UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549





FORM
10-KANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.For the fiscal year ended February 28,
2005







Commission
file number 1-8527

State of
Incorporation: DELAWARE  I.R.S. Employer Identification No.: 43-1288229 One North Jefferson Avenue, St. Louis, Missouri 63103
Registrants telephone number, including area code: (314) 955-3000

Securities registered pursuant to Section 12(b) of the Act:



|Title of each class             |  |  |  | Name of each exchangeon which registered
|------------------------------- |  |  |  | ----------------------------------------
|COMMON STOCK,
$1 PAR VALUE      |  |  |  | NEW YORK STOCK
EXCHANGE                 
|RIGHTS TO
PURCHASE COMMON STOCK |  |  |  | NEW YORK STOCK
EXCHANGE                 

Securities
registered pursuant to Section 12(g) of the Act: NONE



Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90
days.    Yes [X]  No .




Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K
  [X]




Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X]  No .




The aggregate market value of the voting and non
voting common equity held by non affiliates computed by reference to the price at which the common equity was last sold was approximately $2.7 billion
as of August 31, 2004.




At May 2, 2005, there were 77,009,770 shares of A.G.
Edwards, Inc. common stock, $1 par value, outstanding.


DOCUMENTS
INCORPORATED BY REFERENCE



Portions of the A.G. Edwards, Inc. Proxy Statement
filed with the Securities and Exchange Commission (SEC) in connection with the Companys Annual Meeting of Stockholders to be held
June 23, 2005, (the Companys 2005 Proxy Statement) are incorporated by reference into Part III hereof, as indicated. Other documents
incorporated by reference in this report are listed in the Exhibit Index of this Form 10-K.


---

A.G. EDWARDS, INC.

TABLE OF CONTENTS



|         |  |  |  |                                                                                                |  | Page
|-------- |  |  |  | ---------------------------------------------------------------------------------------------- |  | ----
|Part
I   |  |  |  |                                                                                                |  |     
|        
|Item
1   |  |  |  | Business                                                                                       |  |     
|Item
2   |  |  |  | Properties                                                                                     |  |     
|Item
3   |  |  |  | Legal Proceedings                                                                              |  |     
|Item
4   |  |  |  | Submission of Matters to a Vote of Security Holders                                            |  |     
|        
|Part
II  |  |  |  |                                                                                                |  |     
|        
|Item
5   |  |  |  | Market for Registrants Common Equity and Related Stockholder Matters                          |  |     
|Item
6   |  |  |  | Selected Financial Data                                                                        |  |     
|Item
7   |  |  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  |     
|Item
7A  |  |  |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  |     
|Item
8   |  |  |  | Financial Statements and Supplementary Data                                                    |  |     
|Item
9   |  |  |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure           |  |     
|Item
9A  |  |  |  | Controls and Procedures                                                                        |  |     
|Item
9B  |  |  |  | Other Information                                                                              |  |     
|        
|Part
III |  |  |  |                                                                                                |  |     
|        
|Item
10  |  |  |  | Directors and Executive Officers of the Registrant                                             |  |     
|Item
11  |  |  |  | Executive Compensation                                                                         |  |     
|Item
12  |  |  |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  |     
|Item
13  |  |  |  | Certain Relationships and Related Transactions                                                 |  |     
|Item
14  |  |  |  | Principal Accountant Fees and Services                                                         |  |     
|        
|Part
IV  |  |  |  |                                                                                                |  |     
|        
|Item
15  |  |  |  | Exhibits and Financial Statement Schedules                                                     |  |     

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PART I

|ITEM 1. |  | BUSINESS.
|------- |  | ---------

|(a) |  | General Development of Business
|--- |  | -------------------------------



A.G. Edwards, Inc., a Delaware corporation, is a
financial services holding company incorporated in 1983 whose principal subsidiary, A.G. Edwards & Sons, Inc. (Edwards), is the
successor to a partnership founded in 1887. A.G. Edwards, Inc. and its directly owned and indirectly owned subsidiaries (collectively referred to as
the Company) provide securities and commodities brokerage, investment banking, trust, asset management, financial and retirement planning,
insurance products, and other related financial services to individual, corporate, governmental, municipal and institutional clients through one of the
industrys largest retail branch distribution systems. At February 28, 2005, the Company had more than 700 locations in 49 states, the District of
Columbia, London, England, and Geneva, Switzerland and nearly 15,400 full-time employees, including 6,890 financial consultants providing services for
approximately 3,600,000 clients.




Edwards is a securities broker-dealer whose
business, primarily with individual clients, is conducted through one of the largest retail branch office networks (based upon number of offices and
financial consultants) in the United States. No single client accounts for a significant portion of Edwards business. Edwards is a member of all
major securities exchanges in the United States, the National Association of Securities Dealers, Inc. (NASD) and the Securities Investor
Protection Corporation (SIPC). In addition, Edwards has memberships on several domestic commodity exchanges and is registered with the
Commodity Futures Trading Commission (CFTC) as a futures commission merchant (FCM).




A.G. Edwards Trust Company FSB (Trust
Company) is a federally chartered savings bank that provides investment advisory, portfolio management and trust services. A.G. Edwards &
Sons (U.K.) Limited is a securities broker-dealer located in London, England, with an office located in Geneva, Switzerland. A.G. Edwards Capital, Inc.
serves as general partner to four private equity partnerships formed to invest in portfolios of venture capital and buy out funds and direct
investments. A.G. Edwards Technology Group, Inc. provides information technology services to the Company. Beaumont Insurance Company is a Vermont
captive insurance company that centralizes certain risk management functions and provides access to reinsurance markets.


|(b) |  | Financial Information About Industry Segments
|--- |  | ---------------------------------------------



The Company operates and is managed as a single
business segment providing investment services to its clients. These services are provided using the same sales and distribution personnel, support
services and facilities, and all are provided to meet the needs of its clients. The Company does not identify or manage assets, revenues or expenses
resulting from any service, or class of services, as a separate business segment.


|(c) |  | Narrative Description of Business
|--- |  | ---------------------------------



The total amount of revenue by class of products or
services that accounted for 10% or more of consolidated net revenues are set forth under Item 6 of this Form 10-K under the caption Consolidated
Five-Year Summary.


Commissions



Commission revenue represents the most significant
source of revenue for the Company, accounting for approximately 40% of total revenue each of the last five years. The following briefly describes the
Companys sources of commission revenue.




Listed and Over-the-Counter
Securities.  A significant portion of the Companys net revenue is derived from commissions generated on securities transactions
executed by Edwards, as a broker, in common and preferred stocks and debt instruments on exchanges or in the over-the-counter markets. Edwards
brokerage clients are primarily individual investors; however, resources continue to be directed to further the development of its institutional
business. Edwards commission rates for brokerage transactions vary with the size and complexity of the transactions, among other
factors.


3

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Options.  Edwards acts as broker in
the purchase and sale of option contracts to buy or sell securities, primarily common stocks and stock indexes. Edwards holds memberships for trading
on many of the principal option exchanges.




Mutual Funds.  Edwards distributes
mutual fund shares in continuous offerings of open-end funds. Income from the sale of mutual funds is derived significantly from the standard
dealers discount, which varies as a percentage of the clients purchase price depending on the size of the transaction and terms of the
selling agreement. Revenues derived from mutual fund sales continue to be a significant portion of net revenues. Edwards does not sponsor its own
mutual fund products.




Commodities and Financial
Futures.  Edwards acts as broker in the purchase and sale of commodity futures contracts, financial futures contracts, and options on
commodity and financial futures contracts. These contracts cover agricultural products, precious metals, currency, interest rate and stock index
futures.




Insurance.  As agent for several
unaffiliated life insurance companies, Edwards distributes life insurance and tax-deferred annuities.


Asset Management and Service Fees



Asset management and service fee revenues consist
primarily of revenues earned for providing support and services in connection with assets under third-party management, including mutual funds, managed
futures funds, money market funds, annuities and insurance contracts, as well as revenues from assets under management by Edwards. These revenues
include fees based on the amount of client assets under management and transaction-related fees as well as fees related to the administration of
custodial and other specialty accounts.




The Company manages client assets through the Trust
Company and through Edwards asset management service. The Company offers a fee-based transaction account, known as Client Choice, and a non
discretionary advisory program, known as Portfolio Advisor. The Company also offers fee-based fund advisory programs that allow clients to select from
recommended, established asset allocation models or customize their own models in certain programs. The fund advisory programs are known individually
as AGE Allocation Advisors, AGE Pathways, AGE Professional Fund Advisor and AGE Mutual Fund Marketplace. Additionally, the Company offers separately
managed accounts, known as Private Advisor Service and Select Advisor, to provide clients access to third-party investment management and related
consulting services in addition to Edwards asset management service.




Edwards offers the UltraAsset Account, Total Asset
Account® and the Cash Convenience Account, which combine a full-service brokerage account with a money market fund. These programs provide for the
automatic investment of customer free credit balances in one of several money market funds. Interest is not paid on uninvested credit balances held in
client accounts. In addition, the UltraAsset and Total Asset Accounts allow clients access to their margin and money market accounts through the use of
debit cards and checking account services provided by an unaffiliated major bank. The UltraAsset Account offers additional advanced features and
special investment portfolio reports. Clients are provided the opportunity to apply for an A.G. Edwards credit card provided by an unaffiliated major
bank.




Edwards also provides custodial services to its
clients for the various types of self-directed individual retirement accounts as provided under the Internal Revenue Code of 1986, as amended (the
Internal Revenue Code).


Principal Transactions



Client transactions in the equity and fixed-income
over-the-counter markets may be effected by Edwards acting as principal or as agent. Principal transactions, including market making, require
maintaining inventories of securities to satisfy customer order flow. These securities are valued in the Companys consolidated financial
statements at fair value, and unrealized gains or losses are included in the Companys results of operations.


Investment Banking



Edwards is an underwriter for public offerings of
corporate and municipal securities as well as corporate and municipal unit investment trusts and closed-end investment companies. Edwards public
finance activities include areas of specialization for municipal and governmental entities in primary and secondary schools, sports
and


4

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entertainment, municipal finance, housing,
higher education, health care, and public utilities. Corporate finance activities are focused on three industry groups: financial institutions and real
estate, energy, and emerging growth. As an underwriter, usually in conjunction with other broker-dealers, Edwards purchases securities for resale to
its clients. Edwards acts as an advisor to corporations and municipal entities in reviewing capital needs and determining the most advantageous means
for raising capital. It also advises clients in merger and acquisition activities and acts as agent in private placements.


Margin Financing



Securities transactions are executed on a cash or
margin basis. In margin transactions, Edwards extends credit to its clients for a portion of the purchase price, and the clients securities are
held as collateral. The amount of credit is limited by the initial margin regulations issued by the Board of Governors of the Federal Reserve System.
The current prescribed minimum initial margin for equity securities is equal to 50% of the value of equity securities purchased. The regulations of the
various exchanges require minimum maintenance margins, which are below the initial margin. Edwards maintenance requirements generally exceed the
exchanges requirements. Such requirements are intended to reduce the risk that a market decline will reduce the value of the collateral below
that of the clients indebtedness before the collateral can be liquidated.




Edwards utilizes a variety of sources to finance
client margin accounts, including its stockholders equity, customer free credit balances and, to the extent permitted by regulations, cash
received from loans of the clients collateral securities to other brokers and borrowings from banks, either unsecured or secured by the
clients collateral securities.


Private Client Services



Edwards Private Client Services group assists
individuals and businesses with a wide range of financial and investment needs. Individual investors can receive tailored asset allocation; tax- and
risk-reduction strategies; portfolio reviews of stocks, bonds and mutual funds (including concentrated equity strategies); and comprehensive financial
and estate planning recommendations. Closely held and publicly traded business clients can access services for business insurance, employee benefit
programs (retirement plans and key employee compensation), and management and ownership succession.


Investment Activities



The Companys investment activities primarily
include investing in equity and equity-related securities in connection with private investment transactions, either for the accounts of
Company-sponsored private equity partnerships or for its own account. These activities include mutual fund investments, including those made in
connection with its deferred compensation plan, venture capital investments, and investments in portfolio and operating companies. A.G. Edwards
Capital, Inc. is a general partner to the Company-sponsored private equity partnerships and provides them with investment advisory and administrative
services. The fair value of these investments is subject to a higher degree of volatility and may include significant risks of loss while attempting to
obtain higher returns than those available from publicly traded securities.


Research



Edwards provides both technical market and
fundamental analysis of numerous industries and individual securities for use by its financial consultants and clients. In addition, review and
analysis of general economic conditions, along with asset allocation recommendations, are available. These services are provided by Edwards
research analysts, economists and market strategists.


Competition



All aspects of the Companys business are
highly competitive. In addition to continued competition from firms traditionally engaged in the investment services business, there has been increased
competition in recent years from other sources such as commercial banks, insurance companies, online service providers, mutual fund sponsors and other
companies offering investment services both in the United States and globally for a similar client base, including the client base served by the
Company.


5

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Regulation



Edwards, as a broker-dealer and a FCM, is subject to
various federal and state laws that specifically regulate its activities as a broker-dealer in securities and commodities, as an investment advisor,
and as an insurance agent. Edwards is also subject to various regulatory requirements imposed by the securities and commodities exchanges and the NASD.
The primary purpose of these requirements is to enhance the protection of customer assets. Under certain circumstances, these rules may limit the
ability of the Company to make withdrawals of capital from Edwards. These laws and regulatory requirements generally subject Edwards to standards of
solvency with respect to capital requirements, financial reporting requirements, approval of qualifications of personnel engaged in various aspects of
its business, record-keeping and business practices, the handling of its clients funds resulting from securities and commodities transactions,
and the extension of credit to clients on margin transactions. Infractions of these rules and regulations may include suspension or monetary penalties
against individual employees or their supervisors, termination of employees and limitations on certain aspects of Edwards regulated businesses,
as well as censures and fines or proceedings of a civil or criminal nature that could result in a temporary or permanent suspension of a part or all of
Edwards activities.




As a registered broker-dealer, Edwards is subject to
net capital rules administered by the SEC and the New York Stock Exchange (NYSE). Under such rules, this subsidiary must maintain net
capital of not less than 2 percent of aggregate debit items, as defined, arising from customer transactions and would be restricted from expanding its
business or paying cash dividends or advancing loans to affiliates if its net capital were less than 5 percent of such items. These rules also require
Edwards to notify and sometimes obtain approval of the SEC and other regulatory organizations for substantial withdrawals of capital or loans to
affiliates. At February 28, 2005, Edwards net capital of $666 million was 30 percent of aggregate debit items and $623 million in excess of the
minimum required.




Certain other subsidiaries are also subject to
minimum capital requirements that may restrict the payment of cash dividends and advances to the Company. The only restriction with regard to the
payment of cash dividends by the Company is its ability to obtain cash through dividends and advances from its subsidiaries or borrowings, if needed.
See Note 7 (Net Capital Requirements) of the Notes to Consolidated Financial Statements.




Broker-dealers are also subject to other regulations
covering the operations of their business, including sales and trading practices; use of client funds and securities; and the conduct of directors,
officers and employees. Broker-dealers are also subject to regulation by state securities administrators in those states where they do business.
Violations of the regulations governing the actions of a broker-dealer can result in the revocation of broker-dealer licenses; the imposition of
censures or fines; the issuance of cease and desist orders; and the suspension or expulsion from the securities business of a firm, its officers or its
employees. The SEC and the national securities exchanges emphasize in particular the need for supervision and control by broker-dealers of their
employees.




A.G. Edwards & Sons (U.K.) Limited is registered
under the laws of the United Kingdom and is regulated as a securities broker-dealer by the Financial Services Authority. The Trust Company, a federally
chartered savings bank, is regulated by the Office of Thrift Supervision, the Federal Deposit Insurance Corporation and by the SEC as an investment
advisor. A.G. Edwards Capital, Inc. is registered with the SEC as an investment advisor. Beaumont Insurance Company is regulated by the Vermont
Department of Banking, Insurance, Securities and Health Care Administration.


|(d) |  | Financial information about geographic areas
|--- |  | --------------------------------------------



Revenues from the Companys non-U.S. operations
are currently not material. See Note 13 (Enterprise Wide Disclosure) of the Notes to Consolidated Financial Statements.


|(e) |  | Available information
|--- |  | ---------------------



The Company files annual, quarterly and current
reports, proxy statements and other information with the SEC.




The public may read and copy the Companys
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports filed with the SEC at the
SECs Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation
of


6

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the Public Reference Room by calling the SEC at
1-800-SEC-0330. This information may also be obtained from the SECs Web site at www.sec.gov.




The Company makes available free of charge its most
recent annual report on Form 10-K, its quarterly reports on Form 10-Q for the current fiscal year, its recent current reports on Form 8-K (and
amendments to these reports), its most recent proxy statement and its most recent summary annual report to shareholders, among other SEC filings, on
its Web site at www.agedwards.com. In some cases, these documents may not be available on the Companys Web site as soon as they are
available on the SECs Web site.


|ITEM 2. |  | PROPERTIES.
|------- |  | -----------



The Companys headquarters are located at One
North Jefferson Avenue, St. Louis, Missouri, 63103. It consists of several buildings owned by the Company, which contain approximately 2,600,000 square
feet of general office space as well as underground and surface parking and two parking garages. In addition, the Company owns one additional office
building in the St. Louis area, which is used for information technology and contingency planning facilities. The Companys branch offices total
more than 700 and, with a few exceptions, occupy leased premises throughout the United States as well as leased offices in London, England, and Geneva,
Switzerland.


|ITEM 3. |  | LEGAL PROCEEDINGS.
|------- |  | ------------------

|(a) |  | Litigation
|--- |  | ----------



The Company is a defendant in a number of lawsuits,
in some of which plaintiffs claim substantial amounts, relating primarily to its securities and commodities business. Management has determined that it
is likely that ultimate resolution in favor of the plaintiffs will result in losses to the Company on certain of these claims and as a result,
establishes accruals for potential litigation losses. The Company also is involved, from time to time, in investigations and proceedings by
governmental and self-regulatory agencies, certain of which may result in adverse judgments, fines or penalties. Factors considered by management in
estimating the Companys reserves for these matters are the loss and damages sought by the plaintiffs, the merits of the claims, the total cost of
defending the litigation, the likelihood of a successful defense against the claims, and the potential for fines and penalties from regulatory
agencies. Management, based on its understanding of the facts, reasonably estimates a range of loss and accrues what it considers appropriate to
reserve against probable loss for certain claims and regulatory matters. While results of litigation and investigations and proceedings by governmental
and self-regulatory agencies or the results of judgments, fines or penalties cannot be predicted with certainty, management, after consultation with
counsel believes that resolution of all such matters will not have a material adverse effect on the consolidated balance sheets, statements of earnings
or statements of cash flows of the Company, except that, as stated under Mutual Fund Matters (included under Item 7 of this Form 10-K), the
Company believes, based on current knowledge and after consulting with counsel, that the impact of the matters discussed under Mutual Fund
Matters will not be material to the consolidated financial condition of the Company, but could be material to the operating results in one or
more periods.


|(b) |  | Proceedings Terminated During the Fourth Quarter of the Fiscal
Year Covered by This Report
|--- |  | ------------------------------------------------------------------------------------------



Not applicable.


7

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|ITEM 4. |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
|------- |  | ----------------------------------------------------



There were no matters submitted to a vote of
security holders during the fourth quarter of the fiscal year ended February 28, 2005.


Executive Officers of the Company



The following table sets forth the executive
officers of the Company as of May 1, 2005. Executive officers are appointed by the Board of Directors to hold office until their successors are
appointed and qualified.







|Name               |  |  |  | Age |    | Office and Title |  | Year First Appointed Executive Officer of the Company                                                                                                                                                                                                                                                                
|------------------ |  |  |  | --- | -- | ---------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Robert L.
Bagby    |  |  |  |     | 61 |                  |  | Chairman of the Board and Chief Executive Officer of the Company and Edwards since 2001. Vice Chairman of the Board, Executive Vice President
and Director of the Branch Division of Edwards prior to 2001. Employee of Edwards for 30 years. Director of Edwards since 1979.                                        
|Ronald J.
Kessler  |  |  |  |     | 57 |                  |  | Vice
Chairman of the Board of the Company and Edwards since 2001. Executive Vice President of Edwards. Director of the Operations Division of Edwards.
Employee of Edwards for 37 years. Director of Edwards since 1989.                                                                                             
|Mary V.
Atkin      |  |  |  |     | 50 |                  |  | Director of the Staff Division of Edwards since March 2005. Executive Vice President of Edwards since 2001. Director of Corporate Strategy
from November 2003 to February 2005. President of A.G. Edwards Technology Group, Inc. from 2001 to 2003. Employee of Edwards for 27 years. Director of
Edwards since 1993.
|Gene M.
Diederich  |  |  |  |     | 46 |                  |  | Executive Vice President of Edwards since February 2005. Director of the Branch Division of Edwards since March 2005. Regional Manager of
Edwards from 2002 to 2005. Branch Manager of Edwards from 1996 to 2002. Employee of Edwards for 21 years. Director of Edwards since
2003.                                  
|Charles J.
Galli   |  |  |  |     | 64 |                  |  | Senior Vice President and Regional Manager of Edwards. Employee of Edwards for 26 years. Director of Edwards since 1990.                                                                                                                                                                                             
|Alfred E.
Goldman  |  |  |  |     | 71 |                  |  | Corporate Vice President, Director of Market Analysis of Edwards. Employee of Edwards for 45 years. Director of Edwards since
1967.                                                                                                                                                                                  
|Richard F.
Grabish |  |  |  |     | 56 |                  |  | Chairman and Chief Executive Officer ofA.G. Edwards Trust Company FSB since 2001. President of A.G. Edwards Trust Company FSB from 1987 to
2001. Senior Vice President of Edwards. Assistant Director of Sales and Marketing Division of Edwards. Employee of Edwards for 24 years. Director of
Edwards since 1988.  

8

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|Name                 |  |  |  | Age |    | Office and Title |  | Year First Appointed Executive Officer of the Company                                                                                                                                                                                                                                                                                                                                                                                                                      
|-------------------- |  |  |  | --- | -- | ---------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Douglas L.
Kelly     |  |  |  |     | 56 |                  |  | Vice
President, Secretary of the Company, Chief Financial Officer and Treasurer of the Company since 2001. Executive Vice President, Secretary, Director of
the Law and Compliance Division of Edwards, Chief Financial Officer, and Treasurer and Director of the Administration Division of Edwards since 2001.
Employee of Edwards for 11 years. Director of Edwards since 1994.                                                                                        
|Thomas H.
Martin Jr. |  |  |  |     | 45 |                  |  | Assistant Treasurer of the Company. Vice President of the Company since 2002. Controller of the Company and Edwards. Vice President of
Edwards. Employee of Edwards for 24 years.                                                                                                                                                                                                                                                                                          
|Peter M.
Miller      |  |  |  |     | 47 |                  |  | Executive Vice President and Director of the Sales and Marketing Division of Edwards since 2002. Regional Manager of Edwards from 1995 to
2002. Employee of Edwards for 16 years. Director of Edwards since 1997.                                                                                                                                                                                                                                                          
|John C.
Parker       |  |  |  |     | 45 |                  |  | Executive Vice President of Edwards. Director and President of the A.G. Edwards Technology Group, Inc. of Edwards since November 2003.
Senior Vice President of the A.G. Edwards Technology Group, Inc. of Edwards from 2001 to 2003. Employee of Edwards for more than three years. Employed
as Vice President of Information Services for Northwest Airlines from 1999 to 2001 and with Delta Airlines for 17 years in various positions. Director
of Edwards since 2002.
|Paul F.
Pautler      |  |  |  |     | 59 |                  |  | Executive Vice President and Director of the Capital Markets Division of Edwards since 2000. Director of Corporate Finance of Edwards from
1999 to 2001. Employee of Edwards for seven years. Director of Edwards since 2000.                                                                                                                                                                                                                                              
|Joseph G.
Porter     |  |  |  |     | 44 |                  |  | Assistant Treasurer of the Company. Vice President of the Company since 2002. Principal Accounting Officer of the Company and Edwards.
Senior Vice President and Assistant Director of the Administration Division of Edwards. Employee of Edwards for 22 years. Director of
Edwards since 2001.                                                                                                                                                                           

9

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PART II

|ITEM 5. |  | MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
|------- |  | --------------------------------------------------------------------------

Quarterly Financial Information(Unaudited)






|                       |  |  |  |   |      |  |  |   |                |  |  |   |       | Earnings Per Share | 
|---------------------- |  |  |  | - | ---- |  |  | - | -------------- |  |  | - | ----- | ------------------ | 
|
|Fiscal 2005
by Quarter |  |  |  |   |      |  |  |   |                |  |  |   |       |                    | 
|First                  |  |  |  | $ | 0.16 |  |  | $ | 40.50  $34.40 |  |  | $ | 665.9 |                    | 
|Second                 |  |  |  | $ | 0.16 |  |  | $ | 37.46  $31.09 |  |  | $ | 614.3 |                    | 
|Third                  |  |  |  | $ | 0.16 |  |  | $ | 39.74  $33.46 |  |  | $ | 638.0 |                    | 
|Fourth                 |  |  |  | $ | 0.16 |  |  | $ | 44.09  $39.10 |  |  | $ | 689.5 |                    | 
|                      
|Fiscal 2004
by Quarter |  |  |  |   |      |  |  |   |                |  |  |   |       |                    | 
|First                  |  |  |  | $ | 0.16 |  |  | $ | 33.00  $23.00 |  |  | $ | 557.9 |                    | 
|Second                 |  |  |  | $ | 0.16 |  |  | $ | 38.99  $32.51 |  |  | $ | 638.8 |                    | 
|Third                  |  |  |  | $ | 0.16 |  |  | $ | 41.80  $34.72 |  |  | $ | 629.3 |                    | 
|Fourth                 |  |  |  | $ | 0.16 |  |  | $ | 40.21  $33.74 |  |  | $ | 696.8 |                    | 

Issuer Purchases of Equity Securities



The following table presents the number of shares
purchased monthly under the Companys stock repurchase program for the three-month period ended February 28, 2005.







|Period                      |  |  |  | TotalNumber ofSharesPurchased |         | AveragePricePaid perShare |  | TotalNumber ofSharesPurchased asPart of
PubliclyAnnouncedPlan |       | MaximumNumber ofSharesThat May Yet BePurchased
Underthe Plans | 
|--------------------------- |  |  |  | ----------------------------- | ------- | ------------------------- |  | ------------------------------------------------------------- | ----- | ------------------------------------------------------------- | 
|December
(12/1/0412/31/04) |  |  |  |                               | 145,454 |                           |  | $                                                             | 40.31 |                                                               | 
|January
(1/1/051/31/05)    |  |  |  |                               | 166,480 |                           |  | $                                                             | 41.92 |                                                               | 
|February
(2/1/052/28/05)   |  |  |  |                               | 146,429 |                           |  | $                                                             | 42.94 |                                                               | 
|Total                       |  |  |  |                               | 458,363 |                           |  | $                                                             | 41.74 |                                                               | 



In November 2002, the Board of Directors authorized
the repurchase of up to 10,000,000 shares of the Companys outstanding common stock during the period January 1, 2003, through December 31, 2004.
This repurchase program was completed December 3, 2004.




In November 2004, the Board of Directors authorized
the repurchase of up to 10,000,000 shares of the Companys outstanding common stock during the period November 19, 2004 through December 31,
2006.


Stock Issuance



On July 2, 2004 and pursuant to the terms of the
A.G. Edwards, Inc. Non Employee Director Stock Compensation Plan (the Plan), the Company issued a total of 4,529 shares of unregistered
Company common stock to the Companys non employee directors equal to one-half of such directors annual compensation (as defined in such
Plan). The issuance of these unregistered shares qualifies as an exempt transaction pursuant to Section 4(2) of the Securities Act of
1933.


10

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Annual Meeting



The 2005 Annual Meeting of Stockholders (the
Annual Meeting) will be held at the Companys headquarters, One North Jefferson Avenue, St. Louis, Missouri, 63103 on Thursday, June
23, 2005, at 10 a.m. CDT. The Notice of Annual Meeting, Proxy Statement and Proxy Voting Card are mailed on or around May 16, 2005, to each stockholder
of record at the close of business on May 2, 2005. The Proxy Statement describes the items of business to be voted on at the Annual Meeting and
provides information on the Board of Directors nominees for directors and their principal affiliations with other organizations as well as other
information about the Company.


Dividend Payment Dates



The next four anticipated dividend payment dates are
July 1 and October 3, 2005, and January 3 and April 3, 2006.


Stock Exchange Listing



The Companys stock is traded on the NYSE under
the symbol AGE. The approximate number of stockholders on February 28, 2005, was 23,000. The approximate number of stockholders of record includes
customers who hold the Companys stock in their accounts on the books of Edwards.


Registrar/Transfer Agent



The Bank of New
York Shareholder Relations Department  11E P.O. Box 11258 Church Street Station New York, New York 10286-1258 (800)
524-4458


11

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|ITEM 6. |  | SELECTED FINANCIAL DATA.
|------- |  | ------------------------



Consolidated Five-Year Summary







|Year Ended                                                        |  |  |  | February 28, 2005 |           | February 29, 2004 |  | February 28, 2003 |           | February 28, 2002 |  | February 28, 2001
|----------------------------------------------------------------- |  |  |  | ----------------- | --------- | ----------------- |  | ----------------- | --------- | ----------------- |  | -----------------
|
|Revenues                                                          |  |  |  |                   |           |                   |  |                   |           |                   |  |                  
|Commissions:                                                      |  |  |  |                   |           |                   |  |                   |           |                   |  |                  
|Listed
securities                                                 |  |  |  | $                 | 440,680   |                   |  | $                 | 448,035   |                   |  | $                
|Options                                                           |  |  |  |                   | 22,274    |                   |  |                   | 23,669    |                   |  |                  
|Over-the-counter securities                                       |  |  |  |                   | 94,478    |                   |  |                   | 115,425   |                   |  |                  
|Mutual
funds                                                      |  |  |  |                   | 259,179   |                   |  |                   | 260,518   |                   |  |                  
|Commodities
and financial futures                                 |  |  |  |                   | 25,536    |                   |  |                   | 27,758    |                   |  |                  
|Insurance                                                         |  |  |  |                   | 192,019   |                   |  |                   | 205,622   |                   |  |                  
|Total                                                             |  |  |  |                   | 1,034,166 |                   |  |                   | 1,081,027 |                   |  |                  
|Asset
management and service fees:                                |  |  |  |                   |           |                   |  |                   |           |                   |  |                  
|Distribution
fees                                                 |  |  |  |                   | 498,026   |                   |  |                   | 366,735   |                   |  |                  
|Fee-based
accounts                                                |  |  |  |                   | 323,769   |                   |  |                   | 246,943   |                   |  |                  
|Service
fees                                                      |  |  |  |                   | 97,282    |                   |  |                   | 109,708   |                   |  |                  
|Total                                                             |  |  |  |                   | 919,077   |                   |  |                   | 723,386   |                   |  |                  
|Principal
transactions:                                           |  |  |  |                   |           |                   |  |                   |           |                   |  |                  
|Equities                                                          |  |  |  |                   | 75,504    |                   |  |                   | 79,662    |                   |  |                  
|Debt
securities                                                   |  |  |  |                   | 178,395   |                   |  |                   | 217,224   |                   |  |                  
|Total                                                             |  |  |  |                   | 253,899   |                   |  |                   | 296,886   |                   |  |                  
|Investment
banking:                                               |  |  |  |                   |           |                   |  |                   |           |                   |  |                  
|Underwriting
fees and selling concessions                         |  |  |  |                   | 174,555   |                   |  |                   | 240,094   |                   |  |                  
|Management
fees                                                   |  |  |  |                   | 71,067    |                   |  |                   | 81,767    |                   |  |                  
|Total                                                             |  |  |  |                   | 245,622   |                   |  |                   | 321,861   |                   |  |                  
|Interest:                                                         |  |  |  |                   |           |                   |  |                   |           |                   |  |                  
|Margin
account balances                                           |  |  |  |                   | 107,611   |                   |  |                   | 74,662    |                   |  |                  
|Securities
owned and deposits                                     |  |  |  |                   | 21,132    |                   |  |                   | 21,470    |                   |  |                  
|Total                                                             |  |  |  |                   | 128,743   |                   |  |                   | 96,132    |                   |  |                  
|Other                                                             |  |  |  |                   | 30,288    |                   |  |                   | 6,384     |                   |  |                  
|Total
Revenues                                                    |  |  |  |                   | 2,611,795 |                   |  |                   | 2,525,676 |                   |  |                  
|Interest
expense                                                  |  |  |  |                   | 4,114     |                   |  |                   | 2,859     |                   |  |                  
|Net
Revenues                                                      |  |  |  |                   | 2,607,681 |                   |  |                   | 2,522,817 |                   |  |                  
|Non-Interest Expenses                                             |  |  |  |                   |           |                   |  |                   |           |                   |  |                  
|Compensation
and benefits                                         |  |  |  |                   | 1,699,156 |                   |  |                   | 1,642,999 |                   |  |                  
|Communication
and technology                                      |  |  |  |                   | 241,830   |                   |  |                   | 272,047   |                   |  |                  
|Occupancy and
equipment                                           |  |  |  |                   | 151,426   |                   |  |                   | 137,617   |                   |  |                  
|Marketing and
business development                                |  |  |  |                   | 65,682    |                   |  |                   | 53,262    |                   |  |                  
|Floor
brokerage and clearance                                     |  |  |  |                   | 21,341    |                   |  |                   | 22,495    |                   |  |                  
|Other                                                             |  |  |  |                   | 133,839   |                   |  |                   | 149,123   |                   |  |                  
|Restructuring                                                     |  |  |  |                   |          |                   |  |                   |          |                   |  |                  
|Total
Non-Interest Expenses                                       |  |  |  |                   | 2,313,274 |                   |  |                   | 2,277,543 |                   |  |                  
|Earnings
Before Income Taxes                                      |  |  |  |                   | 294,407   |                   |  |                   | 245,274   |                   |  |                  
|Income
Taxes                                                      |  |  |  |                   | 107,933   |                   |  |                   | 85,789    |                   |  |                  
|Net
Earnings                                                      |  |  |  | $                 | 186,474   |                   |  | $                 | 159,485   |                   |  | $                
|Per Share
Data:                                                   |  |  |  |                   |           |                   |  |                   |           |                   |  |                  
|Diluted
Earnings                                                  |  |  |  | $                 | 2.37      |                   |  | $                 | 1.97      |                   |  | $                
|Basic
Earnings                                                    |  |  |  | $                 | 2.39      |                   |  | $                 | 1.99      |                   |  | $                
|Cash
Dividends                                                    |  |  |  | $                 | 0.64      |                   |  | $                 | 0.64      |                   |  | $                
|Book
Value                                                        |  |  |  | $                 | 23.21     |                   |  | $                 | 22.08     |                   |  | $                
|Other
Data:                                                       |  |  |  |                   |           |                   |  |                   |           |                   |  |                  
|Total
Assets                                                      |  |  |  | $                 | 4,687,797 |                   |  | $                 | 4,436,085 |                   |  | $                
|Stockholders Equity                                              |  |  |  | $                 | 1,787,691 |                   |  | $                 | 1,778,319 |                   |  | $                
|Cash
Dividends                                                    |  |  |  | $                 | 49,392    |                   |  | $                 | 51,007    |                   |  | $                
|Pre-tax
Return on Average Equity                                  |  |  |  |                   | 16.5      | %                 |  |                   | 14.1      | %                 |  |                  
|Return on
Average Equity                                          |  |  |  |                   | 10.5      | %                 |  |                   | 9.2       | %                 |  |                  
|Net Earnings
as a Percent of Net Revenues                         |  |  |  |                   | 7.2       | %                 |  |                   | 6.3       | %                 |  |                  
|Average
Common and Common Equivalent Shares Outstanding (Diluted) |  |  |  |                   | 78,766    |                   |  |                   | 80,990    |                   |  |                  
|Average
Common Shares Outstanding (Basic)                         |  |  |  |                   | 77,908    |                   |  |                   | 80,031    |                   |  |                  

Note: Where appropriate, prior years financial information has been
reclassified to conform to current-year presentation.

12

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|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
|------- |  | --------------------------------------------------------------------------------------



(Year references are to fiscal years ended February
28(29) unless otherwise specified)


Introduction



A.G. Edwards, Inc. is a financial services holding
company whose primary subsidiary is the national brokerage firm of A.G. Edwards & Sons, Inc. (Edwards). A.G. Edwards, Inc. and its
operating subsidiaries (collectively, the Company), provide securities and commodities brokerage, investment banking, trust, asset
management, retirement and financial planning, insurance products, and other related financial services to individual, corporate, governmental,
municipal and institutional clients through one of the industrys largest retail branch distribution systems. The Company is a St. Louis-based
financial services firm with more than 700 locations and nearly 15,400 full-time employees in 49 states, the District of Columbia, London, England and
Geneva, Switzerland.




The number of the Companys financial
consultants at year-end was 6,890, a decrease of 90 (1 percent) from the prior year-end. The total number of locations at the end of 2005 was 721, up
11 from the end of 2004.


Executive Summary



Many factors affect the Companys net revenues
and profitability, including economic and market conditions, the level and volatility of interest rates, inflation, political events, investor
sentiment, legislative and regulatory developments, and competition. Because many of these factors are unpredictable and beyond the Companys
control, earnings may fluctuate significantly from year to year.




Fiscal 2005 saw a continued interest by the retail
investor in the equity markets, primarily through diversified investments as market and economic conditions showed improvement, albeit at significantly
less robust levels than those seen in 2004. The Dow Jones Industrial Average (DJIA) increased 182 points (2 percent) to close the year at
10,766, the Standard & Poors 500 Index (S&P 500) increased 59 points (5 percent) to close the year at 1,204, and the Nasdaq
Composite Index (Nasdaq) increased 22 points (1 percent) to close the year at 2,052. Activity on the major exchanges was mixed when
compared to the previous year. Overall trading volumes on the New York Stock Exchange (NYSE) increased 1.1 percent in 2005 and 1.5 percent
in 2004, while overall trading volumes on the Nasdaq decreased 0.5 percent in 2005 but increased 5.4 percent in 2004.




The Company generates revenues primarily through
Edwards. These revenues can be categorized into four main components: transaction-based revenues, asset management services, interest on margin
accounts and underwriting and management fees from investment banking transactions.




Transaction-based revenues are driven from the
purchase or sale of securities by clients for their accounts. The Company earns commissions for acting as an agent for the client in the equity and
fixed-income markets, as a dealer when the client purchases either fixed-income or equity securities from inventory, or from selling concessions when
the client purchases newly issued securities in investment banking transactions. These revenues can be affected by trading volumes, by market and
economic conditions, and by investor sentiment because the Companys clients are primarily retail-oriented.




Revenues from asset management services are based
principally on the amount of certain client assets purchased or held through the Company. These assets may be managed by the Company or by third-party
investment managers, including mutual funds, managed futures funds, money market funds, annuities and insurance contracts. The Company manages client
assets through the A.G. Edwards Trust Company FSB, a wholly owned subsidiary, and through Edwards asset management service. The Company offers a
fee-based transaction account, known as Client Choice, and a non discretionary advisory program known as Portfolio Advisor. The Company also offers
fee-based fund advisory programs that allow clients to select from recommended, established asset allocation models or customize their own models in
certain programs. The fund advisory programs are known individually as AGE Allocation Advisors, AGE Pathways, AGE Professional Fund Advisor and AGE
Mutual Fund Marketplace. Additionally, the Company offers separately managed accounts, known as Private Advisor Service and Select Advisor, to provide
clients access to third-party investment management and related consulting services, as well as Edwards asset management
service.


13

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The SEC adopted rules effective April 15, 2005, with
compliance dates between April 15, 2004, and October 24, 2005, concerning when broker-dealers providing advice will and will not be exempted from the
Investment Advisers Act of 1940 (the Advisers Act). The Company is still evaluating the effect of the rules on the Companys business
accounts and services. The rules will require additional disclosures for certain brokerage accounts at Edwards and may make certain accounts and
services subject to the Advisers Act that were not previously subject to the act or require changes in such accounts and services. Accounts and
services subject to the Advisers Act are subject, among other things, to additional disclosures, a fiduciary standard of care and restrictions on
certain transactions.




Client assets in fee-based accounts increased $3.5
billion (13 percent) from the end of 2004. An analysis of changes in assets in fee-based accounts from February 29, 2004, to February 28, 2005 is
detailed below (dollars in thousands):







|Assets in fee-based accounts                 |  |  |  | February 28,2005 |            | February 29,2004 |  | Difference
|-------------------------------------------- |  |  |  | ---------------- | ---------- | ---------------- |  | ----------
|Fund advisory
programs                       |  |  |  | $                | 9,871,000  |                  |  | $         
|Separately
managed accounts                  |  |  |  |                  | 11,438,000 |                  |  |           
|Company-managed and other fee-based accounts |  |  |  |                  | 9,443,000  |                  |  |           
|Total assets
in fee-based accounts           |  |  |  | $                | 30,752,000 |                  |  | $         



Interest revenue is derived primarily from financing
clients margin transactions. These revenues are based on the amount of client margin balances and the rate of interest charged on these
balances.




Investment banking management fees result from
bringing new issues of securities, both equity-based and fixed income-based, to the market for issuers. The issuers are generally corporate or
municipal clients but may be institutional clients in the case of exchange-traded funds and related products. The fees generated from these
transactions vary depending on the number and size of transactions successfully completed.




The Companys expenses are primarily related to
compensation and benefits. The largest components are variable in nature and relate to commissions paid to the Companys financial consultants
related to transaction-based or asset management services and incentive compensation, which is largely based on the profitability of the Company. The
Company is focusing on making a larger portion of its non compensation expenses more variable in nature, particularly those expenses related to its
back-office systems.




The results for fiscal 2005 include a $10 million
charge in occupancy and equipment expenses, which represents the cumulative effect of correcting the recognition period for rent-escalation clauses and
lease incentives included in certain branch-office leases. The results for fiscal 2005 also include an $8 million credit in other expenses, to
correctly recognize state registration fees for Edwards financial consultants over the registration period. The correcting entries were recorded
in the fourth quarter of fiscal 2005 and were not material to the quarter, the year, or any prior periods consolidated financial
information.




In 2005, the Company experienced an increase in net
revenues, net earnings and earnings per share versus the previous fiscal year, as it did in 2004 compared to 2003. Net revenues increased 3 percent to
$2.6 billion in 2005 after increasing 14 percent to $2.5 billion in 2004. In 2005, the Companys overall results benefited from increasing client
interest in fee-based products and services, as revenues from asset management and service fees increased $196 million (27 percent). Meanwhile, the
Companys revenues from equity-based transactions decreased $87 million (10 percent) and revenues from fixed income-based transactions, primarily
corporate and municipal debt, decreased $51 million (18 percent). The revenue results of both equity-based and fixed income-based transactions reflect
decreased interest in individual securities. Net earnings increased $27 million (17 percent) to $186 million in 2005 after increasing $41 million (34
percent) to $159 million in 2004. Diluted earnings per share for the Company were $2.37 in 2005 versus $1.97 in 2004 and $1.46 in 2003. The
Companys profit margin was 7.2 percent in 2005, 6.3 percent in 2004 and 5.4 percent in 2003.


14

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The following table illustrates the composition of
the Companys net revenues for 2005, 2004 and 2003:







|                                  |  |  |  | 2005 |    | 2004 |  | 2003
|--------------------------------- |  |  |  | ---- | -- | ---- |  | ----
|Commissions                       |  |  |  |      | 40 | %    |  |     
|Asset management
and service fees |  |  |  |      | 35 | %    |  |     
|Principal
transactions            |  |  |  |      | 10 | %    |  |     
|Investment
banking                |  |  |  |      | 9  | %    |  |     
|Net
interest                      |  |  |  |      | 5  | %    |  |     
|Other                             |  |  |  |      | 1  | %    |  |     



In addition to continued competition from firms
traditionally engaged in the investment services business, there has been increased competition in recent years from other sources, such as commercial
banks, insurance companies, online service providers, mutual fund sponsors and other companies offering financial services both in the United States
and globally for a similar client base, including the client base served by the Company.


Results of Operations



The following table and discussion summarize the
changes in major categories of revenues and expenses for the past two fiscal years (dollars in thousands):







|Increase (Decrease)                |  |  |  | 2005 vs. 2004 |         | 2004 vs. 2003 | 
|---------------------------------- |  |  |  | ------------- | ------- | ------------- | 
|Revenues                           |  |  |  |               |         |               | 
|Commissions                        |  |  |  | $             | (46,861 | )             | 
|Asset
management and service fees  |  |  |  |               | 195,691 |               | 
|Principal
transactions             |  |  |  |               | (42,987 | )             | 
|Investment
banking                 |  |  |  |               | (76,239 | )             | 
|Interest                           |  |  |  |               | 32,611  |               | 
|Other                              |  |  |  |               | 23,904  |               | 
|Total
Revenues                     |  |  |  |               | 86,119  |               | 
|Interest
expense                   |  |  |  |               | 1,255   |               | 
|Net
Revenues                       |  |  |  | $             | 84,864  |               | 
|Non-Interest Expenses              |  |  |  |               |         |               | 
|Compensation
and benefits          |  |  |  | $             | 56,157  |               | 
|Communication
and technology       |  |  |  |               | (30,217 | )             | 
|Occupancy and
equipment            |  |  |  |               | 13,809  |               | 
|Marketing and
business development |  |  |  |               | 12,420  |               | 
|Floor
brokerage and clearance      |  |  |  |               | (1,154  | )             | 
|Other                              |  |  |  |               | (15,284 | )             | 
|Total
Non-Interest Expenses        |  |  |  | $             | 35,731  |               | 

Commissions



Commission revenues arise from activities in
transaction-based accounts in listed and over-the-counter securities, mutual funds, futures, options, and insurance products. As commissions are
transaction-based revenues, they are influenced by the number, size and market value of client transactions and by product mix. The relatively flat
trading volumes on the major stock exchanges along with greater client interest in fee-based products and services were reflected in the Companys
commission revenues, which decreased $47 million (4 percent) from $1.08 billion in 2004 to $1.03 billion in 2005. Commissions from listed transactions
decreased $9 million (2 percent), and over-the-counter transactions decreased $21 million (18 percent). Revenues from commodities and financial futures
decreased $2 million (8 percent). Decreased interest in variable annuities resulted in a $14 million (7 percent) decline in insurance
revenues.




The $193 million (22 percent) increase in commission
revenues in 2004 over 2003 resulted primarily from greater investor participation in the equity markets given the favorable market conditions during
that period. Commissions from listed transactions increased $61 million (15 percent), over-the-counter transactions increased $45 million (63 percent),
and mutual funds increased $59 million (29 percent). Revenues from commodities,


15

---



managed futures funds and insurance products
increased a combined $29 million (14 percent) as investors also increased their interest in these investment products.


Asset Management and Service Fees



Asset management and service fees include fees based
on the value of client assets under management and transaction-related service fees as well as fees related to the administration of custodial and
other specialty accounts. These revenues consist primarily of revenues earned from providing support and services in connection with client assets
under third-party management, including mutual funds, managed futures funds, money market funds, annuities and insurance contracts as well as the
Companys trust services and other fee-based accounts. (Please refer to Mutual Fund Matters below.)




Asset management and service fee revenues increased
$196 million (27 percent) in 2005. Fees received in connection with client assets under third-party management and the Companys trust services
and fee-based transaction accounts increased $77 million (31 percent), primarily as a result of an increase in the number of accounts choosing
fee-based alternatives and the increased valuation of these accounts. Fees received from third-party mutual funds and insurance providers increased $92
million (32 percent) primarily reflecting the individual investors return to the equity markets through diversified investments. Revenues from
fees received from third-party investment managers in connection with the distribution of certain third-party money market funds offered by the Company
increased $43 million (146 percent). For a portion of 2003 and 2004 these money market funds had reached expense caps due to low money fund yields. In
the third quarter of 2004, the investors in these money market funds voted to lift the funds expense caps. Service fees decreased $12 million (11
percent) primarily due to the March 2004 sale of CPI Qualified Plan Consultants, Inc. (CPI), a third-party administrator of employee
benefit plans and a wholly owned subsidiary, to a group of investors headed by CPIs management.




In 2004, asset management and service fees increased
$70 million (11 percent) from 2003 for mainly the same reasons as those in comparing 2005 results to 2004. The 2004 results additionally reflect a $19
million (21 percent) increase primarily from changes to some of the Companys account services fees.


Principal Transactions



The Company maintains inventories of fixed-income
and equity securities to satisfy client demand and, therefore, effects certain transactions with its clients by acting as a principal. Realized and
unrealized gains and losses result from the sale and holding of securities positions for resale to clients and are included in principal transaction
revenue.




In 2005, revenue from principal transactions
decreased $43 million (14 percent) from 2004, directly reflecting investors decreased interest in fixed-income products. Revenue from the sale of
municipal, government and corporate fixed-income securities decreased $39 million (18 percent). Revenue from the sale of corporate equity securities
decreased $4 million (5 percent) reflecting decreased activity in the over-the-counter equity markets.




In 2004, revenue from principal transactions
decreased $14 million (5 percent) from 2003. Revenue from the sale of municipal and corporate fixed-income securities decreased $34 million (17
percent), while revenues from the sale of corporate equity securities increased $21 million (36 percent). These results reflected investors shift
away from fixed-income products toward equity investments.


Investment Banking



The Company derives investment banking revenues from
underwriting public offerings of securities for corporate and governmental entities for sale to its clients. The Company also provides advisory
services to corporate and governmental entities.




Revenues from investment banking activities
decreased $76 million (24 percent) in 2005. Underwriting fees and selling concessions from corporate equity transactions decreased $53 million (30
percent) and management fees decreased $11 million (13 percent). These changes largely reflect lower volume in the underwriting of a variety of
closed-end funds and other equity products in interest-rate-sensitive sectors. Underwriting fees and selling concessions from corporate, municipal and
government debt products declined $12 million (19 percent) due to reduced offerings of debt products due to a rising rate environment.


16

---



In 2004, investment banking revenues increased $71
million (28 percent). Underwriting fees and selling concessions from corporate equity transactions increased $76 million (77 percent), and management
fees increased $15 million (22 percent), while revenues derived from debt products decreased $20 million (24 percent) as clients sought higher yields
and greater exposure to the equity markets.


Net Interest Revenue



Interest revenue net of interest expense increased
$31 million (34 percent) during 2005. In January 2004, the Company changed the base rate upon which margin interest is calculated from the broker call
rate to the prime rate. Additionally, the Company saw slight increases in average client margin balances, and the Federal Funds rate increased 1.5
percent during 2005. In 2004, these revenues decreased $8 million (7 percent) due to declines in average client margin balances and in average interest
rates.


Other Revenue



Other revenue increased $24 million during 2005,
reflecting gains of $10 million on the sale of shares in the Chicago Mercantile Exchange and the mark-to-market on other shares in this exchange that
the Company currently holds. Other revenue for 2005 additionally reflects a $6 million insurance settlement as a result of business interruptions
following September 11, 2001, and a $10 million increase in private equity investment valuations.


Compensation and Benefits



Compensation and benefits increased $56 million (3
percent) in 2005. A significant portion of this expense is variable in nature and relates to commissionable sales (sales upon which payments are made
to financial consultants) and to incentive compensation, which are based largely upon the Companys profitability. The year-to-year comparisons
generally reflect the changes in commissionable sales and profitability in both 2005 and 2004. The variable components within compensation and
benefits, including commissions paid to financial consultants and incentive compensation, increased $32 million (3 percent) in 2005 as a result of
increased sales and earnings. Administrative salaries and other fixed components increased $24 million (5 percent) as a result of general wage
increases and higher medical costs.




In 2004, compensation and benefits increased $195
million (13 percent). The variable components within compensation and benefits increased $204 million (20 percent) following increased sales and
earnings. Administrative salaries and other fixed components decreased $9 million (2 percent) as a result of fewer employees and lower medical costs
due to plan changes.


Communication and Technology



Communication and technology expenses decreased $30
million (11 percent) in 2005 largely resulting from decreased depreciation and lower leasing costs associated with financial consultants
workstations and lower amortization of the development costs associated with the Companys online account access service. These decreases were
partially offset by increased professional expenses for outside consultants working on the Companys Gateway Initiative. Depreciation related to
the Companys broker workstations will increase as the installation of new workstations is completed.




In 2004, communication and technology expenses
decreased $11 million (4 percent) principally related to lower costs associated with financial consultants workstations.


Occupancy and Equipment



Occupancy and equipment expenses increased $14
million (10 percent) during 2005 primarily due to the $10 million charge recorded to correct the recognition period for rent-escalation clauses and
lease incentives included in certain branch-office leases.




In 2004, occupancy and equipment expenses increased
due to depreciation of the recently completed home office expansion.


17

---

Marketing and Business Development



Marketing and business development increased $12
million (23 percent) in 2005 and $8 million (17 percent) in 2004 primarily as a result of additional advertising expenses associated with the
Companys branding initiative. While the amount has not been determined with certainty, the Company expects its branding initiative to cost
approximately $20 million annually, with fluctuations from quarter to quarter.


All Other Expenses



All remaining operational expenses decreased $16
million (10 percent) in 2005. Legal and consulting service expenses increased $17 million as a result of additional resources needed to address various
regulatory changes, investigations and legal matters. This was partially offset by an $8 million credit recorded to correctly recognize state
registration fees for the Companys financial consultants over the registration period. In addition, other expenses declined due to charges in
2004 related to the Georgia consent order and the breakpoint discount reserve discussed below.




In 2004, other expenses increased $39 million (36
percent) due primarily to a $20 million increase in the reserve associated with certain payments agreed to under a consent order with the Georgia
Secretary of States Securities and Business Regulation Division and the establishment of a $4.5 million reserve for mutual fund breakpoint
refunds to clients as required by the National Association of Securities Dealers (NASD). The charge for the breakpoint reserve, net of
decreases in related compensation expenses, was $2.6 million. In addition, the cost of professional consulting and auditing services related to legal
and other regulatory matters increased $9 million in 2004 and insurance expense increased $2 million due to higher premiums for various insurance
coverages.


Income Taxes



The Companys effective tax rate was 37 percent
for the current year, compared to 35 percent for the prior year. For additional information regarding the difference between effective tax rates and
statutory rates, see Note 8 (Income Taxes) of the Notes to Consolidated Financial Statements. In addition, see the discussion under Critical
Accounting Estimates below.


Mutual Fund Matters



The SEC, the NASD, the NYSE and other regulators,
including several states, as well as Congress, have examined or are examining the manner in which mutual funds compensate broker-dealers in connection
with the sale of mutual funds. Edwards has provided information in connection with certain related examinations. Regulatory changes may require
additional disclosures by mutual fund companies, broker-dealers or both and may affect the methods of compensating broker-dealers for mutual fund
sales. The SEC adopted rules, effective December 13, 2004, prohibiting mutual funds from paying for the distribution of their shares with brokerage
commissions. Certain mutual fund companies have notified Edwards that they have changed the amount of compensation they will pay for brokerage
transactions. Edwards continues to compete actively for transaction business from institutional clients. Edwards is not able to predict the impact of
changes related to mutual funds, including changes to date, additional changes that may occur in regulations, or changes caused by the actions of
mutual fund companies. However, the effect could be significant and adverse.




Edwards has received information requests or
subpoenas from the SEC, the NASD, the NYSE, several states and the United States Department of Justice with respect to mutual fund transactions that
involve market timing, late trading or both. The SEC, the NASD and certain states have examined certain branch offices and have or will take statements
from employees of Edwards in connection with such mutual fund transactions. In addition, Edwards has received requests for information concerning
timing of mutual fund transactions in variable annuity sub accounts.




The Commonwealth of Massachusetts has filed an
administrative complaint against Edwards concerning certain mutual fund transactions in Edwards Boston-Back Bay office. The complaint alleges
violations of securities laws by mutual fund market timing transactions and seeks a cease and desist order, an administrative fine in an unspecified
amount, compensation to mutual fund holders for losses alleged to have resulted from market timing, and other relief. Other regulatory actions or
claims may occur related to market timing or other mutual fund activities.


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The SEC has asked Edwards, like other firms that use
the National Securities Clearing Corporations Fund/SERV system to submit and clear mutual fund orders, to review systems and controls for mutual
fund orders to prevent late trading, and to review all mutual fund orders for a year to determine whether late trading in mutual funds occurred. As a
result of the reviews of systems and controls, Edwards has changed certain policies and procedures and developed and implemented additional policies
and procedures relating to the receipt and supervision of mutual fund orders.




Edwards has been named as a defendant in a lawsuit
that seeks class-action status filed in the state of Missouri that alleges, among other matters, that mutual fund transactions with certain customers
were influenced by undisclosed shared revenue payments. Edwards is currently reviewing the suit.




The NASD has advised Edwards that it has made a
preliminary determination to recommend that disciplinary action be brought against Edwards concerning the sale of mutual fund class-B shares and
class-C shares based upon, it is believed, the grounds for recommending such sales, suitability violations, and Edwards supervisory procedures. The
NASD orally proposed a settlement, including a fine, the offer to customers to switch to class-A shares and reimbursement for any disadvantage based on
actual performance and the retention of an independent consultant to review supervisory procedures. Edwards is currently reviewing the
allegations.




The NASD has advised Edwards that it has made a
preliminary determination to recommend a disciplinary action against Edwards concerning the sale of certain mutual funds to IRA accounts in 2001 and
2002 for which certain mutual fund companies made additional payments to Edwards for sales.




The Company is not able to determine or predict with
certainty the impact of the matters described above individually or in the aggregate in terms of eventual fines, other payments or losses, or changes
in operations, product offerings or expenses because of the preliminary stages of certain of such matters, the uncertainty of outcomes and the evolving
basis of such regulatory actions. The Company believes, based on current knowledge and after consulting with counsel, that the impact of such matters
will not be material to the consolidated financial condition of the Company, but could be material to operating results in one or more
periods.


Auction Rate Securities



Edwards and other financial services firms have been
asked by the SEC to voluntarily review the supervision and operation of certain auction rate securities transactions. Edwards has performed its review.
Regulatory actions or claims may result from the information developed during the review. The Company is unable to determine with certainty the impact
of any such action or claims, if any, on its results of operations for future periods. However, based on currently known facts, the Company believes
that the resolution of any such matters, if brought, would not have a material adverse effect on the Companys consolidated balance sheets,
statements of earnings or statements of cash flows.


Prospectus Delivery Requirements



Edwards and other financial services firms have
received information requests from the NYSE with respect to delivery of prospectuses to customers. Edwards has performed the review and responded to
the NYSEs inquiry. Regulatory actions or claims may result from the information developed during the review. The Company is unable to determine
with certainty the impact of any such action or claims, if any, on its results of operations for future periods. However, based on currently known
facts, the Company believes that the resolution of any such matters, if brought, would not have a material adverse effect on the Companys
consolidated balance sheets, statements of earnings or statements of cash flows.


Liquidity and Capital Resources



The Companys assets fluctuate in the normal
course of business, primarily due to the timing of certain transactions. The principal sources for financing the Companys business are
stockholders equity, cash generated from operations, short-term bank loans and securities-lending arrangements. The Company has no long-term
debt. Average short-term bank loans of $32 million and $75 million and average securities-lending arrangements of $196 million and $181 million in 2005
and 2004, respectively, were primarily used to finance customer receivables.


19

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The Company is engaged in a major business process
and technology transformation program, the Gateway Initiative, which, when fully developed and implemented, will update the Companys technology
infrastructure, streamline its back-office processing and strengthen its data management capabilities. The Company has currently designated up to $196
million, including internal development costs, to fund this program. Total costs through February 28, 2005, were $165 million, of which $48 million was
capitalized. Significant components of this program are expected to be completed in fiscal year 2006 including migration to an application service
provider, which is scheduled to occur in May 2005. Thomson Financial, Inc. (Thomson), an application service provider, will provide the
software and computer operations that support the Companys securities processing functions. The Company entered into an 86-month Hosting and
Services Agreement with Thomson in October 2004. Under this agreement, which starts upon conversion, minimum payments are $10 million a year with an
expected range of payments between $18 million and $22 million a year. While the Companys migration of its back-office systems to Thomson is
intended to better align trade-processing expenses with client transaction activity, the Company intends to maintain certain of its existing
back-office systems for a transitional period of approximately 12 to 18 months.




In March 2004, the Company sold CPI to a group of
investors headed by CPIs management. The transaction price was $17 million, with $11 million received immediately and the remainder to be
received over a five-year period. CPI had approximately 350 employees at the date of sale.




In November 2004, the Companys Board of
Directors authorized the repurchase of up to 10 million shares of the Companys outstanding stock during the period November 19, 2004, through
December 31, 2006. In November 2002, the Companys Board of Directors authorized the repurchase of up to 10 million shares of the Companys
outstanding common stock during the period of January 1, 2003, through December 31, 2004. The Company purchased 7,026,392 shares at an aggregate cost
of $250 million in 2005; 3,102,854 shares at an aggregate cost of $105 million in 2004; and 3,145,319 shares at an aggregate cost of $115 million in
2003, under these authorizations and other previously authorized plans.


Tabular Disclosure of Contractual Obligations



The following table summarizes information about the
Companys long-term contractual commitments and obligations as of February 28, 2005 (dollars in thousands):







|Contractual Obligations                                   |  |  |  | Total |         | 2006 |  | 20072008 |         | 20092010 |  | More than 5 years
|--------------------------------------------------------- |  |  |  | ----- | ------- | ---- |  | --------- | ------- | --------- |  | -----------------
|Operating lease
obligations                               |  |  |  | $     | 451,200 |      |  | $         | 72,300  |           |  | $                
|Communications,
technology, and other service commitments |  |  |  |       | 187,000 |      |  |           | 45,400  |           |  |                  
|                                                          |  |  |  | $     | 638,200 |      |  | $         | 117,700 |           |  | $                



The Company had committed $127 million to various
private equity partnerships, of which $43 million remained unfunded at February 28, 2005. These commitments are subject to calls by the partnerships as
funds are needed.




The Company has commitments to its employees for
deferred compensation in the amount of $224 million that becomes payable in future years as defined in the plan and determined by participants
request or retirement. For additional information regarding the deferred compensation liability, see Note 3 (Employee Profit Sharing Plan) of the Notes
to Consolidated Financial Statements.




Management believes the Company has adequate sources
of credit available, if needed, to finance customer-trading volumes, expansion of its branch system, stock repurchases, dividend payments and major
capital expenditures. At February 28, 2005, the Company, with certain limitations, had access to $1.3 billion in uncommitted lines of credit as well as
the ability to increase its securities lending activities.




The Companys principal subsidiary, A.G.
Edwards & Sons, Inc., is required by the SEC to maintain specified amounts of liquid net capital to meet its obligations to clients. See Note 7
(Net Capital Requirements) of the Notes to Consolidated Financial Statements.


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Critical Accounting Estimates



The consolidated financial statements are prepared
in accordance with accounting principles generally accepted in the United States of America. In preparing these consolidated financial statements,
management makes use of certain estimates and assumptions. See Note 1 (Summary of Significant Accounting Policies) of the Notes to Consolidated
Financial Statements. The Company believes that of its significant accounting policies, the following critical policies, estimates and assumptions may
involve a higher degree of judgment and complexity and are the most susceptible to significant fluctuations in the near term.




Valuation of Investments




The fair value of investments, for which a quoted
market or dealer price is not available, is based on managements estimate. Among the factors considered by management in determining the fair
value of investments are cost, terms and liquidity of the investment, the sale price of recently issued securities, the financial condition and
operating results of the issuer, earnings trends and consistency of operating cash flows, the long-term business potential of the issuer, the quoted
market price of securities with similar quality and yields that are publicly traded, and other factors generally pertinent to the valuation of
investments.




Valuation of Stock Options




The Company applies the provisions of Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations to account for
options granted under its Incentive Stock Plan. Based on the provisions of this plan, no compensation expense has been recognized for options issued
under this plan. The fair value of the stock options is estimated using expected dividend yields of the Companys stock, the expected volatility
of the stock, the expected length of time the options remain outstanding, risk-free interest rates and expected forfeiture rates. Changes in one or
more of these factors may significantly affect the estimated fair value of the stock options. Please see Recent Accounting Pronouncements below for
discussion of pending guidance on stock-based compensation.




Software Development Costs




The Company applies the provisions of American
Institute of Certified Public Accountants Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, to account for costs associated with internally developed software. The Company capitalizes the costs associated with software
development based on guidance provided in the statement. The primary factors considered in determining the amount to capitalize include the stage of
the development effort and the type of work being performed. Only costs incurred during the application development stage are capitalized. When placed
in service, these costs are typically amortized over three to five years and are included in communication and technology expense on the Companys
consolidated statements of earnings.




Allowance for Doubtful Accounts From
Customers




Receivables from customers consist primarily of
floating rate loans collateralized by margin securities. Management estimates an allowance for doubtful accounts to reserve for potential losses from
unsecured and partially unsecured customer accounts deemed uncollectible. The facts and circumstances surrounding each receivable and the number of
shares, price and volatility of the underlying collateral are considered by management in determining the allowance. Management continually evaluates
its receivables from customers for collectibility and possible write-off. The Company manages the credit risk associated with its receivables from
customers through credit limits and continuous monitoring of collateral.




Legal Reserves and Regulatory
Matters




The Company is a defendant in a number of lawsuits,
in some of which plaintiffs claim substantial amounts, relating primarily to its securities and commodities business. Management has determined that it
is likely that ultimate resolution in favor of the plaintiffs will result in losses to the Company on certain of these claims and as a result,
establishes accruals for potential litigation losses. The Company also is involved, from time to time, in investigations and proceedings by
governmental and self-regulatory agencies, certain of which may result in


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adverse judgments, fines or penalties. Factors
considered by management in estimating the Companys reserve for these matters are the loss and damages sought by the plaintiffs, the merits of
the claims, the total cost of defending the litigation, the likelihood of a successful defense against the claims, and the potential for fines and
penalties from regulatory agencies. Management, based on its understanding of the facts, reasonably estimates a range of loss and accrues what it
considers appropriate to reserve against probable loss for certain claims and regulatory matters. While results of litigation and investigations and
proceedings by governmental and self-regulatory agencies or the results of judgments, fines or penalties cannot be predicted with certainty,
management, after consultation with counsel believes that resolution of all such matters are not expected to have a material adverse effect on the
consolidated balance sheets, statements of earnings or statements of cash flows of the Company, except that, as stated under Mutual Fund
Matters included under Item 7 of this Form 10-K, the Company believes, based on current knowledge and after consulting with counsel, that the
impact of the matters discussed under Mutual Fund Matters will not be material to the consolidated financial condition of the Company, but
could be material to the operating results in one or more periods.




Income Taxes




The Company operates in multiple taxing
jurisdictions, and as a result, accruals for tax contingencies require management to make estimates and judgments with respect to the ultimate tax
liability in any given year. Actual results could vary from these estimates. In managements opinion, adequate provisions for income taxes have
been made for all years.


Recent Accounting Pronouncements



In December 2004, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment
(SFAS No. 123R), which requires the recognition of the cost of employee services received in exchange for an award of equity instruments in
the financial statements and measurement based on the grant-date fair value of the award. It also requires the cost to be recognized over the period
during which an employee is required to provide service in exchange for the award (presumptively the vesting period). SFAS No. 123R replaces SFAS No.
123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25 and its related interpretations. As modified by the SEC on
April 21, 2005, SFAS No. 123R is effective for fiscal years beginning after June 15, 2005, and applies to all awards granted, modified, repurchased, or
cancelled after that date. The Company elected early adoption of SFAS No. 123R on March 1, 2005, using the modified prospective
method.




Under the modified prospective method of SFAS No.
123R, the Company is required to recognize compensation expense for the outstanding portion of any awards for which compensation expense had not
previously been recognized or disclosed under SFAS No. 123. The Company currently recognizes the compensation expense of restricted stock awards and
discloses the pro forma compensation expense of stock option awards in the year of the award. Under SFAS No. 123R, the Company will recognize
compensation expense for restricted stock and stock option awards over the vesting period, generally three years following the award. As the Company
will have recognized compensation expense or disclosed pro forma compensation expense related to all outstanding awards as of the adoption date, there
will be no compensation expense recognized for these outstanding awards in future periods. In addition, as the awards related to fiscal year 2006 will
not be issued until the end of fiscal year 2006, the compensation expense related to those awards will not be recognized in 2006 but over the
subsequent vesting period. As restricted stock and stock option awards are determined each year, the impact to the Companys consolidated
financial statements of the adoption of SFAS No. 123R cannot be predicted with certainty. However, the fair value of restricted stock awards recognized
in compensation expense ranged in value from $22 million to $35 million over the last three fiscal years, and the fair value of stock option awards
disclosed in the footnotes to the consolidated financial statements, but not included in compensation expense, over the last three fiscal years ranged
from $5 million to $8 million.




In January 2003, the FASB issued FASB Interpretation
No. 46, Consolidation of Variable Interest Entities (FIN 46), an interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, which requires the consolidation by a business enterprise of variable interest entities if the business
enterprise is the primary beneficiary. FIN 46 was effective January 31, 2003, for the Company with respect to interests in variable interest entities
obtained after that date. With respect to interests in variable interest entities existing prior to February 1,


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2003, the FASB issued FASB Interpretation No. 46
(revised December 2003) (FIN 46R), which extended the effective date to the period ended May 31, 2004. The Companys adoption of FIN
46R did not have a material impact on the Companys consolidated financial statements. The Company did not acquire any variable interest entities
subsequent to February 1, 2003.




In March 2005, the FASB issued FASB Interpretation
No. 47, Accounting for Conditional Asset Retirement Obligations  an interpretation of FASB Statement No. 143 (FIN 47).
FIN 47 clarifies that SFAS No. 143, Accounting for Asset Retirement Obligations, requires that an entity recognize a liability for the fair
value of a conditional asset retirement obligation when incurred if the liabilitys fair value can be reasonably estimated. FIN 47 is effective no
later than the end of fiscal years ending after December 15, 2005. The Company has not yet determined the impact that the adoption of this
interpretation will have on its consolidated financial statements.


Risk Management

General



The business activities of the Company expose it to
a variety of risks. Management of these risks is necessary for the long-term profitability of the Company. The Company manages these risks through the
establishment of numerous policies, procedures and controls. The most significant risks to the Company are operational, legal, credit and market
risk.


Off-Balance Sheet Arrangements



The Company does not rely on off-balance sheet
arrangements or transactions with unconsolidated, special purpose or limited purpose entities to manage its risks.


Operational Risk



Operational risk refers generally to the risk of
loss resulting from the Companys operations including, but not limited to, improper or unauthorized execution and processing of transactions,
deficiencies in the Companys operating systems, and inadequacies or breaches in the Companys control processes. The Company operates in
diverse markets and is reliant on the ability of its employees and systems to process high numbers of transactions. In the event of a breakdown or
improper operation of systems or improper actions by employees, the Company could suffer financial loss, regulatory sanctions and damage to its
reputation.




In order to mitigate and control operational risk,
the Company developed, and continues to enhance, specific policies and procedures that are designed to identify and manage operational risk at
appropriate levels. For example, the Company has procedures that require that all transactions are accurately recorded and properly reflected in the
Companys books and records and are confirmed on a timely basis, that position valuations are subject to periodic independent review procedures,
and that collateral and adequate documentation (e.g., master agreements) are obtained from counterparties in appropriate circumstances. The Company
also uses periodic self-assessments and Internal Audit examinations as further reviews of operational risk.


Legal Risk



Legal risk includes the risk of non compliance with
applicable legal and regulatory requirements and the risk that a counterpartys performance obligations will be unenforceable. The Company is
generally subject to extensive regulation in the different jurisdictions in which it conducts its business. The Company has established procedures
based on legal and regulatory requirements that are designed to ensure compliance with all applicable statutory and regulatory requirements. The
Company also has established procedures that are designed to ensure that senior managements policies relating to conduct, ethics and business
practices are followed. In connection with its business, the Company has various procedures addressing significant issues such as regulatory capital
requirements, sales and trading practices, new products, use and safekeeping of customer funds and securities, extension of credit, collection
activities, money laundering, privacy, and record keeping.


Credit Risk



Credit risk is discussed in Note 12 (Financial
Instruments  Off-Balance Sheet Risk and Concentration of Credit Risk) of the Notes to Consolidated Financial Statements.


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Market Risk



Market risk is the risk of loss to the Company
resulting from changes in interest rates, equity prices or both and has an indirect effect on the Companys credit risk as it relates to the value
of customer collateral. The Company is exposed to market risk to the extent it maintains positions in fixed-income and equity securities. The Company
primarily manages its risk through the establishment of trading policies and guidelines and through the implementation of control and review
procedures. The Companys management philosophy provides for communication among all responsible parties throughout the trading
day.




The Companys policy is to purchase inventory
to provide investment products for its clients. Consequently, the Company purchases only inventory that it believes it can readily sell to its clients,
thus reducing the Companys exposure to liquidity risk but not market fluctuations. In addition, the Executive Committee of Edwards establishes
maximum inventory guidelines for fixed-income and equity securities subject to certain limited exceptions.




Capital management and control are accomplished
through review (by product managers and members of management outside of the trading areas) of various reports, including reports that show current
inventory profit and loss, inventory positions exceeding set limits, and aged positions. Additionally, real-time capital management data is available
for intraday assessment.




The Company does not act as a dealer, trader or
end-user of complex derivative products such as swaps, collars and caps. The Company provides advice and guidance on complex derivative products to
selected clients; however, this activity does not involve the Company acquiring a position or commitment in these products. The Company will
occasionally hedge a position in its debt inventory through the use of financial futures contracts and treasury securities. These transactions are not
material to the Companys consolidated financial condition or results of operations.




Equity Price Risk.  Equity price
risk refers to the risk of changes in the level or volatility of the price of equity securities. The Company is exposed to this risk as a result of its
market making activities. At February 28, 2005, and February 29, 2004, the potential daily loss in the fair value of equity securities was not
material.




Included in investments are $146 million in mutual
funds and treasury securities that the Company uses to hedge its deferred compensation liability. The potential daily gain or loss in the fair value of
these mutual funds is offset by a similar potential change in the value of the deferred compensation liability. Also included in investments are $141
million in private equity investments that are subject to a high degree of volatility and may be susceptible to significant fluctuations particularly
in the near term.




Interest Rate Risk.  Interest rate
risk refers to the risk of changes in the level or volatility of interest rates, the speed of payments on mortgage-backed securities, the shape of the
yield curve and credit spreads. The Company is exposed to this risk as a result of maintaining inventories of interest-rate-sensitive financial
instruments. This is the Companys primary market risk.




The Company elects to use a sensitivity analysis
approach to express the potential decrease in the fair value of the Companys debt inventory consisting of interest-rate-sensitive financial
instruments. The Company calculated the potential loss in fair value of its debt inventory by calculating the change in the offering price of each
inventory item resulting from a 10 percent increase in either the Treasury yield curve for taxable products or the Municipal Market Data
Corporations AAA rated yield curve for tax-exempt products. Using this method, if such a 10 percent increase occurred, the Company calculated a
potential loss in fair value of its debt inventory of $4 million at February 28, 2005, and $11 million at February 29, 2004.


Forward-Looking Statements



The Managements Discussion and Analysis of
Financial Condition and Results of Operations and other sections of this Form 10-K contain forward-looking statements within the meaning of federal
securities laws. Actual results are subject to risks and uncertainties, including both those specific to the Company and those specific to the
industry, which could cause results to differ materially from those contemplated. The risks and uncertainties include, but are not limited to, general
economic conditions; the actions of competitors; actions of clients; regulatory actions or changes; governmental and fiscal policy; changes in
legislation; interest rate changes; changes in


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accounting standards; risk management;
technology changes and costs; estimates of capital expenditures; implementation and effects of the estimates for the branding initiative; client
interest in specific products and services; outsourcing agreements including implementation and conversion; expense reduction strategies; workforce
reductions; changes in payment for mutual fund distribution; disposition of real estate holdings; and statements about management expectations,
strategic objectives and growth opportunities. Undue reliance should not be placed on the forward-looking statements, which speak only as of the date
of this Form 10-K. The Company does not undertake any obligation to publicly update any forward-looking statements.


|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|-------- |  | -----------------------------------------------------------



The information required by this item is contained
in Managements Discussion and Analysis of Financial Condition and Results of Operations under the caption Risk Management
 Market Risk of this Form 10-K.


|ITEM 8. |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|------- |  | --------------------------------------------

Supplemental Data



The quarterly financial data required by this item
is included under Item 5 of Part II of this Form 10-K under the caption Quarterly Financial Information.


MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING



The Companys management is responsible for
establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)).




Management assessed the effectiveness of the
Companys internal control over financial reporting as of February 28, 2005. In making this assessment Company management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control  Integrated
Framework. Management has concluded that, as of February 28, 2005, the Companys internal control over financial reporting is effective based
on those criteria.




All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.




The Companys independent registered public
accounting firm audited managements assessment of the effectiveness of the Companys internal control over financial reporting as of
February 28, 2005, as stated in their report appearing below, which expresses unqualified opinions on managements assessment and on the
effectiveness of the Companys internal control over financial reporting as of February 28, 2005.


May 2, 2005

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of A.G. Edwards, Inc. St. Louis,
Missouri

We have audited managements assessment, included in the accompanying
Managements Report on Internal Control Over Financial Reporting, that A.G. Edwards, Inc. and subsidiaries (the Company) maintained
effective internal control over financial reporting as of February 28, 2005, based on criteria established in Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the Companys
internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinions.

A companys internal control over financial reporting is a process designed
by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and
effected by the companys board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets
that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented
or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In our opinion, managements assessment that the Company maintained effective
internal control over financial reporting as of February 28, 2005, is fairly stated, in all material respects, based on the criteria established in
Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 28, 2005, based on the
criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended
February 28, 2005 of the Company and our report dated May 3, 2005 expressed an unqualified opinion on those consolidated financial statements and
financial statement schedule.

/s/ Deloitte & Touche LLP

St. Louis, Missouri May 3, 2005

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of A.G. Edwards, Inc. St. Louis,
Missouri

We have audited the accompanying consolidated balance sheets of A.G. Edwards, Inc.
and subsidiaries (the Company) as of February 28, 2005 and February 29, 2004, and the related consolidated statements of earnings,
stockholders equity, and cash flows for each of the three years in the period ended February 28, 2005. Our audits also included the financial
statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our
audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of A.G. Edwards, Inc. and subsidiaries as of February 28, 2005 and February 29, 2004, and the results of
their operations and their cash flows for each of the three years in the period ended February 28, 2005, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Companys internal control over financial reporting as of February 28, 2005,
based on Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated May 3, 2005 expressed an unqualified opinion on managements assessment of the effectiveness of the Companys internal control
over financial reporting and an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.



/s/ Deloitte
& Touche LLP


St. Louis, Missouri May 3, 2005

27

---



Financial Statements



A.G.
Edwards, Inc. Consolidated Balance Sheets


|                                                                                                           |  |  |  | February 28, 2005 |           | February 29, 2004
|---------------------------------------------------------------------------------------------------------- |  |  |  | ----------------- | --------- | -----------------
|
|Assets                                                                                                     |  |  |  |                   |           |                  
|Cash and cash
equivalents                                                                                  |  |  |  | $                 | 209,039   |                  
|Cash and
government securities, segregated under federal and other regulations                             |  |  |  |                   | 392,241   |                  
|Securities
purchased under agreements to resell                                                            |  |  |  |                   | 235,540   |                  
|Securities
borrowed                                                                                        |  |  |  |                   | 117,302   |                  
|Receivables:                                                                                               |  |  |  |                   |           |                  
|Customers,
less allowance for doubtful accounts of $8,045 and $45,593                                      |  |  |  |                   | 2,236,170 |                  
|Brokers and
dealers                                                                                        |  |  |  |                   | 37,387    |                  
|Clearing
organizations                                                                                     |  |  |  |                   | 1,514     |                  
|Fees,
dividends and interest                                                                               |  |  |  |                   | 104,605   |                  
|Securities
inventory, at fair value:                                                                       |  |  |  |                   |           |                  
|State and
municipal                                                                                        |  |  |  |                   | 190,150   |                  
|Government
and agencies                                                                                    |  |  |  |                   | 152,532   |                  
|Corporate                                                                                                  |  |  |  |                   | 57,521    |                  
|Investments                                                                                                |  |  |  |                   | 337,394   |                  
|Property and
equipment, at cost, net of accumulated depreciation and amortization of $715,328 and $639,756 |  |  |  |                   | 503,976   |                  
|Deferred
income taxes                                                                                      |  |  |  |                   | 60,189    |                  
|Other
assets                                                                                               |  |  |  |                   | 52,237    |                  
|                                                                                                           |  |  |  | $                 | 4,687,797 |                  
|Liabilities and Stockholders Equity                                                                       |  |  |  |                   |           |                  
|Short-term
bank loans                                                                                      |  |  |  | $                 | 16,400    |                  
|Checks
payable                                                                                             |  |  |  |                   | 299,120   |                  
|Securities
loaned                                                                                          |  |  |  |                   | 207,012   |                  
|Payables:                                                                                                  |  |  |  |                   |           |                  
|Customers                                                                                                  |  |  |  |                   | 749,901   |                  
|Brokers and
dealers                                                                                        |  |  |  |                   | 655,486   |                  
|Clearing
organizations                                                                                     |  |  |  |                   | 80,252    |                  
|Securities
sold but not yet purchased, at fair value                                                       |  |  |  |                   | 36,439    |                  
|Employee
compensation and related taxes                                                                    |  |  |  |                   | 440,833   |                  
|Deferred
compensation                                                                                      |  |  |  |                   | 223,821   |                  
|Income
taxes                                                                                               |  |  |  |                   | 7,378     |                  
|Other
liabilities                                                                                          |  |  |  |                   | 183,464   |                  
|Total
Liabilities                                                                                          |  |  |  |                   | 2,900,106 |                  
|Stockholders Equity:                                                                                      |  |  |  |                   |           |                  
|Preferred
stock, $25 par value:                                                                            |  |  |  |                   |           |                  
|Authorized,
4,000,000 shares, none issued                                                                  |  |  |  |                   |          |                  
|Common stock,
$1 par value:                                                                                |  |  |  |                   |           |                  
|Authorized,
550,000,000 shares: issued, 96,463,114 shares                                                  |  |  |  |                   | 96,463    |                  
|Additional
paid-in capital                                                                                 |  |  |  |                   | 295,478   |                  
|Retained
earnings                                                                                          |  |  |  |                   | 2,137,114 |                  
|                                                                                                           |  |  |  |                   | 2,529,055 |                  
|Less:
Treasury stock, at cost (19,442,437 and 15,936,194 shares)                                           |  |  |  |                   | 741,364   |                  
|Total
Stockholders Equity                                                                                 |  |  |  |                   | 1,787,691 |                  
|                                                                                                           |  |  |  | $                 | 4,687,797 |                  

See Notes to Consolidated Financial Statements.

28

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A.G. Edwards, Inc.Consolidated Statements of Earnings






|Year Ended                         |  |  |  | February 28,2005 |           | February 29,2004 |  | February 28,2003
|---------------------------------- |  |  |  | ---------------- | --------- | ---------------- |  | ----------------
|
|Revenues                           |  |  |  |                  |           |                  |  |                 
|Commissions                        |  |  |  | $                | 1,034,166 |                  |  | $               
|Asset
management and service fees  |  |  |  |                  | 919,077   |                  |  |                 
|Principal
transactions             |  |  |  |                  | 253,899   |                  |  |                 
|Investment
banking                 |  |  |  |                  | 245,622   |                  |  |                 
|Interest                           |  |  |  |                  | 128,743   |                  |  |                 
|Other                              |  |  |  |                  | 30,288    |                  |  |                 
|Total
Revenues                     |  |  |  |                  | 2,611,795 |                  |  |                 
|Interest
expense                   |  |  |  |                  | 4,114     |                  |  |                 
|Net
Revenues                       |  |  |  |                  | 2,607,681 |                  |  |                 
|                                  
|Non-Interest Expenses              |  |  |  |                  |           |                  |  |                 
|Compensation
and benefits          |  |  |  |                  | 1,699,156 |                  |  |                 
|Communication
and technology       |  |  |  |                  | 241,830   |                  |  |                 
|Occupancy and
equipment            |  |  |  |                  | 151,426   |                  |  |                 
|Marketing and
business development |  |  |  |                  | 65,682    |                  |  |                 
|Floor
brokerage and clearance      |  |  |  |                  | 21,341    |                  |  |                 
|Other                              |  |  |  |                  | 133,839   |                  |  |                 
|Total
Non-Interest Expenses        |  |  |  |                  | 2,313,274 |                  |  |                 
|Earnings
Before Income Taxes       |  |  |  |                  | 294,407   |                  |  |                 
|Income
Taxes                       |  |  |  |                  | 107,933   |                  |  |                 
|Net
Earnings                       |  |  |  | $                | 186,474   |                  |  | $               
|                                  
|Earnings
Per Share:                |  |  |  |                  |           |                  |  |                 
|Diluted                            |  |  |  | $                | 2.37      |                  |  | $               
|Basic                              |  |  |  | $                | 2.39      |                  |  | $               

See Notes to Consolidated Financial Statements.

29

---

A.G. Edwards, Inc.Consolidated Statements of Stockholders
Equity

(Three Years Ended February 28, 2005)






|                                     |  |  |  | Common Stock |        | Additional Paid-In Capital |  | Retained Earnings |         | Treasury Stock |  | Total Stockholders Equity
|------------------------------------ |  |  |  | ------------ | ------ | -------------------------- |  | ----------------- | ------- | -------------- |  | --------------------------
|
|Balances,
March 1, 2002              |  |  |  | $            | 96,463 |                            |  | $                 | 286,480 |                |  | $                         
|Net
earnings                         |  |  |  |              |        |                            |  |                   |         |                |  |                           
|Dividends
declared  $0.64 per share |  |  |  |              |        |                            |  |                   |         |                |  |                           
|Treasury
stock acquired              |  |  |  |              |        |                            |  |                   |         |                |  |                           
|Stock
issued:                        |  |  |  |              |        |                            |  |                   |         |                |  |                           
|Employee
stock purchase/option plans |  |  |  |              |        |                            |  |                   | 1,432   |                |  |                           
|Restricted
stock                     |  |  |  |              |        |                            |  |                   | 1,116   |                |  |                           
|Balances,
February 28, 2003          |  |  |  |              | 96,463 |                            |  |                   | 289,028 |                |  |                           
|Net
earnings                         |  |  |  |              |        |                            |  |                   |         |                |  |                           
|Dividends
declared  $0.64 per share |  |  |  |              |        |                            |  |                   |         |                |  |                           
|Treasury
stock acquired              |  |  |  |              |        |                            |  |                   |         |                |  |                           
|Stock
issued:                        |  |  |  |              |        |                            |  |                   |         |                |  |                           
|Employee
stock purchase/option plans |  |  |  |              |        |                            |  |                   | 3,883   |                |  |                           
|Restricted
stock                     |  |  |  |              |        |                            |  |                   | (212    | )              |  |                           
|Balances,
February 29, 2004          |  |  |  |              | 96,463 |                            |  |                   | 292,699 |                |  |                           
|Net
earnings                         |  |  |  |              |        |                            |  |                   |         |                |  |                           
|Dividends
declared  $0.64 per share |  |  |  |              |        |                            |  |                   |         |                |  |                           
|Treasury
stock acquired              |  |  |  |              |        |                            |  |                   |         |                |  |                           
|Stock
issued:                        |  |  |  |              |        |                            |  |                   |         |                |  |                           
|Employee
stock purchase/option plans |  |  |  |              |        |                            |  |                   | 1,761   |                |  |                           
|Restricted
stock                     |  |  |  |              |        |                            |  |                   | 1,018   |                |  |                           
|Balances,
February 28, 2005          |  |  |  | $            | 96,463 |                            |  | $                 | 295,478 |                |  | $                         

See Notes to Consolidated Financial Statements.

30

---

A.G. Edwards, Inc.Consolidated Statements of Cash Flows






|Year Ended                                           |  |  |  | February 28,2005 |          | February 29,2004 |  | February 28,2003
|---------------------------------------------------- |  |  |  | ---------------- | -------- | ---------------- |  | ----------------
|
|Cash Flows
From Operating Activities:                |  |  |  |                  |          |                  |  |                 
|Net
earnings                                         |  |  |  | $                | 186,474  |                  |  | $               
|Noncash and
nonoperating items included in earnings: |  |  |  |                  |          |                  |  |                 
|Depreciation
and amortization                        |  |  |  |                  | 111,519  |                  |  |                 
|Expense of
restricted stock awards                   |  |  |  |                  | 33,076   |                  |  |                 
|Deferred
income taxes                                |  |  |  |                  | 34,002   |                  |  |                 
|(Gain) Loss
on investments, net                      |  |  |  |                  | (21,798  | )                |  |                 
|Allowance for
doubtful accounts                      |  |  |  |                  | (916     | )                |  |                 
|(Increase)
decrease in operating assets:             |  |  |  |                  |          |                  |  |                 
|Cash and
government securities, segregated           |  |  |  |                  | (18,515  | )                |  |                 
|Securities
purchased under agreements to resell      |  |  |  |                  | (213,185 | )                |  |                 
|Securities
borrowed                                  |  |  |  |                  | (11,268  | )                |  |                 
|Receivable
from customers                            |  |  |  |                  | 137,753  |                  |  |                 
|Receivable
from brokers and dealers                  |  |  |  |                  | (23,499  | )                |  |                 
|Receivable
from clearing organizations               |  |  |  |                  | (709     | )                |  |                 
|Fees,
dividends and interest receivable              |  |  |  |                  | (14,552  | )                |  |                 
|Securities
inventory                                 |  |  |  |                  | 6,447    |                  |  |                 
|Trading
investments, net                             |  |  |  |                  | (11,134  | )                |  |                 
|Other
assets                                         |  |  |  |                  | (12,723  | )                |  |                 
|Increase
(decrease) in operating liabilities:        |  |  |  |                  |          |                  |  |                 
|Checks
payable                                       |  |  |  |                  | 41,554   |                  |  |                 
|Securities
sold under agreements to repurchase       |  |  |  |                  |         |                  |  |                 
|Securities
loaned                                    |  |  |  |                  | 68,224   |                  |  |                 
|Payable to
customers                                 |  |  |  |                  | (375,113 | )                |  |                 
|Payable to
brokers and dealers                       |  |  |  |                  | 612,038  |                  |  |                 
|Payable to
clearing organizations                    |  |  |  |                  | (29,751  | )                |  |                 
|Securities
sold but not yet purchased                |  |  |  |                  | (8,469   | )                |  |                 
|Employee
compensation and related taxes              |  |  |  |                  | 69       |                  |  |                 
|Deferred
compensation                                |  |  |  |                  | 17,087   |                  |  |                 
|Income
taxes                                         |  |  |  |                  | (1,521   | )                |  |                 
|Other
liabilities                                    |  |  |  |                  | 21,711   |                  |  |                 
|Net cash from
operating activities                   |  |  |  |                  | 526,801  |                  |  |                 
|Cash Flows
From Investing Activities:                |  |  |  |                  |          |                  |  |                 
|Purchase of
property and equipment, net              |  |  |  |                  | (116,789 | )                |  |                 
|Purchase of
other investments                        |  |  |  |                  | (22,008  | )                |  |                 
|Proceeds from
sale of a subsidiary                   |  |  |  |                  | 10,830   |                  |  |                 
|Proceeds from
sale or maturity of other investments  |  |  |  |                  | 22,620   |                  |  |                 
|Net cash from
investing activities                   |  |  |  |                  | (105,347 | )                |  |                 
|Cash Flows
From Financing Activities:                |  |  |  |                  |          |                  |  |                 
|Short-term
bank loans                                |  |  |  |                  | (11,900  | )                |  |                 
|Securities
loaned                                    |  |  |  |                  | (92,650  | )                |  |                 
|Employee
stock transactions                          |  |  |  |                  | 84,648   |                  |  |                 
|Purchase of
treasury stock                           |  |  |  |                  | (250,123 | )                |  |                 
|Cash
dividends paid                                  |  |  |  |                  | (49,955  | )                |  |                 
|Net cash from
financing activities                   |  |  |  |                  | (319,980 | )                |  |                 
|Net Increase
(Decrease) in Cash and Cash Equivalents |  |  |  |                  | 101,474  |                  |  |                 
|Cash and Cash
Equivalents, at Beginning of Year      |  |  |  |                  | 107,565  |                  |  |                 
|Cash and Cash
Equivalents, at End of Year            |  |  |  | $                | 209,039  |                  |  | $               



Interest payments, net of amounts capitalized of
$612, $925 and $2,565, totaled $4,083 in 2005, $2,616 in 2004 and $5,494 in 2003.




Income taxes paid totaled $75,006 in 2005, $87,668
in 2004 and $43,223 in 2003.




Supplemental disclosures of noncash financing
activities: Restricted stock awards granted totaled $35,062 in 2005, $30,637 in 2004 and $21,738 in 2003.


See Notes to Consolidated Financial Statements.

31

---

A.G. Edwards, Inc.Notes to Consolidated Financial Statements(Three
years ended February 28, 2005)(Dollars in thousands, except per share amounts)



|1. |  | Summary of Significant Accounting Policies
|-- |  | ------------------------------------------

Business Description



A.G. Edwards, Inc. and its wholly owned subsidiaries
(collectively referred to as the Company) operate and are managed as a single business segment providing investment services to its
clients. The Company offers a wide range of services designed to meet clients individual investment needs, including securities and commodities
brokerage, investment banking, trust, asset management, retirement and financial planning, insurance products, and other related financial services to
individual, corporate, governmental, municipal and institutional clients through one of the industrys largest retail branch distribution systems.
These services are provided by 6,890 financial consultants in more than 700 locations of the Companys principal operating subsidiary, A.G.
Edwards & Sons, Inc. (Edwards). Because these services are provided using the same sales and distribution personnel, support services
and facilities, and all are provided to meet the needs of its clients, the Company does not identify or manage assets, revenues or expenses resulting
from any service, or class of services, as a separate business segment. With headquarters in St. Louis, the Company has offices in 49 states, the
District of Columbia, London, England and Geneva, Switzerland.


Basis of Financial Information



The consolidated financial statements of the Company
are prepared in conformity with accounting principles generally accepted in the United States of America. All material intercompany balances and
transactions have been eliminated in consolidation. Where appropriate, prior years financial information has been reclassified to conform to the
current-year presentation. The most significant reclassifications relate to certain service fees received from certain money funds, which were
previously netted in other expenses and are now reflected in asset management and service fees, and to certain third-party advisory fees, which were
previously netted in asset management and service fees and are now reflected in other expenses.




Included in other expenses in 2005 is a $7,875
credit recorded to correctly recognize state registration fees for Edwards financial consultants over the registration period.


Use of Estimates



In preparing these consolidated financial
statements, management makes use of estimates concerning certain assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and certain revenues and expenses during the reporting period. Management considers its significant estimates, which are
most susceptible to change, to be the fair value of certain investments, the allowance for doubtful accounts, and accruals for litigation, regulatory
matters and income taxes. Actual results could differ from these estimates.


Cash and Cash Equivalents



Cash and cash equivalents consist of cash and highly
liquid investments with maturities of 90 days or less at the date of acquisition.


Securities Transactions



Securities purchased under agreements to resell
(Resale Agreements) and securities sold under agreements to repurchase are recorded at the contractual amounts that the securities will be
resold/repurchased, including accrued interest. The Companys policy is to obtain possession or control of securities purchased under Resale
Agreements and to obtain additional collateral when necessary to minimize the risk associated with this activity.




Securities borrowed and securities loaned are
recorded at the amount of the cash collateral provided for securities borrowed transactions and received for securities loaned transactions,
respectively. The adequacy of the collateral is continuously monitored and adjusted when considered necessary to minimize the risk associated
with


32

---

A.G. Edwards, Inc.Notes to Consolidated Financial Statements
(Continued)(Three years ended February 28, 2005)(Dollars in thousands, except per share amounts)

1.    Summary of Significant Accounting Policies
(Continued)



this activity. Substantially all of these
transactions are executed under master netting agreements, which give the Company right of offset in the event of counterparty
default.




Customer securities transactions are recorded on
settlement date. Revenues and related expenses for transactions executed but unsettled are accrued on a trade-date basis. Receivables from and payables
to customers include amounts due on cash and margin transactions. Securities owned by customers, including those that collateralize margin or other
similar transactions, are not reflected on the consolidated balance sheets.




Securities inventory, securities sold but not yet
purchased, and securities segregated under federal and other regulations are recorded on a trade-date basis and are carried at fair value. Fair value
is based on quoted market or dealer prices, pricing models, or managements estimates. Unrealized gains and losses are reflected in
revenue.


Asset Management and Service Fees



Asset management and service fee revenues consist of
fees based on the value of client assets under professional management by third parties as well as the Companys asset management services,
transaction-related service fees and fees related to the administration of custodial and other specialty accounts. These revenues are recognized over
the periods for which services are rendered.


Investment Banking



Investment banking revenues, which include
underwriting fees, selling concessions and management fees, are recorded when services for the transaction are substantially completed.
Transaction-related expenses are deferred and later expensed to match revenue recognition. As a portion of the deferred transaction-related expenses
are recoverable from other investment bankers participating in transactions, collectibility is assessed and write-offs are recorded, as
appropriate.


Allowance for Doubtful Accounts



Receivables from customers, primarily consisting of
floating rate loans collateralized by margin securities, are charged interest at rates similar to other such loans made throughout the industry.
Management estimates an allowance for doubtful accounts to reserve for potential losses from unsecured and partially unsecured customer accounts deemed
uncollectible. The facts and circumstances surrounding each receivable from customers and the number of shares, price and volatility of the underlying
collateral are considered by management in determining the allowance. Management continually evaluates its receivables from customers for
collectibility and possible write-off. The Company manages the credit risk associated with its receivables from customers through credit limits and
continuous monitoring of collateral. The allowance for doubtful accounts may be susceptible to significant fluctuations in the near
term.


Investments



Investments consist of private equity investments,
mutual funds, U.S. government securities and other investments. Private equity investments are held by investment company subsidiaries, which are
outside the scope of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities, and are carried at fair value. The Company classifies mutual fund
investments and certain treasuries as trading securities in accordance with SFAS No. 115. Trading securities are recorded at fair value, based on
quoted market or dealer prices. U.S. government securities are classified as held-to-maturity and are held at amortized cost as the Company has the
intent and ability to hold the securities to maturity. The majority of other investments include securities held by Edwards and are recorded at fair
value, based on quoted market or dealer prices. The unrealized gains and losses of investment securities are reflected in other
revenue.


33

---

A.G. Edwards, Inc.Notes to Consolidated Financial Statements
(Continued)(Three years ended February 28, 2005)(Dollars in thousands, except per share amounts)

1.    Summary of Significant Accounting Policies
(Continued)



The fair value of investments, for which a quoted
market or dealer price is not available, is based on managements estimate. Among the factors considered by management in determining the fair
value of investments are the cost of the investment, terms and liquidity, developments since the acquisition of the investment, the sales price of
recently issued securities, the financial condition and operating results of the issuer, earnings trends and consistency of operating cash flows, the
long-term business potential of the issuer, the quoted market price of securities with similar quality and yield that are publicly traded, and other
factors generally pertinent to the valuation of investments. The fair value of these investments is subject to a high degree of volatility and may be
susceptible to significant fluctuations in the near term.


Property and Equipment



Property and equipment are carried at cost less
accumulated depreciation and amortization; land is recorded at cost. Depreciation of buildings is provided using the straight-line method over
estimated useful lives of 20 to 45 years. Leasehold improvements are amortized over the lesser of the life of the lease or estimated useful life of the
improvement, generally five to 10 years. Equipment, primarily consisting of office equipment and building components, is depreciated over estimated
useful lives of three to 15 years using straight-line and accelerated methods of depreciation. Computer hardware, including servers and mainframes, and
satellite equipment are depreciated over estimated useful lives of three to five years using the straight-line method. Internally developed
applications and purchased software meeting the criteria for capitalization are amortized over their estimated useful lives, generally not exceeding
three years, using the straight-line method. The Company periodically evaluates and adjusts the carrying value of its property and equipment when
impairment exists.


Stock-Based Compensation



The Company applies the provisions of Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations to account for its
employee stock plans. Based on the provisions of the plans, no compensation expense has been recognized for the fair value of the options issued under
these plans. Restricted stock awards issued under these plans are expensed in the year awarded, which is the defined service period.


Income Taxes



Income tax expense is provided for using the asset
and liability method, under which deferred tax assets and liabilities are determined based upon the temporary differences between the financial
statement and income tax bases of assets and liabilities, using current tax rates. Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be realized. The Company files a consolidated federal income tax return.


Comprehensive Earnings



Comprehensive earnings for each of the three years
in the period ended February 28, 2005, was equal to the Companys net earnings.


Sale of a Subsidiary



In March 2004, the Company sold CPI Qualified Plan
Consultants, Inc. (CPI), a third-party administrator of employee benefit plans and a wholly owned subsidiary, to a group of investors
headed by CPIs management. The transaction price was $17,000 with $10,830 received immediately and the remainder to be received over a five-year
period. CPI had approximately 350 employees at the date of sale.


34

---

A.G. Edwards, Inc.Notes to Consolidated Financial Statements
(Continued)(Three years ended February 28, 2005)(Dollars in thousands, except per share amounts)

1.    Summary of Significant Accounting Policies
(Continued)

Recent Accounting Pronouncements



In December 2004, the FASB issued SFAS No. 123
(revised 2004), Share-Based Payment (SFAS No. 123R), which requires the recognition of the cost of employee services received
in exchange for an award of equity instruments in the financial statements and measurement based on the grant-date fair value of the award. It also
requires the cost to be recognized over the period during which an employee is required to provide service in exchange for the award (presumptively the
vesting period). SFAS No. 123R replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25 and its
related interpretations. As modified by the SEC on April 21, 2005, SFAS No. 123R is effective for fiscal years beginning after June 15, 2005, and
applies to all awards granted, modified, repurchased, or cancelled after that date. The Company elected early adoption of SFAS No. 123R on March 1,
2005, using the modified prospective method.




Under the modified prospective method of SFAS No.
123R, the Company is required to recognize compensation expense for the outstanding portion of any awards for which compensation expense had not
previously been recognized or disclosed under SFAS No. 123. The Company currently recognizes the compensation expense of restricted stock awards and
discloses the pro forma compensation expense of stock option awards in the year of the award. Under SFAS No. 123R, the Company will recognize
compensation expense for restricted stock and stock option awards over the vesting period, generally three years following the award. As the Company
will have recognized compensation expense or disclosed pro forma compensation expense related to all outstanding awards as of the adoption date, there
will be no compensation expense recognized for these outstanding awards in future periods. In addition, as the awards related to fiscal year 2006 will
not be issued until the end of fiscal year 2006, the compensation expense related to those awards will not be recognized in 2006 but over the
subsequent vesting period. As restricted stock and stock option awards are determined each year, the impact to the Companys consolidated
financial statements of the adoption of SFAS No. 123R cannot be predicted with certainty. However, the fair value of restricted stock awards recognized
in compensation expense ranged in value from $21,738 to $35,062 over the last three fiscal years and the fair value of stock option awards disclosed in
the footnotes to the consolidated financial statements, but not included in compensation expense, over the last three fiscal years ranged from $5,440
to $8,412.




In January 2003, the FASB issued FASB Interpretation
No. 46, Consolidation of Variable Interest Entities (FIN 46), an interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, which requires the consolidation by a business enterprise of variable interest entities if the business
enterprise is the primary beneficiary. FIN 46 was effective January 31, 2003, for the Company with respect to interests in variable interest entities
obtained after that date. With respect to interests in variable interest entities existing prior to February 1, 2003, the FASB issued FASB
Interpretation No. 46 (revised December 2003) (FIN 46R), which extended the effective date to the period ended May 31, 2004. The
Companys adoption of FIN 46R did not have a material impact on the Companys consolidated financial statements. The Company did not acquire
any variable interest entities subsequent to February 1, 2003.




In March 2005, the FASB issued FASB Interpretation
No. 47, Accounting for Conditional Asset Retirement Obligations  an interpretation of FASB Statement No. 143 (FIN 47).
FIN 47 clarifies that SFAS No. 143, Accounting for Asset Retirement Obligations, requires that an entity recognize a liability for the fair
value of a conditional asset retirement obligation when incurred if the liabilitys fair value can be reasonably estimated. FIN 47 is effective no
later than the end of fiscal years ending after December 15, 2005. The Company has not yet determined the impact that the adoption of this
interpretation will have on its consolidated financial statements.


35

---

A.G. Edwards, Inc.Notes to Consolidated Financial Statements
(Continued)(Three years ended February 28, 2005)(Dollars in thousands, except per share amounts)

|2. |  | Employee Stock Plans
|-- |  | --------------------



The Company applies the provisions of APB Opinion
No. 25, to account for stock options granted under employee stock plans and accordingly does not reflect any associated compensation expense in its
statement of earnings. The Company grants options to employees utilizing two shareholder-approved plans: the 2002 Employee Stock Purchase Plan is a
qualified plan as defined under section 423 of the Internal Revenue Code and is used to grant options to purchase the Companys stock at a
discount from market to a broad base of employees; the Incentive Stock Plan is a non qualified plan and is used to grant options and restricted stock
at market value to certain officers and key employees. Compensation expense related to restricted stock is reflected in net earnings. If compensation
expense associated with these plans was determined in accordance with SFAS No. 123, the Companys net earnings and earnings per share would have
been as follows:







|                                                                               |  |  |  | 2005 |         | 2004 |  | 2003
|------------------------------------------------------------------------------ |  |  |  | ---- | ------- | ---- |  | ----
|Net earnings,
as reported                                                      |  |  |  | $    | 186,474 |      |  | $   
|Add back
compensation related to Incentive Stock Plan included in net earnings |  |  |  |      | 21,720  |      |  |     
|Deduct effect
of stock-based employee compensation, net of tax effects:        |  |  |  |      |         |      |  |     
|Employee
Stock Purchase Plan                                                   |  |  |  |      | (8,776  | )    |  |     
|Incentive
Stock Plan                                                           |  |  |  |      | (25,125 | )    |  |     
|Pro forma net
earnings                                                         |  |  |  | $    | 174,293 |      |  | $   
|Earnings per
share, as reported:                                               |  |  |  |      |         |      |  |     
|Diluted                                                                        |  |  |  | $    | 2.37    |      |  | $   
|Basic                                                                          |  |  |  | $    | 2.39    |      |  | $   
|Pro forma net
earnings per share                                               |  |  |  |      |         |      |  |     
|Diluted                                                                        |  |  |  | $    | 2.20    |      |  | $   
|Basic                                                                          |  |  |  | $    | 2.24    |      |  | $   
|Pro forma net
earnings                                                         |  |  |  | $    | 174,293 |      |  | $   
|Add back
reduction in Incentive compensation funding formulas                  |  |  |  |      | 3,349   |      |  |     
|Pro forma net
earnings after reduction for incentive compensation plans        |  |  |  | $    | 177,642 |      |  | $   
|Pro forma
earnings per share:                                                  |  |  |  |      |         |      |  |     
|Diluted                                                                        |  |  |  | $    | 2.24    |      |  | $   
|Basic                                                                          |  |  |  | $    | 2.28    |      |  | $   



The Black-Scholes option pricing model was used to
calculate the estimated fair value of the options.


Employee Stock Purchase Plan



The Company amended the terms of its 2002 Employee
Stock Purchase Plan effective October 1, 2004. The discount from the market under the plan was reduced to 5% from 15% and the one year look-back period
for the options issued under the plan was eliminated. As a result of these changes, the options granted under this plan are no longer considered
compensatory for purposes of the pro forma earnings calculation under SFAS No. 123.




The Companys Board of Directors authorized up
to 1,875,000 shares of common stock to be purchased by employees under the 2002 Employee Stock Purchase Plan, as amended. These shares are exercisable
in monthly installments at 95 percent of the market price on the last business day of each month. Employees purchased an


36

---

A.G. Edwards, Inc.Notes to Consolidated Financial Statements
(Continued)(Three years ended February 28, 2005)(Dollars in thousands, except per share amounts)

2.    Employee Stock Plans (Continued)



aggregate of 359,555 shares at an average price
of $38.78 per share of common stock on the last business days of October 2004 through February 2005. Treasury shares were utilized for all of the
shares issued.




Under the 2002 Employee Stock Purchase Plan, prior
to its most recent amendment, employees purchased 1,843,334 shares at $29.54 per share in 2005; 1,818,057 shares at $27.79 per share in 2004; and
1,850,030 shares at $27.13 per share in 2003 by exercising one-year options granted annually in October. The fair value of options granted in 2004,
2003 and 2002 was $9.26, $8.44 and $9.73 per option, respectively, estimated using the following assumptions: dividend yield of 1.83 percent, 1.79
percent and 1.56 percent; an expected life of one year; expected volatility of 29 percent, 36 percent and 39 percent; and risk-free interest rates of
..95 percent, 1.43 percent and 2.47 percent. Treasury shares were utilized for all of the shares issued. The pro forma disclosure in the preceding table
reflects the fair values of the options over the period when the options from each grant date were outstanding.


Restricted Stock and Stock Options



Under the Companys Incentive Stock Plan, three
types of benefits may be awarded to officers and key employees: restricted stock, stock options and stock appreciation rights. Such awards are subject
to forfeiture upon termination of employment during a restricted period, generally three years from the award date. Through February 28, 2005, no stock
appreciation rights had been granted.




Restricted stock awards are made, and shares issued,
without cash payment by the employee. Eligible employees at February 28, 2005, were awarded 792,544 shares with a market value of $35,062. At February
29, 2004, and February 28, 2003, the awards were 778,963 and 844,188 shares, respectively, with corresponding market values of $30,637 and $21,738.
Treasury shares were utilized for these awards.




Nonqualified stock options are granted to purchase
common stock at 100 percent of market value at date of grant. Such options are exercisable beginning three years from the date of award and expire
eight years from the date of award for awards granted prior to 2003 and 10 years for awards granted in 2003 or earlier upon termination of employment.
The fair value of each option grant was estimated at the date of grant using the following assumptions for 2005, 2004 and 2003, respectively: dividend
yield of 1.72 percent, 1.83 percent, and 1.79 percent; expected lives of seven years for 2005, 2004 and 2003; expected volatility of 37 percent, 43
percent and 34 percent; risk-free interest rates of 4.27 percent, 3.67 percent and 3.37 percent; and a forfeiture rate of 10 percent, 10 percent and 9
percent. The fair value of options granted under this plan in 2005, 2004 and 2003 was $17.08, $16.16 and $8.66, respectively.




A summary of the status of the Companys stock
options as of February 28, 2005, February 29, 2004, and February 28, 2003, and changes during the years ended on those dates is presented as
follows:







|                                       |  |  |  | Shares (000) |       | 2005 Weighted Average Exercise Price |  | Shares (000) |       | 2004 Weighted Average Exercise Price |  | Shares (000) |       | 2003 Weighted Average Exercise Price
|-------------------------------------- |  |  |  | ------------ | ----- | ------------------------------------ |  | ------------ | ----- | ------------------------------------ |  | ------------ | ----- | ------------------------------------
|Outstanding,
beginning of year         |  |  |  |              | 5,041 |                                      |  | $            | 34.96 |                                      |  |              | 4,911 |                                     
|Granted                                |  |  |  |              | 354   |                                      |  | $            | 44.24 |                                      |  |              | 578   |                                     
|Exercised                              |  |  |  |              | (605  | )                                    |  | $            | 27.83 |                                      |  |              | (390  | )                                   
|Forfeited                              |  |  |  |              | (26   | )                                    |  | $            | 35.95 |                                      |  |              | (58   | )                                   
|Outstanding,
end of year               |  |  |  |              | 4,764 |                                      |  | $            | 37.08 |                                      |  |              | 5,041 |                                     
|Treasury
shares utilized for exercises |  |  |  |              | 605   |                                      |  |              |       |                                      |  |              | 390   |                                     

37

---

A.G. Edwards, Inc.Notes to Consolidated Financial Statements
(Continued)(Three years ended February 28, 2005)(Dollars in thousands, except per share amounts)

2.    Employee Stock Plans (Continued)



The following table summarizes information about
outstanding stock options at February 28, 2005:







|        |  |  |  | Options Outstanding |       | Options Exercisable | 
|------- |  |  |  | ------------------- | ----- | ------------------- | 
|
|$26$30 |  |  |  |                     | 724   |                     | 
|$31$35 |  |  |  |                     | 587   |                     | 
|$36$40 |  |  |  |                     | 2,154 |                     | 
|$41$45 |  |  |  |                     | 1,299 |                     | 
|        |  |  |  |                     | 4,764 |                     | 

|3. |  | Employee Profit Sharing Plan
|-- |  | ----------------------------



The Company has a defined contribution plan [401(k)]
covering substantially all employees, whereby the Company is obligated to make contributions, in specified amounts as defined therein, based on the
compensation of eligible employees. Prior to 2003, the Company was obligated to match, in specified amounts, portions of contributions made by eligible
employees. Additional contributions may be made at the discretion of the Company and are generally based on the Companys pre-tax earnings. The
Company expensed $77,942 in 2005, $76,017 in 2004 and $60,658 in 2003, in connection with the 401(k).




The Company has an unfunded, nonqualified deferred
compensation plan that provides benefits to participants whose contributions from the Company in the 401(k) are subject to plan limitations. The
Company expensed $20,095 in 2005, $14,921 in 2004 and $13,883 in 2003 in connection with this plan. Participants may choose to base their return on the
performance of one or more of a combination of mutual funds as designated by the Company, treasury securities, or in limited cases, the broker call
rate. Included in Investments are $145,610 in 2005 and $134,476 in 2004 in mutual funds and treasury securities that were purchased by the Company to
hedge its liability to the participants that choose to base their return on the performance of the mutual fund or treasury security options, with the
exception of those who choose to base the performance of the return on money market mutual funds. Participants have no ownership in the mutual funds or
treasury securities.


38

---

A.G. Edwards, Inc.Notes to Consolidated Financial Statements
(Continued)(Three years ended February 28, 2005)(Dollars in thousands, except per share amounts)

|4. |  | Restructuring Charge
|-- |  | --------------------



As a result of a number of actions taken to reduce
costs, streamline headquarters operations and better position the Company for improved profitability, a restructuring charge of $82,462 was recorded in
2002.




The following table reflects changes in the
restructuring reserves included in employee compensation and related taxes and other liabilities at February 28, 2005, February 29, 2004 and February
28, 2003:


|                                        |  |  |  | Technology Assets |      | Severance Cost |  | Real Estate Consolidation |         | Total
|--------------------------------------- |  |  |  | ----------------- | ---- | -------------- |  | ------------------------- | ------- | -----
|Balance at
March 1, 2002                |  |  |  | $                 | 400  |                |  | $                         | 18,605  |      
|Utilized in
Fiscal-Year 2003            |  |  |  |                   | (264 | )              |  |                           | (10,987 | )    
|Adjustments
in 2003 to Initial Estimate |  |  |  |                   |     |                |  |                           | (640    | )    
|Balance at
February 28, 2003            |  |  |  |                   | 136  |                |  |                           | 6,978   |      
|Utilized in
Fiscal-Year 2004            |  |  |  |                   | (136 | )              |  |                           | (6,978  | )    
|Adjustments
in 2004 to Initial Estimate |  |  |  |                   |     |                |  |                           |        |      
|Balance at
February 29, 2004            |  |  |  |                   |     |                |  |                           |        |      
|Utilized in
Fiscal-Year 2005            |  |  |  |                   |     |                |  |                           |        |      
|Balance at
February 28, 2005            |  |  |  | $                 |     |                |  | $                         |        |      



The real estate consolidation liability will be paid
out over the remaining lives of the related leases, which end in fiscal year 2009. The adjustments to the initial estimates were recorded in other
expenses.


|5. |  | Property and Equipment
|-- |  | ----------------------



At February 28, 2005, and February 29, 2004,
property and equipment consisted of:







|                                                |  |  |  | 2005 |           | 2004
|----------------------------------------------- |  |  |  | ---- | --------- | ----
|Land                                            |  |  |  | $    | 20,163    |     
|Building and
leasehold improvements             |  |  |  |      | 465,638   |     
|Equipment and
computer hardware                 |  |  |  |      | 531,461   |     
|Software and
software applications              |  |  |  |      | 161,902   |     
|Software
development in progress                |  |  |  |      | 38,329    |     
|Construction in
progress                        |  |  |  |      | 1,811     |     
|Total property
and equipment                    |  |  |  |      | 1,219,304 |     
|Less:
Accumulated depreciation and amortization |  |  |  |      | (715,328  | )   
|Total property
and equipment, net               |  |  |  | $    | 503,976   |     

|6. |  | Short-Term Financing
|-- |  | --------------------



The Companys short-term financing is generally
obtained through the use of securities-lending arrangements and bank loans. The interest rates on such short-term borrowings reflect market rates of
interest or rebates at the time of the transactions. The average securities-lending arrangements outstanding that were utilized in financing activities
were $196,000 in 2005, $181,000 in 2004 and $189,000 in 2003, at average effective interest rates of 1.4 percent in 2005, 1.0 percent in 2004 and 1.5
percent in 2003. Customer securities were utilized in these arrangements. Bank loans are short-term borrowings that are payable on demand and may be
unsecured or collateralized by customer-owned securities held in margin accounts. The average of such bank loans was $32,000 in 2005, $75,000 in 2004
and $163,000 in 2003, at average effective interest rates of 1.7 percent, 1.3 percent and 2.1 percent, respectively. At February 28, 2005, and February
29, 2004, there were outstanding short-term bank


39

---

A.G. Edwards, Inc.Notes to Consolidated Financial Statements
(Continued)(Three years ended February 28, 2005)(Dollars in thousands, except per share amounts)

6.    Short-Term Financing (Continued)



loans of $16,400 and $28,300, respectively. At
February 28, 2005, the Company, with certain limitations, had access to $1,300,000 in uncommitted lines of credit as well as the ability to increase
its securities-lending activities.


|7. |  | Net Capital Requirements
|-- |  | ------------------------



As a registered broker-dealer, Edwards is subject to
net capital rules administered by the SEC and the New York Stock Exchange (NYSE). Under such rules, this subsidiary must maintain net
capital of not less than 2 percent of aggregate debit items, as defined, arising from customer transactions and would be restricted from expanding its
business or paying cash dividends or advancing loans to affiliates if its net capital were less than 5 percent of such items. These rules also require
Edwards to notify and sometimes obtain approval of the SEC and other regulatory organizations for substantial withdrawals of capital or loans to
affiliates. At February 28, 2005, the subsidiarys net capital of $666,347 was 30 percent of aggregate debit items and $622,644 in excess of the
minimum required.




Certain other subsidiaries are also subject to
minimum capital requirements that may restrict the payment of cash dividends and advances to the Company. These subsidiaries have consistently operated
in excess of their capital adequacy requirements. The only restriction with regard to the payment of cash dividends by the Company is its ability to
obtain cash through dividends and advances from its subsidiaries, if needed.


|8. |  | Income Taxes
|-- |  | ------------



The provisions (benefits) for income taxes (net of
the resolution of tax matters) consist of:







|                |  |  |  | 2005 |         | 2004 |  | 2003
|--------------- |  |  |  | ---- | ------- | ---- |  | ----
|Current         |  |  |  |      |         |      |  |     
|Federal         |  |  |  | $    | 65,402  |      |  | $   
|State and
local |  |  |  |      | 8,073   |      |  |     
|Non-U.S.        |  |  |  |      | 456     |      |  |     
|                |  |  |  | $    | 73,931  |      |  | $   
|Deferred        |  |  |  |      | 34,002  |      |  |     
|                |  |  |  | $    | 107,933 |      |  | $   



The Company operates in multiple taxing
jurisdictions, and as a result, accruals for tax contingencies require management to make estimates and judgments with respect to the ultimate tax
liability in any given year. Actual results could vary from these estimates. In managements opinion, adequate provisions for income taxes have
been made for all years.




Deferred income taxes reflect temporary differences
in the bases of the Companys assets and liabilities for income tax purposes and for financial reporting purposes, using current tax rates. These
temporary differences result in taxable or deductible amounts in future years.




As of February 28, 2005, the Company had
approximately $4,100 of earnings attributable to its foreign subsidiary for which no provisions have been recorded for income tax that could occur upon
repatriation. These earnings have been indefinitely invested in the foreign subsidiary.


40

---

A.G. Edwards, Inc.Notes to Consolidated Financial Statements
(Continued)(Three years ended February 28, 2005)(Dollars in thousands, except per share amounts)

8.    Income Taxes (Continued)



Significant components of deferred tax assets and
liabilities at February 28, 2005, and February 29, 2004, are as follows:







|                          |  |  |  | 2005 |         | 2004
|------------------------- |  |  |  | ---- | ------- | ----
|Deferred Tax
Assets:      |  |  |  |      |         |     
|Employee
benefits         |  |  |  | $    | 126,149 |     
|Other                     |  |  |  |      | 17,744  |     
|                          |  |  |  |      | 143,893 |     
|Deferred Tax
Liabilities: |  |  |  |      |         |     
|Receivables               |  |  |  |      | 18,410  |     
|Investments               |  |  |  |      | 22,868  |     
|Property and
equipment    |  |  |  |      | 20,600  |     
|Prepaid
expenses          |  |  |  |      | 20,686  |     
|Other                     |  |  |  |      | 1,140   |     
|                          |  |  |  |      | 83,704  |     
|Net Deferred
Tax Assets   |  |  |  | $    | 60,189  |     



The Company expects to fully realize these deferred
tax assets given its historical level of earnings and related taxes paid; accordingly, no valuation allowance has been established.




A reconciliation of the effective tax rate and the
federal statutory rate for February 28, 2005, February 29, 2004, and February 28, 2003, is as follows:







|                                                         |  |  |  | 2005 |      | 2004 |  | 2003
|-------------------------------------------------------- |  |  |  | ---- | ---- | ---- |  | ----
|Federal
statutory rate                                   |  |  |  |      | 35.0 | %    |  |     
|State and
local income taxes, net of federal tax benefit |  |  |  |      | 2.5  |      |  |     
|Resolution of
tax matters                                |  |  |  |      | (0.3 | )    |  |     
|Municipal
bond interest                                  |  |  |  |      | (0.7 | )    |  |     
|Meal and
entertainment expense disallowance              |  |  |  |      | 0.5  |      |  |     
|Other                                                    |  |  |  |      | (0.3 | )    |  |     
|                                                         |  |  |  |      | 36.7 | %    |  |     

|9. |  | Investments
|-- |  | -----------



Investments at February 28 (29) consist
of:







|                           |  |  |  | 2005 |         | 2004
|-------------------------- |  |  |  | ---- | ------- | ----
|Private
equity             |  |  |  | $    | 140,864 |     
|Mutual
funds               |  |  |  |      | 174,819 |     
|U.S. government
securities |  |  |  |      | 14,813  |     
|Other                      |  |  |  |      | 6,898   |     
|Total
Investments          |  |  |  | $    | 337,394 |     



Private equity consists of investments in a
privately held investment management company and in Company-sponsored private equity funds. The Company committed $127,000 to various private equity
partnerships, of which $43,454 remains unfunded at February 28, 2005. A portion of the Companys mutual fund and treasury investments are utilized
to hedge certain liabilities under its deferred compensation plan and also include qualified investments


41

---

A.G. Edwards, Inc.Notes to Consolidated Financial Statements
(Continued)(Three years ended February 28, 2005)(Dollars in thousands, except per share amounts)

9.    Investments (Continued)



by its trust company subsidiary. The Company
primarily invests in U.S. government securities through its trust company subsidiary, and the majority of other investments include securities held by
Edwards.


|10. |  | Stockholders Equity
|--- |  | --------------------

Earnings Per Share



The following table presents the computations of
basic and diluted earnings per share:







|                                              |  |  |  | 2005 |         | 2004 |  | 2003
|--------------------------------------------- |  |  |  | ---- | ------- | ---- |  | ----
|Net earnings
available to common stockholders |  |  |  | $    | 186,474 |      |  | $   
|Shares (in
thousands):                        |  |  |  |      |         |      |  |     
|Weighted
average shares outstanding           |  |  |  |      | 77,908  |      |  |     
|Effect of
dilutive common shares:             |  |  |  |      |         |      |  |     
|Restricted
shares                             |  |  |  |      | 417     |      |  |     
|Stock
purchase plan                           |  |  |  |      | 163     |      |  |     
|Stock option
plan                             |  |  |  |      | 278     |      |  |     
|Dilutive
common shares                        |  |  |  |      | 858     |      |  |     
|Total
weighted average diluted shares         |  |  |  |      | 78,766  |      |  |     
|Earnings per
share:                           |  |  |  |      |         |      |  |     
|Diluted                                       |  |  |  | $    | 2.37    |      |  | $   
|Basic                                         |  |  |  | $    | 2.39    |      |  | $   



At year-end 2005, 2004 and 2003, there were 944,942;
1,865,277; and 966,570 options, respectively, that were considered antidilutive and thus were not included in the above calculations.


Stock Repurchase Program



In November 2004, the Companys Board of
Directors authorized the repurchase of up to 10,000,000 shares of the Companys outstanding stock during the period November 19, 2004, through
December 31, 2006. In November 2002, the Companys Board of Directors authorized the repurchase of up to 10,000,000 shares of the Companys
outstanding common stock during the period of January 1, 2003, through December 31, 2004. The Company purchased 7,026,392 shares at an aggregate cost
of $250,123 in 2005; 3,102,854 shares at an aggregate cost of $105,455 in 2004; and 3,145,319 shares at an aggregate cost of $114,500 in 2003 under
these authorizations and other previously authorized plans.


Stockholders Rights Plan



The Companys Stockholders Rights Plan,
as amended, provides for the distribution of one Common Stock Purchase Right for each outstanding share of the Companys common stock. The rights
cannot be exercised or traded apart from the common stock until, without the prior consent of the Company, a third-party acquires no less than 20
percent of the Companys outstanding common stock or commences a tender or exchange offer that would result in the third-party acquiring no less
than 20 percent of the outstanding common stock. The Board of Directors may decrease the 20 percent thresholds to 10 percent of the outstanding stock.
Each right, upon becoming exercisable, entitles the registered holder to purchase one share of common stock for $150 from the Company. If a person
actually acquires no less than 20 percent, or 10 percent if applicable, of the Companys common stock without the Board of Directors
consent, then each right will entitle the holder, other than the acquiring third-party, to purchase for $150 the number of shares of the Companys
common stock (or in the event of a merger or other business


42

---

A.G. Edwards, Inc.Notes to Consolidated Financial Statements
(Continued)(Three years ended February 28, 2005)(Dollars in thousands, except per share amounts)

10.    Stockholders Equity
(Continued)



combination, the number of shares of the
acquirers stock) that has a market value of $300. The rights, which are redeemable by the Company at a price of $0.01 each prior to the
persons acquiring no less than 20 percent, or 10 percent if applicable, of the Companys common stock are subject to adjustment to prevent
dilution and expire June 25, 2005, unless the plan is amended by the Board of Directors to extend the expiration date of the rights.


|11. |  | Commitments and Contingent Liabilities
|--- |  | --------------------------------------



The Company has long-term operating leases and
commitments related to office space, equipment and service agreements. Minimum commitments under all such noncancelable leases and service agreements,
some of which contain escalation clauses and renewal options, at February 28, 2005, are as follows:







|Year ending February 28 (29), |  |  | 
|----------------------------- |  |  | 
|2006                          |  |  | 
|2007                          |  |  | 
|2008                          |  |  | 
|2009                          |  |  | 
|2010                          |  |  | 
|Later
years                   |  |  | 
|                              |  |  | 



Rental expense under all operating leases and
service agreements was $128,706 in 2005, $125,177 in 2004 and $133,871 in 2003.




The Company accounts for operating leases in
accordance with the provisions of SFAS No. 13 Accounting for Leases, FASB Technical Bulletin 85-3 Accounting for Operating Leases
with Scheduled Rent Increases and FASB Technical Bulletin 88-1 Issues Relating to Accounting for Leases. As such, the costs of
leasehold improvements, whether provided by the landlord or the Company, are amortized over the shorter of the lease term or the economic life of the
improvement. In addition, rent escalations and lease incentives are included with the total commitment under each operating lease to calculate an
average occupancy expense, which is recognized on a straight-line basis over the full lease term. Included in occupancy and equipment expenses in 2005
is a $10,064 charge representing the cumulative effect of correcting the recognition period for rent-escalation clauses and lease incentives in certain
branch-office leases.




The Company is engaged in a major business process
and technology transformation program, the Gateway Initiative, which, when fully developed and implemented, will update the Companys technology
infrastructure, streamline its back-office processing and strengthen its data management capabilities. The Company has currently designated up to
$196,200, including internal development costs, to fund this program. Total costs through February 28, 2005, were $165,400, of which $48,200 was
capitalized. Significant components of this program are expected to be completed in fiscal year 2006 including migration to an application service
provider, which is scheduled to occur in May 2005. Thomson Financial, Inc. (Thomson), an application service provider, will provide the
software and computer operations that support the Companys securities processing functions. The Company entered into an 86-month Hosting and
Services Agreement with Thomson in October 2004. Under this agreement, which starts upon conversion, minimum payments are $10,000 a year with an
expected range of payments between $18,000 and $22,000 a year. While the Companys migration of its back-office systems to Thomson is intended to
better align trade-processing expenses with client transaction activity, the Company intends to maintain certain of its existing back-office systems
for a transitional period of approximately 12 to 18 months.




In the normal course of business, Edwards enters
into when-issued and underwriting commitments and delayed delivery transactions. Settlement of these transactions at February 28, 2005, would not have
had a material effect on the consolidated financial statements.


43

---

A.G. Edwards, Inc.Notes to Consolidated Financial Statements
(Continued)(Three years ended February 28, 2005)(Dollars in thousands, except per share amounts)

11.    Commitments and Contingent Liabilities
(Continued)



The Company had outstanding letters of credit of
$58,156 at February 28, 2005, and $57,311 at February 29, 2004, principally to satisfy margin deposit requirements with the Options Clearing
Corporation.




The Company also provides guarantees to securities
clearing houses and exchanges under their standard membership agreements, which require members to guarantee the performance of other members. Under
these agreements, if a member becomes unable to satisfy its obligations to the clearing houses and exchanges, all other members would be required to
meet any shortfall. The Companys liability under these agreements is not quantifiable and may exceed the cash and securities it has posted as
collateral. However, the potential requirement for the Company to make payments under these agreements is remote. Accordingly, no liability has been
recognized for these transactions.




The Company is a defendant in a number of lawsuits,
in some of which plaintiffs claim substantial amounts, relating primarily to its securities and commodities business. Management has determined that it
is likely that ultimate resolution in favor of the plaintiffs will result in losses to the Company on certain of these claims and as a result,
establishes accruals for potential litigation losses. The Company also is involved, from time to time, in investigations and proceedings by
governmental and self-regulatory agencies, certain of which may result in adverse judgments, fines or penalties. Factors considered by management in
estimating the Companys reserves for these matters are the loss and damages sought by the plaintiffs, the merits of the claims, the total cost of
defending the litigation, the likelihood of a successful defense against the claims, and the potential for fines and penalties from regulatory
agencies. Management, based on its understanding of the facts, reasonably estimates a range of loss and accrues what it considers appropriate to
reserve against probable loss for certain claims and regulatory matters. While results of litigation and investigations and proceedings by governmental
and self-regulatory agencies or the resulting judgments, fines or penalties cannot be predicted with certainty, management, after consultation with
counsel, believes that resolution of all such matters will not have a material adverse effect on the consolidated balance sheet, statement of earnings
or statement of cash flows of the Company, except that the Company believes, based on current knowledge and after consulting with counsel, that the
impact of the matters concerning mutual funds and related regulatory and litigation matters discussed in the following paragraphs will not be material
to the consolidated financial condition of the Company, but could be material to the operating results in one or more periods.




The SEC, the National Association of Securities
Dealers, Inc. (NASD), the NYSE and other regulators, including several states, have examined or are examining the manner in which mutual
funds compensate broker-dealers in connection with the sale of mutual funds. The Company has provided information in connection with related
examinations. The Company has received information requests or subpoenas from, been examined by or had employees questioned by the SEC, the NASD, the
NYSE, several states and the United States Department of Justice with respect to mutual fund transactions that involve market timing, late trading or
both. In addition, the Company has received requests for information concerning timing transactions in variable annuity subaccounts. The Commonwealth
of Massachusetts has filed an administrative complaint against the Company alleging violations of securities laws by mutual fund market timing
transactions and seeking a cease and desist order, an administrative fine in an unspecified amount, compensation to mutual fund holders for losses
alleged to have resulted from market timing or other mutual fund activities.




The Company has been named as a defendant in a
lawsuit that seeks class-action status in the state of Missouri that alleges, among other matters, that mutual fund transactions with certain customers
were influenced by undisclosed revenue-sharing payments.




The NASD has advised the Company that it has made a
preliminary determination to recommend a disciplinary action against the Company concerning the sale of mutual fund class-B shares and class-C shares
based upon, it is believed, the grounds for recommending such sales, suitability violations and the Companys supervisory procedures. The NASD
orally proposed a settlement, including a fine, the offer to customers to switch to class-A


44

---

A.G. Edwards, Inc.Notes to Consolidated Financial Statements
(Continued)(Three years ended February 28, 2005)(Dollars in thousands, except per share amounts)

11.    Commitments and Contingent Liabilities
(Continued)



shares and a reimbursement for any disadvantage
based on actual performance and the retention of an independent consultant to review supervisory procedures.




The NASD has advised the Company that it has made a
preliminary determination to recommend a disciplinary action against the Company concerning the sale of mutual funds to IRA accounts in 2001 and 2002
for which certain mutual fund companies made additional payouts to the Company for sales.


|12. |  | Financial Instruments
|--- |  | ---------------------

Off-Balance Sheet Risk and Concentration of Credit Risk



The Company records customer transactions on a
settlement date basis, generally three business days after trade date. The risk of loss on unsettled transactions is identical to that of settled
transactions and relates to customers and other counterparties inability to fulfill their contracted obligations.




In the normal course of business, the Company also
executes customer transactions involving the sale of securities not yet purchased, the purchase and sale of futures contracts, and the writing of
option contracts on both securities and futures. In the event customers or other counterparties, such as broker-dealers or clearing organizations, fail
to satisfy their obligations, the Company may be required to purchase or sell financial instruments in order to fulfill its obligations at prices that
may differ from amounts recorded in the consolidated balance sheets.




Customer financing and securities settlement
activities generally require the Company to pledge customer securities as collateral in support of various financing sources. In addition, customer
securities may be pledged as collateral to satisfy margin deposits at various clearing organizations. To the extent these counterparties are unable to
fulfill their contracted obligation to return securities pledged, the Company is exposed to the risk of obtaining securities at prevailing market
prices to meet its customer obligations.




Securities sold but not yet purchased represent
obligations of the Company to deliver specified securities at contracted prices. Settlement of such obligations may be at amounts greater than those
recorded on the consolidated balance sheets.




A substantial portion of the Companys assets
and obligations result from transactions with customers and other counterparties who have provided financial instruments as collateral. Volatile
trading markets could impair the value of such collateral and affect the ability of customers and other counterparties to satisfy their obligations to
the Company.




The Company manages its risks associated with the
aforementioned transactions through position and credit limits and the continuous monitoring of collateral. Additionally, collateral is requested from
customers and other counterparties when appropriate.




The Company receives collateral in connection with
resale agreements, securities borrowed transactions, customer margin loans and other loans. Under many agreements, the Company is permitted to sell or
repledge these securities held as collateral and use these securities to enter into securities lending arrangements or to deliver to counterparties to
cover short positions. At February 28, 2005, the fair value of securities received as collateral where the Company is permitted to sell or repledge the
securities was $3,028,428, and the fair value of the collateral that had been sold or repledged was $314,276.


Derivatives



The Company does not act as dealer, trader or
end-user of complex derivatives such as swaps, collars and caps. The Company provides advice and guidance on complex derivative products to selected
clients; however, this activity does not involve the Company acquiring a position or commitment in these products. The Company


45

---

A.G. Edwards, Inc.Notes to Consolidated Financial Statements
(Continued)(Three years ended February 28, 2005)(Dollars in thousands, except per share amounts)

12.    Financial Instruments (Continued)



will occasionally hedge a portion of its debt
inventory through the use of financial futures contracts. These transactions are not material to the Companys consolidated financial condition or
results of operations.


Fair Value Consideration



Substantially all of the Companys financial
instruments are carried at fair value or amounts that approximate fair value. Customer receivables, primarily consisting of floating rate loans
collateralized by margin securities, are charged interest at rates similar to other such loans made throughout the industry. The Companys
remaining financial instruments are generally short-term in nature and liquidate at their carrying values.


|13. |  | Enterprise Wide Disclosure
|--- |  | --------------------------



The Company provides investment services to its
clients through its financial consultants in its network of branch offices in the United States; London, England; and Geneva, Switzerland. Revenues
from the Companys non-U.S. operations are currently not material. Transaction services include commissions and sales credits earned by executing
or facilitating the execution of security and commodity trades. Asset management fees are earned by providing portfolio advisory services through
third-party managers, including mutual funds, managed future funds, annuities and insurance contracts, and the Companys in-house portfolio
managers. The Company earns interest revenue principally from financing its customer margin accounts, debt securities carried for resale and short-term
investments.




The following table presents the Companys net
revenues by type of service for the years ended February 28 (29):







|                          |  |  |  | 2005 |           | 2004 |  | 2003
|------------------------- |  |  |  | ---- | --------- | ---- |  | ----
|Transaction
services      |  |  |  | $    | 1,559,718 |      |  | $   
|Asset
management services |  |  |  |      | 821,795   |      |  |     
|Interest,
net             |  |  |  |      | 124,629   |      |  |     
|Other                     |  |  |  |      | 101,539   |      |  |     
|                          |  |  |  | $    | 2,607,681 |      |  | $   

*    *    *    *    *

46

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|ITEM 9. |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES.
|------- |  | --------------------------------------------------------------------------------------



None.


|ITEM 9A. |  | CONTROLS AND PROCEDURES.
|-------- |  | ------------------------



As of the end of the period covered by this report,
the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (Disclosure
Controls). This evaluation (the Controls Evaluation) was performed under the supervision and with the participation of management,
including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO).




Disclosure Controls are controls and other
procedures designed to ensure that information required to be disclosed in the Companys reports filed under the Securities Exchange Act of 1934,
as amended (the Exchange Act), such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time
periods specified in the U.S. Securities and Exchange Commissions (the SEC) rules and forms. Disclosure Controls are also designed to
ensure that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions
regarding required disclosure. The Disclosure Controls include components of the Companys internal control over financial reporting, which
consist of control processes designed to provide reasonable assurance regarding the reliability of the Companys financial reporting and the
preparation of financial statements in conformity with generally accepted accounting principles in the U.S. To the extent that components of the
Companys internal control over financial reporting are included within the Companys Disclosure Controls, they are included in the scope of
the Companys quarterly Controls Evaluation.




The Companys management, including the CEO and
CFO, does not expect that the Disclosure Controls or the Companys internal control over financial reporting will prevent all error and all fraud.
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems
objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls
must be considered relative to their costs.




Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of
simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.




The Controls Evaluation included a review of the
controls objectives and design, the Companys implementation of the controls, and the effect of the controls on the information generated
for use in this Annual Report. In the course of the Controls Evaluation, management sought to identify data errors, controls problems or acts of fraud
and confirm that appropriate corrective actions, including process improvements, were being undertaken. This type of evaluation is performed on a
quarterly basis so that the conclusions of management, including the CEO and CFO, concerning controls effectiveness can be reported in the
Companys Quarterly Reports on Form 10-Q and Annual Report on Form 10-K. Many of the components of the Companys Disclosure Controls are also
evaluated on an ongoing basis by the Internal Audit Department and by other personnel of the Company who evaluate them in connection with determining
their auditing procedures. The overall goals of these various evaluation activities are to monitor Disclosure Controls and to modify them as necessary.
The Company intends to maintain the Disclosure Controls as dynamic systems that change as conditions warrant.




Based upon the Controls Evaluation, the CEO and CFO
have concluded that, subject to the limitations noted above, as of the end of the period covered by this Annual Report, the Disclosure Controls were
effective to ensure that information required to be disclosed in the Companys reports filed under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms and that material information relating to the Company and
its consolidated subsidiaries required to be disclosed in such reports is


47

---



made known to management, including the CEO and
CFO, particularly during the period when the periodic reports are being prepared.




The report called for by Item 308(a) of Regulation
S-K is incorporated herein by reference to Managements Report on Internal Control Over Financial Reporting, included in Item 8 of this Form
10-K.




The attestation report called for by Item 308(b) of
Regulation S-K is incorporated herein by reference to the Report of Independent Registered Public Accounting Firm, included in Item 8 of this Form
10-K.




During the quarter ended February 28, 2005, there
have been no changes in the Companys internal control over financial reporting that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.


|ITEM 9B. |  | OTHER INFORMATION
|-------- |  | -----------------



None.


PART III

|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT.
|-------- |  | ---------------------------------------------------



The information required by this item is included
under the caption Election of Directors  Nominees for Directors in the Companys 2005 Proxy Statement and under the caption
Section 16(a) Beneficial Ownership Reporting Compliance of the Companys 2005 Proxy Statement, and such information is hereby
incorporated by reference, and in Part I of this Forms 10-K under the caption Executive Officers of the Company.




Information relating to the Board of Directors
determination regarding the service of an audit committee financial expert on the Boards Audit Committee and the name and the determination by
the Board of the independence of such expert are set forth under the captions Committees and Meetings of the Board of DirectorsAudit
Committee, and is hereby incorporated by reference. Information relating to the identity of the members of the Boards Audit Committee is
also set forth under this caption and is hereby incorporated by reference. The information regarding the procedures by which shareholders may recommend
nominees to the Board of Directors is set forth in the Companys Proxy Statement under the caption titled Stockholder Proposals. The
Nominating and Corporate Governance Committee Charter is available on the Companys Web site at www.agedwards.com and may be
accessed by entering the Companys Web site and clicking the About A.G. Edwards link, then the Corporate Governance
link.




The Companys Code of Ethical Conduct
(Code) and Corporate Governance Guidelines (Guidelines) set forth the fundamental principles and key policies and procedures
that govern the conduct of all of the Companys directors, officers and employees. Additionally, the Chief Executive Officer, Chief Financial
Officer, Principal Accounting Officer, Controller, Director of Regulatory Accounting and Director of Tax (Senior Financial Officers) are
required to conduct their personal and professional affairs in a manner that is consistent with the ethical and professional standards set forth in the
Companys Financial Code of Ethical Conduct (Financial Code). In 2004, the Board of Directors adopted the Financial Code that was
designated as the Companys code of ethics for Senior Financial Officers in performing their duties. A copy of the Code and the Financial Code
were filed as exhibits 14.1 and 14.2, respectively, in the Companys Annual Report on Form 10-K for the 2004 fiscal year. The Company will post on
its Web site any amendments to the Code, Financial Code and/or Guidelines and any waivers that are required to be disclosed by the rules of the SEC or
NYSE.




The Company has included as exhibits to this Annual
Report on Form 10-K for the 2005 fiscal year filed with the SEC certificates of its Chief Executive Officer and Chief Financial Officer certifying the
quality of the Companys public disclosure. The Company submitted to the New York Stock Exchange as of June 28, 2004, a certification made by its
Chief Executive Officer that he is not aware of any violation by the Company of their corporate governance listing standards.


|ITEM 11. |  | EXECUTIVE COMPENSATION
|-------- |  | ----------------------



The information required by this item is included
under the captions titled Director Compensation, and Executive Compensation, in the Companys 2005 Proxy
Statement. Such information is hereby incorporated by reference.


48

---

|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
|-------- |  | -----------------------------------------------------------------------------------------------



The information required by this item is contained
in the Companys 2005 Proxy Statement under the caption Ownership of the Companys Common Stock. Such information is hereby
incorporated by reference.




The following table summarizes information about the
equity compensation plans at February 28, 2005:







|                                                            |  |  |  | (a) |           | (b) |  | (c)
|----------------------------------------------------------- |  |  |  | --- | --------- | --- |  | ---
|
|Equity
compensation plans approved by security holders (1): |  |  |  |     |           |     |  |    
|Incentive
Stock Plan                                        |  |  |  |     | 4,764,000 |     |  | $  
|Employee
Stock Purchase Plan                                |  |  |  |     |           |     |  |    
|Equity
compensation plans not approved by security holders: |  |  |  |     |           |     |  |    
|Non Employee
Director Stock Compensation Plan (2)           |  |  |  |     | None      |     |  |    
|Total                                                       |  |  |  |     | 4,764,000 |     |  |    






|(*) |  | Includes 1,515,445 shares authorized to be purchased under the
2002 Employee Stock Purchase Plan.
|--- |  | -------------------------------------------------------------------------------------------------

|(1) |  | The 1988 Incentive Stock Plan and the 2002 Employee Stock
Purchase Plan were approved by shareholders.
|--- |  | ------------------------------------------------------------------------------------------------------

|(2) |  | The Company has one plan that was not submitted for approval by
the shareholders, the Non Employee Director Stock Compensation Plan. This plan provides that one half of the estimated annual compensation, as defined,
for each non employee director shall be awarded in Common Stock with the value of the stock based on the market price on July 1 of the fiscal year in
which the compensation is earned. This plan is being submitted for shareholder approval at the Annual Meeting of Shareholders on June 23,
2005.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
|-------- |  | -----------------------------------------------



The information required by this item is contained
in the Companys 2005 Proxy Statement under the caption titled Certain Transactions. Such information is hereby incorporated by
reference.


|ITEM 14. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES.
|-------- |  | ---------------------------------------



The information required by this item is contained
in the Companys 2005 Proxy Statement under the captions titled Pre-Approval of Services Provided by the Companys Independent
Registered Public Accounting Firm and Principal Accounting Firm Fees. Such information is hereby incorporated by
reference.


49

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PART IV

|ITEM 15. |  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
|-------- |  | -------------------------------------------

|        |  |  |  | INDEX                                                            |  | PAGE NUMBER
|------- |  |  |  | ---------------------------------------------------------------- |  | -----------
|(a)  1. |  |  |  | Financial Statements                                             |  |            
|        |  |  |  | Managements Report on Internal Control Over Financial Reporting |  |            
|        |  |  |  | Reports of Independent Registered Public Accounting Firm         |  |            
|        |  |  |  | Consolidated balance sheets                                      |  |            
|        |  |  |  | Consolidated statements of earnings                              |  |            
|        |  |  |  | Consolidated statements of stockholders equity                  |  |            
|        |  |  |  | Consolidated statements of cash flows                            |  |            
|        |  |  |  | Notes to consolidated financial statements                       |  |            
|2.      |  |  |  | Financial Statement Schedules                                    |  |            
|        |  |  |  | Schedule II  Valuation and Qualifying Accounts                  |  |            



All other schedules are omitted due to the absence
of conditions under which they are required or because the required information is provided in the consolidated financial statements or notes
thereto.


|3. |  | Exhibits*
|-- |  | ---------



Some of the following exhibits were previously filed
as exhibits to other reports or registration statements filed by the Registrant and are incorporated by reference as indicated below.


|3(i)   |  |  |  | Certificate of Incorporation filed as Exhibit 3(i) to the Registrants Form 10-K for the fiscal year ended February 28, 1993, as amended
by the Certificate of Amendment of Certificate of Incorporation filed as Exhibit 3(i)(a) to the Registrants Form 10-Q for the quarter ended May
31, 1998.
|------ |  |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3(ii)  |  |  |  | By
laws, as amended, filed as Exhibit 3(ii) to the Registrants Form 10-K for the fiscal year ended February 28, 1994.                                                                                                                                                                             
|4(i)   |  |  |  | Reference is made to Articles IV, V, X, XII, XIII and XV of the Certificate of Incorporation filed as Exhibit 3(i) to this Form
10-K.                                                                                                                                                              
|4(ii)  |  |  |  | Reference is made to Article II, Article III Sections 1 and 15, Article IV Sections 1 and 3, Article VI and Article VII Sections 1-3 of the By
laws filed as Exhibit 3(ii) to this Form 10-K.                                                                                                      
|4(iii) |  |  |  | Rights Agreement dated as of December 30, 1988, between A.G. Edwards, Inc. and Boatmens Trust Company as Rights Agent (the Rights
Agreement) filed as Exhibit 4 to the Registrants Form 8-K Report dated December 30, 1988.                                                                    
|4(iv)  |  |  |  | Amendment No. 1 to the Rights Agreement dated May 24, 1991, filed as Exhibit 4(iv) to Registrants Form 10-K for the fiscal year ended
February 29, 1992.                                                                                                                                          
|4(v)   |  |  |  | Amendment No. 2 to the Rights Agreement dated June 22, 1995, filed with the Registrants Form 8-A/A (Amendment No. 1) on July 12,
1995.                                                                                                                                                            
|4(vi)  |  |  |  | Amendment No. 3 to the Rights Agreement dated July 11, 1997, filed as Exhibit 4(vi) to Registrants Form 10-K for the fiscal year ended
February 28, 1998.                                                                                                                                         
|4(vii) |  |  |  | Amendment No. 4 dated December 15, 2000, to the Rights Agreement filed as Exhibit 4(vii) to Registrants Form 8-A/A (Amendment No. 2) on
December 19, 2000.                                                                                                                                        
|10.1   |  |  |  | A.G.
Edwards, Inc. 1988 Incentive Stock Plan (as amended and restated) filed as Exhibit 10.3 to Registrants Form 8-K dated March 1,
2005.**                                                                                                                                                       

50

---

|10.2     |  |  |  | A.G.
Edwards, Inc. Non Employee Director Stock Compensation Plan (as amended and restated) filed as Exhibit 10 to Registrants Form 10-Q for the fiscal
quarter ended November 30, 2003.**  
|-------- |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.3     |  |  |  | A.
G. Edwards, Inc. Retirement and Profit Sharing Plan filed as Exhibit 10.3 to this Form 10-K.**                                                                                           
|10.4     |  |  |  | A.G.
Edwards, Inc. Corporate Executive Bonus Plan filed as Exhibit 10.4 to this Form 10-K.**                                                                                                
|10.5     |  |  |  | A.G.
Edwards, Inc. 2004 Performance Plan for Executives filed as Exhibit 10.5 to Registrants Form 8-K dated March 1, 2005.**                                                               
|10.6     |  |  |  | A.G.
Edwards, Inc. Excess Profit Sharing Plan filed as Exhibit 10.4 to Registrants Form 8-K dated March 1, 2005.**                                                                         
|11       |  |  |  | Computation of per share earnings is set forth in Note 10 (Stockholders Equity) of the Notes to Consolidated Financial Statements under
the caption Earnings Per Share in this Form 10-K.
|14.1     |  |  |  | A.G.
Edwards, Inc. Code of Ethical Conduct filed as Exhibit 14.1 to Registrants Form 10-K for the fiscal year ended February 29,
2004.                                                     
|14.2     |  |  |  | A.G.
Edwards, Inc. Financial Code of Ethical Conduct filed as Exhibit 14.2 to Registrants Form 10-K for the fiscal year ended February 29,
2004.                                           
|21       |  |  |  | Registrants Subsidiaries.                                                                                                                                                                  
|23       |  |  |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                   
|24       |  |  |  | Power of Attorney (included on the signature page of this Form 10-K).                                                                                                                       
|31(i)(a) |  |  |  | Principal Executive Officer Certification as required by Rule 13a-14(a)/15d-14(a).                                                                                                          
|31(i)(b) |  |  |  | Principal Financial Officer Certification as required by Rule 13a-14(a)/15d-14(a).                                                                                                          
|32(i)(a) |  |  |  | Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                          
|32(i)(b) |  |  |  | Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                          






|* |  | Numbers correspond to document numbers in the Exhibit Table of
Item 601 of Regulation S-K.
|- |  | ------------------------------------------------------------------------------------------

|** |  | Compensatory plan or arrangement under which executive officers
or directors of the Company may participate.
|-- |  | ------------------------------------------------------------------------------------------------------------

51

---

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.




A.G. EDWARDS, INC.(Registrant)




Date: May 4,
2005


|By |  | /s/ Robert L. BagbyRobert
L. Bagby Chairman of the Board, President and Chief Executive Officer
|-- |  | -----------------------------------------------------------------------------------------------

52

---

POWER OF ATTORNEY



KNOW ALL MEN BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints Robert L. Bagby, and Douglas L. Kelly and each of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign this
Report, any and all amendments to this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.




Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.







|/s/ Robert L.
BagbyRobert L. Bagby                   |  |  |  | Chairman of the Board, President and Chief Executive Officer |  | May 4,
2005
|---------------------------------------------------- |  |  |  | ------------------------------------------------------------ |  | -----------
|/s/ Ronald J.
KesslerRonald J. Kessler               |  |  |  | Vice
Chairman of the Board                                   |  | May 4,
2005
|/s/ Dr. E.
Eugene CarterDr. E. Eugene Carter         |  |  |  | Director                                                     |  | May 4,
2005
|/s/ Vicki B.
EscarraVicki B. Escarra                 |  |  |  | Director                                                     |  | May 4,
2005
|/s/ Samuel C.
Hutchinson Jr.Samuel C. Hutchinson Jr. |  |  |  | Director                                                     |  | May 4,
2005
|/s/ Peter B.
MadoffPeter B. Madoff                   |  |  |  | Director                                                     |  | May 4,
2005
|/s/ Mark S.
WrightonMark S. Wrighton                 |  |  |  | Director                                                     |  | May 4,
2005
|/s/ Douglas L.
KellyDouglas L. Kelly                 |  |  |  | Treasurer, Chief Financial Officer and Secretary             |  | May 4,
2005
|/s/ Thomas H.
Martin Jr.Thomas H. Martin Jr.         |  |  |  | Controller                                                   |  | May 4,
2005
|/s/ Joseph G.
PorterJoseph G. Porter                 |  |  |  | Principal Accounting Officer                                 |  | May 4,
2005

53

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SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS

A.G. EDWARDS, INC.(Dollars in thousands)






|Description                                                |  |  |  | Balance at Beginning of Period |        | Additions Charged to Costs and Expenses |  | Deductions* |       | Balance at End of Period
|---------------------------------------------------------- |  |  |  | ------------------------------ | ------ | --------------------------------------- |  | ----------- | ----- | ------------------------
|Year ended
February 28, 2005, Deducted from asset account: |  |  |  |                                |        |                                         |  |             |       |                         
|Allowance for
doubtful accounts                            |  |  |  | $                              | 45,593 |                                         |  | $           | 2,262 |                         
|Year ended
February 29, 2004, Deducted from asset account: |  |  |  |                                |        |                                         |  |             |       |                         
|Allowance for
doubtful accounts                            |  |  |  | $                              | 44,508 |                                         |  | $           | 1,490 |                         
|Year ended
February 28, 2003, Deducted from asset account: |  |  |  |                                |        |                                         |  |             |       |                         
|Allowance for
doubtful accounts                            |  |  |  | $                              | 38,214 |                                         |  | $           | 9,661 |                         






|(*) |  | Write-offs net of recoveries.
|--- |  | -----------------------------

54

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EXHIBIT INDEX






|Exhibit  |  |  |  | Description                                                                                                                                      
|-------- |  |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|10.3     |  |  |  | A.
G. Edwards, Inc. 2002 Retirement and Profit Sharing Plan (available upon request)                                                             
|10.4     |  |  |  | A.
G. Edwards, Inc. Corporate Executive Bonus Plan (as amended and restated) (available upon request)                                            
|21       |  |  |  | Registrants Subsidiaries                                                                                                                        
|23       |  |  |  | Consent of Independent Registered Public Accounting Firm                                                                                         
|24       |  |  |  | Power of Attorney (included on signature page of this Form 10-K)                                                                                 
|31(i)(a) |  |  |  | Principal Executive Officer Certification as required by Rule 13a-14(a)/15d-14(a)                                                                
|31(i)(b) |  |  |  | Principal Financial Officer Certification as required by Rule 13a-14(a)/15d-14(a)                                                                
|32(i)(a) |  |  |  | Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|32(i)(b) |  |  |  | Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002

55

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