Preferred Annuities and Insurance, Including Information about Revenue Sharing

At Edward Jones, we have selected several "preferred insurance companies" that offer a number of variable annuities, fixed annuities and immediate annuities (designated as preferred annuities) as well as a variety of protection policies including life, long-term care and disability income (designated as preferred insurance policies).

The preferred annuities offered by Edward Jones are issued by seven companies and their affiliates: AIG SunAmerica, Genworth Life Insurance Co., Hartford Life, John Hancock Distributors LLC, Lincoln National Life, Metlife Investors, and Protective Life. Currently, Edward Jones' preferred insurance policies are provided by Genworth Life Insurance Co., John Hancock Life Insurance Company, Hartford Life, Lincoln National Life, Metlife (and its affiliates) and Protective Life.

In addition, Edward Jones receives revenue sharing payments for certain annuity contracts distributed by Federated Securities Corp. and Putnam Retail Management Services, LP that were previously sold.

What does it mean to be a preferred insurance company?

Substantially all of Edward Jones' annuities and insurance protection policies are provided by our preferred insurance companies. These companies have frequent interactions with our financial advisors to provide training, marketing support and educational presentations. Edward Jones' financial advisors have limited access to the products and services of other insurance carriers.

Revenue Sharing

If you own, or are interested in, one of our preferred annuities or insurance protection policies, we want you to be aware of our revenue sharing arrangements. Edward Jones receives payments known as revenue sharing on its preferred variable annuities, as well as on some fixed annuities and insurance protection products. Edward Jones, its financial advisors and equity owners benefit financially from the receipt of revenue sharing payments. As a result, Edward Jones' receipt of revenue sharing payments creates a potential conflict of interest in the form of an additional financial incentive to the firm, its equity owners and financial advisor in connection with the sale of the preferred insurance companies' products. Revenue sharing payments are received from the insurance company or the entity that markets the contract. Revenue sharing payments are in addition to standard sales commissions and other fees. The firm also receives payments from several variable annuity policies previously designated "preferred" but which are no longer sold. For the year ended Dec. 31, 2007, Edward Jones received approximately $42 million in revenue sharing payments from the preferred insurance companies. For that same period, Edward Jones' net income was $508 million.

Calculation of Revenue Sharing

Revenue sharing is calculated in different ways by the different preferred annuity and insurance contracts. For instance, in some cases Edward Jones may receive a fee for each dollar invested in certain policies. This is referred to as a sales-based fee and is based on the dollar value of your purchase. For example, an insurance company or the entity that markets the policy may pay Edward Jones 0.25%, or 25 basis points, for each dollar invested in a variable annuity. Therefore, if you purchased $10,000 of that preferred variable annuity, Edward Jones would receive $25 for that transaction.

On most preferred variable annuity policies and some preferred fixed annuities and variable life insurance policies, Edward Jones also receives a fee based on the value of assets under management. This is called an asset-based fee. This generally means that each year you maintain your investment in a preferred annuity or variable life insurance policy, Edward Jones is paid a fee by the insurance company or the entity that markets the policy. For example, if you made a $10,000 purchase of a preferred annuity and held it for a year, and its value remained the same, Edward Jones could be paid by the insurance company or the entity that markets the policy 0.10%, or 10 basis points. That would translate to a $10 payment from the insurance company or entity that markets the policy contract to Edward Jones for the $10,000 investment in your annuity. Asset-based payments vary by company and policy and whether the policy is subject to a contingent deferred sales charge; they will increase or decrease from year to year with changes in the value of the policies held by Edward Jones' clients.

There are, as noted above, other formulas and types of revenue sharing. The chart below summarizes Edward Jones' revenue sharing arrangements by identifying: i) the name of the entity that actually pays the revenue sharing to Edward Jones, ii) the preferred annuity and insurance policies covered under our revenue sharing agreements, iii) the amount of revenue sharing Edward Jones receives from each of the preferred policies based on $10,000 of assets purchased ("Sales Fees") or held by a client ("Annual Asset Fees"), iv) any other types of payments received, and v) the total amount of revenue sharing in dollars that Edward Jones earned from each preferred insurance company or entity which markets the contract during 2007.

1. ^{Edward Jones receives ongoing asset fees based on your annuity or variable life insurance policy value. These fees will fluctuate based on the value of your contract. The numbers in the table above represent the maximum amount of asset fees earned by Edward Jones per $10,000 of insurance assets owned by you. Actual amounts earned may vary based on the specific contract you own.}
   
   
2. ^{Sales fees are based on the dollar amount of each variable annuity or variable life insurance contract you purchase. Sales fees, unlike annual asset fees, are not ongoing fees. The numbers in the table above represent the maximum amount of sales fees earned by Edward Jones per $10,000 of annuities or variable life insurance purchased by you. Actual amounts earned may vary based on the specific contract you purchase.}
   
   
3. ^{Other payments reflect amounts earned from insurance companies that are not asset fees or sales fees. The terms of each arrangement are described by company in footnotes 5, 6, 7 and 10. Amounts earned are included in the total earned amount during 2007.}
   
   
4. ^{Paid as a percentage of assets during the first year of the contract.}
   
   
5. ^{Edward Jones earns 1% of renewal premiums.}
   
   
6. ^{Edward Jones earns up to 6.5% on Hartford variable life insurance premiums based on percentages of first-year weighted average premium of policies sold.}
   
   
7. ^{Edward Jones earned service fees of $7.44 per year per contract on CRC fixed annuities.}
   
   
8. ^{The sales fees earned by Edward Jones per $10,000 of all annuities and subsequent premiums on existing annuities will increase to $20.00 in 2009 and to $25.00 in 2010.}
   
   
9. ^{Revenue sharing payments from John Hancock Distributors to Edward Jones commence on sales occurring after Jan. 1, 2008. Revenue sharing payments from Lincoln National Life Insurance Company and Lincoln Life and Annuity Co. of N.Y. for sales of the Lincoln ChoicePlus Assurance suite of products commence on Jan. 1, 2008.}
   
   
10. ^{Edward Jones earns an equal amount based on investment returns and persistency on the MetLife Investors variable annuities sold by Edward Jones. These amounts are included in the total earned amount during 2007.}