Your Rights and Responsibilities as a Raymond James Client

Annuities

Another investment alternative that has grown in popularity is the annuity. Annuities are insurance products that do not offer much insurance coverage. Instead, they are primarily investments with some insurance guarantees. One of an annuity’s main attractions is that gains are deferred for tax purposes until funds are distributed.

There are three basic types of annuities:

• An immediate annuity is purchased with a single payment and, characteristically, distributes a specified income stream that commences immediately.
• A fixed annuity guarantees a fixed rate of return for a specified period of time. It is generally designed to provide guaranteed level payments for a specified period of the annuitant’s lifetime, on a tax-advantaged basis.(The promised income stream for both of the above annuities is only as good as the insurance company’s ability to pay. Consequently, careful research is required before purchase.)
• A variable annuity combines many of the characteristics of mutual funds with the tax-deferred and life insurance aspects of annuity products, such as a guaranteed minimum death benefit regardless of the current value of the account. Benefits may vary within retirement accounts. A variable annuity may be invested in an array of investments as described in the prospectus issued by the insurance company. Each variable annuity may offer a variety of objectives and managers that may be utilized individually or in combination.

While almost all of the same compensation options described for mutual funds may be offered with annuities, the most common involves the payment of a commission to the firm, which the insurance company advances from future annual fees. The annuity contract usually includes a contingent deferred sales (surrender) charge, which declines over time, to recompense the insurance company for the advance of commissions and other front-end costs should the investor cancel during the surrender charge period. Annual fees are usually higher than those charged by mutual funds with similar objectives to pay for the higher commissions, as well as insurance benefits and money management. Hence investors should compare both cost structures in conjunction with individual tax considerations before investing. Investors should select variable annuities with ample investment options to avoid incurring a surrender charge should they decide to change their investment option.

Many annuities are priced on our client account statement for informational purposes. More will be added as insurance companies and the industry’s clearing agencies develop the technology to provide us with the information.

Compensation Paid to Raymond James when You Purchase a Variable Annuity

Commission schedules and amounts vary by insurance company and annuity product. What, and how, Raymond James and your financial advisor are compensated when you purchase a variable annuity depends on the type of annuity you purchase and the insurance company issuing the annuity.

You should feel free to discuss with your financial advisor how he/she is compensated following your annuity purchase. This document explains in general terms how the compensation arrangements work.

Contingent Deferred Sales Charge Annuities

When you purchase a variable annuity, Raymond James is compensated by the insurance company issuing your annuity contract. Subsequently, your financial advisor receives a significant percentage of the annuity commissions. The commissions paid to Raymond James by the insurance company are not deducted from your purchase payments. If you surrender your annuity during the contingent deferred sales charge period specified under your annuity contract, a “surrender charge” is deducted from the annuity value that is returned to you. The surrender charge amount may reimburse the insurance company for costs associated with marketing the annuity product including the commission paid.

How Your Financial Advisor Receives Commissions

Your financial advisor typically has a choice of commission options regarding receipt of the commission payable to Raymond James. The insurance company that issues your contract pays the commissions directly to Raymond James and recoups the marketing and distribution expenses, including commissions, over time from your annuity contract expenses. In most cases, the structure of the commission selected by your financial advisor will have no impact on your annuity contract expenses. Annuity products may offer the following commission options:

• A single, lump sum commission based on your purchase amount,
• A slightly reduced lump sum commission and asset-based trail commissions paid quarterly over a number of years, or
• A further-reduced lump sum commission and higher asset-based trails paid quarterly over a number of years.

Other Compensation Paid to Raymond James by Insurance Companies

Raymond James distributes annuities from at least 20 insurance companies and receives additional compensation from many of them in the form of lump sum corporate sponsorship payments and as a sales and/or asset-based marketing and processing allowance from 15 of the insurance companies identified as “Focus Carriers.” The additional compensation is not paid from the assets of your variable annuity. Additionally, no portion of the corporate sponsorship payments or marketing and processing allowance payments received by Raymond James is paid to or shared directly with your financial advisor or his or her respective branch office. The payments are paid directly from the insurance companies and are not deducted from the separate accounts that hold the variable annuity assets. Currently, the marketing and processing allowance paid quarterly by Focus Carrier insurance companies equals up to .17% on new annuity sales. For example, a $10,000 annuity new purchase may result in up to $17 of marketing and processing allowance support paid to Raymond James. The corporate sponsorship payments and marketing and processing allowance payments are made in exchange for, and represent, the value to the insurance companies of being able to distribute their annuities through Raymond James’ nationwide network of approximately 4,000 insurance-licensed financial advisors.

The 15 Focus Carrier insurance companies and their representatives receive Raymond James home office annuity marketing support that is not generally provided to non-Focus Carrier insurance companies and, subject to branch office manager discretion, greater access to branches for one-on-one and group financial advisor meetings. Greater branch access combined with differentiated Raymond James home office support provide more opportunities for the insurance companies to market and promote their annuities to Raymond James financial advisors. This may cause Raymond James financial advisors to focus on, and recommend to clients, annuities from one or more of the 15 Focus Carrier insurance companies in the normal course of their business.

Insurance companies qualify for inclusion in the Focus Carrier program by finishing a Raymond James fiscal year as one of the top 15 annuity organizations in at least two of the following three categories: total annuity sales, commission revenues, and number of applications submitted by Raymond James financial advisors. The qualifying companies are invited to participate as a Focus Carrier for the following fiscal year. Because inclusion in the Focus Carrier program requires annual qualification and agreement to participate, the 15 included organizations can change each year. Within Raymond James, the Focus Carrier organizations’ sales typically represent approximately 80% of Raymond James total annuity sales. For a list of the current Focus Carrier insurance companies or annuity distribution companies, please visit raymondjames.com.

In addition to the payments described above, insurance companies and/or distributors will periodically reimburse Raymond James for expenses incurred in connection with certain training and education meetings, conferences and seminars. Additionally, Raymond James financial advisors may receive promotional items, meals or entertainment, or other similar “non-cash” compensation from representatives of the insurance companies.

Please contact your financial advisor with any questions regarding insurance-related products and services, your specific annuity contract(s), or regarding the insurance company relationships with Raymond James.

Investors should consider the investment objectives, risks, and charges and expenses of variable annuities carefully before investing. The prospectus contains this and other important information. Prospectuses for both the variable annuity contract and the underlying funds are available from your Raymond James financial advisor and should be read carefully before investing.

Variable annuities issued by insurance companies are long-term investment alternatives designed for retirement purposes. Withdrawals of taxable amounts are subject to income tax and, if made prior to age 59 1/2, may be subject to a 10% federal tax penalty. An investment in variable annuities involves risk, including possible loss of principal. The contracts, when redeemed, may be worth more or less than the original investment.

The information in this section also appears in the brochure entitled: “Your rights and responsibilities as a Raymond James client.”