© 2008 Morningstar, Inc. All rights reserved. 3/1/2008 LCN Understanding Deferred Annuities

Characteristics of Deferred Annuities © 2008 Morningstar, Inc. All rights reserved. 3/1/2008  Investment savings vehicles typically sold by insurance agents and financial advisors  Build retirement assets  Few restrictions on the amount that can be contributed annually  Tax-deferred accumulation  Single or flexible payment  Fixed or variable rate of return  Choice on how to withdraw money  Lump sum  As needed  Annuitize

Benefits of Deferring Taxes Hypothetical value of $10,000 invested in stocks. This example assumes an investor in the 28% bracket and an 8% annual total return. Estimates are not guaranteed. The illustration does not reflect the different fees and charges associated with variable annuities. If it did, the performance would be lower than cited above. This is for illustrative purposes only and not indicative of any investment. © 2008 Morningstar, Inc. All rights reserved. 3/1/ $250k 5 years to retirement Value of taxable account Value of tax-deferred account

There Are Many Annuity Features From Which to Choose © 2008 Morningstar, Inc. All rights reserved. 3/1/2008 Fixed  Offer guaranteed interest rate for a set period of time Variable  Return and principal value fluctuates  Investment flexibility  Choice of investment/asset allocation  Dollar-cost averaging  Automatic portfolio rebalancing  Living and death benefit options

Assets of Deferred Variable Annuities Are Rising 1994–2007 Data through September 30, © 2008 Morningstar, Inc. All rights reserved. 3/1/2008 Variable account assets Fixed account assets 1,200 1, $1,600 bil ,400

Annuity Distributions Can Be Received in a Variety of Ways © 2008 Morningstar, Inc. All rights reserved. 3/1/2008 Payout alternatives  Lump sum  Systematic withdrawals  Annuitization (fixed or variable)  Single life only  Single life only with full refund  Single life only with period certain  Joint & survivor  Joint & survivor with period certain  Fixed period

A Variety of Living-Benefit Options Are Available Each benefit option is subject to additional fees. Violating terms and conditions of the contract may void guarantees. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008  Guarantees initial investment (or some multiple) after a specific number of years Description Target age Other details  Guarantees a fixed floor of income after a specified period once contract is annuitized  Guarantees a return of principal over time through systematic withdrawals  5–10 years before, and during, retirement  5–10 years before retirement  10–20 years before retirement  Available only during savings and investment phase  Investment restrictions may apply  Must annuitize to receive benefit  Income for life  Payout factors are lower than those used to annuitize actual account value  Investment restrictions may apply  Maximum withdrawal amounts vary by contract  Annuitization not required  Single and joint lifetime withdrawals are available  Often able to step up guarantee amount if market performs well  Investment restrictions may apply Living-benefit option Guaranteed minimum accumulation benefit (GMAB) Guaranteed minimum income benefit (GMIB) Guaranteed minimum withdrawal benefit (GMWB)

Living-Benefit Riders Are Becoming More Common Percent of open variable annuity contracts offering as of December 2007 This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Past performance is no guarantee of future results. © 2008 Morningstar, Inc. All rights reserved. 3/1/ % 36% 67% 70% GMABGMIBGMWB 60

Example of GMAB Illustration of contract offering initial investment value after 10-year contract period This is for illustrative purposes only and not indicative of any investment. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008 $130k Years to retirement If contract value falls below initial value, the benefit will bring contract value back up. Initial purchase amount Hypothetical contract value

Example of GMIB Illustration of contract offering 5% compounding and a highest anniversary value This is for illustrative purposes only and not indicative of any investment. © 2008 Morningstar, Inc. All rights reserved. 3/1/ Retirement Must annuitize to receive benefit. Receive the value that provides the greatest income stream. Years to retirement Hypothetical contract value 5% compound annual growth Highest anniversary value

Example of GMWB Illustration of contract offering 5% withdrawal benefit This is for illustrative purposes only and not indicative of any investment. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008 $120k Years in retirement Hypothetical contract value Cumulative withdrawals Annual withdrawals

Variable Annuity Fees Increase With Features Average expenses for VA contracts with and without living-benefit options This is for illustrative purposes only and not indicative of any investment. Past performance is no guarantee of future results. © 2008 Morningstar, Inc. All rights reserved. 3/1/ % No living-benefit ridersWith living-benefit riders Average MEA & distribution charges Average expense ratio 1.26% 2.16% 1.42% 2.45%

Investors Are Concerned About Beneficiary Protection Illustration of maximum anniversary value step-up This is for illustrative purposes only and not indicative of any investment. © 2008 Morningstar, Inc. All rights reserved. 3/1/ Year 156 Current value GMDB annual step-up Anniversary mark Initial investment

Optional Death-Benefit Guarantees Are Available Common variable annuity contract offerings © 2008 Morningstar, Inc. All rights reserved. 3/1/2008  Maximum anniversary value (MAV) Looks back at account value on anniversaries and guarantees at least as much as the highest value upon death  Rising floor Sets a minimum death benefit value by compounding net premiums at a fixed annual rate of return  Earnings enhancement bonus Adds a fixed percentage payment to contract value at death, generally 40% under age 75 and 25% over age 75, although ages can vary

Evaluating the Suitability of Deferred Annuities © 2008 Morningstar, Inc. All rights reserved. 3/1/2008  Annuities can be complex, so it is important to gain an understanding of the following:  Types  Features  Options/Riders  Fees associated with purchasing the insurance protection