Prudential 2005 Annual Report Download - page 31

Adjusted Operating Income
2005 to 2004 Annual Comparison. Adjusted operating income increased $198 million, from $266 million in 2004 to $464 million in
2005, which includes a $10 million increase from the management of assets associated with the retirement business acquired from CIGNA
on April 1, 2004. Results for 2005 benefited from an increase of $84 million in fees primarily from the management of institutional
customer assets as a result of increased asset values due to net asset inflows during 2004 and 2005, as well as net market appreciation.
Improved results from our proprietary investing activities, including $58 million from two sale transactions completed in 2005, also
contributed to the increase in adjusted operating income. Results for 2005 benefited from an increase of $62 million in performance based
incentive and transaction fees primarily related to our management of real estate. Additionally, 2004 results include charges totaling $28
million related to declines in value of intangible assets, expenses incurred in exiting an operating facility and termination of activities
related to certain of our international investment management operations. Increased performance-related compensation costs in 2005
partially offset the foregoing factors.
2004 to 2003 Annual Comparison. Adjusted operating income increased $58 million, from $208 million in 2003 to $266 million in
2004, which includes $31 million from the management of assets associated with the retirement business acquired from CIGNA. Results
for 2004 benefited from higher asset-based fees in our investment management and advisory services reflecting market appreciation and
positive net inflows, as well as improved results in our other asset management activities. Partially offsetting these items were charges in
2004 totaling $28 million related to declines in value of intangible assets, expenses incurred in exiting an operating facility and termination
of activities related to certain of our international investment management operations.
Revenues
The following tables set forth the Asset Management segment’s revenues, presented on a basis consistent with the table above under
“—Operating Results,” by source and assets under management for the periods indicated. In managing our business we analyze assets
under management, which do not correspond to GAAP assets, because our primary sources of revenues are fees based on assets under
management.
Year ended December 31,
2005 2004 2003
(in millions)
Revenues by source:
Investment Management and Advisory Services:
Retail customers(1) ............................................................................ $ 244 $ 219 $ 187
Institutional customers .......................................................................... 593 442 372
General account ............................................................................... 257 234 219
Sub-total ................................................................................. 1,094 895 778
Mutual fund, managed account and other revenues(2) ................................................. 602 569 582
Total revenues ............................................................................ $1,696 $1,464 $1,360
(1) Consists of individual mutual funds and both variable annuities and variable life insurance asset management revenues from our separate accounts. This
also includes funds invested in proprietary mutual funds through our defined contribution plan products. Revenues from fixed annuities and the fixed
rate options of both variable annuities and variable life insurance are included in the general account.
(2) Represents mutual fund, managed account and other revenues other than asset management fees, which are included in the appropriate categories above.
Includes revenues under a contractual arrangement with Wachovia Securities, related to managed account services, which was originally scheduled to
expire July 1, 2006. This contract was amended effective July 1, 2005 to provide essentially a fixed fee for managed account services and is now
scheduled to expire July 1, 2008.
December 31,
2005
December 31,
2004
(in billions)
Assets under management (at fair market value):
Retail customers(1) .............................................................................. $ 73.5 $ 66.0
Institutional customers(2) ......................................................................... 134.7 119.2
General account ................................................................................ 159.2 152.7
Total Investment Management and Advisory Services .............................................. $367.4 $337.9
(1) Consists of individual mutual funds, including investments in our mutual funds through wrap-fee products, and both variable annuities and variable life
insurance assets in our separate accounts. This also includes funds invested in proprietary mutual funds through our defined contribution plan products.
Fixed annuities and the fixed rate options of both variable annuities and variable life insurance are included in the general account.
(2) Consists of third party institutional assets, group insurance contracts, and assets associated with certain proprietary investing activities.
2005 to 2004 Annual Comparison. Revenues, as shown in the table above under “—Operating Results,” increased by $232 million,
from $1.464 billion in 2004 to $1.696 billion in 2005, including $58 million from two sale transactions in our proprietary investing
business completed in 2005. Revenues in 2005 benefited from a $94 million increase in fees primarily from the management of
institutional customer assets as a result of increased asset values due to net asset inflows during 2004 and 2005, including assets associated
with the retirement business acquired from CIGNA, as well as net market appreciation. Additionally, revenues for 2005 include an increase
of $79 million in performance based incentive and transaction fees primarily related to real estate assets under management. Revenues for
Prudential Financial 2005 Annual Report 29