Investment Alternatives

For Tax-Sheltered

Annuity Assets

A Guide To

403(b)(7)

Custodial

Accounts.

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Mutual Fund Investing Adds Diversity

More than twenty years ago, the 403(b)(7) custodial account was created to encourageinvestment diversification in 403(b) plans. Atthat time, mutual funds became a permissibleinvestment alternative to annuities in theseaccounts. Only in the last several years have the tax implications become clear regarding the transfer of assets among different types ofinvestments. IRS Revenue Ruling 90-24 finallysanctioned the tax-free transfer of funds in a403(b) plan between annuities and mutual funds.

The goal of the 403(b)(7) custodial account is to permit the widest variety of mutual fundinvestment opportunities available.

The 403(b)(7) custodial account from Pershing,offered through your investment professional, isa self-directed, tax-sheltered brokerage account.To hold a 403(b)(7) account, you must be one of the 15 million people who participate in a403(b) plan at work.

Why Self-Direction?

Self-direction offers diversification and consolidation. The condition of financial markets will play a major role in the size of your retirement capital. As an individualinvestor, your needs are not static. They change with your age, your overall financial status, and the state of the market.

That’s why self-direction may be right for you.It gives you the liberty to spread your TSA funds among a wide variety of mutual fund

You may find it surprising that annuities are not the only

investments available for your 403(b) retirement funds.

Annuities are so common in 403(b) plans that we often

refer to a 403(b) plan itself as a Tax-Sheltered Annuity,

or simply a TSA.

That’s understandable, because for nearly a half

century, the investments available for people

participating in 403(b) retirement plans were limited to

annuities. Certainly, there are many attractive annuities,

but some individuals, possibly yourself included, are

looking for a wider variety of investment choices beyond

what annuities can offer.

Now, your investment professional can offer you

the alternative that you may be seeking for your 403(b)

plan. You can have the freedom to move in and out of

investments as your needs change and the independence

to take advantage of market trends. In a word, you can

take advantage of something annuities often cannot

deliver: diversification.

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Contribution Alternatives

The easiest and best way to take immediateadvantage of self-direction is to transfer TSAfunds from an annuity or a mutual fund to a self-directed 403(b)(7) custodial account.

If your employer permits, you can arrange for the deduction of your TSA contributions directlyfrom your paycheck, pre-tax, for direct depositinto your account. If your employer contributesto your TSA, you can deposit those contributionsinto your custodial account as well.

Taking Distributions From Your Self-Directed Custodial Account

Like all retirement accounts, Federal law regulates the timing of distributions from your403(b)(7) custodial account. According to theregulations, distributions are available only if you are terminated by your employer, reach theage of 59 1/2, endure a financial hardship, suffer a serious disability, or die. However, once youreach the age of 70 1/2, and you are no longeremployed, you must begin to take required minimum distributions (RMD). Each year, wewill provide you with an RMD notification alongwith a calculation of the RMD amount. Any contributions made before 1987 are exempt from the mandatory distribution requirementuntil you reach the age of 75.

investments. You can even spread them among different fund families, using as few or as many as you like, in whatever proportionsyou choose.

With just a phone call or visit to your investmentprofessional, you can choose from thousands ofmutual funds for your TSA investments.

Transfer Mutual Fund Holdings To Your Self-Directed Account

If you are currently investing your TSA amongseveral different mutual fund companies, yourinvestment professional can arrange to holdthem all in one account. We simply transfer your holdings from each mutual fund companyto your new custodial account. You then receive one periodic statement showing all of your TSA mutual fund investments. Tax reporting is easier, too. All of your distributions will bereported from one account, not several.

Beware Of Annuity Termination Fees

Annuities often include surrender fees. If so,you may want to investigate these charges anddetermine whether or not it pays in the long runfor you to transfer from the annuity to anotherinvestment. If you have invested in the annuityfor some time, there may be no surrendercharges. In that case, you can simply cash in the annuity and transfer the proceeds to your403(b)(7) custodial account.

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* The account protection applies when a SIPC member

firm fails financially and is unable to meet obligations to

securities customers, but it does not protect against losses

from the rise and fall in the market value of investments.

Take Advantage Of Our Experience

Pershing is a leading provider of correspondentbrokerage services to independent financial institutions. We have been in the securitiesbusiness since 1939, and have been a qualifiedcustodian of retirement assets since 1984. Wecurrently handle more than 800,000 retirementaccounts, holding assets in excess of $67 billion.Pershing is a division of Donaldson, Lufkin &Jenrette Securities Corporation, a leading investment banking and securities firm, and an independent subsidiary of the Equitable Life Assurance Society of the United States.

Protection Of Your Assets

Your securities are protected up to a total of $150million per account. Of this total, the SecuritiesInvestor Protection Corporation (SIPC) provides$500,000 of coverage, including $100,000 forclaims for cash. The remaining $149.5 million of coverage, on securities only, is provided byPershing through a commercial insurer.*

Why Not Diversify?

If you seek investment diversification for yourTSA, ask your investment professional about a 403(b)(7) custodial account. You may be pleasantly surprised at the wide variety of investment choices available to you.

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