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IMMEDIATE VARIABLE ANNUITY CONTRACT
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
("VARIABLE ANNUITY ACCOUNT"), A SEPARATE ACCOUNT OF
THE MINNESOTA MUTUAL LIF E INSURANCE COMPANY ("MINNESOTA MUTUAL")
The individual, immediate 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, 408A 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 invested on a variable basis
in the Variable Annuity Account (the "Separate Account"). Although the Separate
Account is comprised of several sub-accounts, only one of its sub-accounts (the
"Sub-Account") is available under this contract. The Sub-Account invests only in
the Index 500 Portfolio (the "Portfolio") of Advantus Series Fund, Inc. (the
"Fund"). The value of the contract and the amount of each variable annuity
payment will vary in accordance with the performance of the Sub-Account and the
Portfolio, except to the extent limited by Minnesota Mutual's contractual
guarantee of a minimum annuity payment amount. The contract is an immediate
annuity and annuity payments must begin within 12 months after the contract is
issued. The contract provides for additional purchase payments and withdrawals
during a portion of the annuity payment period.
This Prospectus sets forth concisely the information that a prospective
investor should know before purchasing a contract, and it should be read and
kept for future reference. A Statement of Additional Information, bearing the
same date, which contains further 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) 665-3500, after September 1, 1998, (651)
665-3500, or by writing Minnesota Mutual at its principal office at the
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 26.
This Prospectus is not valid unless attached to a current prospectus of Advantus
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 612/665-3500
http://www.minnesotamutual.com
The date of this document and the Statement of Additional Information is: May 1,
1998.
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TABLE OF CONTENTS
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Page
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Special Terms............................................... 3
Questions and Answers About the Variable Annuity Contract... 4
Expense Table............................................... 7
Condensed Financial Information............................. 8
Performance Data............................................ 8
General Descriptions
The Minnesota Mutual Life Insurance Company............. 9
Separate Account........................................ 9
Advantus Series Fund, Inc............................... 9
Additions, Deletions or Substitutions................... 10
Contract Charges
Sales Charges........................................... 11
Risk Charge............................................. 11
Mortality and Expense Risk Charges...................... 11
Administration Charge................................... 12
Voting Rights............................................... 12
Description of the Contracts
General Provisions...................................... 12
Annuity Payments and Options............................ 14
Death Benefits.......................................... 15
Purchase Payments and Value of the Contract............. 16
Redemptions............................................. 17
Federal Tax Status.......................................... 20
Year 2000 Computer Problem.................................. 25
Statement of Additional Information......................... 26
Appendix A--Computation and Examples of Withdrawals......... 27
Appendix B--Immediate Variable Annuity Illustration......... 29
</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:
AGE: the age of a person at nearest birthday.
ANNUITANT: the person named on page one of the contract who may receive lifetime
benefits under the contract. Except in the event of the death of either
annuitant prior to the annuity payment commencement date, joint annuitants will
be considered a single entity.
ANNUITY PAYMENT COMMENCEMENT DATE: the first annuity payment date as specified
on page one of the contract.
ANNUITY PAYMENT DATE: each day indicated by the annuity payment commencement
date and the annuity payment frequency for an annuity payment to be determined.
This is shown on page one of the contract.
ANNUITY PAYMENTS: payments made at regular intervals to the annuitant or any
other payee. The annuity payments will increase or decrease in amount. The
changes will reflect the investment experience of the sub-account of the
separate account.
ANNUITY UNIT: the standard of value for the variable annuity payment amount.
BENEFICIARY: the person, persons or entity designated to receive death benefits
payable under the contract in the event of the annuitant's death.
CASH VALUE: the dollar amount available for withdrawal under the contract at any
time. A cash value exists only as long as both the number of cash value units
and the applicable factor from the cash value factor table shown in the contract
are greater than zero.
CASH VALUE PERIOD: the time during which a cash value exists under the contract.
The cash value period begins on the annuity commencement date and ends on the
cash value end date shown on page one of the contract.
CASH VALUE UNIT: the measure of your interest in the Separate Account that is
available for withdrawal under the contract during the cash value period.
CODE: the Internal Revenue Code of 1986, as amended.
CONTRACT DATE: the effective date of a contract.
FUND: Advantus Series Fund, Inc. or any mutual fund or separate investment
portfolio within a series mutual fund which is designated as an eligible
investment for the Separate Account.
GENERAL ACCOUNT: all of our assets other than those in the Separate Account or
in other separate accounts established by us.
GUARANTEED MINIMUM ANNUITY PAYMENT AMOUNT: the amount which is guaranteed as the
minimum annuity payment amount. This amount is payable regardless of the
performance of the Sub-Account. Purchase payments and cash value withdrawals
will cause this guaranteed minimum annuity payment amount to be adjusted. The
adjustment will reflect your new interest in the Separate Account.
JOINT OWNER: the person designated to share equally in the rights and privileges
provided to the owner of this contract. Only you and your spouse may be named as
a joint owner in those states where joint contracts are offered.
PLAN: a tax-qualified employer pension, profit-sharing, or annuity purchase plan
under which benefits are to be provided by the variable annuity contracts
described herein.
PURCHASE PAYMENT DATE: the date we receive a purchase payment in our home
office.
PURCHASE PAYMENTS: amounts paid to us as consideration for the benefits provided
by the contract.
SEPARATE ACCOUNT: a separate investment account entitled Minnesota Mutual
Variable Annuity Account. This separate account was established by us under
Minnesota law. The Separate Account is composed of several sub-accounts. The
assets of the Separate Account are ours. Those assets are not subject to claims
arising out of any other business which we may conduct.
SURRENDER VALUE: the surrender value of the contract shall be the total annuity
value as of the date of surrender plus the amounts deducted from purchase
payments. These include deductions for sales charges, risk charges and state
premium taxes where applicable.
TOTAL ANNUITY VALUE: the total annuity value represents your total interest in
the Separate Account.
VALUATION DATE: any date on which a Fund is valued.
VALUATION PERIOD: the period between successive valuation dates measured from
the time of one determination to the next.
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VARIABLE ANNUITY: an annuity providing for payments varying in amount in
accordance with the investment experience of the Fund.
WE, OUR, US: The Minnesota Mutual Life Insurance Company.
WRITTEN REQUEST: a request in writing signed by you. In the case of joint
owners, the signatures of both owners will be required to complete a written
request. In some cases, we may provide a form for your use. We may also require
that the contract be sent to us along with your written request.
YOU, YOUR: the owner of this contract. The owner may be the annuitant or someone
else. The owner shall be that person or entity named as owner in the
application.
1940 ACT: the Investment Company Act of 1940, as amended, or any similar
successor federal legislation.
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QUESTIONS AND ANSWERS ABOUT THE VARIABLE ANNUITY CONTRACT
WHAT IS AN ANNUITY?
An annuity is a series of payments for the life of a person or for the joint
lifetimes of the annuitant and another person and thereafter during the lifetime
of the survivor. 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 of an insurance company is called a variable annuity.
WHAT IS AN IMMEDIATE ANNUITY?
An immediate annuity is a contract which provides for annuity payments beginning
within a relatively short period after the issue of the contract. This type of
annuity is distinguished from a deferred annuity where contract values may be
left with an insurance company or separate account for some years prior to the
time that annuity payments begin. For the contract described in this Prospectus,
annuity payments must begin within 12 months from the day that the contract is
issued. In some states this period may be shortened so that the contract may be
considered to be an immediate annuity within that state.
WHAT IS THE CONTRACT OFFERED BY THIS PROSPECTUS?
The contract is an immediate, variable annuity contract which provides for
scheduled annuity payments. Annuity payments may be received on a monthly,
quarterly, semi-annual or annual basis. These payments may begin immediately and
must begin on a date within 12 months after the issue date of the contract.
Purchase payments received by us under a contract are allocated to the Separate
Account. In the Separate Account, your purchase payments are put into a
Sub-Account which invests only in the Index 500 Portfolio of the Fund.
IS THERE A GUARANTEED MINIMUM ANNUITY PAYMENT AMOUNT?
Yes. You will receive at least the guaranteed minimum annuity payment amount
specified in your contract. Each variable annuity payment will vary upwards or
downwards in accordance with the performance of the Sub-Account, however, unless
it would be less than the guaranteed minimum annuity payment amount. Under the
terms of the contract's guarantee provisions, at each annuity payment date, we
will pay the annuitant or annuitants the greater of: (a) the annuity payment
amount determined by multiplying the number of annuity units times the annuity
unit value; or (b) the guaranteed minimum annuity payment amount currently in
force for the contract.
We guarantee that variable annuity payments will always be at least 85% of the
initial variable annuity payment amount. This guaranteed amount is determined on
the contract issue date and shown on page one of the contract. If an additional
purchase payment is made, we will guarantee that variable annuity payments will
always be at least 85% of the annuity amount attributable to that additional
purchase payment, plus the amount already guaranteed at the time of that
purchase payment. Withdrawals of cash value amounts under the contract will
reduce the guaranteed annuity payment amount by the same proportion that the
withdrawal reduces the number of annuity units under the contract.
IS THE AMOUNT OF THE CASH VALUE OF THE CONTRACT GUARANTEED?
No. The cash value of the contract decreases as annuity payments are made and it
also increases or decreases based upon the performance of the Sub-Account of the
Separate Account as reflected in the annuity unit value. We do not guarantee the
performance of any Sub-Account, nor do we guarantee the annuity unit value,
which may fall
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to zero. The performance of the Sub-Account will not affect the duration of the
cash value period.
ARE THERE LIMITATIONS ON PURCHASE PAYMENTS?
Yes. A purchase payment in an amount of at least $10,000 will be required in
order for us to issue the contract. A contract will not be issued if an initial
purchase payment is tendered which is less than that amount.
After the contract has been issued, you may make additional purchase payments,
but only until the end cash value period of the contract. This period is shown
on page one of the contract. Additional purchase payments may be made only while
the annuitant is alive. Additional purchase payments must be in an amount of at
least $5,000. We will waive this contract limitation for amounts which are
received after the contract effective date as part of an integrated rollover or
Section 1035 transaction.
WHEN ADDITIONAL PURCHASE PAYMENTS ARE MADE UNDER AN EXISTING IMMEDIATE
VARIABLE ANNUITY CONTRACT, THOSE PURCHASE PAYMENTS FOR TAX PURPOSES WILL NOT
RESULT IN A RECALCULATION OF THE OWNER'S INVESTMENT IN THE CONTRACT AND A
DETERMINATION OF A NEW EXCLUSION AMOUNT. THE AMOUNT OF THOSE ADDITIONAL PURCHASE
PAYMENTS WILL BE TAXABLE WHEN DISTRIBUTED, AS AN ANNUITY OR OTHERWISE.
For more information on these matters, see the heading "Federal Tax Status,"
in this Prospectus.
WE RESERVE THE RIGHT TO SUSPEND THE SALE OF THESE CONTRACTS AND TO TERMINATE
YOUR ABILITY TO MAKE ADDITIONAL PURCHASE PAYMENTS INTO THE CONTRACT.
You may not make total purchase payments which exceed the amount of $1,000,000
except with our prior consent.
WHAT INVESTMENT OPTIONS ARE AVAILABLE FOR THE SEPARATE ACCOUNT?
Purchase payments are allocated to the Sub-Account and are invested only in
shares of the Index 500 Portfolio of the Fund. The Fund is a mutual fund of the
series type, which means that it has several different portfolios which it
offers for investment. Shares of the Index 500 Portfolio are made available at
net asset value to the Separate Account to fund the contracts. The Fund is also
required to redeem its shares at net asset value at our request. The investment
objectives and certain policies of the Index 500 Portfolio are as follows:
The 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.
There is no assurance that the Portfolio will meet its objectives. Additional
information concerning the investment objectives and policies of the Portfolio
can be found in the current prospectus for the Fund, which is attached to this
Prospectus.
ARE OTHER PORTFOLIOS AVAILABLE?
No. All Separate Account assets of these contracts are invested in the Index 500
Portfolio of the Fund.
WHAT CHARGES ARE ASSOCIATED WITH THE CONTRACTS?
Under the contract there are certain charges which are made as deductions from
purchase payments and other charges which are made directly to the assets held
in the Separate Account.
A deduction for a sales charge and a risk charge is made from purchase
payments. The sales charge is based upon the cumulative amount of total purchase
payments made under the contracts, including any new purchase payments. In
addition, for purchases of multiple contracts made by an identical owner or
owners at different times, purchase payments made under all contracts will be
aggregated solely for the purpose of determining the sales charge applicable to
those purchase payments made to later contracts. For additional information on
multiple contracts, see the heading "Federal Tax Status," on page 20 of this
Prospectus. The charges are illustrated in the table shown below.
<TABLE>
<CAPTION>
SALES CHARGE AS A
CUMULATIVE TOTAL PURCHASE PERCENTAGE OF
PAYMENTS PURCHASE PAYMENTS
- ----------------------------- ---------------------
<S> <C>
$ 0 to 499,999.99 4.500%
500,000 to 749,999.99 4.125%
750,000 to 1,000,000.00 3.750%
</TABLE>
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The risk charge is also deducted from each purchase payment when made. This
charge is for guaranteeing the minimum annuity payment amount as shown in the
contract. The risk charge may be as much as 2% of each purchase payment.
Currently, a deduction for this charge is made at the per annum rate of 1.25% of
purchase payments made to the contract. This rate is not guaranteed for future
purchase payments made under the contract and may change based upon our
experience in guaranteeing the annuity payment levels based upon the performance
of the Index 500 Portfolio of the Fund.
A deduction is made from the value of the Sub-Account on a daily basis for our
assumption of mortality and expense risks and for administrative charges under
the contract.
We deduct from the net asset value of the Separate Account an amount, computed
daily, not to exceed an annual rate of 1.40% for mortality and expense risk
guarantees. Currently, our charge for mortality and expense risk guarantees
total .80%. This total represents a charge of .55% for our assumption of
mortality risks and .25% for our assumption of expense risks. We reserve the
right to increase the charge for our assumption of mortality risks to not more
than .80% and our charge for our assumption of expense risks to not more than
.60%. If these charges are increased to this maximum amount, then the total of
the mortality risk and expense risk charges would be 1.40% on an annual basis.
For more information on these charges, please see the heading "Contract
Charges," on page 10 of this Prospectus.
In addition, Advantus Capital Management, Inc. ("Advantus Capital"), 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
agreement provides that the fee shall be computed at the annual rate which may
not exceed .40% of the Index 500 Portfolio. 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 the Fund which is attached to this Prospectus.
We deduct from the net asset value of the Separate Account an amount, computed
daily, not to exceed an annual rate of .40% for administrative expenses.
Currently, our administrative charge is .15% on an annual basis. For more
information on this item, please see the heading "Contract Charges," on page 10
of this Prospectus.
Deductions for any applicable premium taxes may also be made (currently such
taxes range from 0.0% to 3.5%) depending upon applicable law.
For more information on charges, see the heading "Contract Charges," in this
Prospectus.
CAN YOU SURRENDER THE CONTRACT?
Yes. At any time before annuity payments begin, you can surrender the contract
for its surrender value. The surrender value of the contract shall be its total
annuity value as of the date of surrender plus the amounts deducted from your
purchase payments for sales charges, risk charges and state premium taxes where
applicable.
CAN YOU MAKE WITHDRAWALS FROM THE CONTRACT?
Yes. At any time during the cash value period, you can make withdrawals of the
cash value of the contract, pursuant to your written request. Each withdrawal
must be in an amount of at least $500 or, if the cash value of the contract is
less than that amount, all of the total remaining cash value in the contract
must be withdrawn. Withdrawals are not allowed during the period before annuity
payments begin.
A withdrawal of all or a portion of the cash value of the contract, subject to
the dollar limitations described above, may be made during the "cash value
period" of the contract. The amount of the cash value available for withdrawal
is equal to: (a) times (b) times (c), where (a) is the number of cash value
units credited to the contract, (b) is the current annuity unit value and (c) is
the appropriate cash value factor set forth in a table included in the contract.
The cash value period begins at the annuity commencement date of the contract
and runs for a period approximately equal to the annuitant's life expectancy at
the time the contract is issued. The number of cash value units and the cash
value period are shown on page one of each contract. If you make subsequent
purchase payments or withdrawals a new page one of the contract will be provided
to you.
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When a withdrawal is made during the cash value period, the amount of the
annuity payment to be received by the annuitant after the withdrawal will be
recalculated and the guaranteed minimum annuity payment amount must be
redetermined as well, both of which will be adjusted downward to reflect the
withdrawal of cash values. For a description of the operation of the contract's
provisions on withdrawal and surrender see the heading "Redemptions," found on
page 17 of this Prospectus.
WHEN WITHDRAWALS ARE TAKEN FROM THE CASH VALUE, ALL AMOUNTS RECEIVED BY THE
TAXPAYER ARE TAXABLE AS ORDINARY INCOME IN THE YEAR IN WHICH THE WITHDRAWALS ARE
TAKEN. THOSE AMOUNTS ARE TAXABLE TO THE RECIPIENT WITHOUT REGARD TO THE OWNER'S
INVESTMENT IN THE CONTRACT OR ANY INVESTMENT GAIN IN THE CONTRACT. FOR MORE
INFORMATION ON THESE MATTERS, SEE THE HEADING "FEDERAL TAX STATUS," ON PAGE 20
OF THIS PROSPECTUS. CONSULT WITH YOUR TAX ADVISER.
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.
WHAT ANNUITY OPTIONS ARE AVAILABLE?
The contracts allow for the selection of one of two variable annuity options.
One provides for lifetime variable annuity payments based on the life of a
single annuitant, the other provides for the lifetime variable annuity payments
based upon the combined lives of joint annuitants.
WHAT HAPPENS IF THE ANNUITANT DIES?
If the annuitant, or one of the named joint annuitants dies before annuity
payments begin, we will pay a death benefit to you or the named beneficiary.
This death benefit will be the sum of the contract's total annuity value plus
the amounts deducted from the contract's purchase payments for sales charges,
risk charges and state premium taxes, where applicable.
If the annuitant dies after annuity payments have begun, or after the second
death in the case of joint annuitants, we will pay a death benefit which shall
be equal to the cash value, if any, of the contract as of the date of the
annuitant's death. The death benefit will be paid to the beneficiary named in
the application for the contract or as subsequently changed. In each case, the
beneficiary may elect to receive annuity payments during the remainder of the
cash value period rather than a lump sum benefit. For a description of the
calculation of the amount of those annuity payments, please see the headings
"Annuity Payments and Options" and "Death Benefits" found on pages 14 and 15 of
this Prospectus, respectively.
WHAT VOTING RIGHTS DO YOU HAVE?
Contract owners and annuitants will be able to direct us as to how to vote
shares of the Portfolio held for their contracts in the Sub-Account of the
Separate Account. For more information on this subject, please see the heading
entitled "Voting Rights," found on page 12 of this Prospectus.
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EXPENSE TABLE
The following contract expense information is intended to illustrate the
expenses of the individual, immediate 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.
INDIVIDUAL, IMMEDIATE VARIABLE ANNUITY CONTRACT
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
SALES CHARGE AS A
CUMULATIVE PERCENTAGE OF
TOTAL PURCHASE PAYMENTS PURCHASE PAYMENTS
- --------------------------------------------- --------------------
<S> <C>
$ 0 to 499,999.99...................... 4.500%
500,000 to 749,999.99...................... 4.125%
750,000 to 1,000,000.00..................... 3.750%
</TABLE>
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<TABLE>
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Risk Charge....................................... 1.25%
------
Total Contract Expenses (assuming maximum 5.75%
sales charge)...............................
------
------
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Fees*.............. 0.80%
Administrative Charge*........................ 0.15%
------
Total Separate Account Annual Expenses.... 0.95%
------
------
ADVANTUS SERIES FUND, INC. INDEX 500 PORTFOLIO
ANNUAL EXPENSES
(as a percentage of average net assets)
Index 500 Portfolio
Management Fees............................... .40%
Other Expenses................................ .05%
-----
Total Index 500 Portfolio Annual .45%
Expenses................................
-----
-----
EXAMPLE:
</TABLE>
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Whether or not you surrender your contract at
the end of the applicable time period:
You would pay the following expenses on a
$10,000 investment as of the end of the
period indicated, assuming a 5% annual
return on assets:....................... $ 709 $ 993 $ 1,297 $ 2,158
</TABLE>
*Under the terms of the contract, total mortality and expense risk fees may be
increased to as much as 1.40% (provided any necessary regulatory approvals are
obtained) and the administrative charge may be increased to as much as .40%.
These figures are based on the assumption that the contract will accumulate
value prior to the annuity payment commencement date at a 5% annual return on
assets for one, three, five and ten years, respectively. The maximum period
allowable between the issuance of a contract and the commencement of annuity
payments is one year.
The tables shown above 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 applicable law. The examples contained in this table
should not be considered a representation of past or future expenses. Actual
expenses may be greater or less than those shown.
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CONDENSED FINANCIAL INFORMATION
The financial statements of Minnesota Mutual Variable Annuity Account and the
consolidated financial statements of The Minnesota Mutual Life Insurance Company
may be found in the Statement of Additional Information. No condensed financial
information is presented as the variable annuity contract described in this
Prospectus has no accumulation units or associated information.
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PERFORMANCE DATA
From time to time the Variable Annuity Account may publish advertisements
containing performance data relating to the Sub-Account. Performance data will
consist of average annual total return quotations for recent one-year, five-year
and ten-year periods. Performance data may also include cumulative total return
quotations for the period since June 1, 1987 or average annual total return
quotations for periods other than as described above. Performance figures are
based on historical performance information on the assumption that the contracts
offered by this Prospectus were available for sale on June 1, 1987 and could
accumulate value prior to the commencement of annuity payments for
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periods in excess of one year. The figures are not intended to suggest that such
performance will continue in the future.
Average annual total return figures are the average annual compounded rates of
return required for an initial investment to equal its total annuity value at
the end of the period. The total annuity value will reflect the sales and risk
charges deducted from purchase payments as well as all other contract charges.
Cumulative total return figures are the percentage changes between the value of
an initial investment and its total annuity value at the end of the period.
Cumulative total return figures will not reflect the deduction of any amounts
from purchase payments. Cumulative total return figures will always be
accompanied by average annual total return figures. More detailed information on
the computations is set forth in the Statement of Additional Information.
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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) 665-3500, after September 1, 1998, (651) 665-3500.
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, Puerto Rico and Guam.
B. SEPARATE 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 (the "Commission") under the Investment Company Act of 1940 (the
"1940 Act"), but such registration does not signify that the Securities and
Exchange Commission supervises the management, or the investment practices or
policies, of the Separate Account. The Separate Account meets the definition of
a "separate account" under the federal securities laws.
The Minnesota law under which the Separate Account was established provides
that the assets of the Separate 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 Separate 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 Separate Account has one Sub-Account to which contract owners may allocate
purchase payments to the contracts described in this Prospectus. The only
Sub-Account which is available to the contract is that which invests in the
Index 500 Portfolio.
C. ADVANTUS SERIES FUND, INC.
The Variable Annuity Account currently invests exclusively in Advantus Series
Fund, Inc. (the "Fund"), a mutual fund of the series type which is advised by
Advantus Capital Management, Inc. Prior to May 1, 1997, the name of the Fund was
"MIMLIC Series Fund, Inc." The Fund is registered with the Securities and
Exchange Commission as a diversified, open-end management investment company
(except for Global Bond Portfolio which is operated as a non-diversified
open-end management 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 and may
be used as the underlying investment medium for separate accounts of the
Northstar Life Insurance Company, a wholly-owned life insurance subsidiary of
ours domiciled in the state of New York. Shares are sold and redeemed at net
asset value. In the case of a newly issued contract, purchases of shares of the
Portfolio 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
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Portfolio of the Fund are made at the net asset value next determined after 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 Advantus Capital Management, Inc. ("Advantus
Capital"). Advantus Capital is a wholly-owned subsidiary of MIMLIC Asset
Management Company ("MIMLIC Management") which, prior to May 1, 1997, served as
investment adviser to the Fund. MIMLIC Management is a wholly-owned subsidiary
of Minnesota Mutual. It acts as an investment adviser to the Fund pursuant to an
advisory agreement.
The only Portfolio of the Fund which is available for investment by the
contract described in this Prospectus is the Index 500 Portfolio.
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 Separate 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 total annuity values
and cash values, future purchase payments and future annuity payments.
We reserve the right to transfer assets of the separate account to another
separate account. If this type of transfer is made, the term separate account,
as used in the contract, shall then mean the separate account to which the
assets were transferred.
We may also establish additional Sub-Accounts in the Separate Account and we
reserve the right to add, combine or remove any Sub-Accounts of the Separate
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 Separate 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 Separate
Account under the Investment Company Act of 1940 (the "1940 Act"), to restrict
or eliminate any voting rights of the contract owners, and to combine the
Separate Account 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 premiums 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
Under this contract, there are certain deductions for charges which are made
from purchase payments and other charges which are made directly to the Separate
Account. Deductions from purchase payments are made for sales charges, risk
charges and state premium taxes, where applicable. Deductions for the mortality
risk charge, expense risk charge and the administrative charge are all
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deducted on each valuation date from the Separate Account.
A. SALES CHARGES
A sales charge is deducted from the purchase payments using the percentages
shown in the table below:
<TABLE>
<CAPTION>
SALES CHARGE AS A
CUMULATIVE TOTAL PURCHASE PERCENTAGE OF PURCHASE
PAYMENTS PAYMENTS
- ----------------------------- ----------------------
<S> <C>
$ 0 to 499,999.99 4.500%
500,000 to 749,999.99 4.125%
750,000 to 1,000,000.00 3.750%
</TABLE>
The applicable percentage from the chart will be based on the total cumulative
purchase payments to the date of payment, including the new purchase payment. In
addition, for purchases of multiple contracts made by an identical owner or
owners at different times, purchase payments made under all contracts will be
aggregated solely for the purpose of determining the sales charge applicable to
those purchase payments made to later contracts. For additional information on
multiple contracts, see the heading "Federal Tax Status," on page 20 of this
Prospectus.
These sales charges may be waived in whole or in part in certain circumstances
where sales expenses are not paid at the time of sale to registered
representatives and broker-dealers responsible for the sale of the contracts or
where the contract is sold in anticipation of reduced expenses in group or
group-type situations. No elimination or reduction of the sales charge will be
permitted where that reduction or elimination would be unfairly discriminatory
to any person or class of persons.
B. RISK CHARGE
A risk charge is also deducted from each purchase payment for our guarantee of
the minimum annuity payment amount shown on page one of the contract and
described herein under the heading "The Guaranteed Minimum Annuity Payment
Amount", on page 15 of this Prospectus. The risk charge may be as much as 2% of
each purchase payment. Currently, a deduction for this charge is made at the per
annum rate of 1.25% of purchase payments made to the contract. This rate is not
guaranteed for future purchase payments made under the contract and may change
based upon our experience in guaranteeing the annuity payment levels based upon
the performance of the Portfolio.
If this deduction proves to be insufficient to cover the actual cost of the
risk assumed by us in providing a guaranteed minimum as to the amount of each
variable annuity payment made under a contract, then we will absorb the
resulting losses and make sufficient transfers to the Separate 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.
C. MORTALITY AND EXPENSE RISK CHARGES
We assume the mortality risk under the contracts by our obligation to continue
to make scheduled annuity payments, determined in accordance with the annuity
rate tables and other provisions contained in the contracts, 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
scheduled annuity payments received under the contract. Actual mortality results
incurred by us shall not adversely affect any payments or values under this
contract.
We assume an expense risk by assuming the risk that deductions provided for in
the contracts for the sales and administrative expenses will be adequate to
cover our actual expenses incurred. Actual expense results incurred by us shall
not adversely affect any payments or values under this contract.
For assuming these risks, we currently make a deduction from the net asset
value of the Separate Account of an amount, computed daily, equal to an annual
rate of .80% for mortality and expense risk guarantees. This is composed of a
deduction of 0.55% for the mortality expense risk charge and 0.25% for the
expense risk charge. We reserve the right to increase the charge for the
assumption of the mortality risk to 0.80% and the assumption of expense risks to
0.60%. If these charges are increased to the maximum amount, then the total for
the mortality risk and expense risk charges would be 1.40% on an annual basis.
For a discussion of how these charges are applied in the calculation of the
annuity unit value, please see the discussion entitled "Purchase Payments and
Value of the Contract" on page 16.
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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 Separate 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 sales charge.
D. ADMINISTRATION CHARGE
We perform all administrative services relative to the contract. These services
include the review of applications for compliance with our issue criteria, the
preparation and issue of the contract, the receipt of purchase payments,
forwarding amounts to the Fund for investment, the calculation of the guaranteed
minimum annuity payment amount, the preparation and mailing of periodic reports
and the performance of other services.
As consideration for providing these services, we currently make a deduction
from the Separate Account at the annual rate of 0.15%. We reserve the right to
increase this charge, based upon our experience with these contracts, to a
maximum which shall not exceed the amount of 0.40%.
- ------------------------------------------------------------------------
VOTING RIGHTS
We will vote fund shares held in the Separate Account at the regular and special
meetings of the Fund. We will vote shares attributable to contracts in
accordance with instructions received from the annuitant or annuitants or,
during the surrender period of the contract, from the owner, if different from
the annuitants. In the event no instructions are received from the person or
persons entitled to direct such a vote, we will vote shares attributable to that
contract in the same proportion as shares of the Portfolio held by the
Sub-Account for which instructions have been received. If, however, the 1940
Act, any regulation under that Act, or any interpretations of that Act or the
regulations under it, should change so that we may be allowed to vote shares in
our own right, then we may elect to do so.
The number of votes will be determined by dividing the total annuity value for
each contract allocated to the Sub-Account by the net asset value per share of
the underlying Fund shares held by that Sub-Account. The votes attributable to
any particular contract will decrease as the reserves decrease. In determining
any voting interest, fractional shares will be recognized.
We will notify each person entitled to vote of a Fund shareholders' meeting if
the shares held for his or her contract may be voted at that meeting. We will
also provide proxy materials and a form of instruction to facilitate provision
of voting instructions.
- ------------------------------------------------------------------------
DESCRIPTION OF THE CONTRACTS
A. GENERAL PROVISIONS
1. TYPES OF CONTRACTS OFFERED
(a) Variable Annuity Contract
The contract is an individual, immediate, variable annuity contract issued
by us which provides for scheduled annuity payments on a monthly, quarterly,
semi-annual or annual basis. These payments may begin immediately and must
begin on a date within 12 months after the issue date of the contract.
Purchase payments received by us under a contract are allocated to the
Separate Account. In the Separate Account, your purchase payments are put
into a Sub-Account which are then invested in the Portfolio.
This type of contract may be used in connection with a pension or profit
sharing plan under which plan contributions have been accumulating. It may
be used in connection with a plan which has previously been funded with
insurance or annuity contracts. It may also be purchased by individuals not
as a part of any qualified plan. The contract provides for a variable
annuity which is paid on the basis of a single or joint life annuity. Once
made, the annuity option elected may not be changed.
2. ISSUANCE OF CONTRACTS
The contracts are issued to you, the contract owner named in the application.
The owner of the contract may be the annuitant or someone
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<PAGE>
else and the contract may be owned by two persons jointly. In some states, we
may not offer joint contracts.
3. MODIFICATION OF THE CONTRACTS
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. Such a modification will be in writing. You will have the
right to accept or reject the modification, except in circumstances where, when
the contract is used in a tax-qualified arrangement, and the change is required
to conform the contract with tax laws or regulations.
4. ASSIGNMENT
The annuitant, or the joint annuitants, can direct or assign the annuity
payments to be made under the contract so that they are paid to someone else. We
will not be bound by any assignment until we have recorded a written request 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 before it was
recorded. Any claim made by an assignee will be subject to proof of the
assignee's interest and the extent of the 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 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. To
the maximum extent permitted by law, benefits payable under the contract shall
be exempt from the claims of creditors.
5. LIMITATIONS ON PURCHASE PAYMENTS
Purchase payments must be made at our home office. Our home office is at 400
Robert Street North, St. Paul, Minnesota 55101-2098. When we receive a purchase
payment from you at our home office, we will send you a confirmation statement
and an updated page one for the contract.
A purchase payment in an amount of at least $10,000 will be required in order
for us to issue the contract. A contract will not be issued if an initial
purchase payment is made which is less than that amount.
After the contract has been issued, you may make additional purchase payments,
but only during the cash value period of the contract as shown on page one.
These additional purchase payments may be made only while the annuitant is
alive. Additional purchase payments must be in an amount of at least $5,000. We
will waive this contract provision for amounts which are received after the
contract effective date as part of an integrated rollover or Section 1035
transaction. When additional purchase payments are made, those purchase payments
will not result in a recalculation of the owner's investment in the contract and
a determination of a new exclusion amount. For more information on these
matters, see the heading "Federal Tax Status," in this Prospectus. You may also
wish to consult with your tax adviser. WE RESERVE THE RIGHT TO SUSPEND THE SALE
OF THESE CONTRACTS AND TO TERMINATE YOUR ABILITY TO MAKE ADDITIONAL PURCHASE
PAYMENTS INTO THE CONTRACT.
You may not make total purchase payments which exceed the amount of $1,000,000
except with our prior consent.
Some states will limit these contracts to a single purchase payment and
contracts issued there are so limited.
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 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.
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<PAGE>
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 will take the form of the purchase
of additional annuity units.
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 annuitant or the joint
annuitants, and (b) the investment performance of the Sub-Account. 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 on each scheduled annuity payment date. The value of
such units, and thus the amount of each scheduled annuity payment will reflect
investment gains and losses and investment income of the Portfolio. The amount
of the annuity payment may increase or decrease from one annuity payment date to
the next unless affected by the guaranteed minimum annuity payment amount.
2. ELECTING THE ANNUITY COMMENCEMENT DATE
The contracts are issued as immediate annuities on the contract date. When you
purchase a contract, you must indicate the annuity commencement date which, in
any event, must be within 12 months from the contract date. Some jurisdictions
may restrict this time limit to a shorter period.
An annuity payment may begin on any day of the month. Annuity payments may be
received on a monthly, quarterly, semi-annual or annual basis.
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. ANNUITY FORMS
The contracts provide for two lifetime annuity forms, a life annuity or a joint
and last survivor annuity. Each annuity payment option is available only as a
variable annuity. No additional optional annuity forms are provided or allowed
under the contracts.
LIFE ANNUITY
This is a scheduled annuity payable during the lifetime of the annuitant.
Annuity payments terminate with the last scheduled payment preceding the death
of the annuitant if the annuitant's death occurs after the cash value period has
expired. If the annuitant dies during the cash value period, the beneficiary
will be paid a death benefit that permits the beneficiary to elect to continue
receiving payments until the end of the cash value period or to withdraw some or
all of the cash value amount. Annuity payment amounts payable as a death benefit
will be reduced for any cash value withdrawals received by the beneficiary.
JOINT AND LAST SURVIVOR ANNUITY
This is a scheduled annuity payable during the joint lifetime of the annuitant
and a designated joint annuitant and continuing thereafter during the remaining
lifetime of the survivor. If the last surviving annuitant dies during the cash
value period, the beneficiary will be paid a death benefit that permits the
beneficiary to elect to continue receiving payments until the end of the cash
value period or to withdraw some or all of the cash value. Annuity payment
amounts payable as a death benefit will be reduced for any cash value
withdrawals received by the beneficiary. If this option is elected, the contract
and payments shall then be the joint property of the annuitant and the
designated joint annuitant.
The amount of the first scheduled payment depends on the annuity form elected
and the age of the annuitant and the joint annuitant, if any.
4. DETERMINATION OF AMOUNT OF VARIABLE ANNUITY PAYMENTS
Unless annuity payments are based on the guaranteed minimum annuity payment
amount, the dollar amount of each variable annuity payment is equal to the
number of annuity units credited to the contract multiplied by the annuity unit
value as of the due date of the payment. A number of annuity units is credited
at issuance of the contract based upon the initial annuity payment amount
attributable to the initial purchase payment received for the
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<PAGE>
contract. The number of annuity units to be credited is determined by dividing
the initial annuity payment amount by the annuity unit value as of the contract
date. The number of annuity units remains unchanged except as adjusted for
additional purchase payments, cash value withdrawals or an annuitant's death.
For further information on the crediting of annuity units, see "Crediting
Annuity and Cash Value Units" below.
The initial annuity payment amount is determined by applying the purchase
payment, net of deductions, to the appropriate annuity purchase rate per $1,000.
Deductions from purchase payments may include premium taxes imposed by certain
states depending upon the type of plan involved. Where applicable, these taxes
currently range from 0% to 3.5%.
The initial annuity payment amount depends on the annuity form elected and
upon the adjusted age of the annuitant and the joint annuitant, if any. A
formula for determining the adjusted age of persons receiving contract payments
is contained in the contract. The initial annuity payment amount is also based
upon annuity payment purchase rate tables which assume an interest rate of 4.5%
per annum. The 4.5% interest rate assumed in the variable annuity determination
will produce level annuity payments if the net investment performance remains
constant at 4.5% per year. Subsequent payments will decrease, remain the same or
increase depending upon whether the actual net investment performance is less
than, equal to, or greater than 4.5%.
The amount of the first annuity payment after the initial purchase payment, or
after an addition or withdrawal, may be different than the initial annuity
payment amount used to determine the number of annuity units credited at the
time of that transaction. The actual annuity payment amount on any due date is
the number of annuity units multiplied by the annuity unit value on the due date
of the payment or the guaranteed minimum annuity payment amount, if that amount
is greater. The annuity unit value recognizes the net sub-account performance
between the date of a transaction and the date the annuity payment is calculated
for payment.
5. AMOUNT OF SECOND AND SUBSEQUENT SCHEDULED ANNUITY PAYMENTS
Unless annuity payments are based on the guaranteed minimum annuity payment
amount, the dollar amount of the second and later variable annuity payments is
equal to the number of annuity units determined for the 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 payment to payment.
6. THE GUARANTEED MINIMUM ANNUITY PAYMENT AMOUNT
You will receive at least the guaranteed minimum annuity payment amount
specified in your contract. Each variable annuity payment will vary upwards or
downwards in accordance with the performance of the Sub-Account unless it would
be less than the guaranteed minimum annuity payment amount. Under the terms of
the contract's guarantee provisions, at each annuity payment date, we will pay
the annuitant or annuitants the greater of: (a) the annuity payment amount
determined by multiplying the number of annuity units times the annuity unit
value; or (b) the guaranteed minimum annuity payment amount currently in force
for the contract.
We guarantee that variable annuity payments will always be at least 85% of the
initial variable annuity payment amount. This guaranteed amount is determined on
the contract issue date and shown on page one of the contract. If an additional
purchase payment is made, we will guarantee that variable annuity payments will
always be at least 85% of the annuity amount attributable to that additional
purchase payment, plus the amount already guaranteed at the time of that
purchase payment. Withdrawals of cash value amounts under the contract will
reduce the guaranteed annuity payment amount by the same proportion that the
withdrawal reduces the number of annuity units under the contract.
C. DEATH BENEFITS
The contracts provide that in the event of the death of the annuitant or a joint
annuitant before the annuity commencement date, a death benefit will be paid to
you or, if applicable, to your beneficiary. This death benefit will be paid when
we receive due proof, satisfactory to us, of the death at our home office. This
death benefit will be the sum of the total annuity value of the contract plus
the amounts deducted from your purchase payments for sales charges, risk charges
and state premium taxes where applicable. Death proceeds will be paid in a
single sum to the beneficiary designated to receive a lump sum benefit. Payment
will be made within seven days after we receive due proof of death. Except as
noted below, the
15
<PAGE>
entire interest in the contract must be distributed within five years of an
owner's death.
The contracts provide that in the event of the death of the annuitant or the
second joint annuitant after annuity payments have begun, we will pay the cash
value of the contract, if any, as a lump sum death benefit. The beneficiary will
be the person or persons named in the application for this contract or as
subsequently changed by you. In that event, we will pay the death benefit to the
beneficiary named in your last change of beneficiary request as provided for in
the contract.
If you are not an annuitant and you die, or if any joint owner who is not an
annuitant dies, a death benefit will be paid. This death benefit will be the
same amount as the amount that would be paid on the death of the annuitant or
joint annuitant and will be paid out in the same manner, except that if death
occurs before the annuity payment commencement date, such death benefit will be
paid out within five years of the date of death. On the payment of such a death
benefit in the event of the death of the owner, no other contract benefits are
then payable.
You can file a written request with us to change the beneficiary. Your written
request will not be effective until it is recorded in our home office records.
After it has been recorded, it will take effect as of the date you signed the
request. However, if a death occurs before the request has been recorded, the
request will not be effective as to any death proceeds we have paid before the
request was recorded in our home office. If a beneficiary dies, that
beneficiary's interest in a contract ends with his or her death. Only those
beneficiaries who survive will be eligible to share in the amount payable to the
beneficiary at the annuitant's death. If there is no surviving beneficiary upon
the death of the annuitant, any remaining value of death benefit payable to the
beneficiary will be paid to the annuitant's estate.
If the death benefit is payable after annuity payments have begun, the
beneficiary may elect to receive annuity payments during the remainder of the
cash value period rather than a lump sum benefit. However, the number of annuity
units will be set as a number equal to the number of cash value units as of the
date of the annuitant's death. The annuity payments to the beneficiary will
terminate at the end of the cash value period and the guaranteed minimum annuity
payment amount will be adjusted in proportion to any change in the number of
annuity units. The new guaranteed minimum annuity payment amount will be equal
to the guaranteed minimum annuity payment amount just prior to the annuitant's
death, multiplied by the number of annuity units after the annuitant's death
divided by the number of annuity units prior to the annuitant's death.
If the beneficiary elects to continue the annuity payments, the cash value
will also continue on the beneficiary's behalf as part of the death benefit.
This allows the beneficiary to withdraw any or all of the cash value available
at any time during the remaining cash value period. As with cash value
withdrawals while the annuitant is alive, cash value withdrawals by the
beneficiary after the annuitant's death will reduce future annuity payments and
the guaranteed minimum annuity payment amount based on the reduced interest in
the Separate Account as described under the heading "Withdrawals and Surrender"
on page 17 of this Prospectus.
Death benefits payable after the annuitant's death must be distributed at
least as rapidly as under the method elected by the annuitant or annuitants.
D. PURCHASE PAYMENTS AND VALUE OF THE CONTRACT
1. CREDITING ANNUITY AND CASH VALUE UNITS
Application forms are completed by the applicant and forwarded to our home
office when the contract is originally issued. 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. The initial purchase payment for the
contract must be an amount of at least $10,000.
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 and
accepted. We will offer to return the initial purchase payment accompanying an
incomplete application if it appears that the application cannot be completed
within five business days.
Purchase payments will be credited to the contract in the form of annuity
units and cash value units. 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, except for the initial purchase payment. The
number of annuity and cash value units credited with respect to each purchase
payment is
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determined by dividing the initial annuity payment amount attributable to the
purchase payment by the then current annuity unit value for the Sub-Account on
the date the purchase payment is credited.
The net amount of each purchase payment, after deductions, will be applied to
purchase an additional initial annuity payment amount at least as great as that
determined by using the guaranteed annuity payment purchase rate table for new
purchase payments included in the contract. The guaranteed annuity payment
purchase rates used for new purchase payments as shown in the contract are based
on a 4.5% assumed interest rate and Individual Annuity 1983 Table A mortality
rates projected to the terminal age of the table using projections scale G. If,
when a purchase payment is made, we are using a table of annuity payment
purchase rates for new purchase payments for this class of contract which would
result in a larger initial annuity payment, we will use that table instead.
The number of annuity and cash value units so determined shall not be changed
by any subsequent change in the value of a unit, but the value of a unit will
vary from valuation date to valuation date to reflect the investment experience
of the Sub-Account.
We will determine the value of annuity units on each day on which the
Portfolio of the Fund is valued.
Cash value units will be credited for each purchase payment in a number equal
to the number of annuity units credited for each respective purchase payment.
2. TOTAL ANNUITY VALUE OF THE CONTRACT
The total annuity value of the contract at any time is the present value of the
future annuity payments expected to be made under the contract. The total
annuity value represents your total interest in the Separate Account.
When the annuitant is alive, the total annuity value is equal to the sum of
the number of cash value units, multiplied by the annuity unit value, multiplied
by the appropriate factor from the total annuity value factor table(s) included
in the contract; plus the number of annuity units in excess of the number of
cash value units, multiplied by the annuity unit value, multiplied by the
appropriate factor from the total annuity value factor table(s) included in the
contract.
After the annuitant's death, if the beneficiary elects to continue annuity
payments for the remainder of the cash value period, the total annuity value
will be equal to the cash value at all times during the cash value period.
3. VALUE OF THE ANNUITY UNIT
The value of an annuity unit for the Sub-Account is determined on each valuation
date by using the product of: (a) the value of an annuity unit on the preceding
valuation date, (b) the net investment factor for the Sub-Account for the
valuation period ending on the current valuation date, and (c) a daily factor
(.999879) which adjusts the value for the effect in the valuation period of the
4.5% annual assumed interest rate that has already been built into each
contract's total annuity value, cash value and annuity payment calculations.
4. 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 the Sub-Account, the
net investment factor for a valuation period is the gross investment rate for
the valuation period, less a deduction for the mortality and expense risk
charges and the administrative charge at the current rate of 0.95% per annum.
The gross investment rate is equal to: (1) the net asset value of a Portfolio
share 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 of a Portfolio share determined at the end of the
preceding valuation period. The gross investment rate may be positive or
negative.
E. REDEMPTIONS
1. WITHDRAWALS AND SURRENDER
Withdrawals are not allowed prior to the "cash value period" which commences
when annuity payments begin. At any time during the cash value period of the
contract, you may request a withdrawal from the cash value of the contract. Each
withdrawal must be in an amount of at least $500 or, if the cash value of the
contract is less than that amount, the total of any remaining cash value in the
contract must be withdrawn. Other restrictions on withdrawals may be present
when the contract is used in conjunction with tax qualified programs. See the
heading "Federal Tax Status," on page 20 in this Prospectus. You must make a
written request for any withdrawal or surrender.
You may surrender the contract at any time before the annuity payment
commencement
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date. The annuity payment commencement date is the day the first annuity payment
is made under the contract and it is the beginning of the cash value period. If
you make a surrender request, you will receive the contract's surrender value.
The surrender value will be determined on the valuation date coincident with or
next following the day your written request is received at our home office.
Withdrawal or surrender proceeds will be paid in a single sum within seven
days of our receipt of your written request.
(a) Determination of Surrender Value
The surrender value of a contract is the total annuity value of the contract
as of the date of surrender plus the amounts deducted from your purchase
payments for sales charges, risk charges and state premium taxes where
applicable. As this surrender value is available only until the time the
first annuity payment is made under the contract, this provision has the
effect of providing a return of your contract's charges, the net purchase
payments, plus or minus investment gains or losses and less Separate Account
charges, up until the time of that payment. As the maximum period of
deferral is 12 months after the Contract Date, this provision offers a
benefit which is limited in time.
(b) Determination of Cash Value
The cash value of the contract is not guaranteed. The cash value decreases
as annuity payments are made, but also increases or decreases based on the
performance of the Sub-Account of the Separate Account given by the relative
change in the annuity unit value.
A withdrawal of all or a portion of the cash value of the contract, subject
to the dollar limitations described above, may be made during the "cash
value period" of the contract. The amount of the cash value available for
withdrawal is equal to: (a) times (b) times (c), where (a) is the number of
cash value units credited to the contract, (b) is the current annuity unit
value and (c) is the appropriate cash value factor set forth in a table in
the contract. The cash value period begins at the annuity payment
commencement date of the contract and runs for a period approximately equal
to the annuitant's life expectancy at the time the contract is issued. The
number of cash value units and the cash value period are shown on page one
of the contract. A new page one will be provided to you if you make
subsequent purchase payments or withdrawals. This will inform you of the
number of cash value units remaining in your contract.
The number of cash value units credited under a contract is based on
purchase payments to, and cash withdrawals from, the contract. On the issue
date of the contract the number of cash value units will be equal to the
number of annuity units credited to the contract. (The crediting of annuity
units is discussed under the heading "Crediting Annuity and Cash Value
Units" found on page 16 in this Prospectus.) Normally, withdrawals will
reduce both the number of cash value units and the number of annuity units
but at different rates, so that after a withdrawal the number of cash value
units will no longer equal the number of annuity units. For a description of
the manner in which withdrawals affect the cash value of the contract, see
"Effect of Withdrawals on Cash Value," below.
(c) Effect of Withdrawals on Cash Value
A withdrawal during the cash value period reduces the number of cash value
units of the contract. The new number of cash value units after a withdrawal
is equal to the number of cash value units just prior to the withdrawal,
multiplied by the cash value prior to withdrawal, less the cash value
withdrawn, divided by the cash value prior to withdrawal. Cash value units
are reduced on a last in, first out basis. Therefore, if additional purchase
payments were made to the contract after its issue, the value of the cash
value units attributable to those payments will be valued and cashed out as
withdrawals first, running backwards in time until the values attributable
to the initial purchase payment are reached.
(d) Annuity Payment Determinations after Withdrawals
A cash value withdrawal will affect future annuity payments by reducing the
number of annuity units, the basis for determining the amount of such
payments. The new number of annuity units following a cash value withdrawal
will depend on whether or
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not the annuitant is alive at the time the cash value withdrawal is made. If
the annuitant is not alive, in other words if the withdrawal is made by the
beneficiary as part of the death benefit, the new number of annuity units
will equal the number of cash value units following the withdrawal. At the
death of the annuitant, the number of annuity units is adjusted, if
necessary, to equal the then number of cash value units, and this
equivalency is continued through any subsequent cash value withdrawals.
If the annuitant is alive at the time of the withdrawal, the adjustment of
subsequent annuity payments that occurs after a withdrawal is designed to
produce a new level of annuity payments--assuming a rate of return exactly
equal to 4.5%--over the remaining lifetime of the contract, including the
period after the end of the cash value period. After such a withdrawal,
there will be less cash value to support benefit payments during the cash
value period, so that the same level of annuity payments as before the
withdrawal cannot be maintained during the cash value period. In order to
levelize payments-- again, based on the assumption of a 4.5% return--both
before and after the end of the cash value period, it is necessary to
"redistribute" annuity payments, reducing payments after the end of the cash
value period and using the portion of the excess reserves attributable to
the reduction to increase payments during the cash value period above the
level that could be supported by the remaining cash value alone to the level
payable after the cash value period. (As a result, even if all of a
contract's cash value is withdrawn, annuity payments will continue to be
made, although at a considerably reduced level.)
If the annuitant is alive at the time of the withdrawal, annuity payments
after a withdrawal are determined as follows. When a withdrawal occurs, the
total annuity value of the contract is recomputed by adding the sum of the
new cash value immediately after the withdrawal and the contract's excess
reserves. The new total annuity value is then converted into a new "initial
annuity payment amount," based on tables set forth in the contract, and the
new initial annuity payment amount is in turn converted into annuity units
by dividing it by the annuity unit value on the date of the withdrawal. The
tables are actuarially computed to produce a level annuity payment for the
remaining lifetime of the contract based on an interest rate of 4.5% and the
mortality rates originally applied to purchase payments received under the
contract (which cannot be less favorable than the Individual Annuity 1983
Table A mortality rates projected to the terminal age of the table using
projection scale G). When a cash value withdrawal is made, we will inform
you of the new number of annuity units by sending you a new page one for
your contract.
Redistribution of annuity payments after withdrawals do not adjust
redistributions made in connection with prior withdrawals. Despite
redistributions, the original mortality guarantees associated with each
purchase payment are preserved.
While annuity payments will be reduced as a result of cash value
withdrawals, so long as the annuitant is alive, annuity payments will never
be eliminated by cash value withdrawals even if all available cash value is
completely withdrawn. Some level of annuity benefit, under the option
elected, will always be payable. Also, a new guaranteed annuity amount will
always be in effect after cash withdrawals. While a new initial annuity
payment amount is determined after a cash withdrawal, additional cash values
are not created.
A description of the computation used to determine the new initial annuity
payment amount and examples of the computation are set forth in Appendix A
of this Prospectus.
For an example which assumes a pattern of withdrawals and the effect of such
withdrawals on contract values, please see Appendix A to this Prospectus.
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 your intention to cancel. If the contract is canceled and
returned, we will refund to you the greater of (a) the total annuity value of
the contract attributable to your purchase payments, plus the amounts deducted
from your purchase payments, or
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(b) the amount of purchase payments paid under this contract. Payment of the
requested refund will be made to you within seven days after we receive notice
of cancellation.
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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. The contract may be purchased on a non-tax qualified
basis ("Nonqualified Contract") or purchased and used in connection with certain
retirement arrangements entitled to special income tax treatment under Section
401(a), 403(b), 408, 408A or 457 of the Code ("Qualified Contracts"). The
ultimate effect of federal income taxes on the amounts held under a contract on
annuity payments, and on the economic benefit to the contract owner, the
annuitant, or the beneficiary may depend on the tax status of the individual
concerned.
We are taxed as a "life insurance company" under the Internal Revenue Code.
The operations of the Separate 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 Separate Account or on capital gains arising
from the Separate Account's activities. The Separate 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, 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. There is an exception to this general rule for immediate
annuity contracts. An immediate annuity contract for these purposes is an
annuity (i) purchased with a single premium or annuity consideration, (ii) the
annuity starting date of which commences within one year from the date of the
purchase of the annuity, and (iii) which provides for a series of substantially
equal periodic payments (to be made not less frequently than annually) during
the annuity period. Corporations, trusts and other similar entities, other than
natural persons, seeking to take advantage of this exception for immediate
annuity contracts should consult with a tax adviser.
Under current guidance, the tax consequences of additional premium payments
and partial withdrawals under nonqualified and qualified annuities are unclear,
including the effect on taxation of distributions, required distribution
provisions and penalty taxes. Consult a qualified tax adviser before submitting
additional premium payments or requesting a partial withdrawal.
For payments made in the event of a full surrender of an annuity not part of a
qualified program, the taxable portion is generally the amount in excess of the
cost basis of the contract. Amounts withdrawn from the variable annuity
contracts are generally 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 tax qualified
retirement plan, 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 a specific dollar amount of each payment that is not taxed. In
this respect, Congress has indicated that the Treasury Department may have
authority to treat the
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combination purchase of an immediate annuity contract and a separate deferred
annuity contract as a single annuity contract under its general authority to
prescribe rules as may be necessary to enforce the income tax laws. A
prospective purchaser of more than one annuity contract in a calendar year
should consult a tax adviser. The taxable part of each annuity payment is taxed
at ordinary income rates.
If a taxable distribution is made under the variable annuity contracts, an
additional tax of 10% of the amount of the taxable distribution may apply. This
additional tax does not apply where the payment is made under an immediate
annuity contract, as defined above, or 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 an owner, and in certain other circumstances.
The Code also provides an exception to the 10% additional tax for
distributions, in periodic payments, of substantially equal installments, being
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.
NOTICE -- PLEASE READ CAREFULLY
WE HAVE BEEN ADVISED THAT IT IS THE POSITION OF THE INTERNAL REVENUE SERVICE
THAT WHEN WITHDRAWALS (OTHER THAN ANNUITY PAYMENTS) ARE TAKEN FROM THE CASH
VALUE OF AN IMMEDIATE VARIABLE ANNUITY CONTRACT, SUCH AS THAT OFFERED BY THIS
PROSPECTUS, THEN ALL AMOUNTS RECEIVED BY THE TAXPAYER ARE TAXABLE AT ORDINARY
INCOME RATES AS AMOUNTS "NOT RECEIVED AS AN ANNUITY." IN ADDITION, SUCH AMOUNTS
ARE TAXABLE TO THE RECIPIENT WITHOUT REGARD TO THE OWNER'S INVESTMENT IN THE
CONTRACT OR ANY INVESTMENT GAIN WHICH MIGHT BE PRESENT IN THE CURRENT ANNUITY
VALUE. FOR EXAMPLE, UNDER THIS VIEW, A CONTRACT OWNER WITH A CASH VALUE OF
$100,000, SEEKING TO OBTAIN $20,000 OF THE CASH VALUE IMMEDIATELY AFTER ISSUE,
WOULD PAY INCOME TAXES ON THE ENTIRE $20,000 AMOUNT IN THAT TAX YEAR. FOR SOME
TAXPAYERS, SUCH AS THOSE UNDER AGE 59 1/2, ADDITIONAL TAX PENALTIES MAY ALSO
APPLY. THIS ADVERSE TAX RESULT MEANS THAT OWNERS OF NONQUALIFIED CONTRACTS
SHOULD CONSIDER CAREFULLY THE TAX IMPLICATIONS OF ANY WITHDRAWAL REQUESTS AND
THEIR NEED FOR CONTRACT FUNDS PRIOR TO THE EXERCISE OF THIS RIGHT. CONTRACT
OWNERS SHOULD ALSO CONTACT THEIR TAX ADVISER PRIOR TO MAKING WITHDRAWALS.
IN ADDITION, WE HAVE BEEN ADVISED THAT IT IS THE POSITION OF THE INTERNAL
REVENUE SERVICE THAT WHEN ADDITIONAL PURCHASE PAYMENTS ARE MADE UNDER AN
EXISTING IMMEDIATE VARIABLE ANNUITY CONTRACT, SUCH AS THAT OFFERED BY THIS
PROSPECTUS, THOSE PURCHASE PAYMENTS WILL NOT RESULT IN A RECALCULATION OF THE
OWNER'S INVESTMENT IN THE CONTRACT AND A DETERMINATION OF A NEW EXCLUSION
AMOUNT. FOR EXAMPLE, A CONTRACT OWNER AGED 60 MIGHT PURCHASE A CONTRACT FOR THE
SUM OF $100,000, WHICH WOULD RESULT IN AN INITIAL LIFETIME ANNUITY PAYMENT OF
$460.00 PER MONTH. EACH YEAR, $4,132.23 WOULD BE RECEIVED AS A RETURN OF
INVESTMENT IN THE CONTRACT AND THE EXCESS WOULD BE TAXED AS ORDINARY INCOME. IF
WE ASSUME THAT THE CONTRACT OWNER MAKES AN ADDITIONAL PURCHASE PAYMENT OF
$20,000, THE EXCLUSION AMOUNT OF $4,123.23 WOULD NOT CHANGE, EVEN THOUGH
ADDITIONAL CASH VALUE WILL RESULT IN A NEW VARIABLE ANNUITY PAYMENT. THIS
POSITION OF THE SERVICE WILL RESULT IN THE OWNER'S INABILITY TO RECOVER HIS OR
HER INVESTMENT OVER THE PERIOD OF THE PAYMENTS. ACCORDINGLY, CONTRACT OWNERS,
ESPECIALLY THOSE INTENDING TO MAKE SUBSTANTIAL AND MATERIAL ADDITIONAL PAYMENTS,
SHOULD CONSIDER PURCHASING AN ADDITIONAL CONTRACT INSTEAD OF MAKING AN
ADDITIONAL PAYMENT. FOR FURTHER INFORMATION YOU SHOULD CONSULT YOUR OWN
QUALIFIED 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 Separate Account to be
"adequately diversified" in order for the contract to be treated as a life
insurance contract for federal tax purposes. The Separate Account, through the
Fund, intends to comply
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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 the Portfolio of the Fund in which the Separate 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 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 respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets.
These differences could result in a contract owner being treated as the owner of
the assets of the Separate 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 Separate 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 an 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. For these purposes, the investment in the contract is not
affected by the owner's death. That is, the
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investment in the contract remains the amount of any purchase payments paid
which were not excluded from gross income.
POSSIBLE CHANGES IN TAXATION
Legislation has been proposed in 1998 that, if enacted, would adversely modify
the federal taxation of certain insurance and annuity contracts. For example,
one proposal would tax transfers among investment options and tax exchanges
involving variable contracts. A second proposal would reduce the "investment in
the contract" under cash value life insurance and certain annuity contracts by
certain amounts, thereby increasing the amount of income for purposes of
computing gain. Although the likelihood of there being any change is uncertain,
there is always the possibility that the tax treatment of the contracts could
change by legislation or other means. Moreover, it is also possible that any
change could be retroactive (that is, effective prior to the date of the
change). You should consult a tax adviser with respect to legislative
developments and their effect on the contract.
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; 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. Some retirement plans are
subject to distribution and other requirements that are not incorporated in the
annuity. 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 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. For qualified plans under Section 401(a), 403(b) and 457, the Code
requires that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the owner (or
plan participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the Code), distributions generally must begin no later than April 1
of the calendar year following the calendar year in which the owner (or plan
participant) reaches age 70 1/2. For IRAs described in Section 408,
distributions generally must commence no later than April 1 of the calendar year
following the calendar year in which the owner (or plan participant) reaches age
70 1/2. Roth IRAs under Section 408A do not require distributions at any time
prior to the owner's death.
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
Section 408 of the Code permits eligible individuals to contribute to an
Individual Retirement Annuity, hereinafter referred to as an "IRA". Also,
distributions from certain other types of qualified plans may be "rolled over"
on a tax-deferred basis into an IRA. The sale of a
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contract for use with an IRA may be subject to special disclosure requirements
of the Internal Revenue Service. Purchasers of a contract for use with IRAs will
be provided with supplemental information required by the Internal Revenue
Service or other appropriate agency. Such purchasers will have the right to
revoke their purchase within 7 days of the earlier of the establishment of the
IRA or their purchase. A Qualified Contract issued in connection with an IRA
will be amended as necessary to conform to the requirements of the Code.
Purchasers should seek competent advice as to the suitability of the contract
for use with IRAs.
Earnings in an IRA are not taxed until distribution. IRA contributions are
limited each year to the lesser of $2,000 or 100% of the owner's adjusted gross
income and may be deductible in whole or in part depending on the individual's
income. The limit on the amount contributed to an IRA does not apply to
distributions from certain other types of qualified plans that are "rolled over"
on a tax-deferred basis into an IRA. Amounts in the IRA (other than
nondeductible contributions) are taxed when distributed from the IRA.
Distributions prior to age 59 1/2 (unless certain exceptions apply) are subject
to a 10% penalty tax.
SIMPLIFIED EMPLOYEE PENSION (SEP) IRAS
Employers may establish Simplified Employee Pension (SEP) IRAs under Code
Section 408(k) to provide IRA contributions on behalf of their employees. In
addition to all of the general Code rules governing IRAs, such plans are subject
to certain Code requirements regarding participation and amounts of
contributions.
SIMPLE IRAS
Beginning January 1, 1997, certain small employers may establish Simple IRAs as
provided by Section 408(p) of the Code, under which employees may elect to defer
up to $6,000 (as increased for cost of living adjustments) as a percentage of
compensation. The sponsoring employer is required to make a matching
contribution on behalf of contributing employees. Distributions from a Simple
IRA are subject to the same restrictions that apply to IRA distributions and are
taxed as ordinary income. Subject to certain exceptions, premature distributions
prior to age 59 1/2 are subject to a 10% penalty tax, which is increased to 25%
if the distribution occurs within the first two years after the commencement of
the employee's participation in the plan.
ROTH IRAS
Effective January 1, 1998, Section 408A of the Code permits certain eligible
individuals to contribute to a Roth IRA. Contributions to a Roth IRA, which are
subject to certain limitations, are not deductible and must be made in cash or
as a rollover or transfer from another Roth IRA or other IRA. A rollover from or
conversion of an IRA to a Roth IRA may be subject to tax and other special rules
may apply. You should consult a tax adviser before combining any converted
amounts with any other Roth IRA contributions, including any other conversion
amounts from other tax years. Distributions from a Roth IRA generally are not
taxed, except that, once aggregate distributions exceed contributions to the
Roth IRA, income tax and a 10% penalty tax may apply to distributions made (1)
before age 59 1/2 (subject to certain exceptions) or (2) during the five taxable
years starting with the year in which the first contribution is made to the Roth
IRA.
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. With
respect to non-governmental Section 457 plans, all investments are owned by the
sponsoring employer and are subject to the claims of the general creditors of
the employer and depending on the terms of the particular
24
<PAGE>
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 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.
- ------------------------------------------------------------------------
YEAR 2000 COMPUTER PROBLEM
The services provided by Minnesota Mutual to the Separate Account and its
contract owners depend on the smooth functioning of its computer systems. Many
computer software systems in use today cannot distinguish the year 2000 from the
year 1900 because of the way that dates are encoded, stored and calculated. That
failure could have a negative impact on the ability of Minnesota Mutual to
provide services to contract owners. Minnesota Mutual has been actively working
on necessary changes to its computer systems to deal with the year 2000.
Although there can be no assurance of complete success, Minnesota Mutual
believes that it will be able to resolve these issues on a timely basis and that
there will be no material adverse impact on its ability to provide services to
the Separate Account.
In addition, Minnesota Mutual's operations could be impacted by its service
providers' or suppliers' year 2000 efforts. Minnesota Mutual has undertaken an
initiative to assess the efforts of organizations where there is a significant
business relationship; however there is no assurance that Minnesota Mutual will
not be affected by year 2000 problems of other organizations.
25
<PAGE>
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 Contracts
Performance Data
Auditors
Registration Statement
Financial Statements
26
<PAGE>
APPENDIX A--COMPUTATION AND EXAMPLES OF WITHDRAWALS
A cash value withdrawal will affect future annuity payments by reducing the
number of annuity units, the basis for determining the amount of such payments.
If the annuitant is alive at the time of the withdrawal, the new number of
annuity units is determined by first computing a new initial annuity payment
amount and then dividing that amount by the annuity unit value at the time of
the withdrawal.
IF NO PRIOR WITHDRAWALS
If no prior cash withdrawals have been made, the new initial annuity payment
amount is the sum of
(i) the product of the number of cash value units after the withdrawal
times the current annuity unit value, and
(ii) the product of ([(a) X (b)]/1000) times (c), where
(a) is the excess of the total annuity value over the cash value
immediately prior to the withdrawal,
(b) is the ratio of the cash value withdrawn over the cash value prior
to the withdrawal, and
(c) is the applicable annuity purchase rate set forth in the contract in
the table captioned "Total Annuity Value Factors and Annuity Payment
Purchase Rates Applicable at a Cash Value Withdrawal while the
Annuitant is Alive" ("Table I").
In the above computation "(i)" reflects the portion of the new initial annuity
payment amount supported by the reserves attributable to the cash value of the
contract, and "(ii)" reflects the portion of the new initial annuity payment
amount supported by the annuity reserves in excess of the cash value. The excess
reserves, "(ii) (a)," are multiplied by the proportionate reduction in the cash
value, "(ii) (b)," to determine the portion of the excess reserves that are to
be redistributed, and the redistribution is effected by dividing the portion so
determined by 1000 and multiplying the result by the appropriate annuity
purchase rate.
An example of the withdrawal calculation may serve as a useful illustration.
Assume a contract issued to a woman in 1995, age 60, for an initial purchase
payment of $100,000, and assume further that the net Sub-Account performance
matches the assumed interest rate of 4.5% so that we need not consider the
variation in annuity payments as a result of fluctuations in investment
performance. Assume also that the annuity unit value is and remains $1.00. At
the time of issue of the contract, the initial annuity payment amount, if paid
as a life annuity, will be $460.99, and the number of annuity units and cash
value units will be 460.9900. The guaranteed minimum annuity payment amount is
$391.84 (85% X $460.99).
Assume that at year five, the contract owner makes a withdrawal of 60% of the
cash value. Immediately prior to the withdrawal, the contract has a total
annuity value of $85,594, which is determined by multiplying the current annuity
payment amount, $460.99, by the appropriate factor set forth in the contract
applicable to cash value units in Table I, 185.6737. The total annuity reserves
amount is $85,594. The cash value of the contract immediately prior to the
withdrawal is $70,890, which is determined by multiplying the current annuity
payment amount, $460.99, by the appropriate factor set forth in the contract in
the table captioned "Cash Value Factors." ("Table II"), 153.7783. $70,890 is the
amount of the annuity reserves attributable to the cash value of the contract.
The cash value after the withdrawal is $28,356 ($70,890 - $42,534 (60% X
$70,890)), and the new number of cash value units is 184.3960 (460.9900 X
($28,356/$70,890)).
The new initial annuity payment amount is $235.19, the sum of
(i) $184.40, the product of the number of cash value units after the
withdrawal (184.3960) times the annuity unit value ($1.00), and
(ii) $50.79, the product of ([(a) X (b)]/1000) times (c), where
(a) is $14,704, the excess of the total annuity value ($85,594) over the
cash value ($70,890) immediately prior to the withdrawal,
(b) is .6, the ratio of the cash value withdrawn ($42,534) over the cash
value prior to the withdrawal ($70,890), and
(c) is 5.7568, the applicable annuity purchase rate set forth in the
contract in Table I.
The new guaranteed minimum annuity payment amount after the withdrawal is
$199.91 ($391.84 X (235.1900/460.9900)).
27
<PAGE>
IF PRIOR WITHDRAWALS
Where prior withdrawals have been made, the above formula is adjusted in the
manner shown in the following example. Assume that after the withdrawal of 60%
of the cash value in the contract described above the owner withdraws 75% of the
remaining cash value at year 15.
Immediately prior to the transaction the contract has a total annuity value of
$32,003. This is determined by multiplying the two components of the current
annuity payment amount $184.40 -- the portion attributable to the cash value
reserves, and $50.79 -- the portion attributable to the annuity reserves in
excess of the cash value, by the appropriate factors set forth in the contract
applicable to cash value units and annuity units in excess of cash value units,
respectively, in Table I, namely, 137.7353 and 130.0297 ($32,003 = ($184.40 X
137.7353) + ($50.79 X 130.0297)). The cash value of the contract immediately
prior to the withdrawal is $16,289, which is determined by multiplying the
portion of the current annuity payment amount attributable to the cash value,
$184.40, by the appropriate factor set forth in the contract in Table II,
88.3373 ($16,289 = $184.40 X 88.3373). The cash value after the withdrawal is
$4,072 ($16,289 - $12,217 (75% X $16,289)), and the new number of cash value
units is 46.0962 (184.3960 X ($4,072/$16,289)).
The new initial annuity payment amount is $149.44, the sum of
(i) $46.10, the product of the number of cash value units after the
withdrawal (46.0962) times the current annuity unit value ($1.00),
(ii) $50.79, the product of the number of annuity units (235.19) minus the
number of cash value units (184.40), each prior to the withdrawal,
times the current annuity unit value ($1.00), and
(iii) $52.55, the product of ([(a) X (b)]/1000) times (c), where
(a) is $9110, which is
(A) $15,714, the excess of the total annuity value ($32,003) over
the cash value ($16,289) immediately prior to the withdrawal,
minus
(B) $6,604, the value is (ii) above ($50.79) multiplied by the
appropriate factor as of the withdrawal date applicable to
annuity units in excess of cash value units set forth in the
contract in Table I (130.0297),
(b) is .75, the ratio of the cash value withdrawn ($12,217) over the
cash value prior to the withdrawal ($16,289), and
(c) is 7.6905, the applicable annuity purchase rate set forth in the
contract in Table I.
The new initial annuity payment amount has a new guaranteed minimum annuity
payment amount associated with it of $127.02 ($199.91 X 149.4400/235.1900).
28
<PAGE>
APPENDIX B-- ADJUSTABLE INCOME ANNUITY DISCLOSURE
"A VARIABLE IMMEDIATE ANNUITY"
PREPARED FOR: Jane M. Doe
DATE OF BIRTH: 10/01/1935 SEX: Female
STATE: MN
PURCHASE PAYMENT: $100,000.00
FUNDS: Non-Qualified
LIFE EXPECTANCY: 24.2 (IRS)
PREPARED BY: Minnesota Mutual
QUOTATION DATE: 10/01/1995
ANNUITIZATION OPTION: Single Life
COMMENCEMENT DATE: 10/01/1995
INCOME FREQUENCY: Monthly
INITIAL PERIODIC INCOME: $460.99
GUARANTEED MINIMUM INCOME AT ISSUE: $391.84
ESTIMATED ANNUAL EXCLUSION AMOUNT AT ISSUE: $3,471.07
AGE Your age at nearest birthday.
GUARANTEED INCOME The guaranteed income column represents the minimum annuity
payment you will receive. This amount will be adjusted for additional purchase
payments made to the contract or cash value withdrawals taken from the contract.
PROJECTED INCOME The variable annuity income amount shown assumes a constant
annual investment return. 4.5% is the assumed interest rate used to calculate
the first payment. Thereafter, payments will increase or decrease based upon the
relationship between the 4.5% interest rate and the net investment performance
of the Index 500* Portfolio of the Advantus Series Fund, Inc. Actual value of
the contract will fluctuate depending on the performance of the underlying
sub-account.
CUMULATIVE INCOME The cumulative income amount shown represents the sum of
the projected income payments on an annual basis.
TOTAL ANNUITY VALUE The total annuity value at issue is the net amount
credited to your account after deduction of all front end charges. Thereafter,
the total annuity value changes based on fund performance, annuity payments
made, and subsequent purchase payments or withdrawals. The total annuity value
includes the cash value plus an amount intended to fund annuity payments for the
remainder of your life after the cash value period has ended.
CASH VALUE The cash value is the dollar amount available for withdrawal under
this contract at a given point in time. Access to the cash value is available
during the cash value period--a time period from the first annuity payment date
to your life expectancy as determined at issue. It is important to note that
withdrawals of cash value will reduce the amount of the minimum guaranteed
payment.
ESTIMATED ANNUAL EXCLUSION AMOUNT AT ISSUE The annual variable exclusion
amount is based on a cost basis of $100,000 and represents the amount of
variable payments that are excluded from taxation in each calendar year. This
annual amount is prorated in the first calendar year and may be recalculated in
any year where the total value of the annuity payments is less than the
exclusion amount. Exclusion calculations apply only until the cost basis is
returned, thereafter, all payments are fully taxable. This calculation does not
include future contributions or withdrawals.
SPECIAL TAX RULES APPLY TO NON-QUALIFIED PLANS When withdrawals are taken
from the cash value of the Adjustable Income Annuity contract, all amounts
received by the taxpayer are taxable as ordinary income in the year in which the
withdrawals are taken. Under certain circumstances, you may be able to get an
offsetting deduction. When additional purchase payments are made under an
existing Adjustable Income Annuity contract, those purchase payments will not
result in a recalculation of the owner's investment in the contract and a
determination of a new exclusion amount.
Page 1 of 5
Not valid without all pages.
The investment returns shown are hypothetical and are not a representation of
future results.
This is an illustration only and not a contract.
Prepared by The Minnesota Mutual Life Insurance Company
29
<PAGE>
OTHER Deductions from your purchase payments are made for sales charges, risk
charges and state premium taxes where applicable. Sales charges are based on
your total cumulative purchase payments (see prospectus for schedule). A risk
charge is deducted for Minnesota Mutual's guarantee of a minimum annuity payment
amount. This charge is 1.25% of each purchase payment.
Net rates of return reflect expenses totaling 1.40%, which consist of the .95%
Variable Annuity Account mortality and expense risk charge and administrative
charge, and .45% for the Series Fund management fee and other expenses.
Minnesota Mutual variable immediate annuities are available through registered
representatives of Ascend Financial Services, Inc., Securities Dealer, Member
NASD/ SIPC. This illustration must be accompanied or preceded by a current
prospectus for the Minnesota Mutual Variable Annuity Account and for the
Advantus Series Fund, Inc.
* "Standard & Poor's-Registered Trademark-", "S&P-Registered Trademark-", "S&P
500-Registered Trademark-", "Standard & Poor's 500", and "500" are trademarks of
The McGraw-Hill Companies, Inc. and have been licensed for use by Advantus
Series Fund, Inc. The Fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's and Standard & Poor's makes no representation regarding the
advisability of investing in the Fund."
Page 2 of 5
Not valid without all pages.
The investment returns shown are hypothetical and are not a representation of
future results.
This is an illustration only and not a contract.
Prepared by The Minnesota Mutual Life Insurance Company
30
<PAGE>
ADJUSTABLE INCOME ANNUITY ILLUSTRATION
"A VARIABLE IMMEDIATE ANNUITY"
PREPARED FOR: Jane M. Doe
DATE OF BIRTH: 10/01/1935 SEX: Female
STATE: MN
PURCHASE PAYMENT: $100,000.00
FUNDS: Non-Qualified
LIFE EXPECTANCY: 24.2 (IRS)
PREPARED BY: Minnesota Mutual
QUOTATION DATE: 10/01/1995
ANNUITIZATION OPTION: Single Life
COMMENCEMENT DATE: 10/01/1995
INCOME FREQUENCY: Monthly
INITIAL PERIODIC INCOME: $460.99
GUARANTEED MINIMUM INCOME AT ISSUE: $391.84
*ESTIMATED ANNUAL EXCLUSION AMOUNT AT ISSUE: $3,471.07
<TABLE>
<CAPTION>
0.00% GROSS RATE OF RETURN (-1.40% NET)
---------------------------------------------------------------
BEGINNING GUARANTEED PROJECTED CUMULATIVE TOTAL ANNUITY
DATE OF YEAR AGE INCOME INCOME INCOME VALUE CASH VALUE
- --------------- ---------- --- ---------- --------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Oct 1, 1995.... 1 60 $392 $461 $461 $93,789 $81,667
Oct 1, 1996.... 2 61 392 435 5,822 87,076 75,197
Oct 1, 1997.... 3 62 392 410 10,881 80,764 69,119
Oct 1, 1998.... 4 63 392 392 15,662 74,829 63,409
Oct 1, 1999.... 5 64 392 392 20,364 69,250 58,048
Oct 1, 2000.... 6 65 392 392 25,066 64,009 53,013
Oct 1, 2001.... 7 66 392 392 29,768 59,087 48,288
Oct 1, 2002.... 8 67 392 392 34,470 54,465 43,854
Oct 1, 2003.... 9 68 392 392 39,172 50,128 39,694
Oct 1, 2004.... 10 69 392 392 43,874 46,059 35,792
Oct 1, 2005.... 11 70 392 392 48,576 42,244 32,134
Oct 1, 2006.... 12 71 392 392 53,278 38,670 28,705
Oct 1, 2007.... 13 72 392 392 57,980 35,325 25,493
Oct 1, 2008.... 14 73 392 392 62,682 32,197 22,484
Oct 1, 2009.... 15 74 392 392 67,384 29,277 19,667
Oct 1, 2010.... 16 75 392 392 72,086 26,555 17,031
Oct 1, 2011.... 17 76 392 392 76,788 24,027 14,565
Oct 1, 2012.... 18 77 392 392 81,490 21,682 12,259
Oct 1, 2013.... 19 78 392 392 86,193 19,513 10,104
Oct 1, 2014.... 20 79 392 392 90,895 17,514 8,092
Oct 1, 2015.... 21 80 392 392 95,597 15,682 6,213
Oct 1, 2016.... 22 81 392 392 100,299 14,013 4,460
Oct 1, 2017.... 23 82 392 392 105,001 12,505 2,826
Oct 1, 2018.... 24 83 392 392 109,703 11,160 1,303
Oct 1, 2019.... 25 84 392 392 114,405 9,980 0
Oct 1, 2020.... 26 85 392 392 119,107 8,932 0
Oct 1, 2021.... 27 86 392 392 123,809 7,983 0
Oct 1, 2022.... 28 87 392 392 128,511 7,124 0
Oct 1, 2023.... 29 88 392 392 133,213 6,350 0
Oct 1, 2024.... 30 89 392 392 137,915 5,654 0
Oct 1, 2025.... 31 90 392 392 142,617 5,030 0
Oct 1, 2026.... 32 91 392 392 147,319 4,485 0
Oct 1, 2027.... 33 92 392 392 152,021 3,999 0
Oct 1, 2028.... 34 93 392 392 156,723 3,563 0
Oct 1, 2029.... 35 94 392 392 161,425 3,173 0
Oct 1, 2030.... 36 95 392 392 166,128 2,821 0
</TABLE>
* The exclusion amount does not assume future contributions or withdrawals.
Page 3 of 5
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The investment returns shown are hypothetical and are not a representation of
future results.
This is an illustration only and not a contract.
Prepared by The Minnesota Mutual Life Insurance Company
31
<PAGE>
ADJUSTABLE INCOME ANNUITY ILLUSTRATION
"A VARIABLE IMMEDIATE ANNUITY"
PREPARED FOR: Jane M. Doe
DATE OF BIRTH: 10/01/1935 SEX: Female
STATE: MN
PURCHASE PAYMENT: $100,000.00
FUNDS: Non-Qualified
LIFE EXPECTANCY: 24.2 (IRS)
PREPARED BY: Minnesota Mutual
QUOTATION DATE: 10/01/1995
ANNUITIZATION OPTION: Single Life
COMMENCEMENT DATE: 10/01/1995
INCOME FREQUENCY: Monthly
INITIAL PERIODIC INCOME: $460.99
GUARANTEED MINIMUM INCOME AT ISSUE: $391.84
* ESTIMATED ANNUAL EXCLUSION AMOUNT AT ISSUE: $3,471.07
<TABLE>
<CAPTION>
5.90% GROSS RATE OF RETURN (4.50% NET)
---------------------------------------------------------------
BEGINNING GUARANTEED PROJECTED CUMULATIVE TOTAL ANNUITY
DATE OF YEAR AGE INCOME INCOME INCOME VALUE CASH VALUE
- --------------- ---------- --- ---------- --------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Oct 1, 1995.... 1 60 $392 $461 $461 $93,789 $81,667
Oct 1, 1996.... 2 61 392 461 5,993 92,286 79,697
Oct 1, 1997.... 3 62 392 461 11,525 90,718 77,638
Oct 1, 1998.... 4 63 392 461 17,057 89,081 75,487
Oct 1, 1999.... 5 64 392 461 22,589 87,373 73,239
Oct 1, 2000.... 6 65 392 461 28,120 85,593 70,890
Oct 1, 2001.... 7 66 392 461 33,652 83,738 68,435
Oct 1, 2002.... 8 67 392 461 39,184 81,807 65,869
Oct 1, 2003.... 9 68 392 461 44,716 79,798 63,188
Oct 1, 2004.... 10 69 392 461 50,248 77,708 60,387
Oct 1, 2005.... 11 70 392 461 55,780 75,537 57,459
Oct 1, 2006.... 12 71 392 461 61,312 73,284 54,400
Oct 1, 2007.... 13 72 392 461 66,844 70,950 51,203
Oct 1, 2008.... 14 73 392 461 72,375 68,538 47,862
Oct 1, 2009.... 15 74 392 461 77,907 66,050 44,371
Oct 1, 2010.... 16 75 392 461 83,439 63,494 40,722
Oct 1, 2011.... 17 76 392 461 88,971 60,888 36,910
Oct 1, 2012.... 18 77 392 461 94,503 58,233 32,926
Oct 1, 2013.... 19 78 392 461 100,035 55,544 28,762
Oct 1, 2014.... 20 79 392 461 105,567 52,838 24,412
Oct 1, 2015.... 21 80 392 461 111,099 50,141 19,865
Oct 1, 2016.... 22 81 392 461 116,630 47,485 15,114
Oct 1, 2017.... 23 82 392 461 122,162 44,912 10,149
Oct 1, 2018.... 24 83 392 461 127,694 42,480 4,961
Oct 1, 2019.... 25 84 392 461 133,226 40,261 0
Oct 1, 2020.... 26 85 392 461 138,758 38,191 0
Oct 1, 2021.... 27 86 392 461 144,290 36,172 0
Oct 1, 2022.... 28 87 392 461 149,822 34,211 0
Oct 1, 2023.... 29 88 392 461 155,354 32,318 0
Oct 1, 2024.... 30 89 392 461 160,886 30,498 0
Oct 1, 2025.... 31 90 392 461 166,417 28,755 0
Oct 1, 2026.... 32 91 392 461 171,949 27,176 0
Oct 1, 2027.... 33 92 392 461 177,481 25,678 0
Oct 1, 2028.... 34 93 392 461 183,013 24,253 0
Oct 1, 2029.... 35 94 392 461 188,545 22,888 0
Oct 1, 2030.... 36 95 392 461 194,077 21,569 0
</TABLE>
* The exclusion amount does not assume future contributions or withdrawals.
Page 4 of 5
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The investment returns shown are hypothetical and are not a representation of
future results.
This is an illustration only and not a contract.
Prepared by The Minnesota Mutual Life Insurance Company
32
<PAGE>
ADJUSTABLE INCOME ANNUITY ILLUSTRATION
"A VARIABLE IMMEDIATE ANNUITY"
PREPARED FOR: Jane M. Doe
DATE OF BIRTH: 10/01/1935 SEX: Female
STATE: MN
PURCHASE PAYMENT: $100,000.00
FUNDS: Non-Qualified
LIFE EXPECTANCY: 24.2 (IRS)
PREPARED BY: Minnesota Mutual
QUOTATION DATE: 10/01/1995
ANNUITIZATION OPTION: Single Life
COMMENCEMENT DATE: 10/01/1995
INCOME FREQUENCY: Monthly
INITIAL PERIODIC INCOME: $460.99
GUARANTEED MINIMUM INCOME AT ISSUE: $391.84
*ESTIMATED ANNUAL EXCLUSION AMOUNT AT ISSUE: $3,471.07
<TABLE>
<CAPTION>
12.00% GROSS RATE OF RETURN (10.60% NET)
---------------------------------------------------------------
BEGINNING GUARANTEED PROJECTED CUMULATIVE TOTAL ANNUITY
DATE OF YEAR AGE INCOME INCOME INCOME VALUE CASH VALUE
- --------------- ---------- --- ---------- --------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Oct 1, 1995.... 1 60 $392 $461 $461 $93,789 $81,667
Oct 1, 1996.... 2 61 392 488 6,166 97,673 84,349
Oct 1, 1997.... 3 62 392 516 12,204 101,618 86,967
Oct 1, 1998.... 4 63 392 547 18,595 105,609 89,493
Oct 1, 1999.... 5 64 392 578 25,359 109,631 91,896
Oct 1, 2000.... 6 65 392 612 32,517 113,666 94,141
Oct 1, 2001.... 7 66 392 648 40,094 117,695 96,185
Oct 1, 2002.... 8 67 392 686 48,113 121,692 97,984
Oct 1, 2003.... 9 68 392 726 56,599 125,632 99,483
Oct 1, 2004.... 10 69 392 768 65,582 129,484 100,622
Oct 1, 2005.... 11 70 392 813 75,088 133,214 101,332
Oct 1, 2006.... 12 71 392 860 85,150 136,785 101,537
Oct 1, 2007.... 13 72 392 911 95,798 140,159 101,148
Oct 1, 2008.... 14 73 392 964 107,069 143,296 100,068
Oct 1, 2009.... 15 74 392 1,020 118,997 146,157 98,184
Oct 1, 2010.... 16 75 392 1,080 131,621 148,702 95,371
Oct 1, 2011.... 17 76 392 1,143 144,983 150,922 91,488
Oct 1, 2012.... 18 77 392 1,209 159,124 152,767 86,376
Oct 1, 2013.... 19 78 392 1,280 174,091 154,217 79,859
Oct 1, 2014.... 20 79 392 1,355 189,932 155,269 71,736
Oct 1, 2015.... 21 80 392 1,434 206,697 155,944 61,783
Oct 1, 2016.... 22 81 392 1,517 224,441 156,303 49,750
Oct 1, 2017.... 23 82 392 1,606 243,220 156,466 35,358
Oct 1, 2018.... 24 83 392 1,700 263,096 156,630 18,291
Oct 1, 2019.... 25 84 392 1,799 284,132 157,116 0
Oct 1, 2020.... 26 85 392 1,904 306,396 157,735 0
Oct 1, 2021.... 27 86 392 2,015 329,960 158,116 0
Oct 1, 2022.... 28 87 392 2,133 354,899 158,278 0
Oct 1, 2023.... 29 88 392 2,257 381,294 158,246 0
Oct 1, 2024.... 30 89 392 2,389 409,230 158,052 0
Oct 1, 2025.... 31 90 392 2,528 438,796 157,715 0
Oct 1, 2026.... 32 91 392 2,676 470,088 157,759 0
Oct 1, 2027.... 33 92 392 2,832 503,207 157,764 0
Oct 1, 2028.... 34 93 392 2,998 538,259 157,702 0
Oct 1, 2029.... 35 94 392 3,173 575,357 157,516 0
Oct 1, 2030.... 36 95 392 3,358 614,621 157,103 0
</TABLE>
* The exclusion amount does not assume future contributions or withdrawals.
Page 5 of 5
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The investment returns shown are hypothetical and are not a representation of
future results.
This is an illustration only and not a contract.
Prepared by The Minnesota Mutual Life Insurance Company
33
<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) 665-3500
Statement of Additional Information
The date of this document and the Prospectus is: May 1, 1998
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) 665-3500, after September 1, 1998, (651) 665-3500, 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 Contracts
Performance Data
Auditors
Registration Statement
Financial Statements
-1-
<PAGE>
TRUSTEES AND PRINCIPAL MANAGEMENT OFFICERS OF MINNESOTA MUTUAL
Trustees Principal Occupation
-------- --------------------
Giulio Agostini Senior Vice President, Finance and Administrative
Services, Minnesota Mining and Manufacturing
Company, Maplewood, Minnesota
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)
Leslie S. Biller President and Chief Operating Officer, Norwest
Corporation, Minneapolis, Minnesota (Banking)
John F. Grundhofer President and Chief Executive Officer, U.S.
Bancorp, 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)
David S. Kidwell, Ph.D. Dean and Professor of Finance, The Curtis L.
Carlson School of Management, University of
Minnesota
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 Tinson Saario, Ph.D. Prior to March 1996, and for more than five years,
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, Chief Financial and Administrative
Officer, Ecolab, Inc., St. Paul, Minnesota
(Develops and Markets Cleaning and Sanitizing
Products)
Frederick T. Weyerhaeuser Retired since April 1998, prior thereto
Chairman and Treasurer, Clearwater Investment
Trust since May 1996, prior thereto for more than
five years, Chairman, Clearwater Management
Company, St. Paul, Minnesota (Financial
Management)
-2-
<PAGE>
Principal Officers (other than Trustees)
Name Position
John F. Bruder Senior Vice President
Keith M. Campbell Senior Vice President
Frederick P. Feuerherm Vice President
Robert E. Hunstad Executive Vice President
James E. Johnson Senior Vice President and Actuary
Michael T. Kellett Vice President
Richard D. Lee Vice President
Robert M. Olafson Vice President
Dennis E. Prohofsky Senior Vice President, General Counsel and
Secretary
Gregory S. Strong Senior Vice President and Chief Financial
Officer
Terrence S. Sullivan Senior Vice President
Randy F. Wallake Senior Vice President
William N. Westhoff Senior Vice President and Treasurer
All Trustees who are not also officers of Minnesota Mutual have had the
principal occupation (or employers) shown for at least five years. All
officers of Minnesota Mutual have been employed by Minnesota Mutual for
at least five years with the exception of Mr. Westhoff. Mr. Westhoff has
been employed by Minnesota Mutual since April 1998. Prior thereto, Mr.
Westhoff was employed by American Express Financial Corporation, Minneapolis,
Minnesota, from August 1994 to October 1997 as Senior Vice President, Global
Investments and from November 1989 to July 1994 as Senior Vice President,
Fixed Income Management.
DISTRIBUTION OF CONTRACTS
The contract will be sold in a continuous offering by our life insurance
agents who are also registered representatives of Ascend Financial Services,
Inc. ("Ascend Financial") or other broker-dealers who have entered into
selling agreements with Ascend Financial. Ascend Financial acts as principal
underwriter of the contracts. Ascend Financial is a wholly-owned subsidiary
of MIMLIC Asset Management Company, which in turn is a wholly-owned
subsidiary of Minnesota Mutual. Ascend Financial 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. The amount paid by
Minnesota Mutual to the underwriter for 1997 and 1996 was $15,067,613 and
$83,366 for payments to associated dealers on the sale of this class of
variable annuity contracts issued through the Variable Annuity Account.
Agents of Minnesota Mutual who are also registered representatives of Ascend
Financial are compensated directly by Minnesota Mutual.
PERFORMANCE DATA
TOTAL RETURN FIGURES FOR THE SUB-ACCOUNT
Average annual total return figures for one-year, five-year and ten-year
periods are presented. Average annual total return figures are the average
annual compounded rates of return required for an initial investment of
$10,000 to equal the total annuity value of that same investment at the end
of the period. The total annuity value will reflect the deduction of the
sales and risk charges applicable to the contract. The average annual total
return figures published by the Variable Annuity Account will reflect
Minnesota Mutual's voluntary absorption of certain Fund expenses. For the
period subsequent to December 31, 1987, Minnesota Mutual is voluntarily
absorbing the fees and expenses that exceed .55% of the daily net assets of
the Index 500 Portfolio. 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.
-3-
<PAGE>
The average annual rates of return for the Sub-Account, in connection with the
contract described in the Prospectus, for the specified periods ended
December 31, 1997 are shown in the table 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 Portfolio first
became available to the Variable Annuity Account.
<TABLE>
<CAPTION>
Year Ended Five Years Ten Years
12/31/97 Ended 12/31/97 Ended 12/31/97
---------- -------------- --------------
<S> <C> <C> <C>
Index 500 Sub-Account 12.54% (12.54%) 16.98% (16.98%) 15.56% (15.53%)
</TABLE>
AUDITORS
The financial statements of Minnesota Mutual Variable Annuity Account and the
consolidated financial statements of Minnesota Mutual 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.
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
contracts 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
contracts. Statements contained in this Statement of Additional Information as
to the contents of contracts and other legal instruments are summaries, and
reference is made to such instruments as filed.
-4-
<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 statement of assets and liabilities of the
Index 500 Segregated Sub-Account of the Minnesota Mutual Variable Annuity
Account (the Account) (contracts offered for individual, immediate annuity
contracts for personal retirement plans) as of December 31, 1997, the related
statement of operations for the year then ended and the statements of changes in
net assets for the year ended December 31, 1997 and the period from June 4,
1996, commencement of operations, to December 31, 1996. These financial
statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements 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. Investments owned at
December 31, 1997 were verified by examination of the underlying portfolio of
Advantus Series Fund, Inc. (formerly 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 Index 500 Segregated
Sub-Account of Minnesota Mutual Variable Annuity Account at December 31, 1997
and the results of its operations and changes in its net assets for the periods
stated in the first paragraph above, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 20, 1998
<PAGE>
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in shares of Advantus Series Fund, Inc. - Index
500 Portfolio, 2,519,802 shares at net asset value of
$3.10 per share (cost $6,858,178) . . . . . . . . . . . $ 7,820,676
Receivable from Advantus Series Fund, Inc. for
investments sold . . . . . . . . . . . . . . . . . . . 294
------------
Total assets. . . . . . . . . . . . . . . . . . . . . 7,820,970
------------
LIABILITIES
Payable to Minnesota Mutual for contract terminations and
mortality and expense charges . . . . . . . . . . . . . 294
------------
Total liabilities . . . . . . . . . . . . . . . . . . 294
------------
Net assets applicable to annuity contract owners. . . $ 7,820,676
------------
------------
CONTRACT OWNERS' EQUITY
Contracts in annuity payment period (note 2) . . . . . . . . $ 7,820,676
------------
Total contract owners' equity . . . . . . . . . . . . $ 7,820,676
------------
------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Investment income (loss):
Investment income distributions from underlying mutual
fund (note 4) . . . . . . . . . . . . . . . . . . . . . $ 30,696
Mortality and expense charges (note 3). . . . . . . . . (34,037)
Administrative charges (note 3) . . . . . . . . . . . . (6,382)
----------
Investment loss - net . . . . . . . . . . . . . . . . (9,723)
----------
Realized and unrealized gains on investments - net:
Realized gain distributions from underlying mutual
fund (note 4) . . . . . . . . . . . . . . . . . . . . . 38,781
----------
Realized gains on sales of investments:
Proceeds from sales . . . . . . . . . . . . . . . . . 827,053
Cost of investments sold. . . . . . . . . . . . . . . (719,951)
----------
107,102
----------
Net realized gains on investments . . . . . . . . . . 145,883
----------
Net change in unrealized appreciation or depreciation
of investments . . . . . . . . . . . . . . . . . . . . 827,107
----------
Net gains on investments. . . . . . . . . . . . . . . 972,990
----------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . . . . . . $ 963,267
----------
----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997 AND PERIOD FROM JUNE 4, 1996, COMMENCEMENT OF
OPERATIONS, TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Operations:
Investment loss - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (9,723) $ (4,202)
Net realized gains on investments . . . . . . . . . . . . . . . . . . . . . . . 145,883 5,974
Net change in unrealized appreciation or depreciation
of investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 827,107 135,391
------------ -----------
Net increase in net assets resulting from operations . . . . . . . . . . . . . . . . 963,267 137,163
------------ -----------
Contract transactions (notes 2, 3 and 4):
Contract purchase payments. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,596,884 1,988,830
Contract terminations and withdrawal payments . . . . . . . . . . . . . . . . . (441,196) (61,520)
Actuarial adjustments for mortality experience on annuities
in payment period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (83,544) 4,483
Annuity benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . (261,894) (21,797)
------------ -----------
Increase in net assets from contract transactions . . . . . . . . . . . . . . . . . 4,810,250 1,909,996
------------ -----------
Increase in net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,773,517 2,047,159
Net assets at the beginning of period . . . . . . . . . . . . . . . . . . . . . . . 2,047,159 -
------------ -----------
Net assets at the end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,820,676 $ 2,047,159
------------ -----------
------------ -----------
</TABLE>
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 four types of contracts each
consisting of one to twenty segregated sub-accounts. The financial
statements presented herein include only the segregated sub-account offered
in connection with the sale of the individual, immediate variable annuity
contracts for personal retirement plans (Adjustable Income Annuity).
The assets of the Account are held for the exclusive benefit of the
immediate variable annuity contract owners and are not chargeable with
liabilities arising out of the business conducted by any other account or
by Minnesota Mutual. Purchase payments made by contract owners are
invested in shares of the Index 500 Portfolio of the Advantus Series Fund,
Inc. (formerly MIMLIC Series Fund, Inc.). The Advantus Series Fund, Inc.
(the Fund) 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.
Ascend Financial Services, Inc. (formerly MIMLIC Sales Corporation) acts as
the underwriter for the Account. Advantus Capital Management, Inc. acts as
the investment adviser for the Fund. Ascend Financial Services, Inc. and
Advantus Capital Management, Inc. are wholly-owned subsidiaries 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 increases and decreases in
net assets resulting from operations during the period. Actual results
could differ from those estimates.
<PAGE>
2
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INVESTMENTS IN ADVANTUS SERIES FUND, INC. - CONTINUED
Investments in shares of the Fund 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 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-account 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 Individual Annuity 1983 Table A, using an assumed interest rate of 4.5
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) CONTRACT CHARGES
The mortality and expense risk charge paid to Minnesota Mutual is computed
daily and is equal, on an annual basis, to .80 percent of the average daily
net assets of the Account. Under certain conditions, the charge may be
increased to not more than 1.40 percent of the average daily net assets of
the Account.
The administrative charge paid to Minnesota Mutual is computed daily and is
equal, on an annual basis, to .15 percent of the average daily net assets
of the Account. Under certain conditions, the administrative charge may be
increased to not more than .40 percent of the average daily net assets of
the Account.
<PAGE>
3
MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(3) CONTRACT CHARGES - CONTINUED
Contract purchase payments are reflected net of the following charges paid
to Minnesota Mutual:
A sales charge ranging from 3.75 to 4.50 percent, depending upon the
total amount of purchase payments, is deducted from each contract
purchase payment. Total sales charges deducted from contract purchase
payments for the year ended December 31, 1997 and the period from June
4, 1996, commencement of operations, to December 31, 1996 amounted to
$124,177 and $89,278, respectively.
A risk charge in the amount of 1.25 percent is deducted from each
contract purchase payment. Under certain conditions, the risk charge
may be as high as 2.00 percent. Total risk charges deducted from
contract purchase payments for the year ended December 31, 1997 and
the period from June 4, 1996, commencement of operations, to December
31, 1996 amounted to $36,963 and $26,559, respectively.
A premium tax charge of up to 3.50 percent is deducted from each
contract purchase payment. Total premium tax charges deducted from
contract purchase payments for the year ended December 31, 1997 and
the period from June 4, 1996, commencement of operations, to December
31, 1996 amounted to $3,218 and $2,307, respectively.
(4) INVESTMENT TRANSACTIONS
The Account's purchases of Index 500 Portfolio shares, including
reinvestment of distributions, amounted to $5,666,361 for the year ended
December 31, 1997.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
The Minnesota Mutual Life Insurance Company
We have audited the accompanying consolidated balance sheets of The Minnesota
Mutual Life Insurance Company and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations and policyowners'
surplus and cash flows for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The
Minnesota Mutual Life Insurance Company and subsidiaries as of December 31,
1997 and 1996, and the results of their operations and their cash flows for
each of the years in the three-year period ending December 31, 1997 in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included
in the accompanying schedules is presented for purpose of additional analysis
and is not a required part of the basic financial statements. Such information
has been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 9, 1998
60
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Fixed maturity securities:
Available-for-sale, at fair value (amortized cost
$4,518,807 and $4,558,975) $ 4,719,801 $ 4,674,082
Held-to-maturity, at amortized cost (fair value
$1,158,227 and $1,179,112) 1,088,312 1,125,638
Equity securities, at fair value (cost $537,441 and
$429,509) 686,638 549,797
Mortgage loans, net 661,337 608,808
Real estate, net 39,964 43,082
Policy loans 213,488 204,178
Short-term investments 112,352 126,372
Other invested assets 216,838 94,647
----------- -----------
Total investments 7,738,730 7,426,604
Cash 96,179 57,140
Finance receivables, net 211,794 259,192
Deferred policy acquisition costs 576,030 589,517
Accrued investment income 83,439 90,996
Premiums receivable 68,030 77,140
Property and equipment, net 58,123 55,050
Reinsurance recoverables 150,126 126,629
Other assets 52,852 54,798
Separate account assets 5,366,810 3,706,256
----------- -----------
Total assets $14,402,113 $12,443,322
=========== ===========
LIABILITIES AND POLICYOWNERS' SURPLUS
Liabilities:
Policy and contract account balances $ 4,275,221 $ 4,310,015
Future policy and contract benefits 1,687,529 1,638,720
Pending policy and contract claims 64,356 70,577
Other policyowner funds 416,752 396,848
Policyowner dividends payable 55,321 49,899
Unearned premiums and fees 202,070 207,111
Federal income tax liability:
Current 45,300 25,643
Deferred 166,057 149,665
Other liabilities 334,305 286,042
Notes payable 298,000 319,000
Separate account liabilities 5,320,517 3,691,374
----------- -----------
Total liabilities $12,865,428 $11,144,894
=========== ===========
Policyowners' surplus:
Unassigned surplus 1,380,012 1,190,116
Net unrealized investment gains 156,673 108,312
----------- -----------
Total policyowners' surplus 1,536,685 1,298,428
----------- -----------
Total liabilities and policyowners' surplus $14,402,113 $12,443,322
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
61
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND POLICYOWNERS' SURPLUS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Premiums $ 615,253 $ 612,359 $ 603,770
Policy and contract fees 272,037 245,966 214,203
Net investment income 553,773 530,987 515,047
Net realized investment gains 114,367 55,574 62,292
Finance charge income 43,650 46,932 39,937
Other income 71,707 51,630 40,250
---------- ---------- ----------
Total revenues 1,670,787 1,543,448 1,475,499
---------- ---------- ----------
Benefits and expenses:
Policyowner benefits 515,873 541,520 517,771
Interest credited to policies and con-
tracts 298,033 288,967 297,145
General operating expenses 369,961 302,618 273,425
Commissions 114,404 103,370 93,465
Administrative and sponsorship fees 81,750 79,360 76,223
Dividends to policyowners 26,776 24,804 27,282
Interest on notes payable 24,192 22,798 11,128
Increase in deferred policy acquisi-
tion costs (26,878) (19,284) (34,173)
---------- ---------- ----------
Total benefits and expenses 1,404,111 1,344,153 1,262,266
---------- ---------- ----------
Income from operations before taxes 266,676 199,295 213,233
Federal income tax expense (benefit):
Current 84,612 68,033 71,379
Deferred (7,832) 744 11,995
---------- ---------- ----------
Total federal income tax expense 76,780 68,777 83,374
Net income $ 189,896 $ 130,518 $ 129,859
========== ========== ==========
STATEMENTS OF POLICYOWNERS' SURPLUS
Policyowners' surplus, beginning of year $1,298,428 $1,212,850 $ 874,577
Net income 189,896 130,518 129,859
Change in net unrealized investment
gains and losses 48,361 (44,940) 208,414
---------- ---------- ----------
Policyowners' surplus, end of year $1,536,685 $1,298,428 $1,212,850
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
62
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 189,896 $ 130,518 $ 129,859
Adjustments to reconcile net income to
net cash provided by operating activi-
ties:
Interest credited to annuity and in-
surance contracts 276,719 275,968 288,218
Fees deducted from policy and con-
tract balances (214,803) (206,780) (201,575)
Change in future policy benefits 76,358 84,389 100,025
Change in other policyowner liabili-
ties 7,597 16,099 (4,762)
Change in deferred policy acquisition
costs (19,430) (15,312) (29,822)
Change in premiums due and other re-
ceivables (9,280) (26,142) (18,039)
Change in federal income tax liabili-
ties 5,277 (12,055) 18,376
Net realized investment gains (123,016) (59,546) (66,643)
Other, net 8,760 29,987 36,561
----------- ----------- -----------
Net cash provided by operating ac-
tivities 198,078 217,126 252,198
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of:
Fixed maturity securities, available-
for-sale 1,099,114 877,682 1,349,348
Equity securities 601,936 352,901 203,493
Mortgage loans -- 15,567 4,315
Real estate 9,279 11,678 15,948
Other invested assets 26,877 12,280 10,775
Proceeds from maturities and repayments
of:
Fixed maturity securities, available-
for-sale 403,829 329,550 253,576
Fixed maturity securities, held-to-
maturity 139,394 114,222 127,617
Mortgage loans 109,246 94,703 104,730
Purchases of:
Fixed maturity securities, available-
for-sale (1,498,048) (1,228,048) (1,975,130)
Fixed maturity securities, held-to-
maturity (82,835) (60,612) (140,763)
Equity securities (585,349) (446,599) (212,142)
Mortgage loans (157,247) (108,691) (209,399)
Real estate (3,908) (3,786) (16,554)
Other invested assets (55,988) (29,271) (20,517)
Finance receivable originations or pur-
chases (115,248) (175,876) (167,298)
Finance receivable principal payments 133,762 142,723 123,515
Other, net (88,626) (40,062) (19,292)
----------- ----------- -----------
Net cash used for investing activi-
ties (63,812) (141,639) (567,778)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits credited to annuity and insur-
ance contracts 928,696 657,405 710,525
Withdrawals from annuity and insurance
contracts (1,013,588) (702,681) (563,569)
Proceeds from issuance of surplus notes -- -- 124,967
Proceeds from issuance of debt by sub-
sidiary -- 60,000 50,000
Payments on debt by subsidiary (21,000) (21,000) (10,000)
Other, net (3,355) (6,898) (3,801)
----------- ----------- -----------
Net cash provided by (used for) fi-
nancing activities (109,247) (13,174) 308,122
----------- ----------- -----------
Net increase (decrease) in cash and
short-term investments 25,019 62,313 (7,458)
Cash and short-term investments, begin-
ning of year 183,512 121,199 128,657
----------- ----------- -----------
Cash and short-term investments, end of
year $ 208,531 $ 183,512 $ 121,199
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
63
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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 1997 for these business units were $854,192,000,
$284,222,000, $232,619,000 and $114,324,000, respectively. Additional revenues
of $185,430,000, were reported by the Company's subsidiaries.
At December 31, 1997, the Company was one of the 12 largest mutual life
insurance company groups in the United States, as measured by total assets. The
Company serves nearly seven million people through more than 4,000 associates
located at its St. Paul headquarters and in 81 general agencies and 43 regional
offices throughout the United States.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP), which vary in
certain respects from accounting practices prescribed or permitted by state
insurance regulatory authorities. The consolidated financial statements include
the accounts of The Minnesota Mutual Life Insurance Company and its
subsidiaries (collectively, "the Company"). All material intercompany
transactions and balances have been eliminated.
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates and assumptions that affect reported
assets and liabilities, including reporting or disclosure of contingent assets
and liabilities as of the balance sheet date and the reported amounts of
revenues and expenses during the reporting period. Future events, including
changes in mortality, morbidity, interest rates, and asset valuations, could
cause actual results to differ from the estimates used in the financial
statements.
Insurance Revenues and Expenses
Premiums on traditional life products, which include individual whole life and
term insurance and immediate annuities, are credited to revenue when due. For
accident and health and group life products, premiums are credited to revenue
over the contract period as earned. Benefits and expenses are recognized in
relation to premiums over the contract period via a provision for future policy
benefits and the amortization of deferred policy acquisition costs.
Nontraditional life products include individual adjustable and variable life
insurance and group universal and variable life insurance. Revenue from
nontraditional life products and deferred annuities is comprised of policy and
contract fees charged for the cost of insurance, policy administration and
surrenders. Expenses include the portion of claims not covered by and interest
credited to the related policy and contract account balances. Policy
acquisition costs are amortized relative to estimated gross profits or margins.
Deferred Policy Acquisition Costs
The costs of acquiring new and renewal business, which vary with and are
primarily related to the production of new and renewal business, are generally
deferred to the extent recoverable from future premiums or expected gross
profits. Deferrable costs include commissions, underwriting expenses and
certain other selling and issue costs.
For traditional life, accident and health and group life products, deferred
acquisition costs are amortized over the premium paying period in proportion to
the ratio of annual premium revenues to ultimate anticipated
64
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
premium revenues. The ultimate premium revenues are estimated based upon the
same assumptions used to calculate the future policy benefits.
For nontraditional life products and deferred annuities, deferred acquisition
costs are amortized over the estimated lives of the contracts in relation to
the present value of estimated gross profits from surrender charges and
investment, mortality and expense margins.
Deferred acquisition costs amortized were $128,176,000, $125,978,000 and
$104,940,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
Finance Charge Income and Receivables
Finance charge income represents fees and interest charged on consumer loans.
The Company uses the interest (actuarial) method of accounting for finance
charges and interest on finance receivables. Accrual of finance charges and
interest on the smaller balance homogeneous finance receivables is suspended
when a loan is contractually delinquent for more than 60 days and is
subsequently recognized when received. Accrual is resumed when the loan is
contractually less than 60 days past due. Finance charges and interest is
suspended when a loan is considered by management to be impaired. Loan
impairment is measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or as a practical expedient,
at the observable market price of the loan or the fair value of the collateral
if the loan is collateral dependent. When a loan is identified as impaired,
interest previously accrued in the current year is reversed. Interest payments
received on impaired loans are generally applied to principal unless the
remaining principal balance has been determined to be fully collectible. An
allowance for uncollectible amounts is maintained by direct charges to
operations at an amount which management believes, based upon historical losses
and economic conditions, is adequate to absorb probable losses on existing
receivables that may become uncollectible. The reported receivables are net of
this allowance.
Valuation of Investments
Fixed maturity securities (bonds) which the Company has the positive intent and
ability to hold to maturity are classified as held-to-maturity and are carried
at amortized cost, net of write-downs for other than temporary declines in
value. Premiums and discounts are amortized or accreted over the estimated
lives of the securities based on the interest yield method. Fixed maturity
securities which may be sold prior to maturity are classified as available-for-
sale and are carried at fair value.
Equity securities (common stocks and preferred stocks) are carried at fair
value. Equity securities also include initial contributions to affiliated
registered investment funds that are managed by a subsidiary of the Company.
These contributions are carried at the market value of the underlying net
assets of the funds.
Mortgage loans are carried at amortized cost less an allowance for
uncollectible amounts. Premiums and discounts are amortized or accreted over
the terms of the mortgage loans based on the interest yield method. A mortgage
loan is considered impaired if it is probable that contractual amounts due will
not be collected. Impaired mortgage loans are valued at the fair value of the
underlying collateral. Interest income on impaired mortgage loans is recorded
on an accrual basis. However, when the likelihood of collection is doubtful,
interest income is recognized when received.
Fair values of fixed maturity securities and equity securities 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. Fair values of mortgage loans are based upon discounted
cash flows, quoted market prices and matrix pricing.
Real estate is carried at cost less accumulated depreciation and an allowance
for estimated losses. Accumulated depreciation on real estate at December 31,
1997 and 1996, was $6,269,000 and $5,968,000, respectively.
Policy loans are carried at the unpaid principal balance.
65
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivative Financial Instruments
The Company entered into equity swaps in 1996 as part of an overall risk
management strategy. The swaps were used to hedge exposure to market risk on
$400,000,000 of the Company's common stock portfolio. The swaps were based upon
certain stock indices. If, at the time of settlement for a particular swap, the
designated stock index had fallen below a specified level, the counterparty
would pay the Company an amount based upon the decline in the index and the
stock portfolio value protected by the swap. If, at the time of settlement, the
designated stock index had risen, the Company would pay the counterparty an
amount based upon the increase in the index and 25% of the stock portfolio
value protected by the swap. The equity swaps were settled with the
counterparties in August of 1997.
The swaps were carried at fair value, which were based upon dealer quotes.
Changes in fair value were recorded directly in policyowners' surplus. Upon
settlement of the swaps, gains or losses were recognized in income. The Company
realized a loss of approximately $31 million in 1997, upon settlement of these
equity swaps.
The Company began investing in international bonds denominated in foreign
currencies in 1997. The Company uses forward foreign exchange currency
contracts as part of its risk management strategy for international
investments. The forward foreign exchange currency contracts are used to reduce
market risks from changes in foreign exchange rates. These forward foreign
exchange currency contracts are agreements to purchase a specified amount of
one currency in exchange for a specified amount of another currency at a future
point in time at a foreign exchange currency rate agreed upon on the contract
open date. No cash is exchanged at the outset of the contract and no payments
are made by either party until the contract close date. On the contract close
date the contracted amount of the purchased currency is received from the
counterparty and the contracted amount of the sold currency is sent to the
counterparty. These contracts are generally short-term in nature and there is
no material exposure to the Company at December 31, 1997.
Capital Gains and Losses
Realized and unrealized capital gains and losses are determined on the specific
identification method. Write-downs of held-to-maturity securities and the
provision for credit losses on mortgage loans and real estate are recorded as
realized losses.
Changes in the fair value of fixed maturity securities available-for-sale and
equity securities are recorded as a separate component of policyowners'
surplus, net of taxes and related adjustments to deferred policy acquisition
costs and unearned policy and contract fees.
Property and Equipment
Property and equipment are carried at cost, net of accumulated depreciation of
$90,926,000 and $81,962,000 at December 31, 1997 and 1996, respectively.
Buildings are depreciated over 40 years and equipment is generally depreciated
over 5 to 10 years. Depreciation expenses for the years ended December 31,
1997, 1996 and 1995, were $8,965,000, $6,454,000 and $5,941,000, respectively.
Separate Accounts
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the exclusive benefit of pension, variable
annuity and variable life insurance policyowners and contractholders. Assets
consist principally of marketable securities and both assets and liabilities
are reported at fair value, based upon the market value of the investments held
in the segregated funds. The Company receives administrative and investment
advisory fees for services rendered on behalf of these accounts.
The Company periodically invests money in its separate accounts. The market
value of such investments is included with separate account assets and amounted
to $46,293,000 and $14,882,000 as of December 31, 1997 and 1996, respectively.
66
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Policyowner Liabilities
Policy and contract account balances represent the net accumulation of funds
associated with nontraditional life products and deferred annuities. Additions
to the account balances include premiums, deposits and interest credited by the
Company. Decreases in the account balances include surrenders, withdrawals,
benefit payments, and charges assessed for the cost of insurance, policy
administration and surrenders.
Future policy and contract benefits are comprised of reserves for traditional
life, group life, and accident and health products. The reserves were
calculated using the net level premium method based upon assumptions regarding
investment yield, mortality, morbidity, and withdrawal rates determined at the
date of issue, commensurate with the Company's experience. Provision has been
made in certain cases for adverse deviations from these assumptions.
Other policyowner funds are comprised of dividend accumulations, premium
deposit funds and supplementary contracts without life contingencies.
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 recognized as expenses consistent with the
recognition of premiums.
Income Taxes
Current income taxes are charged to operations based upon amounts estimated to
be payable as a result of taxable operations for the current year. Deferred
income tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between financial statement
carrying amounts and income tax bases of assets and liabilities.
Reinsurance Recoverables
Insurance liabilities are reported before the effects of ceded reinsurance.
Reinsurance recoverables represent amounts due from reinsurers for paid and
unpaid benefits, expense reimbursements, prepaid premiums and future policy
benefits.
Reclassifications
Certain 1996 and 1995 financial statement balances have been reclassified to
conform with the 1997 presentation.
(3) INVESTMENTS
Net investment income for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities $457,391 $433,985 $426,114
Equity securities 16,182 14,275 8,883
Mortgage loans 55,929 63,865 58,943
Real estate (407) (475) 497
Policy loans 15,231 13,828 12,821
Short-term investments 6,995 6,535 6,716
Other invested assets 3,871 4,901 5,168
-------- -------- --------
Gross investment income 555,192 536,914 519,142
Investment expenses (1,419) (5,927) (4,095)
-------- -------- --------
Total $553,773 $530,987 $515,047
======== ======== ========
</TABLE>
67
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) INVESTMENTS (CONTINUED)
Net realized capital gains (losses) for the years ended December 31 were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities $ 3,711 $(6,536) $24,025
Equity securities 92,765 57,770 36,374
Mortgage loans 2,011 (721) (207)
Real estate 1,598 7,088 2,436
Other invested assets 14,282 (2,027) (336)
-------- ------- -------
Total $114,367 $55,574 $62,292
======== ======= =======
</TABLE>
Gross realized gains (losses) on the sales of fixed maturity securities and
equity securities for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities, available-for-sale:
Gross realized gains $ 18,804 $ 19,750 $ 34,898
Gross realized losses (15,093) (26,286) (10,873)
Equity securities:
Gross realized gains 151,200 79,982 52,670
Gross realized losses (27,672) (22,212) (16,296)
</TABLE>
Net unrealized gains (losses) included in policyowners' surplus at December
31 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Gross unrealized gains $ 472,671 $314,576
Gross unrealized losses (118,863) (77,337)
Adjustment to deferred acquisition costs (100,299) (65,260)
Adjustment to unearned policy and contract fees (13,087) (8,192)
Deferred federal income taxes (83,749) (55,475)
--------- --------
Net unrealized gains $ 156,673 $108,312
========= ========
</TABLE>
68
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) INVESTMENTS (CONTINUED)
The amortized cost and fair value of investments in marketable securities by
type of investment were as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ----------------- FAIR
COST GAINS LOSSES VALUE
---------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Available-for-sale:
United States government and gov-
ernment agencies and authorities $ 239,613 $ 18,627 $ -- $ 258,240
Foreign governments 1,044 -- 29 1,015
Corporate securities 2,273,474 216,056 70,484 2,419,046
International bond securities 150,157 2,565 23,530 129,192
Mortgage-backed securities 1,854,519 66,934 9,145 1,912,308
---------- -------- -------- ----------
Total fixed maturities 4,518,807 304,182 103,188 4,719,801
Equity securities--unaffiliated 421,672 134,558 14,575 541,655
Equity securities--affiliated 115,769 29,214 -- 144,983
---------- -------- -------- ----------
Total equity securities 537,441 163,772 14,575 686,638
---------- -------- -------- ----------
Total available-for-sale 5,056,248 467,954 117,763 5,406,439
Held-to maturity:
Corporate securities 893,407 59,850 752 952,505
Mortgage-backed securities 194,905 10,817 -- 205,722
---------- -------- -------- ----------
Total held-to-maturity 1,088,312 70,667 752 1,158,227
---------- -------- -------- ----------
Total $6,144,560 $538,621 $118,515 $6,564,666
========== ======== ======== ==========
DECEMBER 31, 1996
Available-for-sale:
United States government and gov-
ernment agencies and authorities $ 302,820 $ 2,397 $ 6,756 $ 298,461
State, municipalities, and polit-
ical subdivisions 11,296 759 -- 12,055
Foreign governments 1,926 -- 54 1,872
Corporate securities 2,450,126 115,846 19,554 2,546,418
Mortgage-backed securities 1,792,807 64,834 42,365 1,815,276
---------- -------- -------- ----------
Total fixed maturities 4,558,975 183,836 68,729 4,674,082
Equity securities--unaffiliated 353,983 107,172 5,168 455,987
Equity securities--affiliated 75,526 18,284 -- 93,810
---------- -------- -------- ----------
Total equity securities 429,509 125,456 5,168 549,797
---------- -------- -------- ----------
Total available-for-sale 4,988,484 309,292 73,897 5,223,879
Held-to maturity:
Corporate securities 904,994 50,187 3,130 952,051
Mortgage-backed securities 220,644 7,833 1,416 227,061
---------- -------- -------- ----------
Total held-to-maturity 1,125,638 58,020 4,546 1,179,112
---------- -------- -------- ----------
Total $6,114,122 $367,312 $ 78,443 $6,402,991
========== ======== ======== ==========
</TABLE>
69
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3)INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1997 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>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
--------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $ 47,387 $ 44,198 $ 2,982 $ 3,004
Due after one year through five
years 335,383 354,936 120,846 124,461
Due after five years through ten
years 1,355,665 1,416,149 317,689 337,322
Due after ten years 925,853 992,210 451,890 487,718
---------- ---------- ---------- ----------
2,664,288 2,807,493 893,407 952,505
Mortgage-backed securities 1,854,519 1,912,308 194,905 205,722
---------- ---------- ---------- ----------
Total $4,518,807 $4,719,801 $1,088,312 $1,158,227
========== ========== ========== ==========
</TABLE>
At December 31, 1997 and 1996, bonds and certificates of deposit with a
carrying value of $8,000,000 and $12,934,000, respectively, were on deposit
with various regulatory authorities as required by law.
Allowances for credit losses on investment are reflected on the consolidated
balance sheets as a reduction of the related assets and were as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Mortgage loans $ 1,500 $ 1,895
Foreclosed real estate -- 535
Investment real estate 2,248 2,529
------- -------
Total $ 3,748 $ 4,959
======= =======
</TABLE>
At December 31, 1997, the recorded investment in mortgage loans that were
considered to be impaired was $18,400 before allowance for credit losses. These
impaired loans, due to adequate fair market value of underlying collateral, do
not have an allowance for credit losses.
At December 31, 1996, the recorded investment in mortgage loans that were
considered to be impaired was $6,518,000 before allowance for credit losses.
Included in this amount is $2,225,000 of impaired loans, for which the related
allowance for credit losses is $395,000 and $4,293,000 of impaired loans that,
as a result of adequate fair market value of underlying collateral, do not have
an allowance for credit losses.
In addition to the allowance for credit losses on impaired mortgage loans, a
general allowance for credit losses was established for potential impairments
in the remainder of the mortgage loan portfolio. The general allowance was
$1,500,000 at December 31, 1997 and 1996.
Changes in the allowance for credit losses on mortgage loans were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $1,895 $1,711 $2,449
Provision for credit losses -- 381 127
Charge-offs (395) (197) (865)
------ ------ ------
Balance at end of year $1,500 $1,895 $1,711
====== ====== ======
</TABLE>
70
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3)INVESTMENTS (CONTINUED)
Below is a summary of interest income on impaired mortgage loans.
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Average impaired mortgage loans $3,268 $9,375 $15,845
Interest income on impaired mortgage loans--contractual 556 1,796 1,590
Interest income on impaired mortgage loans--collected 554 1,742 1,515
</TABLE>
(4) NOTES RECEIVABLE
In connection with the Company's planned construction of an additional home
office facility in St. Paul, the Company entered into a loan contingency
agreement with the Housing and Redevelopment Authority of the City of Saint
Paul, Minnesota (HRA) in November, 1997. A maximum of $15 million in funds is
available under this loan for condemnation and demolition of the Company's
proposed building site. The note bears interest at a rate of 8.625%, with
principal payments commencing February 2004 and a maturity date of August 2025.
Interest payments are accrued and are payable February and August of each year
commencing February 2001. All principal and interest payments are due only to
the extent of available tax increments. As of December 31, 1997 HRA has drawn
$286,775 on this loan contingency agreement and accrued interest of $1,374.
(5) NET FINANCE RECEIVABLES
Finance receivables as of December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Direct installment loans $183,424 $204,038
Retail installment notes 20,373 30,843
Retail revolving credit 25,426 24,863
Credit card receivables -- 3,541
Accrued interest 3,116 3,404
-------- --------
Gross receivables $232,339 $266,689
Allowance for uncollectible amounts (20,545) (7,497)
-------- --------
Finance receivables, net $211,794 $259,192
======== ========
</TABLE>
Direct installment loans at December 31, 1997 consisted of $83,836,000 of
discount basis loans (net of unearned finance charges) and $99,588,00 of
interest-bearing loans. As of December 31, 1996, discount basis loans amounted
to $93,127,000 and interest-bearing loans amounted to $110,911,000. Direct
installment loans generally have a maximum term of 84 months. Retail
installment notes are principally discount basis, arise from the sale of
household appliances, furniture, and sundry services, and generally have a
maximum term of 48 months. Direct installment loans included approximately $65
million and $69 million of real estate secured loans at December 31, 1997 and
1996, respectively. Revolving credit loans included approximately $24 million
and $23 million of real estate secured loans at December 31, 1997 and 1996,
respectively. Experience has shown that a substantial portion of finance
receivables will be renewed, converted or paid in full prior to maturity.
Principal cash collections of direct installment loans amounted to
$90,940,000, $92,438,000 and $75,865,000 and the percentage of these cash
collections to the average net balances were 47%, 48%, and 47% for the years
ended December 31, 1997, 1996 and 1995, respectively.
71
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) NET FINANCE RECEIVABLES (CONTINUED)
Changes in the allowance for uncollectible amounts for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 7,497 $ 6,377 $ 5,360
Provision for credit losses 28,206 10,086 6,140
Charge-offs (17,869) (11,036) (6,585)
Recoveries 2,711 2,070 1,462
-------- -------- -------
Balance at end of year $ 20,545 $ 7,497 $ 6,377
======== ======== =======
</TABLE>
At December 31, 1997, the recorded investment in certain direct installment
loans and direct revolving credit loans were considered to be impaired. The
balances of such loans at December 31, 1997 and the related allowance for
credit losses was as follows:
<TABLE>
<CAPTION>
INSTALLMENT REVOLVING
LOANS CREDIT TOTAL
----------- --------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balances at December 31, 1997 $7,723 14,492 22,215
Related allowance for credit losses $4,200 7,772 11,972
</TABLE>
All loans deemed to be impaired are placed on a non-accrual status. No
accrued or unpaid interest was recognized on impaired loans during 1997. The
average balances of impaired loans during the year ended December 31, 1997 was
$7,397,000 and $12,793,000, respectively, for installment basis and revolving
credit direct loans.
There were no material commitments to lend additional funds to customers
whose loans were classified as non-accrual at December 31, 1997.
(6) INCOME TAXES
Income tax expense varies from the amount computed by applying the federal
income tax rate of 35% to income from operations before taxes. The significant
components of this difference were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed tax expense $93,337 $69,753 $74,631
Difference between computed and actual tax ex-
pense:
Dividends received deduction (5,573) (2,534) (1,710)
Special tax on mutual life insurance companies 3,341 2,760 10,134
MF&C sale (4,408) -- --
Foundation gain (4,042) (1,260) (540)
Tax credits (3,600) (3,475) (1,840)
Expense adjustments and other (2,275) 3,533 2,699
------- ------- -------
Total tax expense $76,780 $68,777 $83,374
======= ======= =======
</TABLE>
72
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to the Company's net
deferred federal tax liability were as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Policyowner liabilities $ 14,374 $ 15,854
Unearned fee income 49,274 43,232
Pension and post-retirement benefits 23,434 21,815
Tax deferred policy acquisition costs 73,134 58,732
Net realized capital losses 9,609 8,275
Other 20,524 19,229
-------- --------
Gross deferred tax assets 190,349 167,137
Deferred tax liabilities:
Deferred policy acquisition costs 201,611 206,331
Real estate and property and equipment depreciation 11,165 10,089
Basis difference on investments 11,061 8,605
Net unrealized capital gains 122,876 81,339
Other 9,693 10,438
-------- --------
Gross deferred tax liabilities 356,406 316,802
-------- --------
Net deferred tax liability $166,057 $149,665
======== ========
</TABLE>
A valuation allowance for deferred tax assets was not considered necessary as
of December 31, 1997 and 1996, because the Company believes that it is more
likely than not that the deferred tax assets will be realized through future
reversals of existing taxable temporary differences and future taxable income.
Income taxes paid for the years ended December 31, 1997, 1996 and 1995, were
$97,721,000, $79,026,000 and $64,390,000, respectively.
73
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) 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 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1 $416,910 $377,302 $349,311
Less: reinsurance recoverable 102,161 80,333 61,624
-------- -------- --------
Net balance at January 1 314,749 296,969 287,687
-------- -------- --------
Incurred related to:
Current year 121,153 134,727 129,896
Prior years 7,809 4,821 (4,014)
-------- -------- --------
Total incurred 128,962 139,548 125,882
-------- -------- --------
Paid related to:
Current year 51,275 51,695 47,620
Prior years 57,475 70,073 68,980
-------- -------- --------
Total paid 108,750 121,768 116,600
-------- -------- --------
Net balance at December 31 334,961 314,749 296,969
Plus: reinsurance recoverable 104,716 102,161 80,333
-------- -------- --------
Balance at December 31 $439,677 $416,910 $377,302
======== ======== ========
</TABLE>
The liability for unpaid accident and health claims and claim adjustment
expenses is included in future policy and contract benefits and pending policy
and contract claims on the consolidated balance sheets.
As a result of changes in estimates of claims incurred in prior years, the
accident and health claims and claim adjustment expenses incurred increased
(decreased) by $7,809, $4,821 and ($4,014) in 1997, 1996 and 1995,
respectively. These amounts are the result of normal reserve development
inherent in the uncertainty of establishing the liability for unpaid accident
and health claims and claim adjustment expenses.
(8) EMPLOYEE BENEFIT PLANS
Pension Plans
The Company has noncontributory defined benefit retirement plans covering
substantially all employees and certain agents. Benefits are based upon years
of participation and the employee's average monthly compensation or the agent's
adjusted annual compensation. Plan assets are comprised of mostly stocks and
bonds, which are held in the general and separate accounts of the Company and
administered under group annuity contracts issued by the Company. The Company's
funding policy is to contribute annually the minimum amount required by
applicable regulations. The Company also has an unfunded noncontributory
defined benefit retirement plan, which provides certain employees with benefits
in excess of limits for qualified retirement plans.
Net periodic pension cost for the years ended December 31 included the
following components:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 6,462 $ 6,019 $ 5,294
Interest accrued on projected benefit obligation 9,640 8,541 7,935
Actual return on plan assets (9,575) (12,619) (18,061)
Net amortization and deferral 656 4,698 11,811
------- -------- --------
Net periodic pension cost $ 7,183 $ 6,639 $ 6,979
======= ======== ========
</TABLE>
74
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) EMPLOYEE BENEFIT PLANS (CONTINUED)
The funded status for the Company's plans as of December 31 was calculated as
follows:
<TABLE>
<CAPTION>
FUNDED PLANS UNFUNDED PLANS
------------------ ----------------
1997 1996 1997 1996
-------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit ob-
ligations:
Vested benefit obligation $ 70,638 $ 61,328 $ -- $ --
Non-vested benefit obligation 21,252 19,119 8,017 5,912
-------- -------- ------- -------
Accumulated benefit obligation $ 91,890 $ 80,447 $ 8,017 $ 5,912
======== ======== ======= =======
Pension liability included in other li-
abilities:
Projected benefit obligation $130,144 $117,836 $15,744 $12,576
Plan assets at fair value 128,970 115,107 -- --
-------- -------- ------- -------
Plan assets less then projected bene-
fit obligation 1,174 2,729 15,744 12,576
Unrecognized net gain (loss) 6,061 3,633 (4,229) (2,332)
Unrecognized prior service cost (334) (364) -- --
Unamortized transition asset (obliga-
tion) 2,202 2,422 (7,682) (8,451)
Additional minimum liability -- -- 4,184 4,119
-------- -------- ------- -------
Net pension liability $ 9,103 $ 8,420 $ 8,017 $ 5,912
======== ======== ======= =======
</TABLE>
A weighted average discount rate of 7.5% and a weighted average rate of
increase in future compensation levels of 5.3% were used in determining the
actuarial present value of the projected benefit obligation at December 31,
1997 and 1996. The assumed long-term rate of return on plan assets was either
8.5% or 7.5%, depending on the plan.
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
1997, 1996 and 1995 of $7,173,000, $6,092,000 and $6,595,000, respectively.
Participants may elect to receive a portion of their contributions in cash.
Postretirement Benefits Other than Pensions
The Company also has unfunded postretirement plans that provide certain health
care and life insurance benefits to substantially all retired employees and
agents. Eligibility is determined by age at retirement and years of service
after age 30. Health care premiums are shared with retirees, and other cost-
sharing features include deductibles and co-payments.
Components of net periodic postretirement benefit cost for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period $1,008 $1,011 $1,276
Interest accrued on projected benefit obligation 1,826 2,041 2,452
Amortization of prior service cost (526) (513) (513)
Amortization of net gain (480) (177) --
------ ------ ------
Net periodic postretirement benefit cost $1,828 $2,362 $3,215
====== ====== ======
</TABLE>
75
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) EMPLOYEE BENEFIT PLANS (CONTINUED)
The accumulated postretirement benefit obligation and the accrued
postretirement benefit liability for the years ended December 31 were as
follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees $ 9,333 $10,238
Other fully eligible plan participants 4,861 4,594
Other active plan participants 9,738 9,514
------- -------
Total accumulated postretirement benefit obligation 23,932 24,346
Unrecognized prior service cost 3,680 4,107
Unrecognized net gain 11,290 9,880
------- -------
Accrued postretirement benefit liability $38,902 $38,333
======= =======
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation for 1997 and 1996 was 7.5%. The 1997 net health care cost trend rate
was 8.5%, graded to 5.5% over 6 years, and the 1996 rate was 9.0%, graded to
5.5% over 7 years.
The assumptions presented herein are based on pertinent information available
to management as of December 31, 1997 and 1996. 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 31,1997 by
$4,323,000 and the estimated eligibility cost and interest cost components of
net periodic postretirement benefit costs for 1997 by $588,000.
(9) SALE OF SUBSIDIARY
On October 1, 1997, the Company sold Minnesota Fire and Casualty Company (MFC),
a wholly owned subsidiary to Harleysville Group, Inc. The Company received net
cash proceeds of approximately $33.5 million from the sale, and realized a gain
of approximately $14.5 million. HomePlus Insurance Company (HomePlus), a
previously wholly owned subsidiary of MFC, was excluded from the sale of
assets. In accordance with the agreement, prior to September 30,1997, MFC made
a distribution of private placement bonds to the Company with an amortized cost
of approximately $4.3 million and transferred all issued and outstanding shares
of HomePlus to the Company. The carrying value of the transferred shares was
approximately $5.8 million. Under an administrative services agreement with
MFC, the Company has retained MFC to provide financial and other services for
HomePlus.
(10) REINSURANCE
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance companies. To the extent that a reinsurer is
unable to meet its obligation under the reinsurance agreement, the Company
remains liable. The Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk to minimize its exposure to
significant losses from reinsurer insolvencies. Allowances are established for
amounts deemed to be uncollectible.
Reinsurance is accounted for over the life of the underlying reinsured
policies using assumptions consistent with those used to account for the
underlying policies.
76
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) REINSURANCE (CONTINUED)
The effect of reinsurance on premiums for the years ended December 31 was as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Direct premiums $595,686 $615,098 $600,841
Reinsurance assumed 78,097 64,489 64,792
Reinsurance ceded (58,530) (67,228) (61,863)
-------- -------- --------
Net premiums $615,253 $612,359 $603,770
======== ======== ========
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $58,072,000,
$72,330,000 and $58,338,000 during 1997, 1996 and 1995 respectively.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments has been
determined using available market information as of December 31, 1997 and 1996.
Although management is not aware of any factors that would significantly affect
the estimated fair value, such amounts have not been comprehensively revalued
since those dates. Therefore, estimates of fair value subsequent to the
valuation dates may differ significantly from the amounts presented herein.
Considerable judgement is required to interpret market data to develop the
estimates of fair value. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
Please refer to Note 2 for additional fair value disclosures concerning fixed
maturity securities, equity securities, mortgages and derivatives. The carrying
amounts for policy loans, cash, short term investments, and finance receivables
approximate the assets' fair values.
The interest rates on the finance receivables outstanding as of December 31,
1997 and 1996, are consistent with the rates at which loans would currently be
made to borrowers of similar credit quality and for the same maturity; as such,
the carrying value of the finance receivables outstanding as of December 31,
1997 and 1996, approximate the fair value for those respective dates.
The fair values of deferred annuities, annuity certain contracts, and other
fund deposits, which have guaranteed interest rates and surrender charges are
estimated to be the amount payable on demand as of December 31, 1997 and 1996
as those investments contracts have no defined maturity and are similar to a
deposit liability. The amount payable on demand equates to the account balance
less applicable surrender charges. Contracts without guaranteed interest rates
and surrender charges have fair values equal to their accumulation values plus
applicable market value adjustments. The fair values of guaranteed investment
contracts and supplementary contracts without life contingencies are 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.
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate the fair value of notes payable.
77
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments,
which were classified as assets as of December 31, were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturity securities:
Available-for-sale $4,719,801 $4,719,801 $4,674,082 $4,674,082
Held-to-maturity 1,088,312 1,158,227 1,125,638 1,179,112
Equity securities 686,638 686,638 549,797 549,797
Mortgage loans:
Commercial 506,860 527,994 432,198 445,976
Residential 154,477 158,334 176,610 180,736
Policy loans 213,488 213,488 204,178 204,178
Short-term investments 112,352 112,352 126,372 126,372
Cash 96,179 96,179 57,140 57,140
Finance receivables, net 211,794 211,794 259,192 259,192
Derivatives 1,457 1,457 1,197 1,197
---------- ---------- ---------- ----------
Total financial assets $7,791,358 $7,886,264 $7,606,404 $7,677,782
========== ========== ========== ==========
</TABLE>
The carrying amounts and fair values of the Company's financial instruments,
which were classified as liabilities as of December 31, were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Deferred annuities $2,131,806 $2,112,301 $2,178,355 $2,152,636
Annuity certain contracts 55,431 57,017 52,636 53,962
Other fund deposits 754,960 753,905 808,592 805,709
Guaranteed investment contracts 8,188 8,187 18,770 18,866
Supplementary contracts without
life contingencies 46,700 45,223 47,966 47,536
Notes payable 298,000 302,000 319,000 325,974
---------- ---------- ---------- ----------
Total financial liabilities $3,295,085 $3,278,633 $3,425,319 $3,404,683
========== ========== ========== ==========
</TABLE>
(12) NOTES PAYABLE
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 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 of the State of Minnesota. The
approved accrued interest was $3,008,000 as of December 31, 1997 and 1996. The
issuance costs of $1,357,000 are deferred and amortized over 30 years on
straight-line basis.
78
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) NOTES PAYABLE (CONTINUED)
Notes payable as of December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Corporate-surplus notes, 8.25%, 2025 $125,000 $125,000
Consumer finance subsidiary-senior, 6.53%-8.77%, through
2003 173,000 194,000
-------- --------
Total notes payable $298,000 $319,000
======== ========
</TABLE>
At December 31, 1997, the aggregate minimum annual notes payable maturities
for the next five years were as follows: 1998, $31,000,000; 1999 $49,000,000;
2000 $33,000,000; 2001 $26,000,000; 2002 $22,000,000.
Long-term borrowing agreements involving the consumer finance subsidiary
include provisions with respect to borrowing limitations, payment of cash
dividends on or purchases of common stock, and maintenance of liquid net worth
of $41,354,000. The consumer finance subsidiary was in compliance with all such
provisions at December 31, 1997.
Interest paid on debt for the years ended December 31, 1997, 1996 and 1995,
was $18,197,000, $21,849,000 and $6,504,000, respectively.
(13) COMMITMENTS AND CONTINGENCIES
The Company is involved in various pending or threatened legal proceedings
arising out of the normal course of business. In the opinion of management, the
ultimate resolution of such litigation will not have a material adverse effect
on operations or the financial position of the Company.
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance companies. To the extent that a reinsurer is
unable to meet its obligations under the reinsurance agreement, the Company
remains liable. The Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk to minimize its exposure to
significant losses from reinsurer insolvencies. Allowances are established for
amounts deemed uncollectible.
The Company has issued certain participating group annuity and group life
insurance contracts jointly with another life insurance company. The joint
contract issuer has liabilities related to these contracts of $279,978,000 as
of December 31, 1997. 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 totaling $139,774,000 as of December 31, 1997. The Company
estimates that $51,300,000 of these commitments will be invested in 1998, with
the remaining $88,474,000 invested over the next four years.
As of December 31, 1997, the Company had committed to purchase bonds and
mortgage loans totaling $109,362,000 but had not completed the purchase
transactions.
At December 31, 1997, the Company had guaranteed the payment of $73,100,000
in policyowner dividends and discretionary amounts payable in 1998. The Company
has pledged bonds, valued at $75,774,000 to secure this guarantee.
The Company is contingently liable under state regulatory requirements for
possible assessments pertaining to future insolvencies and impairments of
unaffiliated insurance companies. The Company records a liability for future
guaranty fund assessments based upon known insolvencies, according to data
received from the National Organization of Life and Health Insurance Guaranty
Association. An asset is recorded for the amount of guaranty fund assessments
paid which can be recovered through future premium tax credits.
79
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) STATUTORY FINANCIAL DATA
The Company also prepares financial statements according to statutory
accounting practices prescribed or permitted by the Department of Commerce for
purposes of filing with the Department of Commerce, the National Association of
Insurance Commissioners and states in which the Company is licensed to do
business. Statutory accounting practices focus primarily on solvency and
surplus adequacy. Therefore, fundamental differences exist between statutory
and GAAP accounting, and their effects on income and policyowners' surplus are
illustrated below:
<TABLE>
<CAPTION>
POLICYOWNERS' SURPLUS NET INCOME
---------------------- ----------------------------
1997 1996 1997 1996 1995
---------- ---------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Statutory basis $ 870,688 $ 682,886 $167,078 $115,797 $ 88,706
Adjustments:
Deferred policy acquisi-
tion costs 576,030 589,517 19,430 15,312 29,822
Net unrealized invest-
ment gains 199,637 111,575 -- -- --
Statutory asset valua-
tion reserve 242,100 240,474 -- -- --
Statutory interest main-
tenance reserve 24,169 24,707 (538) (8,192) 12,976
Premiums and fees de-
ferred or receivable (74,025) (75,716) 2,175 1,587 497
Change in reserve basis 108,105 98,406 9,699 20,114 12,382
Separate accounts (51,172) (40,755) (6,272) (6,304) (854)
Unearned policy and con-
tract fees (126,477) (121,843) (12,825) (2,530) (4,410)
Surplus notes (125,000) (125,000) -- -- --
Net deferred taxes (166,057) (149,665) 7,832 (744) (11,995)
Nonadmitted assets 32,611 31,531 -- -- --
Policyowner dividends 60,036 57,765 2,708 502 4,660
Other (33,960) (25,454) 609 (5,024) (1,925)
---------- ---------- -------- -------- --------
As reported in the
accompanying
consolidated
financial statements $1,536,685 $1,298,428 $189,896 $130,518 $129,859
========== ========== ======== ======== ========
</TABLE>
80
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
AS SHOWN
MARKET ON THE BALANCE
TYPE OF INVESTMENT COST(3) VALUE SHEET(1)
- ------------------ ---------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds:
United States government and government
agencies and authorities $ 239,613 $ 258,240 $ 258,240
Foreign governments 1,044 1,015 1,015
Public utilities 385,228 406,920 398,887
Mortgage-backed securities 2,049,424 2,118,030 2,107,213
All other corporate bonds 2,931,810 3,093,823 3,042,758
---------- ---------- ----------
Total bonds 5,607,119 5,878,028 5,808,113
---------- ---------- ----------
Equity securities:
Common stocks:
Public utilities 7,732 10,090 10,090
Banks, trusts and insurance companies 37,217 47,120 47,120
Industrial, miscellaneous and all
other 354,317 460,170 460,170
Nonredeemable preferred stocks 22,406 24,275 24,275
---------- ---------- ----------
Total equity securities 421,672 541,655 541,655
---------- ---------- ----------
Mortgage loans on real estate 661,337 xxxxxx 661,337
Real estate(2) 39,964 xxxxxx 39,964
Policy loans 213,488 xxxxxx 213,488
Other long-term investments 216,838 xxxxxx 216,838
Short-term investments 112,352 xxxxxx 112,352
---------- ---------- ----------
Total 1,243,979 -- $1,243,979
---------- ---------- ----------
Total investments $7,272,770 $6,419,683 $7,593,747
========== ========== ==========
</TABLE>
- -------
(1) Amortized cost for bonds classified as held-to-maturity and fair value for
common stocks and bonds classified as available-for-sale.
(2) The carrying value of real estate acquired in satisfaction of indebtedness
is $-0-.
(3) 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.
81
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
FUTURE POLICY
DEFERRED BENEFITS OTHER POLICY
POLICY LOSSES, CLAIMS CLAIMS AND
ACQUISITION AND SETTLEMENT UNEARNED BENEFITS
SEGMENT COSTS EXPENSES(1) PREMIUMS(2) PAYABLE
- ------- ----------- -------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1997:
Life insurance $434,012 $2,229,396 $166,704 $42,627
Accident and
health insurance 70,593 466,109 34,250 17,153
Annuity 71,425 3,266,965 -- 4,576
Property and
liability
insurance -- 280 1,116 --
-------- ---------- -------- -------
$576,030 $5,962,750 $202,070 $64,356
======== ========== ======== =======
1996:
Life insurance $456,461 $2,123,148 $149,152 $51,772
Accident and
health insurance 62,407 437,118 33,770 18,774
Annuity 70,649 3,360,614 -- 31
Property and
liability
insurance -- 27,855 24,189 --
-------- ---------- -------- -------
$589,517 $5,948,735 $207,111 $70,577
======== ========== ======== =======
1995:
Life insurance $430,829 $2,009,154 $151,864 $41,212
Accident and
health insurance 55,888 400,950 34,847 14,567
Annuity 53,015 3,401,760 -- 33
Property and
liability
insurance -- 30,117 23,783 --
-------- ---------- -------- -------
$539,732 $5,841,981 $210,494 $55,812
======== ========== ======== =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
AMORTIZATION
BENEFITS, OF DEFERRED
NET CLAIMS, LOSSES POLICY OTHER
PREMIUM INVESTMENT AND SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT REVENUE(3) INCOME EXPENSES COSTS EXPENSES WRITTEN(4)
- ------- ---------- ---------- -------------- ------------ --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1997:
Life insurance $576,468 $247,267 $476,747 $102,473 $345,938
Accident and
health insurance 205,869 40,343 87,424 9,451 101,960
Annuity 64,637 261,768 242,738 16,252 129,263
Property and
liability
insurance 40,316 4,395 33,773 -- 13,146 43,376
-------- -------- -------- -------- -------- -------
$887,290 $553,773 $840,682 $128,176 $590,307 $43,376
======== ======== ======== ======== ======== =======
1996:
Life insurance $568,874 $223,762 $478,228 $ 97,386 $290,525
Accident and
health insurance 160,097 34,202 96,743 14,017 87,222
Annuity 79,245 267,473 243,387 14,575 111,366
Property and
liability
insurance 50,109 5,550 36,933 -- 19,033 50,515
-------- -------- -------- -------- -------- -------
$858,325 $530,987 $855,291 $125,978 $508,146 $50,515
======== ======== ======== ======== ======== =======
1995:
Life insurance $540,353 $203,487 $454,299 $ 80,896 $266,090
Accident and
health insurance 153,505 33,358 93,482 11,448 83,345
Annuity 74,899 272,499 260,854 12,596 86,716
Property and
liability
insurance 49,216 5,703 33,563 -- 18,090 51,133
-------- -------- -------- -------- -------- -------
$817,973 $515,047 $842,198 $104,940 $454,241 $51,133
======== ======== ======== ======== ======== =======
</TABLE>
- -----
(1) Includes policy and contract account balances
(2) Includes unearned policy and contract fees
(3) Includes policy and contract fees
(4) Applies only to property and liability insurance
82
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE IV
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<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>
1997:
Life insurance in force $118,345,796 $14,813,351 $29,341,332 $132,873,777 22.1%
============ =========== =========== ============
Premiums:
Life insurance $ 340,984 $ 30,547 $ 63,815 $ 374,252 17.1%
Accident and health
insurance 175,647 16,332 1,310 160,625 0.8%
Annuity 40,060 -- -- 40,060 --
Property and liability
insurance 38,995 11,651 12,972 40,316 32.2%
------------ ----------- ----------- ------------
Total premiums $ 595,686 $ 58,530 $ 78,097 $ 615,253 12.7%
============ =========== =========== ============
1996:
Life insurance in force $116,445,975 $15,164,764 $22,957,287 $124,238,498 18.5%
============ =========== =========== ============
Premiums:
Life insurance $ 347,056 $ 45,988 $ 63,044 $ 364,112 17.3%
Accident and health
insurance 174,219 15,511 1,389 160,097 0.9%
Annuity 38,041 -- -- 38,041 --
Property and liability
insurance 55,782 5,729 56 50,109 0.1%
------------ ----------- ----------- ------------
Total premiums $ 615,098 $ 67,228 $ 64,489 $ 612,359 10.5%
============ =========== =========== ============
1995:
Life insurance in force $106,228,277 $15,620,303 $24,289,241 $114,897,215 21.1%
============ =========== =========== ============
Premiums:
Life insurance $ 342,433 $ 44,778 $ 62,169 $ 359,824 17.3%
Accident and health
insurance 163,412 12,296 2,389 153,505 1.6%
Annuity 41,225 -- -- 41,225 --
Property and liability
insurance 53,771 4,789 234 49,216 0.5%
------------ ----------- ----------- ------------
Total premiums $ 600,841 $ 61,863 $ 64,792 $ 603,770 10.7%
============ =========== =========== ============
</TABLE>
83
