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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended January 28, 2006

OR

Commission File No. 1-10738

ANNTAYLOR STORES CORPORATION

(Exact name of registrant as specified in its charter)

(212) 541-3300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  þ    No  ¨.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ¨    No  þ.

Indicate by check mark whether 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  þ    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.  ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  þ.

The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant as of July 29, 2005 was $2,100,848,888.

The number of shares of the registrant’s common stock outstanding as of February 28, 2006 was 72,524,654.

Documents Incorporated by Reference:

Portions of the Registrant’s Proxy Statement for the Registrant’s 2006 Annual Meeting of Stockholders to be held on April 27, 2006 are incorporated by reference into Part III.

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ANNTAYLOR STORES CORPORATION

ANNUAL REPORT ON FORM 10-K INDEX

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Statement Regarding Forward-Looking Disclosures

This Annual Report on Form 10-K includes, and incorporates by reference, certain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements may use the words “expect”, “anticipate”, “plan”, “intend”, “project”, “may”, “believe” and similar expressions. These forward-looking statements reflect the Company’s current expectations concerning future events, and actual results may differ materially from current expectations or historical results. Any such forward-looking statements are subject to various risks and uncertainties, including without limitation those discussed in the sections of this Report entitled “Business”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors”. The Company does not assume any obligation to publicly update or revise any forward-looking statements at any time for any reason.

PART I

General

AnnTaylor Stores Corporation, through its wholly-owned subsidiaries, is a leading national specialty retailer of women’s apparel, shoes and accessories sold primarily under the “Ann Taylor”, “Ann Taylor Loft” and “Ann Taylor Factory” brands. Our stores offer a full range of career and casual separates, dresses, tops, weekend wear, shoes and accessories, coordinated as part of a total wardrobing strategy. This total wardrobing strategy is reinforced by an emphasis on client service. Ann Taylor sales associates are trained to assist clients in merchandise selection and wardrobe coordination, helping them achieve the “Ann Taylor look” while reflecting the clients’ personal styles. As used in this report, all references to “we,” “our,” “us”, and “the Company” refer to AnnTaylor Stores Corporation and its wholly-owned subsidiaries.

We are dedicated to maintaining the right merchandise mix in our stores among suits and separates, tops, footwear and accessories. We concentrate on calibrating the timing of our product offerings to address clients’ wardrobing needs, anticipating fabric and yarn preferences on a regional and seasonal basis, and timing direct marketing efforts accordingly.

We believe that “Ann Taylor” and “Ann Taylor Loft” (“LOFT”) are highly recognized national brands with distinct fashion points of view. Our client base consists primarily of fashion conscious women from the ages of 25 to 55. Ann Taylor stores offer polished, sophisticated updated classic styles while LOFT stores focus on relaxed, fashionable styles at a great value. Ann Taylor Factory stores are primarily found in outlet malls and offer a mix of factory-direct and clearance product. In addition, clients may shop online at anntaylor.com and anntaylorLOFT.com or by phone at 1-800-DIAL-ANN.

As of January 28, 2006, we operated 824 retail stores in 46 states, the District of Columbia and Puerto Rico, of which 357 were Ann Taylor stores, 416 were LOFT stores and 51 were Ann Taylor Factory stores. See “Stores and Expansion” for further discussion.

Merchandise Design and Production

Substantially all merchandise offered in our stores is developed by our in-house product design and development teams, which design merchandise exclusively for us. Our merchandising groups determine inventory needs for the upcoming season, edit the assortments developed by the design teams, plan merchandise flows, and arrange for the production of merchandise by independent manufacturers, primarily through our sourcing division or through private label specialists.

Our production management and quality assurance departments establish the technical specifications for all Company merchandise, inspect factories in which the merchandise is produced, including periodic in-line inspections while goods are in production to identify potential problems prior to shipment, and, upon receipt, inspect merchandise on a test basis for uniformity of size and color, as well as for conformity with specifications and overall quality of manufacturing.

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We source merchandise from approximately 285 manufacturers and vendors, none of which accounted for more than 4% of our merchandise purchases in Fiscal 2005. Our merchandise is manufactured in over 25 countries, with approximately 28% of our merchandise manufactured in China, 15% in Hong Kong and 13% in the Philippines. Any event causing a sudden disruption of manufacturing or imports from those countries, or the imposition of additional import restrictions, could have a material adverse effect on our operations. Substantially all of our foreign purchases are negotiated and paid for in U.S. dollars.

We have a human rights compliance program that requires all of our suppliers, facilities, and subcontractors to comply with our Global Supplier Principles & Guidelines. We also conduct unannounced third-party audits to confirm manufacturer compliance with our human rights compliance standards.

We cannot predict with certainty whether any of the foreign countries in which our products are currently manufactured or any of the countries in which we may manufacture our products in the future will be subject to future import restrictions by the U.S. government, including the likelihood, type or degree of effect of any such new trade restriction. Trade restrictions, including increased tariffs or quotas, on apparel, or other items sold by us could affect the importation of such merchandise and could increase the cost or reduce the supply of merchandise available to us and adversely affect our business, financial condition, results of operations and liquidity. Further, the U.S. may impose additional duties in response to an investigation as to whether a particular product being sold in the United States at less than fair value may cause (or threaten to cause) material injury to the relevant domestic industry as claimed by such industry. This is generally known as “anti-dumping” action.

Our merchandise flow may also be adversely affected by factors discussed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”.

We do not maintain any long-term or exclusive commitments or arrangements to purchase merchandise from any single supplier. We believe we have good relationships with our suppliers and that, subject to the discussion above and in the “Statement Regarding Forward-Looking Disclosures” and “Risk Factors”, we will continue to have adequate sources to produce a sufficient supply of quality goods in a timely manner and on satisfactory economic terms.

Inventory Control and Merchandise Allocation

Our planning departments analyze each store’s size, location, demographics, sales and inventory history to determine the quantity of merchandise to be purchased for, and the allocation of merchandise to our stores. Upon receipt, merchandise is allocated to achieve an emphasis that is suited to each store’s client base. Merchandise typically is sold at its original marked price for several weeks, with the length of time varying by item. We review our inventory levels on an ongoing basis in order to identify slow-moving merchandise styles and broken assortments (items no longer in stock in a sufficient range of sizes) and use markdowns to clear this merchandise. Markdowns may be used if inventory exceeds client demand for reasons of design, seasonal adaptation or changes in client preference, or if it is determined that the inventory will not sell at its currently marked price.

In Fiscal 2005, inventory turned 4.7 times, compared to 4.5 times in Fiscal 2004 and 4.1 times in Fiscal 2003. Inventory turnover is determined by dividing cost of sales by the average of the cost of inventory at the beginning and the end of the period. As a result of an increased focus on inventory management in the last half of Fiscal 2005, and an increase in comparable store sales, merchandise inventories decreased approximately $24.7 million, or 10.8% in Fiscal 2005 from Fiscal 2004.

Our comprehensive merchandising information system provides systems support for our merchandising functions. This system serves as our central source of information regarding merchandise items, inventory management, purchasing, replenishment, receiving and distribution.

We use a centralized distribution system under which nearly all merchandise is distributed to our stores through our distribution center, located in Louisville, Kentucky. See “Properties”. Merchandise is shipped by the distribution center to our stores several times each week.

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Stores and Expansion

An important aspect of our business strategy is a real estate expansion program designed to reach new clients through the opening of new stores. We open new stores in markets that we believe have a sufficient concentration of our target clients. We also add stores, or expand the size of existing stores, in markets where we already have a presence, as market conditions warrant and sites become available. Store locations are determined on the basis of various factors, including geographic location, demographic studies, anchor tenants in a mall location, other specialty stores in a mall or specialty center location or in the vicinity of a village location, and the proximity to professional offices in a downtown or village location. Stores opened in factory outlet centers are located in factory outlet malls in which co-tenants generally include a significant number of outlet or discount stores operated under nationally recognized upscale brand names. Store size also is determined on the basis of various factors, including geographic location, demographic studies, and space availability.

As of January 28, 2006, we operated 824 retail stores throughout the United States, the District of Columbia and Puerto Rico, of which 357 were Ann Taylor stores, 416 were LOFT stores, and 51 were Ann Taylor Factory stores.

The average Ann Taylor store is approximately 5,200 square feet in size. We also have three flagship Ann Taylor stores in New York City, San Francisco and Chicago, which represent the fullest assortment of Ann Taylor merchandise. In Fiscal 2005, we opened 9 Ann Taylor stores that averaged approximately 5,300 square feet. In Fiscal 2006, we plan to open approximately 8-10 Ann Taylor stores, which are expected to average approximately 5,200 square feet.

LOFT stores average approximately 5,900 square feet. In Fiscal 2005, we opened 73 LOFT stores that averaged approximately 6,200 square feet. In Fiscal 2006, we plan to open approximately 55-60 LOFT stores, which are expected to average approximately 6,000 square feet.

Our 51 Ann Taylor Factory stores average approximately 8,400 square feet. In Fiscal 2005, we opened 15 Ann Taylor Factory stores that averaged approximately 7,400 square feet. In Fiscal 2006, we plan to open approximately 3-5 Ann Taylor Factory stores, which are expected to average approximately 7,000 square feet.

Our stores typically have approximately 20% of their total square footage allocated to stockroom and other non-selling space.

The following table sets forth certain information regarding store openings, expansions and closings for Ann Taylor stores (“ATS”), LOFT stores (“ATL”), and Ann Taylor Factory stores (“ATF”) over the past five years:

We believe that our existing store base is a significant strategic asset of our business, and our stores are located in some of the most productive retail centers in the United States. We have invested approximately $427 million in our store base since the beginning of Fiscal 2001; approximately 50% of our stores are either new or have been remodeled, as a result of an expansion or relocation, in the last five years.

Our Fiscal 2005 real estate expansion plan resulted in an increase in our total store square footage of approximately 600,000 square feet (net of store closings), or 14.3%, from approximately 4.2 million square feet at the end of Fiscal 2004 to approximately 4.8 million square feet at the end of Fiscal 2005. During Fiscal 2006, we intend to open approximately 66 to 75 stores, increasing store square footage by approximately 432,000 square feet, or 9.0%.

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Capital expenditures for our Fiscal 2005 store expansion program totaled approximately $96.9 million and expenditures for store remodeling and refurbishing totaled approximately $19.0 million. We expect that capital expenditures for our Fiscal 2006 store expansion program will be approximately $82 - $85 million and expenditures for store renovations and refurbishing will be approximately $38 - $40 million.

Our ability to continue to increase store square footage will be dependent upon, among other things, general economic and business conditions affecting consumer confidence and spending, the availability of desirable locations and the negotiation of acceptable lease terms. See “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”.

Information Systems

During Fiscal 2005, we continued our investment in information services and technology, enhancing the systems we use to support our merchandising, sourcing, logistics, point of sale and finance operations. These enhancements are generally aimed at supporting more refined merchandise assortments, improving inventory management and providing speed, flexibility and cost reduction in our supply chain. In addition, we relocated our primary data center to a new facility in Connecticut.

Brand Building and Marketing

We believe that our Ann Taylor and LOFT brands are among our most important assets and that these brands and their relationship with our clients are key to our competitive advantage. We continuously evolve these brands to appeal to the changing needs of our target clients and stay competitive in the market.

All aspects of brand development for both retail concepts, including product design, store merchandising and design, channels of distribution, and marketing and advertising, are controlled by us. We continue to invest in the development of these brands through, among other things, client research, advertising, in-store and direct marketing, and our online sites. We also make investments to enhance the overall client experience through the opening of new stores, the expansion and remodeling of existing stores, and a focus on client service.

We believe it is strategically important to communicate on a regular basis directly with our current client base and with potential clients, through national and regional advertising, as well as through direct mail marketing and in-store presentation. Marketing expenditures as a percentage of sales were 2.7% in Fiscal 2005, 3.4% in Fiscal 2004 and 2.5% in Fiscal 2003.

Trademarks and Service Marks

The “AnnTaylor” and “AnnTaylor Loft” trademarks are registered with the United States Patent and Trademark Office and with the trademark registries of many foreign countries. Our rights in the “AnnTaylor” and “AnnTaylor Loft” marks are a significant part of our business, as we believe those trademarks are famous and well- known in the women’s apparel industry. Accordingly, we intend to maintain our “AnnTaylor” and “AnnTaylor Loft” trademarks and related registrations and vigorously protect our trademarks against infringement.

We currently have a license agreement with a third party for the right to use the “ANN TAYLOR” trademark for manufacturing and exporting purposes in the People’s Republic of China. The license agreement expires on June 30, 2015. Subject to certain exceptions, the license agreement also provides us with a right of first refusal in the event that the third party proposes to assign, sell or transfer its “ANN TAYLOR” trademark. See “Statement Regarding Forward-Looking Disclosures” and “Risk Factors”.

Competition

The women’s retail apparel industry is highly competitive. Our stores compete with certain departments in national or local department stores and with other specialty stores, catalog and internet businesses that offer similar categories of merchandise. We believe that our focused merchandise selection, exclusive fashions and service distinguish us from other apparel retailers. Our competitors range from smaller, growing companies to considerably larger players with substantially greater financial, marketing and other resources. There is no assurance that we will be able to compete successfully with them in the future. See “Statement Regarding Forward-Looking Disclosures” and “Risk Factors”.

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Employees

As of January 28, 2006, we had approximately 16,900 employees, of which approximately 3,000 were full-time salaried employees, 2,900 were full-time hourly employees and 11,000 were part-time hourly employees working less than 30 hours per week. None of our employees are represented by a labor union. We believe that our relationship with our employees is good.

Available Information

We make available free of charge on our website, http://investor.anntaylor.com, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after filing such material electronically with, or otherwise furnishing it to, the United States Securities and Exchange Commission (the “SEC”). Copies of the charters of each of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, as well as our Corporate Governance Guidelines and Business Conduct Guidelines, are also available on the website or in print free of charge upon written request by any shareholder to the Corporate Secretary at 7 Times Square, New York, New York 10036.

The following risk factors should be read carefully in connection with evaluating our business and the forward-looking information in this document. See “Statement Regarding Forward-Looking Disclosures”.

Our ability to anticipate and respond to changing client preferences and fashion trends in a timely manner

The specialty retail apparel business fluctuates according to changes in the economy and customer preferences. These fluctuations especially affect the inventory owned by apparel retailers since we enter into agreements for the manufacture and purchase of our private label apparel well in advance of the applicable selling season. As a result, we are vulnerable to changes in consumer demand, pricing shifts, and the timing and selection of merchandise purchases.

Our success is largely dependent upon our ability to consistently gauge fashion trends and to provide merchandise that satisfies client demands in a timely manner. Our failure to anticipate, identify or react appropriately in a timely manner to changes in fashion trends could lead to lower sales, excess inventories and more frequent markdowns, which could have a material adverse impact on our business.

The effect of competitive pressures from other retailers

The specialty retail industry is highly competitive. Our stores compete with certain departments in national or local department stores and with other specialty stores, catalogs and internet businesses that offer similar categories of merchandise. Many of our competitors are considerably larger players with substantially greater financial, marketing and other resources. There is no assurance that we will be able to compete successfully with them in the future. In addition to competing for sales, we compete for favorable store locations and lease terms. We also face competition from other retailers that recently have been developing brand extensions and new concepts targeted at our client base.

Our ability to secure and protect trademarks and other intellectual property rights

We believe that our “AnnTaylor” and “AnnTaylor Loft” trademarks are important to our success. Even though we take action to establish, register and protect our trademarks and other intellectual proprietary rights, there can be no assurance that these actions will be adequate to prevent infringement of our trademarks and proprietary rights by others. The laws of some foreign countries may not protect proprietary rights to the same extent as do the laws of the U.S., and it may be more difficult for us to successfully challenge the use of our proprietary rights by other parties in these countries. In addition, our license to use the “ANN TAYLOR” trademark for manufacturing and exporting purposes in the People’s Republic of China expires on June 30, 2015 unless the parties agree to an extension. See “Business – Trademarks and Service Marks”.

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The effect of general economic conditions

The success of our operations depends to a significant extent upon a number of factors impacting discretionary consumer spending, including economic conditions affecting disposable consumer income such as employment, consumer debt, taxation, energy prices, interest rates and consumer confidence. There can be no assurance that consumer spending will not be negatively affected by general or local economic conditions, thereby adversely impacting our continued growth and results of operations.

Our ability to grow through new store openings and existing store remodels and expansions

Our continued growth and success will depend in part on our ability to open and operate new stores and expand and remodel existing stores on a timely and profitable basis. Accomplishing our store expansion goals will depend upon a number of factors, including locating suitable sites, negotiating favorable lease terms and hiring and training qualified personnel, particularly at the store management level. There can be no assurance that we will be able to achieve our store expansion goals, manage our growth effectively or operate our new and remodeled stores profitably.

Fluctuation in our level of sales and earnings growth

A variety of factors have historically affected, and will continue to affect, our rate of growth and performance. These factors include, among other things, client trends and preferences, competition, economic conditions, managing inventory effectively and new store openings. There can be no assurance that we will achieve positive levels of sales and earnings growth, and any decline in our future growth or performance could have a material adverse effect on the market price of our common stock.

Our reliance on foreign sources of production

While we purchase merchandise from domestic and foreign suppliers, a majority of our merchandise is purchased from foreign suppliers. Any event causing a sudden disruption of manufacturing or imports from those countries, or the imposition of additional import restrictions, could have a material adverse effect on our operations.

We cannot predict with certainty whether any of the foreign countries in which our products are currently manufactured or any of the countries in which we may manufacture our products in the future will be subject to future import restrictions by the U.S. government, including the likelihood, type or degree of effect of any such new trade restriction. Trade restrictions, including increased tariffs or quotas, on apparel or other items sold by us could affect the importation of such merchandise and could increase the cost or reduce the supply of merchandise available to us and adversely affect our business, financial condition, results of operations and liquidity. Further, the U.S. may impose additional duties in response to an investigation as to whether a particular product being sold in the United States at less than fair value may cause (or threaten to cause) material injury to the relevant domestic industry as claimed by such industry.

Our merchandise flow may also be adversely affected by financial or political instability in any of the countries in which our goods are manufactured, the potential impact of natural disasters and public health concerns, particularly on our foreign sourcing offices and manufacturing operations of our vendors, if they affect the production, shipment or receipt of merchandise from such countries. Merchandise flow may also be adversely affected by significant fluctuation in the value of the U.S. dollar against foreign currencies or restrictions on the transfer of funds.

In addition, the violation of labor or other laws by any of our independent manufacturers, or the divergence of an independent manufacturer’s labor practices from those specified in our human rights compliance program or otherwise generally accepted as ethical by others in the U.S., could damage our reputation and force us to locate alternative manufacturing sources.

Our reliance on key personnel

Our success depends to a significant extent both upon the continued services of our current executive and senior management team, as well as our ability to attract and retain additional qualified management personnel in the future. Our operations could be adversely affected if, for any reason, one or more key executive officers ceased to be active in our management.

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Our ability to successfully upgrade and maintain our information systems

We rely upon our various information systems to manage our operations and regularly make investments to upgrade, enhance or replace these systems. Any delays or difficulties in transitioning to these or other new systems, or in integrating these systems with our current systems, or any other disruptions affecting our information systems, could have a material adverse impact on our business. Any failure to maintain adequate system security controls to protect our computer assets and sensitive data, including client data, from unauthorized access, disclosure or use could also damage our reputation with our clients.

In addition, our ability to continue to operate our business without significant interruption in the event of a disaster or other disruption is dependent in part on the ability of our information systems to operate in accordance with our business continuity plan.

Our dependence on a single distribution facility

Our distribution functions for all of our stores are handled from a single facility in Louisville, Kentucky. Any significant interruption in the operation of the distribution facility due to natural disasters, accidents, system failures or other unforeseen causes could delay or impair our ability to distribute merchandise to our stores, which could cause sales to decline.

The impact of the Ann Taylor Factory business strategy

Our product strategy at Ann Taylor Factory stores is evolving to a more direct merchandise approach, with product designed specifically to carry the Ann Taylor Factory label. The success of this strategy is dependent on a number of factors, including client acceptance of the Factory label merchandise, the effect on gross margin rates at Ann Taylor and LOFT of selling clearance merchandise formerly sold at Ann Taylor Factory stores, as well as the impact on the look of our Ann Taylor and LOFT stores and the effect that might have on sales at those divisions. There can be no assurance that our Ann Taylor Factory store merchandise strategy will deliver sales and margin gains and increase overall profitability.

Risks associated with Internet sales

We sell merchandise over the Internet through our websites, www.anntaylor.com and www.anntaylorLOFT.com. Although our Internet operations encompass only a small percentage of our total sales, our Internet operations are subject to numerous risks, including unanticipated operating problems, reliance on third party computer hardware and software providers, system failures and the need to invest in additional computer systems. Our Internet operations also involve other risks that could have an impact on our results of operations including diversion of sales from our stores, rapid technological change, liability for online content, violations of state or federal privacy laws, credit card fraud, risks related to the failure of the computer systems that operate the websites and their related support systems, including computer viruses, telecommunication failures and electronic break-ins and similar disruptions. There can be no assurance about the performance of our Internet operations or their ability to achieve sales and profitability growth.

Effects of war, terrorism or other catastrophes

Threat of terrorist attacks or actual terrorist events in the United States and worldwide could lead to lower client traffic in regional shopping centers. Natural disasters could also impact our ability to open and run our stores in affected areas, such as when we closed certain stores in the New Orleans area temporarily in the wake of Hurricane Katrina. Lower client traffic due to security concerns and war, or the threat of war, and natural disasters could result in decreased sales that would have a material adverse impact on our business, financial condition and results of operations.

None.

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As of January 28, 2006, we operated 824 retail stores in 46 states, the District of Columbia and Puerto Rico, all of which were leased. Store leases typically provide for initial terms of ten years, although some leases have shorter or longer initial periods. Some of the leases grant us the right to extend the term for one or two additional five-year periods. Some leases also contain early termination options, which can be exercised by us under specific conditions. Most of the store leases require us to pay a specified minimum rent, plus a contingent rent based on a percentage of the store’s net sales in excess of a specified threshold. Most of the leases also require us to pay real estate taxes, insurance and certain common area and maintenance costs. The current terms of our leases expire as follows:

In 2005, we relocated our corporate offices to 7 Times Square in New York City (containing approximately 297,000 square feet) under a lease expiring in 2020. The lease for our former offices at 142 West 57th Street in New York City (containing approximately 140,000 square feet) expires in 2006. We also lease office space at 1372 Broadway in New York City containing approximately 93,000 square feet, the lease for which expires in 2010. In addition, we maintain office space in Milford, Connecticut containing approximately 47,000 square feet. The Milford lease expires in 2019.

Ann Taylor’s wholly owned subsidiary, AnnTaylor Distribution Services, Inc., owns the 256,000 square foot distribution center located in Louisville, Kentucky. Nearly all Ann Taylor merchandise is distributed to our stores through this facility. The parcel on which the Louisville distribution center is located comprises approximately 27 acres and could accommodate possible future expansion of the facility.

During Fiscal 2005, we were served with three putative class action lawsuits in California relating to how we classified certain of our employees under California overtime laws. These actions are similar to numerous suits that have been filed against retailers and others with operations in California.

On February 15, 2005, two former managers of our California stores filed a putative class action against AnnTaylor Retail, Inc. in Los Angeles County Superior Court alleging that we misclassified our store managers and senior assistant and assistant store managers as exempt from California overtime wage and hour laws, thereby depriving them of overtime pay and adequate meal breaks. On May 5, 2005, a second putative class action was filed against AnnTaylor Stores Corporation in San Francisco County Superior Court by a former senior assistant manager of one of our stores in California alleging violations of California labor laws with respect to overtime pay as well as adequate meal and rest periods. On December 12, 2005, another former senior assistant manager of one of our California stores filed a third putative class action in Los Angeles Superior Court against both of these AnnTaylor entities and AnnTaylor, Inc. alleging that we misclassified senior assistant and assistant managers as exempt from California overtime laws, thereby denying them overtime pay and required meal and rest periods.

The plaintiffs in these three actions seek recovery in an unstated dollar amount for alleged unpaid wages, statutory penalties, interest, attorneys’ fees and costs and injunctive relief. In addition, in the third putative class action, the plaintiff seeks punitive damages. As of this date, there has been no decision by the court on whether a class will be certified or on the merits of the plaintiffs’ misclassification claim.

On February 28, 2006, we reached a tentative agreement to settle the first two of these putative class action lawsuits. The tentative settlement agreement, which is subject to final documentation and court approval, provides for a settlement payment of approximately $6.5 million. Since the first two lawsuits cover the same employees and the same claims as those covered in the third lawsuit, if the settlement is approved, it is expected to dispose of the class claims in all three lawsuits, including penalties, interest and attorney’s fees.

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While we deny the allegations underlying the lawsuits, we have agreed to the tentative settlement to avoid significant legal fees, other expenses and management time that would have to be devoted to protracted litigation. The proposed settlement class covers our store managers, senior assistant managers and assistant managers employed in California during the period from February 15, 2001 to the date of final approval of the settlement.

While the first two cases are awaiting court approval of the settlement, we have asked the court to dismiss portions of and/or stay the third putative class action. That motion is pending.

In addition, a former employee of one of our California stores served AnnTaylor Retail, Inc. on October 3, 2005 with a putative class action lawsuit in Santa Clara County Superior Court alleging that we deny our California employees earned vacation pay through our allegedly unlawful policies related to vacation, personal days and holidays. The putative class members seek recovery in an unstated dollar amount for alleged unpaid vacation wages for former and current associates, waiting time penalties, prejudgment interest and injunctive relief. A non-binding mediation with respect to this action is scheduled to take place in May 2006. This action is at a preliminary stage and, accordingly, it is too early to evaluate the outcome.

We are also a party to routine litigation incidental to our business. Although the amount of any liability that could arise with respect to these actions cannot be accurately predicted, in our opinion, any such liability will not have a material adverse effect on our consolidated financial position, consolidated results of operations, or liquidity.

None.

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PART II

Our common stock is listed and traded on the New York Stock Exchange under the symbol “ANN”. The number of holders of record of common stock at February 28, 2006 was 72,524,654. The following table sets forth the high and low sale prices per share of the common stock on the New York Stock Exchange for the periods indicated.

In April 2004, our Board of Directors approved a 3-for-2 split of our common stock, in the form of a stock dividend. One additional share of common stock for every two shares owned was distributed on May 26, 2004 to stockholders of record at the close of business on May 11, 2004. All share and per share data throughout this document are presented on a post-split basis.

We have never paid cash dividends on our common stock. As a holding company, our ability to pay dividends is dependent upon the receipt of dividends or other payments from our subsidiaries, including our wholly owned subsidiary AnnTaylor, Inc. In addition, any determination to pay cash dividends is at the discretion of our Board of Directors. The payment of dividends by Ann Taylor, Inc. to us is subject to certain restrictions under Ann Taylor Inc.’s Credit Facility. We are also subject to certain restrictions contained in the Credit Facility on the payment of cash dividends on our common stock. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”.

The following table sets forth information concerning purchases of our common stock for the periods indicated:

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The following historical consolidated income statement and consolidated balance sheet information has been derived from our audited consolidated financial statements. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this document. All references to years are to our fiscal year, which ends on the Saturday nearest January 31 in the following calendar year. All fiscal years for which financial information is set forth below contained 52 weeks.

(Footnotes on following page)

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(Footnotes for preceding page)

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The following discussion and analysis should be read together with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.

Management Overview

Though we faced some challenges as we entered Fiscal 2005, we ended the year on a more positive note and have entered Fiscal 2006 as a stronger, healthier company. Product design, merchandising and inventory management all improved as we moved through Fiscal 2005, which resulted in increased sales and gross margin. We also focused efforts on controlling selling, general and administrative expenses in order to better leverage these costs as a percent to sales. Net sales increased 11.8% to $2.1 billion and operating income increased 24.8% to $131.0 million for Fiscal 2005 as compared to Fiscal 2004.

Both Ann Taylor and LOFT fell short of our expectations in the first half of Fiscal 2005. At Ann Taylor, the fashion misses encountered in the latter part of Fiscal 2004 carried into the first half of 2005, and contributed to a 5.5% decrease in comparable store sales for the Spring 2005 period. Business improved in the second half of Fiscal 2005, as the efforts of the Ann Taylor design and merchandising teams under new leadership resulted in improved merchandise design and quality. The result was a 6.9% increase in comparable store sales for the second half of Fiscal 2005.

At LOFT, our Spring 2005 merchandise did not offer the balance of color, fashion or novelty that our client has come to expect. In addition, we planned our business aggressively and sales did not fall in line with these expectations. The result was a 2.4% decrease in comparable store sales for the six month period. In the second half of Fiscal 2005, we offered clients a more balanced assortment with a more appropriate lifestyle focus, which resulted in a 1.6% increase in comparable store sales for the Fall 2005 season.

Ann Taylor Factory stores continued to evolve in Fiscal 2005, offering clients a larger selection of Factory-label merchandise in addition to Ann Taylor and LOFT clearance product. We opened 15 new Ann Taylor Factory stores in Fiscal 2005. Our plans are to further grow this brand from both a product and stores perspective in Fiscal 2006.

As a result of an overall increase in sales, higher comparable store sales and improved gross margin rates in the Fall 2005 season and lower expenses as a percent of sales, Fiscal 2005 operating income increased to 6.3% of net sales, compared to 5.6% of net sales in Fiscal 2004. Fiscal 2005 net income rose 29.4% to $81.9 million, or $1.13 per diluted share, from $63.3 million, or $0.88 per diluted share in Fiscal 2004.

We opened 97 new stores in Fiscal 2005 and at Ann Taylor, began the most extensive store refurbishment effort in our history. We believe that measured store growth and reinvestment in our existing store base are important ingredients to maintaining brand identity, satisfying existing clients and attracting new clients. Our Fiscal 2006 store renovation and expansion programs, which we plan to fund with cash flow from operations, will further build on this premise.

We remain clearly focused on continuing efforts to restore financial performance at Ann Taylor and continuing the growth at LOFT. As we move forward, our emphasis on satisfying client fashion preferences, as well as continued focus on inventory management, ongoing efforts to leverage selling, general and administrative costs and measured store growth are each critical in enabling us to achieve these objectives. Our ability to achieve these objectives is further dependent on factors such as those outlined in “Risk Factors”.

Key Performance Indicators

In order to monitor the Company’s success, the Company’s senior management monitors certain key performance indicators, including:

Comparable store sales – Comparable store sales provide a measure of existing store sales performance. Comparable store sales for Fiscal 2005 increased 0.1%, as compared to a 3.6% increase in Fiscal 2004.

Gross margin – Gross margin measures our ability to control direct costs associated with the manufacturing and selling of our products. Gross margin is the difference between the net sales and cost of sales, which is comprised of direct inventory costs for merchandise sold, including all costs to transport merchandise from third party suppliers to our distribution center. Buying and occupancy costs are excluded from cost of sales.

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Operating income – Operating income allows us to benchmark our performance relative to other retailers. Operating income is a measure of our earning power from ongoing operations and is measured as our earnings before interest and income taxes.

Store productivity – Store productivity, including sales per square foot, average unit retail price, number of units per transaction, dollars per transaction, traffic and conversion, is evaluated by management in assessing our operating performance.

Inventory turnover – Inventory turnover measures a company’s ability to sell its products and how many times it is replaced over time. This ratio is important for determining the need for markdowns, purchasing of inventory, and product effectiveness.

Quality of merchandise offerings – To monitor and maintain the acceptance of our merchandise offerings, we monitor sell-through levels, inventory turnover, gross margins, returns and markdown rates on a class and style level. This analysis helps identify comfort, fit and other issues at an early date and helps us plan future product development and buying.

Results of Operations

The following table sets forth consolidated income statement data expressed as a percentage of net sales:

The following table sets forth selected consolidated income statement data expressed as a percentage change from the prior period:

Sales and Store Data

The following table sets forth certain sales and store data:

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Net sales increased approximately $219.6 million, or 11.8% in Fiscal 2005 from Fiscal 2004. The increase in net sales was primarily due to the opening of new stores. The Company’s net sales increased approximately $265.9 million, or 16.7% in Fiscal 2004 from Fiscal 2003. The increase in net sales was due to the combined effect of the opening of new stores, and an increase in comparable store sales at Ann Taylor Loft.

Our net sales do not show significant seasonal variation, although net sales in the fourth quarter have historically been higher than in the other quarters. As a result, we have not had significant overhead and other costs generally associated with large seasonal variations.

Cost of Sales

Cost of sales is comprised of direct inventory costs for merchandise sold, including all costs to transport merchandise from third party suppliers to our distribution center. Buying and occupancy costs are excluded from cost of sales. Cost of sales as a percentage of net sales increased to 49.1% in Fiscal 2005 from 48.9% in Fiscal 2004. Cost of sales as a percentage of net sales increased to 48.9% in Fiscal 2004 from 45.5% in Fiscal 2003.

Gross Margin

Our gross margin may not be comparable to that of other retailers, as some retailers include all costs related to their distribution network as well as store tenancy and design costs in cost of sales. Other retailers may exclude a portion of these costs from cost of sales, including them in a line item such as selling, general and administrative expenses.

Gross margin as a percentage of net sales decreased to 50.9% in Fiscal 2005 from 51.1% in Fiscal 2004.

Gross margin as a percentage of sales decreased to 51.1% in Fiscal 2004 from 54.5% in Fiscal 2003. The decrease in gross margin as a percentage of net sales was primarily due to lower full price sales and gross margin rates, particularly at Ann Taylor.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of net sales decreased to 44.6% in Fiscal 2005 from 45.5% in Fiscal 2004. The decrease was primarily due to lower marketing and severance costs and a decrease in the provision for management bonus partially offset by the costs associated with the relocation of our corporate headquarters and a one-time charge related to a legal settlement.

Selling, general and administrative expenses as a percentage of net sales increased 1.8% in Fiscal 2004 over Fiscal 2003. The increase was primarily due to an increase in marketing expenditures and severance costs, partially offset by a decrease in the provision for management performance bonuses.

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Depreciation and Amortization

The following table shows depreciation and amortization in dollars and as a percentage of total net sales for Fiscal 2005, 2004 and 2003:

The increase in depreciation and amortization expense from Fiscal 2004 to Fiscal 2005 was primarily due to capital expenditures related to new, remodeled and expanded stores, as well as the new corporate offices and information systems. The increase in depreciation and amortization expense from Fiscal 2003 to Fiscal 2004 was due to capital expenditures related to new, remodeled and expanded stores. Depreciation and amortization as a percentage of total net sales for Fiscal 2004 was comparable to the prior year.

Interest Income

Interest income increased to approximately $9.3 million in Fiscal 2005 from approximately $5.0 million in Fiscal 2004. The increase was primarily attributable to more favorable interest rates during Fiscal 2005 as compared to Fiscal 2004.

Interest income increased $1.7 million from 2003 to 2004, which was due to higher cash balances and more favorable interest rates.

Interest Expense

Interest expense decreased to approximately $2.1 million in Fiscal 2005 from approximately $3.6 million in Fiscal 2004. This decrease was primarily due to the conversion of the outstanding Convertible Debentures in the second quarter of Fiscal 2004, as discussed more fully below in “Liquidity and Capital Resources” and Note 3, “Long-Term Debt” in the Notes to the Consolidated Financial Statements.

Interest expense decreased to $3.6 million in Fiscal 2004 from $6.7 million in Fiscal 2003. This decrease was also due to the conversion of the outstanding Convertible Debentures in the second quarter of Fiscal 2004.

As a result of the redemption of our outstanding Convertible Debentures, we had no outstanding debt at January 28, 2006 or January 29, 2005. The weighted average interest rate on our outstanding indebtedness at January 31, 2004 was 3.75%. Interest expense also includes various other charges, the largest of which are fees related to our revolving credit facility. See “Liquidity and Capital Resources” and Note 3, “Long-Term Debt” in the Notes to the Consolidated Financial Statements for further discussion of our revolving credit facility.

Income Taxes

Our effective income tax rates were 40.8%, 40.5% and 40.0% of net income in Fiscal 2005, Fiscal 2004 and Fiscal 2003, respectively.

The increases in our effective income tax rates in Fiscal 2005 and Fiscal 2004 were due to higher state income taxes.

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Liquidity and Capital Resources

Our primary source of working capital is cash flow from operations. The following table sets forth material measures of our liquidity:

As a result of the sales and gross margin gains experienced in the second half of Fiscal 2005 and tighter controls over inventory and spending, operating cash flows increased significantly in Fiscal 2005. The result was a $125.8 million increase in cash and cash equivalents in Fiscal 2005 over Fiscal 2004, net of proceeds from the sale of short-term investments.

As presented in our Consolidated Statements of Cash Flows, cash provided by operating activities in each of the fiscal years presented primarily resulted from net earnings before non-cash expenses such as depreciation and amortization. Cash used for investing activities in each of the fiscal years presented includes capital expenditures and investments in and maturities of short-term investments. Cash provided by financing activities in each of the fiscal years presented includes proceeds from the exercise of stock options and other employee stock based compensation programs, offset by repurchases of shares of our common stock.

Our short-term investments have consisted of auction rate securities which represent funds available for current operations. These securities have stated maturities beyond three months but are priced and traded as short-term instruments due to the liquidity provided through the interest rate reset mechanism of 28 or 35 days. In accordance with the SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, these short-term investments are classified as available-for-sale and are carried at cost, or par value which approximates the fair market value. We sold our short-term investments in the first quarter of Fiscal 2005 and did not have any short-term investments as of January 28, 2006.

Merchandise inventories decreased approximately $24.7 million, or 10.8% in Fiscal 2005 from Fiscal 2004. The decrease was primarily due to the Company’s management efforts to reduce inventory levels. Merchandise inventory on a per-square-foot basis was approximately $43 at the end of Fiscal 2005 compared to $55 at the end of Fiscal 2004. Inventory turned 4.7 times in Fiscal 2005 compared to 4.5 times in Fiscal 2004.

In November 2003, Ann Taylor, Inc. and certain of its subsidiaries entered into a Second Amended and Restated $175 million senior secured revolving credit facility (the “Credit Facility”) with Bank of America N.A. and a syndicate of lenders. The Credit Facility which, at our option, provides for an increase in the total facility and the aggregate commitments thereunder up to $250 million, matures on November 14, 2008 and is used by Ann Taylor, Inc. and certain of its subsidiaries for letters of credit and other general corporate purposes. The Credit Facility permits the payment of cash dividends by the Company (and dividends by certain subsidiaries to fund such cash dividends) if, after the payment of such dividends, liquidity (as defined in the Credit Facility) is greater than $35 million. Certain of our subsidiaries are also permitted to: pay dividends to us to fund certain taxes owed by us; fund ordinary operating expenses not in excess of $500,000 in any fiscal year; repurchase common stock held by employees not in excess of $100,000 in any fiscal year (with certain specified exceptions); and for certain other stated purposes. There were no borrowings outstanding under the Credit Facility at any point during Fiscal 2005 or as of the date of this filing. Commercial and standby letters of credit outstanding under the Credit Facility totaled approximately $136.5 million and $149.8 million as of January 28, 2006 and January 29, 2005, respectively leaving a remaining available balance for loans and letters of credit of $38.5 million and $25.2 million as of January 28, 2006 and January 29, 2005, respectively. See Note 3 to the Consolidated Financial Statements for further discussion of the Credit Facility.

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The following table sets forth our capital expenditures (in thousands):

We expect our total capital expenditure requirements in Fiscal 2006 will be approximately $155 to $160 million. Approximately $82 to $85 million will be spent on new store construction, store expansion and relocation, for a planned square footage increase of approximately 432,000 square feet, or 9.0%. Another approximately $38 to $40 million is planned for store renovation and refurbishment programs. Approximately $27 million will be spent to support continued investments in information systems, and approximately $8 million is planned for corporate office and distribution center initiatives and other general corporate purposes. The actual amount of our capital expenditures will depend in part on the number of stores opened, expanded and refurbished. See “Business-Stores and Expansion”.

A portion of the capital expenditures in Fiscal 2005 and Fiscal 2004 relates to costs associated with the June 2005 relocation of our corporate offices in New York City. As a result of this relocation, we adjusted the remaining lives of certain fixed assets at our former corporate offices to correlate to the expected move, the impact of which was not significant to the results of operations. In addition, we recorded a one-time write-off of approximately $9.5 million in the second quarter of Fiscal 2005 for lease costs related to our former offices at 142 West 57^th Street in New York City. The related lease is scheduled to expire in September 2006.

In order to finance our operations and capital requirements, we expect to use internally generated funds. We believe that cash flow from operations will be sufficient to enable us to meet our ongoing cash needs for our business, as presently conducted, for the foreseeable future.

In Fiscal 1999, we issued an aggregate of $199.1 million principal amount at maturity Convertible Subordinated Debentures due 2019 (the “Convertible Debentures”). In May 2004, we notified the holders that we would redeem these Convertible Debentures. The holders had the option to convert their Convertible Debentures into common stock of the Company prior to redemption, and in June 2004, all the Convertible Debentures were converted for an aggregate total of 5.4 million shares of common stock. The conversion of the Convertible Debentures had no effect on diluted earnings per share.

On August 18, 2005, our Board of Directors approved a new $100 million securities repurchase program which replaced the $100 million securities repurchase program approved by our Board of Directors in August 2004. Under the new program, purchases of shares of our common stock may be made from time to time, subject to market conditions and at prevailing market prices, through open market purchases or in privately negotiated transactions. Repurchased shares of common stock will become treasury shares available for general corporate and other purposes. During Fiscal 2005, we repurchased 1,700,000 shares of our common stock at a cost of approximately $45.1 million, of which 1,025,000 shares, or approximately $28.3 million, were repurchased under the August 2005 plan.

Substantially all associates of the Company who complete 1,000 hours of service are covered under a noncontributory defined benefit pension plan. Our funding obligations and liability under the terms of the plan are determined using certain actuarial assumptions, including a discount rate and an expected long-term rate of return on plan assets. The discount rate enables us to state expected future cash payments for pension benefits as a present value on the measurement date. A lower discount rate increases the present value of the benefit obligations and increases pension expense. The discount rate selected was based on a yield curve which uses expected cash flows from the pension plan, and then discounts those cash flows with the bond rate for that period. This resulted in a discount rate of 5.55%. A one percent decrease in the assumed discount rate would increase total net periodic pension expense for Fiscal 2006 by $2.5 million and would increase the projected benefit obligation at January 28, 2006 by $7.9 million. A one percent increase in the assumed discount rate would decrease these amounts by $2.2 million and $6.6 million, respectively.

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Plan assets as of January 28, 2006 were allocated 67% in equities, 32% in bond related funds and 1% in short-term investments. For the purposes of developing long-term rates of return, it was assumed that the short-term investments were reallocated to equities and bond-related funds, yielding assumed long-term rates of return of 8.5% and 5.0% for equities and bond-related funds, respectively. To develop the expected long-term rate of return on plan assets, we considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. A lower expected rate of return on pension plan assets will increase pension expense. Our expected long-term rate of return on plan assets was 7.25% for both Fiscal 2005 and 2004. A one percent change in the long-term rate of return assumption would impact Fiscal 2006 pension expense by approximately $0.3 million. We contributed $5 million and $7.2 million to the pension plan in Fiscal 2005 and Fiscal 2004, respectively.

Based on review of our projected benefit obligation and discussion with our Pension Plan administrator, we recorded a cumulative $2.7 million adjustment to pension expense in Fiscal 2004. Approximately $2.2 million represented prior service and interest costs of the Plan, the impact of which was not considered material to any of the affected periods. See Note 8, “Retirement Plans” in the Notes to Consolidated Financial Statements for further discussion.

In April 2004, our Board of Directors approved a 3-for-2 split of our common stock, in the form of a stock dividend. One additional share of common stock for every two shares owned was distributed on May 26, 2004 to stockholders of record at the close of business on May 11, 2004. See the Consolidated Statements of Stockholders’ Equity for adjusted shares and per share data reflecting the issuance of additional shares in connection with the stock split.

In May 2000, our Board of Directors adopted a Stockholder Rights Plan (“Rights Plan”). Rights under the Rights Plan (“Rights”) were distributed as a dividend at the rate of one Right for each share of our common stock held by stockholders of record as of the close of business on May 30, 2000. As a result of the May 2004 and an earlier May 2002 3-for-2 split of our common stock, each share of common stock now represents four-ninths of a Right. Each Right entitles stockholders to buy one unit of a share of a new series of preferred stock for $125. Under certain circumstances, if a person or group acquires beneficial ownership of 15% or more of the voting power of the Company as represented by our common stock, or commences a tender or exchange offer upon consummation of which such person or group would beneficially own 15% or more of the voting power of the Company as represented by our common stock, holders of the Rights, other than the person or group triggering their exercise, will be able to purchase, in exchange for the $125 exercise price, shares of our common stock or of any company into which the Company is merged having a value of $250. The Rights will expire on May 18, 2010. No Rights were exercised under the Rights Plan during Fiscal 2005.

We are self-insured for expenses related to our employee point of service medical and dental plans, our workers’ compensation plan and for short-term disability, up to certain thresholds. Claims filed, as well as claims incurred but not reported, are accrued based on management’s estimates, using information received from plan administrators, historical analysis, and other relevant data. Management believes that it has taken reasonable steps to ensure that we are adequately accrued for costs incurred related to these programs at January 28, 2006.

Off Balance Sheet Arrangements

We have no off balance sheet arrangements as defined by Item 303 (a) (4) of Regulation S-K.

Contractual Obligations

The following table sets forth our contractual obligations as of January 28, 2006 (in thousands):

(Footnotes on following page)

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(Footnotes for preceding page)

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R) (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”) which revised SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). This statement supercedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). For a public company that does not file as a small business issuer, SFAS No. 123(R) must be adopted as of the beginning of its first fiscal year that begins after June 15, 2005. As permitted by SFAS No. 123, we currently account for share-based payments to employees using the intrinsic value method under APB No. 25 and, as such, generally recognize no compensation cost for employee stock options or stock issuances under the Associate Discount Stock Purchase Plan.

SFAS No. 123(R) permits public companies to choose between the following two adoption methods:

We have elected to utilize the modified prospective application method for transition under SFAS No. 123(R). The pro-forma disclosure under SFAS No. 123 in the footnotes to our consolidated financial statements under Stock-Based Compensation for periods prior to Fiscal 2006 is not necessarily indicative of the potential impact of recognizing compensation cost for share-based payments under SFAS No. 123(R) in future periods. We estimate that the Fiscal 2006 impact to diluted earnings per share resulting from recording compensation expense related to stock options and our Associate Discount Stock Purchase Plan will be approximately $0.06. The potential impact of adopting SFAS No. 123(R) on our Fiscal 2006 results of operations and earnings per share is dependent on several factors including the number of options granted in Fiscal 2006, the fair value of those options which will be determined at the date of grant, the level of participation in our Associate Discount Stock Purchase Plan, the related income tax benefits recorded and the diluted shares outstanding. This estimate is based on certain assumptions as to these factors and the actual impact may differ if actual results vary from the assumptions.

FASB Staff Position No. 123(R)-4 (“FSP No. 123(R)-4”), “Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event” was issued in February 2006. FSP No. 123(R)-4 addresses the classification of options and similar instruments issued as employee compensation that allow for cash settlement upon the occurrence of a contingent event. The guidance in this FSP amends paragraphs 32 and A229 of SFAS No. 123(R) to incorporate the concept articulated in footnote 16 of that Statement. That is, a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employee’s control does not meet the condition in paragraphs 32 and A229 until it becomes probable that the event will occur. We have evaluated the impact of FSP No. 123(R)-4 and do not expect it will impact our accounting under SFAS No. 123(R).

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FASB Interpretation No. 47 (“FIN No. 47”), “Accounting for Conditional Asset Retirement Obligations (an interpretation of FASB Statement No. 143)” was issued in March 2005. FIN No. 47 provides clarification with respect to the timing of liability recognition for legal obligations associated with the retirement of tangible long-lived assets when the timing and/or method of settlement of the obligation are conditional on a future event. We adopted FIN 47 in the fourth quarter of Fiscal 2005 and the effect on our consolidated financial statements was not material.

SFAS No. 153, “Exchanges of Nonmonetary Assets (an amendment of APB Opinion No. 29)” (“SFAS No. 153”) was issued in December 2004 and is effective for nonmonetary exchanges occurring after June 15, 2005 with prospective application. SFAS No. 153 replaces the exception to using fair value for nonmonetary exchanges of similar productive assets, with a general exception for exchanges of nonmonetary assets that do not have commercial substance. We have analyzed the potential effect of SFAS No. 153 and do not believe it will have any impact on our consolidated financial statements.

Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. Our significant accounting policies are more fully described in Note 1 to our Consolidated Financial Statements. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.

Based on the above, we have determined that our most critical accounting policies are those related to merchandise inventory valuation, asset impairment and income taxes. These policies are also discussed in Notes to the Consolidated Financial Statements, and in relevant sections of this discussion and analysis.

Merchandise Inventory Valuation - Merchandise inventories are valued at the lower of average cost or market, at the individual item level. Market is determined based on the estimated net realizable value, which is generally the merchandise selling price. Merchandise inventory levels are monitored to identify slow-moving items and broken assortments (items no longer in stock in a sufficient range of sizes) and markdowns are used to clear such merchandise. Merchandise inventory value is reduced if the selling price is marked below cost. Physical inventory counts are performed annually in January, and estimates are made for any shortages between the date of the previous physical inventory count and the balance sheet date.

Asset Impairment - We follow SFAS No. 142, “Goodwill and Other Intangible Assets”, which requires that amortization of goodwill and indefinite life intangible assets be replaced with annual impairment tests. Intangible assets with finite lives will continue to be amortized over their useful lives. We perform impairment testing annually, or more frequently if conditions warrant, to determine whether an impairment charge related to the carrying value of recorded goodwill is necessary. The most recent impairment tests did not result in an impairment charge. In the case of long-lived tangible assets under SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”, if the undiscounted future cash flows related to the long-lived assets are less than the assets’ carrying value, a similar impairment charge would be considered. Management’s estimate of future cash flows is based on historical experience, knowledge, and market data. These estimates can be affected by factors such as those outlined in “Risk Factors”.

Income Taxes - We follow SFAS No. 109 “Accounting for Income Taxes,” which requires the use of the liability method. Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying value of existing assets and liabilities and their respective tax bases. Inherent in the measurement of these deferred balances are certain judgments and interpretations of existing tax law and other published guidance as applied to our operations. No valuation allowance has been provided for deferred tax assets, since management anticipates that the full amount of these assets should be realized in the future. Our effective tax rate considers management’s judgment of expected tax liabilities in the various taxing jurisdictions within which we are subject to tax. We are currently involved in federal, state and local tax audits. Further, at any given time, many tax years are subject to audit by various taxing authorities. The recorded amounts of income tax are subject to adjustment upon audit, changes in interpretation and changes in judgment utilized in determining estimates. While no adjustments to recorded amounts are anticipated, a 1% variance in our effective tax rate would affect net income after taxes by approximately $1.4 million in Fiscal 2005.

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We currently maintain all of our cash and cash equivalents in financial instruments with original maturity dates of three months or less. Our Credit Facility allows for investments in financial instruments with original maturity dates of up to 12 months. We sold our short-term investments in auction rate securities during the first quarter of Fiscal 2005 and did not have any short-term investments as of January 28, 2006. Generally, for Fiscal 2004 and prior, over 60% of these financial instruments had a fixed rate of return and were therefore subject to interest rate risk. These fixed rate investments (auction rate securities) would have declined in value if interest rates increased.

Since our Convertible Debentures were redeemed in June 2004, our consolidated results of operations would only be affected by interest rate changes to the extent that fluctuating rate loans are outstanding under the Credit Facility. As of January 28, 2006, we had no such amounts outstanding. The effect of interest rate changes on our financial results would depend on the amount of indebtedness outstanding at the time and the amount of such change.

The following consolidated financial statements of the Company for the years ended January 28, 2006, January 29, 2005 and January 31, 2004 are included as part of this Report (See Item 15):

None.

Disclosure Controls and Procedures

The Company conducted an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to be included in our reports filed or submitted under the Exchange Act.

Management’s Report on Internal Control over Financial Reporting

The management of AnnTaylor Stores Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

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Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of January 28, 2006. In making this assessment, management used the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of January 28, 2006. The Company’s independent registered public accounting firm has issued an attestation report on management’s assessment of our internal control over financial reporting. That report appears herein on page 26.

Changes in Internal Control over Financial Reporting

During our fourth fiscal quarter, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

ANNTAYLOR STORES CORPORATION:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that AnnTaylor Stores Corporation and subsidiaries (the “Company”), maintained effective internal control over financial reporting as of January 28, 2006 based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of January 28, 2006, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 28, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended January 28, 2006 of the Company and our report dated March 13, 2006 expressed an unqualified opinion on those financial statements.

None.

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PART III

The information required by this item is incorporated herein by reference to the Sections entitled “Election of Class III Directors”, “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement for its 2006 Annual Meeting of Stockholders.

The Company has Business Conduct Guidelines that apply to all Ann Taylor associates, including its chief executive officer and chief financial officer/principal accounting officer, as well as members of the Company’s Board of Directors. A copy of the Business Conduct Guidelines is available on the Company’s Investor Relations website at http://investor.anntaylor.com, and is available in print free of charge to any shareholder upon request. Any future changes or amendments to the Business Conduct Guidelines, and any waiver that applies to the Company’s chief executive officer, chief financial officer/principal accounting officer or controller, will also be posted on http://investor.anntaylor.com.

The information required by this item is incorporated herein by reference to the Sections entitled “Compensation of Directors and Related Matters”, “Compensation Committee Interlocks and Insider Participation in Compensation Decisions” and “Executive Compensation” in the Company’s Proxy Statement for its 2006 Annual Meeting of Stockholders.

The information required by this item is incorporated herein by reference to the Sections entitled “Beneficial Ownership of Common Stock” and “Equity Compensation Plan Information” in the Company’s Proxy Statement for its 2006 Annual Meeting of Stockholders.

The information required by this item is incorporated herein by reference to the Section entitled “Compensation Committee Interlocks and Insider Participation in Compensation Decisions” in the Company’s Proxy Statement for its 2006 Annual Meeting of Stockholders.

The information required by this item is incorporated herein by reference to the Section entitled “Ratification of Engagement of Independent Auditors” in the Company’s Proxy Statement for its 2006 Annual Meeting of Stockholders.

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PART IV

Report of Independent Registered Public Accounting Firm; Consolidated Statements of Income for the Fiscal Years Ended January 28, 2006, January 29, 2005 and January 31, 2004; Consolidated Balance Sheets as of January 28, 2006 and January 29, 2005; Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended January 28, 2006, January 29, 2005, and January 31, 2004; Consolidated Statements of Cash Flows for the Fiscal Years Ended January 28, 2006, January 29, 2005 and January 31, 2004; Notes to Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 13, 2006

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.

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A NNTAYLOR STORES CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

ANNTAYLOR STORES CORPORATION:

We have audited the accompanying consolidated balance sheets of AnnTaylor Stores Corporation and subsidiaries (the “Company”) as of January 28, 2006 and January 29, 2005, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years ended January 28, 2006, January 29, 2005, and January 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at January 28, 2006 and January 29, 2005, and the results of their operations and their cash flows for each of the three years ended January 28, 2006, January 29, 2005, and January 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of January 28, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 13, 2006, expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

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ANNTAYLOR STORES CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

For the Fiscal Years Ended January 28, 2006, January 29, 2005 and January 31, 2004

See accompanying Notes to Consolidated Financial Statements.

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ANNTAYLOR STORES CORPORATION

CONSOLIDATED BALANCE SHEETS

January 28, 2006 and January 29, 2005

See accompanying Notes to Consolidated Financial Statements.

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ANNTAYLOR STORES CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Fiscal Years Ended January 28, 2006, January 29, 2005 and January 31, 2004

(in thousands)