Guide to buying annuities at Wells Fargo Advisors - saf ...

Guide to buying annuities

Summary of the key points contained in thisdisclosure documentBefore you purchase your annuity contract, make sure that you read and understand this guide. While reading this guide,pay special attention to these key points.What is an annuity contract?............................................................................................................................................... 4Explains what an annuity contract is and describes the different types of annuitycontracts available for purchase.Annuity fees and charges...................................................................................................................................................... 7Describes the different types of fees and charges contained in annuity contracts thatreduce the value of your account and the return on your annuity.Types of variable annuity contract structures................................................................................................................ 8Describes variable annuity contracts and variable annuity features.Annuity tax issues................................................................................................................................................................... 11Explains the tax issues associated with purchasing an annuity.What should I consider before investing in an annuity?............................................................................................. 12Describes the issues that you should consider before purchasing an annuity contract.The role of your Financial Advisor..................................................................................................................................... 13Explains the responsibilities of your Financial Advisor and defines their relationship with you.Wells Fargo Advisors’ relationships with insurance companies............................................................................... 15Provides information about Wells Fargo Advisors’ relationships with insurance companies.Other insurance company relations................................................................................................................................... 16Describes relationships that Wells Fargo has with insurance companies such as reinsurancerelationships and management of underlying investments in annuity contracts.Guide to buying annuities at Wells Fargo Advisors 2

Before you buy any investmentIt is important to review your financial situation,investment objectives, risk tolerance, time horizon,diversification needs, and need for liquidity.Wells Fargo Advisors wants to make sure that if you areconsidering purchasing an annuity contract, you havealso considered other investment options available toyou, including mutual funds and life insurance.Annuity contracts are designed generally for longtermretirement savings and should not be considereda short-term investment option. For most investors,investing in pretax investment options such as IRAs,403(b)s, and 401(k)s should generally be fully takenadvantage of before investing in an annuity contract.The liquidation of current assets to purchase anannuity product may result in tax consequences, earlywithdrawal penalties, or other costs or penalties. Youmay wish to consult your tax advisor or lawyer beforetaking such action.While you will be able to have access to your moneyin an annuity contract by surrendering your contractor making a withdrawal, an annuity contract generallycontains a surrender penalty, assessed by the issuinginsurance company, for premature surrenders orwithdrawals. Surrenders or withdrawals from anannuity contract before age 59½ may incur a 10% taxpenalty in addition to ordinary income tax.Wells Fargo Advisors operates on a number ofdifferent platforms. These include the Private ClientGroup, the Wealth Brokerage Services Channel, andthe Wells Fargo Advisors Financial Network (FiNet).Financial Advisors can sell a variety of fixed andvariable annuity contracts to meet your specific needs.How can this guideeducate me, and howcan I educate myself?This guide will help you better understand annuitycontracts in general and the costs associated with variousannuity contract types and features, as well as howyour Financial Advisor and Wells Fargo Advisors arecompensated when you invest in an annuity contract.Of course, this guide is not meant to replace the annuityprospectus, the underlying fund prospectuses, statementsof additional information, or other offering materialprepared by the insurance company. Please read thesedocuments carefully before purchasing an annuity contract.Some of these documents will also describe the annuitycontract features that you can choose as you work with yourFinancial Advisor.Your annuity contract documentation should be keptwith your other important documents. With most annuitycontracts, the annuitant cannot be changed but the ownermay be changed, however there may be tax implications.We recommend that you review your contract periodicallyor when there has been a change in your family situation.As always, if you have any questions about your annuityinvestments, please contact your Financial Advisor.Guide to buying annuities at Wells Fargo Advisors 3

What is an annuitycontract?An annuity is a contract between you (the contract owner)and an insurance company. You purchase an annuitycontract by making either a single payment or a series ofpayments. Once an annuity contract has been purchased,the insurance company agrees to make periodic paymentsto you, beginning either immediately or at some future date.Depending on the insurance company’s policy, you mayhave to begin making withdrawals, either systematically oras an annuitization, when you reach a specific age (i.e., age80 or 90) as described in the contract or offering materialprepared by the insurance company. Not all of the annuitycontracts and benefits described below are available in allstates. Ask your Financial Advisor about what is availablein your state.Types of annuity contractsAnnuity contracts can be divided into two different types:immediate and deferred. With an immediate annuity, youcan convert assets into income and start receiving incomepayments right away; with a deferred annuity, assetsaccumulate, tax-deferred, until withdrawals are made,usually during retirement.Annuity contracts, both immediate and deferred, are offeredin two ways: fixed and variable. Some annuity contractsare offered as a combination of fixed and variable. A fixedannuity contract is credited with a fixed or set interestrate, which is guaranteed by the insurance company. Avariable annuity fluctuates depending on the investmentperformance of the investments selected. We also describeanother kind of fixed annuity called an index annuity.Throughout this guide, the word “guarantee” refers toguarantees that are backed by the claims-paying ability ofthe issuing insurance company. If the insurance company isunable to meet the claims, the payments may not be made.The following is a more detailed look at the various types ofannuity contracts available today.Immediate annuitiesAn immediate annuity provides a stream of income fora specified period of time that you select. This stream ofincome is typically referred to as an annuitization. You paya single purchase payment, and income payments typicallybegin 30 days later. Once you have selected a paymentplan (monthly, quarterly, semi-annual, or annual), incomepayments will last for the length of time selected. Paymentoptions include:• period- or term-certain annuitization where payments aremade for a specified period or term such as 10 years;• life annuitization where payments last for the life or jointlife of the contract annuitant(s); or• life with period-certain annuitization where paymentslast the longer of the life of the annuitant(s) or the periodcertainperiods.• life with cash or installment refund, where payments lastfor the life of the annuitant, and if the annuitant dies beforereceiving the full premium back, the remaining premiumamount is paid out in a lump sum or series of payments.Upon death of the owner/annuitant of an immediateannuity, if the payment period has not ended and thecontract payments are continued under the contract, thecontract beneficiaries will receive the remainder of therequired payments. Once the payment period has ended,the owner/ annuitant will not receive any additionalpayments and will not receive any additional principalpayment. These payout options typically cannot be changedonce the client has selected them. An immediate annuitycan be purchased on either a variable or fixed basis.Immediate variable annuitiesImmediate variable annuities offer a stream of incomepayments that will change during the term of the payoutperiod. These payments will vary up or down followingthe first payment depending on the performance of theunderlying subaccounts owned in the contract. Theunderlying subaccounts are in professionally-managedinvestment options that invest in the stock and/or bondmarkets. The investment options can provide you withpotentially more income than immediate fixed annuities, butyour income payments will be subject to market fluctuation.Guide to buying annuities at Wells Fargo Advisors 4

Deferred income annuitiesA deferred income, or longevity annuity, is a fixed annuitydesigned to provide a guaranteed income stream after awaiting period of two years or more. The income is paid outin the same manner as a fixed immediate annuity describedabove. The income stream will vary based on the age atwhich the income starts and the payment method chosen.Flexibility to change the income start date may be limitedbased on the product chosen. Deferred income annuities aregenerally irrevocable, so investors should carefully considertheir liquidity and income needs prior to purchasing one ofthese contracts.Deferred index annuitiesA deferred index annuity is a type of fixed annuity thatcredits interest based on changes in a market index, suchas the S&P 500. An index annuity is an insurance contractand is not invested in securities or the associated index;however, the change in the index will determine how muchinterest is credited to the contract. Typically, when theindex is up during the specified period, then interest iscredited, but that interest is subject to cap or a spread. Thecap or spread may significantly limit the upside potentialwhen the index is rising. If the associated index is downduring the specified period, there will not be any interestcredited to the annuity contract; however, your contractwill not decline in value. Index annuities generally have asurrender charge period lasting from five to eight years.Liquidating or surrendering a contract before expiration ofthe holding period will typically reduce your return, mayvoid any guarantees, and may result in a negative return.In addition, if you make a withdrawal or surrender yourcontract during the surrender charge period, a surrendercharge and MVA (see explanation above) may be assessed.Strategies — There are different methods to calculate thegain in the index to which the annuity is linked. Thesemethods are complex and vary by insurance company.There are three primary crediting methods:• Point to Point — Uses the change in the index value on anannual or biennial basis and credits interest based on thechange during that period.• Monthly Average — Compares the average index valueover a 12 month period with the index value at thebeginning of the term. If the average value is greater thanthe beginning index value, then interest would be credited.• Monthly Sum — Measures the index gain (up to a cap) orloss each month and sums those returns over a 12 or 24month period. If the sum is positive, interest is credited tothe contract.Regardless of the calculation used, if the index valuedeclines during the period, you may not receive interest forthat period, but your contract will not decline in value. Notethat if you have elected an optional rider, the associated feecould reduce your contract value.Caps and Spreads — The interest credited to an indexannuity will typically be subject to a cap rate or a spreadrate. These rates are set periodically by the insurancecompany, as outlined in your contract.• Cap Rate — A cap rate limits the amount of interest thatwill be credited to your contract during the creditingperiod. For example, if the contract has a 5% cap rate andthe index returned 15% during the period, only 5% wouldbe credited to the contract. The cap may be reduced orincreased at the discretion of the insurance carrier at theend of each crediting period.• Spread Rate — A spread rate reduces the amount of interestcredited to your contract during the crediting period. Forexample, if the contract has a spread rate of 1.50% and theindex returned 7% during the period, 5.50% (7% return lessthe 1.5% spread) would be credited to the contract. Thespread may be increased or decreased at the discretion ofthe insurance carrier at the end of each crediting period.You should understand when the insurance carrier canchange the cap and spread rates and what the minimum caprates or maximum spread rates are prior to purchasing anindex annuity.Fixed Accounts — Many index annuities have a fixedaccount option. Amounts allocated to this option arecredited a fixed interest rate set by the insurance carrier,and are not tied to an index. The interest rate may bechanged at the end of each term (typically annual) at thediscretion of the insurance carrier, but never at a rate lessthan the minimum guarantee rate set forth in the contract.Deferred variable annuitiesA deferred variable annuity generally offers a diverseselection of investment options, usually referred to assubaccounts. These subaccounts have varying investmentobjectives and risk levels. Be sure that the investmentoptions you select are consistent with and suitable toyour particular investment goals and objectives. Thereturn on a variable annuity investment will depend onyour investment allocation and the performance of thesubaccounts you choose. You may experience a negativeGuide to buying annuities at Wells Fargo Advisors 6

eturn in a variable annuity subaccount. If you make awithdrawal or surrender your contract during the surrendercharge period (see below), a surrender charge may beassessed. In addition, you can transfer your money from oneinvestment option to another without paying current tax onyour investment income and gains.This is an important feature because it permits you tochange your investment strategy (for example frommoderate risk to conservative risk), or change from poorlyperforming subaccounts to other subaccounts, withoutsurrendering the contract. Dividends, interest, and capitalgains remain invested, tax-deferred, until withdrawals aremade, allowing you to control when income taxes are paid.Excessive trading between subaccount investmentoptions, otherwise known as “market timing”, is not apermitted activity. The insurance company may charge afee for excessive transfers and freeze subaccount transferprivileges if “market-timing” activities occur. Often avariable annuity also includes a fixed account, whichoffers a guaranteed fixed interest rate for a stated period oftime. This means that during the accumulation phase of adeferred variable annuity, you can allocate your investmentnot only to one or more variable investment options, but toa fixed investment option as well.Annuity fees andchargesThere are several types of fees and charges in an annuitycontract. Be sure you understand all these expenses beforeyou invest. They will affect the value of your account andthe return on your annuity.If you withdraw money from an annuity contract orsurrender the contract within a certain period of time afterinvesting (the “surrender charge period,” typically three to10 years), the insurance company may assess a contingentdeferred sales charge or CDSC. Usually, the surrendercharge is a percentage of the purchase payment withdrawn,and it declines gradually over the surrender charge period.For example, a 7% charge might apply in the first year afterinvesting, 6% in the second year, 5% in the third year, andso on, until the surrender charge no longer applies. Newsurrender charge periods usually start with each newpurchase payment invested in the annuity, so new purchasepayments may extend the surrender charge period beyondthe original surrender charge period established at thepurchase date.However, many contracts will allow you to withdrawpart of your account value each year — generally yourannual interest earned, cumulative earnings, or up to10% or 15% of your purchase payment — without paying asurrender charge (tax penalties may still apply, however).Some annuities do not have a surrender charge period orsurrender charges. Your Financial Advisor can discuss anysurrender period and charges associated with the annuityyou are considering. When choosing an annuity contract,you should consider all charges and benefits — not justsurrender charges.Fixed annuity fees and chargesWhen you buy a fixed annuity, your money is placed inthe general account of the insurance company. When theinsurance company sets the interest rate to be creditedto an annuity contract, it usually considers not only theprevailing market rates, but also the costs of issuing andmaintaining the annuity contract. Your Financial Advisor ispaid a commission for selling the fixed annuity to you. Theinsurance company pays this commission out of its assets,which include any profits it makes on the annuity contracts.Index annuity fees and chargesSurrender charges and annual contract charges mayapply to an index annuity, as outlined above. For completeinformation on how the interest rate will be credited and onthe fees and charges associated with an index annuity, pleaseconsult your Financial Advisor. Your Financial Advisoris paid a commission for selling an index annuity. Theinsurance company pays this commission out of its assets.See the discussion of fixed annuity fees and charges above.Variable annuity fees and chargesIn addition to the surrender charges mentioned on theprevious page, variable annuities have other expenses youshould be aware of. These fees and charges will reduce thevalue of your account and the return on your investment.They can include:• Mortality and expense (M&E) risk charge. This charge isequal to a certain percentage of your account value, typicallyfrom 1.00% to 1.60% per year for retail contracts or 0.35% to0.65% for advisory contracts. The M&E risk charge can beused by the insurance company to offset the costs of sellingthe variable annuity, such as a commission paid to yourFinancial Advisor for selling the variable annuity to you,and to compensate the insurance company for the insurancerisks that it assumes under the insurance contract.Guide to buying annuities at Wells Fargo Advisors 7

• Administrative fees. The insurer may deduct charges tocover recordkeeping and other administrative expenses.This may be charged as a flat account maintenance fee(perhaps $25 or $30 per year) and/or as a percentage ofyour account value (typically about 0.15% per year). Someinsurance companies waive the flat account maintenancefee on larger account values.• Subaccount expenses. You will also pay fees andexpenses imposed by the underlying investment optionsin a variable annuity. The fees and expenses of thesubaccounts include annual operating expenses suchas management fees, 12b-1 (distribution) fees, costof shareholder mailings, and other expenses. Theseexpenses can range from 0% annually for money-marketsubaccounts to as much as 2% or more annually for certainequity subaccounts. For a detailed explanation of theseexpenses, see the prospectus for the underlying funds.• Fees and charges for other features. Certain featuresoffered by some variable annuities — such as a steppedupdeath benefit, a bonus credit feature, a guaranteedminimum income benefit, a guaranteed minimumwithdrawal benefit, a guaranteed minimum accumulationbenefit, or an earnings enhancement benefit — oftencarry additional fees and charges. Some of the featuresand options will be discussed below. Often the variableannuity contract will provide that once you have electeda particular benefit, you cannot later have that benefitremoved. Therefore, before making any selection, youshould discuss the long-term consequences with yourFinancial Advisor, including the long-term costs of suchbenefits.Other charges, such as fees for transferring part of youraccount from one investment option to another, may alsoapply, and certain additional restrictions may be imposedupon your contract when you elect these features. Youcan find a description of the charges, and other importantinformation for any variable annuity that you areconsidering, in its prospectus.Types of variableannuity contractstructuresInsurance companies offer many types of contractstructures to meet various investor needs. The structuresoffered vary in many ways, including the surrender charge,surrender charge period, and ongoing M&E costs, and arecategorized into several different share classes. Insurancecompanies can offer variable annuity contracts with nosurrender charge period (often called C share annuities),surrender charge periods of three to four years (L shareannuities), and surrender charge periods of six to sevenyears (B share annuities). Bonus credit annuities offer abonus credit of 2% to 6%, based on the amount invested inthe annuity, and can have even longer surrender chargeperiods of seven to 10 years. Advisory share annuities(sometimes referred to as I shares) have no surrendercharge and must be purchased in an advisory account.Wells Fargo Advisors may not offer certain share classes.Generally, annuities impose the surrender chargeduring the initial period that begins after the contract ispurchased. However, some will begin a new surrendercharge period with each subsequent payment. Oncethe surrender charge period ends, the contract is out ofsurrender and no further surrender charges will applyto withdrawals. However, gains on withdrawals are stillsubject to income tax and, if taken prior to age 59½, a 10%IRS penalty tax may apply.M&E expenses are an ongoing cost, typically listed as anannual cost and applied daily to the contract. Generally,the M&E fees are represented differently across share classand have an inverse relationship to surrender charges. Thecumulative effect of the M&E fees should be considered inconjunction with risk tolerance, investment objectives, age,and time horizon in determining the appropriate share classto purchase. Wells Fargo offers B, C, and Advisory share(i.e., I) share classes, as well as several options to purchasea premium bonus or a shortened surrender charge.Guide to buying annuities at Wells Fargo Advisors 8

B share annuities do not have an initial sales charge, butdo have a surrender (CDSC) charge. You will pay this salescharge when you make a partial or full surrender from theannuity during the CDSC period. The product prospectuswill specify the terms of the surrender schedule. A typical Bshare surrender schedule averages five to seven years, withthe surrender charge ranging from 5% to 9% and decreasinguntil it reaches zero. B share annuities generally offer thelowest ongoing cost as the M&E charges are lower thanother share class options. B shares are generally the mostappropriate choice for investors with no short-term liquidityconcerns and/or with a need for long-term optional riders.Some insurance carriers may offer the following optionalfeatures that may be purchased for an additional cost.• Premium Bonus — This feature offers a premiumenhancement or purchase payment credit that providesthe purchaser with an upfront return on their principal.The amount of the credit will vary by contract. In all cases,purchase payment credits are treated as earnings fordistribution purposes and may be subject to income tax.The premium bonus will typically range from 2% to 6%, andwill cost an additional 0.40% to 0.70%. This cost will goaway after the CDSC period is completed.Example: You purchase a variable annuity contractthat offers a bonus credit of 5% on the initial purchasepayment. You make a purchase payment of $20,000. Theinsurance company issuing the contract adds a bonuscredit of $1,000 to your account, raising the total initialamount of the contract to $21,000.You need to carefully consider the net benefit that thebonus feature can offer you and whether or not theadditional fee paid for the bonus outweighs the benefitthat the bonus provides. The fees may equal or exceed thebonus received and the CDSC period may be extended.In some products, the bonus credit does not “vest” untilafter a period of time or “vests” in increasing percentagesover a period of time. In other products, the bonus creditis credited immediately but may be recaptured if thecontract is surrendered or a withdrawal is made during aspecified period of time.• Shortened Surrender Charge — This feature provides theflexibility of a shorter declining CDSC schedule of fouryears. The cost for this additional feature will range from0.35% to 0.50%. This cost will go away after the CDSC periodis completed. Shortened surrender charge options maybe appropriate for investors willing to pay higher annualcosts for greater liquidity. When purchasing an optionallong-term income rider, and a shortened surrender chargeoption, you should consider the long-term nature of the riderwhen deciding whether or not you want to pay an additionalcost for a shorter CDSC period. Your Financial Advisorwill receive lower compensation if you elect an optionalshortened surrender charge feature.C share annuities provide more liquidity for investors byallowing cash surrenders without the front-end or back-endsurrender charges associated with other variable annuities.Because of this liquidity, C share annuities typically havesignificantly higher M&E charges. Therefore, C shares are bestsuited for investors willing to pay higher ongoing annual costsfor greater liquidity. For investors with longer term objectivesor who purchase an optional long-term income rider, a shareclass with lower long-term costs may be more suitable.Advisory share annuities, similar to C shares, have noback-end surrender charges. M&E charges containedin advisory share annuities are typically lower thanother share classes, but advisory share annuities mustbe purchased in an advisory account. Depending on theadvisory fee arrangement, over time, your total expensesto own this annuity inside your investment advisoryaccount may be greater than the total expenses to own asimilar annuity outside your investment advisory account.Advisory annuities are most suitable for clients who want toreceive ongoing advice on their annuity within the advisoryaccount relationship.These annuity contract structures vary in features, the feesand expenses charged, and the compensation paid to yourFinancial Advisor. Please ask your Financial Advisor toexplain the contract structures available to make sure that anycontract you purchase matches your investment time horizonand financial goals.Variable annuity featuresVariable annuities offer many features you may want toconsider. They may be included as part of the contract, or theymay be optional features or riders that you elect at the time ofpurchase.Each optional feature typically carries a charge. This approachgives you the ability to select and pay for only the featuresyou need. Since you may not be able to change your initialselection later, you should carefully consider these optionalfeatures before making a selection.Optional features that can be added to contracts includeguaranteed minimum death benefits, a bonus credit,guaranteed minimum income benefits, guaranteedminimum accumulation benefits, and guaranteed minimumGuide to buying annuities at Wells Fargo Advisors 9

withdrawal benefits. These features do not guaranteeagainst day-to-day market fluctuations, and may beaffected by subsequent additions or withdrawals duringthe accumulation phase of your annuity contract. However,they do provide additional features that may be valuableto you. These features typically require limitations on theinvestment options you can choose.There is no guarantee that this insurance feature, ifpurchased, will ever come into effect. Therefore, it ispossible that you will receive no additional benefit forhaving incurred the additional expenses and contractrestrictions associated with these riders.It is important to note that the benefit base is not a cashor account value, and so is not indicative of the marketvalue of your contract at any given point in time during theaccumulation phase.Guaranteed minimum death benefit(GMDB)Deferred annuity contracts usually provide for a death benefitif the owner and/or the annuitant dies while the contract is stillin the accumulation phase. The payout structure of the deathbenefit varies by contract. The benefit can be payable as alump sum or as annuity payments that generally must be paidin a specified period of time. If a spouse is the sole beneficiary,the spouse may have the additional option of continuing thecontract tax-deferred.Variable annuity contracts have traditionally offered a GMDBduring the accumulation period. The GMDB is generallyequal to the greater of (a) the contract value or (b) purchasepayments less prior withdrawals. Many variable annuitycontracts allow you, for an additional charge, to “step-up”or “ratchet” the death benefit up to the contract value on aspecified date (i.e., annually). In addition, some contracts willraise the GMDB floor at a specified rate (i.e., 5% annually) foran additional charge.Guaranteed minimum income benefit(GMIB)A GMIB is typically offered as an optional feature or riderto a variable annuity contract for an additional charge,generally ranging from 0.75% to 1.00%. Contracts withGMIBs have a waiting period, typically 10 years, beforethe benefit can be exercised. Age limits may also apply.For some contracts, if the benefit is exercised, only fixedimmediate annuity payments are available; others offervariable immediate annuity payments as well.The GMIB ensures under certain conditions that theowner may annuitize the contract based on the greater of(a) the actual account value or (b) a “benefit base” equalto purchase payments credited with some interest rate(usually between 3% and 7%) or the maximum anniversaryvalue of the account prior to annuitization. The benefitguarantees that under the stated conditions, the contractowner will receive a minimum cash flow beginning at afuture date as described above.Guaranteed minimum withdrawal benefit(GMWB)A GMWB guarantees that you will receive a minimumwithdrawal amount from your contract each year. Thisminimum amount may guarantee the return of your initialinvestment through systematic withdrawals over timeand/or for your life. The amount of withdrawal that canbe taken each year is typically between 4% and 7%. Thesewithdrawals may be taken immediately or deferred until alater time. This feature often includes a step-up provisionduring a deferral period that is based on an annual interestrate (usually between 5% and 7%) and/or the contract valueat specified periods (i.e., annually or quarterly). Oncewithdrawals begin, the step-up provisions may change.Many GMWBs offer a joint option that allows the guaranteeto be based on the life of both spouses. This feature doesnot require you to make withdrawals from your contract,and the withdrawals may be started and stopped at anytime. It is important to note that a withdrawal exceedingthe guaranteed annual amount may have a detrimentaleffect on the benefit base. The cost for this feature typicallyranges from 0.65% to 1.25%.Guaranteed minimum accumulationbenefit (GMAB)A GMAB guarantees that after a specified period of timeyou will receive a minimum contract value. This minimumamount may be the amount of the initial premium or theinitial premium with a growth or step-up component. Thisgrowth component may be based on the performance of theunderlying investments or on a set percentage of the initialpremium. The specified time period for these benefits rangesfrom five to 10 years. At the end of the specified period, ifyour contract value is less than a guaranteed amount, theinsurance carrier will add the difference into your contract.The cost for this feature typically ranges from 0.50% to 1.00%.Some variable annuities may offer other optional features. Pleasereview their costs and benefits with your Financial Advisor.Guide to buying annuities at Wells Fargo Advisors 10

Free look provisionYou have the right to cancel your annuity contract withinthe free look provision period (usually 10 days followingdelivery of your annuity contract or whatever period isrequired by your state). If you exercise this provision, youwill receive a refund in accordance with the terms of thecontract and your state’s regulations. In some instances,if the market value of the contract has declined during thefree look period, you may not receive your entire initialpurchase payment.Loans and withdrawalsLoans and withdrawals have a negative impact on cashvalues and may also diminish any death benefit, guaranteedminimum living benefit, value of riders, or other features ofyour contract. Some contracts may also require a minimumvalue to keep an existing contract in force and you, theowner of the contract, have the responsibility to maintainsuch minimums to preserve the features of the contract.Loans are generally not available from an annuity contract,except in certain qualified plans. If the annuity is partof a qualified plan, the loan must be repaid prior to theemployee’s termination from the employer or the amountwill be considered a withdrawal, and will be subject to thepenalty and taxes discussed on page 12. Please refer to yourannuity contract for a complete description of these options.Annuity tax issuesAlthough annuities generally allow your investment to beheld on a tax-deferred basis, you should be aware of certaintax issues before you purchase an annuity. For example:• Gains or earnings on withdrawals from annuities,including partial withdrawals and surrenders, may betaxable. Generally, a withdrawal or distribution from anannuity consists of both an earnings component (taxable)and a principal component (non-taxable return ofinvestment). If you take a taxable withdrawal before age59½, you may have to pay a 10% penalty to the IRS on theamount of the gain in your contract, in addition to yournormal income taxes.• Taxable distributions from an annuity are generally taxedat the contract owner’s ordinary income-tax rate and donot get the benefit of lower tax rates received by certaincapital gains and dividends under current tax laws.• If an annuity contract is owned by a non-natural entity(such as a corporation, partnership, or LLC), the contractis generally not eligible for tax-deferral.• IRS Revenue ruling 2011-38 applies to situations wherean annuity holder uses a portion of the cash value of anexisting annuity contract to purchase another annuity,commonly called a partial exchange. Withdrawalsmade from either contract within 180 days followingthe exchange will invalidate the tax-free nature of theexchange.• The death of a contract owner (and, in some cases, thedeath of an annuitant) may result in taxable distributionsthat must be made from the contract within a specifiedperiod of time.• Upon the death of the owner/annuitant of a contract,gains may be taxable to the beneficiary; the annuityassets may be included in the owner’s estate; there is nostep-up in the tax basis; and annuity assets will bypassprobate, unless the contract owner’s estate is the namedbeneficiary or no beneficiary is named. You should reviewyour beneficiary designations periodically. Designationscan be changed during the term of the annuity. Upon thedeath of the owner or annuitant, the insurance companyshould be notified immediately and settlement optionsreviewed.• The tax-deferral benefit offered by annuities providesno additional tax benefit if they are held in tax-qualifiedaccounts such as an IRA, 403(b), or 401(k). Special rulesgoverning annuities issued in connection with a taxqualifiedretirement plan restrict the amount that can becontributed to the contract during any year, the time whenamounts can be paid from the contract, and the amountof any death benefit that may be allowed. In addition, therules provide for different results when distributions,including death benefits, are made from these types ofannuity contracts.If you have purchased your annuity as an investment planin an IRA account, the IRA custodian will be responsiblefor any tax reporting with respect to the annuity. Sincedistributions from an IRA must be reported, distributionswill be paid and reported from the custodial account,which may include other assets in addition to your annuitycontract. Therefore, if you wish to take a distributionfrom your annuity, you should first contact your FinancialAdvisor, not the insurance company. Please consult yourtax advisor and consider all the tax consequences beforepurchasing an annuity.Guide to buying annuities at Wells Fargo Advisors 11

Insurance company ratings and whatthey meanThe insurance company guarantees many features in theannuity, including rates of return for fixed accounts and thefeatures discussed previously, such as the GMDB, GMIB,GMWB, or GMAB. Therefore, the financial strength of theissuing insurance company is very important.Several independent, nationally-recognized rating agenciesregularly review the financial records of insurancecompanies to assess their strength and claims-payingability. The stronger and more secure the insurancecompany, the more likely it is that the insurance companywill be able to pay the benefits offered. However, even astrong rating does not ensure that the insurance companywill be able to meet all of its obligations under the annuitycontracts. For information about insurance companyratings, ask your Financial Advisor to provide the ratings,or contact the following rating agencies: A.M. BestCompany (ambest.com), Fitch’s (fitchratings.com), Standard& Poor’s Corporation (standardandpoors.com), and Moody’sInvestor Service (moodys.com). These ratings do not relateto the past performance or potential performance of theannuity’s subaccounts.Wells Fargo uses a careful review process to select thecompanies that we do business with. We utilize the ratingagency reports, third party research, and internal riskmanagement research to approve carriers that we offer, andwe monitor financial strength on an ongoing basis.When insurance companies are not able to meet theirobligations, there are safety nets in place through the stateguaranty associations. Guaranty funds offer protectionup to a limit (which varies by state) to contract holders.For more information about these safety nets, you can goto the National Association of Life and Health GuarantyAssociations website, nolhga.com.The role of yourFinancial AdvisorIn order to discuss or sell an annuity contract, yourFinancial Advisor must be a licensed insurance agent. As alicensed agent, your Financial Advisor will provide you withinformation about annuities including features, benefits,risks, and other characteristics needed for you to evaluatethe contract, and whether it fits your needs.Wells Fargo appreciates your confidence and wants tomake your brokerage, banking, and annuity relationshipsclear and convenient for you. Your Wells Fargo AdvisorsFinancial Advisor may serve as your Relationship Managernot only for your brokerage accounts and services withWells Fargo Advisors, but also for products, such asannuities, and services with Wells Fargo Bank, N.A.,including trust accounts of which you may be a beneficiaryor agency accounts in which you may have an interest.The responsibilities of Wells Fargo Advisors andyour Financial Advisor, when acting in a brokerage orinvestment advisor capacity or in introducing you toinsurance services or a banking product or service, aredifferent from the responsibilities of Wells Fargo Bankand your Financial Advisor when acting in a role asRelationship Manager for a Wells Fargo Bank trust oragency account. Your Financial Advisor, in a brokerage orinvestment advisory capacity, may recommend or assist youwith a transaction that does not concern the Wells FargoBank trust or agency account for which he or she will becompensated. If you decide to enter into such a transaction,you will receive specific disclosures in connection withthe transaction, including all relevant information anda description of the compensation that your FinancialAdvisor will receive. You will have the opportunity toask for more information about the compensation to yourFinancial Advisor on such a transaction.How compensation is paid to Wells FargoAdvisors and your Financial AdvisorWells Fargo’s subsidiaries and your Financial Advisor arepaid by the issuing insurance carriers whose products wesell. The subsidiaries include Wells Fargo Advisors, LLC,Wells Fargo Advisors Financial Network, LLC, Wells FargoWealth Brokerage Insurance Agency, LLC, Wells FargoAdvisors Insurance Agency, LLC, and a number of otheraffiliated insurance agencies registered in the states wherewe conduct business. Wells Fargo Bank and its subsidiariesreceive compensation and other payments in many formsincluding commissions, residuals or trails, marketingsupport payments, payments for training and education, andfees for reinsurance transactions. The following sectionsoutline how Wells Fargo and its advisors are paid.For helping you choose an annuity, Wells Fargo Advisorsand your Financial Advisor are paid in ways that vary basedon the type of annuity, the issuing insurance company, theshare class, and the amount invested. Compensation forAdvisory share differs from commission-based products.Guide to buying annuities at Wells Fargo Advisors 13

Commission-based productsAs mentioned above, Wells Fargo Advisors is paid by theissuing insurance company if we sell you their annuity.Under an agreement with the insurance company,Wells Fargo Advisors is paid based on the amount ofthe purchase payments. Your Financial Advisor’s initialcompensation is based on an initial compensationformula applied to the purchase payments. This type ofcompensation is typically referred to as a commission.Commissions paid to Wells Fargo Advisors range from0.95% of purchase payments to 6% of purchase payments.For example, a $10,000 transaction in an annuity would paya commission ranging from $95 to $600. A portion of thiscommission is credited to the Financial Advisor.Wells Fargo Advisors also receives ongoing payments,known as residuals or trail commissions, on invested assetsthat are held in your annuity for more than one year. Theseongoing payments are set by the insurance company, andWells Fargo Advisors generally pays a portion of the trailcommissions to Financial Advisors. Trail commissionsgenerally range from 0% to 1.25% per year on investedassets. Invested assets of $10,000 would equate to amaximum trail of $125 per year assuming there is nogrowth in the annuity value. In general, the greater theinitial commission paid, the lower the trail; and the lowerthe initial commission, the greater the trail.Commissions and trails paid to Wells Fargo Advisors varyby share class and may vary by insurance carrier. Withineach variable annuity there are usually multiple commissionoptions a Financial Advisor can select, which may influencethe features offered to you. In addition, when a FinancialAdvisor selects a shortened surrender charge option orpremium bonus, they may not have all the same commissionoptions available on a standard B share, and the upfrontcommission may be reduced and deferred. For example,your Financial Advisor may elect to receive a higher upfrontcommission without using a shortened surrender chargefeature versus a lower upfront commission and higherdeferred commission, with the shortened surrender chargefeature. The annual fees and charges on the contract arenot affected by the commission option selected by yourFinancial Advisor. However, the annual fees and charges onthe contract will vary depending on the share class selectedand the options chosen.The compensation formula to determine the amount ofpayment from Wells Fargo Advisors to your FinancialAdvisor is the same for all annuities. Some insurancecompanies pay Wells Fargo Advisors higher compensationfor sales of their annuities than other companies. However,Wells Fargo Advisors does have limits on compensationpaid. Branch Managers and Regional Sales Managers mayalso receive monetary incentives based on the revenues andprofits of their branches, though not based on the sale ofany specific product.Advisory share productsThe insurance carrier does not pay a commission toWells Fargo Advisors when an advisory share class annuityis purchased. Wells Fargo Advisors and your FinancialAdvisor are compensated based on the schedule set forth inyour Advisory Program Agreement. Your fee is an agreedupon percentage of the assets in the account. This fee isexpressed as an annual percentage (for example 1.5%), butis charged to your account on a quarterly basis, in advance,and is subject to a minimum dollar amount. This fee is notautomatically deducted from the annuity, but is deductedfrom liquid assets held in your advisory account or anotherlinked account.As we mentioned earlier, Financial Advisors can offer youa variety of fixed and variable annuities that are availablethrough Wells Fargo Advisors. While Wells Fargo Advisorsoffers a broad platform with respect to the variety andnumber of insurance carriers and annuity products ourFinancial Advisors can sell or recommend, we have notreviewed every insurance company or product availablefor purchase. We reserve the right in the future to limitbranch access to insurance carriers and annuity marketingcompanies that do not provide marketing support or meetother criteria. A list of other important information canbe found in the “Other insurance company relationships”section of this guide.Other compensation your FinancialAdvisor may receive from Wells FargoAdvisorsFrom time to time, the firm initiates incentive programs forAssociates, including Financial Advisors. These programsmay compensate them for attracting new assets and clients,referring business to our affiliates (such as referrals formortgages, trusts, or insurance services), and promotinginvestment advisory services. We may also initiate programsthat reward Financial Advisors who meet total productioncriteria, prepare Envision® investment plans, participate inadvanced training, and/or improve client service.Guide to buying annuities at Wells Fargo Advisors 14

Financial Advisors who participate in these incentiveprograms may be rewarded with cash and/or non-cashcompensation, such as deferred compensation, bonuses,training symposiums, and recognition trips. Portions ofthese programs may be subsidized by external vendorsand/or our affiliates, such as mutual fund companies,insurance carriers, or investment advisors. Therefore,Financial Advisors and other associates may have afinancial incentive to recommend the programs andservices included in these incentive programs over otheravailable products and services we offer.Financial Advisors who join Wells Fargo Advisors maybe eligible to receive incentives, one-time or ongoingbonuses, and/or other compensation if they reach certainproduction levels or other targets, which may includeattaining commission and/or assets under managementobjectives within a specific time period after joining thefirm. For example, it is a common practice in the brokerageindustry for Wells Fargo Advisors and other firms topay bonuses and/or extend forgivable or working capitalloans to encourage Financial Advisors to join a new firm.The practice may provide your Financial Advisor with anincentive to recommend the transfer of your account to thenew firm. Another example involves associates who refernew Financial Advisors to Wells Fargo Advisors; theseassociates may receive referral compensation based on theprevious production of the referred Financial Advisor.Wells Fargo Advisors also has programs whereby a retiredFinancial Advisor may receive compensation for an agreedupontime frame for production generated by the new FinancialAdvisor servicing your accounts, even though the retiredFinancial Advisor may not provide further service to you.How you can get additional informationIf you have questions about what role your FinancialAdvisor or any other Wells Fargo team member is serving,or what compensation will be paid to your FinancialAdvisor for the purchase of an annuity contract, please askyour Financial Advisor.Wells Fargo Advisors’relationships withinsurance companiesAt Wells Fargo Advisors, in addition to the commissionsdescribed above, we receive marketing support paymentsfrom many of the insurance companies whose annuities wesell. These payments are made by the insurance company,an affiliate of the insurance company, or the investmentmanagement company that serves as manager of theunderlying investment options for variable annuities. Thepayments may be used to pay for training and educationalconferences and meetings for our Financial Advisors,company wholesalers, various administrative andrecordkeeping costs, educational meetings and seminarsfor our current and prospective clients, and due-diligenceevaluations of the claims-paying ability of the insurancecompanies whose annuities we sell.For commission-based products, marketing supportpayments are usually calculated as a percentage of annuitysales and/or the total assets held in annuities sold byWells Fargo Advisors and Wells Fargo Advisors FinancialNetwork as well as annual payments of up to $350,000 perinsurance company. For variable annuities, the paymentsare based on sales and can range as high as 0.20% of yourtotal purchase amount. If, for example, you invested $10,000in an annuity contract through Wells Fargo Advisors, wecould be paid up to $20 for marketing support. In addition,for invested assets that continue to be held in your annuitya year later, we can receive an additional payment of up to0.05% annually of the dollar value. On a $10,000 holding,that would be an additional $5 per year.For Advisory share class annuities, insurance companiespay up to $100,000 annually for expenses related to theongoing development and maintenance of the advisoryannuity platform. This amount is not based on sales or assets.In addition, for invested non-qualified assets (i.e., annuitiesnot held within an IRA, 401(k), or other ERISA-basedaccounts) that continue to be held in your annuity a yearlater, Wells Fargo Advisors receives up to 0.10% annuallyof the dollar value. On a $10,000 holding, that would be anadditional $10 per year.Insurance companies may also pay state insurance initialappointment fees and appointment renewal fees on behalfof Wells Fargo’s insurance agencies and Financial Advisors.Appointment fees typically do not exceed $100 per appointment.Guide to buying annuities at Wells Fargo Advisors 15

None of these payments are passed on to your FinancialAdvisor as commissions or ongoing payments. However, thepayments may be used to fund some of the general benefitsprovided to your Financial Advisor that are described above.We believe that these financial arrangements do not affectthe advice your Financial Advisor offers you.Insurance companies and their affiliates use a varietyof sources for funding the commissions and paymentsdescribed above. The funding sources may include, butare not limited to, the fees and charges assessed by theinsurance company under the annuity contract; revenuesfrom the underlying investment options, if any, receivedby the insurance company, an affiliate of the insurancecompany, or the investment management company thatserves as manager of the underlying investment options forvariable annuities; and investment earnings on amountsallocated to the general account of the insurance company.Some of the information on certain of these funding sourcesand payments for variable annuities can be found in theprospectus or statement of additional information for theannuity, which is available on request from the insurancecompany. You can also find additional information regardingrevenues from the underlying investment options in theirprospectuses and statements of additional information.The insurance companies at the end of this guide payWells Fargo Advisors for marketing support and/orservice fees. For an updated list, see wellsfargo.com orwellsfargoadvisors.com.Other insurancecompany relationshipsWells Fargo and/or its affiliates have business relationshipswith some of the insurance companies that could include,among other things, providing underwriting servicesand other financing activities, advice on mergers andacquisitions, reinsurance, and commercial lendingarrangements.More specifically, as part of our relationships with insurancecompanies:• Wells Fargo provides investment management and otherservices through its subsidiary the Wells Fargo Advantagefamily of mutual funds. 1 Wells Fargo Advantage fundsprovide investment choices that are available in certainvariable annuity subaccounts. Wells Fargo Advantage Fundsearn investment management and other fees for the servicesthey provide. The fund family also engages in revenuesharing related to the subaccounts it manages by paying theinsurance carrier whose funds it manages a portion of therevenue the Wells Fargo Advantage funds earn.• The Wells Fargo Advantage funds (as well as unaffiliatedmutual funds) are distributed through Wells FargoAdvisors and other subsidiaries or affiliates of Wells Fargo.• Underlying investment options managed by the investmentmanagement companies that are affiliated with Wells FargoAdvisors, and/or distributed by affiliates of Wells Fargo, can befound in variable annuities offered by Wells Fargo Advisors.• Wells Capital Management 2 manages a portion of certaininsurance company general account assets that back fixedannuity contracts offered through Wells Fargo Advisors,and earns investment management and other fees for theservices it provides.• Several of the annuity contracts offered are customizedfor Wells Fargo Advisors. This means that these annuitycontracts offer subaccounts managed by our affiliates, aswell as subaccounts from other investment managementcompanies, which can be purchased only through aWells Fargo Advisors Financial Advisor. Currently,Western National Life has a customized annuity forWells Fargo Advisors. You can find an updated list of thesecompanies at wellsfargoadvisors.com.• Wells Fargo affiliates currently have reinsuranceagreements with insurance carriers, which issue annuitiesthrough Wells Fargo Advisors. Reinsurance is the practicein which one insurance company, called the reinsurer,assumes some or all of the liability of another insurancecompany on insurance contracts it has issued. Sucharrangements can result in either a financial gain or loss tothose affiliates.• Goals are not based on any particular carrier. We intend tomake all recommendations based solely on our obligationsto consider the clients’ objectives and needs.Should you have any questions about the affiliatedsubaccounts offered, the availability of products offeredby Financial Advisors, or whether the annuity contracthas been customized for Wells Fargo Advisors, ask yourFinancial Advisor.Guide to buying annuities at Wells Fargo Advisors 16

Below is a list of insurance companies and annuitymarketing companies that paid Wells Fargo Advisorsfor marketing support, account administration, orrecordkeeping services in 2013. The companies thatpay marketing support and the formulas by which theycompensate us are subject to change in the future.AllianzAXA EquitableJackson NationalLincoln Financial GroupMetLife InvestorsNationwideOhio NationalPacific LifePrudential FinancialSunAmericaTransamerica Life InsuranceAnnuities are long-term investments suitable for retirementfunding and are subject to market fluctuations andinvestment risk. Fees are charged to pay for death benefitsand other riders guaranteed by the issuing insurancecompany. Withdrawals from an annuity before age 59½ mayincur a 10% tax penalty in addition to ordinary income tax,and surrender charges generally apply in the early years ofthe contract.Variable annuities are sold by prospectus. Please carefullyconsider the investment objectives, risks, charges, andexpenses before you invest. The prospectus, which containsthis and other information, can be obtained by calling yourFinancial Advisor. Read it carefully before investing.Advisory accounts are not designed for excessively traded orinactive accounts, and may not be suitable for all investors.Please carefully review the Wells Fargo Advisors advisorydisclosure document for a full description of our services.To learn more about annuities, ask your Financial Advisor, orvisit the following websites:Wells Fargo Advisors — Private Client Groupand Wells Fargo Advisors Financial Network —wellsfargoadvisors.comWells Fargo Advisors — Wealth Brokerage Services (in-bankfinancial centers) — wellsfargo.comInsured Retirement Institute — irionline.orgFinancial Industry Regulatory Authority — finra.orgSecurities and Exchange Commission — sec.govSecurities and insurance productsThroughout this guide, the word “guarantee” refers toguarantees backed by the claims-paying ability of the issuinginsurance company. If the insurance company is unable tomeet the claims, the payments may not be made. Annuitiesare available through insurance subsidiaries of Wells Fargoand other underwriters. Not available in all states.Guide to buying annuities at Wells Fargo Advisors 17

INVESTMENT AND INSURANCE PRODUCTS:NOT INSURED BY FDIC NO BANK GUARANTEE MAY LOSE VALUEInsurance products are offered through nonbank insurance agency affiliates of Wells Fargo & Company and are underwritten by unaffiliated insurance companies.Favorable investment performance could result in a contract value that exceeds the benefit of the rider. In that case, the investor gets no additional benefits for the costs associated with the rider and investment returns would be reducedby the additional expense.Wells Fargo Advisors is the trade name used by two separate registered broker-dealers: Wells Fargo Advisors, LLC, and Wells Fargo Advisors Financial Network, LLC, Members SIPC, nonbank affiliates of Wells Fargo & Company.1Wells Fargo Advisors, LLC (WFA) is a nonbank affiliate of Wells Fargo & Company. Wells Fargo Funds Management, LLC is the investment Advisor on each of the mutual funds within the Wells Fargo Advantage family of funds. WFA,Wells Fargo Fund Management, LLC, and Wells Fargo Advantage family of funds are all affiliated companies. The funds are distributed through Wells Fargo Funds Distributor, LLC.2Wells Capital Management (WellsCap) is a registered investment advisor and a wholly owned subsidiary of Wells Fargo Bank, N.A. Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company.Wells Fargo Advisors is not a legal or tax advisor. However, its Financial Advisors will be glad to work with you, your accountant, tax advisor, and/or lawyer to help you meet your financial goals.© 2014 Wells Fargo Advisors, LLC. ECG-1167663 1213-02817 585041 (Rev 08)Guide to buying annuities at Wells Fargo Advisors