Variable Annuities                                                                          

Variable Annuities provide the advantages of traditional fixed annuities with the potential returns that are available by investing your money in the stock market. The investment options that you may chose from in a variable annuity are referred to as "subaccounts". These subaccounts are structured as either "mutual funds" or as segregated "investment portfolios" that are managed by professional investment managers.

Many variable annuities offer more than one family of funds to chose from and within each family of funds you may choose from a variety of funds with different investment objectives. This allows you to diversify your investment portfolio to minimize risk and maximize your potential investment return. Unlike fixed annuities with guaranteed protection against loss of principal, your principal is at risk and subject to loss in value.

• Administrative Fees: The issuing insurance company usually charges an Administrative Fee and a Mortality Risk Fee totaling 1.0% to 2.0% of assets - the typical fee usually is about 1.25% of assets.

• Contract Fee: Many companies charge a flat dollar amount varying from $20.00 to $40.00 per year.

• Sub-Account Fees: The charge for the operation and management of the sub-account which range from .15% to 1.50% of assets.

• Stepped-Up Death Benefit: In event of death during the accumulation period of a variable annuity many companies have this provision. The death benefit paid to the beneficiary is the greater of:

  • The Contract Value at the time of death

  • The Total Premiums paid into the contract

  • The Contract Value on the prior (ie, 5th, 6th, 7th) Anniversary Date of the contract

• Withdrawal Provision: Most if not all contracts that have Surrender Fees have a Withdrawal Provision. This provision typically allows one to withdraw up to 10% of the account value after the first year without incurring a surrender fee.

• Surrender Fees: Deposits to the contract are not subject to a "load" or "front end fee" however withdrawals may be subject to a contingent deferred sales charge (CDSC) such as:

  Year	1	2	3	4	5	6	7
  % Charge	7	6	5	4	3	2	1

  Charges are either based on "date of deposit" or "date of contract". A contract in this example that uses a "date of contract" method would have no charges imposed after seven years - even for new deposits.

The major advantage of a variable annuity is the tax advantage of deferred taxes on dividends, interest and capital gains that are credited to the sub-accounts in which they are earned - until withdrawn. One must be aware that withdrawals prior to age 59 1/2 are subject to a 10% penalty imposed by the IRS and the amount withdrawn is subject to ordinary income tax  (check with your tax advisor for details.)  Secondly, with a variable annuity your money is invested in mutual funds which allow for the opportunity of growth which is available in the stock market.