Glossary of Terms

Accumulated Value: the full value of the annuity contract, principal plus gain.

Annual Reset Method: the S&P Injdex value on the previous policy anniversary date is compared
to the present S&P Index value each policy year.

Annuitization: waiving access to your accumulated dollars in return for guaranteed payments.

Annuitization Factor: the rate per thousand used to determine the periodic payout of an annuity.

Annuity: a contract designed to accumulate premiums plus interest prior to maturity, then distribute
the proceeds through a series of regular payments.

Average Performance Method: an average of the S&P Index is calculated either daily, monthly,
or annually, over a specified period, usually one year. This average is then compared to a start-point
value.

Back-end Load: any fees deducted when the contract is terminated: i.e. surrender charges.

Bailout: an interest protection provision guaranteeing the client liquidity, without penalty, if the renewal
interest rate is ever declared below the stated bailout rate: this penalty-free surrender period is usually
limited to 30 days from the date of notice.

Beneficiary: the party who recieves proceedes (in most annuity contracts) if owner or annuitant dies.

CAP: an overriding maximum percentage that can be credited in any single year to term.

Commuted Value: the present value of future guaranteed payments.

Compounding of Gains: interest is paid not only on the initial deposit but also on any interest
accumulated from one period to the next.

Contract Term: the length of time an account is subject to surrender charges.

Cost Basis: the original investment in a non-qualified annuity, prior to any transfers of the account,
the cost basis is used to determine the tax excludable portion.

Death Benifit: the amount paid to beneficiary upon annuitant's death.

Deferred Annuity: a tax favored annuity account, deferring periodic payments until a later date.

Direct Transfer: a tax-free transfer of qualified funds from one custodian to another custodian.

Equity Indexed Annuities: investment vehicle for consumers who want to achieve stock market
linked gains, no market risk, minimum guaranteed values and tax deferral.

Exclusion Ratio: the ratio of the tax excludable portion of an annuity payment to the total annuity
payment (always non-qualified funds only)

Fixed Annuity:an annuity contract with a guaranteed and projected rate of interest; a current life
insurance license is all that is required to sell a fixed annuity.

Flexible Premium: multiple deposits made at regular intervals, or at the clients discretion to fund an
annuity contract.

Front-end Load: any fees deducted from the premium, before deposit, i.e. administrative or sales fees.

Guarantee of Principal: provision in some annuity contracts that guarantee owners that they will
get their initial premium back if they change their minds shortly after purchase.

Guaranteed Minimal Interest Rate: mandated by states that annuity contracts provide some
sort of minimum guarantee for life of contract; fates of 3% and 4% are typical.

High Water Mark Method: the difference between the highest index value achieved on any of the
contract anniversaries, is compared to the index value on the policy start date. At the end of the
contract term, the account is credited with the highest S&P Index value during the term multiplied by
the participation rate and credited interest.

Immediate Annuity: a series of periodic payments beginning within one year of the deposit of funds.

Interest Protection Provision: see Bailout.

Interest Spread Method: a "spread" percentage is deducted from the S&P Index appreciation and
the net percentage credited as interest. Example: If the S&P Index increased by 15%, and the spread
is 2%, the interest percent credited would be 13%.

IRA Rollover: a way to reposition one IRA account to defer taxation.

Life Expectancy Retirement Option (LERO): the method of calculating the minimum distribution
which must be made each year from a qualified annuity in order to satisfy IRS requirements after age
70 1/2.

Life Only: a settlement option that owner may select upon annuitization. Payments continue for life of
annuitant, payments stop when annuitant dies.

Life and 10 Year Certain: a settlement option that owner may select upon annuitization; payments
conatinue for life of annuitant like Life Only option but 10 years of payments are guaranteed.

Life Installment Refund: a settlement option that owner may select upon annuitization. Payments
continue for life of annuitant like Life Only option, but beneficiary may continue to recieve payments
until insurance company has paid out payments equalling the initial premium.

NonQualified Annuity: an annuity whose premiums are paid with after-tax dollars. When proceeds
are distributed, only the interest portion will be taxable.

Partial Withdrawal: the amount an owner can withdraw from their annuity.

Participation Rate: a percentage of the gain of the S&P 500 Index credited to the accumulation
value for a certain period. The participation rate is declared by the insurance company and may be
guaranteed annually or for the contract term. Example: If the Index increased 10% in one year, and the
Participation Rate was 90%, the gain for that year would be 9%. (Sometimes called the interest Index Factor).

Penalty-Free Withdrawals(Annuity Contracts): a partial withdrawal from the contract value,
during the surrender charge period, from which the company will not subtract a surrender charge.

Point-to-Point Method: the S&P Index value on the date of issue is compared to the index valued
at the end of the contract term. This percentage is then multiplied by the participation rate and credited
as interest.

Qualified Annuity: an annuity that is funded with pre-tax contributions. Payments are generally
100% reportable as income in the tax year the payment is recieved.

Qualified Funds: funds deposited in retirement plans before taxes are deducted (IRA, SEPs, Keogh
Plans, etc.). All withdrawals totally taxable.

S&P 500 Index: The Standard & Poor's Corporation publishes this index which measures the current
price behavior of a representative group of 500 stocks in relation to a base value set at an earlier point
in time (1941-1943). Section 1035(a) Exchange: the tax-free exchange of one nonqualified annuity
contract or life insurance policy for another, generally with a different company (life to life; life to
annuity; annuity to annuity).

Serial Issue: multiple annuity contracts, issued by the same company within a twelve month period to
the same owner.

Settlement Option: the methods by which the insurer may pay policy proceeds to the annuitant,
contract owner, policy owner or beneficiary.

Simple Interest: interest paid only on the actual balance for the actual amount of time it is on deposit.

Single Premium: a single deposit made to fund an annuity. Additional premiums cannot be added to
this policy.

Split Annuity: combination of two annuities, one immediate annuity and one deferred annuity.
Immediate provides guaranteed monthly income for 5, 7, or 10 years on a tax advantage basis.
During the interim, the moneys deposited into the deferred annuity are increasing; the ultimate goal is
that the value of the deferred annuity will equal the sum of dollars initially paid into the split annuity.

Surrender Charges: a charge deducted from the accumulated value at the time of full or partial
surrender of an annuity contract.

Surrender Value: the value of the annuity contract after surrender charges have been deducted
from the accumulated value.

Tax Deferral: major benefit of annuities. Paying taxes later instead of now. Allowing dollars you would
normally pay in taxes to stay inside of the annuity to accumulate additional compound interest for the
purchaser.

Trust: a written document, creating a legal entity to take over ownership of property, documents,
rewuest or other assets on behalf of the grantor.

Trustee: one entrusted with the property of another.

Variable Annuity: an annuity contract in which the account value fluctuates according to market
performance; there is no minimum interest rate guarantees, nor projections of future rates; the sale of
variable annuities is governed by the Securities and Exchange Commission.

Withdrawal Privilages: usually refers to the right of the owner to make withdrawals from the
annuity, without surrender penalty, up to a certain percentage of accumulated value.