STRUCTURED CAPITAL STRATEGIES

Financial Services STRUCTURED CAPITAL STRATEGIES AN ANALYSIS OF HYPOTHETICAL RISK-ADJUSTED RETURNS IN COMPARISON TO INVESTMENT ALTERNATIVES For Institutional Use Only. Not For Use With The General Public

AXA Equitable commissioned Oliver Wyman to assess the hypothetical performance of an investment in its Structured Capital Strategies product relative to alternate investment options in various potential market conditions. This analysis is hypothetical and is not a projection or prediction of future results. This analysis is designed to show how assumed market conditions and other factors may affect contract values over an extended period. The primary audience for this report, which describes the results of that assessment, includes broker-dealers, benefits consultants and financial professionals who distribute or advise upon the selection of a group investment plan sponsor. This is not a sales or training presentation and is not intended to be used in the solicitation of sales. This report is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accountants, tax, legal or financial advisors. This report should not be used with customers or non-securities registered members of the investing public. This report does not contain a full description of Structured Capital Strategies and must be used in conjunction with the Sales Kit (Cat. #153409) (8/14). For details, including costs, risks and other limitations please read the prospectus carefully. Oliver Wyman is an international management consulting firm that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, organizational transformation, and leadership development. Our Financial Services practice supports clients in Insurance, Wealth and Asset Management, Retail and Business Banking, Corporate and Institutional Banking, and Public Policy. In addition, we have capabilities in Corporate Finance and Advisory, Finance and Risk, and Strategic Information Technology and Operations. Oliver Wyman s website address is www. oliverwyman.com. Oliver Wyman s Insurance practice consults extensively on issues related to annuities, as well as other separate account (unit-linked) products. We distinguish ourselves by bringing together three critical perspectives: a strategic and global understanding of the major business trends in the industry; deep experience in capital market risks; and actuarial expertise that provides a strong understanding of the nature of insurance liabilities. We work closely with our clients to address the challenges of business strategy, risk, and financial effectiveness. About Structured Capital Strategies The Structured Capital Strategies variable and indexed linked deferred annuity contract offers an innovative strategy combining structured growth potential up to a cap with tax deferral. This product includes a partial protection feature that eliminates a portion of your downside risk, while still giving you the opportunity to invest for growth up to a Performance Cap Rate. This is called the Structured Investment Option (SIO). The SIO permits the contract owner to invest in one or more Segments, each of which provides returns tied to the performance of an index for a set period (1 year, 3 years, 5 years). Through the partial protection feature, AXA Equitable will absorb up to -30% of loss, depending on the index and duration selected. Please keep in mind that there is risk of substantial loss of principal because the investor agrees to absorb all losses that exceed the protection provided by the SIO at maturity. If you would like a guarantee of principal, AXA Equitable offers other products that provide such guarantees. Additionally, it must be noted that there are variable investment options available that are not part of the SIO and the investment results in these variable investment options do not depend on the investment performance of a related index. Unlike an index fund, the SIO provides a return at maturity designed to provide a combination of protection against certain decreases in the index and a limitation on participation in certain increases in the index. AXA Equitable Life Insurance Company has sole legal responsibility to pay amounts it owes under the contract. An owner should look to the financial strength of AXA Equitable for its claims-paying ability. The SIO does not involve an investment in any underlying portfolio. Instead, it is an obligation of AXA Equitable Life Insurance Company. A variable annuity such as Structured Capital Strategies is a long-term financial product designed for retirement purposes. Simply stated, a variable annuity is a contract between you and an insurance company that lets you pursue the accumulation of assets through equities and other investment options. You may then take payments or a lump sum amount at a later date. There are fees and charges associated with Structured Capital Strategies, which include a contract fee that covers administrative expenses, sales expenses and certain expense risks. Variable annuities are subject to market risk including loss of principal. Withdrawals are subject to ordinary income tax treatment, and if taken prior to age 59½ in non-quailed contracts, may be subject to an additional 10% federal tax. Withdrawals may also be subject to a contractual withdrawal charge. The withdrawal charge declines from 5% over a five-year period for the Structured Capital Strategies Series B product. Variable annuities contain certain restrictions and limitations. For costs and complete details, contact a financial professional.

EXECUTIVE SUMMARY Recent trends in capital markets such as low levels of equity market volatility and low interest rates have caused the performance cap rates available in Structured Capital Strategies to decrease to historically low levels. The performance cap rate is the maximum potential ceiling, or cap, that an investor may receive from index gains. This decrease in performance cap rates has prompted questions about the relative performance of Structured Capital Strategies versus alternate investment strategies in today s markets. This paper analyzes the characteristics of an investment in Structured Capital Strategies to assess the continued attractiveness of this product. The results are as follows: Postponing investment in Structured Capital Strategies in anticipation of higher cap rates could provide a lower expected return in an environment where interest rates follow capital markets expectations and equity markets exhibit historical levels of return and volatility. Structured Capital Strategies may provide a compelling investment option relative to traditional alternatives in certain circumstances. The remainder of this paper supports these findings. Please note: protracted low levels of interest rates and equity volatility could cause performance caps for Structured Capital Strategies to remain at historically low levels. Such a scenario would reduce the attractiveness of Structured Capital Strategies relative to investment alternatives. If current market conditions persist for the length of our projection horizon, under our hypothetical baseline equity return scenario, some investment alternatives would provide both a higher average return and a lower likelihood of incurring a loss than an investment in the 1 year Structured Capital Strategies. Copyright 2014 Oliver Wyman 1

MARKET TRENDS AFFECTING STRUCTURED INVESTMENT PRODUCTS Capital market factors such as interest rates and volatilities determine the level of performance caps that can be offered in Structured Capital Strategies. These factors affect the prices of the options used to create the payout structure offered to investors in these products, thereby determining the level of performance cap rates. Interest rates are near record-low levels while equity volatilities have decreased to their lowest levels since the financial crisis (as presented in the Appendix). Falling interest rates and low volatility levels have combined to produce a steady decrease in performance cap rates. Performance caps limit the level of returns investors who desire downside protection can achieve even when equity markets rise significantly. Exhibit 1 shows historical cap rates offered back to the initial release of Structured Capital Strategies. Exhibit 1: HISTORICAL PERFORMANCE CAP RATES FOR ONE-YEAR TERM STRUCTURED CAPITAL STRATEGIES ON THE S&P 500 INDEX PERFORMANCE CAP RATES 2010 2014 20% 15% 10% 5% 0% 2010 Nov 2011 Nov 2012 Nov 2014 Jan Source AXA, Oliver Wyman analysis. Equity markets have experienced strong growth over the past few years, causing some investors to feel confident about their performance. Exhibit 2, however, demonstrates that past growth in equity markets does not guarantee future growth. In the past 15 years, two significant drops have followed substantial increases in equity markets. Copyright 2014 Oliver Wyman 2

Exhibit 2: HISTORICAL CORRECTIONS IN THE S&P 500 S&P 500 INDEX 1982 2014 2000 1500 47% drop over 3 years 1000 500 0 55% drop over 2 years 1982 1986 1990 1994 1998 2002 2006 2010 2014 Jan Source Bloomberg. THE POSSIBLE IMPACT OF WAITING TO INVEST IN STRUCTURED CAPITAL STRATEGIES An investor may observe the historically low levels of performance cap rates and decide to wait until performance cap rates rise before electing to invest in Structured Capital Strategies. The following section evaluates the hypothetical investment risk-and-return implications of this delayed investment. APPROACH TO ASSESSING THE IMPACT OF WAITING We analyze the impact of waiting by comparing two alternate investment strategies for one-year term Structured Capital Strategies with a 10% buffer on the S&P 500 index 1 across 1000 equity return scenarios: 1. Immediate investment: Invest in Structured Capital Strategies immediately for a 10-year period 2. Delayed investment: Invest in cash for three years, in hopes that performance cap rates return to historical norms. Then invest in Structured Capital Strategies for a 7-year period The equity returns during the three year waiting period affect the performance impact of a delayed investment in Structured Capital Strategies. The equity return distribution assumptions in this analysis was varied to reflect three common outlooks towards equity markets: Bear, Baseline and Bull. Exhibit 3 defines three equity return distributions according to assumed annual returns relative to risk-free interest rates and the realized volatility of each market outlook. The realized volatility value for each distribution, 16% volatility, reflects the 21-day trailing average equity return volatility between 1990 and 2014. 1 Structured Capital Strategies is a long-term financial product for retirement purposes, and has a five-year CWC period under the Series B contract. The SIO provides participation in the performance of indices that track equity and commodity markets up to a Performance Cap Rate in one, three, or five-year maturities. One-year term Structured Capital Strategies refers to a SIO segment with a one-year duration. Upon maturity, AXA Equitable will absorb up to the first -10%, -20%, or -30% of any loss, depending on the index and duration chosen. If the negative return is in excess of the Segment Buffer, there is a risk of substantial loss of principal. Copyright 2014 Oliver Wyman 3

Exhibit 3: HYPOTHETICAL EQUITY RETURN DISTRIBUTIONS BY MARKET OUTLOOK USED IN THIS ANALYSIS MARKET OUTLOOK BEAR BASELINE BULL Expected return over cash 0% 5% 10% Realized volatility 16% 16% 16% HYPOTHETICAL SCENARIOS: THE IMPACT OF WAITING TO INVEST IN STRUCTURED CAPITAL STRATEGIES Exhibit 4 shows the difference in total returns over ten years between immediate and delayed participation: Cost of waiting = average 10 year returns for immediate participation average 10 year returns for delayed participation The cost of waiting depends on the equity market outlook. Immediate participation in Structured Capital Strategies could provide the highest average return based on our hypothetical baseline and bull market scenario distributions, with returns above delayed participation of 6% and 18% respectively, when opportunity is lost in the first three years if an investor elects to keep their funds in cash. Delayed participation is attractive in a bear market assumption when a cash investment could protect the investor from adverse equity market movements in the first three years, as shown by the -2% cost of waiting in Exhibit 4; any no-risk investment would be expected to outperform investments with downside equity exposure. Exhibit 4: IMMEDIATE AND DELAYED PARTICIPATION IN STRUCTURED CAPITAL STRATEGIES BY HYPOTHETICAL MARKET OUTLOOK COST OF WAITING % OF INITIAL INVESTMENT 20% BEAR OUTLOOK 15% BASELINE OUTLOOK BULL OUTLOOK 10% 5% 0% -5% Cash protects from losses in early years Moderate growth opportunities missed Substantial growth opportunities missed Source Oliver Wyman analysis of the returns lost by an investor who waits three years to participate in Structured Capital Strategies. Copyright 2014 Oliver Wyman 4

This analysis shows that, even if cap rates are low, an investment in Structured Capital Strategies would offer a superior average return relative to waiting in cash if it is assumed that equity markets will rise as described in our hypothetical baseline and bull market scenario distributions. CUSTOMER VALUE PROPOSITION IN COMPARISON TO ALTERNATE INVESTMENT STRATEGIES Market expectations play a significant role in an individual s willingness to forego upside potential in exchange for downside protection. Several investment options and strategies seek to provide this balance to investors. The following section analyzes several of these options compared with Structured Capital Strategies to assess the relative merits of these alternate strategies. APPROACH TO ASSESSING ALTERNATE INVESTMENT OPTIONS This analysis seeks to compare Structured Capital Strategies against alternate investment strategies under common outlooks towards equity markets; the equity market assumptions used to define equity return distributions are presented in Exhibit 3 above. We evaluated the performance of five investment strategies under each of the three market outlooks for 1000 scenarios. Exhibit 5 describes the five investment strategies analyzed. Copyright 2014 Oliver Wyman 5

EXHIBIT 5: INVESTMENT STRATEGIES ANALYZED INVESTMENT CASH 1-YEAR STRUCTURED CAPITAL STRATEGIES EQUITY- INDEXED ANNUITY BALANCED MUTUAL FUND EQUITY- ONLY MUTUAL FUND Description Tax treatment of gains Tax treatment upon transfer 10% tax penalty on withdrawals Guaranteed income for life Total fees/ expenses Stepped-up cost basis on death Liquidity Safety of Principal Investment that yields the risk-free overnight interest rate Interest accrued is taxed as ordinary income. Capped returns on the S&P 500 index and a buffer against losses of up to 10% over a 1-year period Capped returns on the S&P 500 index and full principal protection Any gains and earnings within a deferred annuity grow on a tax-deferred basis. When withdrawn, gains are taxed as ordinary income. Not applicable Exchanges from one deferred annuity to another (1035 Exchange) will not trigger any tax consequences. However, investors should consider the cost of the new deferred annuity, surrender charges the potential loss of any guaranteed benefits and the impact to the death benefit. Balanced fund targeting a 60% equity/40% bond allocation with annual rebalancing Equity fund targeting the S&P 500 Any gains on the sale of an investment are treated for tax purposes as capital gains. Dividends can be ordinary income or capital gain. Qualified dividends get special treatment. If a client experiences a gain when he or she sells shares in a mutual fund in a taxable account in order to purchase shares of another mutual fund, this exchange would trigger capital gains taxation. No Yes, before age 59½ (certain exceptions may apply). No, not within a non-qualified account Generally not available Not available Often available as an elective rider. Additional charges usually apply. Advisory, administrative and distribution, and service fees. These may vary. This analysis assumes a 1.00% annual fee applied to account balances. Basis equals fair market value upon death. Completely liquid Complete protection For the Series B contract there is a Contract Fee of 1.25% deducted from the variable investment options (including the Segment Type Holding Accounts) to cover administrative expenses, sales expenses and certain expense risks that have been assumed under the contracts. Although there are no fees netted against the Segment Rate of Return in the Structured Investment Option, in setting the Performance Cap Rate, it is taken into account that expenses are incurred in connection with administration, sales, and certain expense risks in the contract. The existing cost basis carries over to the beneficiary. Gains are taxed as ordinary income as paid out. Contractual withdrawal charge. Additional income tax penalty for early withdrawals. Segment Interim Value calculation. Partial Segment Buffer only protects against some losses. Services fees and target pricing margins that may reduce interest credits. This analysis assumes a 1.80% annual fee that reduces the potential interest credits. Generally not available Basis equals fair market value upon death. Potential for a substantial contractual withdrawal charge. Additional income tax penalty for early withdrawals Complete protection Advisory, administrative and distribution, and service fees. These vary from fund to fund. This analysis assumes a 1.00% annual fee applied to account balances. Possible back-end fees. May trade only once per day. No guaranteed principal protection The analysis allowed for fees of 1.80% on EIA and 1.00% on non-insurance investment options. As in the Impact of Waiting analysis, Structured Capital Strategies does not include an explicit cost because product expenses are reflected in the cap rate calculation. The return on corporate bonds was assumed to exceed the risk-free rate by 1.00%, reflecting the realization of positive credit spreads. Performance cap rates for one-year Structured Capital Strategies were assumed to follow market expectations of both forward interest rates and forward volatilities. Copyright 2014 Oliver Wyman 6

EXPECTED ANNUAL RETURNS Exhibit 6 presents the average annual returns over a ten-year period for each investment alternative in each equity market assumption. Structured Capital Strategies could hypothetically provide the best average returns in our bear market assumption. In our assumed baseline and bull markets, an equity-only strategy could return the highest amount, followed by a balanced fund and Structured Capital Strategies. Exhibit EXHIBIT 6: 5: HYPOTHETICAL AVERAGE ANNUAL RETURNS OVER A 10-YEAR INVESTMENT PERIOD MEAN ANNUAL RETURNS 15% BEAR OUTLOOK BASELINE OUTLOOK BULL OUTLOOK 10% 5% 0% CASH 1Y SCS EIA BALANCED EQUITY CASH 1Y SCS EIA BALANCED EQUITY CASH 1Y SCS EIA BALANCED EQUITY Source Oliver Wyman analysis on the expected annual returns of the alternate investments defined in Exhibit 5 according to the equity return distributions defined in Exhibit 3. DOWNSIDE PROTECTION We analyzed the potential for losses under each of the investment strategies to determine the level of downside protection afforded by each strategy. Exhibit 7 shows the number of scenarios experiencing losses after the 10-year investment period for each alternative in each equity market outlook. The height of each bar indicates the probability that an investor will experience each level of principal loss (<10%, 10-15%, 15-20%, or >20%) for each investment strategy in each market assumption within the confines of our analysis. Investment options with shorter bars (lower probability of principal loss) could provide more downside protection to an investor. Copyright 2014 Oliver Wyman 7

Exhibit EXHIBIT 7: 6: ANALYSIS OF PRINCIPAL LOSS BY INVESTMENT OPTION IN OUR HYPOTHETICAL SCENARIOS SCENARIOS EXPERIENCING LOSS % TOTAL 40% BEAR OUTLOOK BASELINE OUTLOOK BULL OUTLOOK 148% higher 30% 20% 26% higher <10% loss 10-15% loss 10% 15-20% loss 0% 20%+ loss CASH 1Y SCS EIA BALANCED EQUITY CASH 1Y SCS EIA BALANCED EQUITY CASH 1Y SCS EIA BALANCED EQUITY Source Oliver Wyman analysis on the percentage of 1000 scenarios experiencing losses for the alternate investments defined in Exhibit 5 according to the equity return distributions defined in Exhibit 3. Exhibit 7 highlights the partial protection offered by Structured Capital Strategies against principal losses. Aside from Cash and EIA, which by design cannot experience principal losses, Structured Capital Strategies may result in the fewest number of scenarios experiencing loss based on each of our hypothetical equity market scenario distributions. In the bear market assumption, equity and balanced fund investments experience a loss in 148% and 26% more scenarios than Structured Capital Strategies. Copyright 2014 Oliver Wyman 8

RISK AND RETURN Each investment option offers a different trade-off between the assumed return and level of risk associated with the investment. Exhibit 8 compares the assumed returns versus the standard deviation of the returns a measure of the risk associated with the investment. This efficient frontier is drawn between cash and an equity-only investment for each market outlook. Investment alternatives which fall below this line offer suboptimal returns for the level of risk; conversely, investment alternatives above this line offer high returns relative to the level of risk. As shown in Exhibit 8, 1Y SCS is above the efficient frontier, indicating that it could possibly provide a higher return relative to the level of risk. Exhibit EXHIBIT 8: 7: EFFICIENT INVESTMENT FRONTIER (RISK VERSUS RETURN) IN OUR HYPOTHETICAL EQUITY MARKET SCENARIO DISTRIBUTIONS EXPECTED ANNUAL RETURN 14% 12% 10% 8% 6% INVESTMENT OPTIONS MARKET OUTLOOK 4% Cash Bull 2% 1Y SCS Baseline 0% 0% LOW RISK 1% 2% 3% 4% STANDARD DEVIATION OF ANNUAL RETURNS 5% 6% HIGH RISK Equity Bear Source Oliver Wyman analysis on the expected annual returns and standard deviation of annualized returns of the alternate investments defined in Exhibit 5 according to the equity return distributions defined in Exhibit 3. Copyright 2014 Oliver Wyman 9

CONCLUSION Low levels of equity volatility and interest rates have recently caused performance cap rates available in Structured Capital Strategies to decrease to the lowest levels since its initial release, as shown in Exhibit 1 for one-year term Structured Capital Strategies on the S&P 500 index. This has led to concern about the continued attractiveness of Structured Capital Strategies. The hypothetical performance of an investment in Structured Capital Strategies was analyzed to determine the possible cost of waiting to participate in Structured Capital Strategies and the relative hypothetical performance of Structured Capital Strategies against alternate investments in various equity market outlooks. The analysis finds that: Within the confines of our analysis it could be concluded that investors who delay participation in Structured Capital Strategies in favor of cash until performance caps rise on average could miss growth opportunities based on our assumed baseline and bull market scenario distributions Structured Capital Strategies may provide a higher average return relative to the associated risk compared with alternate investment options in our hypothetical scenario distributions Copyright 2014 Oliver Wyman 10

APPENDIX Performance cap rates have reached the lowest levels since the release of Structured Capital Strategies in 2010. This is due to the confluence of falling interest rates and volatility, as can be seen in Exhibits A1 and A2. Implied volatility is the volatility implicit from option prices per the Black Scholes option pricing model. EXHIBIT A1: EQUITY MARKET VOLATILITY IS AT THE LOWEST LEVELS SINCE 2007 IMPLIED VOLATILITY 2005 2014 50% 40% 30% 20% 10% 0% 2005 2007 2009 2011 2013 2014 Jan Source Bloomberg. EXHIBIT A2: INTEREST RATES ARE AT HISTORICAL LOWS INTEREST RATES (1-YEAR) 2005 2014 8% 6% 4% 2% 0% 2005 2007 2009 2011 2013 2014 Jan Source Bloomberg. Copyright 2014 Oliver Wyman 11

We are using the assumption that forward interest rates and volatilities indicate that the market expects both interest rates and volatilities to rise in the next few years to 5% and 24%, respectively. Exhibit A3 shows the performance cap rates if interest rates and/or volatility attain these forward market expectations. EXHIBIT A3: ASSUMED PERFORMANCE CAP RATES FOR 1-YEAR TERM STRUCTURED CAPITAL STRATEGIES WITH A 10% BUFFER ON THE S&P 500 CURRENT VOLATILITY VOLATILITY RISES TO 24% Current interest rates 3.4% 11.2% Interest rates rise to 5% 10.2% 19.6% DISCLOSURE OF HYPOTHETICAL PERFORMANCE CAP RATES BEHIND THE ANALYSIS The Structured Capital Strategies cap rates are set in accordance with formulae used by AXA Equitable that are sensitive to the prices of equity options available in the capital markets. These options are determined by assumed equity volatility and interest rates. Exhibit A4 below shows the cap rates on the 1-year Structured Capital Strategies with 10% buffer used in the analysis. These assumptions are based on markets following forward interest rates and volatility levels. EXHIBIT A4: ASSUMED CAP RATES CAP 30% 20% 10% 0 01/01/2014 Year 1 01/01/2016 Year 2 Year 01/01/2018 3 01/01/2020 Year 4 01/01/2022 Year 5 01/01/2024 Year 6 DATE Date Oliver Wyman validated that the formulae used to assume the caps reproduced cap rates values within 0.1% of historical 1-year Structured Capital Strategies with 10% buffer cap rates. Copyright 2014 Oliver Wyman 12

DESCRIPTION OF HYPOTHETICAL EQUITY MARKET SCENARIO DISTRIBUTIONS The analysis uses three sets of 1,000 Monte Carlo equity scenarios that reflect hypothetical expectations for potential market average returns and volatility. The average returns for the hypothetical sets of equity scenarios vary by the scenario set: baseline (5% above risk-free rates), bull (10%) and bear (0%). The annual volatility of returns within the hypothetical equity return distributions are each set to 16%, a value consistent with long-term historical equity volatility. All scenario returns are derived from the lognormal distribution. Copyright 2014 Oliver Wyman 13

Oliver Wyman is a global leader in management consulting that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. For more information please contact the marketing department by email at info-fs@oliverwyman.com or by phone at one of the following locations: AMERICAS +1 212 541 8100 EMEA +44 20 7333 8333 ASIA PACIFIC +65 6510 9700 www.oliverwyman.com Copyright 2014 Oliver Wyman All rights reserved. This report may not be reproduced or redistributed, in whole or in part, without the written permission of Oliver Wyman and Oliver Wyman accepts no liability whatsoever for the actions of third parties in this respect. The information and opinions in this report were prepared by Oliver Wyman. This report is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accountants, tax, legal or financial advisors. Oliver Wyman has made every effort to use reliable, up-to-date and comprehensive information and analysis, but all information is provided without warranty of any kind, express or implied. Oliver Wyman disclaims any responsibility to update the information or conclusions in this report. Oliver Wyman accepts no liability for any loss arising from any action taken or refrained from as a result of information contained in this report or any reports or sources of information referred to herein, or for any consequential, special or similar damages even if advised of the possibility of such damages. The report is not an offer to buy or sell securities or a solicitation of an offer to buy or sell securities. This report may not be sold without the written consent of Oliver Wyman. IU-93211 (9/14) Cat. #153609 (9/14) ML 14-004610 (Exp. 9/15)