Variable Annuities

Description
A variable annuity is a form of insurance policy designed to help an investor save for and during retirement. The investor gives the insurance company a sum of money that is invested according to the investor's choice of available objectives. The investment is managed by professional money managers selected by the insurance company.

During a variable annuity's accumulation period, an investor's assets increase or decrease based on each portfolio's investment performance; investors are not guaranteed a specific rate of return. The subaccount investments of a variable annuity are subject to market fluctuation.

During the payout period, the assets that have accumulated may be returned to the investor based on the annuitization option (either fixed or variable) and the annuity payout option the investor selects. Investors may also take discretionary withdrawals that may be subject to tax penalties or surrender charges.

Objective
To provide investors the opportunity for market appreciation with tax-deferred accumulation and future (retirement) income.

Suitability
Variable annuities are suited for individuals who are interested in long-term growth for purposes such as retirement planning.

Product Features

• Lifetime Income - Annuities can provide income for various lengths of time, including a lifetime. A lifetime annuitization option is normally only available from an insurance company.
  
   
• Diversification - Variable annuities enable individuals to invest in professionally managed sub-accounts. A subaccount is similar to a mutual fund and is separate from the general assets of the insurance company. The subaccounts offer a diversified range of investment objectives, and each subaccount invests in a diversified portfolio of securities.
  
   
• Professional Management - A subaccount is managed by an individual or team of individuals who select the investments based on the subaccount's investment objectives.
  
   
• Guaranteed Death Benefit - If the policyholder dies, the beneficiary is usually guaranteed the amount originally invested, minus previous withdrawals. Some variable annuities offer death benefit options, which may increase death benefit over time.
  
   
• Tax-deferred Growth - Increases in the value of the annuity are not subject to taxes until withdrawn. Upon withdrawal, the earnings will be taxed at ordinary income tax rates. Note: There are no tax advantages to purchasing a variable annuity in IRAs, 401(k)s or other similar retirement savings vehicles. See Annuity Taxation.
  
   
• Liquidity - Most variable annuities allow policyholders to withdraw a portion of their investment. Withdrawal policies are defined in the annuity policy; withdrawals may be subject to a contingent deferred sales charge or other penalty, and income taxes.
  
   
• Living Benefit - Some variable annuities enable the policyholder to elect an optional living benefit. These benefits can provide certain guarantees for contract withdrawals or annuitization payments during your lifetime.
  
   
• Probate Avoidance - When the death benefit in a variable annuity is paid to the named beneficiary, the proceeds may not be included in the probated estate. However, the proceeds are subject to ordinary taxes of the beneficiaries and estate taxes. Investors seeking a death benefit not subject to taxation should consider life insurance. See Annuity Taxation.
  
   
• Penalties for Early Withdrawal - Withdrawals taken from an annuity prior to age 59-1/2 are subject to a 10 percent federal penalty.
  
   
• Market Value Fluctuation - The value of variable annuities is subject to market fluctuation.
  
   
• Benefit to Spouses - Spousal beneficiaries may usually continue tax deferral if so desired. See Annuity Taxation.

Fees and Expenses
Most variable annuities have two types of asset-based expenses: an insurance fee and an investment management fee. Annuities also can include optional insurance fees and an annual contract fee. The sum of these fees may be higher than similar types of fees charged by mutual funds.

• Insurance Fee - The annual insurance fee (commonly known as a mortality and expense charge) typically ranges from 0.65% to more than 1.75%. The difference in fees may depend on the pricing option the investor chooses. Annuities with front-end sales charges may have lower insurance fees than annuities with other pricing structures.
  
   
• Investment Management Fee - Annuities charge investment management fees.
  
   
• Additional Insurance Fees - Some variable annuities offer optional insurance benefits such as enhanced death benefits or living benefits. The costs of these benefits vary by contract. As a general rule, investors should elect these types of benefits only if they anticipate using them, since the added cost will reduce the investment return.
  
   
• Annual Contract Fee - Variable annuities often assess an annual contract fee between $20 and $40. This fee may be waived if the policy value is above a certain amount, typically $50,000.

In addition to costs common to all variable annuities, all annuities include sales charges. A portion of the sales charge received by Edward Jones is paid to the financial advisor selling the annuity. See Variable Annuity Pricing and Standard Commissions for more information.

Additional Information
For additional information about variable annuities, you may want to review the Securities and Exchange Commission web site at www.sec.gov/investor/pubs/varannty.htm.