<PAGE>
VARIABLE ANNUITY CONTRACT PROSPECTUS
MULTIOPTION SELECT
FLEXIBLE PAYMENT VARIABLE ANNUITY CONTRACT
OF MINNESOTA MUTUAL'S VARIABLE ANNUITY ACCOUNT
The individual variable annuity contract offered by this Prospectus is designed
for use in connection with personal retirement plans, some of which may qualify
for federal income tax advantages available under sections 401, 403, 408 or 457
of the Internal Revenue Code. It may also be used apart from a qualified plan.
The owner of a contract will have contract values accumulated on a completely
variable basis as part of the Variable Annuity Account. The Variable Annuity
Account invests its assets in shares of MIMLIC Series Fund, Inc. (the "Fund").
The accumulation value of the contract and the amount of each variable annuity
payment will vary in accordance with the performance of the Portfolio or
Portfolios of the Fund selected by the contract owner. The contract owner bears
the entire investment risk for any amounts allocated to the Portfolios of the
Fund.
This Prospectus sets forth concisely the information that a prospective
investor should know before investing in the Variable Annuity Account, and it
should be read and kept for future reference. A Statement of Additional
Information, bearing the same date, which contains further contract information,
has been filed with the Securities and Exchange Commission and is incorporated
by reference into this Prospectus. A copy of the Statement of Additional
Information may be obtained without charge by calling (612) 298-3500, or by
writing Minnesota Mutual at its principal office at Minnesota Mutual Life
Center, 400 Robert Street North, St. Paul, Minnesota 55101-2098. A Table of
Contents for the Statement of Additional Information appears in this Prospectus
on page 27.
This Prospectus is not valid unless attached to a current prospectus of MIMLIC
Series Fund, Inc.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
LOGO
The Minnesota Mutual Life Insurance Company
400 Robert Street North
St. Paul, MN 55101-2098
Ph 612/298-3500
http://www.minnesotamutual.com
The date of this document and the Statement of Additional Information is: May 1,
1996
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Special Terms............................................................. 3
Questions and Answers About the Variable Annuity Contract................. 3
Expense Table............................................................. 7
Condensed Financial Information........................................... 10
Performance Data.......................................................... 11
General Descriptions
The Minnesota Mutual Life Insurance Company........................... 12
Variable Annuity Account.............................................. 12
MIMLIC Series Fund, Inc............................................... 12
Additions, Deletions or Substitutions................................. 13
Contract Charges
Deferred Sales Charges................................................ 13
Mortality and Expense Risk Charges.................................... 14
Transaction and Contract Charges...................................... 15
Voting Rights............................................................. 15
Description of the Contract
General Provisions.................................................... 15
Annuity Payments and Options.......................................... 16
Death Benefits........................................................ 20
Purchase Payments, Value of the Contract and Transfers................ 20
Redemptions........................................................... 22
Federal Tax Status........................................................ 23
Statement of Additional Information....................................... 27
Appendix A -- Illustration of Variable Annuity Values..................... 28
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THE PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
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SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCUMULATION UNIT: an accounting device used to determine the value of a
contract before annuity payments begin.
ACCUMULATION VALUE: the sum of your values under a contract in the Variable
Annuity Account.
ANNUITANT: the person who may receive lifetime benefits under the contract.
ANNUITY: a series of payments for life; for life with a minimum number of
payments guaranteed; for the joint lifetime of the annuitant and another person
and thereafter during the lifetime of the survivor; or for a period certain.
ANNUITY UNIT: an accounting device used to determine the amount of annuity
payments.
CODE: the Internal Revenue Code of 1986, as amended.
CONTRACT OWNER: the owner of the contract, which could be the annuitant, his or
her employer, or a trustee acting on behalf of the employer.
CONTRACT YEAR: a period of one year beginning with the contract date or a
contract anniversary.
FIXED ANNUITY: an annuity providing for payments of guaranteed amounts
throughout the payment period.
FUND: the mutual fund or separate investment portfolio within a series mutual
fund which we have designated as an eligible investment for the Variable Annuity
Account, namely, MIMLIC Series Fund, Inc. and its Portfolios.
GENERAL ACCOUNT: all of our assets other than those in the Variable Annuity
Account or in our other separate accounts.
PLAN: a tax-qualified employer pension, profit-sharing, or annuity purchase plan
under which benefits are to be provided by the variable annuity contract
described herein.
PURCHASE PAYMENTS: amounts paid to us under a contract.
VALUATION DATE: each date on which a Fund Portfolio is valued.
VARIABLE ANNUITY ACCOUNT: a separate investment account called the Minnesota
Mutual Variable Annuity Account, where the investment experience of its assets
is kept separate from that of our other assets.
VARIABLE ANNUITY: an annuity providing for payments varying in amount in
accordance with the investment experience of the Fund.
VOLUME CREDIT: an additional amount, other than a dividend, which may be
credited by us to your contract.
WE, OUR, US: The Minnesota Mutual Life Insurance Company.
YOU, YOUR: the Contract Owner.
- ------------------------------------------------------------------------
QUESTIONS AND ANSWERS ABOUT THE VARIABLE ANNUITY CONTRACT
WHAT IS AN ANNUITY?
An annuity is a series of payments for life; for life with a minimum number of
payments guaranteed; for the joint lifetime of the annuitant and another person
and thereafter during the lifetime of the survivor; or for a period certain. An
annuity with payments which are guaranteed as to amount during the payment
period is a fixed annuity. An annuity with payments which vary during the
payment period in accordance with the investment experience of a separate
account is called a variable annuity.
WHAT IS THE CONTRACT OFFERED BY THIS PROSPECTUS?
The contract is a variable annuity contract issued by us which provides for
monthly annuity payments. These payments may begin immediately or at a future
date elected by you. Purchase payments received by us under a contract are
allocated to the Variable Annuity Account. In the Variable Annuity Account, your
purchase payments are invested in one or more Portfolios of MIMLIC Series Fund,
Inc. according to your instructions. If your application fails to specify which
Portfolios are desired, or is otherwise incomplete, and you do not consent to
our retention of your initial payment until the application is made complete, we
will return your initial payment within five business days. There are no
interest or principal guarantees on your funds.
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WHAT INVESTMENT OPTIONS ARE AVAILABLE FOR THE VARIABLE ANNUITY ACCOUNT?
Currently, purchase payments allocated to the Variable Annuity Account are
invested exclusively in shares of MIMLIC Series Fund, Inc. This Fund is a mutual
fund of the series type, which means that it has several different portfolios
which it offers for investment. Shares of this Fund will be made available at
net asset value to the Variable Annuity Account to fund the variable annuity
contract. The Fund is also required to redeem its shares at net asset value at
our request. We reserve the right to add, combine or remove other eligible
funds. The investment objectives and certain policies of the Portfolios of the
Fund are as follows:
The Growth Portfolio seeks the long-term accumulation of capital. Current
income, while a factor in portfolio selection, is a secondary objective. The
Growth Portfolio will invest primarily in common stocks and other equity
securities. Common stocks are more volatile than debt securities and involve
greater investment risk.
The Bond Portfolio seeks as high a level of long-term total rate of return
as is consistent with prudent investment risk. A secondary objective is to
seek preservation of capital. The Bond Portfolio will invest primarily in
long-term, fixed-income, high-quality debt instruments. The value of debt
securities will tend to rise and fall inversely with the rise and fall of
interest rates.
The Money Market Portfolio seeks maximum current income to the extent
consistent with liquidity and the stability of capital. The Money Market
Portfolio will invest in money market instruments and other debt securities
with maturities not exceeding one year. The return produced by these
securities will reflect fluctuation in short-term interest rates.
AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
The Asset Allocation Portfolio seeks as high a level of long-term total
rate of return as is consistent with prudent investment risk. The Asset
Allocation Portfolio will invest in common stocks and other equity
securities, bonds and money market instruments. The Asset Allocation
Portfolio involves the risks inherent in stocks and debt securities of
varying maturities and the risk that the Portfolio may invest too much or
too little of its assets in each type of security at any particular time.
The Mortgage Securities Portfolio seeks a high level of current income
consistent with prudent investment risk. In pursuit of this objective, the
Mortgage Securities Portfolio will follow a policy of investment primarily
in mortgage-related securities. Prices of mortgage-related securities will
tend to rise and fall inversely with the rise and fall of the general level
of interest rates.
The Index 500 Portfolio seeks investment results that correspond generally
to the price and yield performance of the common stocks included in the
Standard & Poor's Corporation 500 Composite Stock Price Index (the "Index").
It is designed to provide an economical and convenient means of maintaining
a broad position in the equity market as part of an overall investment
strategy. All common stocks, including those in the Index, involve greater
investment risk than debt securities. The fact that a stock has been
included in the Index affords no assurance against declines in the price or
yield performance of that stock.
The Capital Appreciation Portfolio seeks growth of capital. Investments
will be made based upon their potential for capital appreciation. Therefore,
current income will be incidental to the objective of capital growth.
Because of the market risks inherent in any equity investment, the selection
of securities on the basis of their appreciation possibilities cannot ensure
against possible loss in value.
The International Stock Portfolio seeks long-term capital growth. In
pursuit of this objective, the International Stock Portfolio will follow a
policy of investing in stocks issued by companies, large and small, and debt
obligations of companies and governments outside the United States. Current
income will be incidental to the objective of capital growth. The Portfolio
is designed for persons seeking international diversification. Investors
should consider carefully the substantial risks involved in investing in
securities issued by companies and governments of foreign nations, which are
in addition to the usual risks inherent in domestic investments.
The Small Company Portfolio seeks long-term accumulation of capital. In
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pursuit of this objective, the Small Company Portfolio will follow a policy
of investing primarily in common or preferred stocks issued by small
companies, defined in terms of either market capitalization or gross
revenues. Investments in small companies usually involve greater investment
risks than fixed income securities or corporate equity securities generally.
Small companies will typically have a market capitalization of less than
$1.5 billion or annual gross revenues of less than $1.5 billion.
The Value Stock Portfolio seeks the long-term accumulation of capital. The
production of income through the holdings of dividend-paying stocks will be
a secondary objective of the Portfolio. The Value Stock Portfolio will
invest primarily in equity securities of companies which, in the opinion of
the Portfolio's investment adviser, have market values which appear low
relative to their underlying value or future earnings and growth potential.
The Maturing Government Bond Portfolios seek to provide as high an
investment return as is consistent with prudent investment risk for a
specified period of time ending on a specified liquidation date. The
investments in each Portfolio are primarily zero coupon securities, debt
securities which pay no cash income and are sold at a discount from their
par value at maturity, particularly those issued by the U.S. Treasury and
those issued by the U.S. Government and its agencies. There are four
Portfolios of this type and each will mature on a specified target date as
indicated in the name of each Portfolio. The current maturity dates are in
September in the years 1998, 2002, 2006 and 2010.
There is no assurance that any Portfolio will meet its objectives. Additional
information concerning the investment objectives and policies of the Portfolios
can be found in the current prospectus for the Fund, which is attached to this
Prospectus.
CAN YOU CHANGE THE PORTFOLIO SELECTED?
Yes. You can change your allocation of future purchase payments by giving us
written notice or a telephone call notifying us of the change. And before
annuity payments begin, you may transfer all or a part of your accumulation
value from one Portfolio to another or among the Portfolios. After annuity
payments begin, amounts held as annuity reserves may be transferred among the
variable annuity sub-accounts subject to some restrictions. Annuity reserves may
be transferred only from a variable annuity to a fixed annuity during the
annuity period. For a more detailed discussion of applicable telephone
procedures, please see pages 20-22 of this Prospectus under the heading
"Purchase Payments, Value of the Contract and Transfers."
WHAT CHARGES ARE ASSOCIATED WITH THE CONTRACT?
We deduct from the net asset value of the Variable Annuity Account an amount,
computed daily, equal to an annual rate of 1.25% for mortality and expense risk
guarantees. This total represents a charge of .80% for our assumption of
mortality risks and .45% for our assumption of expense risks. We reserve the
right to increase the charge for the assumption of expense risks to not more
than .60%. If this charge is increased to this maximum amount, then the total of
the mortality risk and expense risk charge would be 1.40% on an annual rate. Any
such increase would be subject to the approval of the Securities and Exchange
Commission.
In addition, MIMLIC Asset Management Company, one of our subsidiaries, acts as
the investment adviser to the Fund and deducts from the net asset value of each
Portfolio of the Fund a fee for its services which are provided under an
investment advisory agreement. The investment advisory agreements provide that
the fee shall be computed at the annual rate of .4% of the Index 500 Portfolio,
.75% of the Capital Appreciation and the Small Company Portfolios, 1.0% for the
International Stock Portfolio and .5% of each of the remaining Portfolio's net
assets except for the Maturing Government Bond Portfolios. The advisory fee for
the Maturing Government Bond Portfolios is generally .25%, however, for the
Portfolios maturing in 1998 and 2002, the fee will be .05% until April 30, 1998
and .25% thereafter.
The Fund is subject to certain expenses that may be incurred with respect to
its operation and those expenses are allocated among the Portfolios. For more
information on the Fund, see the prospectus of MIMLIC Series Fund, Inc. which is
attached to this Prospectus.
In addition, a deferred sales charge may apply. Deductions for any applicable
premium taxes may also be made (currently such taxes
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range from 0.0% to 3.5%) depending upon applicable law.
For more information on charges, see the heading "Contract Charges" in this
Prospectus. The deferred sales charge is discussed below.
WHAT IS THE DEFERRED SALES CHARGE?
We deduct a deferred sales charge on contract withdrawals and surrenders during
the first seven contract years following receipt of each purchase payment for
expenses relating to the sale of the contract. The amount of any deferred sales
charge is deducted from the accumulation value.
The amount of deferred sales charge, as a percentage of the amount surrendered
or withdrawn, decreases during the first seven contract years following receipt
of each purchase payment from an initial charge of 7% to 0%. The charge does not
apply to the excess, if any, of the accumulation value over the sum of all
purchase payments made to the contract, less the amount of previous purchase
payment withdrawals. The charge is applied to each purchase payment on a
first-in, first-out basis. The charge will not exceed 7% of the purchase
payments made under the contract.
There is no deferred sales charge on (1) amounts applied to provide an annuity
under the contract, (2) amounts returned pursuant to the contracts' cancellation
right, or (3) amounts paid in the event of the death of the owner.
For more information on this charge, see the heading "Deferred Sales Charges"
in this Prospectus.
ARE THERE ANY OTHER CHARGES IN THE CONTRACT?
Yes. We reserve the right to make a charge, not to exceed $25, for transfers
occurring more frequently than once a month. Currently we do not impose such a
charge. Also, the contract contains a provision of a contract fee of $200 when a
fixed annuity is elected.
CAN YOU MAKE PARTIAL WITHDRAWALS FROM THE CONTRACT?
Yes. You may make withdrawals of the accumulation value of your contract before
an annuity begins. Partial withdrawals must be pursuant to your written request.
Partial withdrawals are generally subject to the deferred sales charge. In
addition, a penalty tax of 10% of the amount of the taxable distribution may be
assessed upon withdrawals from the variable annuity contract in certain
circumstances, including distributions made prior to the owner's attainment of
age 59 1/2. For more information, see the heading "Federal Tax Status" in this
Prospectus.
DO YOU HAVE A RIGHT TO CANCEL THE CONTRACT?
Yes. You may cancel the contract any time within ten days of your receipt of the
contract by returning it to us or your agent. In some states, such as
California, the free look period may be extended. In California, the free look
period is extended to thirty days' time for contracts issued or delivered to
owners that are sixty years of age or older at the time of delivery. These
rights are subject to change and may vary among the states.
IS THERE A GUARANTEED DEATH BENEFIT?
Yes. The death benefit shall be equal to the greater of: (1) the amount of the
accumulation value payable at death; or (2) the amount of the total purchase
payments as consideration for this contract, less all contract withdrawals.
WHAT ANNUITY OPTIONS ARE AVAILABLE?
The contract specifies several annuity options. Each annuity option may be
elected on either a variable annuity or fixed annuity or a combination of the
two. Other annuity options may be available from us on request. The specified
annuity options are a life annuity; a life annuity with a period certain of
either 120 months, 180 months or 240 months; a joint and last survivor annuity
and a period certain annuity.
WHAT IF THE OWNER DIES?
If you die before payments begin, we will pay the death benefit to the named
beneficiary. In the case of joint owners, this amount would be payable at the
death of the second owner.
If the annuitant dies after annuity payments have begun, we will pay whatever
death benefit may be called for by the terms of the annuity option selected. If
the owner of this contract is other than a natural person, such as a trust or
other similar entity, we will pay a death benefit of the accumulation value to
the named beneficiary on the death of the annuitant, if death occurs prior to
the date for annuity payments to begin.
WHAT VOTING RIGHTS DO YOU HAVE?
Contract owners and annuitants will be able to direct us as to how to vote
shares of the underlying Portfolios held for their contracts where shareholder
approval is required by law in the affairs of MIMLIC Series Fund, Inc.
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EXPENSE TABLE
The tables shown below are to assist a contract owner in understanding the costs
and expenses that a contract will bear directly or indirectly. For more
information on contract costs and expenses, see the Prospectus heading "Contract
Charges" and the information immediately following. The table does not reflect
deductions for any applicable premium taxes which may be made from each purchase
payment depending upon the applicable law. The tables show the expenses of each
portfolio of MIMLIC Series Fund after expense reimbursement.
The following contract expense information is intended to illustrate the
expenses of the MultiOption Select variable annuity contract. All expenses shown
are rounded to the nearest dollar. The information contained in the tables must
be considered with the narrative information which immediately follows them in
this heading.
Flexible Payment Deferred Variable Annuity Contract
MultiOption Select
CONTRACT OWNER TRANSACTION EXPENSES
The amount of the deferred sales charge percentage is as shown in the
table below:
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<CAPTION>
CONTRACT YEARS SINCE PAYMENT CHARGE
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<S> <C>
0-1 7%
1-2 7%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7 and thereafter 0%
</TABLE>
<TABLE>
<S> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of average account
value)
Mortality and Expense Risk Fees.................................... 1.25%
---------
Total Separate Account Annual Expenses......................... 1.25%
---------
---------
</TABLE>
Note: We have reserved the right to increase the total of the mortality and
expense risk fees to not more than 1.40% on an annual rate. For more information
on these charges, please see the heading "Mortality and Expense Risk Charges" on
page 14 of this Prospectus.
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MIMLIC SERIES FUND, INC. ANNUAL EXPENSES
(As a percentage of average net assets for the described MIMLIC Series Fund,
Inc. Portfolios.)
<TABLE>
<CAPTION>
OTHER TOTAL FUND
EXPENSES ANNUAL EXPENSES
INVESTMENT (AFTER EXPENSE (AFTER EXPENSE
MANAGEMENT FEES REIMBURSEMENTS) REIMBURSEMENTS)
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
MIMLIC SERIES FUND, INC.:
Growth Portfolio.......................... 0.50% 0.05% 0.55%
Bond Portfolio............................ 0.50% 0.08% 0.58%
Money Market Portfolio.................... 0.50% 0.14% 0.64%
Asset Allocation Portfolio................ 0.50% 0.05% 0.55%
Mortgage Securities Portfolio............. 0.50% 0.08% 0.58%
Index 500 Portfolio....................... 0.40% 0.07% 0.47%
Capital Appreciation Portfolio............ 0.75% 0.05% 0.80%
International Stock
Portfolio............................... 0.78% 0.26% 1.04%
Small Company Portfolio................... 0.75% 0.09% 0.84%
Maturing Government Bond 1998 Portfolio
(1)(2).................................. 0.05% 0.15% 0.20%
Maturing Government Bond 2002 Portfolio
(1)(2).................................. 0.05% 0.15% 0.20%
Maturing Government Bond 2006 Portfolio
(2)..................................... 0.25% 0.15% 0.40%
Maturing Government Bond 2010 Portfolio
(2)..................................... 0.25% 0.15% 0.40%
Value Stock Portfolio (2)................. 0.75% 0.14% 0.89%
</TABLE>
(1) Investment management fees for the Maturing Government Bond 1998 and 2002
Portfolios is equal on an annual basis to .05% of average daily net assets
until April 30, 1998 at which time the fee will be .25% of average daily net
assets.
(2) Minnesota Mutual voluntarily absorbed certain expenses of the Maturing
Government Bond 1998, Maturing Government Bond 2002, Maturing Government
Bond 2006, Maturing Government Bond 2010 and Value Stock Portfolios for the
year ended December 31, 1995. If these portfolios had been charged for
expenses, the ratio of expenses to average daily net assets would have been
.72%, 1.06%, 1.56%, 2.68% and .95%, respectively. It is Minnesota Mutual's
present intention to waive other fund expenses during the current fiscal
year which exceed, as a percentage of average daily net assets, .15%.
Minnesota Mutual also reserves the option to reduce the level of other
expenses which it will voluntarily absorb.
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CONTRACT OWNER EXPENSE EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
IF YOU SURRENDERED IF YOU ANNUITIZE AT THE END OF THE
YOUR CONTRACT AT THE END OF APPLICABLE TIME PERIOD OR YOU DO
THE APPLICABLE TIME PERIOD NOT SURRENDER YOUR CONTRACT*
------------------------------------- -------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Portfolio........................ $88 $117 $137 $212 $18 $57 $ 97 $212
Bond Portfolio.......................... $89 $118 $139 $215 $19 $58 $ 99 $215
Money Market Portfolio.................. $89 $119 $142 $221 $19 $59 $102 $221
Asset Allocation Portfolio.............. $88 $117 $137 $212 $18 $57 $ 97 $212
Mortgage Securities Portfolio........... $89 $118 $139 $215 $19 $58 $ 99 $215
Index 500 Portfolio..................... $87 $114 $133 $203 $17 $54 $ 93 $203
Capital Appreciation Portfolio.......... $91 $124 $150 $238 $21 $64 $110 $238
International Stock Portfolio........... $93 $132 $163 $263 $23 $72 $123 $263
Small Company Portfolio................. $91 $125 $152 $242 $21 $65 $112 $242
Maturing Government Bond 1998
Portfolio............................. $85 $106 $122 $188 $15 $46 $ 82 $188
Maturing Government Bond 2002
Portfolio............................. $85 $106 $122 $188 $15 $46 $ 82 $188
Maturing Government Bond 2006
Portfolio............................. $87 $112 $130 $195 $17 $52 $ 90 $195
Maturing Government Bond 2010
Portfolio............................. $87 $112 $130 $195 $17 $52 $ 90 $195
Value Stock Portfolio................... $92 $127 $155 $247 $22 $67 $115 $247
</TABLE>
* Annuitization for this purpose means the election of an Annuity Option under
which benefits are expected to continue for a period of at least five years.
Prior to May 3, 1993, several of the Portfolios were known by different names.
The Growth Portfolio was the Stock Portfolio, the Asset Allocation Portfolio was
the Managed Portfolio, the Index 500 Portfolio was the Index Portfolio and the
Capital Appreciation Portfolio was the Aggressive Growth Portfolio.
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CONDENSED FINANCIAL INFORMATION
The financial statements of Minnesota Mutual Variable Annuity Account and of The
Minnesota Mutual Life Insurance Company may be found in the Statement of
Additional Information.
The table below gives per unit information about the financial history of each
sub-account for the year ended December 31, 1995
and the period from September 15, 1994, commencement of operations, to December
31, 1994. This information should be read in conjunction with the financial
statements and related notes of Minnesota Mutual Variable Annuity Account
included in this prospectus.
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
<S> <C> <C>
Growth Sub-Account:
Unit value at beginning of period.................................... $2.143 $2.222
Unit value at end of period.......................................... $2.630 $2.143
Number of units outstanding at end of period......................... 35,809,340 33,090,790
Bond Sub-Account:
Unit value at beginning of period.................................... $1.820 $1.845
Unit value at end of period.......................................... $2.153 $1.820
Number of units outstanding at end of period......................... 28,069,241 23,798,963
Money Market Sub-Account:
Unit value at beginning of period.................................... $1.455 $1.441
Unit value at end of period.......................................... $1.515 $1.455
Number of units outstanding at end of period......................... 14,809,515 11,720,778
Asset Allocation Sub-Account:
Unit value at beginning of period.................................... $2.014 $2.048
Unit value at end of period.......................................... $2.486 $2.014
Number of units outstanding at end of period......................... 110,975,477 109,044,286
Mortgage Securities Sub-Account:
Unit value at beginning of period.................................... $1.660 $1.677
Unit value at end of period.......................................... $1.934 $1.660
Number of units outstanding at end of period......................... 31,277,934 31,542,405
Index 500 Sub-Account:
Unit value at beginning of period.................................... $1.794 $1.847
Unit value at end of period.......................................... $2.425 $1.794
Number of units outstanding at end of period......................... 35,272,024 29,639,298
Capital Appreciation Sub-Account:
Unit value at beginning of period.................................... $2.082 $2.096
Unit value at end of period.......................................... $2.524 $2.082
Number of units outstanding at end of period......................... 45,964,468 40,739,415
International Stock Sub-Account:
Unit value at beginning of period.................................... $1.296 $1.374
Unit value at end of period.......................................... $1.462 $1.296
Number of units outstanding at end of period......................... 68,725,183 61,474,893
Small Company Sub-Account:
Unit value at beginning of period.................................... $1.220 $1.210
Unit value at end of period.......................................... $1.591 $1.220
Number of units outstanding at end of period......................... 43,234,716 29,723,609
Maturing Government Bond 1998 Sub-Account:
Unit value at beginning of period.................................... $0.981 $1.001
Unit value at end of period.......................................... $1.124 $0.981
Number of units outstanding at end of period......................... 3,330,772 2,578,506
Maturing Government Bond 2002 Sub-Account:
Unit value at beginning of period.................................... $0.972 $0.987
Unit value at end of period.......................................... $1.200 $0.972
Number of units outstanding at end of period......................... 2,417,823 2,528,509
Maturing Government Bond 2006 Sub-Account:
Unit value at beginning of period.................................... $0.963 $0.964
Unit value at end of period.......................................... $1.281 $0.963
Number of units outstanding at end of period......................... 1,878,731 1,808,705
Maturing Government Bond 2010 Sub-Account:
Unit value at beginning of period.................................... $0.951 $0.938
Unit value at end of period.......................................... $1.326 $0.951
Number of units outstanding at end of period......................... 924,681 913,358
Value Stock Sub-Account:
Unit value at beginning of period.................................... $1.047 $1.085
Unit value at end of period.......................................... $1.375 $1.047
Number of units outstanding at end of period......................... 18,744,902 7,178,675
</TABLE>
10
<PAGE>
PERFORMANCE DATA
From time to time the Variable Annuity Account may publish advertisements
containing performance data relating to its sub-accounts. In the case of the
Money Market sub-account, the Variable Annuity Account will publish yield or
effective yield quotations for a seven-day or other specified period. In the
case of the other sub-accounts, performance data will consist of average annual
total return quotations for one year, five year and ten year periods and for the
period since the inception of the underlying Portfolios. Such performance data
may be accompanied by cumulative total return quotations for the comparable
periods. For periods prior to the date of this Prospectus the quotations will be
based on the assumption that the contracts described herein were issued when the
underlying Portfolios first became available to the Variable Annuity Account
under other contracts issued by us. The Money Market Sub-Account may also quote
such average annual and cumulative total return figures. Performance figures
used by the Variable Annuity Account are based on historical information of the
sub-accounts for specified periods, and the figures are not intended to suggest
that such performance will continue in the future. Performance figures of the
Variable Annuity Account will reflect charges made pursuant to the terms of the
contracts offered by this Prospectus and charges of underlying funds. The
various performance figures used in Variable Annuity Account advertisements
relating to the contract described in this Prospectus are summarized below. More
detailed information on the computations is set forth in the Statement of
Additional Information.
MONEY MARKET SUB-ACCOUNT YIELD. Yield quotations for the Money Market
Sub-Account are based on the income generated by an investment in the
sub-account over a specified period, usually seven days. The figures are
"annualized," that is, the amount of income generated by the investment during
the period is assumed to be generated over a 52-week period and is shown as a
percentage of the investment. Effective yield quotations are calculated
similarly, but when annualized the income earned by an investment in the sub-
account is assumed to be reinvested. Effective yield quotations will be slightly
higher than yield quotations because of the compounding effect of this assumed
reinvestment. Yield and effective yield figures quoted by the Sub-Account will
not reflect the deduction of any applicable deferred sales charges.
TOTAL RETURN FIGURES. Cumulative total return figures may also be quoted for
all sub-accounts. Cumulative total return is based on a hypothetical $1,000
investment in the sub-account at the beginning of the advertised period, and is
equal to the percentage change between the $1,000 net asset value of that
investment at the beginning of the period and the net asset value of that
investment at the end of the period. Cumulative total return figures quoted by
the sub-account will not reflect the deduction of any applicable deferred sales
charges.
All cumulative total return figures published for sub-accounts will be
accompanied by average annual total return figures for a one-year period and for
the period since the sub-account became available pursuant to the Variable
Annuity Account's registration statement. Average annual total return figures
will show for the specified period the average annual rate of return required
for an initial investment of $1,000 to equal the surrender value of that
investment at the end of the period. The surrender value will reflect the
deduction of the deferred sales charge applicable to the contract and to the
length of the period advertised. Such average annual total return figures may
also be accompanied by average annual total return figures, for the same or
other periods, which do not reflect the deduction of any applicable deferred
sales charges.
PREDICTABILITY OF RETURN. For each of the Maturing Government Bond
Sub-Accounts, Minnesota Mutual will calculate an anticipated growth rate (AGR)
on each day that the underlying Portfolio of the Fund is valued. Minnesota
Mutual may also calculate an anticipated value at maturity (AVM) on any such
day. Daily calculations for each are necessary because (i) the AGR and AVM
calculations assume, among other things, an expense ratio and portfolio
composition that remains unchanged for the life of each such sub-account to the
target date at maturity, and (ii) such calculations are therefore meaningful as
a measure of predictable return only if such units are held to the applicable
target maturity date and only with respect to units purchased on the date of
such calculations (the AGR and AVM applicable to units purchased on any other
date may be materially different). Those assumptions can only be hypothetical
given that owners of contracts have the option to purchase or redeem units on
any business day through contract activity, and will receive dividend and
capital gain distributions through
11
<PAGE>
the receipt of additional shares to their unit values. A number of factors in
addition to contract owner activity can cause a Maturing Government Bond
Sub-Account's AGR and AVM to change from day to day. These include the adviser's
efforts to improve total return through market opportunities, transaction costs,
interest rate changes and other events that affect the market value of the
investments held in each Maturing Government Bond Portfolio in the Fund. Despite
these factors, it is anticipated that if specific units of a Maturing Government
Bond Sub-Account are held to the applicable target maturity date, then the AGR
and AVM applicable to such units (i.e., calculated as of the date of purchase of
such units) will vary from the actual return experienced by such units within a
narrow range.
- ------------------------------------------------------------------------
GENERAL DESCRIPTIONS
A. THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
We are a mutual life insurance company organized in 1880 under the laws of
Minnesota. Our home office is at 400 Robert Street North, St. Paul, Minnesota
55101-2098, telephone: (612) 298-3500. We are licensed to do a life insurance
business in all states of the United States (except New York where we are an
authorized reinsurer), the District of Columbia, Canada and Puerto Rico.
B. VARIABLE ANNUITY ACCOUNT
A separate account called the Minnesota Mutual Variable Annuity Account was
established on September 10, 1984, by our Board of Trustees in accordance with
certain provisions of the Minnesota insurance law. The separate account is
registered as a "unit investment trust" with the Securities and Exchange
Commission under the Investment Company Act of 1940, but such registration does
not signify that the Securities and Exchange Commission supervises the
management, or the investment practices or policies, of the Variable Annuity
Account. The separate account meets the definition of a "separate account" under
the federal securities laws.
The Minnesota law under which the Variable Annuity Account was established
provides that the assets of the Variable Annuity Account shall not be chargeable
with liabilities arising out of any other business which we may conduct, but
shall be held and applied exclusively to the benefit of the holders of those
variable annuity contracts for which the separate account was established. The
investment performance of the Variable Annuity Account is entirely independent
of both the investment performance of our General Account and of any other
separate account which we may have established or may later establish. All
obligations under the contracts are general corporate obligations of Minnesota
Mutual.
The Variable Annuity Account currently has fourteen sub-accounts to which
contract owners may allocate purchase payments. Each sub-account invests in
shares of a corresponding Portfolio of the Fund. Additional sub-accounts may be
added at our discretion.
C. MIMLIC SERIES FUND, INC.
The Variable Annuity Account currently invests exclusively in MIMLIC Series
Fund, Inc. (the "Fund"), a mutual fund of the series type which is advised by
MIMLIC Asset Management Company. The Fund is registered with the Securities and
Exchange Commission as a diversified, open-end management investment company,
but such registration does not signify that the Commission supervises the
management, or the investment practices or policies, of the Fund. The Fund
issues its shares, continually and without sales charge, only to us and our
separate accounts, which currently include the Variable Annuity Account, the
Group Variable Annuity Account, Variable Fund D, the Variable Life Account and
the Variable Universal Life Account. The Fund may be made available to other
separate accounts as new products are developed. Shares are sold and redeemed at
net asset value. In the case of a newly issued contract, purchases of shares of
the Portfolios of the Fund in connection with the first purchase payment will be
based on the values next determined after issuance of the contract by us.
Redemptions of shares of the Portfolios of the Fund are made at the net asset
value next determined following the day we receive a request for transfer,
partial withdrawal or surrender at our home office. In the case of outstanding
contracts, purchases of shares of the Portfolio of the Fund for the Variable
Annuity Account are made at the net asset value of such shares next determined
after receipt by us of contract purchase payments.
The Fund's investment adviser is MIMLIC Asset Management Company ("MIMLIC
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<PAGE>
Management"). It acts as an investment adviser to the Fund pursuant to an
advisory agreement. MIMLIC Management is a subsidiary of Minnesota Mutual.
MIMLIC Management acts as investment adviser for the Fund and its Portfolios.
Winslow Capital Management, Inc., a Minnesota corporation with principal offices
at 4720 IDS Tower, 80 South Eighth Street, Minneapolis, Minnesota 55402, has
been retained under an investment sub-advisory agreement with MIMLIC Asset
Management Company to provide investment advice and, in general, conduct the
management and investment program of the Capital Appreciation Portfolio.
Similarly, Templeton Investment Counsel, Inc., a Florida corporation with
principal offices in Fort Lauderdale, has been retained under an investment
sub-advisory agreement to provide investment advice to the International Stock
Portfolio of the Fund.
A prospectus for the Fund is attached to this Prospectus. A person should
carefully read the Fund's prospectus before investing in the contract.
D. ADDITIONS, DELETIONS OR SUBSTITUTIONS
We retain the right, subject to any applicable law, to make substitutions with
respect to the investments of the sub-accounts of the Variable Annuity Account.
If investment in a fund should no longer be possible or if we determine it
becomes inappropriate for contracts of this class, we may substitute another
fund for a sub-account. Substitution may be with respect to existing
accumulation values, future purchase payments and future annuity payments.
We may also establish additional sub-accounts in the Variable Annuity Account
and we reserve the right to add, combine or remove any sub-accounts of the
Variable Annuity Account. Each additional sub-account will purchase shares in a
new portfolio or mutual fund. Such sub-accounts may be established when, in our
sole discretion, marketing, tax, investment or other conditions warrant such
action. Similar considerations will be used by us should there be a
determination to eliminate one or more of the sub-accounts of the Variable
Annuity Account. The addition of any investment option will be made available to
existing contract owners on such basis as may be determined by us.
We also reserve the right, when permitted by law, to de-register the Variable
Annuity Account under the Investment Company Act of 1940, to restrict or
eliminate any voting rights of the contract owners, and to combine the Variable
Annuity Contract with one or more of our other separate accounts.
Shares of the Portfolios of the Fund are also sold to other of our separate
accounts, which are used to receive and invest purchase payments paid under our
variable life policies. It is conceivable that in the future it may be
disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the Fund simultaneously. Although neither
Minnesota Mutual nor the Fund currently foresees any such disadvantages either
to variable life insurance policy owners or to variable annuity contract owners,
the Fund's Board of Directors intends to monitor events in order to identify any
material conflicts between such policy owners and contract owners and to
determine what action, if any, should be taken in response thereto. Such action
could include the sale of Fund shares by one or more of the separate accounts,
which could have adverse consequences. Material conflicts could result from, for
example, (1) changes in state insurance laws, (2) changes in Federal income tax
laws, (3) changes in the investment management of any of the Portfolios of the
Fund, or (4) differences in voting instructions between those given by policy
owners and those given by contract owners.
- ------------------------------------------------------------------------
CONTRACT CHARGES
The contract has several types of charges, all of which are discussed below.
They include a deferred sales charge, mortality and expense risk charges and a
transaction charge.
A. DEFERRED SALES CHARGES
No deferred sales charge is deducted from the purchase payment made for this
contract. However, when a contract's accumulation value is reduced by a
withdrawal or a surrender, a deferred sales charge may be deducted for expenses
relating to the sale of the contracts. There is no deferred sales charge on (1)
amounts applied to provide an annuity under the contract, (2) amounts returned
pursuant to the contract's cancellation right, or (3) amounts paid in the event
of the death of the owner.
The deferred sales charge is the charge made on contract withdrawals or
surrenders. It is made during the seven year period following
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<PAGE>
the receipt of each purchase payment. The amount withdrawn plus any deferred
sales charge is deducted from the accumulation value. Accumulation units will be
cancelled of a value equal to the applicable charge and the amount of the
withdrawal.
The amount of the deferred sales charge is determined from the percentages
shown in the table below. All purchase payments will be allocated to a
withdrawal or a surrender for this purpose on a first-in, first-out basis for
the purpose of determining the amount of the deferred sales charge. It applies
only to withdrawal or surrender of purchase payments received by us within seven
years of the date of the withdrawal or surrender. However, you may receive the
excess, if any, of the accumulation value of the contract over the sum of all of
the purchase payments made to the contract, reduced by the amount of previous
purchase payment withdrawals, without a deferred sales charge.
The amount of the deferred sales charge percentage is as shown in the table
below:
<TABLE>
<CAPTION>
CONTRACT YEARS SINCE PAYMENT CHARGE
- -------------------------------- -------------
<S> <C>
0-1 7%
1-2 7%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7 and thereafter 0%
</TABLE>
The amount of the deferred sales charge is determined by: (a) calculating the
number of years each purchase payment being withdrawn has been in the contract;
(b) multiplying each purchase payment withdrawn by the appropriate sales charge
percentage in the table; and (c) adding the deferred sales charge from all
purchase payments as calculated in (b).
As a percentage of purchase payments paid to the contract, MIMLIC Sales
Corporation ("MIMLIC Sales"), the principal underwriter, may pay up to 4.5% of
the amount of the purchase payments to the contract. In addition, MIMLIC Sales
or Minnesota Mutual will pay, based uniformly on the sale of variable annuity
contracts by such broker-dealers, credits which allow registered representatives
who are responsible for sales of variable annuity contracts to attend
conventions and other meetings sponsored by Minnesota Mutual or its affiliates
for the purpose of promoting the sale of the insurance and/or investment
products offered by Minnesota Mutual and its affiliates. Such credits may cover
the registered representatives' transportation, hotel accommodations, meals,
registration fees and the like. Minnesota Mutual may also pay those registered
representatives amounts based upon their production and the persistency of life
insurance and annuity business placed with Minnesota Mutual.
B. MORTALITY AND EXPENSE RISK CHARGES
We assume the mortality risk under the contract by our obligation to continue to
make monthly annuity payments, determined in accordance with the annuity rate
tables and other provisions contained in the contract, to each annuitant
regardless of how long that annuitant lives or all annuitants as a group live.
This assures an annuitant that neither the annuitant's own longevity nor an
improvement in life expectancy generally will have an adverse effect on the
monthly annuity payments received under the contract.
We assume an expense risk by assuming the risk that deductions provided for in
the contract for the mortality and other expenses will be adequate to cover the
expenses incurred.
For assuming these risks, we currently make a deduction from the Variable
Annuity Account at the annual rate of .80% for the mortality risk and .45% for
the expense risk. We reserve the right to increase the charge for the assumption
of expense risks to not more than .60%. If this charge is increased to this
maximum amount, then the total of the mortality risk and expense risk charge
would be 1.40% on an annual basis. Any such increase would be subject to the
approval of the Securities and Exchange Commission.
For a discussion of how these charges are applied in the calculation of the
accumulation unit value, please see the discussion entitled "Purchase Payments,
Value of the Contract and Transfers" on pages 20-22.
If these deductions prove to be insufficient to cover the actual cost of the
expense and mortality risks assumed by us, then we will absorb the resulting
losses and make sufficient transfers to the Variable Annuity Account from our
General Account, where appropriate. Conversely, if these deductions prove to be
more than sufficient after the establishment of any contingency reserves deemed
prudent or required by law, any excess will be profit (or "surplus") to us. Some
or all of such profit may be used to cover any distribution costs not recovered
through the deferred sales charge.
14
<PAGE>
C. TRANSACTION AND CONTRACT CHARGES
We reserve the right to make a charge, not to exceed $25, for each transfer
among the sub-accounts of the separate account when the frequency of such
transfer requests exceeds one every calendar month. No charge is currently
imposed on transfer requests exceeding this frequency.
A $200 contract fee is imposed when a fixed annuity is elected under the
contract and the guaranteed rates are applied to provide an annuity.
- ------------------------------------------------------------------------
VOTING RIGHTS
The Fund shares held in the Variable Annuity Account will be voted by us at the
regular and special meetings of the Fund. Shares attributable to contracts will
be voted by us in accordance with instructions received from contract owners
with voting interests in each sub-account of the Variable Annuity Account. In
the event no instructions are received from a contract owner with respect to
shares of a Portfolio held by a sub-account, we will vote such shares of the
Portfolio and shares not attributable to contracts in the same proportion as
shares of the Portfolio held by such sub-account for which instructions have
been received. The number of votes which are available to a contract owner will
be calculated separately for each sub-account of the Variable Annuity Account.
If, however, the Investment Company Act of 1940 or any regulation under that Act
should change so that we may be allowed to vote shares in our own right, then we
may elect to do so.
During the accumulation period of each contract, the contract owner holds the
voting interest in each contract. The number of votes will be determined by
dividing the accumulation value of the contract attributable to each sub-account
by the net asset value per share of the underlying Fund shares held by that sub-
account.
During the annuity period of each contract, the annuitant holds the voting
interest in each contract. The number of votes will be determined by dividing
the reserve for each contract allocated to each sub-account by the net asset
value per share of the underlying Fund shares held by that sub-account. After an
annuity begins, the votes attributable to any particular contract will decrease
as the reserves decrease. In determining any voting interest, fractional shares
will be recognized.
We shall notify each contract owner or annuitant of a Fund shareholders'
meeting if the shares held for the contract owner's contract may be voted at
such meeting. We will also send proxy materials and a form of instruction so
that you can instruct us with respect to voting.
- ------------------------------------------------------------------------
DESCRIPTION OF THE CONTRACT
A. GENERAL PROVISIONS
1. FLEXIBLE PAYMENT VARIABLE ANNUITY CONTRACT
This is a contract which may be used in connection with all types of
tax-qualified plans, state deferred compensation plans or individual retirement
annuities adopted by or on behalf of individuals. It may also be purchased by
individuals not as a part of any plan. The contract provides for a variable
annuity or a fixed annuity to begin at some future date with the purchase
payments for the contract to be paid prior to the annuity commencement date in a
series of payments flexible with respect to the date and amount of payment. The
contract is also appropriate for situations where only a single purchase payment
is anticipated.
2. ISSUANCE OF CONTRACT
The contracts are issued to you, the contract owner named in the application.
The owner of the contract may be the annuitant or someone else.
3. MODIFICATION OF THE CONTRACT
A contract may be modified at any time by written agreement between you and us.
However, no such modification will adversely affect the rights of an annuitant
under the contract unless the modification is made to comply with a law or
government regulation. You will have the right to accept or reject the
modification. This right of acceptance or rejection is limited for contracts
used as individual retirement annuities.
4. ASSIGNMENT
If the contract is sold in connection with a tax-qualified program, (including
employer sponsored employee pension benefit plans, tax-sheltered annuities and
individual retirement annuities) your or the annuitant's interest may
15
<PAGE>
not be assigned, sold, transferred, discounted or pledged as collateral for a
loan or as security for the performance of an obligation or for any other
purpose, and to the maximum extent permitted by law, benefits payable under the
contract shall be exempt from the claims of creditors.
If the contract is not issued in connection with a tax-qualified program, the
interest of any person in the contract may be assigned during the lifetime of
the annuitant. We will not be bound by any assignment until we have recorded
written notice of it at our home office. We are not responsible for the validity
of any assignment. An assignment will not apply to any payment or action made by
us before it was recorded. Any proceeds which become payable to an assignee will
be payable in a single sum. Any claim made by an assignee will be subject to
proof of the assignee's interest and the extent of the assignment.
5. LIMITATIONS ON PURCHASE PAYMENTS
You choose when to make purchase payments under the contract. There is no
minimum purchase payment amount and there is no minimum amount which must be
allocated to any sub-account of the Variable Annuity Account. In the Variable
Annuity Account, your purchase payments are invested in one or more Portfolios
of MIMLIC Series Fund, Inc. according to your instructions. If your application
fails to specify which Portfolios are desired, or is otherwise incomplete, and
you do not consent to our retention of your initial payment until the
application is made complete, we will return your initial payment within five
business days.
Total purchase payments under the contract may not exceed $5,000,000, except
with our consent.
We may cancel the contract, in our discretion, if no purchase payments are
made for a period of two or more full contract years and both (a) the total
purchase payments made, less any withdrawals and associated charges, and (b) the
accumulation value of the entire contract, are less than $2,000. If such a
cancellation takes place, we will pay you the accumulation value of your
contract and we will notify you, in advance, of our intent to exercise this
right in our annual report which advises contract owners of the status of their
contracts. We will act to cancel the contract ninety days after the contract
anniversary unless an additional purchase payment is received before the end of
that ninety day period. Contracts issued in some states, for example, New
Jersey, do not permit such a cancellation and contracts issued there do not
contain this provision.
There may be limits on the maximum contributions to retirement plans that
qualify for special tax treatment.
6. DEFERMENT OF PAYMENT
Whenever any payment under a contract is to be made in a single sum, payment
will be made within seven days after the date such payment is called for by the
terms of the contract, except as payment may be subject to postponement for:
(a)any period during which the New York
Stock Exchange is closed other than customary weekend and holiday
closings, or during which trading on the New York Stock Exchange is
restricted, as determined by the Securities and Exchange Commission;
(b)any period during which an emergency
exists as determined by the Commission as a result of which it is not
reasonably practical to dispose of securities in the Fund or to fairly
determine the value of the assets of the Fund; or
(c)such other periods as the Commission
may by order permit for the protection of the contract owners.
7. PARTICIPATION IN DIVISIBLE SURPLUS
The contracts participate in our divisible surplus, according to the annual
determination of our Board of Trustees as to the portion, if any, of our
divisible surplus which has accrued on the contracts.
No assurance can be given as to the amount of divisible surplus, if any, that
will be distributable under these contracts in the future. Such amount may arise
if mortality and expense experience is more favorable than assumed. When any
distribution of divisible surplus is made, it may take the form of additional
payments to annuitants or the crediting of additional accumulation units. We do
not anticipate any divisible surplus and do not anticipate making dividend
payments to contract owners under this contract.
B. ANNUITY PAYMENTS AND OPTIONS
1. ANNUITY PAYMENTS
Variable annuity payments are determined on the basis of (a) the mortality table
specified in the contract, which reflects the age of the
16
<PAGE>
annuitant, (b) the type of annuity payment option selected, and (c) the
investment performance of the Fund Portfolios selected by the contract owner.
The amount of the variable annuity payments will not be affected by adverse
mortality experience or by an increase in our expenses in excess of the expense
deductions provided for in the contract. The annuitant will receive the value of
a fixed number of annuity units each month. The value of such units, and thus
the amounts of the monthly annuity payments will, however, reflect investment
gains and losses and investment income of the Portfolios of the Fund, and thus
the annuity payments will vary with the investment experience of the assets of
the Portfolio of the Fund selected by the contract owner.
2. ELECTING THE RETIREMENT DATE AND FORM OF ANNUITY
The contract provides for four optional annuity forms, any one of which may be
elected if permitted by law. Each annuity option may be elected on either a
variable annuity or a fixed annuity basis, or a combination of the two. Other
annuity options may be available from us on request.
While the contracts require that notice of election to begin annuity payments
must be received by us at least 30 days prior to the annuity commencement date,
we are currently waiving that requirement for such variable annuity elections
received at least two valuation days prior to the 15th of the month. We reserve
the right to enforce the 30 day notice requirement at our option at any time in
the future.
Each contract permits an annuity payment to begin on the first day of any
month. Under the contract, if you do not make an election, annuity payments will
begin on the later of: (a) the 85th birthday of the annuitant, or (b) five years
after the date of issue of the contract. Currently, it is our practice to await
instructions from a contract owner before beginning to pay annuity payments. If
you fail to elect an annuity option or form, a variable annuity will be provided
and the annuity option shall be Option 2A, a life annuity with a period of 120
months. The minimum first monthly annuity payment on either a variable or fixed
dollar basis must be at least $20. If such first monthly payment would be less
than $20, we may fulfill our obligation by paying in a single sum the surrender
value of the contract which would otherwise have been applied to provide annuity
payments.
In addition, the contract restricts the maximum amount which may be applied to
provide a fixed annuity under the contract. The maximum amount which may be
applied for a fixed annuity is $1,000,000.
Benefits under retirement plans that qualify for special tax treatment
generally must commence no later than the April 1 following the year in which
the participant reaches age 70 1/2 and are subject to other conditions and
restrictions.
3. OPTIONAL ANNUITY FORMS
OPTION 1--LIFE ANNUITY
This is an annuity payable monthly during the lifetime of the annuitant and
terminating with the last monthly payment preceding the death of the annuitant.
This option offers the maximum monthly payment since there is no guarantee of a
minimum number of payments or provision for a death benefit for beneficiaries.
It would be possible under this option for the annuitant to receive only one
annuity payment if he or she died prior to the due date of the second annuity
payment, two if he or she died before the due date of the third annuity payment,
etc.
OPTION 2--LIFE ANNUITY WITH A PERIOD CERTAIN OF 120 MONTHS (OPTION 2A), 180
MONTHS (OPTION 2B), OR 240 MONTHS (OPTION 2C)
This is an annuity payable monthly during the lifetime of the annuitant, with
the guarantee that if the annuitant dies before payments have been made for the
period certain elected, payments will continue to the beneficiary during the
remainder of the period certain. If the beneficiary so elects at any time during
the remainder of the period certain, the present value of the remaining
guaranteed number of payments, based on the then current dollar amount of one
such payment and using the same interest rate which served as a basis for the
annuity shall be paid in a single sum to the beneficiary.
OPTION 3--JOINT AND LAST SURVIVOR ANNUITY
This is an annuity payable monthly during the joint lifetime of the annuitant
and a designated joint annuitant and continuing thereafter during the remaining
lifetime of the survivor. Under this option there is no guarantee of a minimum
number of payments or provision for a death benefit for beneficiaries. If this
option is elected, the contract and payments shall then be the joint property of
the annuitant and the designated joint annuitant. It would be possible
17
<PAGE>
under this option for both annuitants to receive only one annuity payment if
they both died prior to the due date of the second annuity payment, two if they
died before the due date of the third annuity payment, etc.
OPTION 4--PERIOD CERTAIN ANNUITY
This is an annuity payable monthly for a period certain of from 5 to 20 years,
as elected. If the annuitant dies before payments have been made for the period
certain elected, payments will continue to the beneficiary during the remainder
of such period certain. At any time during the payment period, the payee may
elect that (1) the present value of the remaining guaranteed number of payments,
based on the then current dollar amount of one such payment and using the same
interest rate which served as a basis for the annuity, shall be paid in a single
sum, or (2) such commuted amount shall be applied to effect a life annuity under
Option 1 or Option 2.
4. DETERMINATION OF AMOUNT OF FIRST MONTHLY ANNUITY PAYMENT
Under the contract described in this Prospectus, the first monthly annuity
payment is determined by the available value of the contract when an annuity
begins. In addition, a number of states do impose a premium tax on the amount
used to purchase an annuity benefit, depending on the type of plan involved.
Where applicable, these taxes currently range from 0.0% to 3.5% and are deducted
from the contract value applied to provide annuity payments. We reserve the
right to make such deductions from purchase payments as they are received.
The amount of the first monthly payment depends on the optional annuity form
elected and the adjusted age of the annuitant. A formula for determining the
adjusted age is contained in the contract.
The contract contains tables indicating the dollar amount of the first fixed
monthly payment under each optional annuity form for each $1,000 of value
applied (after deduction of any premium taxes not previously deducted). The
tables are determined from the Progressive Annuity Table with interest at the
rate of 3% per annum, assuming births in the year 1900 and an age setback of six
years. If, when annuity payments are elected, we are using tables of annuity
rates for this contract which result in larger annuity payments, we will use
those tables instead.
The dollar amount of the first monthly variable annuity payment is determined
by applying the available value (after deduction of any premium taxes not
previously deducted) to a rate per $1,000 which is based on the Progressive
Annuity Table with interest at the rate of 4.5% per annum, assuming births in
the year 1900 and with an age setback of six years. The amount of the first
payment depends upon the annuity payment option selected and the adjusted age of
the annuitant and any joint annuitant. A number of annuity units is then
determined by dividing this dollar amount by the then current annuity unit
value. Thereafter, the number of annuity units remains unchanged during the
period of annuity payments. This determination is made separately for each sub-
account of the separate account. The number of annuity units is based upon the
available value in each sub-account as of the date annuity payments are to
begin. If, when annuity payments are elected, we are using tables of annuity
rates for this contract which result in larger annuity payments, we will use
those tables instead.
The dollar amount determined for each sub-account will then be aggregated for
purposes of making payment.
The 4.5% interest rate assumed in the variable annuity determination would
produce level annuity payments if the net investment factor remained constant at
4.5% per year. Subsequent payments will decrease, remain the same or increase
depending upon whether the actual net investment factor is less than, equal to,
or greater than 4.5%. A higher interest rate means a higher initial payment, but
a more slowly rising (or more rapidly falling) series of subsequent payments. A
lower assumption has the opposite effect.
Annuity payments are always made as of the first day of a month. The contracts
require that notice of election to begin annuity payments must be received by us
at least thirty days prior to the annuity commencement date. However, Minnesota
Mutual currently waives this requirement, and at the same time reserves the
right to enforce the thirty day notice at its option in the future.
Money will be transferred to the General Account for the purpose of electing
fixed annuity payments, or to the appropriate variable sub-accounts for variable
annuity payments, on the valuation date coincident with the first valuation date
following the fourteenth day of the month preceding the date on which the
annuity is to begin.
If a request for a fixed annuity is received between the first valuation date
following the
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fourteenth day of the month and the second to last valuation date of the month
prior to commencement, the transfer will occur on the valuation date coincident
with or next following the date on which the request is received. If a fixed
annuity request is received after the third to the last valuation day of the
month prior to commencement, it will be treated as a request received the
following month, and the commencement date will be changed to the first of the
month following the requested commencement date. The account value used to
determine fixed annuity payments will be the value as of the last valuation date
of the month preceding the date the fixed annuity is to begin.
If a variable annuity request is received after the third valuation date
preceding the first valuation date following the fourteenth day of the month
prior to the commencement date, it will be treated as a request received the
following month, and the commencement date will be changed to the first of the
month following the requested commencement date. The account value used to
determine the initial variable annuity payment will be the value as of the first
valuation date following the fourteenth day of the month prior to the variable
annuity begin date.
5. AMOUNT OF SECOND AND SUBSEQUENT MONTHLY ANNUITY PAYMENTS
The dollar amount of the second and later variable annuity payments is equal to
the number of annuity units determined for each sub-account times the annuity
unit value for that sub-account as of the due date of the payment. This amount
may increase or decrease from month to month.
6. VALUE OF THE ANNUITY UNIT
The value of an annuity unit for a sub-account is determined monthly as of the
first day of each month by multiplying the value on the first day of the
preceding month by the product of (a) .996338, and (b) the ratio of the value of
the accumulation unit for that sub-account for the valuation date next following
the fourteenth day of the preceding month to the value of the accumulation unit
for the valuation date next following the fourteenth day of the second preceding
month (.996338 is a factor to neutralize the assumed net investment factor, as
discussed above, of 4.5% per annum built into the first payment calculation
which is not applicable because the actual net investment rate is credited
instead). The value of an annuity unit for a sub-account as of any date other
than the first day of a month is equal to its value as of the first day of the
next succeeding month.
7. TRANSFER OF ANNUITY RESERVES
Amounts held as annuity reserves may be transferred among the variable annuity
sub-accounts during the annuity period. Annuity reserves may also be transferred
from a variable annuity to a fixed annuity during this time. The change must be
made by a written request. The annuitant and joint annuitant, if any, must make
such an election.
There are restrictions to such a transfer. The transfer of an annuity reserve
amount from any sub-account must be at least equal to $5,000 or the entire
amount of the reserve remaining in that sub-account. In addition, annuity
payments must have been in effect for a period of 12 months before a change may
be made. Such transfers can be made only once every 12 months. The written
request for an annuity transfer must be received by us more than 30 days in
advance of the due date of the annuity payment subject to the transfer. Upon
request, we will make available to you annuity reserve amount sub-account
information.
A transfer will be made on the basis of annuity unit values. The number of
annuity units from the sub-account being transferred will be converted to a
number of annuity units in the new sub-account. The annuity payment option will
remain the same and cannot be changed. After this conversion, a number of
annuity units in the new sub-account will be payable under the elected option.
The first payment after conversion will be of the same amount as it would have
been without the transfer. The number of annuity units will be set at that
number of units which are needed to pay that same amount on the transfer date.
When we receive a request for the transfer of variable annuity reserves, it
will be effective for future annuity payments. The transfer will be effective
and funds actually transferred in the middle of the month prior to the next
annuity payment affected by your request. We will use the same valuation
procedures to determine your variable annuity payment that we used initially.
Amounts held as reserves to pay a variable annuity may also be transferred to
a fixed annuity during the annuity period. However, the restrictions which apply
to annuity sub-account transfers will apply in this case as well. The amount
transferred will then be applied to provide a fixed annuity amount. This amount
will be based upon the adjusted age of the
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annuitant and any joint annuitant at the time of the transfer and a $200
contract fee will be imposed. The annuity payment option will remain the same.
Amounts paid as a fixed annuity may not be transferred to a variable annuity.
When we receive a request to make such a transfer to a fixed annuity, it will
be effective for future annuity payments. The transfer will be effective and
funds actually transferred in the middle of the month prior to the next annuity
payment. We will use the same fixed annuity pricing at the time of transfer that
we use to determine an initial fixed annuity payment. However, if your annuity
is based upon annuity units in a sub-account which matures on a date other than
the stated annuity valuation date, then your annuity units will be adjusted to
reflect sub-account performance in the maturing sub-account to which reserves
are transferred for the period between annuity valuation dates.
C. DEATH BENEFITS
The contract provides that in the event of the death of the owner before annuity
payments begin, the amount payable at death will be the contract accumulation
value determined as of the valuation date coincident with or next following the
date due proof of death is received by us at our home office. Death proceeds
will be paid in a single sum to the beneficiary designated unless an annuity
option is elected. Payment will be made within seven days after we receive due
proof of death. Except as noted below, the entire interest in the contract must
be distributed within five years of the owner's death.
The contract has a guaranteed death benefit if you die before annuity payments
have started. The death benefit shall be equal to the greater of: (1) the amount
of the accumulation value payable at death; or (2) the amount of the total
purchase payments paid to us as consideration for this contract, less all
contract withdrawals.
If the owner dies on or before the date on which annuity payments begin and if
the designated beneficiary is a person other than the owner's spouse, that
beneficiary may elect an annuity option measured by a period not longer than
that beneficiary's life expectancy only so long as annuity payments begin not
later than one year after the owner's death. If there is no designated
beneficiary, then the entire interest in a contract must be distributed within
five years after the owner's death. If the annuitant dies after annuity payments
have begun, any payments received by a non-spouse beneficiary must be
distributed at least as rapidly as under the method elected by the annuitant as
of the date of death.
If there are joint owners of this contract, the death benefit described will
not be payable until the death of the surviving joint owner.
If any portion of the contract interest is payable to the owner's designated
beneficiary who is also the surviving spouse of the owner, that spouse shall be
treated as the contract owner for purposes of: (1) when payments must begin, and
(2) the time of distribution in the event of that spouse's death. Payments must
be made in substantially equal installments.
If the owner of this contract is other than a natural person, such as a trust
or other entity, we will pay a death benefit of the accumulation value to the
named beneficiary on the death of the annuitant, if death occurs prior to the
date for annuity payments to begin.
D. PURCHASE PAYMENTS, VALUE OF THE CONTRACT AND TRANSFERS
1. CREDITING ACCUMULATION UNITS
During the accumulation period--the period before annuity payments begin--each
purchase payment is credited on the valuation date coincident with or next
following the date such purchase payment is received by us at our home office.
When the contract is originally issued, application forms are completed by the
applicant and forwarded to our home office. We will review each application form
submitted to us for compliance with our issue criteria and, if it is accepted, a
contract will be issued.
If the initial purchase payment is accompanied by an incomplete application,
that purchase payment will not be credited until the valuation date coincident
with or next following the date a completed application is received. We are
required to return the initial purchase payment accompanying an incomplete
application immediately and in full if it appears that the application cannot be
completed within five business days, unless the prospective owner specifically
consents to our retention of the purchase payment until the application is made
complete.
Purchase payments will be credited to the contract in the form of accumulation
units. The number of accumulation units credited with respect to each purchase
payment is determined by dividing the portion of the purchase payment allocated
to each sub-account by the then current accumulation unit value for that
sub-account.
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The number of accumulation units so determined shall not be changed by any
subsequent change in the value of an accumulation unit, but the value of an
accumulation unit will vary from valuation date to valuation date to reflect the
investment experience of the Portfolios of the Fund.
We will determine the value of accumulation units on each day on which the
Portfolios of the Funds are valued. The net asset value of the Fund's shares
shall be computed once daily, and, in the case of Money Market Portfolio, after
the declaration of the daily dividend, as of the primary closing time for
business on the New York Stock Exchange (as of the date hereof the primary close
of trading is 3:00 p.m. (Central Time), but this time may be changed) on each
day, Monday through Friday, except (i) days on which changes in the value of
such Fund's portfolio securities will not materially affect the current net
asset value of such Fund's shares, (ii) days during which no such Fund's shares
are tendered for redemption and no order to purchase or sell such Fund's shares
is received by such Fund and (iii) customary national business holidays on which
the New York Stock Exchange is closed for trading (as of the date hereof, New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day). Accordingly, the value of accumulation
units so determined will be applicable to all purchase payments received by us
at our home office on that day prior to the close of business of the Exchange.
The value of accumulation units applicable to purchase payments received after
the close of business of the Exchange will be the value determined on the next
valuation date.
Applications received without instructions as to allocation of purchase
payment amounts among the sub-accounts of the Variable Annuity Account will be
treated as incomplete.
Upon your written request, values under the contract may be transferred among
the sub-accounts of the Variable Annuity Account. We will make the transfer on
the basis of accumulation unit values on the valuation date coincident with or
next following the day we receive the request at our home office. No deferred
sales charge will be imposed on such transfers. There is no dollar amount
limitation which is applied to transfers.
Systematic transfer arrangements may be established among the sub-accounts of
the Variable Annuity Account. They may begin on the 10th or 20th of any month
and if a transfer cannot be completed it will be made on the next available
transfer date. In the absence of specific instructions, transfers will be made
on a monthly basis and will remain active until the appropriate sub-account
accumulation value is depleted.
Also, you may effect transfers, or a change in the allocation of future
purchase payments, by means of a telephone call. Transfers made pursuant to such
a call are subject to the same conditions and procedures as are outlined above
for written transfer requests. During periods of marked economic or market
changes, contract owners may experience difficulty in implementing a telephone
transfer due to a heavy volume of telephone calls. In such a circumstance,
contract owners should consider submitting a written transfer request while
continuing to attempt telephone instructions. We reserve the right to restrict
the frequency of--or otherwise modify, condition, terminate or impose charges
upon--telephone transfer privileges. For more information on telephone
transfers, contact us.
We make telephone contract services automatically available to all contract
owners. We will employ reasonable procedures to satisfy ourselves that
instructions received from contract owners are genuine and, to the extent that
we do not, we may be liable for any losses due to unauthorized or fraudulent
instructions. We require contract owners or a person authorized by you to
personally identify themselves in telephone conversations through contract
numbers, social security numbers and such other information as we may deem to be
reasonable. We record telephone transfer instruction conversations and we
provide the contract owners with a written confirmation of the telephone
transfer.
2. VOLUME CREDIT
Wherever allowed by law, we reserve the right to credit certain additional
amounts ("volume credit") to your contract if you submit large initial or
subsequent purchase payments. Such volume credit is credited by us on your
behalf with funds from our General Account. As of the date of this Prospectus,
we were making such a program available. However, we reserve the right to
modify, suspend or terminate it at any time, or from time to time, without
notice.
The current breakpoints for qualifying for a volume credit are shown below.
Also shown is
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the value of such volume credit as a percentage of your purchase payment.
<TABLE>
<CAPTION>
VOLUME CREDIT AS A
PERCENTAGE OF THE
PURCHASE PAYMENT PURCHASE PAYMENT
- --------------------- -----------------------
<S> <C>
$ 0-- 499,999 0
500,000-- 749,999 .375
750,000-- 999,999 .75
1,000,000--1,499,999 1.125
1,500,000--1,999,999 1.50
2,000,000--2,499,999 1.875
2,500,000--2,999,999 2.25
3,000,000--3,999,999 2.625
4,000,000--5,000,000 3.00
</TABLE>
The volume credit is added the next business day after the purchase payments
are allocated to the contract, and are allocated to the investment options in
the same manner as the purchase payment. Should you exercise your right to
return the contract under the free look provision, the then current value of any
volume credit as of the date your contract is cancelled and will be deducted
from your account value prior to determining the amount to be returned to you.
We do not consider volume credit to be "investment in the contract" for income
tax purposes (see "Federal Tax Status"). Volume credit amounts may be withdrawn
without assessment of the deferred sales charge (see "Deferred Sales Charge").
Each time a new purchase payment is made, a new volume credit will be
calculated. The applicable percentage from the chart will be based on the total
cumulative purchase payments to date, including the new purchase payment, less
all prior purchase payments withdrawn. The new volume credit equals this
percentage times the amount of the new purchase payment.
3. VALUE OF THE CONTRACT
The accumulation value of the contract at any time prior to the commencement of
annuity payments can be determined by multiplying the total number of
accumulation units credited to the contract by the current value of an
accumulation unit for each sub-account of the Variable Annuity Account. There is
no assurance that such value will equal or exceed the purchase payments made.
The contract owner will be advised periodically of the number of accumulation
units credited to the contract for each sub-account of the Variable Annuity
Account, the current value of an accumulation unit, and the total value of the
contract.
4. ACCUMULATION UNIT VALUE
The value of an accumulation unit for each sub-account of the Variable Annuity
Account was set at $1.000000 on the first valuation date of such sub-account.
The value of an accumulation unit on any subsequent valuation date is determined
by multiplying the value of an accumulation unit on the immediately preceding
valuation date by the net investment factor for the applicable sub-account
(described below) for the valuation period just ended. The value of an
accumulation unit as of any date other than a valuation date is equal to its
value on the next succeeding valuation date.
5. NET INVESTMENT FACTOR FOR EACH VALUATION PERIOD
The net investment factor is an index used to measure the investment performance
of a sub-account from one valuation period to the next. For any sub-account, the
net investment factor for a valuation period is the gross investment rate for
such sub-account for the valuation period, less a deduction for the mortality
and expense risk charge at the current rate of 1.25% per annum.
The gross investment rate is equal to: (1) the net asset value per share of a
Portfolio share held in a sub-account of the Variable Annuity Account determined
at the end of the current valuation period, plus (2) the per share amount of any
dividend or capital gain distribution by the Portfolio if the "ex-dividend" date
occurs during the current valuation period, divided by (3) the net asset value
per share of that Portfolio share determined at the end of the preceding
valuation period. The gross investment rate may be positive or negative.
E. REDEMPTIONS
1. PARTIAL WITHDRAWALS AND SURRENDER
The contract provides that prior to the date annuity payments begin partial
withdrawals may be made by you from the contract for cash amounts of at least
$250. You must make a written request for any withdrawal. In this event, the
accumulation value will be reduced by the amount of the withdrawal and any
applicable deferred sales charge. In the absence of instructions to the
contrary, withdrawals will be made from the Variable Annuity Account in the same
proportion that the value of your interest in any sub-account bears to your
total accumulation value on a pro rata basis. We will waive the applicable
dollar amount limitation on withdrawals where a systematic withdrawal
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program is in place and where such a smaller amount satisfies the minimum
distribution requirements of the Code. Withdrawal values will be determined as
of the valuation date coincident with or next following the date your written
withdrawal request is received at our home office.
The contract provides that prior to the commencement of annuity payments, you
may elect to surrender the contract for its surrender value. You will receive in
a single cash sum the accumulation value computed as of the valuation date
coincident with or next following the date of surrender, reduced by any
applicable deferred sales charge or you may elect an annuity.
For more information on the application of the deferred sales charge, see
"Deferred Sales Charges" on pages 13-14.
Once annuity payments have commenced the annuitant cannot surrender his or her
annuity benefit and receive a single sum settlement in lieu thereof. For a
discussion of commutation rights of annuitants and beneficiaries subsequent to
the annuity commencement date, see "Optional Annuity Forms" on pages 17-18.
Contract owners may also submit their signed written withdrawal or surrender
requests to Minnesota Mutual by facsimile (FAX) transmission. Our FAX number is
(612) 298-7942. Transfer instructions or changes as to future allocations of
purchase payments may be communicated to us by the same means.
2. RIGHT OF CANCELLATION
You should read the contract carefully as soon as it is received. You may cancel
the purchase of a contract within ten days after its delivery, for any reason,
by giving us written notice at 400 Robert Street North, St. Paul, Minnesota
55101-2098, of an intention to cancel. If the contract is cancelled and
returned, we will refund to you the greater of (a) the accumulation value of the
contract, or (b) the amount of purchase payments paid under the contract.
Payment of the requested refund will be made to you within seven days after we
receive notice of cancellation.
In some states, such as California, the free look period may be extended. In
California, the free look period is extended to thirty days' time for contracts
issued or delivered to owners that are sixty years of age or older at the time
of delivery. Those rights are subject to change and may vary among the states.
The liability of the Variable Annuity Account under the foregoing is limited
to the accumulation value of the contract at the time it is returned for
cancellation. Any additional amounts necessary to make our refund to you equal
to the purchase payments will be made by us.
- ------------------------------------------------------------------------
FEDERAL TAX STATUS
INTRODUCTION
The discussion contained herein is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax adviser. No attempt
is made to consider any applicable state or other tax laws. In addition, this
discussion is based on our understanding of federal income tax laws as they are
currently interpreted. No representation is made regarding the likelihood of
continuation of current income tax laws or the current interpretations of the
Internal Revenue Service.
We are taxed as a "life insurance company" under the Internal Revenue Code.
The operations of the Variable Annuity Account form a part of, and are taxed
with, our other business activities. Currently, no federal income tax is payable
by us on income dividends received by the Variable Annuity Account or on capital
gains arising from the Variable Annuity Account's activities. The Variable
Annuity Account is not taxed as a "regulated investment company" under the Code
and it does not anticipate any change in that tax status.
TAXATION OF ANNUITY CONTRACTS IN GENERAL
Section 72 of the Code governs taxation of nonqualified annuities in general and
some aspects of qualified programs. No taxes are imposed on increases in the
value of a contract until distribution occurs, either in the form of a payment
in a single sum or as annuity payments under the annuity option elected. As a
general rule, deferred annuity contracts held by a corporation, trust or other
similar entity, as opposed to a natural person, are not treated as annuity
contracts for federal tax purposes. The investment income on such contracts is
taxed as ordinary income that is received or accrued by the owner of the
contract during the taxable year.
For payments made in the event of a full surrender of an annuity, the taxable
portion is generally the amount in excess of the cost basis
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(i.e., purchase payments) of the contract. Amounts withdrawn from the variable
annuity contracts not part of a qualified program are treated first as taxable
income to the extent of the excess of the contract value over the purchase
payments made under the contract. Such taxable portion is taxed at ordinary
income tax rates.
In the case of a withdrawal under an annuity that is part of a qualified
program, a portion of the amount received is taxable based on the ratio of the
"investment in the contract" to the individual's balance in the retirement plan,
generally the value of the annuity. The "investment in the contract" generally
equals the portion of any deposits made by or on behalf of an individual under
an annuity which was not excluded from the gross income of the individual. For
annuities issued in connection with qualified plans, the "investment in the
contract" can be zero.
For annuity payments, the taxable portion is generally determined by a formula
that establishes the ratio that the cost basis of the contract bears to the
expected return under the contract. Such taxable part is taxed at ordinary
income rates.
If a taxable distribution is made under the variable annuity contracts, a
penalty tax of 10% of the amount of the taxable distribution may apply. This
additional tax does not apply where the taxpayer is 59 1/2 or older, where
payment is made on account of the taxpayer's disability, or where payment is
made by reason of the death of the owner.
The Code also provides an exception to the penalty tax for distributions, in
periodic payments, of substantially equal installments, where they are made for
the life (or life expectancy) of the taxpayer or the joint lives (or joint life
expectancies) of the taxpayer and beneficiary.
For some types of qualified plans, other tax penalties may apply to certain
distributions.
A transfer of ownership of a contract, the designation of an annuitant or
other payee who is not also the contract owner, or the assignment of the
contract may result in certain income or gift tax consequences to the contract
owner that are beyond the scope of this discussion. A contract owner who is
contemplating any such transfer, designation or assignment should consult a
competent tax adviser with respect to the potential tax effects of that
transaction.
For purposes of determining a contract owner's gross income, the Code provides
that all nonqualified deferred annuity contracts issued by the same company (or
its affiliates) to the same contract owner during any calendar year shall be
treated as one annuity contract. Additional rules may be promulgated under this
provision to prevent avoidance of its effect through serial contracts or
otherwise. For further information on these rules, see your tax adviser.
DIVERSIFICATION REQUIREMENTS
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of the Variable Annuity Account to
be "adequately diversified" in order for the contract to be treated as an
annuity contract for federal tax purposes. The Variable Annuity Account, through
the Fund, intends to comply with the diversification requirements prescribed in
Regulations Section 1.817-5, which affect how the Fund's assets may be invested.
Although the investment adviser is an affiliate of Minnesota Mutual, Minnesota
Mutual does not have control over the Fund or its investments. Nonetheless,
Minnesota Mutual believes that each Portfolio of the Fund in which the Variable
Annuity Account owns shares will be operated in compliance with the requirements
prescribed by the Treasury.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances, income
and gains from the separate account assets would be includable in the variable
annuity contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The Treasury
Department has also announced, in connection with the issuance of regulations
concerning investment diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor (i.e., the
contract owner), rather than the insurance company, to be treated as the owner
of the assets in the account." This announcement also states that guidance would
be issued by way of regulations or rulings on the "extent to which policyholders
may direct their
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<PAGE>
investments to particular sub-accounts without being treated as owners of the
underlying assets." As of the date of this Prospectus, no such guidance has been
issued.
The ownership rights under the contract are similar to, but different in
certain reports from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the owner of a contract has the choice of several sub-accounts in which
to allocate net purchase payments and contract values, and may be able to
transfer among sub-accounts more frequently than in such rulings. These
differences could result in a contract owner being treated as the owner of the
assets of the Variable Annuity Account. In addition, Minnesota Mutual does not
know what standards will be set forth, if any, in the regulations or rulings
which the Treasury Department has stated it expects to issue. Minnesota Mutual
therefore reserves the right to modify the contract as necessary to attempt to
prevent a contract owner from being considered the owner of a pro rata share of
the assets of the variable annuity account.
REQUIRED DISTRIBUTIONS
In order to be treated as an annuity contract for federal income tax purposes,
Section 72(s) of the Code requires any nonqualified contract issued after
January 18, 1985 to provide that (a) if an owner dies on or after the annuity
starting date but prior to the time the entire interest in the contract has been
distributed, the remaining portion of such interest will be distributed at least
as rapidly as under the method of distribution being used as of the date of that
owner's death; and (b) if an owner dies prior to the annuity starting date, the
entire interest in the contract must be distributed within five years after the
date of the owner's death. These requirements shall be considered satisfied if
any portion of the owner's interest which is payable to or for the benefit of a
"designated beneficiary" is distributed over the life of such beneficiary or
over a period not extending beyond the life expectancy of that beneficiary and
such distributions begin within one year of that owner's death. The owner's
"designated beneficiary" is the person designated by such owner as a beneficiary
and to whom ownership of the contract passes by reason of death. It must be a
natural person. However, if the owner's "designated beneficiary" is the
surviving spouse of the owner, the contract may be continued with the surviving
spouse as the new owner.
Nonqualified contracts issued after January 18, 1985 contain provisions which
are intended to comply with the requirements of Section 72(s) of the Code,
although no regulations interpreting these requirements have yet been issued.
Minnesota Mutual intends to review such provisions and modify them if necessary
to assure that they comply with the requirements of Code Section 72(s) when
clarified by regulation or otherwise.
Other rules may apply to qualified contracts.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a contract because of the death of the owner.
Generally, such amounts are includable in the income of the recipient as
follows: (1) if distributed in a lump sum, they are taxed in the same manner as
a full surrender of the contract, as described above, or (2) if distributed
under an annuity option, they are taxed in the same manner as annuity payments,
as described above.
POSSIBLE CHANGES IN TAXATION
In past years, legislation has been proposed that would have adversely modified
the federal taxation of certain annuities. For example, one such proposal would
have changed the tax treatment of nonqualified annuities that did not have
"substantial life contingencies" by taxing income as it is credited to the
annuity. Although as of the date of this Prospectus Congress is not actively
considering any legislation regarding the taxation of annuities, there is always
the possibility that the tax treatment of annuities could change by legislation
or other means (such as IRS regulations, revenue rulings, judicial decisions,
etc.). Moreover, it is also possible that any change could be retroactive (that
is, effective prior to the date of the change).
TAX QUALIFIED PROGRAMS
The annuity is designed for use with several types of retirement plans that
qualify for special tax treatment. The tax rules applicable to participants and
beneficiaries in retirement plans vary according to the type of plan and the
terms and conditions of the plan. Special favorable tax treatment may be
available for certain types of contributions and distributions. Adverse tax
consequences may result from contributions in excess of specified limits;
distributions prior to age 59 1/2 (subject to certain exceptions); distributions
that do not conform to specified minimum distribution rules; aggregate
25
<PAGE>
distributions in excess of a specified annual amount; and in other specified
circumstances.
We make no attempt to provide more than general information about use of
annuities with the various types of retirement plans. Owners and participants
under retirement plans as well as annuitants and beneficiaries are cautioned
that the rights of any person to any benefits under annuities purchased in
connection with these plans may be subject to the terms and conditions of the
plans themselves, regardless of the terms and conditions of the annuity issued
in connection with such a plan. Some retirement plans are subject to transfer
restrictions, distribution and other requirements that are not incorporated into
our annuity administration procedures. Owners, participants and beneficiaries
are responsible for determining that contributions, distributions and other
transactions with respect to the annuities comply with applicable law.
Purchasers of annuities for use with any retirement plan should consult their
legal counsel and tax adviser regarding the suitability of the contract.
PUBLIC SCHOOL SYSTEMS AND CERTAIN TAX EXEMPT ORGANIZATIONS
Under Code Section 403(b), payments made by public school systems and certain
tax exempt organizations to purchase annuity contracts for their employees are
excludable from the gross income of the employee, subject to certain
limitations. However, these payments may be subject to FICA (Social Security)
taxes.
Code Section 403(b)(11) restricts the distribution under Code Section 403(b)
annuity contracts of: (1) elective contributions made in years beginning after
December 31, 1988; (2) earnings on those contributions; and (3) earnings in such
years on amounts held as of the last year beginning before January 1, 1989.
Distribution of those amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. In addition, income attributable to elective contributions may not be
distributed in the case of hardship.
INDIVIDUAL RETIREMENT ANNUITIES
Code Sections 219 and 408 permit individuals or their employers to contribute to
an individual retirement program known as an "Individual Retirement Annuity" or
"IRA". Individual Retirement Annuities are subject to limitations on the amount
which may be contributed and deducted and the time when distributions may
commence. In addition, distributions from certain other types of retirement
plans may be placed into an Individual Retirement Annuity on a tax deferred
basis. Employers may establish Simplified Employee Pension (SEP) Plans for
making IRA contributions on behalf of their employees.
CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS
Code Section 401(a) permits employers to establish various types of retirement
plans for employees, and permits self-employed individuals to establish
retirement plans for themselves and their employees. These retirement plans may
permit the purchase of the contracts to accumulate retirement savings under the
plans. Adverse tax or other legal consequences to the plan, to the participant
or to both may result if this annuity is assigned or transferred to any
individual as a means to provide benefit payments, unless the plan complies with
all legal requirements applicable to such benefits prior to transfer of the
annuity.
DEFERRED COMPENSATION PLANS
Code Section 457 provides for certain deferred compensation plans. These plans
may be offered with respect to service for state governments, local governments,
political subdivisions, agencies, instrumentalities and certain affiliates of
such entities, and tax exempt organizations. The plans may permit participants
to specify the form of investment for their deferred compensation account. All
investments are owned by the sponsoring employer and are subject to the claims
of the general creditors of the employer. Depending on the terms of the
particular plan, the employer may be entitled to draw on deferred amounts for
purposes unrelated to its Section 457 plan obligations. In general, all amounts
received under a Section 457 plan are taxable and are subject to federal income
tax withholding as wages.
WITHHOLDING
In general, distributions from annuities are subject to federal income tax
withholding unless the recipient elects not to have tax withheld. Different
rules may apply to payments delivered outside the United States. Some states
have enacted similar rules.
Recent changes to the Code allow the rollover of most distributions from
tax-qualified plans and Section 403(b) annuities directly to other tax-qualified
plans that will accept such distributions and to individual retirement
26
<PAGE>
accounts and individual retirement annuities. Distributions which may not be
rolled over are those which are: (1) one of a series of substantially equal
annual (or more frequent) payments made (a) over the life or life expectancy of
the employee, (b) the joint lives or joint expectancies of the employee and the
employee's designated beneficiary, or (c) for a specified period of ten years or
more; (2) a required minimum distribution; or (3) the non-taxable portion of a
distribution.
Any distribution eligible for rollover, which may include payment to an
employee, an employee's surviving spouse or an ex-spouse who is an alternate
payee, will be subject to federal tax withholding at a 20% rate unless the
distribution is made as a direct rollover to a tax-qualified plan or to an
individual retirement account or annuity. It may be noted that amounts received
by individuals which are eligible for rollover may still be placed in another
tax-qualified plan or individual retirement account or individual retirement
annuity if the transaction is completed within 60 days after the distribution
has been received. Such a taxpayer must replace withheld amounts with other
funds to avoid taxation on the amount previously withheld.
SEE YOUR OWN TAX ADVISER
It should be understood that the foregoing description of the federal income tax
consequences under these contracts is not exhaustive and that special rules are
provided with respect to situations not discussed herein. It should also be
understood that should a plan lose its qualified status, employees will lose
some of the tax benefits described. Statutory changes in the Internal Revenue
Code with varying effective dates, and regulations adopted thereunder may also
alter the tax consequences of specific factual situations. Due to the complexity
of the applicable laws, tax advice may be needed by a person contemplating the
purchase of a variable annuity contract or exercising elections under such a
contract. For further information a qualified tax adviser should be consulted.
- ------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information, which contains additional information
including financial statements, is available from the offices of Minnesota
Mutual at your request. The Table of Contents for that Statement of Additional
Information is as follows:
Trustees and Principal Management Officers of Minnesota Mutual
Distribution of Contract
Performance Data
Auditors
Registration Statement
Financial Statements
27
<PAGE>
APPENDIX A--ILLUSTRATION OF VARIABLE ANNUITY VALUES
The illustration included in this Appendix shows the effect of investment
performance on the monthly variable annuity income. The illustration assumes a
gross investment return, after tax, of: 0%, 6.33% and 12.00%.
For illustration purposes, an average annual expense equal to 1.86% of the
average daily net assets is deducted from the gross investment return to
determine the net investment return. The net investment return is then used to
project the monthly variable annuity incomes. The expense charge of 1.83%
includes: 1.25% for Mortality and Expense Risk, and an average of .58% for
investment management and other fund expenses. These expenses are listed for
each portfolio in the table following.
The gross and net investment rates are for illustrative purposes only and are
not a reflection of past or future performance. Actual variable annuity income
will be more or less than shown if the actual returns are different than those
illustrated.
The illustration assumes 100% of the assets are invested in sub-account(s) of
the Variable Annuity Account. For comparison purposes, a current fixed annuity
income, available through the General Account is also provided. The illustration
assumes an initial interest rate, used to determine the first variable payment
of 4.50%. After the first variable annuity payment, future payments will
increase if the annualized net rate of return exceeds the initial interest rate,
and will decrease if the annualized net rate of return is less than the initial
interest rate.
The illustration provided is for a male, age 65, selecting a Life and 10 Year
Certain annuity option with $100,000 of non-qualified funds, residing in the
State of Minnesota. Upon request, we will provide a comparable illustration
based upon the proposed annuitant's date of birth, sex, annuity option, state of
residence, type of funds, value of funds, and selected gross annual rate of
return (not to exceed 12%).
ACTUAL 1995 VARIABLE ANNUITY SEPARATE ACCOUNT CHARGES
AND SERIES FUND EXPENSES
<TABLE>
<CAPTION>
SERIES FUND OTHER
SEPARATE ACCOUNT MORTALITY & MANAGEMENT SERIES FUND
SUB-ACCOUNT NAME EXPENSE RISK FEE EXPENSES TOTAL
- ------------------------------ ------------- ----------- ------------ ------
<S> <C> <C> <C> <C>
Growth........................ 1.25% .50% .05% 1.80%
Bond.......................... 1.25% .50% .08% 1.83%
Money Market.................. 1.25% .50% .14% 1.89%
Asset Allocation.............. 1.25% .50% .05% 1.80%
Mortgage Securities........... 1.25% .50% .08% 1.83%
Index 500..................... 1.25% .40% .07% 1.72%
Capital Appreciation.......... 1.25% .75% .05% 2.05%
International Stock........... 1.25% .78% .26% 2.29%
Small Company................. 1.25% .75% .09% 2.09%
Value Stock................... 1.25% .75% .14% 2.14%
Maturing Government Bond
1998......................... 1.25% .05% .15% 1.45%
Maturing Government Bond
2002......................... 1.25% .05% .15% 1.45%
Maturing Government Bond
2006......................... 1.25% .25% .15% 1.65%
Maturing Government Bond
2010......................... 1.25% .25% .15% 1.65%
Average............... 1.25% .47% .12% 1.83%
</TABLE>
28
<PAGE>
VARIABLE ANNUITY PAYOUT ILLUSTRATION
PREPARED FOR: Prospect
PREPARED BY: Minnesota Mutual
SEX: Male DATE OF BIRTH: 05/01/31
STATE: MN
LIFE EXPECTANCY: 20.0 (IRS) 17.3 (MML)
ANNUITIZATION OPTION: 10 Year Certain with Life Contingency
QUOTATION DATE: 05/01/96
COMMENCEMENT DATE: 06/01/96
SINGLE PAYMENT RECEIVED: $100,000.00
FUNDS: Non-Qualified
INITIAL MONTHLY INCOME: $678
The monthly variable annuity income amount shown below assumes a constant
annual investment return. The initial interest rate of 4.50% is the assumed rate
used to calculate the first monthly payment. Thereafter, monthly payments will
increase or decrease
based upon the relationship between the initial interest rate and the
performance of the sub-account(s) selected. The investment returns shown are
hypothetical and not a representation of future results.
<TABLE>
<CAPTION>
ANNUAL RATE OF RETURN
------------------------------------------------
0% GROSS 6.36% GROSS 12.00% GROSS
DATE AGE (-1.83% NET) (4.50% NET) (10.17% NET)
- --------------- --------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
June 1, 1996 65 $ 678 $ 678 $ 678
June 1, 1997 66 637 678 715
June 1, 1998 67 599 678 754
June 1, 1999 68 562 678 795
June 1, 2000 69 528 678 838
June 1, 2005 74 387 678 1,091
June 1, 2010 79 283 678 1,421
June 1, 2015 84 207 678 1,851
June 1, 2020 89 151 678 2,411
June 1, 2025 94 111 678 3,140
June 1, 2030 99 81 678 4,089
June 1, 2031 100 76 678 4,311
</TABLE>
IF 100% OF YOUR PURCHASE WAS APPLIED TO PROVIDE A FIXED ANNUITY ON THE
QUOTATION DATE OF THIS ILLUSTRATION, THE FIXED ANNUITY INCOME AMOUNT WOULD BE
$721.
Net rates of return reflect expenses totaling 1.83%, which consist of the
1.25% Variable Annuity Account mortality and expense risk charge and .58% for
the Series Fund management fee and other Series Fund expenses (this is an
average with the actual varying from .20% to 1.04%).
Minnesota Mutual MultiOption variable annuities are available through
registered representatives of MIMLIC Sales Corporation.
This is an illustration only and not a contract.
29
<PAGE>
Minnesota Mutual Variable Annuity Account
("Variable Annuity Account"), a Separate Account of
The Minnesota Mutual Life Insurance Company
("Minnesota Mutual")
400 Robert Street North
St. Paul, Minnesota 55101-2098
Telephone: (612) 298-3500
Statement of Additional Information
The date of this document and the Prospectus is: May 1, 1996
This Statement of Additional Information is not a prospectus. Much of the
information contained in this Statement of Additional Information expands
upon subjects discussed in the Prospectus. Therefore, this Statement should
be read in conjunction with the Fund's current Prospectus, bearing the same
date, which may be obtained by calling The Minnesota Mutual Life Insurance
Company at (612) 298-3500, or writing to Minnesota Mutual at Minnesota Mutual
Life Center, 400 Robert Street North, St. Paul, Minnesota 55101-2098.
Trustees and Principal Management Officers of Minnesota Mutual
Distribution of Contract
Performance Data
Auditors
Registration Statement
Financial Statements
<PAGE>
TRUSTEES AND PRINCIPAL MANAGEMENT OFFICERS OF MINNESOTA MUTUAL
Trustees Principal Occupation
Giulio Agostini Senior Vice President, Finance and Office
Administration, Minnesota Mining and
Manufacturing Company, Maplewood, Minnesota
since July 1991, prior thereto for more than five
years Director, Finance and Administration,
Minnesota Mining and Manufacturing - Italy
Anthony L. Andersen Chair-Board of Directors, H. B. Fuller Company, St.
Paul, Minnesota, since June 1995, prior thereto for
more than five years President and Chief Executive
Officer, H. B. Fuller Company (Adhesive Products)
John F. Grundhofer President, Chairman and Chief Executive Officer,
First Bank System, Inc., Minneapolis, Minnesota
(Banking)
Harold V. Haverty Retired since May 1995, prior thereto, for more than
five years Chairman of the Board, President and
Chief Executive Officer, Deluxe Corporation,
Shoreview, Minnesota (Check Printing)
Lloyd P. Johnson Retired since May 1995, prior thereto, for more than
five years Chairman of the Board, Norwest
Corporation, Minneapolis, Minnesota (Banking)
David S. Kidwell, Ph.D. Dean and Professor of Finance, The Curtis L.
Carlson School of Management, University of
Minnesota, since August 1991; prior thereto, Dean
of the School and Professor, University of
Connecticut, School of Business Administration
from 1988 to July 1991
Reatha C. King, Ph.D. President and Executive Director, General Mills
Foundation, Minneapolis, Minnesota
Thomas E. Rohricht Member, Doherty, Rumble & Butler Professional
Association, St. Paul, Minnesota (Attorneys)
Terry N. Saario, Ph.D. President, Northwest Area Foundation, St. Paul,
Minnesota (Private Regional Foundation)
Robert L. Senkler Chairman of the Board, President and Chief
Executive Officer, The Minnesota Mutual Life
Insurance Company, since August 1995; prior
thereto for more than five years Vice President and
Actuary, The Minnesota Mutual Life Insurance
Company
Michael E. Shannon Chairman and Chief Financial and Administrative
Officer, Ecolab, Inc., St. Paul, Minnesota, since
August 1992, prior thereto President, Residential
Services Group, Ecolab, Inc., St. Paul, Minnesota
from October 1990 to July 1992 (Develops and
Markets Cleaning and Sanitizing Products)
Frederick T. Weyerhaeuser Chairman, Clearwater Management Company, St.
Paul, Minnesota (Financial Management)
1
<PAGE>
Principal Officers (other than Trustees)
Name Position
John F. Bruder Senior Vice President
Keith M. Campbell Vice President
Paul H. Gooding Vice President and Treasurer
Robert E. Hunstad Executive Vice President
James E. Johnson Senior Vice President and Actuary
Richard D. Lee Vice President
Joel W. Mahle Vice President
Dennis E. Prohofsky Senior Vice President, General Counsel and
Secretary
Gregory S. Strong Vice President and Actuary
Terrence S. Sullivan Senior Vice President
Randy F. Wallake Senior Vice President
All Trustees who are not also officers of Minnesota Mutual have had the
principal occupation (or employers) shown for at least five years with the
exception of Messrs Agostini, Andersen and Shannon and Dr. Kidwell, whose
prior employment is as indicated above. All officers of Minnesota Mutual
have been employed by Minnesota Mutual for at least five years.
DISTRIBUTION OF CONTRACT
The contract will be sold in a continuous offering by our life insurance
agents who are also registered representatives of MIMLIC Sales Corporation
("MIMLIC Sales") or other broker-dealers who have entered into selling
agreements with MIMLIC Sales. MIMLIC Sales acts as principal underwriter of
the contracts. MIMLIC Sales is a wholly-owned subsidiary of MIMLIC
Corporation, which in turn is a wholly-owned subsidiary of Minnesota Mutual
Life. MIMLIC Corporation is also the sole owner of the shares of MIMLIC
Asset Management Company, a registered investment adviser and the investment
adviser to the MIMLIC Series Fund, Inc. MIMLIC Sales is registered as a
broker-dealer under the Securities Exchange Act of 1934 and is a member of
the National Association of Securities Dealers, Inc. Amounts paid by
Minnesota Mutual to the underwriter for 1995, 1994 and 1993 were $7,203,781,
$7,363,105 and $8,574,958, respectively, for payment to associated dealers on
the sale of the contracts, which include other contracts issued through the
Variable Annuity Account. Agents of Minnesota Mutual who are also registered
representatives of MIMLIC Sales are compensated directly by Minnesota Mutual.
2
<PAGE>
PERFORMANCE DATA
CURRENT YIELD FIGURES FOR MONEY MARKET SUB-ACCOUNT
Current annualized yield quotations for the Money Market Sub-Account are
based on the Sub-Account's net investment income for a seven-day or other
specified period and exclude any realized or unrealized gains or losses on
sub-account securities. Current annualized yield is computed by determining
the net change (exclusive of realized gains and losses from the sale of
securities and unrealized appreciation and depreciation) in the value of a
hypothetical account having a balance of one accumulation unit at the
beginning of the specified period, dividing such net change in account value
by the value of the account at the beginning of the period, and annualizing
this quotient on a 365-day basis. The Variable Annuity Account may also
quote the effective yield of the Money Market Sub-Account for a seven-day or
other specified period for which the current annualized yield is computed by
expressing the unannualized return on a compounded, annualized basis. The
yield and effective yield of the Money Market Sub-Account for the seven-day
period ended December 31, 1995 were 3.85% and 3.92%, respectively. Such
figures reflect the voluntary absorption of certain expenses of
MIMLIC Series Fund, Inc. (the "Fund") by Minnesota Mutual described below
under "Total Return Figures for All Sub-Accounts." In the absence of such
absorption of expenses, the yield figures for the Money Market Sub-Account
would have been 3.91% and 3.98%, respectively. Yield figures quoted by the
Money Market Sub-Account will not reflect the deduction of any applicable
deferred sales charges (the deferred sales charge, as a percentage of the
accumulation value withdrawn, begin as of the contract date at 9% for the
flexible payment contract).
TOTAL RETURN FIGURES FOR ALL SUB-ACCOUNTS
Cumulative total return quotations for Sub-Accounts represent the total
return for the period since the Sub-Account became available pursuant to the
Variable Annuity Account's registration statement. Therefore, for periods
prior to the date of this Prospectus the quotations will be based on the
assumption that the contracts described herein were issued when the
underlying Portfolios first became available to the Variable Annuity Account
under other contracts issued by us. Cumulative total return is equal to the
percentage change between the net asset value of a hypothetical $1,000
investment at the beginning of the period and the net asset value of that
same investment at the end of the period. Such quotations of cumulative
total return will not reflect the deduction of any applicable deferred sales
charges.
The cumulative total return figures published by the Variable Annuity Account
relating to the contract described in the Prospectus will reflect Minnesota
Mutual's voluntary absorption of certain Fund expenses described below.
3
<PAGE>
Cumulative total return quotations for Sub-Accounts will be accompanied by
average annual total return figures for a one-year period and for the period
since the Sub-Account became available pursuant to the Variable Annuity
Account's registration statement. Average annual total return figures are
the average annual compounded rates of return required for an initial
investment of $1,000 to equal the surrender value of that same investment at
the end of the period. The surrender value will reflect the deduction of the
deferred sales charge applicable to the contract and to the length of the
period advertised. The average annual total return figures published by the
Variable Annuity Account will reflect Minnesota Mutual's voluntary absorption
of certain Fund expenses. Prior to January 1, 1986, the Fund incurred no
expenses.
<TABLE>
<CAPTION>
From Inception Date of
to 12/31/95 Inception
-------------- ---------
<S> <C> <C>
Growth Sub-Account 151.68% (149.81%) 12/3/85
Bond Sub-Account 112.98% (111.94%) 12/3/85
Money Market Sub-Account 50.32% (48.23%) 12/3/85
Asset Allocation Sub-Account 142.14% (141.68%) 12/3/85
Mortgage Securities Sub-Account 93.29% (92.98%) 6/1/87
Index 500 Sub-Account 142.68% (142.10%) 6/1/87
Capital Appreciation Sub-Account 153.10% (150.85%) 6/1/87
International Stock Sub-Account 46.07% (46.04%) 5/1/92
Small Company Sub-Account 59.08% (58.98%) 5/3/93
Maturing Government Bond
1998 Sub-Account 13.67% (13.51%) 5/2/94
Maturing Government Bond
2002 Sub-Account 22.78% (22.34%) 5/2/94
Maturing Government Bond
2006 Sub-Account 32.12% (31.26%) 5/2/94
Maturing Government Bond
2010 Sub-Account 37.89% (35.96%) 5/2/94
Value Stock Sub-Account 36.17% (36.05%) 5/2/94
</TABLE>
4
<PAGE>
Cumulative total return quotations for Sub-Accounts will be accompanied by
average annual total return figures for a one-year period, five-year period
and ten-year period or for the period since the Sub-Account became available
pursuant to the Variable Annuity Account's registration statement if less
than ten years. Average annual total return figures are the average annual
compounded rates of return required for an initial investment of $1,000 to
equal the surrender value of that same investment at the end of the period.
The surrender value will reflect the deduction of the deferred sales charge
applicable to the contract (flexible premium/single premium) and to the
length of the period advertised. The average annual total return figures
published by the Variable Annuity Account will reflect Minnesota Mutual's
voluntary absorption of certain Fund expenses. Prior to January 1, 1986, the
Fund incurred no expenses. During 1986 and from January 1 to March 8, 1987
Minnesota Mutual voluntarily absorbed all fees and expenses of any Fund
portfolio that exceeded .75% of the average daily net assets of such Fund
portfolio. For the period subsequent to March 9, 1987, Minnesota Mutual is
voluntarily absorbing the fees and expenses that exceed .65% of the average
daily net assets of the Growth, Bond, Money Market, Asset Allocation and
Mortgage Securities Portfolios of the Fund, .55% of the average daily net
assets of the Index 500 Portfolio of the Fund, .90% of the average daily net
assets of the Capital Appreciation and Small Company Portfolios of the Fund
and expenses that exceed 1.00% of the average daily net assets of the
International Stock Portfolio of the Fund exclusive of the advisory fee.
And, for the period subsequent to May 2, 1994, Minnesota Mutual has
voluntarily absorbed fees and expenses that exceed .90% of the average daily
net assets of the Value Stock Portfolio and fees and expenses that exceed
.40% of the average daily net assets of the Maturing Government Bond
Portfolios. It should be noted that for the Maturing Government Bond
Portfolios maturing in 1998 and 2002, Minnesota Mutual will voluntarily
absorb fees and expenses that exceed .20% of average daily net assets of
those Portfolios until April 30, 1998. There is no specified or minimum
period of time during which Minnesota Mutual has agreed to continue its
voluntary absorption of these expenses, and Minnesota Mutual may in its
discretion cease its absorption of expenses at any time. Should Minnesota
Mutual cease absorbing expenses the effect would be to increase substantially
Fund expenses and thereby reduce investment return.
5
<PAGE>
The average annual rates of return for the Sub-Accounts, in connection with
the contract described in the Prospectus, for the specified periods ended
December 31, 1995 are shown in the tables below. The figures in parentheses
show what the average annual rates of return would have been had Minnesota
Mutual not absorbed Fund expenses as described above. These figures also
assume that the contracts described herein were issued when the Underlying
Portfolios first became available to the Variable Annuity Account. This
contract only became available as of the date of this Prospectus.
<TABLE>
<CAPTION>
Flexible Premium Deferred Variable Annuity
MultiOption Select
------------------------------------------
Year Ended Five Years Ten Years From Inception Date of
12/31/95 Ended 12/31/95 Ended 12/31/95 to 12/31/95 Inception
---------- -------------- -------------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Growth Sub-Account 15.74% (15.74%) 11.07% (11.07%) 9.37% (9.26%) N/A (N/A) 12/3/85
Bond Sub-Account 11.26% (11.26%) 7.63% (7.30%) 7.31% (7.23%) N/A (N/A) 12/3/85
Money Market Sub-Account -2.89% (-2.89%) 2.06% (1.80%) 4.11% (3.73%) N/A (N/A) 12/3/85
Asset Allocation
Sub-Account 16.46% (16.46%) 10.71% (10.71%) 8.85% (8.82%) N/A (N/A) 12/3/85
Mortgage Securities
Sub-Account 9.54% (9.54%) 7.06% (7.04%) N/A (N/A) 7.98% (7.94%) 6/1/87
Index 500 Sub-Account 28.14% (28.14%) 14.26% (14.24%) N/A (N/A) 10.88% (10.83%) 6/1/87
Capital Appreciation
Sub-Account 14.25% (14.25%) 13.69% (13.66%) N/A (N/A) 11.42% (11.26%) 6/1/87
6
<PAGE>
International Stock
Sub-Account 5.81% (5.81%) N/A (N/A) N/A (N/A) 9.83% (9.82%) 5/1/92
Small Company Sub-Account 23.42% (23.42%) N/A (N/A) N/A (N/A) 17.32% (17.27%) 5/3/93
Maturing Government Bond 7.56% (7.04%) N/A (N/A) N/A (N/A) 3.94% (3.36%) 5/2/94
1998 Sub-Account
Maturing Government Bond
2002 Sub-Account 16.47% (15.45%) N/A (N/A) N/A (N/A) 9.18% (8.22%) 5/2/94
Maturing Government Bond
2006 Sub-Account 26.05% (24.72%) N/A (N/A) N/A (N/A) 14.37% (13.04%) 5/2/94
Maturing Government Bond
2010 Sub-Account 32.46% (29.76%) N/A (N/A) N/A (N/A) 17.51% (14.96%) 5/2/94
Value Stock Sub-Account 24.31% (24.26%) N/A (N/A) N/A (N/A) 16.58% (16.42%) 5/2/94
</TABLE>
The average annual total return figures described above may be accompanied by
other average annual total return quotations which do not reflect the
deduction of any deferred sales charges. Such other average annual total
return figures will be calculated as described above, except that the initial
$1,000 investment will be equated to that same investment's net asset value,
rather than its surrender value, at the end of the period. The average
annual rates of return, as thus calculated, for the Sub-Accounts of the
contracts described in the Prospectus for the specified periods ended
December 31, 1995 are shown in the table below. Inasmuch as no deferred
sales charges are reflected in these figures, they are the same for both the
flexible premium and the single premium contracts. The figures in
parentheses show what the average annual rates of return, without the
application of applicable deferred sales charges, would have been had
Minnesota Mutual not absorbed Fund expenses as described above.
<TABLE>
<CAPTION>
Year Ended Five Years Ten Years From Inception Date of
12/31/95 Ended 12/31/95 Ended 12/31/95 to 12/31/95 Inception
------------- -------------- -------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Growth Sub-Account 22.74% (22.74%) 11.59% (11.59%) 9.37% (9.26%) N/A (N/A) 12/3/85
Bond Sub-Account 18.26% (18.26%) 8.22% (8.19%) 7.31% (7.23%) N/A (N/A) 12/3/85
7
<PAGE>
Money Market
Sub-Account 4.11% (4.11%) 2.79% (2.53%) N/A (N/A) N/A (N/A) 12/3/85
Asset Allocation
Sub-Account 23.46% (23.46%) 11.24% (11.24%) N/A (N/A) N/A (N/A) 12/3/85
Mortgage Securities
Sub-Account 16.54% (16.54%) 7.67% (7.65%) N/A (N/A) 7.98% (7.94%) 6/1/87
Index 500
Sub-Account 35.14% (35.14%) 14.72% (14.70%) N/A (N/A) 10.88% (10.83%) 6/1/87
Capital Appreciation
Sub-Account 21.25% (21.25%) 14.16% (14.13%) N/A (N/A) 11.42% (11.26%) 6/1/87
International Stock
Sub-Account 12.81% (12.81%) N/A (N/A) N/A (N/A) 10.88% (10.87%) 5/1/92
Small Company
Sub-Account 30.42% (30.42%) N/A (N/A) N/A (N/A) 19.02% (18.97%) 5/3/93
Maturing Government
Bond 1998
Sub-Account 14.56% (14.04%) N/A (N/A) N/A (N/A) 7.98% (7.40%) 5/2/94
Maturing Government
Bond 2002
Sub-Account 23.47% (22.45%) N/A (N/A) N/A (N/A) 13.09% (12.13%) 5/2/94
Maturing Government
Bond 2006
Sub-Account 33.05% (31.72%) N/A (N/A) N/A (N/A) 18.17% (16.84%) 5/2/94
Maturing Government
Bond 2010
Sub-Account 39.46% (36.76%) N/A (N/A) N/A (N/A) 21.23% (18.68%) 5/2/94
Value Stock
Sub-Account 31.31% (31.26%) N/A (N/A) N/A (N/A) 20.33% (20.17%) 5/2/94
</TABLE>
8
<PAGE>
PREDICTABILITY OF RETURN
ANTICIPATED VALUE AT MATURITY. The maturity values of zero-coupon bonds are
specified at the time the bonds are issued, and this feature, combined with
the ability to calculate yield to maturity, has made these instruments
popular investment vehicles for investors seeking reliable investments to
meet long-term financial goals.
Each Maturing Government Bond Portfolio of the Fund consists primarily of
zero-coupon bonds but is actively managed to accommodate contract owner
activity and to take advantage of perceived market opportunities. Because of
this active management approach, there is no guarantee that a certain price
per share of a Maturing Government Bond Portfolio, or a certain price per
unit of the corresponding Sub-Account, will be attained by the time a
Portfolio is liquidated. Instead, the Fund attempts to track the price
behavior of a directly held zero-coupon bond by:
(1) Maintaining a weighted average maturity within each Maturing
Government Bond Portfolio's target maturity year;
(2) Investing at least 90% of assets in securities that mature
within one year of that Portfolio's target maturity year;
(3) Investing a substantial portion of assets in Treasury STRIPS
(the most liquid Treasury zero);
(4) Under normal conditions, maintaining a nominal cash balance;
(5) Executing portfolio transactions necessary to accommodate net
contract owner purchases or redemptions on a daily basis; and
(6) Whenever feasible, contacting several U.S. government
securities dealers for each intended transaction in an effort
to obtain the best price on each transaction.
These measures enable the Company to calculate an anticipated value at
maturity (AVM) for each unit of a Maturing Government Bond Sub-Account,
calculated as of the date of purchase of such unit, that approximates the
price per unit that such unit will achieve by the weighted average maturity
date of the underlying Portfolio. The AVM calculation for each Maturing
Government Bond Sub-Account is as follows:
AVM = P(1 + AGR/2)2T
where P = the Sub-Account's current price per unit; T = the Sub-Account's
weighted average term to maturity in years; and AGR = the anticipated growth
rate.
This calculation assumes an expense ratio and a portfolio composition for the
underlying Maturing Government Bond Portfolio that remain constant for the
life of such Portfolio.
9
<PAGE>
Because the Portfolio's expenses and composition do not remain constant,
however, the Company may calculate AVM for each Maturing Government Bond
Sub-Account on any day on which the underlying Maturing Government Bond
Portfolio is valued. Such an AVM is applicable only to units purchased on
that date.
In addition to the measures described above, which the adviser believes are
adequate to assure close correspondence between the price behavior of each
Portfolio and the price behavior of directly held zero-coupon bonds with
comparable maturities, the Fund expects that each Portfolio will invest at
least 90% of its net assets in zero-coupon bonds until it is within four
years of its target maturity year and at least 80% of its net assets in
zero-coupon securities within two to four years of its target maturity year.
This expectation may be altered if the market supply of zero-coupon
securities diminishes unexpectedly.
ANTICIPATED GROWTH RATE. The Company calculates an anticipated growth rate
(AGR) for each Maturing Government Bond Sub-Account on each day on which the
underlying Portfolio is valued. AGR is a calculation of the anticipated
annualized rate of growth for a Sub-Account unit, calculated from the date of
purchase of such unit to the Sub-Account's target maturity date. As is the
case with calculations of AVM, the AGR calculation assumes that each
underlying Maturing Government Bond Portfolio expense ratio and portfolio
composition will remain constant. Each Maturing Government Bond Sub-Account
AGR changes from day to day (i.e., a particular AGR calculation is applicable
only to units purchased on that date), due primarily to changes in interest
rates and, to a lesser extent, to changes in portfolio composition and other
factors that affect the value of the underlying Portfolio.
The Company expects that a contract owner who holds specific units until the
underlying Portfolio's weighted average maturity date will realize an
investment return and maturity value on those units that do not differ
substantially from the AGR and AVM calculated on the day such units were
purchased. The AGR and AVM calculated with respect to units purchased on any
other date, however, may be materially different.
AUDITORS
The financial statements of Minnesota Mutual and the Minnesota Mutual Variable
Annuity Account included herein have been audited by KPMG Peat Marwick LLP,
4200 Norwest Center, 90 South Seventh Street, Minneapolis, Minnesota 55402,
independent auditors, whose reports thereon appear elsewhere herein, and have
been so included in reliance upon the reports of KPMG Peat Marwick LLP and upon
the authority of said firm as experts in accounting and auditing.
-10-
<PAGE>
REGISTRATION STATEMENT
We have filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933, as amended, with respect to the
contract offered hereby. This Prospectus does not contain all the
information set forth in the registration statement and amendments thereto
and the exhibits filed as a part thereof, to all of which reference is hereby
made for further information concerning the Variable Annuity Account,
Minnesota Mutual, and the contract. Statements contained in this Prospectus
as to the contents of contracts and other legal instruments are summaries,
and reference is made to such instruments as filed.
-11-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees of The Minnesota Mutual Life Insurance Company
and Contract Owners of Minnesota Mutual Variable Annuity Account:
We have audited the accompanying statements of assets and liabilities of the
Growth, Bond, Money Market, Asset Allocation, Mortgage Securities, Index 500,
Capital Appreciation, International Stock, Small Company, Maturing Government
Bond 1998, Maturing Government Bond 2002, Maturing Government Bond 2006,
Maturing Government Bond 2010 and Value Stock Segregated Sub-Accounts of
Minnesota Mutual Variable Annuity Account (class of contracts offered for
combination Fixed and Variable Annuity Contracts for Personal Retirement
Plans) as of December 31, 1995 and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended (year ended December 31, 1995 and the
period from May 2, 1994 to December 31, 1994 for the Maturing Government Bond
1998, Maturing Government Bond 2002, Maturing Government Bond 2006, Maturing
Government Bond 2010 and Value Stock Segregated Sub-Accounts) and the
financial highlights for each of the years in the five-year period then ended
for the Growth, Bond, Money Market, Asset Allocation, Mortgage Securities,
Index 500 and Capital Appreciation Segregated Sub-Accounts, for each of the
years in the three-year period ended December 31, 1995 and the period from
May 1, 1992 to December 31, 1992 for the International Stock Segregated
Sub-Account, each of the years in the two-year period ended December 31, 1995
and the period from May 3, 1993 to December 31, 1993 for the Small Company
Segregated Sub-Account, and the year ended December 31, 1995 and the period
from May 2, 1994 to December 31, 1994 for the Maturing Government Bond 1998,
Maturing Government Bond 2002, Maturing Government Bond 2006, Maturing
Government Bond 2010 and Value Stock Segregated Sub-Accounts. These financial
statements and the financial highlights are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investments owned at December 31, 1995 were verified by examination
of the underlying portfolios of MIMLIC Series Fund, Inc. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of the Growth, Bond, Money Market,
Asset Allocation, Mortgage Securities, Index 500, Capital Appreciation,
International Stock, Small Company, Maturing Government Bond 1998, Maturing
Government Bond 2002, Maturing Government Bond 2006, Maturing Government Bond
2010 and Value Stock Segregated Sub-Accounts of Minnesota Mutual Variable
Annuity Account at December 31, 1995 and the results of their operations,
changes in their net assets and the financial highlights for the periods stated
in the first paragraph above, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 16, 1996
<PAGE>
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL
ASSETS GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION
------ ----------- ----------- ----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in shares of MIMLIC Series
Fund, Inc.:
Growth Portfolio, 42,828,527 shares at
net asset value of $2.210 per share
(cost $78,003,640) . . . . . . . . . . $ 94,635,308 - - - - - -
Bond Portfolio, 45,769,051 shares at
net asset value of $1.332 per share
(cost $55,964,343) . . . . . . . . . . - 60,976,484 - - - - -
Money Market Portfolio, 22,438,918
shares at net asset value of $1.000
share (cost $22,438,918) . . . . . . . - - 22,438,918 - - - -
Asset Allocation Portfolio, 151,854,864
shares at net asset value of $1.826
per share (cost $229,039,755). . . . . - - - 277,359,857 - - -
Mortgage Securities Portfolio,
50,678,805 shares at net asset value
of $1.207 per share (cost
$58,277,888) . . . . . . . . . . . . . - - - - 61,176,738 - -
Index 500 Portfolio, 42,574,247 shares
at net asset value of $2.023 per share
(cost $63,532,368) . . . . . . . . . . - - - - - 86,145,648 -
Capital Appreciation Portfolio,
53,916,042 shares at net asset value
of $2.160 per share (cost
$91,974,747) . . . . . . . . . . . . . - - - - - - 116,482,400
----------- ----------- ----------- ----------- ----------- ----------- -----------
94,635,308 60,976,484 22,438,918 277,359,857 61,176,738 86,145,648 116,482,400
Receivable from MIMLIC Series Fund, Inc.
for investments sold . . . . . . . . . . . 99,184 8,268 23,874 58,502 17,432 24,751 40,115
Receivable from Minnesota Mutual for
contract purchase payments . . . . . . . . 65,288 134,514 435,884 168,813 66,681 35,945 71,925
Dividends receivable from MIMLIC Series
Fund, Inc. . . . . . . . . . . . . . . . . - - 6,172 - - - -
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total assets . . . . . . . . . . . . 94,799,780 61,119,266 22,904,848 277,587,172 61,260,851 86,206,344 116,594,440
----------- ----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES
------------
Payable to MIMLIC Series Fund, Inc. for
investments purchased. . . . . . . . . . . 65,288 134,514 435,884 168,813 66,681 35,945 71,925
Payable to Minnesota Mutual for contract
terminations and mortality and expense
charges. . . . . . . . . . . . . . . . . . 99,184 8,268 23,874 58,502 17,432 24,751 40,115
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities. . . . . . . . . . 164,472 142,782 459,758 227,315 84,113 60,696 112,040
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net assets applicable to
annuity contract owners. . . . . . $ 94,635,308 60,976,484 22,445,090 277,359,857 61,176,738 86,145,648 116,482,400
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
CONTRACT OWNERS' EQUITY
-----------------------
Contracts in accumulation period,
accumulation units outstanding of
35,809,340 for Growth;
28,069,241 for Bond;
14,809,515 for Money Market;
110,975,477 for Asset Allocation;
31,277,934 for Mortgage Securities;
35,272,024 for Index 500 and
45,964,468 for Capital Appreciation. . . . $ 94,189,065 60,413,545 22,445,090 275,951,737 60,516,113 85,523,860 116,022,761
Contracts in annuity payment period
(note 2) . . . . . . . . . . . . . . . . . 446,243 562,939 - 1,408,120 660,625 621,788 459,639
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total contract owners' equity. . . . $ 94,635,308 60,976,484 22,445,090 277,359,857 61,176,738 86,145,648 116,482,400
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT. . . . $ 2.630 2.153 1.515 2.486 1.934 2.425 2.524
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------------------
MATURING MATURING MATURING MATURING
INTERNATIONAL SMALL GOVERNMENT GOVERNMENT GOVERNMENT GOVERNMENT VALUE
ASSETS STOCK COMPANY BOND 1998 BOND 2002 BOND 2006 BOND 2010 STOCK
------ ------------- ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in shares of MIMLIC Series
Fund, Inc.:
International Stock Portfolio,
71,547,521 shares at net asset value
of $1.410 per share (cost
$88,555,000) . . . . . . . . . . . . . $ 100,907,769 - - - - - -
Small Company Portfolio, 43,300,314
shares at net asset value of $1.602
per share (cost $54,034,298) . . . . . - 69,386,308 - - - - -
Maturing Government Bond 1998 Portfolio,
3,607,447 shares at net asset of
$1.038 share (cost $3,629,005) . . . . - - 3,743,776 - - - -
Maturing Government Bond 2002 Portfolio,
2,660,024 shares at net asset of
$1.091 per share (cost
$2,694,965). . . . . . . . . . . . . . - - - 2,901,060 - - -
Maturing Government Bond 2006 Portfolio,
2,050,719 shares at net asset of
$1.174 per share (cost
$2,094,407). . . . . . . . . . . . . . - - - - 2,406,965 - -
Maturing Government Bond 2010 Portfolio,
1,010,087 shares at net asset of
$1.214 per share (cost
$1,069,164). . . . . . . . . . . . . . - - - - - 1,226,080 -
Value Stock Portfolio, 19,770,424 shares
at net asset value of $1.312 share
(cost $23,033,343) . . . . . . . . . . - - - - - - 25,931,647
----------- ----------- ----------- ----------- ----------- ----------- -----------
100,907,769 69,386,308 3,743,776 2,901,060 2,406,965 1,226,080 25,931,647
Receivable from MIMLIC Series Fund, Inc.
for investments sold . . . . . . . . . . . 21,072 8,446 184 20,415 - 9,468 5,077
Receivable from Minnesota Mutual for
contract purchase payments . . . . . . . . 120,786 106,326 4 - 83,329 220,503 133,809
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total assets . . . . . . . . . . . . . . 101,049,627 69,501,080 3,743,964 2,921,475 2,490,294 1,456,051 26,070,533
----------- ----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES
-----------
Payable to MIMLIC Series Fund, Inc. for
investments purchased. . . . . . . . . . . 120,786 106,326 4 - 83,329 220,503 133,809
Payable to Minnesota Mutual for contract
terminations and mortality and expense
charges. . . . . . . . . . . . . . . . . . 21,072 8,446 184 20,415 - 9,468 5,077
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities. . . . . . . . . . . . 141,858 114,772 188 20,415 83,329 229,971 138,886
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net assets applicable to annuity
contract owners. . . . . . . . . . . . $ 100,907,769 69,386,308 3,743,776 2,901,060 2,406,965 1,226,080 25,931,647
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
CONTRACT OWNERS' EQUITY
-----------------------
Contracts in accumulation period,
accumulation units outstanding of
68,725,183 for International Stock;
43,234,716 for Small Company;
3,330,772 for Maturing Government
Bond 1998; 2,417,823 for Maturing
Government Bond 2002; 1,878,731 for
Maturing Government Bond 2006; 924,681
for Maturing Government Bond 2010
and 18,744,902 for Value Stock . . . . . . $ 100,466,796 68,822,812 3,743,776 2,901,060 2,406,965 1,226,080 25,769,701
Contracts in annuity payment period
(note 2) . . . . . . . . . . . . . . . . . 440,973 563,496 - - - - 161,946
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total contract owners' equity. . . . $ 100,907,769 69,386,308 3,743,776 2,901,060 2,406,965 1,226,080 25,931,647
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT. . . . $ 1.462 1.591 1.124 1.200 1.281 1.326 1.375
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION
----------- ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions
from underlying mutual fund. . . $ 755,607 1,749,463 1,007,075 6,982,035 3,666,707 1,104,988 -
Mortality and expense charges
(note 3) . . . . . . . . . . . . (1,047,564) (635,434) (237,908) (3,093,340) (701,346) (858,837) (1,292,911)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Investment income (loss) -
net. . . . . . . . . . . . . (291,957) 1,114,029 769,167 3,888,695 2,965,361 246,151 (1,292,911)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Realized and unrealized gains on
investments - net:
Realized gain distributions from
underlying mutual fund . . . . . 2,845,736 - - 2,551,029 - 436,933 2,456,090
----------- ----------- ----------- ----------- ----------- ----------- -----------
Realized gains (losses) on sales
of investments (note 4):
Proceeds from sales. . . . . . 11,881,277 9,182,785 22,599,778 36,763,311 10,498,410 7,688,740 12,620,501
Cost of investments sold . . . (10,387,675) (9,093,575) (22,599,778) (33,106,943) (10,620,032) (6,204,674) (10,315,563)
----------- ----------- ----------- ----------- ----------- ----------- -----------
1,493,602 89,210 - 3,656,368 (121,622) 1,484,066 2,304,938
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net realized gains (losses)
on investments . . . . . . . 4,339,338 89,210 - 6,207,397 (121,622) 1,920,999 4,761,028
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net change in unrealized
appreciation or depreciation
of investments . . . . . . . 12,794,298 7,212,393 - 41,592,552 5,658,568 18,037,274 15,606,790
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net gains on investments . . . 17,133,636 7,301,603 - 47,799,949 5,536,946 19,958,273 20,367,818
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting
from operations. . . . . . . . . . . $ 16,841,679 8,415,632 769,167 51,688,644 8,502,307 20,204,424 19,074,907
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------------------------
MATURING MATURING MATURING MATURING
GOVERNMENT GOVERNMENT GOVERNMENT GOVERNMENT
INTERNATIONAL SMALL BOND BOND BOND BOND VALUE
STOCK COMPANY 1998 2002 2006 2010 STOCK
------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions
from underlying mutual fund. . . $ - 78,327 199,298 179,859 133,764 67,111 190,306
Mortality and expense charges
(note 3) . . . . . . . . . . . . (1,117,692) (649,408) (39,415) (34,317) (25,495) (12,042) (194,856)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Investment income (loss) -
net. . . . . . . . . . . . . (1,117,692) (571,081) 159,883 145,542 108,269 55,069 (4,550)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Realized and unrealized gains on
investments - net:
Realized gain distributions from
underlying mutual fund . . . . . - 680,994 790 5,746 - - 1,104,392
----------- ----------- ----------- ----------- ----------- ----------- -----------
Realized gains on sales of
investments (note 4):
Proceeds from sales. . . . . . 18,381,412 5,996,499 1,629,142 1,024,776 466,568 937,848 1,642,305
Cost of investments sold . . . (17,153,978) (5,050,605) (1,620,695) (954,985) (426,220) (899,138) (1,464,637)
----------- ----------- ----------- ----------- ----------- ----------- -----------
1,227,434 945,894 8,447 69,791 40,348 38,710 177,668
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net realized gains on
investments. . . . . . . . . 1,227,434 1,626,888 9,237 75,537 40,348 38,710 1,282,060
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net change in unrealized
appreciation or depreciation
of investments . . . . . . . 10,596,958 12,812,480 246,388 357,420 434,493 217,235 2,829,110
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net gains on investments . . . 11,824,392 14,439,368 255,625 432,957 474,841 255,945 4,111,170
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting
from operations. . . . . . . . . . . $ 10,706,700 13,868,287 415,508 578,499 583,110 311,014 4,106,620
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION
----------- ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment income (loss) - net. . . $ (291,957) 1,114,029 769,167 3,888,695 2,965,361 246,151 (1,292,911)
Net realized gains (losses) on
investments . . . . . . . . . . . 4,339,338 89,210 - 6,207,397 (121,622) 1,920,999 4,761,028
Net change in unrealized
appreciation or depreciation
of investments. . . . . . . . . . 12,794,298 7,212,393 - 41,592,552 5,658,568 18,037,274 15,606,790
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting
from operations. . . . . . . . . . . 16,841,679 8,415,632 769,167 51,688,644 8,502,307 20,204,424 19,074,907
----------- ----------- ----------- ----------- ----------- ----------- -----------
Contract transactions (notes 2, 3
and 5):
Contract purchase payments . . . . 17,363,970 17,296,925 26,977,987 38,493,764 9,481,967 19,277,060 23,567,255
Contract terminations and
withdrawal payments. . . . . . . (10,796,321) (8,512,323) (22,361,870) (33,554,259) (9,747,738) (6,802,839) (11,285,041)
Actuarial adjustments for
mortality experience on
annuities in payment period. . . 3,960 4,532 - 5,210 97 10,002 2,885
Annuity benefit payments . . . . . (41,358) (39,570) - (120,922) (49,422) (37,065) (45,434)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets from
contract transactions. . . . . . . . 6,530,251 8,749,564 4,616,117 4,823,793 (315,096) 12,447,158 12,239,665
----------- ----------- ----------- ----------- ----------- ----------- -----------
Increase in net assets . . . . . . . . 23,371,930 17,165,196 5,385,284 56,512,437 8,187,211 32,651,582 31,314,572
Net assets at the beginning of
year . . . . . . . . . . . . . . . . 71,263,378 43,811,288 17,059,806 220,847,420 52,989,527 53,494,066 85,167,828
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net assets at the end of year. . . . . $ 94,635,308 60,976,484 22,445,090 277,359,857 61,176,738 86,145,648 116,482,400
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------------------------
MATURING MATURING MATURING MATURING
GOVERNMENT GOVERNMENT GOVERNMENT GOVERNMENT
INTERNATIONAL SMALL BOND BOND BOND BOND VALUE
STOCK COMPANY 1998 2002 2006 2010 STOCK
------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment income (loss) - net. . . $ (1,117,692) (571,081) 159,883 145,542 108,269 55,069 (4,550)
Net realized gains on
investments . . . . . . . . . . . 1,227,434 1,626,888 9,237 75,537 40,348 38,710 1,282,060
Net change in unrealized
appreciation or depreciation
of investments. . . . . . . . . . 10,596,958 12,812,480 246,388 357,420 434,493 217,235 2,829,110
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting
from operations. . . . . . . . . . . 10,706,700 13,868,287 415,508 578,499 583,110 311,014 4,106,620
----------- ----------- ----------- ----------- ----------- ----------- -----------
Contract transactions (notes 2, 3
and 5):
Contract purchase payments . . . . 27,249,522 24,201,389 2,388,058 855,808 523,251 972,498 15,700,757
Contract terminations and
withdrawal payments. . . . . . . (17,218,586) (5,289,049) (1,589,727) (990,459) (441,073) (925,805) (1,443,541)
Actuarial adjustments for
mortality experience on
annuities in payment period. . . 1,418 (7,859) - - - - 4,017
Annuity benefit payments . . . . . (46,552) (50,186) - - - - (7,925)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets from
contract transactions. . . . . . . . 9,985,802 18,854,295 798,331 (134,651) 82,178 46,693 14,253,308
----------- ----------- ----------- ----------- ----------- ----------- -----------
Increase in net assets . . . . . . . . 20,692,502 32,722,582 1,213,839 443,848 665,288 357,707 18,359,928
Net assets at the beginning of
year . . . . . . . . . . . . . . . . 80,215,267 36,663,726 2,529,937 2,457,212 1,741,677 868,373 7,571,719
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net assets at the end of year. . . . . $ 100,907,769 69,386,308 3,743,776 2,901,060 2,406,965 1,226,080 25,931,647
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION
------------- ----------- ----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment income (loss) - net. . . $ (185,816) 1,109,228 340,524 1,709,162 1,957,727 154,405 (862,507)
Net realized gains on
investments . . . . . . . . . . . 1,768,923 689,782 - 2,758,051 566,919 766,584 1,965,775
Net change in unrealized
appreciation or depreciation
of investments. . . . . . . . . . (1,764,688) (4,114,674) - (9,949,558) (5,307,765) (877,132) 171,786
------------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations. . . . . . (181,581) (2,315,664) 340,524 (5,482,345) (2,783,119) 43,857 1,275,054
------------- ----------- ----------- ----------- ----------- ----------- -----------
Contract transactions (notes 2, 3
and 5):
Contract purchase payments . . . . 22,484,064 20,052,493 23,247,643 55,446,509 17,882,418 17,110,585 29,257,388
Contract terminations and
withdrawal payments. . . . . . . (7,029,123) (10,611,630) (20,431,518) (36,277,906) (20,083,853) (6,013,722) (9,183,581)
Actuarial adjustments for
mortality experience on
annuities in payment period. . . (629) 13,927 - (3,351) 11,754 2,820 (1,411)
Annuity benefit payments . . . . . (14,000) (36,066) - (101,826) (47,418) (27,135) (10,670)
------------- ----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets from
contract transactions. . . . . . . . 15,440,312 9,418,724 2,816,125 19,063,426 (2,237,099) 11,072,548 20,061,726
------------- ----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets. . . 15,258,731 7,103,060 3,156,649 13,581,081 (5,020,218) 11,116,405 21,336,780
Net assets at the beginning of
year . . . . . . . . . . . . . . . . 56,004,647 36,708,228 13,903,157 207,266,339 58,009,745 42,377,661 63,831,048
------------- ----------- ----------- ----------- ----------- ----------- -----------
Net assets at the end of year. . . . . $ 71,263,378 43,811,288 17,059,806 220,847,420 52,989,527 53,494,066 85,167,828
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
Statements of Changes in Net Assets - Continued
Year ended December 31, 1994*
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------------------------
MATURING MATURING MATURING MATURING
GOVERNMENT GOVERNMENT GOVERNMENT GOVERNMENT
INTERNATIONAL SMALL BOND BOND BOND BOND VALUE
STOCK COMPANY 1998 2002 2006 2010 STOCK
------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment income (loss) - net . . . $ 716,892 (255,731) 87,958 98,493 72,016 36,725 21,720
Net realized gains (losses)
on investments . . . . . . . . . . 4,721,467 104,760 (5,697) (19,538) (16,516) (25,595) 32,870
Net change in unrealized
appreciation or depreciation
of investments . . . . . . . . . . (7,117,936) 1,729,411 (131,617) (151,325) (121,935) (60,319) 69,194
------------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations. . . . . . . (1,679,577) 1,578,440 (49,356) (72,370) (66,435) (49,189) 123,784
------------- ----------- ----------- ----------- ----------- ----------- -----------
Contract transactions (notes 2,
3 and 5):
Contract purchase payments . . . . . 53,308,316 27,187,384 5,211,054 3,473,178 2,254,736 1,399,712 7,746,494
Contract terminations and
withdrawal payments. . . . . . . . (22,428,734) (3,226,820) (2,631,761) (943,596) (446,624) (482,150) (296,984)
Actuarial adjustments for mortality
experience on annuities
in payment period. . . . . . . . . (668) 1,678 - - - - (302)
Annuity benefit payments . . . . . . (18,035) (10,720) - - - - (1,273)
------------- ----------- ----------- ----------- ----------- ----------- -----------
Increase in net assets from contract
transactions . . . . . . . . . . . . . 30,860,879 23,951,522 2,579,293 2,529,582 1,808,112 917,562 7,447,935
------------- ----------- ----------- ----------- ----------- ----------- -----------
Increase in net assets . . . . . . . . 29,181,302 25,529,962 2,529,937 2,457,212 1,741,677 868,373 7,571,719
------------- ----------- ----------- ----------- ----------- ----------- -----------
Net assets at the beginning of period. 51,033,965 11,133,764 - - - - -
------------- ----------- ----------- ----------- ----------- ----------- -----------
Net assets at the end of period. . . . $ 80,215,267 36,663,726 2,529,937 2,457,212 1,741,677 868,373 7,571,719
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
* Period from May 2, 1994, commencement of operations, to December 31, 1994
for Maturing Government Bond 1998, Maturing Government Bond 2002, Maturing
Government Bond 2006, Maturing Government Bond 2010 and Value Stock
Segregated Sub-Accounts.
See accompanying notes to financial statements.
<PAGE>
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
Notes to Financial Statements
(1) ORGANIZATION AND BASIS OF PRESENTATION
The Minnesota Mutual Variable Annuity Account (the Account) was established
on September 10, 1984 as a segregated asset account of The Minnesota Mutual
Life Insurance Company (Minnesota Mutual) under Minnesota law and is
registered as a unit investment trust under the Investment Company Act of
1940 (as amended). There are currently three classes of contracts each
consisting of fourteen segregated sub-accounts. On September 15, 1994, an
additional variable annuity contract, the Multi-Option Select, was offered
by Minnesota Mutual. The financial statements presented herein include
only the segregated sub-accounts offered in connection with the sale of the
Combination Fixed and Variable Annuity Contracts for Personal Retirement
Plans (Multi-option Annuity) and Multi-Option Select.
On May 2, 1994, five additional segregated sub-accounts, Maturing
Government Bond 1998, Maturing Government Bond 2002, Maturing Government
Bond 2006, Maturing Government Bond 2010 and Value Stock, were added to the
Account.
The assets of each segregated sub-account are held for the exclusive
benefit of the variable annuity contract owners and are not chargeable with
liabilities arising out of the business conducted by any other account or
by Minnesota Mutual. Contract owners allocate their variable annuity
purchase payments to one or more of the fourteen segregated sub-accounts.
Such payments are then invested in shares of MIMLIC Series Fund, Inc. (the
Fund) which was organized by Minnesota Mutual as the investment vehicle for
its variable annuity contracts and variable life policies. The Fund is
registered under the Investment Company Act of 1940 (as amended) as a
diversified, open-end management investment company. Payments allocated to
the Growth, Bond, Money Market, Asset Allocation, Mortgage Securities,
Index 500, Capital Appreciation, International Stock, Small Company,
Maturing Government Bond 1998, Maturing Government Bond 2002, Maturing
Government Bond 2006, Maturing Government Bond 2010 and Value Stock
segregated sub-accounts are invested in shares of the Growth, Bond, Money
Market, Asset Allocation, Mortgage Securities, Index 500, Capital
Appreciation, International Stock, Small Company, Maturing Government Bond
1998, Maturing Government Bond 2002, Maturing Government Bond 2006,
Maturing Government Bond 2010 and Value Stock Portfolios of the Fund,
respectively.
MIMLIC Sales Corporation acts as the underwriter for the Account. MIMLIC
Asset Management Company acts as the investment adviser for the Fund.
MIMLIC Sales Corporation is a wholly-owned subsidiary of MIMLIC Asset
Management Company. MIMLIC Asset Management Company is a wholly-owned
subsidiary of Minnesota Mutual.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
INVESTMENTS IN MIMLIC SERIES FUND, INC.
Investments in shares of the Fund portfolios are stated at market value
which is the net asset value per share as determined daily by the Fund.
Investment transactions are accounted for on the date the
<PAGE>
2
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INVESTMENTS IN MIMLIC SERIES FUND, INC. - CONTINUED
shares are purchased or sold. The cost of investments sold is determined
on the average cost method. All dividend distributions received from the
Fund are reinvested in additional shares of the Fund and are recorded by
the segregated sub-accounts on the ex-dividend date.
FEDERAL INCOME TAXES
The Account is treated as part of Minnesota Mutual for federal income tax
purposes. Under current interpretations of existing federal income tax
law, no income taxes are payable on investment income or capital gain
distributions received by the Account from the Fund.
CONTRACTS IN ANNUITY PAYMENT PERIOD
Annuity reserves are computed for currently payable contracts according to
the Progressive Annuity Mortality Table, using an assumed interest rate of
3.5 percent. Charges to annuity reserves for mortality and risk expense
are reimbursed to Minnesota Mutual if the reserves required are less than
originally estimated. If additional reserves are required, Minnesota
Mutual reimburses the Account.
(3) MORTALITY AND EXPENSE AND ADMINISTRATIVE CHARGES
The mortality and expense charge paid to Minnesota Mutual is computed daily
and is equal, on an annual basis, to 1.25% of the average daily net assets
of the Account. Under certain conditions, the charge may be increased to
1.40% of the average daily net assets of the Account.
A contingent deferred sales charge may be imposed on a Multi-Option Annuity
or Multi-Option Select contract owner during the first ten years or first
seven years, respectively, if a contract's accumulation value is reduced by
a withdrawal or surrender. Total sales charges deducted from redemption
proceeds for the years ended December 31, 1995 and 1994 amounted to
$1,494,935 and $1,009,877, respectively.
(4) INVESTMENT TRANSACTIONS
The Account's purchases of Fund shares, including reinvestment of dividend
distributions, were as follows during the year ended December 31, 1995:
Growth Portfolio . . . . . . . . . . . . . . . . . . . . . . $20,965,307
Bond Portfolio . . . . . . . . . . . . . . . . . . . . . . . 19,046,378
Money Market Portfolio . . . . . . . . . . . . . . . . . . . 27,981,306
Asset Allocation Portfolio . . . . . . . . . . . . . . . . . 48,026,828
Mortgage Securities Portfolio. . . . . . . . . . . . . . . . 13,148,675
Index 500 Portfolio. . . . . . . . . . . . . . . . . . . . . 20,818,981
Capital Appreciation Portfolio . . . . . . . . . . . . . . . 26,023,345
International Stock Portfolio. . . . . . . . . . . . . . . . 27,249,522
Small Company Portfolio. . . . . . . . . . . . . . . . . . . 24,960,707
Maturing Government Bond 1998. . . . . . . . . . . . . . . . 2,588,146
Maturing Government Bond 2002. . . . . . . . . . . . . . . . 1,041,396
Maturing Government Bond 2006. . . . . . . . . . . . . . . . 657,015
Maturing Government Bond 2010. . . . . . . . . . . . . . . . 1,039,610
Value Stock. . . . . . . . . . . . . . . . . . . . . . . . . 16,995,455
<PAGE>
3
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS
Transactions in units for each segregated sub-account for the years ended
December 31, 1995 and 1994 (year ended December 31, 1995 and the period
from May 2, 1994 to December 31, 1994 for the Maturing Government Bond
1998, Maturing Government Bond 2002, Maturing Government Bond 2006,
Maturing Government Bond 2010 and Value Stock segregated sub-accounts) were
as follows:
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------
MONEY ASSET
GROWTH BOND MARKET ALLOCATION
---------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Units outstanding at
December 31, 1993. . . . . . . . . . . . . 25,980,318 18,784,458 9,783,391 99,680,197
Contract purchase
payments. . . . . . . . . . . . . . . 10,530,484 10,794,606 16,182,637 27,477,336
Deductions for contract
terminations and
withdrawal payments. . . . . . . . . (3,420,012) (5,780,101) (14,245,250) (18,113,247)
-------------- ------------- --------------- --------------
Units outstanding at
December 31, 1994. . . . . . . . . . . . . 33,090,790 23,798,963 11,720,778 109,044,286
Contract purchase
payments. . . . . . . . . . . . . . . 7,192,753 8,612,934 18,164,557 16,964,209
Deductions for contract
terminations and
withdrawal payments . . . . . . . . . (4,474,203) (4,342,656) (15,075,820) (15,033,018)
-------------- ------------- --------------- --------------
Units outstanding at
December 31, 1995 . . . . . . . . . . . . 35,809,340 28,069,241 14,809,515 110,975,477
-------------- ------------- --------------- --------------
-------------- ------------- --------------- --------------
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------------------------
MORTGAGE INDEX CAPITAL INTERNATIONAL SMALL
SECURITIES 500 APPRECIATION STOCK COMPANY
------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1993 . . . . . . 33,032,291 23,455,059 30,907,396 38,637,487 9,554,322
Contract purchase
payments . . . . . . . . 10,539,761 9,563,198 14,497,027 40,118,593 23,217,904
Deductions for contract
terminations and
withdrawal payments . . (12,029,647) (3,378,959) (4,665,008) (17,281,187) (3,048,617)
------------ ------------ ------------ ------------- ------------
Units outstanding at
December 31, 1994 . . . . . . 31,542,405 29,639,298 40,739,415 61,474,893 29,723,609
Contract purchase
payments . . . . . . . . 5,175,401 8,862,249 10,017,490 19,829,803 17,368,989
Deductions for contract
terminations and
withdrawal payments . . (5,439,872) (3,229,523) (4,792,437) (12,579,513) (3,857,882)
------------ ------------ ------------ ------------- ------------
Units outstanding at
December 31, 1995 . . . . . . 31,277,934 35,272,024 45,964,468 68,725,183 43,234,716
------------ ------------ ------------ ------------- ------------
------------ ------------ ------------ ------------- ------------
</TABLE>
<PAGE>
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - CONTINUED
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------------------------
MATURING MATURING MATURING MATURING
GOVERNMENT GOVERNMENT GOVERNMENT GOVERNMENT VALUE
BOND 1998 BOND 2002 BOND 2006 BOND 2010 STOCK
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1993 - - - - -
Contract purchase
payments . . . . . . . . . 5,230,196 3,500,060 2,276,597 1,432,616 7,529,045
Deductions for contract
terminations and
withdrawal payments . . . (2,651,690) (971,551) (467,892) (519,258) (350,370)
------------ ------------ ------------ ------------ ------------
Units outstanding at
December 31, 1994 . . . . . . . 2,578,506 2,528,509 1,808,705 913,358 7,178,675
Contract purchase
payments . . . . . . . . . 2,297,675 784,333 460,903 888,273 12,757,957
Deductions for contract
terminations and
withdrawal payments. . . . (1,545,409) (895,019) (390,877) (876,950) (1,191,730)
------------ ------------ ------------ ------------ ------------
Units outstanding at
December 31, 1995 . . . . . . . 3,330,772 2,417,823 1,878,731 924,681 18,744,902
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
<PAGE>
5
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS
The following tables for each segregated sub-account show certain data for
an accumulation unit outstanding during the periods indicated:
GROWTH
------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year. . . . . . $ 2.143 2.152 2.084 2.012 1.520
-------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss). . . . . (.008) (.006) (.001) .001 (.021)
Net gains or losses on securities
(both realized and unrealized) . . .495 (.003) .069 .071 .513
-------- ------- ------- ------- -------
Total from investment operations . .487 (.009) .068 .072 .492
-------- ------- ------- ------- -------
Unit value, end of year. . . . . . . . . $ 2.630 2.143 2.152 2.084 2.012
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
<PAGE>
6
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
BOND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year. . . . . . $ 1.820 1.931 1.773 1.683 1.450
-------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss). . . . . .044 .051 .044 .051 (.020)
Net gains or losses on securities
(both realized and unrealized) . . .289 (.162) .114 .039 .253
-------- ------- ------- ------- -------
Total from investment operations . .333 (.111) .158 .090 .233
-------- ------- ------- ------- -------
Unit value, end of year. . . . . . . . . $ 2.153 1.820 1.931 1.773 1.683
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
<PAGE>
7
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MONEY MARKET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year. . . . . . $ 1.455 1.421 1.402 1.375 1.321
-------- ------- ------- ------- -------
Income from investment operations:
Net investment income . . . . . . . . .060 .034 .019 .027 .054
-------- ------- ------- ------- -------
Total from investment operations. . . .060 .034 .019 .027 .054
-------- ------- ------- ------- -------
Unit value, end of year. . . . . . . . . $ 1.515 1.455 1.421 1.402 1.375
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
<PAGE>
8
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
ASSET ALLOCATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year. . . . . . $ 2.014 2.068 1.967 1.858 1.460
-------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss). . . . . .036 .017 .014 .013 (.021)
Net gains or losses on securities
(both realized and unrealized) . . .436 (.071) .087 .096 .419
-------- ------- ------- ------- -------
Total from investment operations . .472 (.054) .101 .109 .398
-------- ------- ------- ------- -------
Unit value, end of year. . . . . . . . . $ 2.486 2.014 2.068 1.967 1.858
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
<PAGE>
9
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MORTGAGE SECURITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year. . . . . . $ 1.660 1.739 1.612 1.535 1.337
-------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss). . . . . .097 .058 .038 .036 (.018)
Net gains or losses on securities
(both realized and unrealized) . . .177 (.137) .089 .041 .216
-------- ------- ------- ------- -------
Total from investment operations . .274 (.079) .127 .077 .198
-------- ------- ------- ------- -------
Unit value, end of year. . . . . . . . . $ 1.934 1.660 1.739 1.612 1.535
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
<PAGE>
10
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
INDEX 500
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year. . . . . . $ 1.794 1.796 1.657 1.563 1.220
-------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss). . . . . .008 .006 .003 .009 (.018)
Net gains or losses on securities
(both realized and unrealized) . . .623 (.008) .136 .085 .361
-------- ------- ------- ------- -------
Total from investment operations . .631 (.002) .139 .094 .343
-------- ------- ------- ------- -------
Unit value, end of year. . . . . . . . . $ 2.425 1.794 1.796 1.657 1.563
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
<PAGE>
11
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
CAPITAL APPRECIATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year. . . . . . $ 2.082 2.062 1.891 1.823 1.303
-------- ------- ------- ------- -------
Income from investment operations:
Net investment loss . . . . . . . . . (.030) (.023) (.019) (.016) (.017)
Net gains or losses on securities
(both realized and unrealized) . . .472 .043 .190 .084 .537
-------- ------- ------- ------- -------
Total from investment operations . .442 .020 .171 .068 .520
-------- ------- ------- ------- -------
Unit value, end of year. . . . . . . . . $ 2.524 2.082 2.062 1.891 1.823
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
<PAGE>
12
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
INTERNATIONAL STOCK
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 1, 1992*
------------------------------- TO DECEMBER
1995 1994 1993 31, 1992
-------- --------- -------- ------------
<S> <C> <C> <C> <C>
Unit value, beginning of period ...... . $ 1.296 1.317 .925 1.000
-------- --------- -------- ------------
Income from investment operations:
Net investment income (loss). . . . . (.018) .012 (.005) .007
Net gains or losses on securities
(both realized and unrealized) . . .184 (.033) .397 (.082)
-------- --------- -------- ------------
Total from investment operations . .166 (.021) .392 (.075)
-------- --------- -------- ------------
Unit value, end of period. . . . . . . . $ 1.462 1.296 1.317 .925
-------- --------- -------- ------------
-------- --------- -------- ------------
</TABLE>
* Commencement of the segregated sub-account's operations.
<PAGE>
13
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
SMALL COMPANY
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 3, 1993*
------------------------ TO DECEMBER
1995 1994 31, 1993
---------- ---------- ------------
<S> <C> <C> <C>
Unit value, beginning of period. . . . . . . . . . $ 1.220 1.164 1.000
---------- ---------- ------------
Income from investment operations:
Net investment loss . . . . . . . . . . . . . . (.017) (.014) (.010)
Net gains or losses on securities
(both realized and unrealized) . . . . . . . .388 .070 .174
---------- ---------- ------------
Total from investment operations . . . . . . .371 .056 .164
---------- ---------- ------------
Unit value, end of period. . . . . . . . . . . . . $ 1.591 1.220 1.164
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
* Commencement of the segregated sub-account's operations.
<PAGE>
14
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MATURING GOVERNMENT BOND 1998
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED MAY 2, 1994*
DECEMBER TO DECEMBER
31, 1995 31, 1994
---------- ------------
<S> <C> <C>
Unit value, beginning of period. . . . . . . . $ .981 1.000
---------- ------------
Income from investment operations:
Net investment income . . . . . . . . . . . .053 .030
Net gains or losses on securities
(both realized and unrealized). . . . . . . .090 (.049)
---------- ------------
Total from investment operations . . . . .143 (.019)
---------- ------------
Unit value, end of period. . . . . . . . . . . $ 1.124 .981
---------- ------------
---------- ------------
</TABLE>
* Commencement of the segregated sub-account's operations.
<PAGE>
15
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MATURING GOVERNMENT BOND 2002
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED MAY 2, 1994*
DECEMBER TO DECEMBER
31, 1995 31, 1994
---------- ------------
<S> <C> <C>
Unit value, beginning of period. . . . . . . . $ .972 1.000
---------- ------------
Income from investment operations:
Net investment income . . . . . . . . . . . .058 .038
Net gains or losses on securities
(both realized and unrealized). . . . . . . .170 (.066)
---------- ------------
Total from investment operations . . . . .228 (.028)
---------- ------------
Unit value, end of period. . . . . . . . . . . $ 1.200 .972
---------- ------------
---------- ------------
</TABLE>
* Commencement of the segregated sub-account's operations.
<PAGE>
16
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MATURING GOVERNMENT BOND 2006
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED MAY 2, 1994*
DECEMBER TO DECEMBER
31, 1995 31, 1994
---------- ------------
<S> <C> <C>
Unit value, beginning of period. . . . . . . . $ .963 1.000
---------- ------------
Income from investment operations:
Net investment income . . . . . . . . . . . .059 .038
Net gains or losses on securities
(both realized and unrealized). . . . . . . .259 (.075)
---------- ------------
Total from investment operations . . . . .318 (.037)
---------- ------------
Unit value, end of period. . . . . . . . . . . $ 1.281 .963
---------- ------------
---------- ------------
</TABLE>
* Commencement of the segregated sub-account's operations.
<PAGE>
17
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MATURING GOVERNMENT BOND 2010
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED MAY 2, 1994*
DECEMBER TO DECEMBER
31, 1995 31, 1994
---------- ------------
<S> <C> <C>
Unit value, beginning of period. . . . . . . . $ .951 1.000
---------- ------------
Income from investment operations:
Net investment income . . . . . . . . . . . .063 .036
Net gains or losses on securities
(both realized and unrealized). . . . . . . .312 (.085)
---------- ------------
Total from investment operations . . . . .375 (.049)
---------- ------------
Unit value, end of period. . . . . . . . . . . $ 1.326 .951
---------- ------------
---------- ------------
</TABLE>
* Commencement of the segregated sub-account's operations.
<PAGE>
18
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
VALUE STOCK
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED MAY 2, 1994*
DECEMBER TO DECEMBER
31, 1995 31, 1994
---------- ------------
<S> <C> <C>
Unit value, beginning of period. . . . . . . . $ 1.047 1.000
---------- ------------
Income from investment operations:
Net investment income . . . . . . . . . . . - .004
Net gains or losses on securities
(both realized and unrealized). . . . . . . .328 .043
---------- ------------
Total from investment operations . . . . .328 .047
---------- ------------
Unit value, end of period. . . . . . . . . . . $ 1.375 1.047
---------- ------------
---------- ------------
</TABLE>
* Commencement of the segregated sub-account's operations.
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report............................................... 1
Balance Sheets............................................................. 2
Statements of Operations and Policyowners' Surplus......................... 3
Statements of Cash Flows................................................... 4
Notes to Financial Statements.............................................. 5
Financial Statement Schedules:
I. Summary of Investments--Other than Investments in Related Parties..... 15
V. Supplementary Insurance Information................................... 16
VI. Reinsurance.......................................................... 17
</TABLE>
I
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
The Minnesota Mutual Life Insurance Company:
We have audited the accompanying balance sheets of The Minnesota Mutual Life
Insurance Company as of December 31, 1995 and 1994 and the related statements
of operations and policyowners' surplus and cash flows for each of the years in
the three-year period ended December 31, 1995. In connection with our audits of
the financial statements, we also have audited the financial statement
schedules as listed in the accompanying index. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of The Minnesota Mutual Life
Insurance Company as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles (notes 2 and 11). Also in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 7, 1996
1
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Bonds $ 5,488,876 $5,134,554
Common stocks 279,353 209,958
Mortgage loans 754,501 598,186
Real estate, including Home Office property 76,639 76,346
Other invested assets 90,264 60,604
Policy loans 197,555 185,599
Investments in subsidiary companies 197,413 155,404
Cash and short-term securities 99,031 112,869
Premiums deferred and uncollected 116,878 125,422
Other assets 147,155 134,594
----------- ----------
Total assets, excluding separate accounts 7,447,665 6,793,536
Separate account assets 2,609,396 1,750,680
----------- ----------
Total assets $10,057,061 $8,544,216
=========== ==========
LIABILITIES AND POLICYOWNERS' SURPLUS
Liabilities:
Policy reserves:
Life insurance $ 2,129,336 $1,981,469
Annuities and other fund deposits 3,322,866 3,179,279
Accident and health 369,273 343,241
Policy claims in process of settlement 50,512 53,670
Dividends payable to policyowners 107,366 100,287
Other policy liabilities 403,683 388,538
Asset valuation reserve 201,721 165,341
Interest maintenance reserve 32,899 19,922
Federal income taxes 40,195 35,050
Other liabilities 237,434 186,575
----------- ----------
Total liabilities, excluding separate accounts 6,895,285 6,453,372
Separate account liabilities 2,560,211 1,708,529
----------- ----------
Total liabilities 9,455,496 8,161,901
Policyowners' surplus
Surplus notes 124,967 --
Unassigned funds 476,598 382,315
----------- ----------
Total policyowners' surplus 601,565 382,315
Total liabilities and policyowners' surplus $10,057,061 $8,544,216
=========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND POLICYOWNERS' SURPLUS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Premiums, annuity considerations and fund
deposits $1,473,666 $1,424,352 $1,289,954
Net investment income 524,671 488,813 493,011
---------- ---------- ----------
Total revenues 1,998,337 1,913,165 1,782,965
---------- ---------- ----------
Benefits and expenses:
Policyowner benefits 1,138,723 1,259,685 1,131,638
Increase in policy reserves 260,482 94,116 122,280
General insurance expenses and taxes 299,348 279,022 268,041
Commissions 78,642 75,443 70,899
Federal income taxes 46,135 49,626 36,656
---------- ---------- ----------
Total benefits and expenses 1,823,330 1,757,892 1,629,514
---------- ---------- ----------
Gain from operations before net realized
capital gains and dividends 175,007 155,273 153,451
Realized capital gains, net of tax 29,358 18,559 2,907
---------- ---------- ----------
Gain from operations before dividends 204,365 173,832 156,358
Dividends to policyowners 115,659 108,709 97,937
---------- ---------- ----------
Net income $ 88,706 $ 65,123 $ 58,421
========== ========== ==========
STATEMENTS OF POLICYOWNERS' SURPLUS
Policyowners' surplus, beginning of year $ 382,315 $ 347,900 $ 264,542
Surplus notes 124,967 -- --
Net income 88,706 65,123 58,421
Net change in unrealized capital gains
and losses 49,761 (317) 3,286
Change in asset valuation reserve (36,380) (29,405) (17,002)
Change in policy reserve bases (10,828) 1,463 --
Change in separate account surplus 7,579 (3,764) 5,623
Guaranty fund certificate redemption -- -- 19,171
Business combination -- -- 16,684
Other, net (4,555) 1,315 (2,825)
---------- ---------- ----------
Policyowners' surplus, end of year $ 601,565 $ 382,315 $ 347,900
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
CASH PROVIDED: 1995 1994 1993
- -------------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
From operations:
Revenues:
Premiums, annuity considerations and fund
deposits $1,480,303 $1,474,471 $1,252,183
Net investment income 496,421 468,927 473,487
---------- ---------- ----------
Total receipts 1,976,724 1,943,398 1,725,670
---------- ---------- ----------
Benefits and expenses paid:
Policyowner benefits 1,139,133 1,301,060 1,069,090
Dividends to policyowners 109,249 103,634 97,697
Commissions and expenses 392,337 360,150 348,397
Federal income taxes 61,245 40,482 50,994
---------- ---------- ----------
Total payments 1,701,964 1,805,326 1,566,178
---------- ---------- ----------
Cash provided from operations 274,760 138,072 159,492
Proceeds from investments sold, matured or
repaid:
Bonds 1,713,579 1,031,279 1,631,215
Common stocks 205,757 113,228 113,945
Mortgage loans 112,954 152,418 265,356
Real estate 15,948 17,571 10,100
Other invested assets 10,618 16,831 17,266
Surplus notes 124,967 -- --
Separate account redemption 2,041 14,519 --
Business combination -- -- 24,628
Other sources, net 77,772 58,072 53,531
---------- ---------- ----------
Total cash provided 2,538,396 1,541,990 2,275,533
---------- ---------- ----------
<CAPTION>
CASH APPLIED:
- -------------
<S> <C> <C> <C>
Cost of investments acquired:
Bonds 2,026,116 1,146,117 1,966,653
Common stocks 222,491 132,301 123,185
Mortgage loans 266,401 203,803 109,559
Real estate 16,596 11,904 16,572
Other invested assets 20,515 12,732 9,800
Separate account investment 115 12,530 3,365
---------- ---------- ----------
Total cash applied 2,552,234 1,519,387 2,229,134
---------- ---------- ----------
Net change in cash and short-term securi-
ties (13,838) 22,603 46,399
Cash and short-term securities, beginning of
year 112,869 90,266 43,867
---------- ---------- ----------
Cash and short-term securities, end of year $ 99,031 $ 112,869 $ 90,266
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(1)NATURE OF OPERATIONS
The Minnesota Mutual Life Insurance Company (the Company), both directly and
through its subsidiaries, provides a diversified array of insurance and
financial products and services designed principally to protect and enhance the
long-term financial well-being of individuals and families.
The Company's strategy is to be successful in carefully selected niche
markets, primarily in the United States, while focusing on the retention of
existing business and the maintenance of profitability. To achieve this
objective, the Company has divided its businesses into four strategic business
units, which focus on various markets: Individual, Financial Services, Group,
and Pension. Revenues in 1995 for these business units were $1,051,749,000,
$268,004,000, $205,926,000, and $472,658,000, respectively.
At December 31, 1994 the Company was one of the 15 largest mutual life
insurance companies in the United States, as measured by total assets. The
Company employs over 2,100 persons throughout the United States; in addition,
the Company maintains an independent sales force of approximately 100 general
agents and 1,850 agents. The Company insures or provides other financial
services to nearly seven million people.
(2)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the Company have been prepared in
accordance with accounting practices prescribed or permitted by the Commerce
Department of the State of Minnesota (Department of Commerce), which are
currently considered generally accepted accounting principles for mutual life
insurance companies (note 11). The significant accounting policies follow:
Revenues and Expenses
Premiums are credited to revenue over the premium paying period of the
policies. Annuity considerations and fund deposits are recognized as revenue
when received. Expenses, including acquisition costs related to acquiring new
business, are charged to operations as incurred. Investment income is
recognized as earned, net of related investment expenses.
Valuation of Investments
Bonds and stocks are valued as prescribed by the National Association of
Insurance Commissioners (NAIC).
Bonds are generally carried at cost, adjusted for the amortization of
premiums and discounts, and common stocks at market value. Premiums and
discounts are amortized over the estimated lives of the bonds based on the
interest yield method.
Mortgage loans are generally stated at the outstanding principal balances,
net of unamortized premiums and discounts. Premiums and discounts are amortized
over the terms of the related mortgage loans based on the interest yield
method.
Real estate, exclusive of properties acquired through foreclosure, is
generally carried at cost less accumulated depreciation of $35,323,535 and
$35,954,239 at December 31, 1995 and 1994, respectively. Depreciation is
computed principally on a straight-line basis. Properties acquired through
foreclosure are carried at the lower of cost or market.
Policy loans are carried at the unpaid principal balance.
Investments in subsidiary companies are accounted for using the equity
method. The Company records its equity in the earnings of its subsidiaries as
investment income and its equity in other changes in its subsidiaries' surplus
as credits (charges) to policyowners' surplus. These investments include
$95,373,000 and $74,154,000 at December 31, 1995 and 1994, respectively, of
initial contributions to affiliated registered investment funds managed by a
subsidiary of the Company which are carried at the market value of the
underlying net assets. All significant subsidiaries are wholly-owned.
Short-term securities at December 31, 1995 and 1994 amounted to $61,561,000
and $103,203,000, respectively, and are included in the caption cash and short-
term securities.
5
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Asset Valuation Reserve (AVR) is a formula reserve for possible losses
on bonds, stocks, mortgage loans, real estate, and other invested assets.
Changes in the reserve are reflected as direct charges or credits to
policyowners' surplus and are included in the change in asset valuation
reserve line.
Interest Maintenance Reserve
The Company separates realized capital gains and losses, net of tax, on fixed
income investments between those due to changes in interest rates and those
due to changes in credit quality. Realized capital gains and losses due to
interest rate changes are transferred to the Interest Maintenance Reserve
(IMR) and amortized into investment income over the original remaining life of
the related bond or mortgage sold.
Capital Gains and Losses
Realized capital gains and losses, net of related taxes and amounts
transferred to the IMR, if any, are reflected as a component of net income.
The Company reduces the carrying value of its assets for credit risk and
records a realized capital loss only if the underlying asset has been
converted to another asset of lesser value. Unrealized capital gains and
losses are accounted for as a direct increase or decrease to policyowners'
surplus. Both realized and unrealized capital gains and losses are determined
using the specific identification method.
Separate Account Business
Separate account business represents funds administered and invested by the
Company for the exclusive benefit of certain pension and variable life policy
and annuity contract holders. The Company receives administrative and
investment advisory fees for services rendered on behalf of these funds.
Separate account assets are carried at market value.
The Company periodically invests money in its separate accounts. The
appreciation or depreciation on the investment is reflected as a direct charge
or credit to policyowners' surplus. A realized capital gain of $603,995 and
$3,018,248 was recognized in 1995 and 1994, respectively, on the separate
accounts. No gain was realized in 1993.
Policy Reserves
Policy reserves for life insurance and annuities are based on mortality and
interest assumptions without consideration for lapses and withdrawals.
Mortality assumptions for life insurance and annuities are based on various
mortality tables including American Experience, 1941 Commissioners Standard
Ordinary (CSO), 1958 CSO, 1980 CSO, Progressive Annuity and 1960 Commissioners
Standard Group. Interest assumptions range from 2.0% to 6.0% for individual
life insurance policy reserves and from 2.25% to 12.0% for group policy and
annuity reserves.
Approximately 15% of the individual life and group life reserves are
calculated on a net level reserve basis and 85% on a modified reserve basis.
The use of a modified reserve basis partially offsets the effect of
immediately expensing acquisition costs by providing a policy reserve increase
in the first policy year which is less than the reserve increase in renewal
years.
Policy reserves for individual deferred annuities are generally equal to the
total contract holders' account balance, less applicable surrender charges,
calculated according to the Commissioners Annuity Reserve Valuation Method.
Policy reserves for immediate annuities and supplementary contracts are equal
to the present value of future benefit payments based on the purchase interest
rate and the Progressive Annuity tables. Group annuity reserves are equal to
the account value plus expected interest strengthening.
Policy reserves for individual accident and health contracts include
reserves for active lives based on the 1964 Commissioners Disability Table
(CDT) and the 1985 Commissioners Disability Table B (CIDB), modified for
company experience and discounted at various interest rates. Disabled life
reserves on individual policies are equal to the present value of future
benefits using the 1964 CDT and the 1985 CIDB, discounted at various interest
rates. Disabled life reserves for group mortgage disability policies are equal
to the present value of future benefits using the 1964 CDT, modified for
Company experience and discounted at various interest rates.
6
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Group employer-employee long term disability reserves are equal to the present
value of future benefits at 3%
interest and the 1964 CDT modified for Company experience. Disabled life
reserves for credit disability are computed using a lag factor method based on
Company experience, discounted at 4% interest.
The Company issues certain life and annuity products which are considered
financial instruments. The estimated fair value of these liabilities as of the
respective years ended December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------- ---------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Deferred annuities $2,147,662 $2,156,885 $2,042,383 $2,042,060
Annuity certain contracts 49,113 50,732 41,934 41,828
Other fund deposits 836,149 847,975 798,509 791,732
Guaranteed investment contracts 47,426 47,987 68,568 69,353
Supplementary contracts without
life contingencies 41,431 39,962 43,205 42,433
---------- ---------- ---------- ----------
Total financial liabilities $3,121,781 $3,143,541 $2,994,599 $2,987,406
========== ========== ========== ==========
</TABLE>
The fair value of deferred annuities, annuity certain contracts, and other
fund deposits, which have guaranteed interest rates and surrender charges, were
calculated using Commissioners Annuity Reserve Valuation Method calculation
procedures and current market interest rates. Contracts without guaranteed
interest rates and surrender charges have fair values equal to their
accumulation values plus applicable market value adjustments. The fair value of
guaranteed investment contracts and supplementary contracts without life
contingencies were calculated using discounted cash flows, based on interest
rates currently offered for similar products with maturities consistent with
those remaining for the contracts being valued. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1995 and 1994. Although management
is not aware of any factors that would significantly affect the estimated fair
values, such amounts have not been comprehensively revalued since those dates
and therefore, estimates of fair value subsequent to the valuation dates may
differ significantly from the amounts presented herein.
Non-admitted Assets
Certain assets, designated as "non-admitted assets" (principally furniture,
equipment and certain receivables), amounting to $27,022,000 and $26,123,000 at
December 31, 1995 and 1994, respectively, have been charged to policyowners'
surplus.
Participating Business
Substantially all of the Company's premium revenues are derived from
participating policies. Dividends and other discretionary payments are declared
by the Board of Trustees based upon actuarial determinations which take into
consideration current mortality, interest earnings, expense factors, and
federal income taxes. Dividends are generally recognized as expenses consistent
with the recognition of premiums and contract considerations.
Federal Income Taxes
Federal income taxes are based on income that is currently taxable. Deferred
federal income taxes are not provided for differences between financial
statement and taxable income.
7
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Reclassifications
Certain prior year financial statement balances have been reclassified to
conform with the 1995 presentation.
(3)INVESTMENTS
Net investment income for the respective years ended December 31, is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds $422,242 $412,873 $404,353
Common stocks--unaffiliated 3,465 3,188 3,390
Common stocks--affiliated 16,555 8,526 9,562
Mortgage loans 58,946 49,882 63,881
Real estate, including Home Office property 11,440 11,337 11,554
Policy loans 12,821 11,800 10,866
Short-term securities 6,183 4,026 2,067
Other, net 4,994 1,717 2,868
-------- -------- --------
536,646 503,349 508,541
Amortization of interest maintenance reserve 4,527 3,741 3,458
Investment expenses (16,502) (18,277) (18,988)
-------- -------- --------
Total $524,671 $488,813 $493,011
======== ======== ========
Changes in unrealized capital gains (losses) for the respective years ended
December 31, are as follows:
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds $ 2,332 $ 4,039 $(3,753)
Common stocks--unaffiliated 39,013 (5,465) 2,854
Common stocks--affiliated 9,863 (997) (1,305)
Mortgage loans 447 (71) 1,361
Real estate (1,481) 2,270 4,211
Other, net (413) (93) (82)
-------- -------- --------
Total $ 49,761 $ (317) $ 3,286
======== ======== ========
The cost and gross unrealized gains (losses) on unaffiliated common stocks at
December 31, are as follows:
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cost $189,893 $159,511 $155,881
Gross unrealized gains 91,050 56,813 58,440
Gross unrealized losses (1,590) (6,366) (2,529)
-------- -------- --------
Admitted asset value $279,353 $209,958 $211,792
======== ======== ========
</TABLE>
8
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3)INVESTMENTS (CONTINUED)
Net realized capital gains (losses) for the respective years ended December
31 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds $22,411 $(3,511) $31,234
Common stocks--unaffiliated 33,432 11,268 9,651
Mortgage loans (945) (46) (741)
Real estate 3,787 2,041 (8,496)
Other 7,288 15,872 7,837
------- ------- -------
65,973 25,624 39,485
Less: Amount transferred to the interest mainte-
nance reserve, net of taxes 17,503 (685) 20,336
Income tax expense 19,112 7,750 16,242
------- ------- -------
Total $29,358 $18,559 $ 2,907
======= ======= =======
</TABLE>
Gross realized gains (losses) on sales of bonds for the respective years
ended December 31, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross realized gains $ 34,898 $ 13,249 $38,443
Gross realized losses (12,487) (16,760) (7,209)
</TABLE>
Proceeds from the sale of bonds amounted to $1,338,481,000, $638,420,000, and
$1,058,684,000 for the years ended December 31, 1995, 1994, and 1993,
respectively.
Bonds and mortgage loans held at December 31, 1995 and 1994 for which no
income was recorded for the previous twelve months totaled $20,852 and $88,000,
respectively.
At December 31, 1995 and 1994, bonds with a carrying value of $2,740,000 and
$2,748,000, respectively, were on deposit with various regulatory authorities
as required by law.
The estimated fair value of the Company's financial instruments has been
determined using available market information as of December 31, 1995 and 1994
and appropriate valuation methodologies. Considerable judgment, however, is
required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts. The admitted asset value
for bonds, commercial mortgages, and residential mortgages are $5,488,876,
$501,439, and $253,062 in 1995 and $5,134,554, $342,205, and $255,981 in 1994,
respectively. The estimated fair value for these financial instruments are
$5,821,024, $523,129, and $258,966 in 1995 and $4,919,495, $341,195, and
$255,449 in 1994, respectively.
Fair values for bonds and commercial and residential mortgages are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are estimated using values obtained from independent
pricing services which specialize in matrix pricing and modeling techniques for
estimating fair values. The admitted asset value approximates fair value for
common stock, policy loans, cash and short-term securities, and other assets.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1995 and 1994. Although management
is not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of the financial statements since the original valuation dates and therefore,
subsequent estimates of fair value may differ significantly from the amounts
presented herein.
9
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3)INVESTMENTS (CONTINUED)
The admitted asset value, gross unrealized appreciation and depreciation, and
estimated fair value of investments in bonds are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
ADMITTED ------------------------- FAIR
DECEMBER 31, 1995 ASSET VALUE APPRECIATION DEPRECIATION VALUE
- ----------------- ----------- ------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Federal government $ 241,228 $ 10,914 $ 440 $ 251,702
State and local government 26,337 3,268 0 29,605
Foreign government 861 79 0 940
Corporate bonds 3,494,386 262,214 6,542 3,750,058
Mortgage-backed securities 1,726,064 66,260 3,605 1,788,719
---------- -------- -------- ----------
Total $5,488,876 $342,735 $ 10,587 $5,821,024
========== ======== ======== ==========
<CAPTION>
GROSS UNREALIZED
ADMITTED ------------------------- FAIR
DECEMBER 31, 1994 ASSET VALUE APPRECIATION DEPRECIATION VALUE
- ----------------- ----------- ------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Federal government $ 210,335 $ 19 $ 9,983 $ 200,371
State and local government 26,493 10 1,171 25,332
Foreign government 17,691 413 20 18,084
Corporate bonds 3,325,331 41,167 167,404 3,199,094
Mortgage-backed securities 1,554,704 11,110 89,200 1,476,614
---------- -------- -------- ----------
Total $5,134,554 $ 52,719 $267,778 $4,919,495
========== ======== ======== ==========
</TABLE>
The amortized cost and estimated fair value of bonds at December 31, 1995, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ADMITTED FAIR
ASSET VALUE VALUE
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less $ 39,108 $ 39,811
Due after one year through five years 764,085 803,817
Due after five years through ten years 1,677,321 1,778,549
Due after ten years 1,282,298 1,410,128
---------- ----------
3,762,812 4,032,305
Mortgage-backed securities 1,726,064 1,788,719
---------- ----------
Total $5,488,876 $5,821,024
========== ==========
</TABLE>
10
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4)FEDERAL INCOME TAXES
The federal income tax expense varies from amounts computed by applying the
federal income tax rate of 35% to the gain from operations after dividends to
policyowners and before federal income taxes and realized capital gains. The
reasons for this difference, and the tax effects thereof, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed tax expense $36,918 $33,666 $32,260
Difference between statutory and tax basis:
Investment income (9,284) (5,853) (7,204)
Policy reserves (81) (767) (2,079)
Dividends to policyowners 1,043 593 (1,907)
Acquisition expense 7,508 9,013 8,393
Other expenses 453 2,137 3,739
Special tax on mutual life insurance companies 8,201 15,466 3,396
Other, net 1,377 (4,629) 58
------- ------- -------
Tax expense $46,135 $49,626 $36,656
======= ======= =======
</TABLE>
The Company's tax returns for 1993 through 1994 are under examination by the
Internal Revenue Service. The Company believes additional taxes, if any,
assessed as a result of these examinations will not have a material effect on
its financial position.
(5)LIABILITY FOR UNPAID ACCIDENT AND HEALTH CLAIMS AND CLAIM ADJUSTMENT
EXPENSES
Activity in the liability for unpaid accident and health claims and claim
adjustment expenses, exclusive of $96,728,000, $89,540,000, and $81,990,000,
respectively, for active life reserves, is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1 $301,352 $274,253 $246,777
Less: reinsurance recoverable 47,651 38,418 29,622
-------- -------- --------
Net balance at January 1 253,701 235,835 217,155
-------- -------- --------
Incurred related to:
Current year 95,392 91,573 85,112
Prior years 1,367 (308) 7,121
-------- -------- --------
Total incurred 96,759 91,265 92,233
-------- -------- --------
Paid related to:
Current year 26,291 23,019 22,002
Prior years 51,624 50,380 51,551
-------- -------- --------
Total paid 77,915 73,399 73,553
-------- -------- --------
Net Balance at December 31 272,545 253,701 235,835
Plus: reinsurance recoverable 72,617 47,651 38,418
-------- -------- --------
Balance at December 31 $345,162 $301,352 $274,253
======== ======== ========
</TABLE>
Incurred claims related to prior years are due to the difference between
actual and estimated claims incurred as of the prior year end.
11
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6)BUSINESS COMBINATION
On July 1, 1993, the Company entered into an "Agreement and Plan of
Reorganization" that combined all of the assets, liabilities, and surplus of
Ministers Life--A Mutual Life Insurance Company (Ministers Life) into the
Company. Ministers Life sold life and health insurance products to religious
professionals in the continental United States. The business combination
increased the Company's assets by $272,649,000, liabilities by $255,965,000 and
policyowners' surplus by $16,684,000.
(7)RELATED PARTY TRANSACTIONS
In 1993, the Company received 2,375,000 shares of common stock of the Minnesota
Fire and Casualty Company (the Casualty Company) in return for the surrender of
outstanding guaranty fund certificates totalling $21,800,000 which had
previously been charged to surplus. The surrender of the certificates and
concurrent issuance of stock were part of the Casualty Company's
"Demutualization and Stock Conversion Plan" (the Plan) approved by the
Department of Commerce. Pursuant to the Plan, the Casualty Company became a
subsidiary of the Company on December 31, 1993. The effect of the transaction
was an increase to investments in subsidiary companies and an increase to
policyowners' surplus as of December 31, 1993 of $19,171,000.
(8)PENSION PLANS AND OTHER RETIREMENT PLANS
Pension Plans
The Company has self-insured, noncontributory, defined benefit retirement plans
covering substantially all employees. The Company's funding policy is to
contribute annually the maximum amount that may be deducted for federal income
tax purposes. The Company expenses amounts as contributed. The Company made
contributions of $3,003,400 and $1,714,200 in 1995 and 1994, respectively. No
contributions were made in 1993. Information for these plans as of the
beginning of the plan year is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of accumulated benefits:
Vested $47,271 $42,849 $36,281
Nonvested 14,588 12,033 12,996
------- ------- -------
Total $61,859 $54,882 $49,277
======= ======= =======
Net assets available for benefits $85,348 $85,651 $78,952
======= ======= =======
</TABLE>
In determining the actuarial present value of accumulated benefits, the
Company used a weighted average assumed rate of return of 8.3% in 1995 and 8.4%
in 1994 and 1993.
Profit Sharing Plans
The Company also has profit sharing plans covering substantially all employees
and agents. The Company's contribution rate to the employee plan is determined
annually by the Trustees of the Company and is applied to each participant's
prior year earnings. The Company's contribution to the agent plan is made as a
certain percentage, based upon years of service, applied to each agent's total
annual compensation. The Company recognized contributions to the plans during
1995, 1994, and 1993 of $6,595,000, $6,866,000 and $6,753,000, respectively.
Participants may elect to receive a portion of their contributions in cash.
Postretirement Benefits Other than Pensions
The Company also has postretirement plans that provide certain health care and
life insurance benefits ("postretirement benefits") to substantially all
retired employees and agents. These plans are unfunded.
In 1993, the Company changed its method of accounting for the costs of its
postretirement benefit plans to the accrual method, and elected to amortize its
transition obligation for retirees and fully eligible employees and
12
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(8)PENSION PLANS AND OTHER RETIREMENT PLANS (CONTINUED)
agents over 20 years. The unamortized transition obligation was $11,203,000 and
$13,000,000 at December 31, 1995 and 1994, respectively.
The net postretirement benefit cost for the years ended December 31, 1995,
1994, and 1993, was $3,163,000, $3,202,000 and $3,832,000, respectively. This
amount includes the expected cost of such benefits for newly eligible
employees, interest cost, and amortization of the transition obligation. The
Company made payments under the plans of $575,000, $526,000, and $555,000 in
1995, 1994, and 1993, respectively, as claims were incurred.
At December 31, 1995 and 1994, the postretirement benefit obligation for
retirees and other fully eligible participants was $17,410,000 and $19,635,000,
respectively. The estimated cost of the benefit obligation for active employees
and agents who are not yet fully eligible was $9,808,000 and $13,065,000 for
1995 and 1994, respectively. The discount rate used in determining the
accumulated postretirement benefit obligation for 1995 and 1994 was 7.5%. The
1995 net health care cost trend rate was 11.0% graded to 5.5% over 11 years,
and the 1994 net health care cost rate was 11.5%, graded to 5.5% over 12 years.
The assumptions presented herein are based on pertinent information available
to management as of December 31, 1995 and 1994. Actual results could differ
from those estimates and assumptions. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would
increase the postretirement benefit obligation as of December 31, 1995 by
$1,874,000 and the estimated eligibility cost and interest cost components of
net periodic postretirement benefit costs for 1995 by $290,889.
(9)COMMITMENTS AND CONTINGENCIES
The Company reinsures certain individual and group business. At December 31,
1995 and 1994, policy reserves in the accompanying balance sheet are reflected
net of reinsurance ceded of $97,854,000 and $68,289,000, respectively. To the
extent that an assuming reinsurer is unable to meet its obligation under its
agreement, the Company remains liable.
The Company has issued certain participating group annuity and life insurance
contracts jointly with another life insurance company. The joint contract
issuer has liabilities related to these contracts of $378,475,000 as of
December 31, 1995. To the extent the joint contract issuer is unable to meet
its obligation under the agreement, the Company remains liable.
The Company has long-term commitments to fund venture capital and real estate
investments totalling $76,461,000 as of December 31, 1995. The Company
estimates that $11,650,000 of these commitments will be invested in 1996 with
the remaining $64,811,000 invested over the next five years.
At December 31, 1995, the Company had guaranteed the payment of $64,100,000
in policyowner dividends payable in 1996. The Company has pledged bonds, valued
at $66,906,000, to secure this guarantee.
The Company is contingently liable under state regulatory requirements for
possible assessment pertaining to future insolvencies and impairments of
unaffiliated companies.
(10) SURPLUS NOTES
In September 1995, the Company issued surplus notes with a face value of
$125,000,000, at 8.25%, due in 2025. The surplus notes are reported in the
Company's surplus at a statement value of $124,966,578, which represents the
face value of the notes less unamortized discount. The surplus notes are
subordinate to all current and future policyowners' interests, including
claims, and indebtedness of the Company. All payments of
interest and principal on the notes are subject to the approval of the
Department of Commerce. The unapproved accrued interest at December 31, 1995,
is $3,007,800. The issuance costs of $1,403,400 are deferred and treated as a
non-admitted asset. The deferred expense is amortized over 30 years on a
straight-line basis. Interest, discount amortization, and deferred expense
amortization are included in general insurance expenses in the statement of
operations. The Company's method of accounting for its surplus notes has been
approved by the Department of Commerce.
13
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(11) MUTUAL LIFE INSURANCE COMPANY ACCOUNTING POLICIES
In April 1993 the Financial Accounting Standards Board (FASB) issued
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises." In January 1995 the
FASB issued the statement, "Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts" and, jointly with the American Institute of Certified
Public Accountants, issued a Statement of Position (SOP), "Accounting for
Certain Insurance Activities of Mutual Insurance Enterprises." Under
Interpretation No. 40, the statement and SOP (collectively "the statements"),
mutual life insurance companies that report their financial statements in
conformity with generally accepted accounting principles will be required to
apply the statements and all related authoritative GAAP pronouncements.
The statements apply to years beginning after December 15, 1995 and will
require restatement of prior year balances. The Company plans to prepare such
financial statements as of and for the year-ended December 31, 1996 with
restatement of the then prior year financial statements. Applying the
provisions of the statements will likely result in policyholders' surplus and
net income amounts differing from the amounts included in the accompanying
financial statements. Management is in the process of determining the impact of
the adoption of GAAP.
The Company will also continue to prepare its financial statements in
accordance with statutory accounting practices prescribed or permitted by the
Department of Commerce, which will no longer be considered generally accepted
accounting principles.
14
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
SCHEDULE I
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
AMOUNT AT
WHICH SHOWN
MARKET IN THE BALANCE
TYPE OF INVESTMENT COST(4) VALUE SHEET(1)(3)
- ------------------ ---------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds:
United States government and government
agencies and authorities $ 241,228 $ 251,702 $ 241,228
States, municipalities and political
subdivisions 26,337 29,605 26,337
Foreign governments 861 940 861
Public utilities 547,229 590,445 547,229
Mortgage-backed securities 1,726,064 1,788,719 1,726,064
All other corporate bonds 2,909,767 3,116,990 2,907,107
---------- ---------- ----------
Total bonds 5,451,486 5,778,401 5,448,826
---------- ---------- ----------
Equity securities:
Common stocks:
Public utilities 17,500 23,333 23,333
Banks, trusts and insurance companies 11,950 22,358 22,358
Industrial, miscellaneous and all
other 160,443 233,662 233,662
---------- ---------- ----------
Total equity securities 189,893 279,353 279,353
---------- ---------- ----------
Mortgage loans on real estate 755,997 xxxxxx 754,501
Real estate (2) 86,646 xxxxxx 76,639
Policy loans 197,555 xxxxxx 197,555
Other long-term investments 96,080 xxxxxx 90,264
Short-term investments 51,904 xxxxxx 51,816
---------- ----------
Total $1,188,182 xxxxxx $1,170,775
---------- ----------
Total investments $6,829,561 xxxxxx $6,898,954
========== ==========
</TABLE>
- -------
(1) Debt securities are carried at amortized cost or investment values pre-
scribed by the National Association of Insurance Commissioners.
(2) The carrying value of real estate acquired in satisfaction of indebtedness
is $1,999. Real estate includes property occupied by the Company.
(3) Differences between cost and amounts shown in the balance sheet for invest-
ments, other than equity securities and bonds, represent non-admitted in-
vestments.
(4) Original cost for equity securities and original cost reduced by repayments
and adjusted for amortization of premiums or accrual of discounts for bonds
and other investments.
15
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
SCHEDULE V
SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
FUTURE POLICY
DEFERRED BENEFITS OTHER POLICY
POLICY LOSSES, CLAIMS CLAIMS AND
ACQUISITION AND SETTLEMENT UNEARNED BENEFITS
SEGMENT COSTS(1) EXPENSES(3) PREMIUMS(3) PAYABLE
- ------- ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
1995:
Life insurance $2,129,336 $37,784
Accident and
health insurance 369,273 12,724
Annuity consid-
erations 3,322,866 4
------- ---------- ------- -------
Total -- 5,821,475 -- 50,512
======= ========== ======= =======
1994:
Life insurance $1,981,469 $37,909
Accident and
health insurance 343,241 15,754
Annuity consid-
erations 3,179,279 7
------- ---------- ------- -------
Total -- 5,503,989 -- 53,670
======= ========== ======= =======
1993:
Life insurance $1,875,570 $83,365
Accident and
health insurance 317,825 14,979
Annuity consid-
erations 3,166,944 7
------- ---------- ------- -------
Total -- $5,360,339 -- $98,351
======= ========== ======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
AMORTIZATION
PREMIUMS, BENEFITS, OF DEFERRED
ANNUITY, AND NET CLAIMS, LOSSES POLICY OTHER
OTHER FUND INVESTMENT AND SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT DEPOSITS INCOME EXPENSES COSTS(1) EXPENSES WRITTEN(2)
- ------- ------------ ---------- -------------- ------------ --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1995:
Life insurance $ 789,350 $212,641 $591,775 $243,379
Accident and
health insurance 154,358 35,894 94,164 79,491
Annuity consid-
erations 529,958 276,136 713,266 55,120
---------- -------- ---------- ------- -------- -------
Total 1,473,666 524,671 1,399,205 -- 377,990 --
========== ======== ========== ======= ======== =======
1994:
Life insurance $ 802,265 $196,877 $ 608,091 $230,327 --
Accident and
health insurance 142,032 32,724 93,634 71,958
Annuity consid-
erations 480,055 259,212 652,076 52,180
---------- -------- ---------- ------- -------- -------
Total 1,424,352 488,813 1,353,801 -- 354,465 --
========== ======== ========== ======= ======== =======
1993:
Life insurance $ 718,232 $193,724 $ 538,880 $220,861
Accident and
health insurance 138,690 31,452 88,857 72,616
Annuity consid-
erations 433,032 267,835 626,181 45,463
---------- -------- ---------- ------- -------- -------
Total $1,289,954 $493,011 $1,253,918 -- $338,940 --
========== ======== ========== ======= ======== =======
</TABLE>
- -----
(1) Does not apply to financial statements of mutual life insurance companies
which are prepared on a statutory basis.
(2) Does not apply to life insurance.
(3) Unearned premiums and other deposit funds are included in future policy
benefits, losses, claims and settlement expenses.
16
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
SCHEDULE VI
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
OTHER FROM OTHER NET ASSUMED TO
GROSS AMOUNT COMPANIES COMPANIES AMOUNT NET
------------ ----------- ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1995:
Life insurance in
force $104,059,399 $15,291,357 $21,129,067 $109,897,109 19.2%
============ =========== =========== ============ ====
Premiums, annuity con-
siderations and fund
deposits:
Life insurance $ 782,558 $ 55,362 $ 62,154 $ 789,350 7.9%
Accident and health
insurance 164,683 12,724 2,399 154,358 1.6%
Annuity 529,958 -- -- 529,958 --
------------ ----------- ----------- ------------ ----
Total premiums*,
annuity considera-
tions and fund
deposits $ 1,477,199 $ 68,086 $ 64,553 $ 1,473,666 4.4%
============ =========== =========== ============ ====
1994:
Life insurance in
force $ 97,181,118 $13,314,267 $20,555,910 $104,422,761 19.7%
============ =========== =========== ============ ====
Premiums, annuity con-
siderations and fund
deposits:
Life insurance $ 792,087 $ 48,773 $ 58,951 $ 802,265 7.3%
Accident and health
insurance 150,876 10,145 1,301 142,032 0.9%
Annuity 480,055 -- -- 480,055 --
------------ ----------- ----------- ------------ ----
Total premiums*,
annuity considera-
tions and fund
deposits $ 1,423,018 $ 58,918 $ 60,252 $ 1,424,352 4.2%
============ =========== =========== ============ ====
1993:
Life insurance in
force $ 93,206,579 $11,674,202 $19,758,935 $101,291,312 19.5%
============ =========== =========== ============ ====
Premiums, annuity con-
siderations and fund
deposits:
Life insurance $ 704,172 $ 43,313 $ 57,373 $ 718,232 8.0%
Accident and health
insurance 147,229 9,699 1,160 138,690 0.8%
Annuity 433,032 -- -- 433,032 --
------------ ----------- ----------- ------------ ----
Total premiums*,
annuity considera-
tions and fund de-
posits $ 1,284,433 $ 53,012 $ 58,533 $ 1,289,954 4.5%
============ =========== =========== ============ ====
</TABLE>
- -------
* There are no premiums related to either property and liability or title
insurance.
17
