With an annuity, you make one or more payments now in exchange for income at a later date--perhaps when you're retired. In addition, most annuities pay the beneficiary of your choice (perhaps a spouse, child, or other family member) a lump sum or series of payments equal to at least your investment in the event of the annuitant's death prior to annuitization.

Tax deferral means that you do not pay taxes on your investment's growth until you actually begin to withdraw your money -- perhaps after retirement. The chart below shows the difference tax deferral can make:

The illustration reflects annual mortality and expense risk/administrative charges (1.40%) plus the average portfolio management fees (.80%), and 1.32% in annual expenses for the taxable investment based on the average of all mutual funds according to Morningstar Principia, as of 9/30/97. Past performance is no guarantee of future results. Also, withdrawals from the tax-deferred investment may be subject to a 10% IRS penalty if withdrawn before age 59½.

The benefit is that your returns are not chipped away by 25% to 40% each year, which is what a typical investor in a taxable investment would normally pay in combined federal and state taxes. Returns on certain taxable investments could be taxed at more favorable rates.

Of course, taxes are eventually due on tax-deferred investments. In a tax-deferred annuity, withdrawals of earnings are taxable and, if you are under age 59½, a 10% IRS penalty may apply.

Consider this example:
$50,000 is invested in two different investments for 25 years -- one taxable and one tax deferred. Each investment earns an average annual return of 8% each year. After 25 years:

• The taxable investment grows from $50,000 to $191,575.

• The $50,000 tax deferred investment grows to $279,083 or almost $90,000 more than a similar taxable investment.

• Of course, taxes are eventually due when you begin to withdraw income. But even after paying taxes, the tax-deferred investment still comes out ahead. If you withdrew all of your money after 25 years and paid a combined 31% federal and state tax rate, the tax-deferred investment would be worth $208,068 (the last bar on your right) nearly $16,500 more than the taxable investment.

• Keep in mind that this example is hypothetical and does not project the actual performance of any products or variable annuities. In addition, if you withdraw funds before age 59½, a 10% penalty tax may apply, as well as surrender charges ranging from 0% to 8%, depending on how much you withdraw and how long you have owned your contract. Also, there is no guarantee that you will receive the same result.

Preferred Securities Group, Inc.
5301 N. Federal Highway, Suite 150
Boca Raton, Florida 33487
1-800-909-9150
Tel. (561) 998-2170
Fax (561) 998-2177
Email: info@preferredsecurities.com

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