Alliance Units issued to the former
Bernstein shareholders may be put to the Holding Company in any one
annual period.
AXA Financial accounts for its stock option and other stock-based
compensation plans in accordance with the provisions of Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. In accordance with the opinion,
stock option awards result in compensation expense only if the current
market price of the underlying stock exceeds the option strike price at
the grant date. See Note 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".
F-19
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, 2004
-----------------
Fixed Maturities:
Available for Sale:
Corporate..................... $ 29,439.9 $ 1,855.1 $ 60.1 $ 31,234.9
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.... $ 37,168.0 $ 2,211.2 $ 77.6 $ 39,301.6
================= ================= ================= ================
Equity Securities:
Available for sale.............. $ 49.4 $ 3.1 $ 1.2 $ 51.3
Trading securities.............. .4 1.0 .2 1.2
----------------- ----------------- ----------------- ----------------
Total Equity Securities........... $ 49.8 $ 4.1 $ 1.4 $ 52.5
================= ================= ================= ================
December 31, 2003
-----------------
Fixed Maturities:
Available for Sale:
Corporate..................... $ 20,688.7 $ 1,727.8 $ 84.7 $ 22,331.8
Mortgage-backed............... 3,848.0 57.0 17.4 3,887.6
U.S. Treasury, government
and agency securities....... 812.3 58.7 .5 870.5
States and political
subdivisions................ 188.2 14.1 2.0 200.3
Foreign governments........... 248.4 45.9 .3 294.0
Redeemable preferred stock.... 1,411.9 151.2 4.2 1,558.9
----------------- ----------------- ----------------- ----------------
Total Available for Sale.... $ 27,197.5 $ 2,054.7 $ 109.1 $ 29,143.1
================= ================= ================= ================
Equity Securities:
Available for sale.............. $ 99.1 $ 8.0 $ .1 $ 107.0
Trading securities.............. 2.0 .6 1.7 .9
----------------- ----------------- ----------------- ----------------
Total Equity Securities........... $ 101.1 $ 8.6 $ 1.8 $ 107.9
================= ================= ================= ================
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
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, 2004 and 2003, securities without a readily ascertainable
market value having an amortized cost of $6,327.2 million and $4,496.3
million, respectively, had estimated fair values of $6,695.5 million and
$4,815.4 million, respectively.
F-20
The contractual maturity of bonds at December 31, 2004 is shown below:
AVAILABLE FOR SALE
------------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------- -----------------
(IN MILLIONS)
Due in one year or less.............................................. $ 1,222.9 $ 1,239.7
Due in years two through five........................................ 7,413.0 7,783.3
Due in years six through ten......................................... 13,482.5 14,363.9
Due after ten years.................................................. 9,400.3 10,066.4
Mortgage-backed securities........................................... 3,873.9 3,917.5
---------------- -----------------
Total................................................................ $ 35,392.6 $ 37,370.8
================ =================
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's management, with the assistance of its investment
advisors, monitors the investment performance of its portfolio. This
review process culminates with a quarterly review of certain assets by
the Insurance Group's Investments Under Surveillance Committee that
evaluates whether any investments are other than temporarily impaired.
The review considers an analysis of individual credit metrics of each
issuer as well as industry fundamentals and the outlook for the future.
Based on the analysis, a determination is made as to the ability of the
issuer to service its debt obligations on an ongoing basis. If this
ability is deemed to be impaired, then the appropriate provisions are
taken.
The following table discloses fixed maturities (913 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,
2004:
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............. $ 3,295.6 $ 34.8 $ 545.9 $ 25.3 $ 3,841.5 $ 60.1
Mortgage-backed....... 788.2 8.5 69.6 1.2 857.8 9.7
U.S. Treasury,
government and
agency securities... 211.6 1.3 4.8 .2 216.4 1.5
States and political
subdivisions........ - - 19.4 .8 19.4 .8
Foreign governments... 48.0 .7 - - 48.0 .7
Redeemable
preferred stock..... 180.2 4.2 14.3 .6 194.5 4.8
--------------- ------------- ------------- ------------- ------------- ------------
Total Temporarily
Impaired Securities .. $ 4,523.6 $ 49.5 $ 654.0 $ 28.1 $ 5,177.6 $ 77.6
=============== ============= ============= ============= ============= ============
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
concentrations in any single issuer or in a particular industry group.
These corporate high yield securities are classified as other than
investment grade by the various rating agencies, i.e., a rating below
Baa3/BBB- or National Association of Insurance Commissioners ("NAIC")
designation of 3 (medium grade), 4 or 5 (below investment grade) or 6
(in or near default). At December 31, 2004, approximately $1,462.1
million, or 4.1%, of the $35,392.6 million aggregate amortized cost of
bonds held by AXA Financial was considered to be other than investment
grade.
F-21
At December 31, 2004, the carrying value of fixed maturities which were
non-income producing for the twelve months preceding that date was $20.2
million.
The Insurance Group holds equity in limited partnership interests and
other equity method investments that primarily invest in securities
considered to be other than investment grade. The carrying values at
December 31, 2004 and 2003 were $1,022.5 million and $778.5 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 $22.7 million
and $122.4 million at December 31, 2004 and 2003, respectively. Gross
interest income on these loans included in net investment income
aggregated $7.1 million, $7.8 million and $5.3 million in 2004, 2003 and
2002, 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 $8.8 million, $10.0 million and
$6.8 million in 2004, 2003 and 2002, respectively.
Impaired mortgage loans along with the related investment valuation
allowances follow:
DECEMBER 31,
----------------------------------------
2004 2003
------------------- -------------------
(IN MILLIONS)
Impaired mortgage loans with investment valuation allowances....... $ 94.3 $ 149.4
Impaired mortgage loans without investment valuation allowances.... 22.6 29.1
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 116.9 178.5
Investment valuation allowances.................................... (11.8) (18.8)
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 105.1 $ 159.7
=================== ===================
During 2004, 2003 and 2002, respectively, AXA Financial's average
recorded investment in impaired mortgage loans was $165.1 million,
$180.9 million and $138.1 million. Interest income recognized on these
impaired mortgage loans totaled $11.4 million, $12.3 million and $10.0
million for 2004, 2003 and 2002, 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, 2004 and 2003, respectively, the carrying value
of mortgage loans on real estate that had been classified as nonaccrual
loans was $79.2 million and $143.2 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, 2004 and 2003, the carrying value of equity real estate
held-for-sale amounted to $0 million and $56.9 million, respectively.
For 2004, 2003 and 2002, respectively, real estate of $0 million, $2.8
million and $5.6 million was acquired in satisfaction of debt. At
December 31, 2004 and 2003, AXA Financial owned $221.0 million and
$275.8 million, respectively, of real estate acquired in satisfaction of
debt of which $2.2 million and $3.6 million, respectively, are held as
real estate joint ventures.
Accumulated depreciation on real estate was $211.4 million and $189.6
million at December 31, 2004 and 2003, respectively. Depreciation
expense on real estate totaled $24.7 million, $38.8 million and $18.0
million for 2004, 2003 and 2002, respectively.
F-22
Investment valuation allowances for mortgage loans and equity real
estate and changes thereto follow:
2004 2003 2002
----------------- ---------------- -----------------
(IN MILLIONS)
Balances, beginning of year........................ $ 20.5 $ 55.0 $ 87.6
Additions charged to income........................ 3.9 12.2 32.5
Deductions for writedowns and
asset dispositions............................... (13.1) (15.2) (65.1)
Deduction for transfer of real estate
held-for-sale to real estate held for the
production of income............................. - (31.5) -
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 11.3 $ 20.5 $ 55.0
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 11.3 $ 18.8 $ 23.4
Equity real estate............................... - 1.7 31.6
----------------- ---------------- -----------------
Total.............................................. $ 11.3 $ 20.5 $ 55.0
================= ================ =================
5) INTANGIBLE ASSETS
The following presents a summary of AXA Financial's intangible assets,
including VOBA (see Note 2), as of December 31, 2004, related to the
MONY acquisition:
GROSS
CARRYING ACCUMULATED
AMOUNT AMORTIZATION NET
------------- --------------- -------------
(IN MILLIONS)
Intangible assets subject to amortization:
VOBA................................................... $ 868.8 $ (51.4) (1) $ 817.4
Insurance distribution network......................... 64.0 (2.4) 61.6
Brokerage distribution system.......................... 27.1 (1.7) 25.4
Mutual fund distribution fees.......................... 20.9 (5.2) 15.7
-------------- --------------- -------------
Total intangible assets subject to amortization.... 980.8 (60.7) 920.1
-------------- --------------- -------------
Intangible assets not subject to amortization:
Investment management contracts........................ 60.0 - 60.0
-------------- --------------- -------------
Total Intangible Assets................................... $ 1,040.8 $ (60.7) $ 980.1
============== =============== =============
(1) Includes reactivity to unrealized investment gains/losses reflected
in other comprehensive income.
For the six months ended December 31, 2004, total amortization expense
related to these intangible assets was $41.8 million. Intangible assets
amortization expense is estimated to range from $78.5 million in 2005 to
$64.2 in 2009.
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 $1,211.7 million and $896.9
million, respectively, at December 31, 2004 and 2003. AXA Financial's
total equity in net earnings (losses) for these real estate joint
ventures and limited partnership interests was $63.4 million, $4.3
million and $(18.3) million, respectively, for 2004, 2003 and 2002.
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 has an
investment of $10.0 million or greater and an equity interest of 10% or
greater (12 and 6 individual ventures at December 31, 2004 and 2003,
respectively) and AXA Financial's carrying value and equity in net
earnings for those real estate joint ventures and limited partnership
interests:
F-23
DECEMBER 31,
------------------------------------
2004 2003
---------------- -----------------
(IN MILLIONS)
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 537.1 $ 551.6
Investments in securities, generally at estimated fair value........... 351.9 204.8
Cash and cash equivalents.............................................. 13.9 37.6
Other assets........................................................... 31.3 22.8
---------------- -----------------
Total Assets........................................................... $ 934.2 $ 816.8
================ =================
Borrowed funds - third party........................................... $ 349.9 $ 259.7
Other liabilities...................................................... 20.1 19.5
---------------- -----------------
Total liabilities...................................................... 370.0 279.2
---------------- -----------------
Partners' capital...................................................... 564.2 537.6
---------------- -----------------
Total Liabilities and Partners' Capital................................ $ 934.2 $ 816.8
================ =================
AXA Financial's Carrying Value in These Entities Included Above........ $ 208.8 $ 168.8
================ =================
2004 2003 2002
----------------- ---------------- -----------------
(IN MILLIONS)
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 102.1 $ 95.6 $ 98.4
Net revenues (losses) of
other limited partnership interests.............. 19.8 26.0 (23.2)
Interest expense - third party..................... (17.8) (18.0) (19.8)
Other expenses..................................... (65.3) (61.7) (59.3)
----------------- ---------------- -----------------
Net Earnings (Loss)................................ $ 38.8 $ 41.9 $ (3.9)
================= ================ =================
AXA Financial's Equity in Net Earnings of These
Entities Included Above.......................... $ 13.9 $ 5.0 $ 12.8
================= ================ =================
7) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income follow:
2004 2003 2002
----------------- ---------------- -----------------
(IN MILLIONS)
Fixed maturities................................... $ 2,090.5 $ 1,797.2 $ 1,760.3
Mortgage loans on real estate...................... 325.3 279.5 314.8
Equity real estate................................. 162.4 136.9 153.7
Other equity investments........................... 73.1 35.1 (28.9)
Policy loans....................................... 286.7 260.1 269.4
Other investment income............................ 79.8 90.7 112.7
----------------- ---------------- -----------------
Gross investment income.......................... 3,017.8 2,599.5 2,582.0
Investment expenses................................ (217.0) (202.4) (188.3)
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,800.8 $ 2,397.1 $ 2,393.7
================= ================ =================
F-24
Investment gains (losses), net, including changes in the valuation
allowances, follow:
2004 2003 2002
----------------- ---------------- -----------------
(IN MILLIONS)
Fixed maturities................................... $ 24.3 $ (105.6) $ (383.4)
Mortgage loans on real estate...................... 7.5 1.3 3.7
Equity real estate................................. 11.7 26.8 101.5
Other equity investments........................... 30.5 1.9 3.3
Issuance and sales of Alliance Units............... - - .5
Other.............................................. 3.2 8.1 (13.3)
----------------- ---------------- -----------------
Investment Gains (Losses), Net..................... $ 77.2 $ (67.5) $ (287.7)
================= ================ =================
Writedowns of fixed maturities amounted to $54.2 million, $198.1 million
and $315.3 million for 2004, 2003 and 2002, respectively. Writedowns of
mortgage loans on real estate and equity real estate amounted to $10.8
million and $.8 million, respectively for 2004 and $5.2 million and
zero, respectively, for 2003.
For 2004, 2003 and 2002, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $3,864.7
million, $4,774.6 million and $7,177.3 million. Gross gains of $63.2
million, $105.1 million and $108.4 million and gross losses of $11.3
million, $39.5 million and $172.9 million, respectively, were realized
on these sales. The change in unrealized investment gains (losses)
related to fixed maturities classified as available for sale for 2004,
2003 and 2002 amounted to $188.4 million, $414.4 million and $1,050.4
million, respectively.
In 2004, 2003 and 2002, respectively, net unrealized and realized
holding gains on trading account equity securities of $.3 million, $2.1
million and $.5 million were included in net investment income in the
consolidated statements of earnings. These trading securities had a
carrying value of $1.2 million and $.9 million and costs of $.4 million
and $2.0 million at December 31, 2004 and 2003, respectively.
For 2004, 2003, and 2002, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $77.6 million, $76.5 million
and $92.1 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 Other Discontinued Operations on a line by line basis, follow:
F-25
2004 2003 2002
----------------- ---------------- -----------------
(IN MILLIONS)
Balance, beginning of year......................... $ 901.5 $ 686.2 $ 215.8
Changes in unrealized investment gains (losses).... 168.7 441.7 1,056.8
Changes in unrealized investment (gains) losses
attributable to:
Participating group annuity contracts,
Closed Blocks policyholder dividend
obligation and other......................... (103.7) (50.1) (157.3)
DAC and VOBA.................................... (22.1) (65.8) (174.1)
Deferred income taxes........................... (19.1) (110.5) (255.0)
----------------- ---------------- -----------------
Balance, End of Year............................... $ 925.3 $ 901.5 $ 686.2
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities............................... $ 2,192.6 $ 2,017.3 $ 1,576.1
Other equity investments....................... 1.7 8.3 1.7
Other.......................................... (28.0) (28.0) (21.9)
----------------- ---------------- -----------------
Total....................................... 2,166.3 1,997.6 1,555.9
Amounts of unrealized investment (gains) losses
attributable to:
Participating group annuity contracts,
Closed Blocks policyholder dividend
obligation and other......................... (375.0) (271.3) (221.2)
DAC and VOBA.................................... (361.9) (339.8) (274.0)
Deferred income taxes........................... (504.1) (485.0) (374.5)
----------------- ---------------- -----------------
Total.............................................. $ 925.3 $ 901.5 $ 686.2
================= ================ =================
Changes in unrealized gains (losses) reflect changes in fair value of
only those fixed maturities and equity securities classified as
available for sale and do not reflect any changes in fair value of
policyholders' account balances and future policy benefits.
F-26
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
-------------------------------------------------------
2004 2003 2002
----------------- --------------- -----------------
(IN MILLIONS)
Unrealized gains on investments................. $ 925.3 $ 901.5 $ 686.2
Minimum pension liability....................... (59.2) (28.8) (31.1)
---------------- --------------- -----------------
Total Accumulated Other
Comprehensive Income ......................... $ 866.1 $ 872.7 $ 655.1
================ =============== =================
The components of other comprehensive income for the past three years
follow:
2004 2003 2002
----------------- ---------------- -----------------
(IN MILLIONS)
Net unrealized gains (losses) on investments:
Net unrealized gains arising during
the period................................... $ 271.8 $ 417.3 $ 1,015.8
(Gains) losses reclassified into net earnings
during the period............................ (103.1) 24.4 41.0
----------------- ---------------- -----------------
Net unrealized gains on investments................ 168.7 441.7 1,056.8
Adjustments for policyholders liabilities, DAC and
VOBA and deferred income taxes.................. (144.9) (226.4) (586.4)
----------------- ---------------- -----------------
Change in unrealized gains, net of
adjustments..................................... 23.8 215.3 470.4
Change in minimum pension liability................ (30.4) 2.3 (17.4)
----------------- ---------------- -----------------
Total Other Comprehensive Income................... $ (6.6) $ 217.6 $ 453.0
================= ================ =================
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 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 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.
F-27
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 is
as follows:
DECEMBER 31, December 31,
2004 2003
----------------- -----------------
(IN MILLIONS)
CLOSED BLOCK LIABILITIES:
Future policy benefits, policyholders' account balances and other.... $ 8,911.5 $ 8,972.1
Policyholder dividend obligation..................................... 264.3 242.1
Other liabilities.................................................... 122.1 129.5
----------------- -----------------
Total Closed Block liabilities....................................... 9,297.9 9,343.7
----------------- -----------------
ASSETS DESIGNATED TO THE CLOSED BLOCK:
Fixed maturities, available for sale, at estimated fair value
(amortized cost of $5,488.6 and $5,061.0).......................... 5,823.2 5,428.5
Mortgage loans on real estate........................................ 1,098.8 1,297.6
Policy loans......................................................... 1,322.5 1,384.5
Cash and other invested assets....................................... 37.1 143.3
Other assets......................................................... 187.0 199.2
----------------- -----------------
Total assets designated to the Closed Block.......................... 8,468.6 8,453.1
----------------- -----------------
Excess of Closed Block liabilities over assets designated to
the Closed Block.................................................. 829.3 890.6
Amounts included in accumulated other comprehensive income:
Net unrealized investment gains, net of deferred income tax
expense of $24.6 and $43.9 and policyholder dividend
obligation of $264.3 and $242.1................................. 45.7 81.6
----------------- -----------------
Maximum Future Earnings To Be Recognized From Closed Block
Assets and Liabilities............................................ $ 875.0 $ 972.2
================= =================
F-28
AXA Equitable Closed Block revenues and expenses were as follows:
2004 2003 2002
---------------- ---------------- -----------------
(IN MILLIONS)
REVENUES:
Premiums and other income............................ $ 471.0 $ 508.5 $ 543.8
Investment income (net of investment
expenses of $.3, $2.4, and $5.4).................. 554.8 559.2 582.4
Investment gains (losses), net....................... 18.6 (35.7) (47.0)
---------------- ---------------- -----------------
Total revenues....................................... 1,044.4 1,032.0 1,079.2
---------------- ---------------- -----------------
BENEFITS AND OTHER DEDUCTIONS:
Policyholders' benefits and dividends................ 887.3 924.5 980.2
Other operating costs and expenses................... 3.5 4.0 4.4
---------------- ---------------- -----------------
Total benefits and other deductions.................. 890.8 928.5 984.6
---------------- ---------------- -----------------
Net revenues before income taxes..................... 153.6 103.5 94.6
Income tax expense................................... (56.4) (37.5) (34.7)
---------------- ---------------- -----------------
Net Revenues......................................... $ 97.2 $ 66.0 $ 59.9
================ ================ =================
Reconciliation of the policyholder dividend obligation is as follows:
DECEMBER 31,
-------------------------------------
2004 2003
---------------- ------------------
(IN MILLIONS)
Balance at beginning of year........................................... $ 242.1 $ 213.3
Unrealized investment gains ........................................... 22.2 28.8
---------------- ------------------
Balance at End of Year ................................................ $ 264.3 $ 242.1
================ ==================
Impaired mortgage loans along with the related investment valuation
allowances follows:
DECEMBER 31,
------------------------------------
2004 2003
---------------- -----------------
(IN MILLIONS)
Impaired mortgage loans with investment valuation allowances........... $ 59.5 $ 58.3
Impaired mortgage loans without investment valuation allowances........ 2.3 5.8
---------------- -----------------
Recorded investment in impaired mortgage loans......................... 61.8 64.1
Investment valuation allowances........................................ (4.2) (3.7)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 57.6 $ 60.4
================ =================
During 2004, 2003 and 2002, AXA Equitable's Closed Block's average
recorded investment in impaired mortgage loans was $64.2 million, $51.9
million and $26.0 million, respectively. Interest income recognized on
these impaired mortgage loans totaled $4.7 million, $2.7 million and
$2.1 million for 2004, 2003 and 2002, respectively.
Valuation allowances amounted to $4.0 million and $3.6 million on
mortgage loans on real estate and zero and $.1 million on equity real
estate at December 31, 2004 and 2003, respectively. Writedowns of fixed
maturities amounted to $10.8 million, $37.8 million and $40.0 million
for 2004, 2003 and 2002, respectively.
F-29
MONY Life Closed Block
----------------------
Summarized financial information for the MONY Life Closed Block is as
follows:
DECEMBER 31,
2004
--------------------
(IN MILLIONS)
CLOSED BLOCK LIABILITIES:
Future policy benefits, policyholders' account balances and other.................... $ 7,360.9
Policyholder dividend obligation..................................................... 250.8
Other liabilities.................................................................... 28.7
--------------------
Total Closed Block liabilities....................................................... 7,640.4
--------------------
ASSETS DESIGNATED TO THE CLOSED BLOCK:
Fixed maturities, available for sale, at estimated fair value
(amortized cost of $4,338.0)....................................................... 4,440.9
Mortgage loans on real estate........................................................ 592.5
Policy loans......................................................................... 1,025.0
Cash and other invested assets....................................................... 91.1
Other assets......................................................................... 197.1
--------------------
Total assets designated to the Closed Block.......................................... 6,346.6
--------------------
Excess of Closed Block liabilities over assets designated to
the Closed Block....................................................... .......... 1,293.8
Amounts included in accumulated other comprehensive income:
Net unrealized gains, net of policyholder dividend obligation of $102.9 million... -
Maximum Future Earnings To Be Recognized From --------------------
Closed Block Assets and Liabilities............................................... $ 1,293.8
====================
MONY Life Closed Block revenues and expenses were as follows:
SIX MONTHS
ENDED
DECEMBER 31,
2004
--------------------
(IN MILLIONS)
REVENUES:
Premiums and other income............................................ $ 229.9
Investment income (net of investment expenses of $2.9)............... 172.3
Investment gains (losses), net....................................... 13.1
--------------------
Total revenues....................................................... 415.3
--------------------
BENEFITS AND OTHER DEDUCTIONS:
Policyholders' benefits and dividends................................ 362.8
Other operating costs and expenses................................... 2.6
--------------------
Total benefits and other deductions.................................. 365.4
--------------------
Net revenues before income taxes..................................... 49.9
Income tax expense.................................................. (17.4)
--------------------
Net Revenues......................................................... $ 32.5
====================
F-30
Reconciliation of the MONY Life policyholder dividend obligation is as
follows:
SIX MONTHS ENDED
DECEMBER 31, 2004
-----------------------
(IN MILLIONS)
MONY Life policyholder dividend obligation, at acquisition.............. $ 147.7
Applicable to Net Revenues.............................................. .2
Unrealized investment gains............................................. 102.9
-----------------------
MONY Life Policyholder Dividend Obligation, End of Period............... $ 250.8
=======================
MONY Life Closed Block valuation allowances amounted to $.2 million on
mortgage loans on real estate and zero on equity real estate at December
31, 2004. Writedowns of fixed maturities amounted to $.3 million for
2004.
10) OTHER DISCONTINUED OPERATIONS
Summarized financial information for Other Discontinued Operations
follows:
DECEMBER 31,
--------------------------------------
2004 2003
----------------- -----------------
(IN MILLIONS)
BALANCE SHEETS
Fixed maturities, available for sale, at estimated fair value
(amortized cost of $643.6 and $644.7).............................. $ 702.1 $ 716.4
Equity real estate................................................... 190.1 198.2
Mortgage loans on real estate........................................ 21.4 63.9
Other equity investments............................................. 4.4 7.5
Other invested assets................................................ .3 .2
----------------- -----------------
Total investments.................................................. 918.3 986.2
Cash and cash equivalents............................................ 150.2 63.0
Other assets......................................................... 33.3 110.9
----------------- -----------------
Total Assets......................................................... $ 1,101.8 $ 1,160.1
================= =================
Policyholders liabilities............................................ $ 844.6 $ 880.3
Allowance for future losses.......................................... 132.7 173.4
Other liabilities.................................................... 124.5 106.4
----------------- -----------------
Total Liabilities.................................................... $ 1,101.8 $ 1,160.1
================= =================
F-31
2004 2003 2002
----------------- ---------------- -----------------
(IN MILLIONS)
STATEMENTS OF EARNINGS
Investment income (net of investment
expenses of $17.2, $21.0 and $18.1).............. $ 68.5 $ 70.6 $ 69.7
Investment gains, net.............................. 3.6 5.4 34.2
Policy fees, premiums and other income............. - - .2
----------------- ---------------- -----------------
Total revenues..................................... 72.1 76.0 104.1
Benefits and other deductions...................... (99.4) 89.4 98.7
(Losses charged) earnings credited to allowance
for future losses................................ (27.3) (13.4) 5.4
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax earnings from releasing the allowance
for future losses................................ 12.0 5.2 8.7
Income tax expense................................. (4.1) (1.8) (3.1)
----------------- ---------------- -----------------
Earnings from Other
Discontinued Operations.......................... $ 7.9 $ 3.4 $ 5.6
================= ================ =================
AXA Financial's quarterly process for evaluating the allowance for
future losses applies the current period's results of Other Discontinued
Operations against the allowance, re-estimates future losses and adjusts
the allowance, if appropriate. Additionally, as part of AXA Financial's
annual planning process, investment and benefit cash flow projections
are prepared. These updated assumptions and estimates resulted in a
release of allowance in each of the three years presented.
Valuation allowances of zero and $2.5 million on mortgage loans on real
estate were held at December 31, 2004 and 2003, respectively. During
2004, 2003 and 2002, discontinued operations' average recorded
investment in impaired mortgage loans was $8.4 million, $16.2 million
and $25.3 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $1.0 million, $1.3 million and $2.5
million for 2004, 2003 and 2002, respectively.
11) GMDB, GMIB AND NO LAPSE GUARANTEE FEATURES
Variable Annuity Contracts - GMDB and GMIB
------------------------------------------
AXA Equitable, MONY Life and MLOA issue certain variable annuity
contracts with GMDB and GMIB features that guarantee either:
a) Return of Premium: the benefit is the greater of current account
value or premiums paid (adjusted for withdrawals);
b) Ratchet: the benefit is the greatest of current account value,
premiums paid (adjusted for withdrawals), or the highest account
value on any anniversary up to contractually specified ages
(adjusted for withdrawals);
c) Roll-Up: the benefit is the greater of current account value or
premiums paid (adjusted for withdrawals) accumulated at
contractually specified interest rates up to specified ages; or
d) Combo: the benefit is the greater of the ratchet benefit or the
roll-up benefit.
The following table summarizes the GMDB and GMIB liabilities, before
reinsurance ceded, reflected in the General Account in future policy
benefits and other policyholders liabilities in 2004:
F-32
GMDB GMIB TOTAL
----------------- ---------------- -----------------
(IN MILLIONS)
Balance at December 31, 2002..................... $ 128.4 $ 117.5 $ 254.9
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....................... 46.8 32.0 78.8
----------------- ---------------- -----------------
Balance at December 31, 2004..................... $ 68.6 $ 117.6 $ 186.2
================= ================ =================
Related GMDB reinsurance ceded amounts were:
GMDB
-----------------
Balance at December 31, 2002..................... $ 21.5
Paid guarantee benefits ceded.................. (18.5)
Other changes in reserve....................... 14.2
-----------------
Balance at December 31, 2003..................... 17.2
MONY Life and MLOA balances at acquisition..... (.4)
Paid guarantee benefits ceded.................. (11.5)
Other changes in reserve....................... 4.2
-----------------
Balance at December 31, 2004..................... $ 9.5
=================
The GMIB reinsurance contracts are considered derivatives and are
reported at fair value; see Note 16 of Notes to Consolidated Financial
Statements.
The December 31, 2004 values for those variable contracts with GMDB and
GMIB features are presented in the following table. Since variable
contracts with GMDB guarantees may also offer GMIB guarantees in each
contract, the GMDB and GMIB amounts listed are not mutually exclusive:
RETURN
OF
PREMIUM RATCHET ROLL-UP COMBO TOTAL
-------------- ------------- -------------- ------------- --------------
(DOLLARS IN MILLIONS)
GMDB:
-----
Account value (1).................... $ 31,558 $ 8,607 $ 8,265 $ 11,140 $ 59,570
Net amount at risk, gross............ $ 985 $ 907 $ 1,852 $ 27 $ 3,771
Net amount at risk, net of amounts
reinsured.......................... $ 983 $ 686 $ 1,113 $ 15 $ 2,797
Average attained age of
Contractholders.................... 50.0 60.1 62.6 60.2 52.6
Percentage of contractholders
over age 70........................ 7.6% 21.7% 28.2% 18.2% 10.9%
Range of guaranteed minimum return
rates................................ N/A N/A 3%-6% 3%-6% 3%-6%
GMIB:
----
Account value (2).................... N/A N/A $ 6,042 $ 14,892 $ 20,934
Net amount at risk, gross............ N/A N/A $ 372 - $ 372
Net amount at risk, net of amounts
reinsured.......................... N/A N/A $ 92 - $ 92
Weighted average years remaining
until annuitization................ N/A N/A 3.8 9.2 7.3
Range of guaranteed minimum return
rates.............................. N/A N/A 3%-6% 3%-6% 3%-6%
(1) Included General Account balances of $11,969 million, $610 million,
$136 million and $475 million, respectively, for a total
of $13,190 million.
(2) Included General Account balances of $36 million and $641 million,
respectively, for a total of $677 million.
F-33
For contracts with the GMDB feature, the net amount at risk in the event
of death as of December 31,2004 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 as of December 31, 2004 is defined as the amount by
which the present value of the GMIB benefits exceeds related account
values, taking into account the relationship between current annuity
purchase rates and the GMIB guaranteed annuity purchase rates.
In 2003, AXA Equitable initiated a program intended to hedge certain
risks associated with the GMDB feature of the Accumulator(R) series of
annuity products sold beginning 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 annuity products sold beginning
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, 2004,
the total account value and net amount at risk of contracts were $20,887
million and $21 million, respectively, for the GMDB hedge program and
$7,446 million and zero, respectively, for the GMIB hedge program.
In third quarter 2004, AXA Equitable began to sell variable annuity
contracts with guaranteed minimum withdrawal benefits ("GMWB"). At
December 31, 2004, the liability for such benefits was zero.
The following table presents the aggregate fair value of assets, by
major investment fund option, held by Separate Accounts that are subject
to GMDB and GMIB benefits and guarantees. Since variable 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:
INVESTMENT IN VARIABLE INSURANCE TRUST MUTUAL FUNDS
DECEMBER 31, December 31,
2004 2003
---------------- ------------------
(IN MILLIONS)
GMDB:
Equity............................................................... $ 34,607 $ 26,159
Fixed income......................................................... 4,715 3,815
Balanced............................................................. 5,419 2,761
Other................................................................ 1,679 1,497
---------------- ------------------
Total................................................................ $ 46,420 $ 34,232
================ ==================
GMIB:
Equity............................................................... $ 14,453 $ 10,025
Fixed income......................................................... 2,463 2,319
Balanced............................................................. 2,772 725
Other................................................................ 569 711
---------------- ------------------
Total................................................................ $ 20,257 $ 13,780
================ ==================
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-34
DIRECT REINSURANCE
LIABILITY CEDED NET
----------------- ----------------- -----------------
(IN MILLIONS)
Balance at December 31, 2003....................... $ 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 reserve......................... 6.5 - 6.5
----------------- ----------------- -----------------
Balance at December 31, 2004....................... $ 21.0 $ - $ 21.0
================= ================= =================
12) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
DECEMBER 31,
--------------------------------------
2004 2003
----------------- -----------------
(IN MILLIONS)
Short-term debt:
Promissory note, 1.44%............................................... $ 248.3 $ 248.3
Current portion of long-term debt.................................... 686.2 300.0
----------------- -----------------
Total short-term debt................................................ 934.5 548.3
----------------- -----------------
Long-term debt:
Holding Company:
Senior notes, 7.75%, due through 2010.............................. 477.7 477.3
Senior notes, 6.5%, due 2008....................................... 249.7 249.7
Senior debentures, 7.0%, due 2028.................................. 347.9 347.9
Senior notes, 8.35%, due 2010...................................... 344.3 -
----------------- -----------------
Total Holding Company.......................................... 1,419.6 1,074.9
----------------- -----------------
MONY Companies:
Surplus notes, 11.25%, due 2024.................................... 1.9 -
Senior notes, 6.44%, due 2017...................................... 300.0 -
----------------- -----------------
Total MONY Companies........................................... 301.9 -
----------------- -----------------
AXA Equitable:
Surplus notes, 6.95%, due 2005..................................... - 399.8
Surplus notes, 7.70%, due 2015..................................... 199.8 199.8
----------------- -----------------
Total AXA Equitable............................................ 199.8 599.6
----------------- -----------------
Alliance:
Senior Notes, 5.625% due 2006...................................... 399.2 398.8
Other.............................................................. 8.4 6.5
----------------- -----------------
Total Alliance................................................. 407.6 405.3
----------------- -----------------
Total long-term debt................................................. 2,328.9 2,079.8
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 3,263.4 $ 2,628.1
================= =================
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, entered into a (euro)3.5 billion global revolving credit
facility and a $650 million letter of credit facility, which mature on
July 9, 2009, with
F-35
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 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.
Included in the current portion of long-term debt are the $275.0
million, 7.45% MONY senior notes, maturing on December 15, 2005.
Interest on these notes are payable semi-annually.
AXA Equitable has a $350.0 million, one year promissory note, of which
$101.7 million is included within Other Discontinued Operations. The
promissory note, which matures in March 2005, 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, 2004 and 2003, AXA Financial had pledged real estate of
$307.1 million and $309.8 million respectively, as collateral for
certain short-term debt.
Since 1998, Alliance has had a $425.0 million commercial paper program.
In September 2002, Alliance entered into an $800.0 million five-year
revolving credit facility with a group of commercial banks and other
lenders. Of the $800.0 million total, $425.0 million is intended to
provide back-up liquidity for Alliance'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 Alliance,
is a floating rate generally based upon a defined prime rate, a rate
related to the London Interbank Offered Rate ("LIBOR") or the Federal
funds rate. The revolving credit facility contains covenants that, among
other things, require Alliance to meet certain financial ratios.
Alliance was in compliance with the covenants at December 31, 2004. At
December 31, 2004, no borrowings were outstanding under Alliance's
commercial paper program or revolving credit facilities.
At December 31, 2004, Alliance 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, 2004, no amounts were outstanding under the ECN program.
Long-term Debt
--------------
At December 31, 2004, AXA Financial was not in breach of any debt
covenants.
In second quarter 2004, AXA Financial entered into a series of interest
rate swaps on the Holding Company long-term debt to reduce fixed
interest payments on these obligations through mid-2006, resulting in
net swap revenues of $2.2 million for 2004 reported in Net investment
income, including amounts accrued at December 31, 2004.
Upon completion of the merger, the Holding Company 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.
In April 2002, MONY Holdings, LLC ("MONY Holdings") 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%.
At December 31, 2004, $1.9 million of MONY Life's 11.25 % surplus notes
remained outstanding.
At December 31, 2004, aggregate maturities of the long-term debt,
including the current portion of long-term debt, based on required
principal payments at maturity were $675.0 million for 2005, $408.4
million for 2006, 0 for 2007, $250.0 million for 2008, 0 for 2009 and
$1,631.9 million thereafter.
F-36
In August 2001, Alliance issued $400.0 million 5.625% notes pursuant to
a shelf registration statement under which Alliance may issue up to
$600.0 million in senior debt securities. These Alliance notes mature in
2006 and are redeemable at any time. The proceeds from the Alliance
notes were used to reduce commercial paper and credit facility
borrowings and for other general partnership purposes.
13) INCOME TAXES
A summary of the income tax expense in the consolidated statements of
earnings follows:
2004 2003 2002
----------------- ---------------- -----------------
(IN MILLIONS)
Income tax expense:
Current expense (benefit)........................ $ 341.4 $ 93.1 $ (443.1)
Deferred expense................................. 52.7 121.9 452.9
----------------- ---------------- -----------------
Total.............................................. $ 394.1 $ 215.0 $ 9.8
================= ================ =================
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:
2004 2003 2002
----------------- ---------------- -----------------
(IN MILLIONS)
Expected income tax expense....................... $ 540.6 $ 285.3 $ 297.4
Minority interest.................................. (110.5) (53.3) (101.6)
Separate Account investment activity............... (63.3) (29.1) (159.3)
Non-taxable investment income...................... (22.6) (22.7) 3.4
Non-deductible penalty............................. - 19.5 -
Adjustment of tax audit reserves................... 7.7 (9.9) (42.9)
Non-deductible goodwill and other
intangible assets................................ 4.3 3.8 3.4
Other.............................................. 37.9 21.4 9.4
----------------- ---------------- -----------------
Income Tax Expense................................. $ 394.1 $ 215.0 $ 9.8
================= ================ =================
The components of the net deferred Federal income taxes are as follows:
DECEMBER 31, 2004 December 31, 2003
--------------------------------- ---------------------------------
ASSETS LIABILITIES Assets Liabilities
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
Compensation and related benefits...... $ 240.4 $ - $ 76.4 $ -
Reserves and reinsurance............... 1,304.6 - 807.3 -
DAC and VOBA........................... - 2,193.3 - 1,855.5
Unrealized investment gains............ - 504.0 - 485.0
Investments............................ - 659.5 - 521.0
Other.................................. 132.4 - 6.6 -
--------------- ---------------- --------------- ---------------
Total.................................. $ 1,677.4 $ 3,356.8 $ 890.3 $ 2,861.5
=============== ================ =============== ===============
In 2002, AXA Financial recorded a $144.3 million benefit resulting from
the favorable treatment of certain tax matters related to Separate
Account investment activity arising during the 1997-2001 tax years and a
settlement with the Internal Revenue Service (the "IRS") with respect to
such tax matters for the 1992-1996 tax years.
In 2003, the IRS commenced examinations of AXA Financial'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.
Management believes these audits will have no material adverse effect on
AXA Financial's consolidated results of operations or financial
position.
F-37
14) CAPITAL STOCK, STOCK APPRECIATION RIGHTS, AND OPTIONS
Under the 1997 Stock Incentive Plan, the Holding Company can grant AXA
ADRs and options to purchase AXA ADRs. The options, which include
Incentive Stock Options and Nonstatutory Stock Options, are issued at
the fair market value of the AXA ADRs on the date of grant. Options
granted prior to 2004 vested over a 3 year period with one third vesting
on each anniversary date, however, beginning with new grants in 2004,
new stock option awards generally vest over a 4 year period with one
third vesting on each of the second, third and fourth anniversaries of
the grant. Options currently issued and outstanding generally have a
10-year contractual term from their date of grant.
In January 2001, certain employees exchanged AXA ADR options for tandem
Stock Appreciation Rights and at-the-money AXA ADR options of equivalent
intrinsic value. The maximum obligation for the Stock Appreciation
Rights is $86.1 million, based upon the underlying price of AXA ADRs at
January 2, 2001, the closing date of the aforementioned merger. AXA
Financial recorded an increase in the Stock Appreciation Rights
liability of $16.2 million and $13.5 for 2004 and 2003, respectively,
primarily reflecting the variable accounting for the Stock Appreciation
Rights based on the change in the market value of AXA ADRs in 2004 and
2003.
AXA Financial has elected to continue to account for stock-based
compensation using the intrinsic value method prescribed in APB No. 25.
Stock-based employee compensation expense is not reflected in the
statement of earnings as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock
on the date of the grant. The following table illustrates the effect on
net income had compensation expense as related to options awarded under
AXA Financial's Stock Incentive Plans been determined based on SFAS No.
123's fair value based method:
2004 2003 2002
----------------- ---------------- -------------------
(IN MILLIONS)
Net income as reported............................. $ 944.9 $ 457.2 $ 528.6
Less: total stock-based employee compensation
expense determined under fair value method for
all awards, net of income tax benefit............ (25.0) (36.5) (37.3)
----------------- ---------------- -------------------
Pro Forma Net Earnings............................. $ 919.9 $ 420.7 $ 491.3
================= ================ ===================
F-38
The Black-Scholes option pricing model was used in determining the fair
values of option awards used in the pro-forma disclosures above. The
option pricing assumptions for 2004, 2003 and 2002 follow:
HOLDING COMPANY ALLIANCE
----------------------------------------- ------------------------------
2004 2003 2002 2004 2003 2002
------------- ------------- ------------ --------- ---------- ---------
Dividend yield............... 2.24% 2.48% 2.54% 3.5% 6.1% 5.80%
Expected volatility.......... 43% 46% 46% 32% 32% 32%
Risk-free interest rate...... 2.86% 2.72% 4.04% 4.0% 3.0% 4.2%
Expected life in years....... 5 5 5 5 7 7
Weighted average fair value
per option at grant date... $6.94 $4.39 $6.30 $8.00 $5.96 $5.89
A summary of the activity in the option shares of the Holding Company
and Alliance's option plans follows, including information about options
outstanding and exercisable at December 31, 2004.
HOLDING COMPANY ALLIANCE
------------------------------------ ---------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AXA ADRS EXERCISE UNITS EXERCISE
(IN MILLIONS) PRICE (IN MILLIONS) PRICE
------------------------------------ --------------- -----------------
Balance at January 1, 2002....... 30.0 $31.55 15.9 $33.58
Granted........................ 6.7 $17.24 2.4 $33.32
Exercised...................... (.2) $10.70 (1.4) $14.83
Forfeited...................... (1.2) $27.12 (.5) $42.99
------------------- ---------------
Balance at December 31, 2002..... 35.3 $25.14 16.4 $34.92
Granted........................ 9.1 $12.60 .1 $35.01
Exercised...................... (1.7) $7.85 (1.2) $17.26
Forfeited...................... (1.8) $25.16 (1.5) $43.27
------------------- ---------------
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
=================== ===============
F-39
Information about options outstanding and exercisable at December 31,
2004 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 .2 1.08 $7.65 .2 $7.65
$10.13 - $15.12 10.1 7.39 $12.66 4.4 $12.81
$15.91 - $22.84 15.5 7.35 $19.42 7.1 $18.51
$25.96 - $32.87 13.1 3.65 $30.65 12.3 $30.64
$35.85 5.1 4.48 $35.85 5.1 $35.85
----------------- ------------------
$6.33 - $35.85 44.0 $23.03 29.1 $25.71
================= ==================
Alliance
----------------------
$8.81-$18.47 1.2 2.25 $15.31 1.2 $15.31
$25.63-$30.25 2.2 4.40 $28.05 2.1 $28.06
$32.52-$48.50 3.1 7.01 $39.18 1.7 $42.03
$50.15-$50.56 1.7 6.92 $50.25 1.0 $50.25
$51.10-$58.50 1.4 5.95 $53.77 1.1 $53.76
----------------- ------------------
$8.81-$58.50 9.6 5.66 $37.82 7.1 $36.41
================= ==================
AXA Financial's ownership interest in Alliance will continue to be
reduced upon the exercise of unit options granted to certain Alliance
employees. Options are exercisable over periods of up to ten years.
On November 22, 2004, the Holding Company purchased approximately 25.5
million call options on the AXA ADR 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 to the consolidated
financial statements, the total premium of approximately $88.9 million
paid by the Holding Company to purchase these call options was funded by
a short-term borrowing from AXA. The after-tax cost of the call options
has been recognized by AXA Financial in its consolidated statement of
shareholders' 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 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. As of December 31, 2004, none
of the purchased call options have been exercised.
In 2004, 2003 and 2002, AXA Financial granted to senior executives and
non-employee directors AXA ADRs having a value of $9.8 million, $11.3
million and $12.3 million, respectively, on the date of the grants. AXA
ADRs granted in 2004 vest over four years while the AXA ADRs granted in
2003 and 2002 vest over three years. In 2004, 2003 and 2002, AXA
Financial recognized $13.0 million, $9.8 million and $6.3 million,
respectively, in compensation and benefit expense relating to this
program.
In 1997, Alliance Holding established a long-term incentive compensation
plan under which grants are made to key employees for terms established
by Alliance Holding at the time of grant. These awards include options,
restricted Alliance Holding units and phantom restricted Alliance
Holding units, performance awards, other Alliance Holding unit based
awards, or any combination thereof. At December 31, 2004, approximately
11.3 million Alliance Holding units of a maximum 41.0 million units were
subject to options granted and .1 million Alliance Holding units were
subject to awards made under this plan.
F-40
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, the Holding Company 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, the Holding
Company 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 2004
interest cost related to the Subordinated Notes will total approximately
$32.2 million.
In November 2004, the Holding Company issued a note to AXA in the amount
of $88.9 million with an interest rate of 2.76% and a maturity date of
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, the Holding Company 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 Alliance 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.
The Holding Company, AXA Equitable, MONY Life and Alliance, along with
other AXA affiliates, participate in certain intercompany cost sharing
and service agreements including technology and professional development
arrangements. Payments by AXA Financial to AXA under such agreements
totaled approximately $31.6 million and $17.7 million in 2004 and 2003,
respectively. Payments by AXA and AXA affiliates to AXA Financial under
such agreements totaled approximately $39.2 million and $32.5 million in
2004 and 2003, respectively.
Commissions, fees and other income includes certain revenues for
services provided to mutual funds managed by Alliance described below:
2004 2003 2002
----------------- ---------------- ------------------
(IN MILLIONS)
Investment advisory and services fees.............. $ 744.6 $ 748.1 $ 763.2
Distribution revenues.............................. 447.3 436.0 467.5
Shareholder servicing fees......................... 87.5 94.3 101.6
Other revenues..................................... 8.8 11.4 10.2
Brokerage.......................................... 4.2 4.4 7.0
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.
During 2004, the Insurance Group reinsured most of its new variable
life, universal life and term life policies on an excess of retention
basis, retaining up to a maximum of $15 million on single-life policies
and $20 million on second-to-die policies with the excess 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
65% of the term insurance business underwritten by MONY and MLOA was
ceded on a coinsurance basis. In addition, for business underwritten by
USFL, amounts in excess of $750,000 for single life policies and
$1,000,000 for second to die policies were ceded on a yearly
F-41
renewable term basis. 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, 2004, AXA Financial had reinsured in the aggregate
approximately 25.8% of its current exposure to the GMDB obligation on
annuity contracts in-force and, subject to certain maximum amounts or
caps in any one period, approximately 75.3% of its current liability
exposure resulting from the GMIB feature.
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, 2004 and 2003
were $90.0 million and $29.0 million, respectively. The increase
(decrease) in estimated fair value was $61.0 million and $(91.0) million
for the years ended December 31, 2004 and 2003, respectively.
At December 31, 2004 and 2003, respectively, reinsurance recoverables
related to insurance contracts amounted to $3.15 billion and $2.46
billion. Reinsurance payables related to insurance contracts totaling
$27.9 million and $27.5 million are included in other liabilities in the
consolidated balance sheets.
The Insurance Group cedes 100% of its group life and health business to
a third party insurer. Insurance liabilities ceded totaled $381.1
million and $389.7 million at December 31, 2004 and 2003, respectively.
The Insurance Group also cedes a portion of its extended term insurance,
paid up life insurance and guaranteed interest contracts and
substantially all of its individual disability income 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, 2004 and 2003 were $669.5 million and
$587.5 million, respectively.
The following table summarizes the effect of reinsurance (excluding
group life and health):
2004 2003 2002
----------------- ---------------- -----------------
(IN MILLIONS)
Direct premiums.................................... $ 1,290.4 $ 913.8 $ 954.6
Reinsurance assumed................................ 183.7 153.0 181.4
Reinsurance ceded.................................. (198.3) (168.4) (190.8)
----------------- ---------------- -----------------
Premiums........................................... $ 1,275.8 $ 898.4 $ 945.2
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 134.8 $ 100.3 $ 96.6
================= ================ =================
Policyholders' Benefits Ceded...................... $ 497.0 $ 389.4 $ 346.3
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 50.2 $ 49.7 $ 54.6
================= ================ =================
17) EMPLOYEE BENEFIT PLANS
AXA Financial sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans are
non-contributory. AXA Financial's benefits are based on a cash balance
formula or years of service and final average earnings, if greater,
under certain grandfathering rules in the plans. Alliance's benefits are
based on years of credited service, average final base salary and
primary social security benefits. AXA Financial uses a December 31
measurement date for its pension and postretirement plans.
In connection with the acquisition of MONY and under the terms of the
merger agreement, continuing employees of MONY were to be provided with
employee benefit plans substantially comparable in the aggregate to
those provided to them as employees of MONY to the earlier of one year
after the effective date
F-42
of the transaction or December 31, 2004. In compliance with that
agreement, AXA Financial elected to maintain the qualified and/or
non-qualified benefit plans, 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. Advest's
non-qualified retirement benefits for certain senior executives and
for certain high-performing financial advisors are based on formulas
reflecting years of service, final average earnings or gross
commissions generated, as well as Advest's contributions to certain
other benefit plans made on the participants' behalf. Except for the
plans of Advest that use a September 30 measurement date, the pension
and postretirement plans of MONY and its other principal subsidiaries
use a December 31 measurement date.
Generally, AXA Financial's funding policy is to make the minimum
contribution required by the Employee Retirement Income Security Act of
1974 ("ERISA"). AXA Financial made cash contributions in 2004 to the
qualified plans of $10.0 million. No cash contributions were made to
MONY's qualified plan in 2004. AXA Financial and MONY are expected to
require no cash contributions to their qualified plans to satisfy their
minimum funding requirements for the year ended 2005.
Components of net periodic pension expense (credit) for AXA Financial's
qualified and non-qualified plans and for MONY's qualified and
non-qualified plans since its date of acquisition by AXA Financial in
2004 were as follows:
2004 2003 2002
----------------- ---------------- -----------------
(In Millions)
Service cost....................................... $ 48.0 $ 38.8 $ 39.4
Interest cost on projected benefit obligations..... 162.4 148.0 151.7
Expected return on assets.......................... (187.3) (174.0) (181.9)
Net amortization and deferrals..................... 79.1 64.8 17.4
----------------- ---------------- -----------------
Net Periodic Pension Expense....................... $ 102.2 $ 77.6 $ 26.6
================= ================ =================
The plans' projected benefit obligations under AXA Financial's and
MONY's qualified and non-qualified plans were comprised of:
December 31,
------------------------------------
2004 2003
---------------- -----------------
(In Millions)
Benefit obligations, beginning of year................................. $ 2,425.6 $ 2,281.1
Benefit obligations assumed from acquisition of MONY................... 455.3 -
Service cost........................................................... 42.0 33.8
Interest cost.......................................................... 162.4 148.0
Actuarial losses ...................................................... 292.2 127.5
Benefits paid.......................................................... (189.0) (164.8)
---------------- -----------------
Benefit Obligations, End of Year....................................... $ 3,188.5 $ 2,425.6
================ =================
F-43
The change in plan assets and the funded status of the AXA Financial's
and MONY's qualified and non-qualified pension plans was as follows:
December 31,
-----------------------------------
2004 2003
---------------- -----------------
(In Millions)
Plan assets at fair value, beginning of year.............................. $ 2,016.5 $ 1,786.9
Plan assets acquired from the MONY acquisition............................ 387.7 -
Actual return on plan assets.............................................. 292.8 359.8
Contributions............................................................. 11.5 10.1
Benefits paid and fees.................................................... (178.5) (140.3)
---------------- -----------------
Plan assets at fair value, end of year.................................... 2,530.0 2,016.5
Projected benefit obligations............................................. 3,188.5 2,425.6
---------------- -----------------
(Underfunding) excess of plan assets over projected benefit obligations... (658.5) (409.1)
Unrecognized prior service cost........................................... 16.5 (3.8)
Unrecognized net loss from past experience different
from that assumed....................................................... 1,087.4 1,009.2
Unrecognized net asset at transition...................................... (1.2) (1.3)
Additional minimum pension liability...................................... (117.2) (75.3)
---------------- -----------------
Prepaid Pension Cost, Net................................................. $ 327.0 $ 519.7
================ =================
The prepaid pension cost for pension plans with assets in excess of
projected benefit obligations was $852.4 million and $886.4 million and
the accrued liability for pension plans with accumulated benefit
obligations in excess of plan assets was $525.5 million and $366.6
million at December 31, 2004 and 2003, respectively.
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 and MONY at December 31, 2004.
DECEMBER 31,
-----------------------------------------------------------
2004 2003
------------------------------- --------------------------
(IN MILLIONS)
ESTIMATED Estimated
FAIR VALUE % Fair Value %
--------------------- ------- --------------- -------
Corporate and government debt securities....... $ 559.1 22.1 $ 438.2 21.7
Equity securities.............................. 1,756.3 69.4 1,387.4 68.8
Equity real estate ............................ 192.8 7.6 184.8 9.2
Short-term investments......................... 16.2 .6 2.1 .1
Other.......................................... 5.6 .3 4.0 .2
--------------------- ---------------
Total Plan Assets........................ $ 2,530.0 $ 2,016.5
===================== ===============
The primary investment objective of the qualified plans of AXA Financial
and MONY is to maximize return on assets, giving consideration to
prudent risk. Strategy with respect to asset mix is designed to meet,
and, if possible, exceed the long-term rate-of-return assumptions for
benefit obligations. The asset allocation is designed with a long-term
investment horizon, based on target investment of 65% equities, 25%
fixed income and 10% real estate. Emphasis is given to equity
investments, given their 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
and MONY 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 following table discloses the weighted-average assumptions used to
measure AXA Financial's and MONY's pension benefit obligations and net
periodic pension cost at and for the years ended December 31, 2004 and
2003.
F-44
AXA FINANCIAL
--------------------------------
2004 2003
---- ----
Discount rate:
Benefit obligation............................................... 5.75% 6.25%
Periodic cost.................................................... 6.25% 6.75%
Rate of compensation increase:
Benefit obligation and periodic cost............................. 5.75% 5.78%
Expected long-term rate of return on plan assets (periodic cost)... 8.5% 8.5%
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.
AXA Financial recorded, as a reduction of consolidated shareholders'
equity, an additional minimum pension liability of $59.2 million, $28.8
million and $31.1 million, net of income taxes, at December 31, 2004,
2003 and 2002, respectively, primarily representing the excess of the
accumulated benefit obligation of AXA Financial's non-qualified pension
plan over the accrued liability and an intangible pension asset of $26.2
million at December 31, 2004 for AXA Financial's qualified plan,
primarily representing the amount of unrecognized prior service cost,
which is reported in Goodwill and other intangible assets, net. The
aggregate accumulated benefit obligation and fair value of plan assets
for pension plans with accumulated benefit obligations in excess of plan
assets were $926.3 million and $403.4 million, respectively, and
including MONY's pension plans, at December 31, 2004, and $402.6 million
and $38.7 million, respectively, at December 31, 2003. The accumulated
benefit obligation for all defined benefit pension plans was $2,998.9
million, including MONY's pension plans, and $2,285.0 million at
December 31, 2004 and 2003, respectively. The aggregate projected
benefit obligation for pension plans with projected benefit obligations
in excess of plan assets was $976.5 million, including MONY's pension
plans, at December 31, 2004, and $485.9 million, at December 31, 2003.
Prior to 1987, the qualified plan of AXA Financial funded participants'
benefits through the purchase of non-participating annuity contracts
from AXA Equitable. Benefit payments under these contracts were
approximately $23.2 million, $24.5 million and $26.0 million for 2004,
2003 and 2002, respectively.
In addition to the pension plans described above, the AXA Financial and
its subsidiaries maintain a number of qualified defined contribution
plans, including the Investment Plan, the MONY Investment Plan, and the
Advest Thrift Plan. MONY also provides substantially all career field
underwriters of MONY Life with a qualified MONY 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 for the year ended December 31, 2004 amounted to $23.8
million.
AXA Financial provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from AXA Financial (i) on or after
attaining age 55 who have at least 5 years of service or (ii) on or
after attaining age 65. The life insurance benefits are related to age
and salary at retirement for certain grandfathered retirees, and a flat
dollar amount for others. Similarly, MONY provides certain health care
and life insurance benefits for retired employees and field underwriters
of MONY Life. AXA Financial continues to fund the postretirement
benefits costs for these plans on a pay-as-you-go basis. For 2004, 2003
and 2002, postretirement benefits payments were made in the amounts of
$35.0 million, including MONY, $34.5 million and $36.2 million,
respectively, net of employee contributions.
F-45
Components of AXA Financial's net postretirement benefits costs follow
and include MONY for the year ended December 31, 2004:
2004 2003 2002
----------------- ---------------- -----------------
(In Millions)
Service cost....................................... $ 5.6 $ 5.0 $ 4.6
Interest cost on accumulated postretirement
benefits obligation.............................. 36.7 36.7 35.4
Unrecognized prior service cost.................... - (8.4) -
Net amortization and deferrals..................... 5.6 13.4 (.7)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 47.9 $ 46.7 $ 39.3
================= ================ =================
The following table sets forth the postretirement benefits plans'
status, reconciled to amounts recognized in AXA Financial's consolidated
financial statements:
December 31,
------------------------------------
2004 2003
---------------- -----------------
(In Millions)
Accumulated postretirement benefits obligation,
beginning of year.................................................... $ 586.0 $ 543.8
Accumulated postretirement benefit obligation assumed
as a result of the acquisition of MONY............................. 102.8 -
Service cost........................................................... 5.6 5.0
Interest cost.......................................................... 36.7 36.7
Contributions and benefits paid........................................ (35.0) (34.5)
Actuarial (gains) losses .............................................. (16.2) 64.6
Plan amendments........................................................ 19.2 (29.6)
---------------- -----------------
Accumulated postretirement benefits obligation, end of year............ 699.1 586.0
Unrecognized prior service cost........................................ 44.8 34.7
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (207.4) (199.9)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 536.5 $ 420.8
================ =================
The following table discloses the weighted-average assumptions used to
measure AXA Financial's and MONY's postretirement benefit obligations
and related net periodic cost at and for the years ended December 31,
2004 and 2003:
2004 2003
----------------- ----------------
Discount rate:
Benefit obligation............................................... 5.75% 6.25%
Periodic cost.................................................... 6.25% 6.75%
In 1993, both AXA Financial and MONY 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. As a result, no future health care cost trend rate was assumed in
measuring any postretirement benefit obligation or related cost at and
for the years ended December 31, 2004 and 2003, except for MONY's dental
plan, for which an assumed medical cost trend rate of 5% was applied.
Therefore, an increase or decrease of 1% in the health care cost trend
rate has no material impact on either the service or interest components
of net periodic postretirement benefits costs or on the related
accumulated postretirement benefit obligation.
AXA Financial sponsors a postemployment health and life insurance
continuation plan for disabled former employees. The accrued liability
for these postemployment benefits was $36.9 million and $38.4 million,
respectively, at December 31, 2004 and 2003. The expense related to this
plan for years ended December 31, 2004, 2003, and 2002, respectively,
was $9.5 million, $27.9 million, and $1.3 million.
F-46
The following table sets forth an estimate of future benefits expected to
be paid in each of the next five years, beginning January 1, 2005, 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, 2004 and include benefits attributable to estimated
future employee service.
PENSION BENEFITS OTHER BENEFITS
--------------------- --------------------
(IN MILLIONS)
2005...................... $ 205.9 $ 56.1
2006...................... 218.5 55.8
2007...................... 223.6 55.5
2008...................... 227.4 55.1
2009...................... 231.3 54.9
Years 2010 - 2014......... 1,201.6 266.1
On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "MMA") was signed into law. It 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, however,
detailed regulations necessary to implement and administer the MMA have
not yet been issued. Management and its actuarial advisors have not been
able to conclude as yet whether the prescription drug benefits provided
under AXA Financial's and MONY's retiree medical plans are actuarially
equivalent to the new Medicare prescription drug benefits for 2006 and
future years. Consequently, measures of the accumulated postretirement
benefit obligations and net periodic postretirement benefit cost for
these plans at and for the year ended December 31, 2004 do not reflect
any amounts associated with enactment of MMA, including the subsidy.
Alliance maintains several unfunded deferred compensation plans for the
benefit of certain eligible employees and executives. The Capital
Accumulation Plan was frozen on December 31, 1987 and no additional
awards have been made. For the active plans, benefits vest over a period
ranging from 3 to 8 years and are amortized as compensation and benefit
expense. ACMC, Inc. ("ACMC"), a subsidiary of AXA Financial, is
obligated to make capital contributions to Alliance in amounts equal to
benefits paid under the Capital Accumulation Plan and the contractual
unfunded deferred compensation arrangements. In connection with the
acquisition of Bernstein, Alliance agreed to invest $96.0 million per
annum for three years to fund purchases of Alliance Holding units or an
Alliance sponsored money market fund in each case for the benefit of
certain individuals who were stockholders or principals of Bernstein or
hired to replace them. AXA Financial has recorded compensation and
benefit expenses in connection with the these deferred compensation
plans totaling $140.4 million, $124.2 million and $101.4 million for
2004, 2003 and 2002, respectively (including $61.3 million, $85.1
million and $63.7 million for 2004, 2003 and 2002, 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, the Holding Company utilizes derivatives to
reduce the fixed interest cost of its long-term debt obligations.
Various derivative instruments are used to achieve these objectives,
including interest rate caps and floors to hedge crediting rates on
interest-sensitive individual annuity contracts, interest rate futures
to protect against declines in interest rates between receipt of funds
and purchase of appropriate assets, and interest rate swaps to modify
the duration and cash flows of fixed maturity investments and long-term
debt. In addition, AXA Financial periodically enters into forward and
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, 2004, AXA
Financial's outstanding equity-based futures contracts were
exchanged-traded and net settled each day. Also, AXA Financial 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. See Note 16 to Notes to Consolidated Financial
Statements. In 2004, the Holding company purchased call options on the
AXA ADR. These contracts are excluded from the definition of derivative
F-47
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 addition, policies are subject to minimum rate guarantees. To hedge
exposure to lower interest rates, AXA Financial has used interest rate
floors.. At December 31, 2004 the outstanding notional amount of
interest rate floors was $12.0 billion. For the year ended December 31,
2004 net unrealized losses of $3.9 million and no realized gains were
recognized from floor contracts. These derivatives do not qualify for
hedge accounting treatment under GAAP.
AXA Financial 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 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 $20,887 million at December 31, 2004 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 $7,446 million at December 31, 2004. 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
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,
2004 AXA Financial had open exchange-traded futures positions on the S&P
500, Russell 1000 and NASDAQ 100 indices, having an aggregate notional
amount of $956.7 million and an initial margin requirement of $51.2
million. Contracts are net settled daily. At December 31, 2004, AXA
Financial had open exchange-traded futures positions on the 10-year U.S.
Treasury Note, having an aggregate notional amount of $156.7 million and
an initial margin requirement of $1.3 million. Contracts are net settled
daily. For the year ended December 31, 2004, net realized losses of
$63.1 million and net unrealized losses of $20.6 million were recognized
from futures contracts utilized in this program and were partially
offset by a similar decline in the GMDB and GMIB reserve.
AXA Financial is exposed to counterparty risk attributable to hedging
transactions entered into with counterparties. Exposure to credit risk
is controlled with the respect to each counterparty through a credit
appraisal and approval process. Each counterparty is currently rated 1
by the NAIC.
All derivatives outstanding at December 31, 2004 and 2003 are recognized
on the balance sheet at their fair values. The outstanding notional
amounts of derivative financial instruments purchased and sold were:
DECEMBER 31,
------------------------------------
2004 2003
---------------- -----------------
(IN MILLIONS)
Notional Amount by Derivative Type:
Options:
Floors.......................................................... $ 12,000 $ 12,000
Bond and equity-based futures................................... 1,168 327
Interest rate swaps................................................. 4,280 3,000
---------------- -----------------
Total............................................................... $ 17,448 $ 15,327
================ =================
At December 31, 2004 and during the year then ended, there were no
hybrid instruments that required bifurcation of an embedded derivative
component under the provisions of SFAS No. 133.
All gains and losses on derivative financial instruments utilized by AXA
Financial in 2004 and 2003 are reported in earnings. None of the
derivatives were designated as qualifying hedges under SFAS No. 133. For
2004 and 2003, respectively, investment results, principally in net
investment income, included gross gains of $47.0 million and $25.2
million and gross losses of $164.4 million and $60.7 million that were
recognized on derivative positions.
F-48
Fair Value of Financial Instruments
-----------------------------------
AXA Financial 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'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, 2004 and 2003.
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's association plan
contracts, supplementary contracts not involving life contingencies
("SCNILC") and annuities certain, which are included in policyholders'
account balances, and guaranteed interest contracts are estimated using
projected cash flows discounted at rates reflecting expected current
offering rates.
The fair values for variable deferred annuities and single premium
deferred annuities, included in policyholders' account balances, are
estimated as the discounted value of projected account values. Current
account values are projected to the time of the next crediting rate
review at the current crediting rates and are projected beyond that date
at the greater of current estimated market rates offered on new policies
or the guaranteed minimum crediting rate. Expected cash flows and
projected account values are discounted back to the present at the
current estimated market rates.
Fair values for long-term debt are determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage debt
are determined by discounting contractual cash flows at a rate which
takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to AXA Financial. AXA Financial's carrying value of short-term
borrowings approximates their estimated fair value.
F-49
The carrying values and estimated fair values for financial instruments
not previously disclosed in Notes 4, 9, 10 and 12 are presented below:
DECEMBER 31,
--------------------------------------------------------------------
2004 2003
--------------------------------- ---------------------------------
CARRYING ESTIMATED Carrying Estimated
VALUE FAIR VALUE Value Fair Value
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
Consolidated AXA Financial:
Mortgage loans on real estate........ $ 4,909.8 $ 5,136.9 $ 3,503.1 $ 3,761.7
Other limited partnership interests.. 1,022.5 1,022.5 778.5 778.5
Policy loans......................... 4,968.0 5,550.2 3,894.3 4,481.9
Policyholders liabilities:
Investment contracts............... 19,332.9 19,951.9 16,817.0 17,245.9
Long-term debt....................... 2,328.9 2,538.0 2,079.8 2,331.6
Closed Blocks:
Mortgage loans on real estate........ $ 1,691.2 $ 1,775.6 $ 1,297.6 $ 1,386.0
Other equity investments............. 3.8 3.8 14.2 14.2
Policy loans......................... 2,347.6 2,598.0 1,384.5 1,626.7
SCNILC liability..................... 13.1 13.1 14.8 14.9
Other Discontinued Operations:
Mortgage loans on real estate........ $ 21.4 $ 23.1 $ 63.9 $ 69.5
Other equity investments............. 4.4 4.4 7.5 7.5
Guaranteed interest contracts........ 6.8 6.8 17.8 16.3
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, from time to time, AXA Financial has provided certain guarantees or
commitments to affiliates, investors and others. At December 31, 2004,
these arrangements include commitments by AXA Financial, to provide
equity financing of $483.3 million to certain limited partnerships under
certain conditions. Management believes AXA Financial 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 had $711.1 million of undrawn letters of credit related to
reinsurance at December 31, 2004. AXA Equitable had $114.5 million in
commitments under existing mortgage loan agreements at December 31,
2004.
In February 2002, Alliance signed a $125.0 million agreement with a
commercial bank under which it guaranteed certain obligations of SCB LLC
incurred in the ordinary course of its business in the event SCB LLC is
unable to meet these obligations. At December 31, 2004, Alliance was not
required to perform under the agreement and had no liability outstanding
in connection with the agreement.
Advest is exposed to counterparty credit risk on open and unsettled US
government agency mortgage backed transactions, executed with or on
behalf of institutional clients. The potential loss on these
transactions is the difference between the contracted price and the
settlement price on the open market in the event the counterparty does
not fulfill their obligation. AXA Financial had open and unsettled
transactions with an aggregate notional value of $965 million at
December 31, 2004.
F-50
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
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, Equitable Variable Life Insurance Company
("EVLICO," which was merged into AXA Equitable effective January 1,
1997), 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 SHAM MALHOTRA, ET AL. V. THE
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, AXA ADVISORS, LLC
AND EQUITABLE DISTRIBUTORS, INC. was commenced in the Supreme Court of
the State of New York, County of Nassau. The action was brought by two
individuals who purchased AXA Equitable deferred annuity products. The
action purports to be on behalf of a class consisting of all persons who
purchased an individual deferred annuity contract or who received a
certificate to a group deferred annuity contract, sold by one of the
defendants, which was used to fund a contributory retirement plan or
arrangement qualified for favorable income tax treatment; excluded from
the class are officers, directors and agents of the defendants. The
complaint alleges that the defendants engaged in fraudulent and
deceptive practices in connection with the marketing and sale of
deferred annuity products to fund tax-qualified contributory retirement
plans. The complaint asserts claims for: deceptive business acts and
practices in violation of the New York General Business Law (the "GBL");
use of misrepresentations and misleading statements in violation of the
New York Insurance Law; false or misleading advertising in violation of
the GBL; fraud, fraudulent concealment and deceit; negligent
misrepresentation; negligence; unjust enrichment and imposition of a
constructive trust; declaratory and injunctive relief; and reformation
of the annuity contracts. The complaint seeks injunctive and declaratory
relief, an unspecified amount of compensatory and punitive damages,
restitution for all members of the class, and an award of attorneys'
fees, costs and expenses. In October 2000, the defendants removed the
action to the United States District Court for the Eastern District of
New York, and thereafter filed a motion to dismiss. Plaintiffs filed a
motion to remand the case to state court. In September 2001, the
District Court issued a decision granting defendants' motion to dismiss
and denying plaintiffs' motion to remand, and judgment was entered in
favor of the defendants. In October 2001, plaintiffs filed a motion
seeking leave to reopen the case for the purpose of filing an amended
complaint. In addition, plaintiffs filed a new complaint in the District
Court, alleging a similar class and similar facts. The new complaint
asserted causes of action for violations of Federal securities laws in
addition to the state law causes of action asserted in the previous
complaint. In January 2002, plaintiffs amended their new complaint in
response to defendants' motion to dismiss and, subsequently, in March
2002, defendants filed a motion to dismiss the amended complaint. In
March 2003, the United States District Court for the Eastern District of
New York: (i) granted plaintiffs' motion, filed October 2001, seeking
leave to reopen their original case for the purpose of filing an amended
complaint and accepted plaintiffs' proposed amended complaint, (ii)
appointed the named plaintiffs as lead plaintiffs and their counsel as
lead counsel for the putative class, (iii) consolidated plaintiffs'
original action with their second action, which was filed in October
2001, and (iv) ruled that the court would apply AXA Equitable's motion
to dismiss the amended complaint in the second action to the plaintiffs'
amended complaint from the original action. In April 2003, plaintiffs
filed a second amended complaint alleging violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The action purports to be on behalf of a class
consisting of all persons who on or after October 3, 1997 purchased an
individual variable deferred annuity contract, received a certificate to
a group variable deferred annuity contract or made an additional
investment through such a contract, which contract was used to fund a
contributory retirement plan or arrangement qualified for favorable
income tax treatment. In May 2003, the defendants filed a motion to
dismiss the second amended complaint. In February 2004, the District
Court issued a decision withdrawing without prejudice defendants' motion
to dismiss the second amended complaint with leave to refile because the
parties did not comply with the court's Individual Motion Practices. In
March 2004, defendants filed a renewed motion to dismiss the second
amended complaint.
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
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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 mutual fund transfers, and (ii) wrongfully
withheld withdrawal charges in connection with the termination of
such annuities. Plaintiffs seek substantial lost profits and
injunctive relief, punitive damages and attorneys' fees. Plaintiffs
also seek return of the withdrawal charges. In February 2001, the
District Court granted in part and denied in part defendants' motion to
dismiss the complaint. In March 2001, plaintiffs filed an amended
complaint. The District Court granted defendants' motion to dismiss AXA
Client Solutions and the Holding Company from the amended complaint, and
dismissed the conversion claims in June 2001. The District Court denied
defendants' motion to dismiss the remaining claims. AXA Equitable
answered the amended complaint. 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, to which AXA Equitable filed
an answer asserting several affirmative defenses. AXA Equitable also
filed a partial motion to dismiss the amended complaint. In August 2004,
Emerald filed a motion to dismiss several affirmative defenses, which
motion was granted in September 2004. 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, management believes that the ultimate resolution of this
litigation should not have a material adverse effect on AXA Financial's
consolidated financial position.
After the District Court denied defendants' motion to assert certain
defenses and counterclaims in AMERICAN NATIONAL BANK, AXA Equitable
commenced an action, in December 2001, entitled THE EQUITABLE LIFE
ASSURANCE SOCIETY OF THE UNITED STATES V. AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO, AS TRUSTEE F/B/O EMERALD INVESTMENTS LP AND
EMERALD INVESTMENTS LP, in the United States District Court for the
Northern District of Illinois. The complaint arises out of the same
facts and circumstances as described in AMERICAN NATIONAL BANK. 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. In March 2002, defendants filed an answer to AXA
Equitable's complaint and asserted counterclaims. Defendants'
counterclaims allege common law fraud, violations of the Federal and
Illinois Securities Acts and violations of the Illinois and New York
Consumer Fraud Acts. Defendants seek unspecified money damages, punitive
damages and attorneys' fees. In May 2002, the District Court granted in
part and denied in part AXA Equitable's motion to dismiss defendants'
counterclaims, dismissing defendants' Illinois Securities Act and New
York Consumer Fraud Act claims. AXA Equitable answered defendants'
remaining counterclaims. In July 2004, AXA Equitable filed a motion to
dismiss this action on the ground that there is no subject matter
(diversity) jurisdiction. In September 2004, the court dismissed AXA
Equitable's action and retained jurisdiction over Emerald's
counterclaims in that action.
In January 2004, DH2, Inc., an entity related to Emerald Investments
L.P., filed a lawsuit in the United States District Court for the
Northern District of Illinois, against 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 May 2004,
the complaint was served on AXA Equitable and EQAT. In July 2004, DH2
filed an amended complaint adding the individual trustees as defendants.
In October 2004, all defendants filed a motion to dismiss the amended
complaint. In March 2005, the Court granted the 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. DH2 has
until April 2005 to file a Second Amended Complaint consistent with the
Court's decision.
In November 2004, a fairness hearing in PETER FISCHEL, ET AL. V. THE
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a previously
disclosed lawsuit, was held and a settlement was approved effective as
of January 2005. Management believes that the settlement
of Fischel will not have a material adverse effect on the consolidated
financial position or results of operations of AXA Financial.
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
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2001 against The Equitable Retirement Plan for Employees, Managers and
Agents (the "Retirement Plan") and The Officers Committee on Benefit
Plans of Equitable Life, as Plan Administrator. The action was brought
by five participants in the Retirement Plan and purports to be on behalf
of "all Plan participants, whether active or retired, their
beneficiaries and Estates, whose accrued benefits or pension benefits
are based on the Plan's Cash Balance Formula." The complaint challenges
the change, effective January 1, 1989, in the pension benefit formula
from a final average pay formula to a cash balance formula. Plaintiffs
allege that the change to the cash balance formula violates ERISA by
reducing the rate of accruals based on age, failing to comply with
ERISA's notice requirements and improperly applying the formula to
retroactively reduce accrued benefits. The relief sought includes a
declaration that the cash balance plan violates ERISA, an order
enjoining the enforcement of the cash balance formula, reformation and
damages. Defendants answered the complaint in October 2001. In April
2002, plaintiffs filed a motion seeking to certify a class of "all Plan
participants, whether active or retired, their beneficiaries and
Estates, whose accrued benefits or pension benefits are based on the
Plan's Cash Balance Formula." Also in April 2002, plaintiffs agreed to
dismiss with prejudice their claim that the change to the cash balance
formula violates ERISA by improperly applying the formula to
retroactively reduce accrued benefits. That claim has been dismissed. In
March 2003, plaintiffs filed an amended complaint elaborating on the
remaining claims in the original complaint and adding additional class
and individual claims alleging that the adoption and announcement of the
cash balance formula and the subsequent announcement of changes in the
application of the cash balance formula failed to comply with ERISA. The
parties agreed that the new individual claims of the five named
plaintiffs regarding the delivery of announcements to them would be
excluded from the class certification. In April 2003, defendants filed
an answer to the amended complaint. By order dated May 2003, the
District Court, as requested by the parties, certified the case as a
class action, including a sub-class of all current and former Plan
participants, whether active, inactive or retired, their beneficiaries
or estates, who were subject to a 1991 change in application of the cash
balance formula. In July 2003, defendants filed a motion for summary
judgment on the grounds that plaintiffs' claims are barred by applicable
statutes of limitations. In October 2003, the District Court denied that
motion. In 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 January 2003, a putative class action entitled BERGER ET AL. V. AXA
NETWORK, LLC AND THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED
STATES was commenced in the United States District Court for the
Northern District of Illinois by two former agents on behalf of
themselves and other similarly situated present, former and retired
agents who, according to the complaint, "(a) were discharged by
Equitable Life from `statutory employee status' after January 1, 1999,
because of Equitable Life's adoption of a new policy stating that in any
given year, those who failed to meet specified sales goals during the
preceding year would not be treated as `statutory employees,' or (b)
remain subject to discharge from `statutory employee' status based on
the policy applied by Equitable Life." The complaint alleges that the
company improperly "terminated" the agents' full-time life insurance
salesman statutory employee status in or after 1999 by requiring
attainment of minimum production credit levels for 1998, thereby making
the agents ineligible for benefits and "requiring" them to pay
Self-Employment Contribution Act taxes. The former agents, who assert
claims for violations of ERISA and 26 U.S.C. 3121, and breach of
contract, seek declaratory and injunctive relief, plus restoration of
benefits and an adjustment of their benefit plan contributions and
payroll tax withholdings. In March 2003, AXA Equitable filed a motion to
dismiss the complaint. In July 2003, the United States District Court
for the Northern District of Illinois granted in part and denied in part
AXA Equitable's motion to dismiss the complaint, dismissing plaintiffs'
claims for violation of 26 U.S.C. 3121 and breach of contract. AXA
Equitable has answered plaintiffs' remaining claim for violation of
ERISA. In July 2003, plaintiffs filed a motion for class certification.
In November 2003, AXA Equitable filed its opposition to the motion for
class certification. 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."
Discovery has concluded and the parties have filed cross motions for
summary judgment. The case has been removed from the trial calendar
pending a decision on these motions.
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In May 2003, a putative class action complaint entitled ECKERT V. THE
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES was filed in the
United States District Court for the Eastern District of New York, as a
case related to the Malhotra action described above. The complaint
asserts a single claim for relief under Section 47(b) of the Investment
Company Act of 1940, as amended based on AXA Equitable's alleged failure
to register as an investment company. According to the complaint, AXA
Equitable was required to register as an investment company because it
was allegedly issuing securities in the form of variable insurance
products and allegedly investing its assets primarily in other
securities. The plaintiff purports to act on behalf of all persons who
purchased or made an investment in variable insurance products from AXA
Equitable on or after May 7, 1998. The complaint seeks declaratory
judgment permitting putative class members to elect to void their
variable insurance contracts; restitution of all fees and penalties paid
by the putative class members on the variable insurance products,
disgorgement of all revenues received by AXA Equitable on those
products, and an injunction against the payment of any dividends by AXA
Equitable to the Holding Company. In June 2003, AXA Equitable filed a
motion to dismiss the complaint. In June 2004, plaintiff, in connection
with a settlement of a proceeding entitled Eckert v. AXA Advisors, LLC,
et. al. which was filed with the National Association of Securities
Dealers, Inc., released his putative class action claim against AXA
Equitable. In June 2004, plaintiff's counsel filed a motion for
withdrawal of plaintiff from the putative class action lawsuit and
intervention by another member of the putative class as plaintiff. In
March 2005, the Court granted the motion to intervene by another member
of the putative class and denied AXA Equitable's motion to dismiss
without prejudice to refile the motion after new complaint is filed.
The ten similar and previously disclosed putative class action lawsuits,
arising out of the Holding Company's acquisition of MONY, and filed
between September and October 2003, against the Holding Company (and in
some cases AIMA Acquisition Co., a wholly owned subsidiary of the
Holding Company ("AIMA")), MONY and MONY's directors in the Court of
Chancery of the State of Delaware in and for New Castle County, entitled
BEAKOVITZ V. AXA FINANCIAL, INC., ET AL.; BELODOFF V. THE MONY GROUP
INC., ET AL.; BRIAN V. THE MONY GROUP INC. ET AL.; BRICKLAYERS LOCAL 8
AND PLASTERERS LOCAL 233 PENSION FUND V. THE MONY GROUP, INC., ET AL.;
CANTOR V. THE MONY GROUP, INC., ET AL.; E.M. CAPITAL, INC. THE MONY
GROUP, INC., ET AL.; GARRETT V. THE MONY GROUP, INC., ET AL.; LEBEDDA V.
THE MONY GROUP, INC., ET AL.; MARTIN V. ROTH, ET AL.; and MUSKAL V. THE
MONY GROUP, INC., ET AL. (collectively, the "MONY Stockholder
Litigation") have been settled and dismissed with prejudice. AXA
Financial's management believes that the settlement of the MONY
Stockholder Litigation will not have a material adverse effect on the
consolidated financial position or results of operations of AXA
Financial.
Related to the MONY Stockholder Litigation, the Holding Company, MONY
and MONY's directors were named in two putative class action lawsuits
filed in New York State Supreme Court in Manhattan, entitled LAUFER V.
THE MONY GROUP, INC., ET AL. and NORTH BORDER INVESTMENTS V. BARRETT, ET
AL. The complaints in these actions contain allegations substantially
similar to those in the Delaware cases, and likewise purport to assert
claims for breach of fiduciary duty against MONY's directors and for
aiding and abetting a breach of fiduciary duty against the Holding
Company. The complaints in these actions also purport to be brought on
behalf of a class consisting of all MONY stockholders, excluding the
defendants and their affiliates, and seek various forms of relief,
including damages and injunctive relief that would, if granted, prevent
the completion of the merger. In December 2003, defendants contested the
claims in the LAUFER and NORTH BORDER complaints. In NORTH BORDER, in
September 2004, the plaintiff agreed that it would not object to the
proposed settlement before the Delaware Court of Chancery and that
following a final judgment approving the settlement by the Delaware
Court of Chancery, the plaintiff would dismiss its action against all
defendants with prejudice. A stipulation of discontinuance for the North
Border action was filed with the New York State Supreme Court in
November 2004.
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 who
demanded appraisal pursuant to Section 262 of the General 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
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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. The lawsuit asserts causes of action for
negligence, gross negligence, breach of contract, and breach of
fiduciary duty and seeks unspecified compensatory and punitive damages,
plus prejudgment interest, attorneys' fees and costs. In June 2004, AXA
Equitable removed the case to Federal court and in July 2004 filed a
motion to dismiss. In July 2004, plaintiff filed a motion to remand the
action to state court. In August 2004, the court stayed the action
pending a decision by the U.S. Court of Appeals for the Seventh Circuit
in a case filed against Putnam Funds et al. (to which the Holding
Company is not a party) regarding removal pursuant to the Securities
Litigation Uniform Standards Act under similar circumstances. In
February 2005, the Baltimore federal court entered a Conditional
Transfer Order, conditionally transferring the case to federal court in
Baltimore, Maryland, where the majority of so-called market timing cases
against various fund families have been transferred.
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 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. In March
1997, MONY Life and MLOA filed a motion to dismiss or, alternatively,
for summary judgment on all counts of the complaint. In October 1997,
the New York State Supreme Court granted MONY Life's and MLOA's motion
for summary judgment and dismissed all claims filed in the Goshen case
against MONY Life and MLOA. In December 1999, the New York State Court
of Appeals affirmed the dismissal of all but one of the claims in the
Goshen case (a claim under the GBL), which was remanded back to the New
York State Supreme Court for further proceedings consistent with the
opinion. The New York State Supreme Court subsequently reaffirmed that,
for purposes of the remaining New York GBL claim, only New York
purchasers could proceed with such claims. In July 2002, the New York
Court of Appeals affirmed the New York State Supreme Court's decision
holding that only New York purchasers could assert GBL Section 349
claims (New York's Consumer Protection Statute). In September 2002 in
light of the New
F-55
York Court of Appeals' decision, MONY Life and MLOA filed a motion to
decertify the class with respect to the sole remaining claim in the
case. By orders entered in April and May 2003, the New York State
Supreme Court denied preliminarily the motion for decertification, but
held the issue of decertification in abeyance pending appeals by
plaintiffs in related cases and a hearing on whether the present class,
or a modified class, can satisfy the requirements of the class action
statute in New York. In December 2004, the Appellate Division, First
Department unanimously reversed the denial of MONY Life's motion for
decertification, and ordered decertification of the class with respect
to the sole remaining GBL claim. In March 2005, the Appellate Division
denied plaintiffs' motion for reargument or, alternatively, for leave
to appeal that decision to the Court of Appeals.
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 putative class actions have been consolidated and
transferred by the Judicial Panel on Multidistrict Litigation to the
United States District Court for the District of Massachusetts. While
most of the cases before the District Court have been held in abeyance
pending the outcome in GOSHEN, in June 2003, the Court granted
plaintiffs in two of the constituent cases (the MCLEAN and SNIPES cases)
leave to amend their complaints to delete all class action claims and
allegations other than (in the case of MCLEAN) those predicated on
alleged violations of the Massachusetts and Illinois consumer protection
statutes. In November 2003, the Court in MCLEAN entered an order
granting defendants' motion for summary judgment on res judicata grounds
as to the individual claims of the proposed class representatives of the
putative statewide class comprised of Massachusetts purchasers, but
denied the motion on statute of limitations grounds as to the individual
claims of the proposed class representatives of the putative state wide
class of Illinois purchasers. An agreement in principle has been reached
to settle the claims of the individual Illinois plaintiffs which, if
consummated, will result in the dismissal of their claims under the
Illinois consumer protection statute.
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 Alliance. The principal
allegations of the Enron Complaint, as they pertain to Alliance, are
that Alliance violated Sections 11 and 15 of the Securities Act of 1933,
as amended ("Securities Act") with respect to a registration statement
filed by Enron and effective with the SEC on July 18, 2001, which was
used to sell $1.9 billion Enron Corp. Zero Coupon Convertible Notes due
2021. Plaintiffs allege the registration statement was materially
misleading and that Frank Savage, who was at that time an employee of
Alliance and who was and remains a director of the general partner of
Alliance, signed the registration statement at issue. Plaintiffs further
allege that Alliance was a controlling person of Frank Savage.
Plaintiffs therefore assert that Alliance is itself liable for the
allegedly misleading registration statement. Plaintiffs seek recission
or a recissionary measure of damages. In June 2002, Alliance moved to
dismiss the ENRON Complaint as the allegations therein pertain to it. In
March 2003, that motion was denied. In May 2003, a First Amended
Consolidated Complaint, with substantially identical allegations as to
Alliance, was filed. Alliance filed its answer in June 2003. In May
2003, plaintiffs filed an Amended Motion For Class Certification. In
October 2003, following the completion of class discovery, Alliance
filed its opposition to class certification. Alliance's motion is
pending. The case is currently in discovery.
In May 2002, a complaint entitled THE FLORIDA STATE BOARD OF
ADMINISTRATION V. ALLIANCE CAPITAL MANAGEMENT L.P. ("SBA Complaint") was
filed in the Circuit Court of the Second Judicial Circuit, in and for
Leon County, Florida against Alliance. The SBA Complaint alleges breach
of contract relating to the Investment Management Agreement between The
Florida State Board of Administration ("SBA") and Alliance, breach of
the covenant of good faith and fair dealing contained in the Investment
Management Agreement, breach of fiduciary duty, negligence, gross
negligence and violation of the Florida Securities and Investor
Protection Act, in connection with purchases and sales of Enron common
stock for the SBA investment account. The SBA seeks more than $300
million in compensatory damages and an unspecified amount of punitive
damages. In June 2002, Alliance moved to dismiss the SBA Complaint; in
September 2002, the court denied Alliance's motion to dismiss the SBA
Complaint in its entirety. In November 2003, the SBA filed an amended
complaint ("Amended SBA Complaint"). While the Amended SBA Complaint
contains the Enron claims, the Amended SBA Complaint also alleges that
Alliance breached its contract with the SBA by investing in or
continuing to hold stocks for the SBA's investment portfolio that were
not "1 rated," the highest rating that Alliance's research analysts
could assign. The SBA also added claims for negligent supervision and
common law fraud. The Amended SBA Complaint seeks rescissionary damages
for all purchases of stocks that were not 1-rated, as well as damages
for those that were not sold on a downgrade. During the third quarter of
2004, the SBA asserted in discovery that its Enron-related and 1-rated
stock-related damages (including statutory interest) are approximately
$2.9 billion. In November 2004, each party moved for partial summary
judgment. In January 2005, the court granted, in part, Alliance's
motion. Trial commenced in March 2005.
In September 2002, a complaint entitled LAWRENCE E. JAFFE PENSION PLAN,
LAWRENCE E. JAFFE TRUSTEE U/A 1198 V. ALLIANCE CAPITAL MANAGEMENT L.P.,
ALFRED HARRISON AND ALLIANCE PREMIER GROWTH FUND, INC. ("Jaffe
Complaint") was filed in the United States District Court for the
Southern District of New York against Alliance, Alfred Harrison and
Premier Growth Fund alleging violation of the ICA. Plaintiff seeks
damages equal to Premier Growth Fund's losses as a result of Premier
Growth Fund's investment in shares of Enron and a recovery of all fees
paid to Alliance beginning November 1, 2000. In March 2003, the court
granted Alliance's motion to transfer the Jaffe Complaint to the United
States District Court for the District of New Jersey for coordination
with the now dismissed BENAK V. ALLIANCE CAPITAL MANAGEMENT L.P. AND
ALLIANCE PREMIER GROWTH FUND action then pending. In
F-56
December 2003, plaintiff filed an amended complaint ("Amended Jaffe
Complaint") in the United States District Court for the District of New
Jersey. The Amended Jaffe Complaint alleges violations of Section 36(a)
of the ICA, common law negligence, and negligent misrepresentation.
Specifically, the Amended Jaffe Complaint alleges that (i) the
defendants breached their fiduciary duties of loyalty, care and good
faith to Premier Growth Fund by causing Premier Growth Fund to invest in
the securities of Enron, (ii) the defendants were negligent for
investing in securities of Enron, and (iii) through prospectuses and
other documents, defendants misrepresented material facts related to
Premier Growth Fund's investment objective and policies. In January
2004, defendants moved to dismiss the Amended Jaffe Complaint. That
motion is pending.
In December 2002, a putative class action complaint entitled PATRICK J.
GOGGINS ET AL. V. ALLIANCE CAPITAL MANAGEMENT L.P. ET AL. ("Goggins
Complaint") was filed in the United States District Court for the
Southern District of New York against Alliance, Premier Growth Fund and
individual directors and certain officers of Premier Growth Fund. In
August 2003, the court granted Alliance's motion to transfer the Goggins
Complaint to the United States District Court for the District of New
Jersey. In December 2003, plaintiffs filed an amended complaint
("Amended Goggins Compliant") in the United States District Court for
the District of New Jersey, which alleges that defendants violated
Sections 11, 12(a)(2) and 15 of the Securities Act because Premier
Growth Fund's registration statements and prospectuses contained untrue
statements of material fact and omitted material facts. More
specifically, the Amended Goggins Complaint alleges that the Premier
Growth Fund's investment in Enron was inconsistent with the fund's
stated strategic objectives and investment strategies. Plaintiffs seek
rescissory relief or an unspecified amount of compensatory damages on
behalf of a class of persons who purchased shares of Premier Growth Fund
during the period October 31, 2000 through February 14, 2002. In January
2004, Alliance moved to dismiss the Amended Goggins Complaint. In
December 2004, the court granted Alliance's motion and dismissed the
case. In January 2005, plaintiff appealed the court's decision.
In October 2003, a purported class action complaint entitled ERB ET AL.
V. ALLIANCE CAPITAL MANAGEMENT L.P. ET AL. ("ERB Complaint") was filed
in the Circuit Court of St. Clair County, State of Illinois against
Alliance. Plaintiff, purportedly a shareholder in the Premier Growth
Fund, alleges that Alliance breached unidentified provisions of Premier
Growth Fund's prospectus and subscription and confirmation agreements
that allegedly required that every security bought for Premier Growth
Fund's portfolio must be a "1-rated" stock, the highest rating that
Alliance's analysts could assign. Plaintiff alleges that Alliance
impermissibly purchased shares of stocks that were not 1-rated.
Plaintiff seeks rescission of all purchases of any non-1-rated stocks
Alliance made for Premier Growth Fund over the past ten years, as well
as an unspecified amount of damages. In June 2004, plaintiff filed an
amended complaint ("Amended Erb Complaint") in the Circuit Court of St.
Clair 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 Alliance's Large Cap
Growth Team. The Amended Erb Complaint alleges that Alliance 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 Alliance made for Premier 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,
Alliance 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, Alliance filed a notice of appeal with
respect to the District Court's order. In December 2004, plaintiffs
moved to dismiss Alliance's appeal. These motions are pending.
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 Alliance, Alliance Holding, ACMC, the Holding Company,
the AllianceBernstein Funds, the registrants and issuers of those funds,
certain officers of Alliance (the "Alliance defendants"), and certain
other defendants not affiliated with Alliance, as well as unnamed Doe
defendants. The Hindo Complaint was filed in the United States District
Court for the Southern District of New York by alleged shareholders of
two of the AllianceBernstein Funds. The Hindo Complaint alleges that
certain of the Alliance defendants failed to disclose that they
improperly allowed certain hedge funds and other unidentified parties to
engage in "late trading" and "market timing" of AllianceBernstein Fund
securities, violating Sections 11 and 15 of the Securities Act, Sections
10(b) and 20(a) of the Exchange Act, and Sections 206 and 215 of the
Investment Advisers Act of 1940 (the "Advisers Act"). Plaintiffs seek an
F-57
unspecified amount of compensatory damages and rescission of their
contracts with Alliance, including recovery of all fees paid to Alliance
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 Alliance 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 ("ERISA"), certain state securities statutes and common law. All
of these lawsuits seek an unspecified amount of damages.
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"). In March 2004
and April 2004, the MDL Panel issued orders conditionally transferring
the state court cases against Alliance and numerous others to the Mutual
Fund MDL. Transfer of all of these actions subsequently became final.
Plaintiffs in three of these four actions moved to remand the actions
back to state court. In June 2004, the Court issued an interim opinion
deferring decision on plaintiffs' motions to remand until a later stage
in the proceedings. Subsequently, the plaintiff in the state court
individual action moved the Court for reconsideration of that interim
opinion and for immediate remand of her case to state court, and that
motion is pending. Defendants are not yet required to respond to the
complaints filed in the state court derivative actions.
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 Alliance
Holding; and claims brought under ERISA by participants in the Profit
Sharing Plan for Employees of Alliance. All four complaints include
substantially identical factual allegations, which appear to be based in
large part on the SEC Order. 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 Alliance and the AllianceBernstein 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 Alliance. The claims asserted in the other
three consolidated amended complaints are similar to those that the
respective plaintiffs asserted in their previous Federal lawsuits.
The Holding Company, AXA S.A. and AXA Equitable are named as defendants
in the mutual fund shareholder complaint and the Alliance Holding
unitholder derivative complaint. Claims have been asserted against all
these companies that include both control person and direct liability.
The Holding Company is named as a defendant in the mutual fund complaint
and the ERISA complaint. Alliance 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 2004, Alliance paid $296 million related to these
matters (including $250 million to the restitution fund) and has
cumulatively paid $302 million. Accordingly, it is possible that
additional charges in the future may be required.
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 Alliance, Alliance Holding, ACMC, The Holding Company,
AllianceBernstein Investment Research and Management, Inc., a
wholly-owned subsidiary of Alliance ("ABIRM"), certain current and
former directors of the AllianceBernstein Funds, and unnamed Doe
defendants. The Aucoin Complaint names the AllianceBernstein 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 AllianceBernstein 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 Alliance, including
recovery of all fees paid to Alliance pursuant to such contracts, an
accounting of all AllianceBernstein Fund-related
F-58
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 Alliance and certain other defendants, and others may be filed.
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 AllianceBernstein Funds.
In February 2005, plaintiffs filed a consolidated amended class action
complaint that asserts claims substantially similar to the Aucion
Complaint and the nine additional lawsuits referenced above.
Directed Brokeragae
Alliance and approximately twelve other investment management firms were
mentioned publicly in connection with the settlement by the SEC of
charges that Morgan Stanley violated Federal securities laws relating to
its receipt of compensation for selling specific mutual funds and the
disclosure of such compensation. The SEC has indicated publicly that,
among other things, it is considering enforcement action in connection
with mutual funds' disclosure of such arrangements and in connection
with the practice of considering mutual funds sales in the direction of
brokerage commissions from fund portfolio transactions. The SEC has
issued subpoenas, and the NASD has issued requests for information, to
Alliance in connection with this matter and Alliance has provided
documents and other information to the SEC and NASD and is cooperating
fully with their investigations. On March 11, 2005, discussions
commenced with the NASD that Alliance's management believes will
conclude these investigations. Accordingly, Alliance recorded a $5
million charge against 2004 earnings.
Proof of Claim-Related Matters
In January 2005, a purported class action complaint entitled CHARLES
DAVIDSON AND BERNARD SAMSON, ET AL. V. BRUCE W. CALVERT, ET AL.
("Davidson Complaint") was filed against Alliance Capital, ABIRM,
various current and former directors of ACMC, and unnamed Doe defendants
in the United States District Court for the Southern District of New
York by alleged shareholders of AllianceBernstein Funds. The Davidson
Complaint alleges that Alliance Capital, as investment advisor to the
AllianceBernstein Funds, and the other defendants breached their
fiduciary duties arising under Sections 36(a), 36(b) and 47(b) of the
Investment Company Act by failing to ensure that the AllianceBernstein
Funds participated in certain securities class action settlements for
which the Funds were eligible. Plaintiffs seek an unspecified amount of
compensatory damages and punitive damages, and forfeiture of all
commissions and fees paid to the defendants.
Two additional lawsuits making factual allegations substantially similar
to those in the Davidson Complaint were filed against Alliance Capital
and certain defendants not affiliated with Alliance Capital, and others
may be filed. One of the lawsuits was brought as a class action in the
United States District Court for the District of Massachusetts on behalf
of alleged shareholders of the Mass Mutual family of funds. The other
lawsuit was brought as a class action in the United States District
Court for the Eastern District of Pennsylvania on behalf of alleged
shareholders of the Vanguard family of funds. Both additional lawsuits:
(i) assert claims against Alliance Capital in connection with
sub-advisory services provided by Alliance Capital to the respective
fund families; (ii) assert claims substantially identical to the
Davidson Complaint; and (iii) seek relief substantially identical to the
Davidson 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 the
Holding Company and/or its subsidiaries should not have a material
adverse effect on the consolidated financial position of AXA Financial.
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's
consolidated results of operations in any particular period.
In addition to the matters previously reported and those described
above, the Holding Company and its subsidiaries are involved in various
legal actions and proceedings in connection with their businesses. Some
of the actions and proceedings have been brought on behalf of various
alleged classes of claimants and certain of these claimants seek damages
of unspecified amounts. While the ultimate outcome of such matters
cannot be predicted with certainty, in the opinion of management no such
matter is likely to have a material adverse effect on AXA Financial'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 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 2005 and the four successive years
are $168.4 million, $156.7 million, $142.4 million, $132.4 million,
$110.6 million and $794.3 million thereafter. Minimum future sublease
rental income on these noncancelable operating leases for 2005 and the
four successive years is $16.1 million, $8.4 million, $6.9 million, $6.1
million, $3.1 million and $23.1 million thereafter.
F-59
At December 31, 2004, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 2005
and the four successive years is $74.4 million, $77.6 million, $70.9
million, $73.8 million, $72.4 million and $708.5 million thereafter.
AXA Financial has entered into capital leases for certain information
technology equipment. Future minimum payments under noncancelable
capital leases for 2005 and the four successive years are $.9 million,
$.6 million, $.3 million, $.3 million and $.2 million, respectively.
22) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
AXA Equitable and MONY Life are restricted as to the amounts they may
pay as dividends to the Holding Company. Under the New York Insurance
Law, a domestic life insurer may, without prior approval of the
Superintendent; pay a dividend to its shareholders not exceeding an
amount calculated based on a statutory formula. This formula would
permit AXA Equitable and MONY Life to pay shareholder dividends not
greater than $433.1 million and $83.1 million, respectively, during
2005. 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
2004, 2003 and 2002, the AXA Equitable and MONY Life statutory net
income totaled $135.9 million, $549.4 million and $451.6 million,
respectively. Statutory surplus, capital stock and Asset Valuation
Reserve ("AVR") totaled $6,132.1 million and $4,476.6 million at
December 31, 2004 and 2003, respectively. In 2004, 2003 and 2002,
respectively, $500.0 million, $400.0 million and $500.0 million in
shareholder dividends were paid by AXA Equitable. In 2004, $33.0 million
in shareholder dividends were paid by MONY Life.
At December 31, 2004, the AXA Equitable and MONY Life, in accordance
with various government and state regulations, had $54.0 million of
securities deposited with such government or state agencies.
At December 31, 2004 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, 2004.
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The differences between statutory surplus and
capital stock determined in accordance with Statutory Accounting
Principles ("SAP") and total shareholders' equity under GAAP are
primarily: (a) the inclusion in SAP of an AVR intended to stabilize
surplus from fluctuations in the value of the investment portfolio; (b)
future policy benefits and policyholders' account balances under SAP
differ from GAAP due to differences between actuarial assumptions and
reserving methodologies; (c) certain policy acquisition costs are
expensed under SAP but deferred under GAAP and amortized over future
periods to achieve a matching of revenues and expenses; (d) under SAP,
Federal income taxes are provided on the basis of amounts currently
payable with provisions made for deferred amounts that reverse within
one year while under GAAP, deferred taxes are recorded for temporary
differences between the financial statements and tax basis of assets and
liabilities where the probability of realization is reasonably assured,
(e) the valuation of assets under SAP and GAAP differ due to different
investment valuation and depreciation methodologies, as well as the
deferral of interest-related realized capital gains and losses on fixed
income investments; (f) the valuation of the investment in Alliance and
Alliance Holding under SAP reflects a portion of the market value
appreciation rather than the equity in the underlying net assets as
required under GAAP; (g) the provision for future losses of the
discontinued Wind-Up Annuities business is only required under GAAP; (h)
reporting the surplus notes as a component of surplus in SAP but as a
liability in GAAP; (i) computer software development costs are
capitalized under GAAP but expensed under SAP; (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's consolidated net earnings and equity on a
GAAP basis.
F-60
2004 2003 2002
----------------- ---------------- -----------------
(IN MILLIONS)
Net change in statutory surplus and
capital stock................................... $ 104.0 $ 43.4 $ (1,354.7)
Change in AVR..................................... 510.8 152.2 (464.7)
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and AVR......................................... 614.8 195.6 (1,819.4)
Adjustments:
Future policy benefits and policyholders'
account balances.............................. (403.2) (245.7) 255.2
DAC and VOBA.................................... 563.3 556.1 458.1
Deferred income taxes........................... 126.8 30.9 (634.6)
Valuation of investments........................ 2.0 39.6 (74.8)
Valuation of investment subsidiary.............. (460.3) (321.6) 1,399.4
Acquisition costs associated with the
integration of MONY........................... 367.9 - -
Capital contribution to MONY.................... (277.9) - -
Change in fair value of guaranteed minimum
income benefit reinsurance contracts.......... 61.0 (91.0) 120.0
Shareholder dividends paid...................... 533.0 400.0 500.0
Changes in non-admitted assets.................. (97.7) (35.1) 384.2
Holding Company and other subsidiaries.......... (18.2) (67.2) (58.8)
Other, net...................................... (81.5) (2.1) (23.7)
GAAP adjustments for Other Discontinued
Operations.................................... 14.9 (2.3) 23.0
----------------- ---------------- -----------------
AXA Financial's Consolidated Net Earnings ........ $ 944.9 $ 457.2 $ 528.6
================= ================ =================
DECEMBER 31,
-------------------------------------------------------
2004 2003 2002
---------------- ---------------- ------------------
(IN MILLIONS)
Statutory surplus and capital stock................. $ 5,162.4 $ 4,134.7 $ 4,091.3
AVR................................................. 969.7 341.9 189.7
---------------- ---------------- ------------------
Statutory surplus, capital stock and AVR............ 6,132.1 4,476.6 4,281.0
Adjustments:
Future policy benefits and policyholders'
account balances................................ (2,554.3) (1,483.3) (1,237.6)
DAC and VOBA...................................... 7,731.5 6,290.4 5,801.0
Deferred income taxes............................. (1,670.0) (1,729.8) (1,835.8)
Valuation of investments.......................... 2,640.3 2,196.3 1,629.6
Valuation of investment subsidiary................ (1,973.3) (1,513.0) (1,191.4)
Fair value of guaranteed minimum income benefit
reinsurance contracts........................... 90.0 29.0 120.0
Non-admitted assets............................... 1,171.8 1,130.2 1,162.3
Issuance of surplus notes......................... (816.6) (599.6) (599.6)
Goodwill recorded upon acquisition of
MONY............................................ 616.6 - -
Holding Company and other subsidiaries............ (2,184.3) (596.9) (463.8)
Other, net........................................ (23.6) 77.7 157.2
GAAP adjustments for Other Discontinued
Operations...................................... (96.4) (103.9) (108.7)
---------------- ---------------- ------------------
AXA Financial's Consolidated Shareholders' Equity... $ 9,063.8 $ 8,173.7 $ 7,714.2
================ ================ ==================
23) BUSINESS SEGMENT INFORMATION
AXA Financial's operations consist of the Financial Advisory/Insurance
and Investment Management segments. AXA Financial's management evaluates
the performance of each of these segments independently and allocates
resources based on current and future requirements of each segment.
F-61
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 Alliance. Alliance provides
diversified investment management and related services globally to a
broad range of clients including: (a) institutional clients, including
pension funds, endowment funds and domestic and foreign financial
institutions and governments, (b) private clients, including high net
worth individuals, trusts and estates, charitable foundations and other
entities, by means of separately managed accounts, hedge funds and other
investment vehicles, (c) individual investors, principally through a
broad line of mutual funds, and (d) institutional investors by means of
in-depth research, portfolio strategy, trading and other services. This
segment also includes institutional Separate Accounts principally
managed by Alliance 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 $118.4
million, $103.0 million and $102.2 million for 2004, 2003 and 2002,
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.
2004 2003 2002
----------------- ---------------- ------------------
(IN MILLIONS)
SEGMENT REVENUES:
Financial Advisory/Insurance....................... $ 6,694.0 $ 4,905.3 $ 4,857.1
Investment Management.............................. 3,033.3 2,742.9 2,744.4
Consolidation/elimination.......................... (82.8) (70.2) (76.2)
----------------- ---------------- ------------------
Total Revenues..................................... $ 9,644.5 $ 7,578.0 $ 7,525.3
================= ================ ==================
SEGMENT EARNINGS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTEREST:
Financial Advisory/Insurance....................... $ 872.9 $ 556.5 $ 327.6
Investment Management.............................. 672.7 258.5 522.1
Consolidation/elimination.......................... (.9) - -
----------------- ---------------- ------------------
Total Earnings from Continuing Operations before
Income Taxes & Minority Interest................... $ 1,544.7 $ 815.0 $ 849.7
================= ================ ==================
DECEMBER 31,
--------------------------------------------------------
2004 2003 2002
----------------- ---------------- ------------------
ASSETS: (IN MILLIONS)
Financial Advisory/Insurance....................... $ 131,432.7 $ 99,382.3 $ 81,036.0
Investment Management.............................. 14,575.4 15,750.2 14,467.9
Consolidation/elimination.......................... 19.9 56.7 44.0
----------------- ---------------- ------------------
Total Assets.................................. $ 146,028.0 $ 115,189.2 $ 95,547.9
================= ================ ==================
F-62
24) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 2004 and 2003 are summarized
below:
THREE MONTHS ENDED
------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------------- --------------- ---------------- -----------------
(IN MILLIONS)
2004
-----
Total Revenues................... $ 2,190.3 2,051.5 2,328.9 3,073.8
=============== =============== ================ =================
Earnings from Continuing
Operations..................... $ 232.6 244.6 180.7 198.8
=============== =============== ================ =================
Net Earnings .................... $ 230.7 299.0 196.3 218.9
=============== =============== ================ =================
2003
----
Total Revenues................... $ 1,715.9 $ 1,893.8 $ 1,886.8 $ 2,081.5
=============== =============== ================ =================
Earnings from Continuing
Operations..................... $ 29.2 $ 208.8 $ 109.0 $ 106.8
=============== =============== ================ =================
Net Earnings..................... $ 29.2 $ 208.9 $ 109.7 $ 109.4
=============== =============== ================ =================
25) DISCONTINUED INVESTMENT BANKING AND BROKERAGE SEGMENT
In June 2004, AXA Financial 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.
26) SALE OF ALLIANCE CASH MANAGEMENT BUSINESS
On October 28, 2004, Alliance announced that Alliance and Federated
Investors, Inc. ("Federated") had reached a definitive agreement for
Federated to acquire Alliance's cash management business. Under the
agreement, up to $29.0 billion in assets from 22 third-party-distributed
money market funds of AllianceBernstein Cash Management Services, will
be transitioned into Federated money market funds at December 31, 2004.
The transaction will not include the assets of AllianceBernstein
Exchange Reserves, Inc., which will continue to be available to
investors in other AllianceBernstein mutual funds. In addition, Alliance
will continue to meet the liquidity needs of investors in its private
client, managed account and institutional investment management
businesses. The capital gain, net of income taxes and minority interest,
that would be recognized upon the closing of the transaction in 2005 is
not expected to be material to AXA Financial. Estimated contingent
payments received from Federated in the five years following the closing
are expected to be similar in amount to the business's anticipated
profit contribution over that period. The overall effect on earnings is,
therefore, expected to be immaterial.
F-63
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
AXA Financial, Inc.
Our audits of the consolidated financial statements referred to in our report
dated March 31, 2005 appearing on page F-1 of this Annual Report on Form 10-K
also included an audit of the financial statement schedules listed in Item
15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 31, 2005
F-64
AXA FINANCIAL, INC.
SCHEDULE I
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2004
ESTIMATED CARRYING
TYPE OF INVESTMENT COST (A) FAIR VALUE VALUE
- ------------------ ---------------- ----------------- -----------------
(IN MILLIONS)
Fixed maturities:
U.S. government, agencies and authorities........... $ 1,536.1 1,607.1 1,607.1
State, municipalities and political subdivisions.... 196.1 216.6 216.6
Foreign governments................................. 346.6 394.7 394.7
Public utilities.................................... 3,763.2 4,022.8 4,022.8
All other corporate bonds........................... 29,550.6 31,129.6 31,129.6
Redeemable preferred stocks......................... 1,775.4 1,930.8 1,930.8
---------------- ---------------- -----------------
Total fixed maturities.............................. 37,168.0 39,301.6 39,301.6
---------------- ----------------- -----------------
Equity securities:
Common stocks:
Industrial, miscellaneous and all other............ 49.8 53.0 53.0
Mortgage loans on real estate.......................... 4,909.8 5,136.9 4,909.8
Real estate............................................ 452.8 xxx 452.8
Real estate acquired in satisfaction of debt........... 221.0 xxx 221.0
Real estate joint ventures............................. 161.3 xxx 161.3
Policy loans........................................... 4,968.0 5,550.2 4,968.0
Other limited partnership interests and equity
investments.......................................... 1,166.8 1,166.8 1,166.8
Other invested assets.................................. 1,682.7 1,682.7 1,682.7
---------------- ----------------- -----------------
Total Investments...................................... $ 50,780.2 $ 52,891.2 $ 52,917.0
================ ================= =================
(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-65
AXA FINANCIAL, INC.
SCHEDULE II
BALANCE SHEETS (PARENT COMPANY)
DECEMBER 31, 2004 AND 2003
2004 2003
----------------- ----------------
(IN MILLIONS)
ASSETS
Investment in consolidated subsidiaries................................ $ 11,711.5 $ 9,222.2
Fixed maturities available for sale, at estimated fair value
(amortized costs, $23.3 and $35.0)................................... 29.2 36.6
Other invested assets.................................................. 5.7 105.8
----------------- ----------------
Total investments................................................ 11,746.4 9,364.6
Cash and cash equivalents.............................................. 189.9 210.6
Loans to affiliates.................................................... 1.0 4.0
Intangible assets, net................................................. 563.3 565.3
Income taxes receivable................................................ 373.0 179.4
Other assets........................................................... 447.6 455.6
----------------- ----------------
TOTAL ASSETS........................................................... $ 13,321.2 $ 10,779.5
================= ================
LIABILITIES
Short-term and long-term debt.......................................... $ 1,490.9 $ 1,374.9
Loans from affiliates.................................................. 1,568.9 -
Liability for employee benefit plans................................... 1,084.4 992.2
Accrued liabilities.................................................... 113.2 238.7
----------------- ----------------
Total liabilities................................................ 4,257.4 2,605.8
----------------- ----------------
SHAREHOLDERS' 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......................................... 1,054.1 1,102.3
Retained earnings...................................................... 7,139.7 6,194.8
Accumulated other comprehensive income................................. 866.1 872.7
----------------- ----------------
Total shareholders' equity....................................... 9,063.8 8,173.7
----------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $ 13,321.2 $ 10,779.5
================= ================
The financial information of AXA Financial, Inc. ("Parent Company") 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-66
AXA FINANCIAL, INC.
SCHEDULE II
STATEMENTS OF EARNINGS (PARENT COMPANY)
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
---------------- ----------------- ----------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
REVENUES
Equity in earnings from continuing operations
of consolidated subsidiaries before cumulative
effect of accounting change........................... $ 1,019.8 $ 569.5 $ 663.7
Net investment (loss) income ............................ (8.5) 13.0 24.2
Investment losses, net................................... (1.2) (5.2) (9.1)
---------------- ----------------- -----------------
Total revenues..................................... 1,010.1 577.3 678.8
---------------- ----------------- -----------------
EXPENSES
Interest expense......................................... 130.0 111.7 121.1
Amortization of goodwill and intangible assets........... 3.2 3.1 3.1
General and administrative expenses...................... 43.4 37.6 23.7
---------------- ----------------- -----------------
Total expenses..................................... 176.6 152.4 147.9
---------------- ----------------- -----------------
Earnings from continuing operations before
income taxes ......................................... 833.5 424.9 530.9
Income tax benefit....................................... 23.2 28.9 25.2
---------------- ----------------- -----------------
Earnings from continuing operations...................... 856.7 453.8 556.1
Earnings from discontinued operations, net of
income taxes.......................................... 7.9 3.4 5.6
Gain on sale of real estate held-for-sale, net of
income taxes......................................... 31.1 - -
Gains on disposal of the discontinued Investment
Banking and Brokerage segment, net of income taxes.. 53.2 - -
Cumulative effect of accounting changes, net of
income taxes.......................................... (4.0) - (33.1)
---------------- ----------------- -----------------
Net Earnings............................................. $ 944.9 $ 457.2 $ 528.6
================ ================= =================
F-67
AXA FINANCIAL, INC.
SCHEDULE II
STATEMENTS OF CASH FLOWS (PARENT COMPANY)
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
----------------- ----------------- ---------------
(DOLLARS IN MILLIONS)
Net earnings........................................... $ 944.9 $ 457.2 $ 528.6
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Equity in net earnings of subsidiaries............ (1,054.8) (572.9) (636.2)
Dividends from subsidiaries....................... 554.9 473.7 584.8
Investment losses, net............................ 1.2 5.2 9.1
Change in income tax receivable................... (138.3) 5.9 174.7
Other............................................. 97.6 102.0 (170.0)
----------------- ----------------- -----------------
Net cash provided by operating activities.............. 405.5 471.1 491.0
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments............................ 2.6 2.5 8.4
Sales................................................ 26.7 5.8 1.0
Loans to affiliates.................................. - 3.0 3.0
Acquisition of the MONY Group, Inc................... (1,369.2) - -
Purchase of Alliance Units........................... (225.0) - (1.3)
Purchases............................................ - (68.6) (1.0)
Net change in short-term investments................. - 2.4 (2.4)
Contribution to subsidiaries......................... (118.6) (22.0) (119.8)
Other................................................ 17.8 (7.7) 5.8
------------- -------------- -------------
Net cash (used) provided by investing activities....... (1,665.7) (84.6) (106.3)
----------------- ----------------- -----------------
Cash flows from financing activities:
Repayment of long-term debt.......................... (300.0) (76.8) (56.2)
Decrease in short-term debt.......................... - (.5) (.6)
Dividends paid to shareholders....................... - (230.0) (325.0)
Increase in loans from affiliates.................... 1,568.9 - -
Other ............................................... (29.4) (12.9) 4.6
----------------- ----------------- -----------------
Net cash used by financing activities.................. 1,239.5 (320.2) (377.2)
----------------- ----------------- -----------------
Change in cash and cash equivalents.................... (20.7) 66.3 7.5
Cash and cash equivalents, beginning of year........... 210.6 144.3 136.8
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year................. $ 189.9 $ 210.6 $ 144.3
================= ================= =================
Supplemental cash flow information:
Interest Paid........................................ $ 105.0 $ 110.6 $ 114.7
================= ================= =================
Income Taxes Refunded................................ $ - $ - $ (144.0)
================= ================= =================
F-68
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 $ 2,732.6 $ 3,514.0 $ 510.1 $1,694.7
Investment
Management.......... - - - - 39.2 - - 2,360.6
Consolidation/
Elimination.......... - - - - 29.0 - - 20.4
------------ -------------- -------------- ----------- ----------- -------------- ------------ ----------
Total.................. $ 6,908.6 $ 30,367.3 $ 22,888.6 $ 2,973.6 $ 2,800.8 $ 3,514.0 $ 510.1 $4,075.7
============ ============== ============== =========== =========== ============== ============ ==========
(1) Net investment income is based upon specific identification of portfolios
within segments.
(2) Operating expenses are principally incurred directly by a segment.
F-69
AXA FINANCIAL, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 2003
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............ $ 6,290.4 $ 25,307.7 $ 13,934.7 $ 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.................. $ 6,290.4 $ 25,307.7 $ 13,934.7 $ 2,275.1 $2,397.1 $ 2,680.7 $ 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-70
AXA FINANCIAL, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 2002
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............ $ 2,260.7 $ 2,351.2 $ 3,008.5 $ 296.7 $ 1,224.3
Investment Management................... - 19.4 - - 2,222.3
Consolidation/Elimination............... - 23.1 - - (76.2)
--------------- --------------- ---------------- ------------------ ----------------
Total................................... $ 2,260.7 $ 2,393.7 $ 3,008.5 $ 296.7 $ 3,370.4
=============== =============== ================ ================== ================
(1) Net investment income is based upon specific identification of portfolios
within segments.
(2) Operating expenses are principally incurred directly by a segment.
F-71
AXA FINANCIAL, INC.
SCHEDULE IV
REINSURANCE (A)
AT AND FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
---------------- ----------------- ---------------- --------------- ---------------
(DOLLARS IN MILLIONS)
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%
================ ================= ================ ===============
2002
- ----
Life Insurance In-force...... $ 264,465.6 $ 89,413.1 $ 42,228.6 $ 217,281.1 19.44%
================ ================= ================ ===============
Premiums:
Life insurance and
annuities............... $ 803.3 $ 86.8 $ 145.7 $ 862.2 16.90%
Accident and health....... 151.3 104.0 35.7 83.0 43.01%
---------------- ----------------- ---------------- ---------------
Total Premiums............... $ 954.6 $ 190.8 $ 181.4 $ 945.2 19.19%
================ ================= ================ ===============
(A) Includes amounts related to the discontinued group life and health business.
F-72
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's
disclosure controls and procedures as of December 31, 2004. Based on that
evaluation, management, including the Chief Executive Officer and Chief
Financial Officer, concluded that AXA Financial's disclosure controls and
procedures are effective. Except for the enhancements to internal controls
described below, there has been no change in AXA Financial'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's internal control over financial reporting.
In connection with the continuing integration process associated with the
Holding Company's recent acquisition of MONY, management has enhanced, and
continues to enhance, the overall internal control environment of MONY Life,
MLOA and USFL by implementing new procedures and controls, including increasing
and re-allocating staffing in the accounting department, instituting additional
account reconciliations and upgrading the investment accounting computer
systems.
9A-1
PART II, ITEM 9B.
OTHER INFORMATION
On March 31, 2005, the Holding Company and AXA Equitable entered into an
Employment Agreement dated as of March 14, 2005 (the "Employment Agreement")
with John A. Graf pursuant to which Mr. Graf will serve as Vice Chairman of the
Holding Company and AXA Equitable. Mr. Graf is expected to join the Holding
Company on September 1, 2005. Among other things, the Employment Agreement
specifies the nature, duties, job titles and term of Mr. Graf's employment,
discusses Mr. Graf's compensation and employee benefits, and indicates the
consequences if Mr. Graf's employment with the Holding Company and AXA Equitable
is terminated for any reason. The foregoing description of the Employment
Agreement is qualified in its entirety by reference to the provisions of the
Employment Agreement, which is attached as Exhibit 10.14 to this report. Also
attached as Exhibit 10.15 to this report is a letter agreement dated March 14,
2005 entered into by the Holding Company and Mr. Graf on March 31, 2005 relating
to certain additional benefits to be provided to Mr. Graf by the Holding
Company.
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 the Holding Company's annual
financial statements for 2004 and 2003, and fees for other services rendered by
PwC:
2004 2003
---------------- -----------------
(IN THOUSANDS)
Principal Accounting Fees and Services:
Audit fees ......................................................... $ 9,640 $ 4,687
Audit related fees.................................................. 2,092 1,150
Tax fees............................................................ 1,971 640
All other fees...................................................... 65 7
---------------- -----------------
Total.................................................................. $ 13,768 $ 6,484
================ =================
Audit fees for the Holding Company and AXA Equitable are paid pursuant to a
single engagement letter with PwC.
Audit related fees in both years 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.
The Holding Company'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, and therefore has not adopted policies or procedures to
pre-approve engagements, provided, however, that the audit committee has
delegated to its chairperson the ability to 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 31, 2005 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 31, 2005
- --------------------------------------------
Henri de Castries
/s/ Christopher M. Condron President and Chief Executive Officer, March 31, 2005
- -------------------------------------------- Director
Christopher M. Condron
/s/ Stanley B. Tulin Vice Chairman of the Board and March 31, 2005
- -------------------------------------------- Chief Financial Officer, Director
Stanley B. Tulin
/s/ Alvin H. Fenichel Senior Vice President and Controller March 31, 2005
- --------------------------------------------
Alvin H. Fenichel
/s/ Claude Bebear Director March 31, 2005
- --------------------------------------------
Claude Bebear
/s/ Bruce W. Calvert Director March 31, 2005
- --------------------------------------------
Bruce W. Calvert
/s/ Claus-Michael Dill Director March 31, 2005
- --------------------------------------------
Claus-Michael Dill
/s/ Denis Duverne Director March 31, 2005
- --------------------------------------------
Denis Duverne
/s/ John C. Graves Director March 31, 2005
- --------------------------------------------
John C. Graves
/s/ Anthony J. Hamilton Director March 31, 2005
- -------------------------------------------
Anthony J. Hamilton
/s/ Mary R. Henderson Director March 31, 2005
- -------------------------------------------
Mary R. Henderson
/s/ James F. Higgins Director March 31, 2005
- -------------------------------------------
James F. Higgins
/s/ W. Edwin Jarmain Director March 31, 2005
- -------------------------------------------
W. Edwin Jarmain
/s/ Christina Johnson Director March 31, 2005
- -------------------------------------------
Christina Johnson
S-1
/s/ Scott D. Miller Director March 31, 2005
- -------------------------------------------
Scott D. Miller
/s/ Joseph H. Moglia Director March 31, 2005
- -------------------------------------------
Joseph H. Moglia
/s/ Peter J. Tobin Director March 31, 2005
- -------------------------------------------
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 Report on Form 10-K for the year ended
2, 2000, among Alliance, Alliance Holding, December 31, 2000 and incorporated herein by
Alliance Capital Management LLC, reference
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 by and among Alliance, the Holding Report on Form 10-K for the year ended
Company 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 the Holding Company and Report on Form 10-K for the year ended
Alliance 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 the Holding Company 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 the Holding Current Report on Form 8-K dated September 18,
Company, 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 the Holding Company, AIMA 2004 and incorporated herein by reference
Acquisition Co. and MONY
3.1 Restated Certificate of Incorporation of Filed as Exhibit 4.01(a) to Post-Effective
the Holding Company Amendment No. 1 to the registrant's
Form S-3 Registration Statement
(No. 333-03224), dated May 29, 1997 and
incorporated herein by reference
E-1
Number Description Method of Filing
------ ----------- ----------------
3.2 Amendment to Restated Certificate of Filed as Exhibit 4.01(g) to Post-Effective
Incorporation of the Holding Company 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
the Holding Company incorporated herein by reference
3.4 Amendment to the Restated Certificate of Filed as Exhibit 3.4 to the registrant's
Incorporation of the Holding Company dated Form 10-Q for the quarter ended June 30, 2000
May 19, 2000 and incorporated herein by reference
3.5 By-laws of the Holding Company, 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 the Holding Filed as Exhibit 4(c) to the registrant's
Company's Common Stock, par value $.01 per Form S-1 Registration Statement
share (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 the Holding Company to Chemical Bank, Form S-4 Registration Statement
as 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
dated as of December 8, 1994 from the Current Report on Form 8-K dated December 1,
Holding Company to Chemical Bank, as 1994 and incorporated herein by reference
Trustee
4.5 Fourth Supplemental Indenture, dated Filed as Exhibit 4.18(a) to the registrant's
April 1, 1998, from the Holding Company to Current Report on Form 8-K dated April 7, 1998
The Chase Manhattan Bank (formerly known and incorporated herein by reference
as 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
October 22, 1994, between the Holding Current Report on Form 8-K dated December 19,
Company and Shawmut Bank Connecticut, 1994 and incorporated herein by reference
National Association, as Trustee
E-2
Number Description Method of Filing
------ ----------- ----------------
4.7 First Supplemental Indenture, dated as of Filed as Exhibit 4.11 to the registrant's
October 22, 1994, between the Holding Current Report on Form 8-K dated December 19,
Company and Shawmut Bank Connecticut, 1994 and incorporated herein by reference
National Association, as Trustee
4.8 Fifth Supplemental Indenture, dated July Filed as Exhibit 4.18(d) to the registrant's
28, 2000, from the Holding Company to The Current Report on Form 8-K dated July 31,
Chase 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 12, Filed as Exhibit 9 to the registrant's
1992, among AXA, Claude Bebear, Patrice Form S-1 Registration Statement
Garnier and Henri de Clermont-Tonnerre (No. 33-48115), dated May 26, 1992 and
incorporated herein by reference
9.1(b) First Amendment dated January 22, 1997 to Filed as Exhibit 9(b) to the registrant's
the Voting Trust Agreement dated as of Annual Report on Form 10-K for the year ended
May 12, 1992 December 31, 1997 and incorporated herein by
reference
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
the Holding Company 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, the Holding Company Form S-1 Registration Statement
and AXA (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
E-3
Number Description Method of Filing
------ ----------- ----------------
10.6 Exchange Agreement dated as of Filed as Exhibit 10.01 to registrant's Form
September 27, 1994, between AXA and the S-4 Registration Statement (No. 33-84462),
Holding Company 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, dated Filed as Exhibit 10.26(b) to the registrant's
as of December 28, 1995, between 1290 Annual Report on Form 10-K for the year ended
Associates, L.L.C. and AXA Equitable 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 ended
May 1, 1996, by and between AXA Equitable December 31, 1996 and incorporated herein by
and the IDA 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 ended
entered into as of May 1, 1996, by and December 31, 1996 and incorporated herein by
between the IDA, AXA Equitable and EVLICO reference
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 the Holding Company, AXA Equitable Form 10-Q for the quarter ended June 30, 2001
and 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 the Holding Company, Form 10-Q for the quarter ended September 30,
AXA 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
dated as of September 27, 2004, between Form-8-K dated October 1, 2004 and incorporated
the Holding Company, AXA Equitable, and herein by reference
Stanley B. Tulin.
10.12 Employment Letter Agreement, dated as of Filed as Exhibit 10.2 to the registrant's
September 27, 2004, between AXA Equitable, Form-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
September 27, 2004, between AXA Equitable, Form-8-K dated October 1, 2004 and incorporated
and Stanley B. Tulin. herein by reference
10.14 Employment Agreement dated as of March 14, Filed herewith
2005 between the Holding Company, AXA
Equitable and John A. Graf
10.15 Employment Letter Agreement dated March 14, Filed herewith
2005 between the Holding Company and
John A. Graf
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 Consent of PricewaterhouseCoopers LLP Filed herewith
E-4
Number Description Method of Filing
------ ----------- ----------------
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