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File Number 33-12333
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment Number
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Post-Effective Amendment Number X 13
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment Number
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VARIABLE ANNUITY ACCOUNT
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(Exact Name of Registrant)
MINNESOTA LIFE INSURANCE COMPANY
(formerly The Minnesota Mutual Life Insurance Company)
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(Name of Depositor)
400 ROBERT STREET NORTH, ST. PAUL, MINNESOTA 55101-2098
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(Address of Depositor's Principal Executive Offices) (Zip Code)
(651) 665-3500
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(Depositor's Telephone Number, Including Area Code)
<TABLE>
<S> <C>
Dennis E. Prohofsky Copy to:
Senior Vice President, General Counsel and Secretary J. Sumner Jones, Esq.
Minnesota Life Insurance Company Jones & Blouch L.L.P.
400 Robert Street North 1025 Thomas Jefferson Street, N.W.
St. Paul, Minnesota 55101-2098 Suite 405 West
(Name and Address of Agent for Service) Washington, D.C. 20007
</TABLE>
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (check appropriate box)
--- immediately upon filing pursuant to paragraph (b)
X on May 3, 1999 pursuant to paragraph (b) of Rule 485
---
--- 60 days after filing pursuant to paragraph (a)(i)
on (date) pursuant to paragraph (a)(i)
---
--- 75 days after filing pursuant to paragraph (a)(ii)
--- on (date) pursuant to paragraph (a)(ii).
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
TITLE OF SECURITIES BEING REGISTERED
Variable Annuity Contracts
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PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
Variable Annuity Account
Cross Reference Sheet to Prospectus
Form N-4
Item Number Caption in Prospectus
1. Cover Page
2. Special Terms
3. Questions and Answers About the Variable Annuity Contracts
4. Condensed Financial Information; Performance Data - Appendix
5. General Descriptions
6. Contract Charges
7. Description of the Contracts; General
8. Description of the Contracts; Annuity Payments and Options
9. Description of the Contracts; Death Benefits
10. Description of the Contracts; Purchase Payments and Value of
the Contract
11. Description of the Contracts; Redemptions
12. Federal Tax Status
13. Not Applicable
14. Table of Contents of the Statement of Additional Information
<PAGE>
FLEXIBLE PAYMENT DEFERRED
VARIABLE ANNUITY CONTRACT
MINNESOTA LIFE INSURANCE COMPANY
("MINNESOTA LIFE")
400 Robert Street North
St. Paul, Minnesota 55101-2098
Telephone: (651) 665-3500
http://www.minnesotamutual.com
This Prospectus describes an individual, flexible payment, variable annuity
contract ("the contract") offered by Minnesota Life Insurance Company. The
contract may be used in connection with certain types of retirement plans.
Your contract values are invested in our Variable Annuity Account. The Variable
Annuity Account invests in shares of Advantus Series Fund, Inc. and Class 2 of
the Templeton Developing Markets Funds, a series of Templeton Variable Products
Series Fund (the "Funds"). Your contract's accumulation value and the amount of
each variable annuity payment will vary in accordance with the performance of
the Fund investment portfolio(s) ("Portfolio(s)") you select. You bear the
entire investment risk for any amounts you allocate to those Portfolios.
This Prospectus includes the information you should know before purchasing a
contract. You should read it and keep it for future reference. A Statement of
Additional Information, bearing the same date, which contains further contract
information, has been filed with the Securities and Exchange Commission ("SEC")
and is incorporated by reference into this Prospectus. A copy of the Statement
of Additional Information may be obtained without charge by calling (651)
665-3500, or by writing to us at our office at 400 Robert Street North, St.
Paul, Minnesota 55101-2098. Its table of contents may be found at the end of
this prospectus.
THIS PROSPECTUS IS NOT VALID UNLESS ATTACHED TO A CURRENT PROSPECTUS OF THE
ADVANTUS SERIES FUND, INC. AND THE TEMPLETON DEVELOPING MARKETS FUND.
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.
The date of this Prospectus and of the Statement of Additional Information is:
May 3, 1999
<PAGE>
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, SHOULD NOT BE RELIED UPON.
TABLE OF CONTENTS
SPECIAL TERMS 1
QUESTIONS AND ANSWERS ABOUT THE VARIABLE ANNUITY CONTRACT 2
EXPENSE TABLE 4
GENERAL DESCRIPTIONS 8
Minnesota Life Insurance Company 8
Variable Annuity Account 8
Advantus Series Fund, Inc. 9
Templeton Variable Products Series Fund 9
Additions, Deletions or Substitutions 9
CONTRACT CHARGES 10
Administrative Charge 10
Premium Taxes 10
VOTING RIGHTS 11
DESCRIPTION OF THE CONTRACT 11
General Provisions 11
Annuity Payments and Options 14
Death Benefits 19
Purchase Payments and Value of the Contract 20
Redemptions 23
FEDERAL TAX STATUS 24
PERFORMANCE DATA 29
YEAR 2000 COMPUTER PROBLEM 30
STATEMENT OF ADDITIONAL INFORMATION 30
APPENDIX A -- CONDENSED FINANCIAL INFORMATION A-1
APPENDIX B -- ILLUSTRATION OF VARIABLE ANNUITY VALUES B-1
APPENDIX C -- TYPES OF QUALIFIED PLANS C-1
<PAGE>
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCUMULATION UNIT: an accounting device used to determine the value of a
contract before annuity payments begin.
ACCUMULATION VALUE: your interest in this contract composed of your interest in
one or more Sub-Accounts of the Variable Annuity Account.
ANNUITANT: the person who may receive lifetime benefits under the contract.
ANNUITY: a series of payments for life; for life with a minimum number of
payments guaranteed; for the joint lifetime of the annuitant and another person
and thereafter during the lifetime of the survivor; or for a period certain.
ANNUITY UNIT: an accounting device used to determine the amount of annuity
payments.
CODE: the Internal Revenue Code of 1986, as amended.
CONTRACT OWNER: the owner of the contract, which could be the annuitant, his
employer, or a trustee acting on behalf of the employer.
CONTRACT YEAR: a period of one year beginning with the contract date or a
contract anniversary.
FIXED ANNUITY: an annuity providing for payments of guaranteed amounts
throughout the payment period.
FUND: the mutual fund or separate investment portfolio within a series mutual
fund which we have designated as an eligible investment for the Variable Annuity
Account, namely, Advantus Series Fund, Inc. and its Portfolios and in Class 2 of
the Templeton Developing Markets Fund.
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 PAYMENTS: amounts paid to us under a contract.
VALUATION DATE OR VALUATION DAYS: each date on which a Fund Portfolio is
valued.
VARIABLE ANNUITY ACCOUNT: a separate investment account called the Variable
Annuity Account, where the investment experience of its assets is kept separate
from our other assets.
VARIABLE ANNUITY: an annuity providing for payments varying in amount in
accordance with the investment experience of the Fund.
WE, OUR, US: Minnesota Life Insurance Company.
YOU, YOUR: the Contract Owner.
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QUESTIONS AND ANSWERS ABOUT
THE VARIABLE ANNUITY CONTRACTS
WHAT IS AN ANNUITY?
An annuity is a series of payments by an insurance company to an "annuitant".
These payments may be made for the life of the annuitant; for life with a
minimum number of payments guaranteed; for the joint lifetime of the annuitant
and another person and thereafter during the lifetime of the survivor; or for a
specified period of time. An annuity with payments which are guaranteed as to
amount during the payment period is a fixed annuity. An annuity with payments
which vary during the payment period in accordance with the investment
experience of a separate account is called a variable annuity.
WHAT CONTRACT IS OFFERED BY THIS PROSPECTUS?
The contract is a variable annuity contract which provides for monthly annuity
payments. These payments may begin immediately or at a future date you specify.
We allocate your purchase payments under your contract to the Variable Annuity
Account. The Variable Annuity Account invests in one or more Portfolios of the
Fund according to your instructions. There are no interest or principal
guarantees.
The contracts are offered for use in connection with certain retirement plans
and other circumstances including:
- members of the faculty and employees of the University of Minnesota;
- officers, directors, full-time and part-time employees, sales
representatives and their employees, and retirees of Minnesota Life or
any of Minnesota Life's other affiliated companies; any trust, pension or
other benefit plan for such persons, the spouses, siblings, direct
ancestors and direct descendants of such persons;
- groups consisting of individuals employed by an employer or associated
with a program established or maintained by an entity which:
- provides an exclusive or partially exclusive sales arrangement with
Minnesota Life or its affiliates; and
- allows for the purchase of annuities under section 403(b) or 403
(b)(9) of the Code; and
- has more than 1000 individuals who are eligible for participation
by annuity purchase.
- individuals purchasing one or more of these contracts wherein the
aggregate purchase payments total $5,000,000 or more, other than as part
of a qualified pension or profit sharing plan;
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- individuals solicited by registered investment advisers who charge
clients a fee for their services and where initial contract purchase
payment is at least $25,000.
- in connection with retirement plans under sections 401, 403 or 408 of the
Internal Revenue Code.
WHAT INVESTMENT OPTIONS ARE AVAILABLE?
Any purchase payments you allocate to the Variable Annuity Account are invested
exclusively in shares of one or more Fund Portfolios. Certain plans may restrict
which Portfolios are available. We reserve the right to add, combine or remove
other eligible Funds and Portfolios.
The available Portfolios of Advantus Series Fund are:
Growth Portfolio
Bond Portfolio
Money Market Portfolio
Asset Allocation Portfolio
Mortgage Securities Portfolio
Index 500 Portfolio
Capital Appreciation Portfolio
International Stock Portfolio
Small Company Growth Portfolio
Maturing Government Bond Portfolios
Value Stock Portfolio
Small Company Value Portfolio
Global Bond Portfolio
Index 400 Mid-Cap Portfolio
Macro-Cap Value Portfolio
Micro-Cap Growth Portfolio
Real Estate Securities Portfolio
The Variable Annuity Account also invests in Class 2 shares of the Templeton
Developing Markets Fund.
There is no assurance that any Portfolio will meet its objectives. Detailed
information about the investment objectives and policies of the Portfolios can
be found in the current prospectus for each Fund, which are attached to this
Prospectus. You should carefully read each Fund prospectus before purchasing in
the contract.
CAN YOU CHANGE THE PORTFOLIO SELECTED?
Yes. You may change your allocation of future purchase payments by giving us
written notice or a telephone call notifying us of the change. Before annuity
payments begin, you may transfer all or a part of your accumulation value among
the Portfolios. Under some contracts, transfers may be restricted dependent upon
the source of purchase payments. Additional information can be found in this
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Prospectus. After annuity payments begin, you may instruct us to transfer
amounts held as annuity reserves among the variable annuity sub-accounts subject
to some restrictions. Annuity reserves may be transferred only from a variable
annuity to a fixed annuity during the annuity period. Currently no charges are
imposed on transfers between portfolios, however we reserve the right to impose
such charges in the future.
WHAT CHARGES ARE ASSOCIATED WITH THE CONTRACTS?
We deduct a daily charge equal to an annual rate of .15% of the net asset value
of the Variable Annuity Account for contract administration. We reserve the
right to increase the charge to not more than .35% of the net asset value of the
Variable Annuity Account.
Deductions for any applicable premium taxes may also be made (currently such
taxes range from 0.0% to 3.5%) depending upon applicable law.
The Portfolios pay investment advisory and other expenses. Total expenses of the
Portfolios range from .40% to 1.91% of average daily net assets of the
Portfolios on an annual basis.
We reserve the right to make a charge of up to $25 for transfers among sub-
accounts occurring more frequently than once a month. We also reserve the right
to assess a one time administrative charge of $50 if you exchange this contract
for another of our variable annuity contracts. Currently we do not impose such
charges.
The Expense Tables that follow provide detailed cost and expense information.
EXPENSE TABLE
The tables shown below are to assist you in understanding the costs and expenses
that you 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 following contract expense information is intended to illustrate the expense
of a MultiOption variable annuity contract. All expenses shown are rounded to
the nearest dollar. The information contained in the tables must be considered
with the narrative information which immediately follows them in this heading.
FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<TABLE>
<S> <C>
Administrative Charge .15%
----
Total Separate Account Annual Expense .15%
----
----
</TABLE>
There are no mortality and expense risk or other separate account annual
expenses for this contract.
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FUND ANNUAL EXPENSES
(As a percentage of average net assets for the described Advantus Series Fund,
Inc. Portfolios and the Templeton Variable Product Series.)
<TABLE>
<CAPTION>
TOTAL FUND ANNUAL
OTHER EXPENSES EXPENSES (AFTER
INVESTMENT (AFTER EXPENSE DISTRIBUTION EXPENSE
MANAGEMENT FEES REIMBURSEMENTS) EXPENSES REIMBURSEMENTS)
----------------- ----------------- ------------ -----------------
<S> <C> <C> <C> <C>
Advantus Series Fund, Inc.:
Growth Portfolio 0.50% 0.03% -- 0.53%
Bond Portfolio 0.50% 0.05% -- 0.55%
Money Market Portfolio 0.50% 0.08% -- 0.58%
Asset Allocation Portfolio 0.50% 0.03% -- 0.53%
Mortgage Securities Portfolio 0.50% 0.07% -- 0.57%
Index 500 Portfolio 0.40% 0.04% -- 0.44%
Capital Appreciation Portfolio 0.75% 0.03% -- 0.78%
International Stock Portfolio 0.70% 0.24% -- 0.94%
Small Company Growth Portfolio 0.75% 0.04% -- 0.79%
Maturing Government Bond 2002 Portfolio (1) 0.25% 0.15% -- 0.40%
Maturing Government Bond 2006 Portfolio (1) 0.25% 0.15% -- 0.40%
Maturing Government Bond 2010 Portfolio (1) 0.25% 0.15% -- 0.40%
Value Stock Portfolio 0.75% 0.04% -- 0.79%
Small Company Value Portfolio (1) 0.75% 0.15% -- 0.90%
Global Bond Portfolio 0.60% 0.53% -- 1.13%
Index 400 Mid-Cap Portfolio (1) 0.40% 0.15% -- 0.55%
Macro-Cap Value Portfolio (1) 0.70% 0.15% -- 0.85%
Micro-Cap Growth Portfolio (1) 1.10% 0.15% -- 1.25%
Real Estate Securities Portfolio (1) 0.75% 0.15% -- 0.90%
Templeton Variable Products Series:
Developing Markets Fund Class 2 1.25% 0.41% 0.25%(2) 1.91%
</TABLE>
(1) Minnesota Life voluntarily absorbed certain expenses of the Maturing
Government Bond 2002, Maturing Government Bond 2006, Maturing Government Bond
2010, Small Company Value, Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap Growth,
and Real Estate Securities Portfolios for the period ended December 31, 1998. If
these portfolios had been charged for expenses, the ratio of expenses to average
daily net assets would have been 1.07%, 1.12%, 1.33%, 1.83%, 1.36%, 2.53%,
2.10%, and 1.90%, respectively. For these portfolios, it is Minnesota Life's
intention to waive other fund expenses during the current fiscal year which
exceed, as a percentage of average daily net assets, .15%. Minnesota Life also
reserves the option to reduce the level of other expenses which it will
voluntarily absorb.
(2) Developing Markets Fund Class 2 has a distribution plan or "Rule 12b-1 Plan"
which is described in the Fund's prospectus.
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CONTRACT OWNER EXPENSE EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Advantus Series Fund, Inc.:
Growth Portfolio $ 7 $ 22 $ 38 $ 85
Bond Portfolio $ 7 $ 22 $ 39 $ 87
Money Market Portfolio $ 7 $ 23 $ 41 $ 91
Asset Allocation Portfolio $ 7 $ 22 $ 38 $ 85
Mortgage Securities Portfolio $ 7 $ 23 $ 40 $ 89
Index 500 Portfolio $ 6 $ 19 $ 33 $ 74
Capital Appreciation Portfolio $ 9 $ 30 $ 51 $ 114
International Stock Portfolio $ 11 $ 35 $ 60 $ 133
Small Company Growth Portfolio $ 10 $ 30 $ 52 $ 115
Maturing Government Bond 2002
Portfolio $ 6 $ 18 $ 31 $ 69
Maturing Government Bond 2006
Portfolio $ 6 $ 18 $ 31 $ 69
Maturing Government Bond 2010
Portfolio $ 6 $ 18 $ 31 $ 69
Value Stock Portfolio $ 10 $ 30 $ 52 $ 115
Small Company Value Portfolio $ 11 $ 33 $ 58 $ 128
Global Bond Portfolio $ 13 $ 41 $ 70 $ 155
Index 400 Mid-Cap Portfolio $ 7 $ 22 $ 39 $ 87
Macro-Cap Value Portfolio $ 10 $ 32 $ 55 $ 122
Micro-Cap Growth Portfolio $ 14 $ 44 $ 77 $ 168
Real Estate Securities Portfolio $ 11 $ 33 $ 58 $ 128
Templeton Variable Products Series:
Developing Markets Fund Class 2 $ 21 $ 65 $ 111 $ 239
</TABLE>
The table does not reflect deductions for any applicable premium taxes which may
be made from each purchase payment depending upon the applicable law.
This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown.
CAN YOU MAKE PARTIAL WITHDRAWALS FROM THE CONTRACT?
Yes. You may make partial withdrawals of the accumulation value of your contract
before an annuity begins. Your requests for withdrawals must be in writing. A
penalty tax may be assessed upon withdrawals from annuity contracts in certain
circumstances including distributions made prior to the owner's attainment of
age 59 1/2.
DO YOU HAVE A RIGHT TO CANCEL THE CONTRACT?
Yes. You may cancel the contract any time within ten days of receiving it by
returning it to us or your agent. In some states, the free look period may be
longer than ten days. For example, in California, the free look period is thirty
days. These rights are subject to change and may vary among the states.
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WHAT IF THE OWNER OR ANNUITANT DIES?
If the contract owner dies before annuity payments begin, we will pay the death
benefit to the beneficiary named in the contract application. In the case of
joint owners, this amount would be payable at the death of the second owner. The
death benefit payable to the beneficiary upon the death of the contract owner
during the accumulation period is equal to the greater of:
- the amount of the accumulation value payable at death;
- the total amount of your purchase, less all partial withdrawals.
If the annuitant dies after annuity payments have begun, we will pay whatever
death benefit may be called for by the terms of the annuity option selected. If
the owner of this contract is other than a natural person, such as a trust or
other similar entity, we will pay a death benefit of the accumulation value to
the named beneficiary on the death of the annuitant if death occurs prior to the
commencement of annuity payments.
WHAT ANNUITY OPTIONS ARE AVAILABLE?
The annuity options available are:
- a life annuity;
- a life annuity with a period certain of either 120 months, 180 months or
240 months;
- a joint and last survivor annuity and
- a period certain annuity.
Each annuity option may be elected as either a variable annuity of fixed annuity
or a combination of the two. Other annuity options may be available from us on
request.
WHAT VOTING RIGHTS DO YOU HAVE?
Contract owners and annuitants will be able to direct us as to how to vote
shares of the underlying Funds held for their contracts where shareholder
approval is required by law in the affairs of the Funds.
CONDENSED FINANCIAL INFORMATION AND FINANCIAL STATEMENTS
The financial history of each sub-account may be found in the Appendix entitled
"Condensed Financial Information." The financial statements of the Variable
Annuity Account and Minnesota Life Insurance Company may be found in the
Statement of Additional Information.
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(SIDEBAR)
We are a life insurance company.
The Variable Annuity Account is one of our separate accounts.
Each of the 20 sub-accounts of the Variable Annuity Account invests in a
different Fund Portfolio.
(END SIDEBAR)
GENERAL DESCRIPTIONS
A. MINNESOTA LIFE INSURANCE COMPANY
We are Minnesota Life Insurance Company ("Minnesota Life"), a life insurance
company organized under the laws of Minnesota. Minnesota Life was formerly known
as The Minnesota Mutual Life Insurance Company ("Minnesota Mutual"), a mutual
life insurance company organized in 1880 under the laws of Minnesota. On October
1, 1998, a plan of reorganization created a mutual insurance holding company
named Minnesota Mutual Companies, Inc. Minnesota Mutual reorganized as stock
insurance company subsidiary of the new holding company and took the new name
Minnesota Life. Our home office is at 400 Robert Street North, St. Paul,
Minnesota 55101-2098, telephone: (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. VARIABLE ANNUITY ACCOUNT
We established the Variable Annuity Account on September 10, 1984, in accordance
with Minnesota law. The name changed from Minnesota Mutual Variable Annuity
Account on October 1, 1998. The separate account is registered as a "unit
investment trust" with the Securities and Exchange Commission under the
Investment Company Act of 1940, but that registration does not mean that the
Securities and Exchange Commission supervises the management, or the investment
practices or policies, of the Variable Annuity Account.
The assets of the Variable Annuity Account are not chargeable with liabilities
arising out of any other business which we may conduct. The investment
performance of the Variable Annuity Account is entirely independent of both the
investment performance of our General Account and our separate accounts. All
obligations under the contracts are general corporate obligations of Minnesota
Life.
The Variable Annuity Account currently has twenty sub-accounts to which you may
allocate purchase payments. Each sub-account invests in shares of a
corresponding Portfolio of the Funds. Additional sub-accounts may be added at
our discretion.
The University of Minnesota provides tax-deferred annuities and custodial funds
in accordance with section 403(b) as amended by section 415, of the Code. The
University of Minnesota has separated its plan into two sections: The Basic
Plan, which is that portion of the plan that relates to the Faculty Retirement
Plan; and the Optional Plan, which is that portion of the plan which relates to
the purchase of optional annuities and mutual funds.
When this contract is used in association with the University of Minnesota Basic
Plan, purchase payments may be allocated only to the following Sub-Accounts:
Money Market Account and Bond Account. When this contract is used in
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(SIDEBAR)
We may change the Portfolios offered under the contract.
(END SIDEBAR)
association with the Optional Plan, purchase payments may be allocated to any
Sub-Account offered under the contract. In addition, contracts issued in
association with the Basic Plan and Optional Plan do not allow amounts to be
transferred between the two Plans.
C. THE FUNDS
The Advantus Series Fund, Inc. ("Series Fund") is a mutual fund advised by
Advantus Capital Management, Inc. ("Advantus Capital"). The Series Fund issues
its shares only to us and our separate accounts. It may be offered to separate
accounts of insurance companies affiliated with us in the future. Advantus
Capital is a wholly-owned subsidiary of Minnesota Life.
Advantus Capital has retained investment sub-advisers to manage the investment
of certain Portfolios of the Series Fund. Those sub-advisers are:
<TABLE>
<CAPTION>
SERIES FUND PORTFOLIO SUB-ADVISER
- --------------------- --------------------------------------
<S> <C>
Capital Appreciation Winslow Capital Management, Inc.
International Stock Templeton Investment Counsel, Inc.
Macro-Cap Value J.P. Morgan Investment Management Inc.
Micro-Cap Growth Wall Street Associates
Global Bond Julius Baer Investment Management Inc.
</TABLE>
The Variable Annuity Account also invests in Class 2 shares of Templeton
Developing Markets Fund (a "Templeton Fund"), a diversified portfolio of
Templeton Variable Products Series Fund. The investment adviser of Templeton
Developing Markets Fund is Templeton Asset Management Ltd.
Prospectuses for Series Fund and Templeton Fund are attached to this prospectus.
You should carefully read those prospectuses before investing in the contract.
D. ADDITIONS, DELETIONS OR SUBSTITUTIONS
We retain the right, subject to any applicable law, to make substitutions with
respect to the investments of the sub-accounts of the Variable Annuity Account.
If investment in a Fund should no longer be possible or if we determine it
becomes inappropriate these contracts, we may substitute another Fund for a
sub-account. Substitution may be with respect to existing accumulation values,
future purchase payments and future annuity payments.
We may also establish additional sub-accounts in the Variable Annuity Account.
We reserve the right to add, combine or remove any sub-accounts of the Variable
Annuity Account. Each additional sub-account will purchase shares in a new
Portfolio or mutual fund. Sub-accounts may be established when, in our sole
discretion, marketing, tax, investment or other conditions warrant. We will use
similar considerations in determining whether to eliminate one or more of the
sub-accounts of the Variable Annuity Account. The addition of any investment
option will be made available to existing contract owners on any basis we may
determine.
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(SIDEBAR)
There is an administrative charge of .15%, but we may increase it to .35%.
(END SIDEBAR)
We also reserve the right, when permitted by law, to de-register the Variable
Annuity Account under the Investment Company Act of 1940, to restrict or
eliminate any voting rights of the contract owners, and to combine the Variable
Annuity Contract with one or more of our other separate accounts.
Shares of the Portfolios of the Funds are also sold to some of our other
separate accounts, which may invest premiums under 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 we nor the Funds currently foresee any
such disadvantages either to variable life insurance policy owners or to
variable annuity contract owners, the Funds' Boards of Directors intend 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. An 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,
- changes in state insurance laws,
- changes in Federal income tax laws
- changes in the investment management of any of the Portfolios of the
Fund, or
- differences in voting instructions between those given by policy owners
and those given by contract owners.
CONTRACT CHARGES
A. ADMINISTRATIVE 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 contracts, the receipt of purchase payments, forwarding
amounts to the Fund for investment, the preparation and mailing of periodic
reports and the performance of other services.
We currently make a deduction from the Variable Annuity Account at the annual
rate of .15% for these services. We reserve the right to increase this
administrative charge to not more than .35%.
The administrative charge is designed to cover the administrative expenses
incurred by us under the contract. We do not expect to recover from the charge
any amount in excess of our accumulated expenses associated with the
administration of the contract.
B. PREMIUM TAXES
Deduction for any applicable state premium taxes may be made from each purchase
payment or at the commencement of annuity payments. (Currently, such
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(SIDEBAR)
You can instruct us how to vote Fund shares.
The contract is a flexible payment deferred variable annuity.
(END SIDEBAR)
taxes range from 0.0% to 3.5%, depending on the applicable law.) Any amount
withdrawn from the contract may be reduced by any premium taxes not previously
deducted from purchase payments.
C. PORTFOLIO CHARGES
Each of the Portfolios pays investment advisory and other expenses. These
charges are detailed in their respective prospectuses.
VOTING RIGHTS
We will vote the Fund shares held in the Variable Annuity Account at shareholder
meetings of the Funds. We will vote shares attributable to contracts in
accordance with instructions received from contract owners with voting interests
in each sub-account of the Variable Annuity Account. We will vote shares for
which no instructions are received and shares not attributable to contracts in
the same proportion as shares for which instructions have been received. The
number of votes for which a contract owner may provide instructions will be
calculated separately for each sub-account of the Variable Annuity Account. If
applicable laws should change so that we were allowed to vote shares in our own
right, then we may elect to do so.
During the accumulation period of each contract, the contract owner holds the
voting interest in each contract. The number of votes will be determined by
dividing the accumulation value of the contract attributable to each Sub-Account
by the net asset value per share of the underlying Fund shares held by that Sub-
Account.
During the annuity period of each contract, the annuitant holds the voting
interest in each contract. The number of votes will be determined by dividing
the reserve for each contract allocated to each Sub-Account by the net asset
value per share of the underlying Fund shares held by that Sub-Account. After an
annuity begins, the votes attributable to any particular contract will decrease
as the reserves decrease. In determining any voting interest, fractional shares
will be recognized.
We shall notify each contract owner or annuitant of a Fund shareholders' meeting
if the shares held for the contract owner's contract may be voted at such
meeting. We will also send proxy materials and a form of instruction so that you
can instruct us with respect to voting.
DESCRIPTION OF THE CONTRACT
A. GENERAL PROVISIONS
1. Type of Contract Offered
Flexible Payment Deferred Variable Annuity Contract
The contract may be used in connection with all types of plans, or individual
retirement annuities adopted by or on behalf of individuals. It may also be
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(SIDEBAR)
We issue the contract to you and you select the annuitant.
We may cancel your contract if you stop making payments and have a small
accumulation value.
(END SIDEBAR)
purchased by individuals not as a part of any plan. The contract provides for a
variable annuity or a fixed annuity to begin at some future date. Purchase
payments are flexible with respect to timing and amount.
2. Issuance of Contracts
The contract is issued to you, the contract owner named in the application. You
may be the annuitant or may specify someone else to be the annuitant.
3. Modification of the Contracts
Your contract may be modified at any time by written agreement between you and
us. However, no such modification will adversely affect the rights of an
annuitant under the contract unless the modification is made to comply with a
law or government regulation. You will have the right to accept or reject the
modification. This right of acceptance or rejection is limited for contracts
used as individual retirement annuities.
4. Assignment
If the contract is sold in connection with a tax-qualified program (including
employer sponsored employee pension benefit plans, tax-sheltered annuities and
individual retirement annuities) then:
- 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, and;
- to the maximum extent permitted by law, benefits payable under the
contract shall be exempt from the claims of creditors.
If the contract is not issued in connection with a tax-qualified program, the
interest of any person in the contract may be assigned during the lifetime of
the annuitant.
We will not be bound by any assignment until we have recorded written notice of
it at our home office. We are not responsible for the validity of any
assignment. An assignment will not apply to any payment or action made by us
before it was recorded. Any payments to an assignee will be paid in a single
sum. Any claim made by an assignee will be subject to proof of the assignee's
interest and the extent of the assignment.
5. Limitations on Purchase Payments
You choose when to make purchase payments. There is no minimum amount which is
to be allocated to any Sub-Account of the Variable Annuity Account.
In the Variable Annuity Account, your purchase payments are invested in the
Funds according to your instructions. We will return your initial payment within
five business days if:
- your application fails to specify which Portfolios you desire, or is
otherwise incomplete, and
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(SIDEBAR)
We normally pay lump sum payments within 7 days, but may delay payments in
certain circumstances.
The contract is non-participating.
(END SIDEBAR)
- you do not consent to our retention of your initial payment until the
application is made complete.
The contract permits us to cancel your contract, and pay you its accumulation
value if:
- no purchase payments are made for a period of two or more full contract
years and;
- the total purchase payments made, less any withdrawals and associated
charges are less than $2,000, and;
- the accumulation value of the contract is less than $2,000.
We will notify you, in advance, of our intent to exercise this right in our
annual report to you about the status of your contract. We will cancel the
contract ninety days after the contract anniversary unless we receive an
additional purchase payment before the end of that ninety day period. Contracts
issued in some states (for example, New Jersey) do not contain such a
cancellation because the laws of those states do not permit it.
There may be limits on the maximum contributions to retirement plans that
qualify for special tax treatment.
6. Deferment of Payment
We will pay any single sum payment within seven days after the date the payment
is called for by terms of the contract; unless the payment is postponed for:
- any period during which the New York Stock Exchange is closed other than
customary weekend and holiday closings, or during which trading on the
New York Stock Exchange is restricted, as determined by the Securities
and Exchange Commission;
- 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
- such other periods as the Commission may by order permit for the
protection of the contract owners.
7. Participation
The contract is non-participating. Contracts issued before October 1, 1998 were
participating.
No assurance can be given as to the amounts, if any, that will be distributable
under participating contracts in the future. When we make any distribution of
dividends, it may take the form of additional payments to annuitants or the
crediting of additional accumulation units. We do not anticipate making dividend
payments under this contract.
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(SIDEBAR)
Each of the annuity options is available on a fixed, variable or combination
fixed and variable basis.
You tell us when to begin making annuity payments to the annuitant, unless your
retirement plan requires them to commence by a certain age.
(END SIDEBAR)
B. ANNUITY PAYMENTS AND OPTIONS
1. Annuity Payments
Variable annuity payments are determined on the basis of:
- a mortality table at least as favorable as the mortality table specified
in the contract, which reflects the age of the annuitant,
- the type of annuity payment option selected, and
- the investment performance of the Fund Portfolios selected by the
contract owner.
The amount of the variable annuity payments will not be affected by adverse
mortality experience or by an increase in our expenses in excess of the maximum
expense deductions provided for in the contract. The annuitant will receive the
value of a fixed number of annuity units each month. The value of such units,
and thus the amounts of the monthly annuity payments will, however, reflect
investment gains and losses and investment income of Funds and thus the annuity
payments will vary with the investment experience of the assets of the Portfolio
of the Fund selected by the contract owner.
2. Electing the Retirement Date and Form of Annuity
The contracts provide for four optional annuity forms. Any one of them may be
elected if permitted by law. Each annuity option may be elected on either a
variable annuity or a fixed annuity basis, or a combination of the two. We may
make other annuity options available on request.
While the contracts require that we receive your notice of election to begin
annuity payments at least 30 days prior to the annuity commencement date, we are
currently waiving that requirement for such variable annuity elections received
at least three valuation days prior to the 15th of the month. We reserve the
right to enforce the 30 day notice requirement at our option at any time in the
future.
The contract permits an annuity payment to begin on the first day of any month
after the 50th birthday of the annuitant. Contract payments must begin before
the 75th birthday of the annuitant. We are currently waiving this restriction.
If an election has not been made otherwise, and the plan does not specify to the
contrary, annuity payments will begin on the later of:
- the first day of the month immediately following the 65th birthday of the
annuitant, or
- the first day of the month immediately following the fifth contract
anniversary.
A variable annuity will be provided and the annuity option shall be Option 2A, a
life annuity with a period of 120 months. The minimum first monthly annuity
payment on either a variable or fixed dollar basis is $20. If such first monthly
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payment would be less than $20, we may fulfill our obligation by paying in a
single sum the accumulation value of the contract which would otherwise have
been applied to provide annuity payments.
Except for Option 4, once annuity payments have commenced, you cannot surrender
an annuity benefit and receive a single sum settlement in lieu thereof.
Benefits under retirement plans that qualify for special tax treatment generally
must commence no later than the April 1 following the year in which the
participant reaches age 70 1/2 and are subject to other conditions and
restrictions.
3. Optional Annuity Forms
OPTION 1 - LIFE ANNUITY This is an annuity payable monthly during the lifetime
of the annuitant and terminating with the last monthly payment preceding the
death of the annuitant. This option offers the maximum monthly payment since
there is no guarantee of a minimum number of payments or provision for a death
benefit for beneficiaries. It would be possible under this option for the
annuitant to receive only one annuity payment if he died prior to the due date
of the second annuity payment, two if he died before the due date of the third
annuity payment, etc.
OPTION 2 - LIFE ANNUITY WITH A PERIOD CERTAIN OF 120 MONTHS (OPTION 2A), 180
MONTHS (OPTION 2B), OR 240 MONTHS (OPTION 2C) This is an annuity payable
monthly during the lifetime of the annuitant, with the guarantee that if the
annuitant dies before payments have been made for the period certain elected,
payments will continue to the beneficiary during the remainder of the period
certain. If the beneficiary so elects at any time during the remainder of the
period certain, the present value of the remaining guaranteed number of
payments, based on the then current dollar amount of one such payment and using
the same interest rate which served as a basis for the annuity shall be paid in
a single sum to the beneficiary.
OPTION 3 - JOINT AND LAST SURVIVOR ANNUITY This is an annuity payable monthly
during the joint lifetime of the annuitant and a designated joint annuitant and
continuing thereafter during the remaining lifetime of the survivor. Under this
option there is no guarantee of a minimum number of payments or provision for a
death benefit for beneficiaries. If this option is elected, the contract and
payments shall then be the joint property of the annuitant and the designated
joint annuitant. It would be possible under this option for both annuitants to
receive only one annuity payment if they both died prior to the due date of the
second annuity payment, two if they died before the due date of the third
annuity payment, etc.
OPTION 4 - PERIOD CERTAIN ANNUITY This is an annuity payable monthly for a
period certain of from 1 to 20 years, as elected. If the annuitant dies before
payments have been made for the period certain elected, payments will continue
to the beneficiary during the remainder of the fixed period. In the event of the
death of the annuitant, you or the beneficiary may, at any time during the
payment period, elect that (1) the present value of the remaining guaranteed
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(SIDEBAR)
The amount of your first annuity payment depends on the age of the annuitant and
the annuity option you select.
(END SIDEBAR)
number of payments, based on the then current dollar amount of one such payment
and using the same interest rate which served as a basis for the annuity, shall
be paid in a single sum, or (2) such commuted amount shall be applied to effect
a life annuity under Option 1 or Option 2.
4. Determination of Amount of First Monthly Annuity Payment
The first monthly annuity payment is determined by the available value of the
contract when an annuity begins. In addition, many states impose a premium tax
on the amount used to purchase an annuity benefit, depending on the type of plan
involved. These taxes currently range from 0.0% to 3.5% and are deducted from
the contract value applied to provide annuity payments. We reserve the right to
make such deductions from purchase payments as they are received.
The amount of the first monthly payment depends on the optional annuity form
elected and the adjusted age of the annuitant. A formula for determining the
adjusted age is contained in the contract.
The contracts contain tables indicating the dollar amount of the first monthly
payment under each optional annuity form for each $1,000 of value applied. The
tables are determined from the Progressive Annuity Table with interest at the
rate of 3.5% per annum, assuming births in the year 1900 and an age setback of
eight years. If, when annuity payments are elected, we are using tables of
annuity rates for these contracts which result in larger annuity payments, we
will use those tables instead.
The 3.5% interest rate assumed in the annuity tables would produce level annuity
payments if the net investment rate remained constant at 3.5% per year.
Subsequent payments will be less than, equal to, or greater than the first
payment depending upon whether the actual net investment rate is less than,
equal to, or greater than 3.5%. A higher interest rate would mean a higher
initial payment, but a more slowly rising (or more rapidly falling) series of
subsequent payments. A lower assumption would have the opposite effect.
The dollar amount of the first monthly variable annuity payment is determined by
applying the available value (after deduction of any premium taxes not
previously deducted) to the table using the adjusted age of the annuitant and
any joint annuitant. A number of annuity units is then determined by dividing
this dollar amount by the then current annuity unit value. Thereafter, the
number of annuity units remains unchanged during the period of annuity payments.
This determination is made separately for each Sub-Account of the separate
account. The number of annuity units is determined for each Sub-Account and is
based upon the available value in each Sub-Account as of the date annuity
payments are to begin.
The dollar amount determined for each Sub-Account will then be aggregated for
purposes of making payment.
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<PAGE>
Annuity payments are always made as of the first day of a month. The contracts
require that notice of election to begin annuity payments must be received by us
at least 30 days prior to the annuity commencement date. We currently waive this
requirement, but reserve the right to enforce it in the future.
Money will be transferred to the General Account for the purpose of electing
fixed annuity payments, or to the appropriate variable sub-accounts for variable
annuity payments, on the valuation date coincident with the first valuation date
following the 14th day of the month preceding the date on which the annuity is
to begin.
If a request for a fixed annuity is received between the first valuation date
following the 14th day of the month and the second to last valuation date of the
month prior to commencement, the transfer will occur on the valuation date
coincident with or next following the date on which the request is received. If
a fixed annuity request is received after the third to the last valuation day of
the month prior to commencement, it will be treated as a request received the
following month, and the commencement date will be changed to the first of the
month following the requested commencement date. The account value used to
determine fixed annuity payments will be the value as of the last valuation date
of the month preceding the date the fixed annuity is to begin.
If a variable annuity request is received after the third valuation date
preceding the first valuation date following the 14th day of the month prior to
the commencement date, it will be treated as a request received the following
month, and the commencement date will be changed to the first of the month
following the requested commencement date. The account value used to determine
the initial variable annuity payment will be the value as of the first valuation
date following the 14th day of the month prior to the variable annuity begin
date.
5. Amount of Second and Subsequent Monthly Annuity Payments
The dollar amount of the second and later variable annuity payments is equal to
the number of annuity units determined for each Sub-Account times the annuity
unit value for that Sub-Account as of the due date of the payment. This amount
may increase or decrease from month to month.
6. Value of the Annuity Unit
The value of an annuity unit for a Sub-Account is determined monthly as of the
first day of each month by multiplying the value on the first day of the
preceding month by the product of:
- .997137, and,
- the ratio of the value of the accumulation unit for that Sub-Account for
the valuation date next following the fourteenth day of the preceding
month to the value of the accumulation unit for the valuation date next
following the fourteenth day of the second preceding month (.997137 is a
factor to neutralize the assumed net investment rate, discussed in
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<PAGE>
Section 4 above, of 3.5% per annum built into the annuity rate tables
contained in the contract and which is not applicable because the actual
net investment rate is credited instead).
The value of an annuity unit for a Sub-Account as of any date other than the
first day of a month is equal to its value as of the first day of the next
succeeding month.
(SIDEBAR)
You may change Portfolios in the annuity period, subject to some restrictions.
(END SIDEBAR)
7. Transfer of Annuity Reserves
Annuity reserves are the measure of assets attributable to the contracts and
held during the annuity period. Amounts held as annuity reserves may be
transferred among the variable annuity Sub-Accounts during the annuity period.
Annuity reserves may also be transferred from a variable annuity to a fixed
annuity during this time. The change must be made by a written request. The
annuitant and joint annuitant, if any, must make such an election.
There are restrictions to such a transfer.
- The transfer of an annuity reserve amount from any Sub-Account must be at
least equal to $5,000 or the entire amount of the reserve remaining in
that Sub-Account.
- Annuity payments must have been in effect for a period of 12 months
before a change may be made. Such transfers can be made only once every
12 months.
- We must receive the written request for an annuity transfer more than
thirty days in advance of the due date of the annuity payment subject to
the transfer.
Upon request, we will make available to you annuity reserve Sub-Account amount
information.
A transfer will be made on the basis of annuity unit values. The number of
annuity units from the Sub-Account being transferred will be converted to a
number of annuity units in the new Sub-Account. The annuity payment option will
remain the same and cannot be changed. After this conversion, a number of
annuity units in the new Sub-Account will be payable under the elected option.
The first payment after conversion will be of the same amount as it would have
been without the transfer. The number of annuity units will be set at that
number of units which are needed to pay that same amount on the transfer date.
When we receive a request for the transfer of variable annuity reserves, it will
be effective for future annuity payments. The transfer will be effective and
funds actually transferred in the middle of the month prior to the next annuity
payment affected by your request. We will use the same valuation procedures to
determine your variable annuity payment that we used initially. However, if your
annuity is based upon annuity units in a sub-Account which matures on a date
other than the stated annuity valuation date, then your annuity units will be
adjusted to reflect sub-Account performance in the maturing sub-Account and the
sub-Account to which reserves are transferred for the period between annuity
valuation dates.
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(SIDEBAR)
If you die prior to commencement of annuity payments, there is a death benefit
that is guaranteed not to be less than your purchase payments.
(END SIDEBAR)
Amounts held as reserves to pay a variable annuity may also be transferred to a
fixed annuity during the annuity period. However, the restrictions which apply
to annuity Sub-Account transfers will apply in this case as well. The amount
transferred will then be based upon the adjusted age of the annuitant and any
joint annuitant at the time of the transfer. The annuity payment option will
remain the same. Amounts paid as a fixed annuity may not be transferred to a
variable annuity.
Contracts with this transfer feature may not be available in all states.
C. DEATH BENEFITS
If the owner dies before annuity payments begin, the amount payable at death
will be the accumulation value next determined after we receive due proof of
death at our home office. Death proceeds will be paid in a single sum to the
beneficiary designated unless an annuity option is elected. Payment will be made
within seven days after we receive due proof of death. Except as noted below,
the entire interest in the contract must be distributed within five years of the
owner's death.
The contract has a guaranteed death benefit if you die before annuity payments
have started. The death benefit shall be equal to the greater of:
- the amount of the accumulation value payable at death; or
- the amount of the total purchase payments paid to us as consideration for
this contract, less all contract withdrawals.
If the owner dies on or before the date on which annuity payments begin and if
the designated beneficiary is a person other than the owner's spouse, that
beneficiary may elect an annuity option measured by a period not longer than
that beneficiary's life expectancy only if annuity payments begin not later than
one year after the owner's death. If there is no designated beneficiary, then
the entire interest in a contract must be distributed within five years after
the owner's death. If the annuitant dies after annuity payments have begun, any
payments received by a non-spouse beneficiary must be distributed at least as
rapidly as under the method elected by the annuitant as of the date of death.
If any portion of the contract interest is payable to the owner's designated
beneficiary who is also the surviving spouse of the owner, that spouse shall be
treated as the contract owner for purposes of determining:
- when payments must begin, and
- the time of distribution in the event of that spouse's death.
Payments must be made in substantially equal installments.
If the owner of this contract is other than a natural person, such as a trust or
other similar entity, we will pay a death benefit of the accumulation value to
the named beneficiary on the death of the annuitant, if death occurs prior to
the date for annuity payments to begin.
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<PAGE>
(SIDEBAR)
Initial purchase payments are credited within 2 business days of our receipt of
a complete application.
(END SIDEBAR)
D. PURCHASE PAYMENTS AND VALUE OF THE CONTRACT
1. Crediting Accumulation Units
During the accumulation period -- the period before annuity payments begin --
each purchase payment is credited on the valuation date coincident with or next
following the date such purchase payment is received by us at our home office.
When the contracts are originally issued, application forms are completed by the
applicant and forwarded to our home office. We will review each application form
submitted to us for compliance with our issue criteria and, if it is accepted, a
contract will be issued.
If your initial purchase payment is accompanied by an incomplete application,
your purchase payment will not be credited until the valuation date coincident
with or next following the date we receive a completed application. We will
offer to return your initial purchase payment accompanying an incomplete
application if it appears that the application cannot be completed within five
business days.
We will credit your purchase payments to your contract in the form of
accumulation units. The number of accumulation units credited with respect to
each purchase payment is determined by dividing the portion of the purchase
payment allocated to each Sub-Account by the then current accumulation unit
value for that Sub-Account.
The number of accumulation units so determined shall not be changed by any
subsequent change in the value of an accumulation unit, but the value of an
accumulation unit will vary from valuation date to valuation date to reflect the
investment experience of the Portfolios of the Fund.
We will determine the value of accumulation units on each day on which the
Portfolios of the Funds are valued. The net asset value of the Fund's shares
shall be computed once daily, and, in the case of Money Market Portfolio, after
the declaration of the daily dividend, as of the primary closing time for
business on the New York Stock Exchange (as of the date hereof the primary close
of trading is 3:00 p.m. (Central time) on each day, Monday through Friday,
except:
- days on which changes in the value of such Fund's portfolio securities
will not materially affect the current net asset value of such Fund's
shares,
- days during which no such Fund's shares are tendered for redemption and
no order to purchase or sell such Fund's shares is received by such Fund
and
- customary national business holidays on which the New York Stock Exchange
is closed for trading.
Accordingly, the value of accumulation units so determined will be applicable to
all purchase payments received by us at our home office on that day prior to the
close of business of the Exchange. The value of accumulation units applicable to
purchase payments received after the close of business of the Exchange will be
the value determined on the next valuation date.
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(SIDEBAR)
Systematic transfers and telephone transfers are available.
(END SIDEBAR)
2. Transfers
Upon your written request, values under the contract may be transferred among
the Sub-Accounts of the Variable Annuity Account. Unless stated otherwise, there
are no charges for transfers described in this section. However, we reserve the
right to impose a charge in the future. We will make the transfer on the basis
of accumulation unit values on the valuation date coincident with or next
following the day we receive the request at our home office. There is no dollar
amount limitation which is applied to transfers.
You may effect transfers, cancel automatic premium plans, or a change in the
allocation of future premiums, by means of a telephone call. Transfers or
requests made pursuant to such a call are subject to the same conditions and
procedures as are outlined above for written transfer requests.
This service automatically available to all contract owners. We will employ
reasonable procedures to satisfy ourselves that instructions received from
contract owners are genuine and, to the extent that we do not, we may be liable
for any losses due to unauthorized or fraudulent instructions. We require
contract owners or a person authorized by you to personally identify themselves
in those telephone conversations through contract numbers, social security
numbers and such other information as we may deem to be reasonable. We record
telephone transfer instruction conversations and we provide the contract owners
with a written confirmation of the telephone transfer. We reserve the right to
restrict the frequency of -- or otherwise modify, condition, terminate or impose
charges upon -- telephone transfer privileges. For more information on telephone
transfers, contact us.
Contracts held through the University of Minnesota also permit participants to
effect transfers or change allocation of future premiums by means of the
internet. We reserve the right to restrict the frequency of -- or otherwise
modify, condition, terminate or impose changes upon -- internet transaction
privileges. For more information contact us.
For contracts where this is available, contract owners in any Sub-Account of the
Variable Annuity Account may elect to have accumulation unit values of that Sub-
Account systematically transferred to any of the other Sub-Accounts of the
Variable Annuity Account on a monthly, quarterly, semi-annual or annual basis.
Should the amount remaining in such a Sub-Account be less than the amount you
previously indicated as a transfer amount, we will then transfer the balance
remaining as well as allocating that amount pro rata in accordance with your
prior instructions. The terms and conditions otherwise applicable to transfers
generally, as described above, also apply to such systematic transfer plans.
Systematic transfer arrangements are limited to the use of a maximum of twenty
sub-accounts.
As a type of systematic transfer arrangement, for certain contracts, we offer
automatic portfolio rebalancing ("APR") on a quarterly, semi-annual and annual
basis. Instructions to us must be in whole percentages totaling 100%. They will
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(SIDEBAR)
Your contract's accumulation value varies with the performance of the Portfolios
you select and is not guaranteed.
(END SIDEBAR)
be treated as instructions for transfers to and from the various sub-accounts.
Rebalancing instructions will not affect the current allocation of future
contributions; they may differ from those future allocations and are not limited
to any minimum or maximum number of sub-accounts. There will be no charge for
APR transfers and this feature will be available after August 1, 1999. APR is
not available for values in the General Account or in the Series Fund Maturing
Government Bond Portfolios. Please call us for additional information.
3. Value of the Contract
The accumulation value of the contract at any time prior to the commencement of
annuity payments can be determined by multiplying the total number of
accumulation units credited to the contract by the current value of an
accumulation unit. There is no assurance that such value will equal or exceed
the purchase payments made. The contract owner will be advised periodically of
the number of accumulation units credited to the contract, the current value of
an accumulation unit, and the total value of the contract.
4. Accumulation Unit Value
The value of an accumulation unit for each Sub-Account of the Variable Annuity
Account was set at $1.000000 on the first valuation date of the Variable Annuity
Account for this class of contract. The value of an accumulation unit on any
subsequent valuation date is determined by multiplying the value of an
accumulation unit on the immediately preceding valuation date by the net
investment factor for the applicable Sub-Account (described below) for the
valuation period just ended. The value of an accumulation unit as of any date
other than a valuation date is equal to its value on the next succeeding
valuation date.
5. Net Investment Factor for Each Valuation Period
The net investment factor is an index used to measure the investment performance
of a Sub-Account from one valuation period to the next. For any Sub-Account, the
net investment factor for a valuation period is the gross investment rate for
such Sub-Account for the valuation period, less a deduction for the
administrative charge at the current rate of .15% per annum.
The gross investment rate is equal to:
- the net asset value per share of a Portfolio share held in a Sub-Account
of the Variable Annuity Account determined at the end of the current
valuation period, plus
- 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
- the net asset value per share of that Portfolio share determined at the
end of the preceding valuation period.
The gross investment rate may be positive or negative.
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E. REDEMPTIONS
1. Partial Withdrawals and Surrender
Prior to the date annuity payments begin you may make partial withdrawals from
your contract for amounts of at least $250. You must make a written request for
any withdrawal. Your accumulation value will be reduced by the amount of the
withdrawal. Unless you instruct us otherwise, withdrawals will be made from the
Sub-Accounts on a pro-rata basis. We will waive the applicable dollar amount
limitation:
- on withdrawals where a systematic withdrawal program is in place and
- such a smaller amount satisfies the minimum distribution requirements of
the Code.
For systematic withdrawals, the maximum number of sub-accounts which may be used
is twenty. Unless you instruct us otherwise, systematic withdrawals will be made
from the sub-accounts on a pro-rata basis if accumulation values are in no more
than twenty sub-accounts. If more than twenty sub-accounts have accumulation
values, we will need instructions as to those sub-accounts from which systematic
withdrawals are to be made.
The contract provides that prior to the commencement of annuity payments, you
may elect to surrender the contract for its accumulation value. You will receive
in a single cash sum the accumulation value computed as of the valuation date
coincident with or next following the date of surrender, or you may elect an
annuity.
Once annuity payments have commenced for an annuitant, the annuitant cannot
surrender his/her annuity benefit and receive a single sum settlement in lieu
thereof.
You may also submit your signed written withdrawal or surrender requests to us
by facsimile (FAX) transmission. Our FAX number is (651) 665-7942. Transfer
instructions or changes as to future allocations of premium payments may be
communicated to us by the same means. Payment of a partial withdrawal or
surrender will be made to you within 7 days after we receive your completed
request.
(SIDEBAR)
You can cancel your contract within 10 days of receiving it and we will refund
you the greater of your accumulation value or your purchase payments.
(END SIDEBAR)
2. Right of Cancellation
You should read the contract carefully as soon as it is received. You may cancel
the purchase of a contract within ten days after its delivery, for any reason,
by giving us written notice at 400 Robert Street North, St. Paul, Minnesota
55101-2098, of an intention to cancel. If the contract is canceled and returned,
we will refund to you the greater of:
- the accumulation value of the contract or
- the amount of purchase payments paid under the contract.
PAGE 23
<PAGE>
(SIDEBAR)
We are not offering tax advice. You should consult your own tax adviser.
Taxes on gains under the contract are normally deferred until there is a
distribution of contract values.
(END SIDEBAR)
Payment of the requested refund will be made to you within seven days after we
receive notice of cancellation. In some states, the free look period may be
extended. For example, in California, the free look period is 30 days. These
rights are subject to change and may vary among the states.
The liability of the Variable Annuity Account under the foregoing is limited to
the accumulation value of the contract at the time it is returned for
cancellation. We will pay for any amounts necessary to make our refund to you
equal to your purchase payments.
FEDERAL TAX STATUS
INTRODUCTION
Our tax discussion in this prospectus is general in nature and is not intended
as tax advice. You should consult a competent tax adviser. We make no attempt 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. We make no representation regarding the likelihood of continuation
of current income tax laws or the current interpretations of the Internal
Revenue Service ("IRS"). The contract may be purchased on a non-tax qualified
basis or purchased and used in connection with certain retirement arrangements
entitled to special income tax treatment under section 401(a), 403(b), 408(b),
408A or 457 of the Code. 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(s) 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 Variable Annuity Account form a part of, and are taxed with,
our other business activities. Currently, we pay no federal income tax on income
dividends received by the Variable Annuity Account or on capital gains arising
from the Variable Annuity Account's activities. The Variable Annuity Account is
not taxed as a "regulated investment company" under the Code and we do not
anticipate any change in that tax status.
TAXATION OF ANNUITY CONTRACTS IN GENERAL
Section 72 of the Code governs taxation of non-qualified annuities in general
and some aspects of tax qualified programs. No taxes are generally imposed on
increases in the value of a contract until distribution occurs, either in the
form of a payment in a single sum or as annuity payments under the annuity
option elected. As a general rule, deferred annuity contracts held by a
corporation, trust or other similar entity, as opposed to a natural person, are
not treated as annuity contracts for federal tax purposes. The investment income
on such contracts is taxed as ordinary income that is received or accrued by the
owner of the contract during the taxable year.
PAGE 24
<PAGE>
(SIDEBAR)
Ordinary income tax rates apply to amounts distributed in excess of purchase
payments. Gains are assumed to be distributed before return of purchase
payments.
A penalty tax may apply to distributions prior to age 59 1/2.
Transfers, assignments and certain designations of annuitants can have tax
consequences.
(END SIDEBAR)
For payments made in the event of a full surrender of an annuity, the taxable
portion is generally the amount in excess of the cost basis of (i.e., purchase
payments) the contract. Amounts withdrawn upon a partial surrender from the
variable annuity contracts not part of a qualified program are treated first as
taxable income to the extent of the excess of the contract value over the
purchase payments made under the contract. All taxable amounts received under an
annuity contract are subject to tax at ordinary rather than capital gains rates.
In the case of a withdrawal under an annuity that is part of a tax-qualified
retirement program, a portion of the amount received is taxable based on the
ratio of the "investment in the contract" to the individual's balance in the
retirement plan, generally the value of the annuity. The "investment in the
contract" generally equals the portion of any deposits made by or on behalf of
an individual under an annuity which was not excluded from the gross income of
the individual. For annuities issued in connection with qualified plans, the
"investment in the contract" can be zero.
For annuity payments, the taxable portion is generally determined by a formula
that establishes the ratio that the cost basis of the contract bears to the
expected return under the contract. Such taxable part is taxed at ordinary
income rates.
The Code imposes a 10% penalty tax on the taxable portion of certain
distributions from annuity contracts. This additional tax does not apply where
the taxpayer is:
- 59 1/2 or older,
- where payment is made on account of the taxpayer's disability, or
- where payment is made by reason of the death of the owner, and
- in certain other circumstances.
The Code also provides an exception to the penalty tax for distributions, in
periodic payments, of substantially equal installments, 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, a pledge of any interest in a contract as
security for a loan, 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,
pledge, designation or assignment should consult a competent tax adviser with
respect to the potential tax effects of that transaction.
For purposes of determining a contract owner's gross income, the Code provides
that all non-qualified deferred annuity contracts issued by the same company (or
its affiliates) to the same contract owner during any calendar year shall be
treated
PAGE 25
<PAGE>
as one annuity contract. Additional rules may be promulgated under this
provision to prevent avoidance of its effect through serial contracts or
otherwise. For further information on these rules, see your tax adviser.
DIVERSIFICATION REQUIREMENTS
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of the Variable Annuity Account to
be "adequately diversified" in order for the contract to be treated as an
annuity contract for Federal tax purposes. The Variable Annuity Account, through
the Fund, intends to comply with the diversification requirements prescribed in
Regulations Section 1.817-5, which affect how the Fund's assets may be invested.
Although the investment adviser is an affiliate of Minnesota Life, Minnesota
Life does not have control over the Fund or its investments. Nonetheless,
Minnesota Life believes that each Portfolio of the Fund in which the Variable
Annuity Account owns shares will be operated in compliance with the requirements
prescribed by the Treasury.
Prior to the enactment of Section 817(h), the IRS published several rulings
under which owners of certain variable annuity contracts were treated as owners,
for federal income tax purposes, of the assets held in a 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. However, the continued effectiveness of the pre-Section
817(h) published rulings is somewhat uncertain. In connection with its issuance
of proposed regulations under Section 817(h) in 1986, the Treasury Department
announced that those regulations did 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".
While the Treasury's 1986 announcement stated that guidance would be issued on
the "extent to which the policyholders may direct their investments to
particular sub-accounts without being treated as owners of the underlying
assets", no such guidance has been forthcoming.
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. For example,
the owner of a contract has the choice of several Sub-Accounts in which to
allocate net purchase payments and contract values, and may be able to transfer
among Sub-Accounts more frequently than in such rulings. Minnesota Life does not
believe that the ownership rights of a contract owner under the Contract would
result in any contract owner being treated as the owner of the assets of the
Variable Annuity Account. However, Minnesota Life does not know what standards
would be applied if the Treasury Department should proceed to issue regulations
or rulings on this issue. Minnesota Life therefore reserves the right to modify
the Contract as necessary to attempt to prevent a contract owner
PAGE 26
<PAGE>
(SIDEBAR)
Congress may change the tax laws and reduce or eliminate any tax advantages of
the contract.
(END SIDEBAR)
from being considered the owner of a pro-rata share of the assets of the
Variable Annuity Account.
REQUIRED DISTRIBUTIONS
In order to be treated as an annuity contract for Federal income tax purposes,
Section 72(s) of the Code requires any non-qualified contract issued after
January 18, 1985 to provide that (a) if any 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" who
must be a natural person, is the person designated by such owner as a
beneficiary and to whom ownership of the contract passes by reason of death.
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.
Non-qualified 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 Life intends to review such provisions and modify them if necessary to
assure that they comply with the requirements of Code Section 72(s) when
clarified by regulation or otherwise.
Other rules may apply to qualified contracts.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a contract because of the death of the owner.
Generally, such amounts are includable in the income of the recipient as
follows: (1) if distributed in a lump sum, they are taxed in the same manner as
a full surrender of the contract, as described above, or (2) if distributed
under an annuity option, they are taxed in the same manner as annuity payments,
as described above.
POSSIBLE CHANGES IN TAXATION
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.
PAGE 27
<PAGE>
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
- other specified circumstances.
We make no attempt to provide more than general information about use of
annuities with the various types of retirement plans. The rights of any person
to benefits under annuity contracts purchased in connection with these plans may
be subject to the terms and conditions of the plans themselves, regardless of
the terms and conditions of the annuity issued in connection with such a plan.
Some retirement plans are subject to transfer restrictions, distribution and
other requirements that are not incorporated into the annuity or 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. If you
intend to purchase a contract for use with any retirement plan you should
consult your 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 the later of 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.
PAGE 28
<PAGE>
(SIDEBAR)
Distributions are subject to income tax withholding requirements unless you take
steps to prevent it.
(END SIDEBAR)
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:
- one of a series of substantially equal annual (or more frequent) payments
made over the life or life expectancy of the employee, the joint lives or
joint expectancies of the employee and the employee's designated
beneficiary, or for a specified period of ten years or more;
- a required minimum distribution; or
- 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 sixty 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.
PERFORMANCE DATA
From time to time the Variable Annuity Account may publish advertisements
containing performance data relating to its Sub-Accounts. In the case of the
Money Market Sub-Account, the Variable Annuity Account will publish yield or
effective yield quotations for a seven-day or other specified period. In the
case of
PAGE 29
<PAGE>
the other Sub-Accounts, performance data will consist of average annual total
return quotations for a one-year period and for the period since the Sub-Account
became available pursuant to the Variable Annuity Account's registration
statement. It may also include cumulative total return quotations for the period
since the Sub-Account became available pursuant to such registration statement.
The Money Market Sub-Account may also quote such average annual and cumulative
total return figures. Performance figures used by the Variable Annuity Account
are based on historical information of the Sub-Accounts for specified periods,
and the figures are not intended to suggest that such performance will continue
in the future. Performance figures of the Variable Annuity Account will reflect
only charges made against the net asset value of the Variable Annuity Account
pursuant to the terms of the variable annuity contracts offered by this
Prospectus. The various performance figures used in Variable Annuity Account
advertisements relating to the contracts described in this Prospectus are
summarized below. More detailed information on the computations is set forth in
the Statement of Additional Information.
YEAR 2000 COMPUTER PROBLEM
The services we provide to the Variable Annuity Account and contract owners
depend on the smooth functioning of our 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 our ability to provide services to contract owners. We
have been actively working on necessary changes to our computer systems to deal
with the year 2000. Although there can be no assurance of complete success, we
believe that we will be able to resolve these issues on a timely basis and that
there will be no material adverse impact on our ability to provide services to
the Variable Annuity Account.
In addition, our operations could be impacted by our service providers' or
suppliers' year 2000 efforts. We have undertaken an initiative to assess the
efforts of organizations where there is a significant business relationship.
There is no assurance, however, that we will not be affected by year 2000
problems of other organizations.
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information, which contains additional information
including financial statements, is available from the offices of Minnesota Life
at your request. The Table of Contents for that Statement of Additional
Information is as follows:
Directors and Principal Management Officers of Minnesota Life
Distribution of Contract
Performance Data
Auditors
Registration Statement
Financial Statements
PAGE 30
<PAGE>
APPENDIX A -- CONDENSED FINANCIAL INFORMATION
The financial statements of the Variable Annuity Account and the Consolidated
Financial Statements of Minnesota Life Insurance Company may be found in the
Statement of Additional Information. The table below gives per unit information
about the financial history of each sub-account from the inception of each to
December 31, 1998. This information should be ready in conjunction with the
financial statements and related notes of the Variable Annuity Account included
in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Growth Sub-Account:
Unit value at beginning of Period.......... $3.14 $2.35 $2.01 $1.62 $1.61
Unit value at end of period................ $4.22 $3.14 $2.35 $2.01 $1.62
Number of units outstanding at end of
period.................................... 1,628,467 1,394,064 1,448,982 1,534,005 1,477,118
Bond Sub-Account:
Unit value at beginning of Period.......... $2.38 $2.18 $2.12 $1.77 $1.86
Unit value at end of period................ $2.52 $2.38 $2.18 $2.12 $1.77
Number of units outstanding at end of
period.................................... 2,162,866 1,545,276 1,506,859 1,525,791 1,480,397
Money Market Sub-Account:
Unit value at beginning of Period.......... $1.70 $1.62 $1.55 $1.47 $1.42
Unit value at end of period................ $1.78 $1.70 $1.62 $1.55 $1.47
Number of units outstanding at end of
period.................................... 1,463,714 625,617 750,434 726,235 669,925
Asset Allocation Sub-Account:
Unit value at beginning of Period.......... $3.00 $2.53 $2.25 $1.80 $1.83
Unit value at end of period................ $3.11 $3.00 $2.53 $2.25 $1.80
Number of units outstanding at end of
period.................................... 1,987,162 1,806,441 2,029,532 1,871,136 2,307,972
Mortgage Securities Sub-Account:
Unit value at beginning of Period.......... $2.40 $2.20 $2.09 $1.78 $1.84
Unit value at end of period................ $2.55 $2.40 $2.20 $2.09 $1.78
Number of units outstanding at end of
period.................................... 686,079 484,707 450,065 485,533 477,367
Index 500 Sub-Account:
Unit value at beginning of Period.......... $3.72 $2.81 $2.32 $1.70 $1.68
Unit value at end of period................ $4.75 $3.72 $2.81 $2.32 $1.70
Number of units outstanding at end of
period.................................... 2,780,306 2,786,221 2,364,949 2,056,365 1,345,845
Capital Appreciation Sub-Account:
Unit value at beginning of Period.......... $3.64 $2.84 $2.42 $1.97 $1.93
Unit value at end of period................ $4.75 $3.64 $2.84 $2.42 $1.97
Number of units outstanding at end of
period.................................... 1,800,652 1,768,498 1,668,256 1,869,447 1,659,517
International Stock Sub-Account:
Unit value at beginning of Period.......... $2.00 $1.79 $1.50 $1.31 $1.32
Unit value at end of period................ $2.13 $2.00 $1.79 $1.50 $1.31
Number of units outstanding at end of
period.................................... 2,464,913 2,966,962 2,418,015 2,254,079 2,153,847
Small Company Growth Sub-Account:
Unit value at beginning of Period.......... $1.84 $1.71 $1.60 $1.22 $1.15
Unit value at end of period................ $1.86 $1.84 $1.71 $1.60 $1.22
Number of units outstanding at end of
period.................................... 1,681,790 1,504,543 1,237,091 1,581,035 1,091,852
Maturing Government Bond 2002 Sub-Account:
Unit value at beginning of Period.......... $1.35 $1.24 $1.22 $0.98 $1.00(c)
Unit value at end of period................ $1.47 $1.35 $1.24 $1.22 $0.98
Number of units outstanding at end of
period.................................... 339,137 272,962 269,553 121,397 120,595
Maturing Government Bond 2006 Sub-Account:
Unit value at beginning of Period.......... $1.45 $1.29 $1.31 $0.97 $1.00(c)
Unit value at end of period................ $1.65 $1.45 $1.29 $1.31 $0.97
Number of units outstanding at end of
period.................................... 223,036 117,035 117,035 124,592 121,565
Maturing Government Bond 2010 Sub-Account:
Unit value at beginning of Period.......... $1.53 $1.30 $1.35 $0.96 $1.00(c)
Unit value at end of period................ $1.75 $1.53 $1.30 $1.35 $0.96
Number of units outstanding at end of
period.................................... 107,403 109,462 141,772 116,635 211,596
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Growth Sub-Account:
Unit value at beginning of Period.......... $1.54 $1.47 $1.10 $1.10 $0.87
Unit value at end of period................ $1.61 $1.54 $1.47 $1.10 $1.10
Number of units outstanding at end of
period.................................... 1,145,632 879,694 532,298 239,250 156,253
Bond Sub-Account:
Unit value at beginning of Period.......... $1.69 $1.59 $1.35 $1.26 $1.12
Unit value at end of period................ $1.86 $1.69 $1.59 $1.35 $1.26
Number of units outstanding at end of
period.................................... 1,452,616 1,414,784 1,028,316 800,284 707,399
Money Market Sub-Account:
Unit value at beginning of Period.......... $1.38 $1.34 $1.28 $1.19 $1.10
Unit value at end of period................ $1.42 $1.38 $1.34 $1.28 $1.19
Number of units outstanding at end of
period.................................... 758,519 854,376 1,089,711 748,839 541,490
Asset Allocation Sub-Account:
Unit value at beginning of Period.......... $1.72 $1.61 $1.25 $1.21 $1.01
Unit value at end of period................ $1.83 $1.72 $1.61 $1.25 $1.21
Number of units outstanding at end of
period.................................... 2,610,010 1,843,236 659,538 316,973 216,005
Mortgage Securities Sub-Account:
Unit value at beginning of Period.......... $1.69 $1.59 $1.37 $1.25 $1.11
Unit value at end of period................ $1.84 $1.69 $1.59 $1.37 $1.25
Number of units outstanding at end of
period.................................... 632,499 753,204 363,294 187,645 172,295
Index 500 Sub-Account:
Unit value at beginning of Period.......... $1.53 $1.43 $1.10 $1.15 $0.88
Unit value at end of period................ $1.68 $1.53 $1.43 $1.10 $1.15
Number of units outstanding at end of
period.................................... 1,208,415 1,046,000 832,514 547,781 436,533
Capital Appreciation Sub-Account:
Unit value at beginning of Period.......... $1.75 $1.67 $1.18 $1.21 $0.87
Unit value at end of period................ $1.93 $1.75 $1.67 $1.18 $1.21
Number of units outstanding at end of
period.................................... 1,193,412 913,174 582,915 339,404 180,206
International Stock Sub-Account:
Unit value at beginning of Period.......... $0.92 $1.00(a)
Unit value at end of period................ $1.32 $0.92
Number of units outstanding at end of
period.................................... 1,330,940 441,041
Small Company Growth Sub-Account:
Unit value at beginning of Period.......... $1.00(b)
Unit value at end of period................ $1.15
Number of units outstanding at end of
period.................................... 387,337
Maturing Government Bond 2002 Sub-Account:
Unit value at beginning of Period..........
Unit value at end of period................
Number of units outstanding at end of
period....................................
Maturing Government Bond 2006 Sub-Account:
Unit value at beginning of Period..........
Unit value at end of period................
Number of units outstanding at end of
period....................................
Maturing Government Bond 2010 Sub-Account:
Unit value at beginning of Period..........
Unit value at end of period................
Number of units outstanding at end of
period....................................
</TABLE>
PAGE A-1
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Value Stock Sub-Account:
Unit value at beginning of Period..... $2.22 $1.83 $1.40 $1.06 $1.00(c)
Unit value at end of period........... $2.25 $2.22 $1.83 $1.40 $1.06
Number of units outstanding at end of
period............................... 1,260,342 1,500,040 798,596 426,836 183,180
Small Company Value Sub-Account:
Unit value at beginning of Period..... $1.01 $1.00(d)
Unit value at end of period........... $0.94 $1.01
Number of units outstanding at end of
period............................... 361,348 215,169
Global Bond Sub-Account:
Unit value at beginning of Period..... $0.99 $1.00(d)
Unit value at end of period........... $1.15 $0.99
Number of units outstanding at end of
period............................... 42,643 15,173
Index 400 Mid-Cap Sub-Account:
Unit value at beginning of Period..... $0.99 $1.00(d)
Unit value at end of period........... $1.15 $0.99
Number of units outstanding at end of
period............................... 217,613 9,788
Macro-Cap Value Sub-Account:
Unit value at beginning of Period..... $0.99 $1.00(e)
Unit value at end of period........... $1.20 $0.99
Number of units outstanding at end of
period............................... 97,581 39,998
Micro-Cap Growth Sub-Account:
Unit value at beginning of Period..... $0.84 $1.00(d)
Unit value at end of period........... $0.95 $0.84
Number of units outstanding at end of
period............................... 71,594 18,000
Real Estate Securities:
Unit value at beginning of Period..... $1.00(f)
Unit value at end of period........... $0.85
Number of units outstanding at end of
period............................... 12,024
Templeton Developing Markets
Sub-Account:
Unit value at beginning of Period..... $0.70 $1.00(d)
Unit value at end of period........... $0.55 $0.70
Number of units outstanding at end of
period............................... 132,217 33,388
</TABLE>
(a) The information for the sub-account is shown for the period May 1, 1992 to
December 31, 1992. May 1, 1992 was the effective date of the 1933 Act
Registration Statement for the sub-account.
(b) The information for the sub-account is shown for the period May 3, 1993 to
December 31, 1993. May 3, 1993 was the effective date of the 1933 Act
Registration Statement for the sub-account.
(c) The information for the sub-account is shown for the period May 2, 1994 to
December 31, 1994. May 2, 1994 was the effective date of the 1933 Act
Registration Statement for the sub-account.
(d) The information for the sub-account is shown for the period from October 1,
1997 (date the sub-account became available) to December 31, 1997.
(e) The information for the sub-account is shown for the period from October 15,
1997 (date the sub-account became available) to December 31, 1997.
(f) The information for the sub-account is shown for the period from April 1,
1998 (date the sub-account became available) to December 31, 1998.
PAGE A-2
<PAGE>
APPENDIX B -- ILLUSTRATION OF VARIABLE ANNUITY VALUES
The illustration included in this appendix shows the effect of investment
performance on the monthly variable annuity income. The illustration assumes a
gross investment return, after tax, of: 0%, 4.41% and 12.00%.
For illustration purposes, an average annual expense equal to .91% of the
average daily net assets is deducted from the gross investment return to
determine the net investment return. The net investment return is then used to
project the monthly variable annuity incomes. The expense charge of .92%
includes: .15% for contract administration and an average of .76% for investment
management and other fund expenses. These expenses are listed for each portfolio
in the table following.
The gross and net investment rates are for illustrative purposes only and are
not a reflection of past or future performance. Actual variable annuity income
will be more or less than shown if the actual returns are different than those
illustrated.
The illustration assumes 100% of the assets are invested in Sub-Account(s) of
the Variable Annuity Account. For comparison purposes, a current fixed annuity
income, available through the General Account is also provided. The illustration
assumes an initial interest rate, used to determine the first variable payment
of 3.50%. After the first variable annuity payment, future payments will
increase if the annualized net rate of return exceeds the initial interest rate,
and will decrease if the annualized net rate of return is less than the initial
interest rate.
The illustration provided is for a male, age 65, selecting a life and 10 year
certain annuity option with $100,000 of non-qualified funds, residing in the
State of Minnesota. Upon request, we will provide a comparable illustration
based upon the proposed annuitant's date of birth, sex, annuity option, state of
residence, type of funds, value of funds, and selected gross annual rate of
return (not to exceed 12%).
PAGE B-1
<PAGE>
ACTUAL 1998 VARIABLE ANNUITY SEPARATE ACCOUNT CHARGES AND
FUND EXPENSES
<TABLE>
<CAPTION>
FUND
SEPARATE ACCOUNT ADMINISTRATIVE MANAGEMENT DISTRIBUTION OTHER FUND
SUB-ACCOUNT NAME CHARGE FEE EXPENSES EXPENSES TOTAL
- ----------------------------------- --------------- ------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Growth............................. .15% .50% -- .03% .68%
Bond............................... .15% .50% -- .05% .70%
Money Market....................... .15% .50% -- .08% .73%
Asset Allocation................... .15% .50% -- .03% .68%
Mortgage Securities................ .15% .50% -- .07% .72%
Index 500.......................... .15% .40% -- .04% .59%
Capital Appreciation............... .15% .75% -- .03% .93%
International Stock................ .15% .70% -- .24% 1.09%
Small Company Growth............... .15% .75% -- .04% .94%
Maturing Government Bond 2002...... .15% .25% -- .15% .55%
Maturing Government Bond 2006...... .15% .25% -- .15% .55%
Maturing Government Bond 2010...... .15% .25% -- .15% .55%
Value Stock........................ .15% .75% -- .04% .94%
Small Company Value................ .15% .75% -- .15% 1.05%
Global Bond........................ .15% .60% -- .53% 1.28%
Index 400 Mid-Cap.................. .15% .40% -- .15% .70%
Macro-Cap Value.................... .15% .70% -- .15% 1.00%
Micro-Cap Growth................... .15% 1.10% -- .15% 1.40%
Real Estate Securities............. .15% .75% -- .15% 1.05%
Templeton Developing Markets Class
2................................ .15% 1.25% .25% .41% 2.06%
------- ------------- ------------- ----------- ---------
Average.......................... .15% .61% .01% .14% .91%
</TABLE>
PAGE B-2
<PAGE>
VARIABLE ANNUITY PAYOUT ILLUSTRATION
<TABLE>
<S> <C>
PREPARED FOR: Prospect ANNUITIZATION OPTION: 10 Year Certain
with Life Contingency
PREPARED BY: Minnesota Life QUOTATION DATE: 05/01/1999
SEX: Male DATE OF BIRTH: 05/01/1934 COMMENCEMENT DATE: 05/01/1999
STATE: MN SINGLE PAYMENT RECEIVED: $100,000.00
LIFE EXPECTANCY: 20.0(IRS) 17.3(ML) FUNDS: Non-Qualified
INITIAL MONTHLY INCOME: $607.94
</TABLE>
The monthly variable annuity income amount shown below assumes a constant annual
investment return. The initial interest rate of 3.50% is the assumed rate used
to calculate the first monthly payment. Thereafter, monthly payments will
increase or decrease based upon the relationship between the initial interest
rate and the performance of the Sub-Account(s) selected. The investment returns
shown are hypothetical and not a representation of future results.
<TABLE>
<CAPTION>
ANNUAL RATE OF RETURN
--------------------------------------------------
BEGINNING 0.00% GROSS 4.41% GROSS 10.00% GROSS
DATE OF YEAR AGE (-.91% NET) (3.50% NET) (9.09% NET)
- ---------------------------- --------------- --------- ----------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
May 1, 1999................. 1 65 $ 608 $ 608 $ 608
May 1, 2000................. 2 66 582 608 641
May 1, 2001................. 3 67 557 608 675
May 1, 2002................. 4 68 533 608 712
May 1, 2003................. 5 69 511 608 750
May 1, 2005................. 7 71 468 608 834
May 1, 2007................. 9 73 429 608 926
May 1, 2009................. 11 75 393 608 1,029
May 1, 2011................. 13 77 361 608 1,143
May 1, 2013................. 15 79 330 608 1,270
May 1, 2015................. 17 81 303 608 1,411
May 1, 2017................. 19 83 278 608 1,567
May 1, 2019................. 21 85 254 608 1,741
May 1, 2021................. 23 87 233 608 1,934
May 1, 2023................. 25 89 214 608 2,148
May 1, 2025................. 27 91 196 608 2,387
May 1, 2027................. 29 93 180 608 2,652
May 1, 2029................. 31 95 165 608 2,946
May 1, 2031................. 33 97 151 608 3,273
May 1, 2034................. 36 100 132 608 3,832
</TABLE>
IF 100% OF YOUR PURCHASE WAS APPLIED TO PROVIDE A FIXED ANNUITY ON THE QUOTATION
DATE OF THIS ILLUSTRATION, THE FIXED ANNUITY INCOME AMOUNT WOULD BE $607.94.
Net rates of return reflect expenses totaling .91%, which consist of the .15%
Variable Account administrative charge and .76% for the Fund management fee and
other Fund expenses (this is an average with the actual varying from .40% to
1.91%).
Minnesota Life MultiOption variable annuities are available through registered
representatives of Ascend Financial Services, Inc.
This is an illustration only and not a contract.
PAGE B-3
<PAGE>
APPENDIX C -- TYPES OF QUALIFIED PLANS
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 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 Services 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 of 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.
PAGE C-1
<PAGE>
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 make nondeductible contributions to an individual retirement
program known as a Roth IRA. Contributions to a Roth IRA, which are subject to
certain limitations, must be made in cash or as a rollover or conversion from
another Roth IRA or a traditional IRA. A rollover from, or conversion of, a
traditional IRA to a Roth IRA may be subject to tax, contingent deferred sales
charge and other special rules may apply.
Qualified distributions from a Roth IRA, as defined by the Code, generally are
excluded from gross income. Qualified distributions include those distributions
made more than five years after the taxable year of the first contribution to
the Roth IRA, but only if : (1) the annuity owner has reached age 59 1/2; (2)
the distribution is paid to a beneficiary after the owner's death; (3) the
annuity owner becomes disabled; or (4) the distribution will be used for a first
time home purchase and does not exceed $10,000. Non-qualified distributions are
includable in gross income only to the extent they exceed contributions made to
the Roth IRA. The taxable portion of a non-qualified distribution may be subject
to a 10% penalty tax.
In addition, state laws may not completely follow the federal tax treatment of
Roth IRAs. You should consult your tax adviser for further information regarding
Roth IRAs.
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.
PAGE C-2
<PAGE>
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 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.
PAGE C-3
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
Variable Annuity Account
Cross Reference Sheet to Statement of Additional Information
Form N-4
Item Number Caption in Statement of Additional Information
15. Cover Page
16. Cover Page
17. Directors and Principal Management Officers of Minnesota Life
18. Not Applicable
19. Not Applicable
20. Distribution of Contracts
21. Performance Data
22. Not Applicable
23. Financial Statements
<PAGE>
Variable Annuity Account
("Variable Annuity Account"), a Separate Account of
Minnesota Life Insurance Company
("Minnesota Life")
400 Robert Street North
St. Paul, Minnesota 55101-2098
Telephone: (651) 665-3500
Statement of Additional Information
The date of this document and the Prospectus is: May 3, 1999
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 Minnesota Life Insurance Company at
(651) 665-3500; or writing to Minnesota Life at Minnesota Mutual Center,
400 Robert Street North, St. Paul, Minnesota 55101-2098.
Directors and Principal Management Officers of Minnesota Life
Distribution of Contract
Performance Data
Auditors
Registration Statement
Financial Statements
<PAGE>
DIRECTORS AND PRINCIPAL MANAGEMENT OFFICERS OF MINNESOTA LIFE
<TABLE>
<CAPTION>
DIRECTORS PRINCIPAL OCCUPATION
--------- --------------------
<S> <C>
Giulio Agostini Senior Vice President, Finance and Administrative
Services, 3M, St. Paul, 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 Vice Chairman and Chief Operating Officer, Wells
Fargo & Company, San Francisco, California (Banking)
John F. Grundhofer President, Chairman and Chief Executive Officer, U.S.
Bancorp, Minneapolis, Minnesota (Banking)
David S. Kidwell, Ph.D. Dean and Professor of Finance, The Curtis L. Carlson
School of Management, University of Minnesota,
Minneapolis, Minnesota
Reatha C. King, Ph.D. President and Executive Director, General Mills
Foundation, Minneapolis, Minnesota
Thomas E. Rohricht Of Counsel, Doherty, Rumble & Butler Professional
Association, St. Paul, Minnesota (Attorneys)
Robert L. Senkler Chairman of the Board, President and Chief Executive
Officer, Minnesota Life Insurance Company, since
August 1995; prior thereto for more than five years
Vice President and Actuary, Minnesota 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,
</TABLE>
-1-
<PAGE>
<TABLE>
<S> <C>
Clearwater Management Company, St. Paul,
Minnesota (Financial Management)
</TABLE>
PRINCIPAL OFFICERS (OTHER THAN DIRECTORS)
<TABLE>
<CAPTION>
NAME POSITION
<S> <C>
John F. Bruder Senior Vice President
Keith M. Campbell Senior Vice President
Robert E. Hunstad Executive Vice President
James E. Johnson Senior Vice President and Actuary
Dennis E. Prohofsky Senior Vice President, General Counsel and
Secretary
Gregory S. Strong Senior Vice President and Chief Financial Officer
Terrence M. Sullivan Senior Vice President
Randy F. Wallake Senior Vice President
William N. Westhoff Senior Vice President and Treasurer
</TABLE>
All Directors who are not also officers of Minnesota Life have had the principal
occupation (or employers) shown for at least five years. All officers of
Minnesota Life have been employed by Minnesota Life for at least five years with
the exception of Mr. Westhoff. Mr. Westhoff has been employed by Minnesota Life
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 CONTRACT
The contract will be sold in a continuous offering. Ascend Financial
Services, Inc. ("Ascend Financial") acts as principal underwriter of the
contracts. Ascend Financial is a wholly-owned subsidiary of Advantus Capital
Management, Inc. which in turn is a wholly-owned subsidiary of Minnesota Life
Insurance Company ("Minnesota Life"). Advantus Capital Management, Inc. is a
registered investment adviser and the investment adviser to the Advantus
Series Fund, Inc. 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. Amounts paid by Minnesota Life to the underwriter
for 1998, 1997 and 1996 respectively, were $15,989,724, $15,067,613 and
$13,034,146, respectively, and for payments to associated dealers on the sale
of the contracts, which include other contracts issued through the Variable
Annuity Account. Agents of Minnesota Life who are also registered
representatives of Ascend Financial are compensated directly by Minnesota
Life.
-2-
<PAGE>
PERFORMANCE DATA
CURRENT YIELD FIGURES FOR MONEY MARKET SUB-ACCOUNT
Current annualized yield quotations for the Money Market Sub-Account are based
on the Sub-Account's net investment income for a seven-day or other specified
period and exclude any realized or unrealized gains or losses on sub-account
securities. Current annualized yield is computed by determining the net change
(exclusive of realized gains and losses from the sale of securities and
unrealized appreciation and depreciation) in the value of a hypothetical account
having a balance of one accumulation unit at the beginning of the specified
period, dividing such net change in account value by the value of the account at
the beginning of the period, and annualizing this quotient on a 365-day basis.
The Variable Annuity Account may also quote the effective yield of the Money
Market Sub-Account for a seven-day or other specified period for which the
current annualized yield is computed by expressing the unannualized return on a
compounded, annualized basis. The yield and effective yield of the Money Market
Sub-Account for the seven-day period ended December 31, 1998 were 4.19% and
4.28%, respectively.
TOTAL RETURN FIGURES FOR ALL SUB-ACCOUNTS
Cumulative total return quotations for Sub-Accounts represent the total return
for the period since the Sub-Account became available pursuant to the Variable
Annuity Account's registration statement. Cumulative total return is equal to
the percentage change between the net asset value of a hypothetical $1,000
investment at the beginning of the period and the net asset value of that same
investment at the end of the period.
Prior to May 3, 1993, several of the Sub-Accounts were known by different names.
The Growth Sub-Account was the Stock Sub-Account, the Asset Allocation Sub-
Account was the Managed Sub-Account, the Index 500 Sub-Account was the Index
Sub-Account and the Capital Appreciation Sub-Account was the Aggressive Growth
Sub-Account.
The cumulative total return figures published by the Variable Annuity Account
relating to the contracts described in the Prospectus will reflect Minnesota
Life's voluntary absorption of certain Fund expenses described below. The
cumulative total returns for the Sub-Accounts for the specified periods ended
December 31, 1998 are shown in the table below. The figures in parentheses show
what the cumulative total returns would have been had Minnesota Life not
absorbed Fund expenses as described below.
<TABLE>
<CAPTION>
FROM INCEPTION DATE OF
TO 12/31/98 INCEPTION
-------------- ---------
<S> <C> <C> <C>
Growth Sub-Account (317.77%) 321.73% 6/3/87
-3-
<PAGE>
Bond Sub-Account (150.63%) 152.03% 6/3/87
Money Market Sub-Account (75.59%) 78.28% 6/3/87
Asset Allocation Sub-Account (270.13%) 270.87% 6/3/87
Mortgage Securities Sub-Account (154.35%) 154.87% 6/3/87
Index 500 Sub-Account (373.59%) 375.13% 6/3/87
Capital Appreciation Sub-Account (369.95%) 375.47% 6/3/87
International Stock Sub-Account (112.68%) 112.74% 5/1/92
Small Company Growth Sub-Account (85.36%) 85.50% 5/3/93
Maturing Government Bond 2002 Sub-Account (48.45%) 50.62% 5/2/94
Maturing Government Bond 2006 Sub-Account (66.68%) 70.45% 5/2/94
Maturing Government Bond 2010 Sub-Account (73.60%) 81.89% 5/2/94
Value Stock Sub-Account (122.56%) 122.95% 5/2/94
Small Company Value Sub-Account (-5.82%) -5.78% 10/1/97
Global Bond Sub-Account (15.14%) 15.14% 10/1/97
Index 400 Mid-Cap Sub-Account (15.31%) 15.41% 10/1/97
Macro-Cap Value Sub-Account (19.76%) 20.01% 10/15/97
Micro-Cap Growth Sub-Account (-4.92%) -4.92% 10/1/97
Real Estate Securities Sub-Account (-14.69%) -14.61% 5/1/98
Templeton Developing Markets Class 2 Sub-Account (-44.90%) -44.90% 10/1/97
</TABLE>
Cumulative total return quotations for Sub-Accounts will be accompanied by
average annual total return figures for a one-year period, five-year period
and for the period since the Sub-Account became available pursuant to the
Variable Annuity Account's registration statement. Average annual total
return figures are the average annual compounded rates of return required for
an initial investment of $1,000 to equal the accumulation value of that same
investment at the end of the period. The average annual total return figures
published by the Variable Annuity Account will reflect Minnesota Life's
voluntary absorption of certain Fund expenses. For the period subsequent to
March 9, 1987, Minnesota Life is voluntarily absorbing the fees and
expenses that exceed .65% of the average daily net assets of the Growth,
Bond, Money Market, Asset Allocation and Mortgage Securities Portfolios of
the Fund, .55% of the average daily net assets of the Index 500 Portfolio of
the Fund, .90% of the average daily net assets of the Capital Appreciation
and Small Company Portfolios of the Fund and expenses that exceed 1.00% of
the average daily net assets of the International Stock Portfolio exclusive
of the advisory fee. And, for the period subsequent to May 2, 1994,
Minnesota Life has voluntarily absorbed fees and expenses that exceed .90%
of the average daily net assets of the Value Stock Portfolio and fees and
expenses that exceed
-4-
<PAGE>
.40% of the average daily net assets of the Maturing Government Bond
Portfolios maturing in 2006 and 2010 and fees and expenses that exceed .20%
of the average daily net assets of the Maturing Government Bond Portfolios
maturing in 1998 and 2002. For the period subsequent to May 1, 1998,
Minnesota Life has voluntarily agreed to absorb fees and expenses that exceed
.40% of the average daily net assets of the Maturing Government Bond 1998 and
2002 Portfolios. Minnesota Life has voluntarily agreed to absorb fees and
expenses that exceed .55% of the average daily net assets of the Index 400
Mid-Cap Portfolio, .90% of the average daily net assets of the Small Company
Value Portfolio, 1.25% of the average daily net assets of the Micro-Cap
Growth Portfolio, .85% of the average daily net assets of the Macro-Cap Value
Portfolio and expenses that exceed 1.00% of the average daily net assets of
the Global Bond Portfolio exclusive of the advisory fee. For the period
subsequent to May 1, 1998, Minnesota Life has voluntarily agreed to absorb
fees and expenses that exceed .90% of the average daily net assets of the
Real Estate Securities Portfolio. There is no specified or minimum period of
time during which Minnesota Life has agreed to continue its voluntary
absorption of these expenses, and Minnesota Life may in its discretion cease
its absorption of expenses at any time. Should Minnesota Life cease
absorbing expenses the effect would be to increase substantially Fund
expenses and thereby reduce investment return.
The average annual rates of return for the Sub-Accounts of the contracts
described in the Prospectus for the specified periods ended December 31, 1998
are shown in the table below. The figures in parentheses show what the average
annual rates of return would have been had Minnesota Life not absorbed Fund
expenses as described above.
-5-
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED FIVE YEARS TEN YEARS FROM INCEPTION
12/31/98 ENDED 12/31/98 ENDED 12/31/98 TO 12/31/98
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Sub-Account (34.50%) 34.50% (21.22%) 21.22% (17.01%) 17.05% (n/a) n/a
Bond Sub-Account (5.92%) 5.92% (6.28%) 6.28% (8.41%) 8.44% (n/a) n/a
Money Market Sub-Account (4.82%) 4.82% (4.53%) 4.68% (4.81%) 5.02% (n/a) n/a
Asset Allocation Sub-Account (23.46%) 23.46% (15.16%) 15.16% (13.92%) 13.93% (n/a) n/a
Mortgage Securities Sub-Account (6.41%) 6.41% (6.74%) 6.74% (8.69%) 8.72% (n/a) n/a
Index 500 Sub-Account (27.80%) 27.80% (23.14%) 23.14% (18.33%) 18.36% (n/a) n/a
Capital Appreciation
Sub-Account (30.64%) 30.64% (19.71%) 19.72% (18.36%) 18.46% (n/a) n/a
International Stock Sub-Account (6.45%) 6.45% (10.07%) 10.07% (n/a) n/a (11.97%) 11.98%
Small Company Growth
Sub-Account (1.12%) 1.12% (10.05%) 10.08% (n/a) n/a (11.49%) 11.52%
Maturing Government Bond
2002 Sub-Account (8.85%) 9.45% (n/a) n/a (n/a) n/a (8.31%) 9.17%
Maturing Government Bond
2006 Sub-Account (13.57%) 14.20% (n/a) n/a (n/a) n/a (11.03%) 12.10%
Maturing Government Bond
<CAPTION>
DATE OF
INCEPTION
---------
<S> <C>
Growth Sub-Account 6/3/87
Bond Sub-Account 6/3/87
Money Market Sub-Account 6/3/87
Asset Allocation Sub-Account 6/3/87
Mortgage Securities Sub-Account 6/3/87
Index 500 Sub-Account 6/3/87
Capital Appreciation
Sub-Account 6/3/87
International Stock Sub-Account 5/1/92
Small Company Growth
Sub-Account 5/3/94
Maturing Government Bond
2002 Sub-Account 5/2/94
Maturing Government Bond
2006 Sub-Account 5/2/94
Maturing Government Bond
</TABLE>
-6-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2010 Sub-Account (12.72%) 14.11% (n/a) n/a (n/a) n/a (11.65%) 13.67%
Value Stock Sub-Account (1.60%) 1.60% (n/a) n/a (n/a) n/a (18.68%) 18.74%
Small Company Value
Sub-Account (-7.55%) -6.89% (n/a) n/a (n/a) n/a (-5.30%) -4.64%
Global Bond Sub-Account (16.00%) 16.00% (n/a) n/a (n/a) n/a (11.92%) 11.92%
Index 400 Mid-Cap Sub-Account (15.88%) 16.50% (n/a) n/a (n/a) n/a (11.51%) 12.13%
Macro-Cap Value Sub-Account (20.45%) 21.72% (n/a) n/a (n/a) n/a (14.95%) 16.22%
Micro-Cap Growth Sub-Account (13.27%) 13.27% (n/a) n/a (n/a) n/a (-4.73%) -3.95%
Real Estate Securities Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (-15.13%) -14.61%
Templeton Developing
Markets Class 2 Sub-Account (-21.15%) -21.15% (n/a) n/a (n/a) n/a (-37.88%) -37.88%
<CAPTION>
<S> <C>
2010 Sub-Account 5/2/94
Value Stock Sub-Account 5/2/94
Small Company Value
Sub-Account 10/1/97
Global Bond Sub-Account 10/1/97
Index 400 Mid-Cap Sub-Account 10/1/97
Macro-Cap Value Sub-Account 10/15/97
Micro-Cap Growth Sub-Account 10/1/97
Real Estate Securities Sub-Account 5/1/98
Templeton Developing
Markets Class 2 Sub-Account 10/1/97
</TABLE>
-7-
<PAGE>
PREDICTABILITY OF RETURN
ANTICIPATED VALUE AT MATURITY. The maturity values of zero-coupon bonds are
specified at the time the bonds are issued, and this feature, combined with the
ability to calculate yield to maturity, has made these instruments popular
investment vehicles for investors seeking reliable investments to meet long-term
financial goals.
Each Maturing Government Bond Portfolio of the Fund consists primarily of zero-
coupon bonds but is actively managed to accommodate contract owner activity and
to take advantage of perceived market opportunities. Because of this active
management approach, there is no guarantee that a certain price per share of a
Maturing Government Bond Portfolio, or a certain price per unit of the
corresponding Sub-Account, will be attained by the time a Portfolio is
liquidated. Instead, the Fund attempts to track the price behavior of a
directly held zero-coupon bond by:
(1) Maintaining a weighted average maturity within each Maturing Government
Bond Portfolio's target maturity year;
(2) Investing at least 90% of assets in securities that mature within one
year of that Portfolio's target maturity year;
(3) Investing a substantial portion of assets in Treasury STRIPS (the most
liquid Treasury zero);
(4) Under normal conditions, maintaining a nominal cash balance;
(5) Executing portfolio transactions necessary to accommodate net contract
owner purchases or redemptions on a daily basis; and
(6) Whenever feasible, contacting several U.S. government securities
dealers for each intended transaction in an effort to obtain the best
price on each transaction.
These measures enable the Company to calculate an anticipated value at maturity
(AVM) for each unit of a Maturing Government Bond Sub-Account, calculated as of
the date of purchase of such unit, that approximates the price per unit that
such unit will achieve by the weighted average maturity date of the underlying
Portfolio. The AVM calculation for each Maturing Government Bond Sub-Account is
as follows:
AVM = P(1 + AGR/2)2T
where P = the Sub-Account's current price per unit; T = the Sub-Account's
weighted average term to maturity in years; and AGR = the anticipated growth
rate.
This calculation assumes an expense ratio and a portfolio composition for the
underlying Maturing Government Bond Portfolio that remain constant for the life
of such Portfolio. Because the Portfolio's expenses and composition do not
remain constant, however, the
-8-
<PAGE>
Company may calculate AVM for each Maturing Government Bond Sub-Account on any
day on which the underlying Maturing Government Bond Portfolio is valued. Such
an AVM is applicable only to units purchased on that date.
In addition to the measures described above, which the adviser believes are
adequate to assure close correspondence between the price behavior of each
Portfolio and the price behavior of directly held zero-coupon bonds with
comparable maturities, the Fund expects that each Portfolio will invest at least
90% of its net assets in zero-coupon bonds until it is within four years of its
target maturity year and at least 80% of its net assets in zero-coupon
securities within two to four years of its target maturity year. This
expectation may be altered if the market supply of zero-coupon securities
diminishes unexpectedly.
ANTICIPATED GROWTH RATE. The Company calculates an anticipated growth rate
(AGR) for each Maturing Government Bond Sub-Account on each day on which the
underlying Portfolio is valued. AGR is a calculation of the anticipated
annualized rate of growth for a Sub-Account unit, calculated from the date of
purchase of such unit to the Sub-Account's target maturity date. As is the case
with calculations of AVM, the AGR calculation assumes that each underlying
Maturing Government Bond Portfolio expense ratio and portfolio composition will
remain constant. Each Maturing Government Bond Sub-Account AGR changes from day
to day (i.e., a particular AGR calculation is applicable only to units purchased
on that date), due primarily to changes in interest rates and, to a lesser
extent, to changes in portfolio composition and other factors that affect the
value of the underlying Portfolio.
The Company expects that a contract owner who holds specific units until the
underlying Portfolio's weighted average maturity date will realize an investment
return and maturity value on those units that do not differ substantially from
the AGR and AVM calculated on the day such units were purchased. The AGR and
AVM calculated with respect to units purchased on any other date, however, may
be materially different.
AUDITORS
The consolidated financial statements of Minnesota Life and the financial
statements of the Variable Annuity Account included herein have been audited
by KPMG Peat Marwick LLP, 4200 Norwest Center, 90 South Seventh Street,
Minneapolis, Minnesota 55402, independent auditors, whose reports thereon
appear elsewhere herein, and have been so included in reliance upon the
reports of KPMG Peat Marwick LLP and upon the authority of said firm as
experts in accounting and auditing.
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 Life, and the
contracts. Statements contained in this Prospectus as to the contents of
contracts and other legal instruments are summaries, and reference is made to
such instruments as filed.
-9-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees of Minnesota Life Insurance Company
and Contract Owners of Variable Annuity Account:
We have audited the accompanying statements of assets and liabilities of the
Growth, Bond, Money Market, Asset Allocation, Mortgage Securities, Index 500,
Capital Appreciation, International Stock, Small Company, Maturing Government
Bond 1998, Maturing Government Bond 2002, Maturing Government Bond 2006,
Maturing Government Bond 2010, Value Stock, Small Company Value, Global Bond,
Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap Growth, Real Estate Securities and
Templeton Developing Markets Segregated Sub-Accounts of Variable Annuity Account
(the Account), formerly Minnesota Mutual Variable Annuity Account, (contracts
offered to certain defined groups and individuals) as of December 31, 1998 and
the related statements of operations, the statements of changes in net assets
and the financial highlights for the periods presented. These financial
statements and the financial highlights are the responsibility of the Account's
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investments owned at December 31, 1998 were confirmed to us by the
respective Sub-Account mutual fund group, or for Advantus Series Fund, Inc.,
verified by examination of the underlying portfolios. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Growth, Bond, Money Market,
Asset Allocation, Mortgage Securities, Index 500, Capital Appreciation,
International Stock, Small Company, Maturing Government Bond 1998, Maturing
Government Bond 2002, Maturing Government Bond 2006, Maturing Government Bond
2010, Value Stock, Small Company Value, Global Bond, Index 400 Mid-Cap,
Macro-Cap Value, Micro-Cap Growth, Real Estate Securities, and Templeton
Developing Markets Segregated Sub-Accounts of Variable Annuity Account at
December 31, 1998 and the results of their operations, changes in their net
assets and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 26, 1999
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
---------------------------------------------
MONEY
ASSETS GROWTH BOND MARKET
------
------------- ------------- -------------
------------- ------------- -------------
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
Growth Portfolio, 2,542,385 shares at net asset value of $2.74 per
share (cost $5,519,414) .............................................. $ 6,960,793 - -
Bond Portfolio, 4,191,465 shares at net asset value of $1.31 per share
(cost $5,256,313) .................................................... - 5,481,620 -
Money Market Portfolio, 2,609,510 shares at net asset value of $1.00
per share (cost $2,609,510) .......................................... - - 2,609,510
Asset Allocation Portfolio, 3,462,655 shares at net asset value of $2.28
per share (cost $6,108,685) .......................................... - - -
Mortgage Securities Portfolio, 1,436,290 shares at net asset value of $1.22
per share (cost $1,693,640) .......................................... - - -
Index 500 Portfolio, 3,387,916 shares at net asset value of $3.91 per share
(cost $8,160,055) .................................................... - - -
Capital Appreciation Portfolio, 2,437,754 shares at net asset value of
$3.54 per share (cost $5,259,275) .................................... - - -
------------- ------------- -------------
------------- ------------- -------------
6,960,793 5,481,620 2,609,510
Receivable for investments sold............................................... 41 33 15
Receivable from Minnesota Life for contract purchase payments ................ 49,139 - 295
------------- ------------- -------------
------------- ------------- -------------
Total assets ......................................................... 7,009,973 5,481,653 2,609,820
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES
Payable for investments purchased ............................................ 49,139 - 295
Payable to Minnesota Life for contract terminations and
administrative charges................................................... 41 33 15
------------- ------------- -------------
------------- ------------- -------------
Total liabilities .................................................... 49,180 33 310
------------- ------------- -------------
------------- ------------- -------------
Net assets applicable to annuity contract owners ..................... $ 6,960,793 5,481,620 2,609,510
------------- ------------- -------------
------------- ------------- -------------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period.............................................. $ 6,869,391 5,451,080 2,609,510
Contracts in annuity payment period (note 2) ................................. 91,402 30,540 -
------------- ------------- -------------
------------- ------------- -------------
Total contract owners' equity ........................................ $ 6,960,793 5,481,620 2,609,510
------------- ------------- -------------
------------- ------------- -------------
ACCUMULATION UNITS OUTSTANDING ............................................... 1,628,467 2,162,866 1,463,714
------------- ------------- -------------
------------- ------------- -------------
NET ASSET VALUE PER ACCUMULATION UNIT ........................................ $ 4.22 2.52 1.78
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------
----------------------------------------------
ASSET MORTGAGE INDEX
ASSETS ALLOCATION SECURITIES 500
------
------------- ------------- -------------
------------- ------------- -------------
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
Growth Portfolio, 2,542,385 shares at net asset value of $2.74 per
share (cost $5,519,414) .............................................. $ - - -
Bond Portfolio, 4,191,465 shares at net asset value of $1.31 per share
(cost $5,256,313) .................................................... - - -
Money Market Portfolio, 2,609,510 shares at net asset value of $1.00
per share (cost $2,609,510) .......................................... - - -
Asset Allocation Portfolio, 3,462,655 shares at net asset value of $2.28
per share (cost $6,108,685) .......................................... 7,890,893 - -
Mortgage Securities Portfolio, 1,436,290 shares at net asset value of $1.22
per share (cost $1,693,640) .......................................... - 1,748,986 -
Index 500 Portfolio, 3,387,916 shares at net asset value of $3.91 per share
(cost $8,160,055) .................................................... - - 13,246,504
Capital Appreciation Portfolio, 2,437,754 shares at net asset value of
$3.54 per share (cost $5,259,275) .................................... - - -
------------- ------------- -------------
------------- ------------- -------------
7,890,893 1,748,986 13,246,504
Receivable for investments sold............................................... 47 11 78
Receivable from Minnesota Life for contract purchase payments ................ - - 32,344
------------- ------------- -------------
------------- ------------- -------------
Total assets ......................................................... 7,890,940 1,748,997 13,278,926
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES
Payable for investments purchased ............................................ - - 32,344
Payable to Minnesota Life for contract terminations and
administrative charges................................................... 47 11 78
------------- ------------- -------------
------------- ------------- -------------
Total liabilities .................................................... 47 11 32,422
------------- ------------- -------------
------------- ------------- -------------
Net assets applicable to annuity contract owners ..................... $ 7,890,893 1,748,986 13,246,504
------------- ------------- -------------
------------- ------------- -------------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period.............................................. $ 7,369,285 1,748,986 13,200,318
Contracts in annuity payment period (note 2) ................................. 521,608 0 46,186
------------- ------------- -------------
------------- ------------- -------------
Total contract owners' equity ........................................ $ 7,890,893 1,748,986 13,246,504
------------- ------------- -------------
------------- ------------- -------------
ACCUMULATION UNITS OUTSTANDING ............................................... 1,987,162 686,079 2,780,306
------------- ------------- -------------
------------- ------------- -------------
NET ASSET VALUE PER ACCUMULATION UNIT ........................................ $ 3.71 2.55 4.75
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED
SUB-ACCOUNTS
-------------
-------------
CAPITAL
ASSETS APPRECIATION
------
-------------
-------------
<S> <C><C>
Investments in shares of Advantus Series Fund, Inc.:
Growth Portfolio, 2,542,385 shares at net asset value of $2.74 per
share (cost $5,519,414) .............................................. $ -
Bond Portfolio, 4,191,465 shares at net asset value of $1.31 per share
(cost $5,256,313) .................................................... -
Money Market Portfolio, 2,609,510 shares at net asset value of $1.00
per share (cost $2,609,510) .......................................... -
Asset Allocation Portfolio, 3,462,655 shares at net asset value of $2.28
per share (cost $6,108,685) .......................................... -
Mortgage Securities Portfolio, 1,436,290 shares at net asset value of $1.22
per share (cost $1,693,640) .......................................... -
Index 500 Portfolio, 3,387,916 shares at net asset value of $3.91 per share
(cost $8,160,055) .................................................... -
Capital Appreciation Portfolio, 2,437,754 shares at net asset value of
$3.54 per share (cost $5,259,275) .................................... 8,620,628
-------------
-------------
8,620,628
Receivable for investments sold............................................... 22,930
Receivable from Minnesota Life for contract purchase payments ................ 25,234
-------------
-------------
Total assets ......................................................... 8,668,792
-------------
-------------
LIABILITIES
Payable for investments purchased ............................................ 25,234
Payable to Minnesota Life for contract terminations and
administrative charges................................................... 22,930
-------------
-------------
Total liabilities .................................................... 48,164
-------------
-------------
Net assets applicable to annuity contract owners ..................... $ 8,620,628
-------------
-------------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period.............................................. $ 8,553,855
Contracts in annuity payment period (note 2) ................................. 66,773
-------------
-------------
Total contract owners' equity ........................................ $ 8,620,628
-------------
-------------
ACCUMULATION UNITS OUTSTANDING ............................................... 1,800,652
-------------
-------------
NET ASSET VALUE PER ACCUMULATION UNIT ........................................ $ 4.75
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
---------------------------------------------
MATURING
INTERNATIONAL SMALL GOVERNMENT
ASSETS STOCK COMPANY BOND 1998
------
------------- ------------- -------------
------------- ------------- -------------
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
International Stock Portfolio, 3,160,847 shares at net asset value of
$1.73 per share (cost $4,725,912) .................................... $ 5,467,498 - -
Small Company Portfolio, 1,877,339 shares at net asset value of
$1.68 per share (cost $2,848,692) .................................... - 3,145,089 -
Maturing Government Bond 1998 Portfolio, 0 shares at net asset
value of $0.00 per share (cost $0) ................................... - - -
Maturing Government Bond 2002 Portfolio, 451,480 shares at net asset
value of $1.11 per share (cost $487,844) ............................. - - -
Maturing Government Bond 2006 Portfolio, 314,029 shares at net value
of $1.25 per share (cost $363,078) ................................... - - -
Maturing Government Bond 2010 Portfolio, 150,896 shares at net asset
value of $1.41 per share (cost $171,462) ............................. - - -
Value Stock Portfolio, 1,640,865 shares at net asset value of $1.76 per
share (cost $2,718,202) .............................................. - - -
------------- ------------- -------------
------------- ------------- -------------
5,467,498 3,145,089 -
Receivable for investments sold............................................... 32 18 -
Receivable from Minnesota Life for contract purchase payments ................ - 24,634 -
------------- ------------- -------------
------------- ------------- -------------
Total assets ......................................................... 5,467,530 3,169,741 -
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES
Payable for investments purchased ............................................ - 24,634 -
Payable to Minnesota Life for contract terminations and
administrative charges................................................... 32 18 -
------------- ------------- -------------
------------- ------------- -------------
Total liabilities..................................................... 32 24,652 -
------------- ------------- -------------
------------- ------------- -------------
Net assets applicable to annuity contract owners ..................... $ 5,467,498 3,145,089 -
------------- ------------- -------------
------------- ------------- -------------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period.............................................. $ 5,246,846 3,120,314 -
Contracts in annuity payment period (note 2) ................................. 220,652 24,775 -
------------- ------------- -------------
------------- ------------- -------------
Total contract owners' equity ........................................ $ 5,467,498 3,145,089 -
------------- ------------- -------------
------------- ------------- -------------
ACCUMULATION UNITS OUTSTANDING ............................................... 2,464,913 1,681,790 -
------------- ------------- -------------
------------- ------------- -------------
NET ASSET VALUE PER ACCUMULATION UNIT ........................................ $ 2.13 1.86 -
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------
----------------------------------------------
MATURING MATURING MATURING
GOVERNMENT GOVERNMENT GOVERNMENT
ASSETS BOND 2002 BOND 2006 BOND 2010
------
------------- ------------- -------------
------------- ------------- -------------
<S> <C><C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
International Stock Portfolio, 3,160,847 shares at net asset value of
$1.73 per share (cost $4,725,912) .................................... $ - - -
Small Company Portfolio, 1,877,339 shares at net asset value of
$1.68 per share (cost $2,848,692) .................................... - - -
Maturing Government Bond 1998 Portfolio, 0 shares at net asset
value of $0.00 per share (cost $0) ................................... - - -
Maturing Government Bond 2002 Portfolio, 451,480 shares at net asset
value of $1.11 per share (cost $487,844) ............................. 499,225 - -
Maturing Government Bond 2006 Portfolio, 314,029 shares at net value
of $1.25 per share (cost $363,078) ................................... - 393,595 -
Maturing Government Bond 2010 Portfolio, 150,896 shares at net asset
value of $1.41 per share (cost $171,462) ............................. - - 212,713
Value Stock Portfolio, 1,640,865 shares at net asset value of $1.76 per
share (cost $2,718,202) .............................................. - - -
------------- ------------- -------------
------------- ------------- -------------
499,225 393,595 212,713
Receivable for investments sold............................................... 3 2 1
Receivable from Minnesota Life for contract purchase payments ................ - - -
------------- ------------- -------------
------------- ------------- -------------
Total assets ......................................................... 499,228 393,597 212,714
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES
Payable for investments purchased ............................................ - - -
Payable to Minnesota Life for contract terminations and
administrative charges................................................... 3 2 1
------------- ------------- -------------
------------- ------------- -------------
Total liabilities..................................................... 3 2 1
------------- ------------- -------------
------------- ------------- -------------
Net assets applicable to annuity contract owners ..................... $ 499,225 393,595 212,713
------------- ------------- -------------
------------- ------------- -------------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period.............................................. $ 499,225 368,711 187,877
Contracts in annuity payment period (note 2) ................................. - 24,884 24,836
------------- ------------- -------------
------------- ------------- -------------
Total contract owners' equity ........................................ $ 499,225 393,595 212,713
------------- ------------- -------------
------------- ------------- -------------
ACCUMULATION UNITS OUTSTANDING ............................................... 339,137 223,036 107,403
------------- ------------- -------------
------------- ------------- -------------
NET ASSET VALUE PER ACCUMULATION UNIT ........................................ $ 1.47 1.65 1.75
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED
SUB-ACCOUNTS
-------------
-------------
VALUE
ASSETS STOCK
------
-------------
-------------
<S> <C>
Investments in shares of Advantus Series Fund, Inc.:
International Stock Portfolio, 3,160,847 shares at net asset value of
$1.73 per share (cost $4,725,912) .................................... $ -
Small Company Portfolio, 1,877,339 shares at net asset value of
$1.68 per share (cost $2,848,692) .................................... -
Maturing Government Bond 1998 Portfolio, 0 shares at net asset
value of $0.00 per share (cost $0) ................................... -
Maturing Government Bond 2002 Portfolio, 451,480 shares at net asset
value of $1.11 per share (cost $487,844) ............................. -
Maturing Government Bond 2006 Portfolio, 314,029 shares at net value
of $1.25 per share (cost $363,078) ................................... -
Maturing Government Bond 2010 Portfolio, 150,896 shares at net asset
value of $1.41 per share (cost $171,462) ............................. -
Value Stock Portfolio, 1,640,865 shares at net asset value of $1.76 per
share (cost $2,718,202) .............................................. 2,887,136
-------------
-------------
2,887,136
Receivable for investments sold............................................... 17
Receivable from Minnesota Life for contract purchase payments ................ 24,634
-------------
-------------
Total assets ......................................................... 2,911,787
-------------
-------------
LIABILITIES
Payable for investments purchased ............................................ 24,634
Payable to Minnesota Life for contract terminations and
administrative charges................................................... 17
-------------
-------------
Total liabilities..................................................... 24,651
-------------
-------------
Net assets applicable to annuity contract owners ..................... $ 2,887,136
-------------
-------------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period.............................................. $ 2,837,220
Contracts in annuity payment period (note 2) ................................. 49,916
-------------
-------------
Total contract owners' equity ........................................ $ 2,887,136
-------------
-------------
ACCUMULATION UNITS OUTSTANDING ............................................... 1,260,342
-------------
-------------
NET ASSET VALUE PER ACCUMULATION UNIT ........................................ $ 2.25
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------
-------------------------------------------
SMALL
COMPANY GLOBAL INDEX 400
ASSETS VALUE BOND MID-CAP
------
------------- ------------- -------------
------------- ------------- -------------
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
Small Company Value Portfolio, 359,104 shares at net asset value
of $.95 per share (cost $349,495) ..................................... $ 340,537 - -
Global Bond Portfolio, 46,821 shares at net asset value of $1.05
per share (cost $48,295) .............................................. - 49,097 -
Index 400 Mid-Cap Portfolio, 220,222 shares at net asset value of $1.15
per share (cost $209,368) ............................................. - - 253,127
Macro-Cap Value Portfolio, 102,766 shares at net asset value of $1.14
per share (cost $104,806) ............................................. - - -
Micro-Cap Growth Portfolio, 67,493 shares at net asset value of $1.01
per share (cost $62,003) .............................................. - - -
Real Estate Securities Portfolio, 12,337 shares at net asset value of $.83
per share (cost $9,765) ............................................... - - -
Investment in Templeton Variable Products Series Fund:
Templeton Developing Markets Fund - Class 2, 14,229 shares at net
asset value of $5.12 per share (cost $91,387) ......................... - - -
------------- ------------- -------------
------------- ------------- -------------
340,537 49,097 253,127
Receivable for investments sold............................................... 2 - 2
Receivable from Minnesota Life for contract purchase payments ................ - - -
------------- ------------- -------------
------------- ------------- -------------
Total assets .......................................................... 340,539 49,097 253,129
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES
Payable for investments purchased ............................................ - - -
Payable to Minnesota Life for contract terminations and
administrative charges.................................................... 2 - 2
------------- ------------- -------------
------------- ------------- -------------
Total liabilities ..................................................... 2 - 2
------------- ------------- -------------
------------- ------------- -------------
Net assets applicable to annuity contract owners ...................... $ 340,537 49,097 253,127
------------- ------------- -------------
------------- ------------- -------------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period.............................................. $ 340,537 49,097 253,127
Contracts in annuity payment period (note 2) ................................. - - -
------------- ------------- -------------
------------- ------------- -------------
Total contract owners' equity ......................................... $ 340,537 49,097 253,127
------------- ------------- -------------
------------- ------------- -------------
ACCUMULATION UNITS OUTSTANDING ............................................... 361,348 42,643 217,613
------------- ------------- -------------
------------- ------------- -------------
NET ASSET VALUE PER ACCUMULATION UNIT ........................................ $ 0.94 1.15 1.15
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------
--------------------------------------------
REAL
MACRO-CAP MICRO-CAP ESTATE
ASSETS VALUE GROWTH SECURITIES
------
-------------- ------------- -------------
-------------- ------------- -------------
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
Small Company Value Portfolio, 359,104 shares at net asset value
of $.95 per share (cost $349,495) ..................................... $ - - -
Global Bond Portfolio, 46,821 shares at net asset value of $1.05
per share (cost $48,295) .............................................. - - -
Index 400 Mid-Cap Portfolio, 220,222 shares at net asset value of $1.15
per share (cost $209,368) ............................................. - - -
Macro-Cap Value Portfolio, 102,766 shares at net asset value of $1.14
per share (cost $104,806) ............................................. 117,112 - -
Micro-Cap Growth Portfolio, 67,493 shares at net asset value of $1.01
per share (cost $62,003) .............................................. - 68,076 -
Real Estate Securities Portfolio, 12,337 shares at net asset value of $.83
per share (cost $9,765) ............................................... - - 10,262
Investment in Templeton Variable Products Series Fund:
Templeton Developing Markets Fund - Class 2, 14,229 shares at net
asset value of $5.12 per share (cost $91,387) ......................... - - -
-------------- ------------- -------------
-------------- ------------- -------------
117,112 68,076 10,262
Receivable for investments sold............................................... 1 - -
Receivable from Minnesota Life for contract purchase payments ................ - 600 -
-------------- ------------- -------------
-------------- ------------- -------------
Total assets .......................................................... 117,113 68,676 10,262
-------------- ------------- -------------
-------------- ------------- -------------
LIABILITIES
Payable for investments purchased ............................................ - 600 -
Payable to Minnesota Life for contract terminations and
administrative charges.................................................... 1 - -
-------------- ------------- -------------
-------------- ------------- -------------
Total liabilities ..................................................... 1 600 -
-------------- ------------- -------------
-------------- ------------- -------------
Net assets applicable to annuity contract owners ...................... $ 117,112 68,076 10,262
-------------- ------------- -------------
-------------- ------------- -------------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period.............................................. $ 117,112 68,076 10,262
Contracts in annuity payment period (note 2) ................................. - - -
-------------- ------------- -------------
-------------- ------------- -------------
Total contract owners' equity ......................................... $ 17,112 68,076 10,262
-------------- ------------- -------------
-------------- ------------- -------------
ACCUMULATION UNITS OUTSTANDING ............................................... 97,581 71,594 12,024
-------------- ------------- -------------
-------------- ------------- -------------
NET ASSET VALUE PER ACCUMULATION UNIT ........................................ $ 1.20 0.95 0.85
-------------- ------------- -------------
-------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------
--------------
TEMPLETON
DEVELOPING
ASSETS MARKETS
------
--------------
--------------
<S> <C><C>
Investments in shares of Advantus Series Fund, Inc.:
Small Company Value Portfolio, 359,104 shares at net asset value
of $.95 per share (cost $349,495) ..................................... $ -
Global Bond Portfolio, 46,821 shares at net asset value of $1.05
per share (cost $48,295) .............................................. -
Index 400 Mid-Cap Portfolio, 220,222 shares at net asset value of $1.15
per share (cost $209,368) ............................................. -
Macro-Cap Value Portfolio, 102,766 shares at net asset value of $1.14
per share (cost $104,806) ............................................. -
Micro-Cap Growth Portfolio, 67,493 shares at net asset value of $1.01
per share (cost $62,003) .............................................. -
Real Estate Securities Portfolio, 12,337 shares at net asset value of $.83
per share (cost $9,765) ............................................... -
Investment in Templeton Variable Products Series Fund:
Templeton Developing Markets Fund - Class 2, 14,229 shares at net
asset value of $5.12 per share (cost $91,387) ......................... 72,851
--------------
--------------
72,851
Receivable for investments sold............................................... -
Receivable from Minnesota Life for contract purchase payments ................ -
--------------
--------------
Total assets .......................................................... 72,851
--------------
--------------
LIABILITIES
Payable for investments purchased ............................................ -
Payable to Minnesota Life for contract terminations and
administrative charges.................................................... -
--------------
--------------
Total liabilities ..................................................... -
--------------
--------------
Net assets applicable to annuity contract owners ...................... $ 72,851
--------------
--------------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period.............................................. $ 72,851
Contracts in annuity payment period (note 2) ................................. -
--------------
--------------
Total contract owners' equity ......................................... $ 72,851
--------------
--------------
ACCUMULATION UNITS OUTSTANDING ............................................... 132,217
--------------
--------------
NET ASSET VALUE PER ACCUMULATION UNIT ........................................ $ 0.55
--------------
--------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
---------------------------------------------
MONEY
GROWTH BOND MARKET
------------- ------------- -------------
------------- ------------- -------------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) .... $ 49,624 247,634 88,763
Administrative charges (note 3) ......................................... (8,428) (7,043) (2,764)
------------- ------------- -------------
------------- ------------- -------------
Investment income (loss) - net ....................................... 41,196 240,591 85,999
------------- ------------- -------------
------------- ------------- -------------
Realized and unrealized gains on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ........ 789,241 52,164 -
------------- ------------- -------------
------------- ------------- -------------
Realized gains on sales of investments:
Proceeds from sales .................................................. 1,468,282 875,078 1,934,444
Cost of investments sold ............................................. (1,290,250) (833,953) (1,934,444)
------------- ------------- -------------
------------- ------------- -------------
178,032 41,125 -
------------- ------------- -------------
------------- ------------- -------------
Net realized gains on investments .................................... 967,273 93,289 -
------------- ------------- -------------
------------- ------------- -------------
Net change in unrealized appreciation or depreciation of investments.. 682,592 (62,913) -
------------- ------------- -------------
------------- ------------- -------------
Net gains on investments ............................................. 1,649,865 30,376 -
------------- ------------- -------------
------------- ------------- -------------
Net increase in net assets resulting from operations ......................... $ 1,691,061 270,967 85,999
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------
----------------------------------------------
ASSET MORTGAGE INDEX
ALLOCATION SECURITIES 500
------------- ------------- -------------
------------- ------------- -------------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) .... $ 170,694 85,330 101,616
Administrative charges (note 3) ......................................... (10,057) (2,378) (17,645)
------------- ------------- -------------
------------- ------------- -------------
Investment income (loss) - net ....................................... 160,637 82,952 83,971
------------- ------------- -------------
------------- ------------- -------------
Realized and unrealized gains on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ........ 433,776 - 63,694
------------- ------------- -------------
------------- ------------- -------------
Realized gains on sales of investments:
Proceeds from sales .................................................. 1,191,733 481,664 3,384,307
Cost of investments sold ............................................. (1,015,509) (468,832) (2,238,156)
------------- ------------- -------------
------------- ------------- -------------
176,224 12,832 1,146,151
------------- ------------- -------------
------------- ------------- -------------
Net realized gains on investments .................................... 610,000 12,832 1,209,845
------------- ------------- -------------
------------- ------------- -------------
Net change in unrealized appreciation or depreciation of investments.. 651,279 1,380 1,492,799
------------- ------------- -------------
------------- ------------- -------------
Net gains on investments ............................................. 1,261,279 14,212 2,702,644
------------- ------------- -------------
------------- ------------- -------------
Net increase in net assets resulting from operations ......................... $ 1,421,917 97,164 2,786,615
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED
SUB-ACCOUNTS
-------------
-------------
CAPITAL
APPRECIATION
-------------
-------------
<S> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) .... $ -
Administrative charges (note 3) ......................................... (11,069)
-------------
-------------
Investment income (loss) - net ....................................... (11,069)
-------------
-------------
Realized and unrealized gains on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ........ 391,630
-------------
-------------
Realized gains on sales of investments:
Proceeds from sales .................................................. 1,172,168
Cost of investments sold ............................................. (803,956)
-------------
-------------
368,212
-------------
-------------
Net realized gains on investments .................................... 759,842
-------------
-------------
Net change in unrealized appreciation or depreciation of investments.. 1,235,757
-------------
-------------
Net gains on investments ............................................. 1,995,599
-------------
-------------
Net increase in net assets resulting from operations ......................... $ 1,984,530
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
---------------------------------------------
MATURING
GOVERNMENT
INTERNATIONAL SMALL BOND
STOCK COMPANY 1998 (A)
------------- ------------- -------------
------------- ------------- -------------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) ... $ 168,950 - 78,620
Administrative charges (note 3) ........................................ (9,218) (4,404) (1,308)
------------- ------------- -------------
------------- ------------- -------------
Investment income (loss) - net ....................................... 159,732 (4,404) 77,312
------------- ------------- -------------
------------- ------------- -------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ........ 166,336 - 389
------------- ------------- -------------
------------- ------------- -------------
Realized gains on sales of investments:
Proceeds from sales .................................................. 2,144,898 694,809 1,686,898
Cost of investments sold ............................................. (1,803,966) (694,155) (1,598,150)
------------- ------------- -------------
------------- ------------- -------------
340,932 654 88,748
------------- ------------- -------------
------------- ------------- -------------
Net realized gains on investments .................................... 507,268 654 89,137
------------- ------------- -------------
------------- ------------- -------------
Net change in unrealized appreciation or depreciation of investments.. (290,645) (25,189) (119,189)
------------- ------------- -------------
------------- ------------- -------------
Net gains (losses) on investments .................................... 216,623 (24,535) (30,052)
------------- ------------- -------------
------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations ............. $ 376,355 (28,939) 47,260
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------
----------------------------------------------
MATURING MATURING MATURING
GOVERNMENT GOVERNMENT GOVERNMENT
BOND BOND BOND
2002 2006 2010
------------- ------------- -------------
------------- ------------- -------------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) ... $ 24,085 18,235 10,218
Administrative charges (note 3) ........................................ (635) (1,311) (1,427)
------------- ------------- -------------
------------- ------------- -------------
Investment income (loss) - net ....................................... 23,450 16,924 8,791
------------- ------------- -------------
------------- ------------- -------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ........ 5,083 1,459 204
------------- ------------- -------------
------------- ------------- -------------
Realized gains on sales of investments:
Proceeds from sales .................................................. 9,375 13,842 68,034
Cost of investments sold ............................................. (9,126) (12,282) (56,521)
------------- ------------- -------------
------------- ------------- -------------
249 1,560 11,513
------------- ------------- -------------
------------- ------------- -------------
Net realized gains on investments .................................... 5,332 3,019 11,717
------------- ------------- -------------
------------- ------------- -------------
Net change in unrealized appreciation or depreciation of investments.. 7,709 10,230 8,384
------------- ------------- -------------
------------- ------------- -------------
Net gains (losses) on investments .................................... 13,041 13,249 20,101
------------- ------------- -------------
------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations ............. $ 36,491 30,173 28,892
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED
SUB-ACCOUNTS
-------------
-------------
VALUE
STOCK
-------------
-------------
<S> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) ... $ -
Administrative charges (note 3) ........................................ (5,028)
-------------
-------------
Investment income (loss) - net ....................................... (5,028)
-------------
-------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ........ 5,049
-------------
-------------
Realized gains on sales of investments:
Proceeds from sales .................................................. 1,819,350
Cost of investments sold ............................................. (1,746,329)
-------------
-------------
73,021
-------------
-------------
Net realized gains on investments .................................... 78,070
-------------
-------------
Net change in unrealized appreciation or depreciation of investments.. (83,078)
-------------
-------------
Net gains (losses) on investments .................................... (5,008)
-------------
-------------
Net increase (decrease) in net assets resulting from operations ............. $ (10,036)
-------------
-------------
</TABLE>
(a) For the period from January 1, 1998 to September 18, 1998, termination
of the sub-account.
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------
-------------------------------------------
SMALL
COMPANY GLOBAL INDEX 400
VALUE BOND MID-CAP
------------- ------------- -------------
------------- ------------- -------------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) ..... $ 4,636 2,756 1,458
Administrative charges (note 3) .......................................... (418) (67) (161)
------------- ------------- -------------
------------- ------------- -------------
Investment income (loss) - net ........................................ 4,218 2,689 1,297
------------- ------------- -------------
------------- ------------- -------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ......... - 1,264 4,464
------------- ------------- -------------
------------- ------------- -------------
Realized gains (losses) on sales of investments:
Proceeds from sales ................................................... 6,330 16,742 17,634
Cost of investments sold .............................................. (6,759) (15,600) (16,877)
------------- ------------- -------------
------------- ------------- -------------
(429) 1,142 757
------------- ------------- -------------
------------- ------------- -------------
Net realized gains (losses) on investments ............................ (429) 2,406 5,221
------------- ------------- -------------
------------- ------------- -------------
Net change in unrealized appreciation or depreciation of investments .. (11,193) 1,158 43,649
------------- ------------- -------------
------------- ------------- -------------
Net gains (losses) on investments ..................................... (11,622) 3,564 48,870
------------- ------------- -------------
------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations .............. $ (7,404) 6,253 50,167
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
---------------------------------------------
REAL
MACRO-CAP MICRO-CAP ESTATE
VALUE GROWTH SECURITIES (A)
-------------- ------------- -------------
-------------- ------------- -------------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) ..... $ 483 - 394
Administrative charges (note 3) .......................................... - (75) -
-------------- ------------- -------------
-------------- ------------- -------------
Investment income (loss) - net ........................................ 483 (75) 394
-------------- ------------- -------------
-------------- ------------- -------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ......... 4,629 - -
-------------- ------------- -------------
-------------- ------------- -------------
Realized gains (losses) on sales of investments:
Proceeds from sales ................................................... 3,721 57,209 1,184
Cost of investments sold .............................................. (3,529) (58,173) (1,118)
-------------- ------------- -------------
-------------- ------------- -------------
192 (964) 66
-------------- ------------- -------------
-------------- ------------- -------------
Net realized gains (losses) on investments ............................ 4,821 (964) 66
-------------- ------------- -------------
-------------- ------------- -------------
Net change in unrealized appreciation or depreciation of investments .. 12,347 6,055 497
-------------- ----------------------------
-------------- ----------------------------
Net gains (losses) on investments ..................................... 17,168 5,091 563
-------------- ------------- -------------
-------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations .............. $ 17,651 5,016 957
-------------- ------------- -------------
-------------- ------------- -------------
<CAPTION>
SEGREGATED
SUB-ACCOUNTS
--------------
--------------
TEMPLETON
DEVELOPING
MARKETS
--------------
--------------
<S> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) ..... $ 811
Administrative charges (note 3) .......................................... (3)
--------------
--------------
Investment income (loss) - net ........................................ 808
--------------
--------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ......... 498
--------------
--------------
Realized gains (losses) on sales of investments:
Proceeds from sales ................................................... 22,629
Cost of investments sold .............................................. (24,539)
--------------
--------------
(1,910)
--------------
--------------
Net realized gains (losses) on investments ............................ (1,412)
--------------
--------------
Net change in unrealized appreciation or depreciation of investments .. (17,464)
--------------
--------------
Net gains (losses) on investments ..................................... (18,876)
--------------
--------------
Net increase (decrease) in net assets resulting from operations .............. $ (18,068)
--------------
--------------
</TABLE>
(a) For the period from May 14, 1998, commencement of operations, to
December 31, 1998.
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
---------------------------------------------
MONEY
GROWTH BOND MARKET
------------- ------------- -------------
------------- ------------- -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net .......................................... $ 41,196 240,591 85,999
Net realized gains on investments ....................................... 967,273 93,289 -
Net change in unrealized appreciation or depreciation
of investments ....................................................... 682,592 (62,913) -
------------- ------------- -------------
------------- ------------- -------------
Net increase in net assets resulting from operations ......................... 1,691,061 270,967 85,999
------------- ------------- -------------
------------- ------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments .............................................. 2,288,260 2,374,930 3,391,144
Contract terminations and withdrawal payments ........................... (1,455,740) (866,165) (1,931,680)
Actuarial adjustments for mortality experience on annuities
in payment period .................................................... 18 51 -
Annuity benefit payments ................................................ (4,132) (1,922) -
------------- ------------- -------------
------------- ------------- -------------
Increase in net assets from contract transactions ............................ 828,406 1,506,894 1,459,464
------------- ------------- -------------
------------- ------------- -------------
Increase in net assets ....................................................... 2,519,467 1,777,861 1,545,463
Net assets at the beginning of year .......................................... 4,441,326 3,703,759 1,064,047
------------- ------------- -------------
------------- ------------- -------------
Net assets at the end of year ................................................ $ 6,960,793 5,481,620 2,609,510
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------
----------------------------------------------
ASSET MORTGAGE INDEX
ALLOCATION SECURITIES 500
------------- ------------- -------------
------------- ------------- -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net .......................................... $ 160,637 82,952 83,971
Net realized gains on investments ....................................... 610,000 12,832 1,209,845
Net change in unrealized appreciation or depreciation
of investments ....................................................... 651,279 1,380 1,492,799
------------- ------------- -------------
------------- ------------- -------------
Net increase in net assets resulting from operations ......................... 1,421,916 97,164 2,786,615
------------- ------------- -------------
------------- ------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments .............................................. 1,777,956 969,771 3,417,868
Contract terminations and withdrawal payments ........................... (1,155,438) (479,285) (3,364,285)
Actuarial adjustments for mortality experience on annuities
in payment period .................................................... 62 - 161
Annuity benefit payments ................................................ (26,300) - (2,538)
------------- ------------- -------------
------------- ------------- -------------
Increase in net assets from contract transactions ............................ 596,280 490,486 51,206
------------- ------------- -------------
------------- ------------- -------------
Increase in net assets ....................................................... 2,018,196 587,650 2,837,821
Net assets at the beginning of year .......................................... 5,872,697 1,161,336 10,408,683
------------- ------------- -------------
------------- ------------- -------------
Net assets at the end of year ................................................ $ 7,890,893 1,748,986 13,246,504
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED
SUB-ACCOUNTS
-------------
-------------
CAPITAL
APPRECIATION
-------------
-------------
<S> <C>
Operations:
Investment income (loss) - net .......................................... $ (11,069)
Net realized gains on investments ....................................... 759,842
Net change in unrealized appreciation or depreciation
of investments ....................................................... 1,235,757
-------------
-------------
Net increase in net assets resulting from operations ......................... 1,984,530
-------------
-------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments .............................................. 1,306,737
Contract terminations and withdrawal payments ........................... (1,158,543)
Actuarial adjustments for mortality experience on annuities
in payment period .................................................... 16
Annuity benefit payments ................................................ (2,573)
-------------
-------------
Increase in net assets from contract transactions ............................ 145,637
-------------
-------------
Increase in net assets ....................................................... 2,130,167
Net assets at the beginning of year .......................................... 6,490,461
-------------
-------------
Net assets at the end of year ................................................ $ 8,620,628
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
---------------------------------------------
MATURING
GOVERNMENT
INTERNATIONAL SMALL BOND
STOCK COMPANY 1998 (A)
------------- ------------- -------------
------------- ------------- -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net .......................................... $ 159,732 (4,404) 77,312
Net realized gains on investments ....................................... 507,268 654 89,137
Net change in unrealized appreciation or depreciation
of investments ....................................................... (290,645) (25,189) (119,189)
------------- ------------- -------------
------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations .............. 376,355 (28,939) 47,260
------------- ------------- -------------
------------- ------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments .............................................. 1,096,968 1,086,917 150
Contract terminations and withdrawal payments ........................... (2,122,613) (689,332) (1,685,590)
Actuarial adjustments for mortality experience on annuities
in payment period .................................................... 362 124 -
Annuity benefit payments ................................................ (13,429) (1,198) -
------------- ------------- -------------
------------- ------------- -------------
Increase (decrease) in net assets from contract transactions ................. (1,038,712) 396,511 (1,685,440)
------------- ------------- -------------
------------- ------------- -------------
Increase (decrease) in net assets ............................................ (662,357) 367,572 (1,638,180)
Net assets at the beginning of year .......................................... 6,129,855 2,777,517 1,638,180
------------- ------------- -------------
------------- ------------- -------------
Net assets at the end of year ................................................ $ 5,467,498 3,145,089 -
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------
----------------------------------------------
MATURING MATURING MATURING
GOVERNMENT GOVERNMENT GOVERNMENT
BOND BOND BOND
2002 2006 2010
------------- ------------- -------------
------------- ------------- -------------
<S> <C><C> <C> <C>
Operations:
Investment income (loss) - net .......................................... $ 23,450 16,924 8,791
Net realized gains on investments ....................................... 5,332 3,019 11,717
Net change in unrealized appreciation or depreciation
of investments ....................................................... 7,709 10,230 8,384
------------- ------------- -------------
------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations .............. 36,491 30,173 28,892
------------- ------------- -------------
------------- ------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments .............................................. 104,356 206,525 25,510
Contract terminations and withdrawal payments ........................... (8,740) (11,210) (64,298)
Actuarial adjustments for mortality experience on annuities
in payment period .................................................... - 1,019 389
Annuity benefit payments ................................................ - (2,341) (2,697)
------------- ------------- -------------
------------- ------------- -------------
Increase (decrease) in net assets from contract transactions ................. 95,616 193,993 (41,096)
------------- ------------- -------------
------------- ------------- -------------
Increase (decrease) in net assets ............................................ 132,107 224,166 (12,204)
Net assets at the beginning of year .......................................... 367,118 169,429 224,917
------------- ------------- -------------
------------- ------------- -------------
Net assets at the end of year ................................................ $ 499,225 393,595 212,713
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED
SUB-ACCOUNTS
-------------
-------------
VALUE
STOCK
-------------
-------------
<S> <C><C>
Operations:
Investment income (loss) - net .......................................... $ (5,028)
Net realized gains on investments ....................................... 78,070
Net change in unrealized appreciation or depreciation
of investments ....................................................... (83,078)
-------------
-------------
Net increase (decrease) in net assets resulting from operations .............. (10,036)
-------------
-------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments .............................................. 1,341,893
Contract terminations and withdrawal payments ........................... (1,811,450)
Actuarial adjustments for mortality experience on annuities
in payment period .................................................... 539
Annuity benefit payments ................................................ (3,411)
-------------
-------------
Increase (decrease) in net assets from contract transactions ................. (472,429)
-------------
-------------
Increase (decrease) in net assets ............................................ (482,465)
Net assets at the beginning of year .......................................... 3,369,601
-------------
-------------
Net assets at the end of year ................................................ $ 2,887,136
-------------
-------------
</TABLE>
(a) For the period from January 1, 1998 to September 18, 1998, termination of
the sub-account.
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------
-------------------------------------------
SMALL
COMPANY GLOBAL INDEX 400
VALUE BOND MID-CAP
------------- ------------- -------------
------------- ------------- -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ........................................... $ 4,218 2,689 1,297
Net realized gains (losses) on investments ............................... (429) 2,406 5,221
Net change in unrealized appreciation or depreciation
of investments ........................................................ (11,193) 1,158 43,649
------------- ------------- -------------
------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations ............. (7,404) 6,253 50,167
------------- ------------- -------------
------------- ------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ............................................... 136,060 44,459 210,696
Contract terminations and withdrawal payments ............................ (5,912) (16,675) (17,473)
Actuarial adjustments for mortality experience on annuities
in payment period ..................................................... - - -
Annuity benefit payments ................................................. - - -
------------- ------------- -------------
------------- ------------- -------------
Increase in net assets from contract transactions ............................ 130,148 27,784 193,223
------------- ------------- -------------
------------- ------------- -------------
Increase in net assets ....................................................... 122,744 34,037 243,390
Net assets at the beginning of period ........................................ 217,793 15,060 9,737
------------- ------------- -------------
------------- ------------- -------------
Net assets at the end of period .............................................. $ 340,537 49,097 253,127
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
---------------------------------------------
REAL
MACRO-CAP MICRO-CAP ESTATE
VALUE GROWTH SECURITIES (A)
-------------- ------------- -------------
-------------- ------------- -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ........................................... $ 483 (75) 394
Net realized gains (losses) on investments ............................... 4,821 (964) 66
Net change in unrealized appreciation or depreciation
of investments ........................................................ 12,347 6,055 497
-------------- ------------- -------------
-------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations ............. 17,651 5,016 957
-------------- ------------- -------------
-------------- ------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ............................................... 63,746 105,113 10,489
Contract terminations and withdrawal payments ............................ (3,721) (57,134) (1,184)
Actuarial adjustments for mortality experience on annuities
in payment period ..................................................... - - -
Annuity benefit payments ................................................. - - -
-------------- ------------- --------------
-------------- ------------- --------------
Increase in net assets from contract transactions ............................ 60,025 47,979 9,305
-------------- ------------- -------------
-------------- ------------- -------------
Increase in net assets ....................................................... 77,676 52,995 10,262
Net assets at the beginning of period ........................................ 39,436 15,081 -
-------------- ------------- -------------
-------------- ------------- -------------
Net assets at the end of period .............................................. $ 117,112 68,076 10,262
-------------- ------------- -------------
-------------- ------------- -------------
<CAPTION>
SEGREGATED
SUB-ACCOUNTS
--------------
--------------
TEMPLETON
DEVELOPING
MARKETS
--------------
--------------
<S> <C>
Operations:
Investment income (loss) - net ........................................... $ 808
Net realized gains (losses) on investments ............................... (1,412)
Net change in unrealized appreciation or depreciation
of investments ........................................................ (17,464)
--------------
--------------
Net increase (decrease) in net assets resulting from operations ............. (18,068)
--------------
--------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ............................................... 70,613
Contract terminations and withdrawal payments ............................ (3,025)
Actuarial adjustments for mortality experience on annuities
in payment period ..................................................... -
Annuity benefit payments ................................................. -
--------------
--------------
Increase in net assets from contract transactions ............................ 67,588
--------------
--------------
Increase in net assets ....................................................... 49,520
Net assets at the beginning of period ........................................ 23,331
--------------
--------------
Net assets at the end of period .............................................. $ 72,851
--------------
--------------
</TABLE>
(a) For the period from May 14, 1998, commencement of operations, to
December 31, 1998.
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
---------------------------------------------
MONEY
GROWTH BOND MARKET
------------- ------------- -------------
------------- ------------- -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net .......................................... $ 23,156 166,785 57,554
Net realized gains on investments ....................................... 841,561 28,062 -
Net change in unrealized appreciation or depreciation
of investments ....................................................... 187,952 97,500 -
------------- ------------- -------------
------------- ------------- -------------
Net increase in net assets resulting from operations ......................... 1,052,669 292,347 57,554
------------- ------------- -------------
------------- ------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments .............................................. 668,616 682,476 487,549
Contract terminations and withdrawal payments ........................... (742,604) (581,596) (696,888)
Actuarial adjustments for mortality experience on annuities
in payment period .................................................... 14 41 -
Annuity benefit payments ................................................ (3,290) (1,834) -
------------- ------------- -------------
------------- ------------- -------------
Increase (decrease) in net assets from contract transactions ................. (77,264) 99,087 (209,339)
------------- ------------- -------------
------------- ------------- -------------
Increase (decrease) in net assets ............................................ 975,405 391,434 (151,785)
Net assets at the beginning of year .......................................... 3,465,921 3,312,325 1,215,832
------------- ------------- -------------
------------- ------------- -------------
Net assets at the end of year ................................................ $ 4,441,326 3,703,759 1,064,047
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------
----------------------------------------------
ASSET MORTGAGE INDEX
ALLOCATION SECURITIES 500
------------- ------------- -------------
------------- ------------- -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net .......................................... $ 141,866 66,105 84,369
Net realized gains on investments ....................................... 492,180 3,402 598,801
Net change in unrealized appreciation or depreciation
of investments ....................................................... 319,501 25,383 1,760,793
------------- ------------- -------------
------------- ------------- -------------
Net increase in net assets resulting from operations ......................... 953,547 94,890 2,443,963
------------- ------------- -------------
------------- ------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments .............................................. 726,994 223,009 2,769,830
Contract terminations and withdrawal payments ........................... (1,313,648) (145,739) (1,508,140)
Actuarial adjustments for mortality experience on annuities
in payment period .................................................... 28 - 175
Annuity benefit payments ................................................ (22,916) - (2,258)
------------- ------------- -------------
------------- ------------- -------------
Increase (decrease) in net assets from contract transactions ................. (609,542) 77,270 1,259,607
------------- ------------- -------------
------------- ------------- -------------
Increase (decrease) in net assets ............................................ 344,005 172,160 3,703,570
Net assets at the beginning of year .......................................... 5,528,692 989,176 6,705,113
------------- ------------- -------------
------------- ------------- -------------
Net assets at the end of year ................................................ $ 5,872,697 1,161,336 10,408,683
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED
SUB-ACCOUNTS
-------------
-------------
CAPITAL
APPRECIATION
-------------
-------------
<S> <C><C>
Operations:
Investment income (loss) - net .......................................... $ (8,403)
Net realized gains on investments ....................................... 624,400
Net change in unrealized appreciation or depreciation
of investments ....................................................... 797,849
-------------
-------------
Net increase in net assets resulting from operations ......................... 1,413,846
-------------
-------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments .............................................. 868,014
Contract terminations and withdrawal payments ........................... (574,067)
Actuarial adjustments for mortality experience on annuities
in payment period .................................................... 8
Annuity benefit payments ................................................ (2,121)
-------------
-------------
Increase (decrease) in net assets from contract transactions ................. 291,834
-------------
-------------
Increase (decrease) in net assets ............................................ 1,705,680
Net assets at the beginning of year .......................................... 4,784,781
-------------
-------------
Net assets at the end of year ................................................ $ 6,490,461
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
---------------------------------------------
MATURING
GOVERNMENT
INTERNATIONAL SMALL BOND
STOCK COMPANY 1998
------------- ------------- -------------
------------- ------------- -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net .......................................... $ 148,744 (3,639) 81,281
Net realized gains on investments ....................................... 193,544 74,374 5,737
Net change in unrealized appreciation or depreciation
of investments ....................................................... 241,266 111,655 5,828
------------- ------------- -------------
------------- ------------- -------------
Net increase in net assets resulting from operations ......................... 583,554 182,390 92,846
------------- ------------- -------------
------------- ------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments .............................................. 1,642,780 1,081,896 224
Contract terminations and withdrawal payments ........................... (609,321) (630,256) (32,000)
Actuarial adjustments for mortality experience on annuities
in payment period .................................................... 244 (108) -
Annuity benefit payments ................................................ (11,839) (1,131) -
------------- ------------- -------------
------------- ------------- -------------
Increase (decrease) in net assets from contract transactions ................. 1,021,864 450,401 (31,776)
------------- ------------- -------------
------------- ------------- -------------
Increase in net assets ....................................................... 1,605,418 632,791 61,070
Net assets at the beginning of year .......................................... 4,524,437 2,144,726 1,577,110
------------- ------------- -------------
------------- ------------- -------------
Net assets at the end of year ................................................ $ 6,129,855 2,777,517 1,638,180
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------
----------------------------------------------
MATURING MATURING MATURING
GOVERNMENT GOVERNMENT GOVERNMENT
BOND BOND BOND
2002 2006 2010
------------- ------------- -------------
------------- ------------- -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net .......................................... $ 17,491 7,416 8,745
Net realized gains on investments ....................................... 2,622 2,273 5,964
Net change in unrealized appreciation or depreciation
of investments ....................................................... 8,065 9,086 16,419
------------- ------------- -------------
------------- ------------- -------------
Net increase in net assets resulting from operations ......................... 28,178 18,775 31,128
------------- ------------- -------------
------------- ------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments .............................................. 4,317 1 63,688
Contract terminations and withdrawal payments ........................... - (1) (50,430)
Actuarial adjustments for mortality experience on annuities
in payment period .................................................... - - 34
Annuity benefit payments ................................................ - - (4,161)
------------- ------------- -------------
------------- ------------- -------------
Increase (decrease) in net assets from contract transactions ................. 4,317 - 9,131
------------- ------------- -------------
------------- ------------- -------------
Increase in net assets ....................................................... 32,495 18,775 40,259
Net assets at the beginning of year .......................................... 334,623 150,654 184,658
------------- ------------- -------------
------------- ------------- -------------
Net assets at the end of year ................................................ $ 367,118 169,429 224,917
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED
SUB-ACCOUNTS
-------------
-------------
VALUE
STOCK
-------------
-------------
<S> <C><C>
Operations:
Investment income (loss) - net .......................................... $ 32,695
Net realized gains on investments ....................................... 325,206
Net change in unrealized appreciation or depreciation
of investments ....................................................... 56,045
-------------
-------------
Net increase in net assets resulting from operations ......................... 413,946
-------------
-------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments .............................................. 1,670,036
Contract terminations and withdrawal payments ........................... (214,516)
Actuarial adjustments for mortality experience on annuities
in payment period .................................................... 22
Annuity benefit payments ................................................ (3,340)
-------------
-------------
Increase (decrease) in net assets from contract transactions ................. 1,452,202
-------------
-------------
Increase in net assets ....................................................... 1,866,148
Net assets at the beginning of year .......................................... 1,503,453
-------------
-------------
Net assets at the end of year ................................................ $ 3,369,601
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------
-------------------------------------------
SMALL
COMPANY GLOBAL INDEX 400
VALUE (A) BOND (B) MID-CAP (A)
------------- ------------- -------------
------------- ------------- -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ........................................... $ (71) 221 (3)
Net realized gains on investments ........................................ 1 16 1
Net change in unrealized appreciation or depreciation
of investments ........................................................ 2,071 (356) 110
------------- ------------- -------------
------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations ............. 2,001 (119) 108
------------- ------------- -------------
------------- ------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ............................................... 215,792 15,179 9,629
Contract terminations and withdrawal payments ............................ - - -
Actuarial adjustments for mortality experience on annuities
in payment period ..................................................... - - -
Annuity benefit payments ................................................. - - -
------------- ------------- -------------
------------- ------------- -------------
Increase in net assets from contract transactions ............................ 215,792 15,179 9,629
------------- ------------- -------------
------------- ------------- -------------
Increase in net assets ....................................................... 217,793 15,060 9,737
Net assets at the beginning of period ........................................ - - -
------------- ------------- -------------
------------- ------------- -------------
Net assets at the end of period .............................................. $ 217,793 15,060 9,737
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------
--------------------------------------------
REAL
MACRO-CAP MICRO-CAP ESTATE
VALUE (D) GROWTH (C) SECURITIES
-------------- ------------- -------------
-------------- ------------- -------------
<S> <C><C> <C> <C>
Operations:
Investment income (loss) - net ........................................... $ 153 (1) -
Net realized gains on investments ........................................ 15 456 -
Net change in unrealized appreciation or depreciation
of investments ........................................................ (41) 18 -
-------------- ------------- -------------
-------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations ............. 127 473 -
-------------- ------------- -------------
-------------- ------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ............................................... 39,309 14,608
Contract terminations and withdrawal payments ............................ - - -
Actuarial adjustments for mortality experience on annuities
in payment period ..................................................... - - -
Annuity benefit payments ................................................. - - -
-------------- ------------- -------------
-------------- ------------- -------------
Increase in net assets from contract transactions ............................ 39,309 14,608 -
-------------- ------------- -------------
-------------- ------------- -------------
Increase in net assets ....................................................... 39,436 15,081 -
Net assets at the beginning of period ........................................ - - -
-------------- ------------- -------------
-------------- ------------- -------------
Net assets at the end of period .............................................. $ 39,436 15,081 -
-------------- ------------- -------------
-------------- ------------- -------------
<CAPTION>
SEGREGATED
SUB-ACCOUNTS
--------------
--------------
TEMPLETON
DEVELOPING
MARKETS (E)
--------------
--------------
<S> <C>
Operations:
Investment income (loss) - net ........................................... $ (2)
Net realized gains on investments ........................................ 2
Net change in unrealized appreciation or depreciation
of investments ........................................................ (1,072)
--------------
--------------
Net increase (decrease) in net assets resulting from operations ............. (1,072)
--------------
--------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ............................................... 24,403
Contract terminations and withdrawal payments ............................ -
Actuarial adjustments for mortality experience on annuities
in payment period ..................................................... -
Annuity benefit payments ................................................. -
--------------
--------------
Increase in net assets from contract transactions ............................ 24,403
--------------
--------------
Increase in net assets ....................................................... 23,331
Net assets at the beginning of period ........................................ -
--------------
--------------
Net assets at the end of period .............................................. $ 23,331
--------------
--------------
</TABLE>
(a) For the period from September 29, 1997, commencement of operations, to
December 31, 1997.
(b) For the period from September 24, 1997, commencement of operations, to
December 31, 1997.
(c) For the period from September 15, 1997, commencement of operations, to
December 31, 1997.
(d) For the period from October 15, 1997, commencement of operations, to
December 31, 1997.
(e) For the period from October 2, 1997, commencement of operations, to
December 31, 1997.
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND BASIS FOR PRESENTATION
Variable Annuity Account (the Account), formerly Minnesota Mutual
Variable Annuity Account, was established on September 10, 1984 as a
segregated asset account of Minnesota Life Insurance Company (Minnesota
Life), formerly The Minnesota Mutual Life Insurance Company, 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 include only the
segregated sub-accounts for the type of contracts offered to the faculty
and employees of the University of Minnesota, officers, directors and
employees of Minnesota Life, other groups with sales arrangements with
Minnesota Life for the purchase of annuity contracts and individuals
purchasing one or more annuity contracts with aggregated purchase
payments totaling $500,000 or more.
The assets of each segregated sub-account are held for the exclusive
benefit of the variable annuity contract owners and are not chargeable
with liabilities arising out of the business conducted by any other
account or by Minnesota Life. Contract owners allocate their variable
annuity purchase payments to one or more of the twenty segregated
sub-accounts. Such payments are then invested in shares of Advantus
Series Fund, Inc. and Templeton Variable Products Series Fund (Underlying
Funds). The Advantus Series Fund, Inc. was organized by Minnesota Life as
the investment vehicle for its variable annuity contracts and variable
life policies. Each of the Underlying Funds is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company.
Payments allocated to the Growth, Bond, Money Market, Asset Allocation,
Mortgage Securities, Index 500, Capital Appreciation, International
Stock, Small Company, Maturing Government Bond 2002, Maturing Government
Bond 2006, Maturing Government Bond 2010, Value Stock, Small Company
Value, Global Bond (formerly International Bond), Index 400 Mid-Cap,
Macro-Cap Value, Micro-Cap Growth, Real Estate Securities and Templeton
Developing Markets segregated sub-accounts are invested in shares of the
Growth, Bond, Money Market, Asset Allocation, Mortgage Securities, Index
500, Capital Appreciation, International Stock, Small Company, Maturing
Government Bond 2002, Maturing Government Bond 2006, Maturing Government
Bond 2010, Value Stock, Small Company Value, Global Bond (formerly
International Bond), Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap Growth
and Real Estate Securities of the Advantus Series Fund, Inc. and
Templeton Developing Markets Fund - Class 2 of the Templeton Variable
Products Series Fund, respectively. The Maturing Government Bond 1998
Portfolio matured on September 18, 1998. Liquidation proceeds from the
Maturing Government Bond 1998 sub-account were reinvested in another
sub-account at the direction of the contract owner. If the contract owner
did not direct the reinvestment, the proceeds were automatically
reinvested in the Money Market sub-account.
Ascend Financial Services, Inc. acts as the underwriter for the Account.
Advantus Capital Management, Inc. acts as the investment adviser for the
Advantus Series Fund, Inc. Ascend Financial Services, Inc. is a
wholly-owned subsidiary of Advantus Capital Management, Inc. and Advantus
Capital Management, Inc. is a wholly-owned subsidiary of Minnesota Life.
(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 in the financial statements.
Actual results could differ from those estimates.
<PAGE>
2
VARIABLE ANNUITY ACCOUNT
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INVESTMENTS IN UNDERLYING FUNDS
Investments in shares of Underlying Funds portfolios are stated at market
value which is the net asset value per share as determined daily by
Underlying Funds. 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 Underlying Funds are reinvested in additional shares of
Underlying
Funds and are recorded by the sub-accounts on the ex-dividend date.
FEDERAL INCOME TAXES
The Account is treated as part of Minnesota Life 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 Underlying Funds.
CONTRACTS IN ANNUITY PAYMENT PERIOD
Annuity reserves are computed for currently payable contracts according
to the Progressive Annuity Mortality Table, using an assumed interest
rate of 3.5 percent. Charges to annuity reserves for mortality and risk
expense are reimbursed to Minnesota Life if the reserves required are
less than originally estimated. If additional reserves are required,
Minnesota Life reimburses the Account.
(3) ADMINISTRATIVE AND PREMIUM TAX CHARGES
The administrative charge paid to Minnesota Life is equal, on an annual
basis, to .15 percent of the average daily net assets of the Account.
Under certain conditions, the charge may be increased to not more than
.35 percent of the average daily net assets of the Account.
Premium taxes may be deducted from purchase payments or at the
commencement of annuity payments. Currently such taxes range from 0 to
3.5 percent depending on the applicable state law. No premium taxes were
deducted from purchase payments for the years ended December 31, 1998 and
1997.
(4) INVESTMENT TRANSACTIONS
The Account's purchases of Underlying Fund shares, including reinvestment
of dividend distributions, were as follows during the periods ended
December 31, 1998:
<TABLE>
<S> <C>
Growth Portfolio $ 3,127,125
Bond Portfolio 2,674,728
Money Market Portfolio 3,479,907
Asset Allocation Portfolio 2,382,427
Mortgage Securities Portfolio 1,055,102
Index 500 Portfolio 3,583,178
Capital Appreciation Portfolio 1,698,366
International Stock Portfolio 1,432,254
Small Company Portfolio 1,086,916
Maturing Government Bond 1998 Portfolio 79,159
Maturing Government Bond 2002 Portfolio 133,524
Maturing Government Bond 2006 Portfolio 226,218
Maturing Government Bond 2010 Portfolio 35,933
Value Stock Portfolio 1,346,941
Small Company Value Portfolio 140,532
Global Bond Portfolio 48,479
Index 400 Mid-Cap Portfolio 216,618
Macro-Cap Value 68,858
Micro-Cap Growth Portfolio 105,113
Real Estate Securities 10,883
Templeton Developing Markets Portfolio 91,526
</TABLE>
<PAGE>
3
VARIABLE ANNUITY ACCOUNT
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS
Transactions in units for each segregated sub-account for the years
ended December 31, 1998 and 1997 (period ended December 31, 1998 for
Real Estate Securities) were as follows:
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------
MONEY
GROWTH BOND MARKET
--------------- ---------------- ----------------
<S> <C> <C> <C>
Units outstanding at
December 31, 1996 .......................... 1,448,982 1,506,859 750,434
Contract purchase
payments .............................. 252,868 298,991 294,872
Deductions for contract
terminations and
withdrawal payments ................... (307,786) (260,574) (419,689)
--------------- ---------------- ----------------
Units outstanding at
December 31, 1997 .......................... 1,394,064 1,545,276 625,617
Contract purchase
payments .............................. 657,711 972,566 1,947,733
Deductions for contract
terminations and
withdrawal payments ................... (423,308) (354,976) (1,109,635)
--------------- ---------------- ----------------
Units outstanding at
December 31, 1998 .......................... 1,628,467 2,162,866 1,463,714
--------------- ---------------- ----------------
--------------- ---------------- ----------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------
ASSET MORTGAGE
ALLOCATION SECURITIES
---------------- ----------------
<S> <C> <C>
Units outstanding at
December 31, 1996 .......................... 2,029,532 450,065
Contract purchase
payments .............................. 266,378 99,610
Deductions for contract
terminations and
withdrawal payments ................... (489,469) (64,968)
---------------- ----------------
Units outstanding at
December 31, 1997 .......................... 1,806,441 484,707
Contract purchase
payments .............................. 546,207 395,611
Deductions for contract
terminations and
withdrawal payments ................... (365,486) (194,240)
---------------- ----------------
Units outstanding at
December 31, 1998 .......................... 1,987,162 686,079
---------------- ----------------
---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------
INDEX CAPITAL INTERNATIONAL
500 APPRECIATION STOCK
--------------- ---------------- ----------------
<S> <C> <C> <C>
Units outstanding at
December 31, 1996 ........................... 2,364,949 1,668,256 2,418,015
Contract purchase
payments ............................... 862,257 288,643 851,870
Deductions for contract
terminations and
withdrawal payments .................... (440,985) (188,401) (302,923)
--------------- ---------------- ----------------
Units outstanding at
December 31, 1997 ........................... 2,786,221 1,768,498 2,966,962
Contract purchase
payments ............................... 822,831 321,369 497,132
Deductions for contract
terminations and
withdrawal payments .................... (828,745) (289,215) (999,182)
--------------- ---------------- ----------------
Units outstanding at
December 31, 1998 ........................... 2,780,306 1,800,652 2,464,913
--------------- ---------------- ----------------
--------------- ---------------- ----------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------
MATURING
SMALL GOVERNMENT
COMPANY BOND 1998
---------------- ----------------
<S> <C> <C>
Units outstanding at
December 31, 1996 ........................... 1,237,091 1,324,838
Contract purchase
payments ............................... 609,428 185
Deductions for contract
terminations and
withdrawal payments .................... (341,976) (25,975)
---------------- ----------------
Units outstanding at
December 31, 1997 ........................... 1,504,543 1,299,048
Contract purchase
payments ............................... 588,895 19
Deductions for contract
terminations and
withdrawal payments .................... (411,648) (1,299,068)
---------------- ----------------
Units outstanding at
December 31, 1998 ........................... 1,681,790 -
---------------- ----------------
---------------- ----------------
</TABLE>
<PAGE>
4
VARIABLE ANNUITY ACCOUNT
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - CONTINUED
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------
MATURING MATURING MATURING
GOVERNMENT GOVERNMENT GOVERNMENT
BOND 2002 BOND 2006 BOND 2010
--------------- ---------------- ----------------
<S> <C> <C> <C>
Units outstanding at
December 31, 1996 .......................... 269,553 117,035 141,772
Contract purchase
payments .............................. 3,409 - 6,947
Deductions for contract
terminations and
withdrawal payments ................... - - (39,257)
--------------- ---------------- ----------------
Units outstanding at
December 31, 1997 .......................... 272,962 117,035 109,462
Contract purchase
payments .............................. 72,286 112,281 14,766
Deductions for contract
terminations and
withdrawal payments ................... (6,111) (6,280) (16,825)
--------------- ---------------- ----------------
Units outstanding at
December 31, 1998 .......................... 339,137 223,036 107,403
--------------- ---------------- ----------------
--------------- ---------------- ----------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------
SMALL
VALUE COMPANY
STOCK VALUE
---------------- ----------------
<S> <C> <C>
Units outstanding at
December 31, 1996 .......................... 798,596 -
Contract purchase
payments .............................. 804,813 215,169
Deductions for contract
terminations and
withdrawal payments ................... (103,369) -
---------------- ----------------
Units outstanding at
December 31, 1997 .......................... 1,500,040 215,169
Contract purchase
payments .............................. 590,073 152,448
Deductions for contract
terminations and
withdrawal payments ................... (829,771) (6,269)
---------------- ----------------
Units outstanding at
December 31, 1998 .......................... 1,260,342 361,348
---------------- ----------------
---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------
GLOBAL INDEX 400 MACRO-CAP MICRO-CAP
BOND MID-CAP VALUE GROWTH
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Units outstanding at
December 31, 1996 .......................... - - - -
Contract purchase
payments .............................. 15,173 9,788 39,998 18,000
Deductions for contract
terminations and
withdrawal payments ................... - - - -
--------------- ---------------- ---------------- ----------------
Units outstanding at
December 31, 1997 .......................... 15,173 9,788 39,998 18,000
Contract purchase
payments .............................. 42,385 225,451 60,652 119,408
Deductions for contract
terminations and
withdrawal payments ................... (14,916) (17,626) (3,069) (65,814)
--------------- ---------------- ---------------- ----------------
Units outstanding at
December 31, 1998 .......................... 42,643 217,613 97,581 71,594
--------------- ---------------- ---------------- ----------------
--------------- ---------------- ---------------- ----------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------
REAL TEMPLETON
ESTATE DEVELOPING
SECURITIES MARKETS
---------------- ---------------
<S> <C>
Units outstanding at
December 31, 1996 .......................... - -
Contract purchase
payments .............................. - 33,388
Deductions for contract
terminations and
withdrawal payments ................... - -
---------------- ---------------
Units outstanding at
December 31, 1997 .......................... - 33,388
Contract purchase
payments .............................. 13,452 104,595
Deductions for contract
terminations and
withdrawal payments ................... (1,428) (5,765)
---------------- ---------------
Units outstanding at
December 31, 1998 .......................... 12,024 132,217
---------------- ---------------
---------------- ---------------
</TABLE>
<PAGE>
5
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS
The following tables for each segregated sub-account show certain data
for an accumulation unit outstanding during the periods indicated:
GROWTH
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $ 3.14 2.35 2.01 1.62 1.61
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Income from investment operations:
Net investment income 0.03 0.02 0.02 0.01 0.01
Net gains on securities
(both realized and unrealized) 1.05 0.77 0.32 0.38 -
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Total from investment operations 1.08 0.79 0.34 0.39 0.01
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Unit value, end of year $ 4.22 3.14 2.35 2.01 1.62
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
</TABLE>
<PAGE>
6
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
BOND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $ 2.38 2.18 2.12 1.77 1.86
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Income (loss) from investment operations:
Net investment income 0.13 0.11 0.11 0.07 0.07
Net gains or losses on securities
(both realized and unrealized) 0.01 0.09 (0.05) 0.28 (0.16)
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Total from investment operations 0.14 0.20 0.06 0.35 (0.09)
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Unit value, end of year $ 2.52 2.38 2.18 2.12 1.77
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
</TABLE>
<PAGE>
7
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MONEY MARKET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $ 1.70 1.62 1.55 1.47 1.42
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Income from investment operations:
Net investment income 0.08 0.08 0.07 0.08 0.05
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Total from investment operations 0.08 0.08 0.07 0.08 0.05
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Unit value, end of year $ 1.78 1.70 1.62 1.55 1.47
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
</TABLE>
<PAGE>
8
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
ASSET ALLOCATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $ 3.00 2.53 2.25 1.80 1.83
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Income (loss) from investment operations:
Net investment income 0.08 0.08 0.08 0.06 0.04
Net gains or losses on securities
(both realized and unrealized) 0.63 0.39 0.20 0.39 (0.07)
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Total from investment operations 0.71 0.47 0.28 0.45 (0.03)
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Unit value, end of year $ 3.71 3.00 2.53 2.25 1.80
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
</TABLE>
<PAGE>
9
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MORTGAGE SECURITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $ 2.40 2.20 2.09 1.78 1.84
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Income (loss) from investment operations:
Net investment income 0.13 0.14 0.13 0.12 0.08
Net gains or losses on securities
(both realized and unrealized) 0.02 0.06 (0.02) 0.19 (0.14)
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Total from investment operations 0.15 0.20 0.11 0.31 (0.06)
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Unit value, end of year $ 2.55 2.40 2.20 2.09 1.78
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
</TABLE>
<PAGE>
10
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
INDEX 500
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $ 3.72 2.81 2.32 1.70 1.68
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Income from investment operations:
Net investment income 0.03 0.03 0.03 0.03 0.02
Net gains on securities
(both realized and unrealized) 1.00 0.88 0.46 0.59 -
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Total from investment operations 1.03 0.91 0.49 0.62 0.02
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Unit value, end of year $ 4.75 3.72 2.81 2.32 1.70
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
</TABLE>
<PAGE>
11
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
CAPITAL APPRECIATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $ 3.64 2.84 2.42 1.97 1.93
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Income from investment operations:
Net investment income (loss) (0.01) (0.01) - - -
Net gains on securities (both
realized and unrealized) 1.12 0.81 0.42 0.45 0.04
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Total from investment operations 1.11 0.80 0.42 0.45 0.04
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Unit value, end of year $ 4.75 3.64 2.84 2.42 1.97
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
</TABLE>
<PAGE>
12
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
INTERNATIONAL STOCK
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $ 2.00 1.79 1.50 1.31 1.32
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Income (loss) from investment operations:
Net investment income 0.06 0.05 0.04 - 0.03
Net gains (losses) on securities (both
realized and unrealized) 0.07 0.16 0.25 0.19 (0.04)
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Total from investment operations 0.13 0.21 0.29 0.19 (0.01)
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Unit value, end of year $ 2.13 2.00 1.79 1.50 1.31
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
</TABLE>
<PAGE>
13
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
SMALL COMPANY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period $ 1.84 1.71 1.60 1.22 1.15
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Income from investment operations:
Net investment income - - - - -
Net gains on securities (both
realized and unrealized) 0.02 0.13 0.11 0.38 0.07
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Total from investment operations 0.02 0.13 0.11 0.38 0.07
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Unit value, end of period $ 1.86 1.84 1.71 1.60 1.22
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
</TABLE>
<PAGE>
14
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MATURING GOVERNMENT BOND 1998
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
---------------------------------------------------------------- MAY 2, 1994 (B)
---------------------------------------------------------------- TO DECEMBER
1998 (A) 1997 1996 1995 31, 1994
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period $ 1.26 1.19 1.15 0.99 1.00
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Income (loss) from investment operations:
Net investment income (loss) 0.08 0.06 - 0.06 0.07
Net gains or losses on securities
(both realized and unrealized) (0.03) 0.01 0.04 0.10 (0.08)
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Total from investment operations 0.05 0.07 0.04 0.16 (0.01)
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Transfer to other sub-accounts due to
liquidation (1.31) - - - -
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Unit value, end of period $ 0.00 1.26 1.19 1.15 0.99
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
</TABLE>
(a) For the period from January 1, 1998, to September 18, 1998, termination
of the sub-account.
(b) Inception of the segregated sub-account was May 2, 1994, when the units
became effectively registered under the Securities Exchange Act of
1933.
<PAGE>
15
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MATURING GOVERNMENT BOND 2002
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, Period from
---------------------------------------------------------------- May 2, 1994 (a)
---------------------------------------------------------------- TO DECEMBER
1998 1997 1996 1995 31, 1994
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period $ 1.35 1.24 1.22 0.98 1.00
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Income (loss) from investment operations:
Net investment income 0.08 0.06 0.15 0.07 0.05
Net gains or losses on securities
(both realized and unrealized) 0.04 0.05 (0.13) 0.17 (0.07)
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Total from investment operations 0.12 0.11 0.02 0.24 (0.02)
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Unit value, end of period $ 1.47 1.35 1.24 1.22 0.98
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
</TABLE>
(a) Inception of the segregated sub-account was May 2, 1994, when the units
became effectively registered under the Securities Exchange Act of
1933.
<PAGE>
16
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MATURING GOVERNMENT BOND 2006
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, Period from
---------------------------------------------------------------- MAY 2, 1994 (A)
---------------------------------------------------------------- TO DECEMBER
1998 1997 1996 1995 31, 1994
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period $ 1.45 1.29 1.31 0.97 1.00
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Income (loss) from investment operations:
Net investment income 0.11 0.06 0.07 0.07 0.05
Net gains or losses on securities
(both realized and unrealized) 0.09 0.10 (0.09) 0.27 (0.08)
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Total from investment operations 0.20 0.16 (0.02) 0.34 (0.03)
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Unit value, end of period $ 1.65 1.45 1.29 1.31 0.97
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
</TABLE>
(a) Inception of the segregated sub-account was May 2, 1994, when the units
became effectively registered under the Securities Exchange Act of
1933.
<PAGE>
17
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MATURING GOVERNMENT BOND 2010
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, Period from
---------------------------------------------------------------- MAY 2, 1994 (A)
---------------------------------------------------------------- TO DECEMBER
1998 1997 1996 1995 31, 1994
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period $ 1.53 1.30 1.35 0.96 1.00
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Income (loss) from investment operations:
Net investment income 0.08 0.08 - 0.05 0.09
Net gains or losses on securities
(both realized and unrealized) 0.14 0.15 (0.05) 0.34 (0.13)
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Total from investment operations 0.22 0.23 (0.05) 0.39 (0.04)
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Unit value, end of period $ 1.75 1.53 1.30 1.35 0.96
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
</TABLE>
(a) Inception of the segregated sub-account was May 2, 1994, when the units
became effectively registered under the Securities Exchange Act of
1933.
<PAGE>
18
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
VALUE STOCK
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
---------------------------------------------------------------- MAY 2, 1994 (A)
---------------------------------------------------------------- TO DECEMBER
1998 1997 1996 1995 31, 1994
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period $ 2.22 1.83 1.40 1.06 1.00
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Income from investment operations:
Net investment income - 0.03 0.02 0.01 0.01
Net gains on securities (both
realized and unrealized) 0.03 0.36 0.41 0.33 0.05
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Total from investment operations 0.03 0.39 0.43 0.34 0.06
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
$ 2.25 2.22 1.83 1.40 1.06
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
</TABLE>
(a) Inception of the segregated sub-account was May 2, 1994, when the units
became effectively registered under the Securities Exchange Act of
1933.
<PAGE>
19
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
SMALL COMPANY VALUE
<TABLE>
<CAPTION>
YEAR PERIOD FROM
ENDED OCTOBER 1, 1997 (A)
DECEMBER 31, TO DECEMBER
1998 31, 1997
------------ -------------------
<S> <C> <C>
Unit value, beginning of period .............. $ 1.01 1.00
------------ -------------------
Income (loss) from investment operations:
Net investment income .................... 0.02 --
Net gains or losses on securities
(both realized and unrealized) ........ (0.09) 0.01
------------ -------------------
Total from investment operations ...... (0.07) 0.01
------------ -------------------
Unit value, end of period .................... $ 0.94 1.01
------------ -------------------
------------ -------------------
</TABLE>
(a) Inception of the segregated sub-account was October 1, 1997, when
the units became effectively registered under the Securities
Exchange Act of 1933.
<PAGE>
20
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
GLOBAL BOND
<TABLE>
<CAPTION>
YEAR PERIOD FROM
ENDED OCTOBER 1, 1997 (A)
DECEMBER 31, TO DECEMBER
1998 31, 1997
------------ -------------------
<S> <C> <C>
Unit value, beginning of period .............. $ 0.99 1.00
------------ -------------------
Income (loss) from investment operations:
Net investment income .................... 0.07 0.01
Net gains or losses on securities
(both realized and unrealized) ........ 0.09 (0.02)
------------ -------------------
Total from investment operations ...... 0.16 (0.01)
------------ -------------------
Unit value, end of period .................... $ 1.15 0.99
------------ -------------------
------------ -------------------
</TABLE>
(a) Inception of the segregated sub-account was October 1, 1997, when
the units became effectively registered under the Securities
Exchange Act of 1933.
<PAGE>
21
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
INDEX 400 MID-CAP
<TABLE>
<CAPTION>
YEAR PERIOD FROM
ENDED OCTOBER 1, 1997 (A)
DECEMBER 31, TO DECEMBER
1998 31, 1997
------------ -------------------
<S> <C> <C>
Unit value, beginning of period .............. $ 0.99 1.00
------------ -------------------
Income (loss) from investment operations:
Net investment income .................... 0.01 --
Net gains or losses on securities
(both realized and unrealized) ........ 0.15 (0.01)
------------ -------------------
Total from investment operations ...... 0.16 (0.01)
------------ -------------------
Unit value, end of period .................... $ 1.15 0.99
------------ -------------------
------------ -------------------
</TABLE>
(a) Inception of the segregated sub-account was October 1, 1997, when
the units became effectively registered under the Securities
Exchange Act of 1933.
<PAGE>
22
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MACRO-CAP VALUE
<TABLE>
<CAPTION>
YEAR PERIOD FROM
ENDED OCTOBER 1, 1997 (A)
DECEMBER 31, TO DECEMBER
1998 31, 1997
------------ -------------------
<S> <C> <C>
Unit value, beginning of period .............. $ 0.99 1.00
------------ -------------------
Income (loss) from investment operations:
Net investment income .................... 0.01 0.01
Net gains or losses on securities
(both realized and unrealized) ........ 0.20 (0.02)
------------ -------------------
Total from investment operations ...... 0.21 (0.01)
------------ -------------------
Unit value, end of period .................... $ 1.20 0.99
------------ -------------------
------------ -------------------
</TABLE>
(a) Inception of the segregated sub-account was October 15, 1997, when
the units became effectively registered under the Securities
Exchange Act of 1933.
<PAGE>
23
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MICRO-CAP GROWTH
<TABLE>
<CAPTION>
YEAR PERIOD FROM
ENDED OCTOBER 1, 1997 (a)
DECEMBER 31, TO DECEMBER
1998 31, 1997
------------ -------------------
<S> <C> <C>
Unit value, beginning of period .............. $ 0.84 1.00
------------ -------------------
Income (loss) from investment operations:
Net investment income .................... -- --
Net gains or losses on securities
(both realized and unrealized) ........ 0.11 (0.16)
------------ -------------------
Total from investment operations ...... 0.11 (0.16)
------------ -------------------
Unit value, end of period .................... $ 0.95 0.84
------------ -------------------
------------ -------------------
</TABLE>
(a) Inception of the segregated sub-account was October 1, 1997, when
the units became effectively registered under the Securities
Exchange Act of 1933.
<PAGE>
24
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
REAL ESTATE SECURITIES
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1998 (A)
TO DECEMBER
31, 1998
-----------------
<S> <C>
Unit value, beginning of period ..................... $ 1.00
-----------------
Income (loss) from investment operations:
Net investment income ........................... 0.08
Net losses on securities
(both realized and unrealized) ............... (0.23)
-----------------
Total from investment operations ............. (0.15)
-----------------
Unit value, end of period ........................... $ 0.85
-----------------
-----------------
</TABLE>
(a) For the period from May 14, 1998, commencement of operations, to
December 31, 1998.
<PAGE>
25
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
TEMPLETON DEVELOPING MARKETS
<TABLE>
<CAPTION>
YEAR PERIOD FROM
ENDED OCTOBER 1, 1997 (a)
DECEMBER 31, TO DECEMBER
1998 31, 1997
------------ -------------------
<S> <C> <C>
Unit value, beginning of period ............. $ 0.70 1.00
------------ -------------------
Income (loss) from investment operations:
Net investment income ................... 0.01 --
Net gains or losses on securities
(both realized and unrealized) ....... (0.16) (0.30)
------------ -------------------
Total from investment operations ..... (0.15) (0.30)
------------ -------------------
Unit value, end of period ................... $ 0.55 0.70
------------ -------------------
------------ -------------------
</TABLE>
(a) Inception of the segregated sub-account was October 2, 1997, when
the units became effectively registered under the Securities
Exchange Act of 1933.
<PAGE>
Independent Auditors' Report
The Board of Directors
Minnesota Life Insurance Company
We have audited the accompanying consolidated balance sheets of the Minnesota
Life Insurance Company and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations and comprehensive income,
changes in stockholder's equity and cash flows for each of the years in the
three-year period ended December 31, 1998. 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 audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Minnesota Life Insurance Company and subsidiaries as of December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated 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 consolidated
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic consolidated financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic consolidated financial statements taken as a whole.
Minneapolis, Minnesota
February 8, 1999
66
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Balance Sheets
December 31, 1998 and 1997
Assets
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(In thousands)
<S> <C> <C>
Fixed maturity securities:
Available-for-sale, at fair value (amortized cost
$4,667,688 and $4,518,807) $ 4,914,012 $ 4,719,801
Held-to-maturity, at amortized cost (fair value
$1,161,784 and $1,158,227) 1,086,548 1,088,312
Equity securities, at fair value (cost $579,546 and
$537,441) 749,800 686,638
Mortgage loans, net 681,219 661,337
Real estate, net 38,530 39,964
Policy loans 226,409 213,488
Short-term investments 136,435 112,352
Other invested assets 261,625 216,838
----------- -----------
Total investments 8,094,578 7,738,730
Cash 175,660 96,179
Finance receivables, net 163,411 211,794
Deferred policy acquisition costs 564,382 576,030
Accrued investment income 86,974 83,439
Premiums receivable, net 62,609 68,030
Property and equipment, net 67,448 58,123
Reinsurance recoverables 162,553 150,126
Other assets 61,183 52,852
Separate account assets 6,994,752 5,366,810
----------- -----------
Total assets $16,433,550 $14,402,113
=========== ===========
Liabilities and Stockholder's Equity
Liabilities:
Policy and contract account balances $ 4,242,802 $ 4,275,221
Future policy and contract benefits 1,744,245 1,687,529
Pending policy and contract claims 70,564 64,356
Other policyholders' funds 438,595 416,752
Policyholders' dividends payable 53,957 55,321
Stockholder dividend payable 24,700 --
Unearned premiums and fees 180,191 202,070
Federal income tax liability:
Current 53,039 45,300
Deferred 173,907 166,057
Other liabilities 514,468 334,305
Notes payable 267,000 298,000
Separate account liabilities 6,947,806 5,320,517
----------- -----------
Total liabilities 14,711,274 12,865,428
----------- -----------
Stockholder's equity:
Common stock, $1 par value, 5,000,000 shares
authorized, issued and outstanding 5,000 --
Retained earnings 1,513,661 1,380,012
Accumulated other comprehensive income 203,615 156,673
----------- -----------
Total stockholder's equity 1,722,276 1,536,685
----------- -----------
Total liabilities and stockholder's equity $16,433,550 $14,402,113
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
67
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
Years ended December 31, 1998, 1997, and 1996
Statements of Operations
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Revenues:
Premiums $ 577,693 $ 615,253 $ 612,359
Policy and contract fees 300,361 272,037 245,966
Net investment income 531,081 553,773 530,987
Net realized investment gains 114,652 114,367 55,574
Finance charge income 35,880 43,650 46,932
Other income 73,498 71,707 51,630
---------- ---------- ----------
Total revenues 1,633,165 1,670,787 1,543,448
---------- ---------- ----------
Benefits and expenses:
Policyholders' benefits 519,926 515,873 541,520
Interest credited to policies and con-
tracts 290,870 298,033 288,967
General operating expenses 360,916 369,961 302,618
Commissions 110,211 114,404 103,370
Administrative and sponsorship fees 80,183 81,750 79,360
Dividends to policyholders 25,159 26,776 24,804
Interest on notes payable 22,360 24,192 22,798
Increase in deferred policy acquisition
costs (18,042) (26,878) (19,284)
---------- ---------- ----------
Total benefits and expenses 1,391,583 1,404,111 1,344,153
---------- ---------- ----------
Income from operations before taxes 241,582 266,676 199,295
Federal income tax expense (benefit):
Current 93,584 84,612 68,033
Deferred (15,351) (7,832) 744
---------- ---------- ----------
Total federal income tax expense 78,233 76,780 68,777
---------- ---------- ----------
Net income $ 163,349 $ 189,896 $ 130,518
========== ========== ==========
Other comprehensive income, after tax:
Foreign currency translation adjust-
ments $ (947) $ 947 $ --
Unrealized gains (losses) on securities 47,889 47,414 (44,940)
---------- ---------- ----------
Other comprehensive income, net of tax 46,942 48,361 (44,940)
---------- ---------- ----------
Comprehensive income $ 210,291 $ 238,257 $ 85,578
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
68
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Common stock:
Issued during the year $ 5,000 $ -- $ --
---------- ---------- ----------
Total common stock $ 5,000 $ -- $ --
========== ========== ==========
Retained earnings:
Beginning balance $1,380,012 $1,190,116 $1,059,598
Net income 163,349 189,896 130,518
Retained earnings transfer for common
stock issued (5,000) -- --
Dividends to stockholder (24,700) -- --
---------- ---------- ----------
Total retained earnings $1,513,661 $1,380,012 $1,190,116
========== ========== ==========
Accumulated other comprehensive income:
Beginning balance $ 156,673 $ 108,312 $ 153,252
Change in unrealized appreciation (de-
preciation) of investments 47,889 47,414 (44,940)
Change in unrealized gain on foreign
currency translation (947) 947 --
---------- ---------- ----------
Total accumulated other comprehensive
income $ 203,615 $ 156,673 $ 108,312
========== ========== ==========
Total stockholder's equity $1,722,276 $1,536,685 $1,298,428
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
69
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 163,349 $ 189,896 $ 130,518
Adjustments to reconcile net income to
net cash provided by operating activi-
ties:
Interest credited to annuity and in-
surance contracts 265,841 276,719 275,968
Fees deducted from policy and con-
tract balances (212,901) (214,803) (206,780)
Change in future policy benefits 56,716 76,358 84,389
Change in other policyholders' lia-
bilities (20,802) 7,597 16,099
Change in deferred policy acquisition
costs (18,042) (26,878) (19,284)
Change in premiums due and other re-
ceivables 5,421 (9,280) (26,142)
Change in federal income tax liabili-
ties 15,589 36,049 (38,113)
Net realized investment gains (114,652) (114,367) (55,574)
Other, net 32,380 (23,213) 56,045
----------- ----------- -----------
Net cash provided by operating ac-
tivities 172,899 198,078 217,126
----------- ----------- -----------
Cash Flows from Investing Activities
Proceeds from sales of:
Fixed maturity securities, available-
for-sale 1,835,726 1,099,114 877,682
Equity securities 523,617 601,936 352,901
Mortgage loans -- -- 15,567
Real estate 7,800 9,279 11,678
Other invested assets 21,682 26,877 12,280
Proceeds from maturities and repayments
of:
Fixed maturity securities, available-
for-sale 414,726 403,829 329,550
Fixed maturity securities, held-to-
maturity 148,848 139,394 114,222
Mortgage loans 126,066 109,246 94,703
Purchases of:
Fixed maturity securities, available-
for-sale (2,384,720) (1,498,048) (1,228,048)
Fixed maturity securities, held-to-
maturity (99,530) (82,835) (60,612)
Equity securities (516,907) (585,349) (446,599)
Mortgage loans (141,008) (157,247) (108,691)
Real estate (5,612) (3,908) (3,786)
Other invested assets (75,682) (55,988) (29,271)
Finance receivable originations or pur-
chases (77,141) (115,248) (175,876)
Finance receivable principal payments 109,277 133,762 142,723
Other, net 141,768 (88,626) (40,062)
----------- ----------- -----------
Net cash provided by (used for) in-
vesting activities 28,910 (63,812) (141,639)
----------- ----------- -----------
Cash Flows from Financing Activities
Deposits credited to annuity and insur-
ance contracts 952,622 928,696 657,405
Withdrawals from annuity and insurance
contracts (1,053,844) (1,013,588) (702,681)
Proceeds from issuance of debt 40,000 -- 60,000
Payments on debt (31,000) (21,000) (21,000)
Other, net (6,023) (3,355) (6,898)
----------- ----------- -----------
Net cash used for financing activi-
ties (98,245) (109,247) (13,174)
----------- ----------- -----------
Net increase in cash and short-term in-
vestments 103,564 25,019 62,313
Cash and short-term investments, begin-
ning of year 208,531 183,512 121,199
----------- ----------- -----------
Cash and short-term investments, end of
year $ 312,095 $ 208,531 $ 183,512
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
70
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
(1) Nature of Operations
Conversion to a Mutual Holding Company Structure
Consent was given from the Minnesota Department of Commerce (Department of
Commerce) allowing The Minnesota Mutual Life Insurance Company to implement a
conversion to a mutual holding company. The Minnesota Mutual Life Insurance
Company enacted this privilege effective October 1, 1998. The conversion
created Minnesota Mutual Companies, Inc., a mutual holding company, Securian
Holding Company and Securian Financial Group, Inc., which are intermediate
stock holding companies. The Minnesota Mutual Life Insurance Company was
converted into a stock life insurance company and renamed Minnesota Life
Insurance Company. Minnesota Mutual Companies, Inc. will at all times, in
accordance with the conversion plan and as required by the Mutual Insurance
Holding Company Act, directly or indirectly control Minnesota Life Insurance
Company through the ownership of at least a majority of the voting power of the
voting shares of the capital stock of Minnesota Life Insurance Company. Annuity
contract and life insurance policyholders of Minnesota Life Insurance Company
have certain membership interests consisting primarily of the right to vote on
certain matters involving Minnesota Mutual Companies, Inc. and the right to
receive distributions of surplus in the event of demutualization, dissolution
or liquidation of Minnesota Mutual Companies, Inc.
Description of Business
Minnesota Life Insurance Company, both directly and through its subsidiaries
(collectively, the Company), 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 five strategic business
units which focus on various markets: Individual Insurance, Financial Services,
Group Insurance, Pension and Asset Management. Revenues in 1998 for these
business units were $862,240,000, $273,511,000, $258,928,000, $102,061,000 and
$20,723,000, respectively. Additional revenues of $115,702,000 were reported by
the Company's subsidiaries.
The Company serves over six million people through more than 4,000 associates
located at its St. Paul, Minnesota headquarters and in 75 general agencies and
45 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 Life Insurance Company and its subsidiaries. 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.
71
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
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
policy acquisition costs are amortized over the premium paying period in
proportion to the ratio of annual premium revenues to ultimate anticipated
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 policy
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 policy acquisition costs amortized were $148,098,000, $128,176,000
and $125,978,000 for the years ended December 31, 1998, 1997 and 1996,
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
72
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
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.
Venture capital limited partnerships are carried at cost, net of write-downs
for other than temporary declines in value and allowances for temporary
declines in value. Cash distributions are recorded as a return of capital
and/or income as appropriate. In-kind distributions are recorded as a return of
capital for the cost basis of the stock received.
Real estate is carried at cost less accumulated depreciation and an allowance
for estimated losses. Accumulated depreciation on real estate at December 31,
1998 and 1997, was $6,713,000 and $6,269,000, respectively.
Policy loans are carried at the unpaid principal balance.
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 1997. The swaps were carried at fair value, which were
based upon dealer quotes. Changes in fair value were recorded directly in
stockholder's equity. Upon settlement of the swaps, gains or losses were
recognized in income, and the Company realized a loss of approximately
$31,000,000 in 1997, upon settlement of these equity swaps.
The Company began investing in international bonds denominated in foreign
currencies in 1997. Unrealized gains or losses are recorded on foreign
denominated securities due to the fluctuation in foreign currency exchange
rates and/or related payables and receivables and interest on foreign
securities. 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.
Realized and unrealized gains and losses on these forward foreign exchange
contracts are recorded in income as incurred. In addition, these contracts are
generally short-term in nature and there is no material exposure to the Company
at December 31, 1998. Notional amounts for the years ended December 31, 1998
and 1997, were $115,194,000 and $80,997,000, respectively.
73
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
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 stockholder's equity,
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
$101,692,000 and $90,926,000 at December 31, 1998 and 1997, 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,
1998, 1997 and 1996, were $10,765,000, $8,965,000 and $6,454,000, 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 policyholders 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, included with separate account assets, amounted to
$46,945,000 and $46,293,000 at December 31, 1998 and 1997, respectively.
Policyholders' 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 policyholders' funds are comprised of dividend accumulations, premium
deposit funds and supplementary contracts without life contingencies.
Participating Business
Dividends on participating policies and other discretionary payments are
declared by the Board of Directors 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.
74
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Account Policies (continued)
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 1997 and 1996 consolidated financial statement balances have been
reclassified to conform to the 1998 presentation.
(3) Investments
Net investment income for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities $445,220 $457,391 $433,985
Equity securities 12,183 16,182 14,275
Mortgage loans 54,785 55,929 63,865
Real estate (236) (407) (475)
Policy loans 15,502 15,231 13,828
Short-term investments 6,147 6,995 6,535
Other invested assets 3,826 3,871 4,901
-------- -------- --------
Gross investment income 537,427 555,192 536,914
Investment expenses (6,346) (1,419) (5,927)
-------- -------- --------
Total $531,081 $553,773 $530,987
======== ======== ========
Net realized investment gains (losses) for the years ended December 31 were
as follows:
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities $ 43,244 $ 3,711 $ (6,536)
Equity securities 47,526 92,765 57,770
Mortgage loans 3,399 2,011 (721)
Real estate 7,809 1,598 7,088
Other invested assets 12,674 14,282 (2,027)
-------- -------- --------
Total $114,652 $114,367 $ 55,574
======== ======== ========
Gross realized gains (losses) on the sales of fixed maturity securities and
equity securities for the years ended December 31 were as follows:
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities, available-for-sale:
Gross realized gains $ 56,428 $ 18,804 $ 19,750
Gross realized losses (13,184) (15,093) (26,286)
Equity securities:
Gross realized gains 107,342 120,437 79,982
Gross realized losses (59,816) (27,672) (22,212)
</TABLE>
75
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3)Investments (continued)
Net unrealized gains (losses) included in stockholder's equity at December 31
were as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
Gross unrealized gains $ 487,479 $ 472,671
Gross unrealized losses (73,440) (118,863)
Adjustment to deferred acquisition costs (119,542) (100,299)
Adjustment to unearned policy and contract fees 15,912 (13,087)
Deferred federal income taxes (106,794) (83,749)
--------- ---------
Net unrealized gains $ 203,615 $ 156,673
========= =========
</TABLE>
76
<PAGE>
Minnesota 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, 1998
Available-for-sale:
United States government and
government agencies and
authorities $ 195,650 $ 17,389 $ 201 $ 212,838
Foreign governments 784 -- 311 473
Corporate securities 2,357,861 204,277 30,648 2,531,490
International bond securities 188,448 22,636 1,298 209,786
Mortgage-backed securities 1,924,945 52,580 18,100 1,959,425
---------- -------- -------- ----------
Total fixed maturities 4,667,688 296,882 50,558 4,914,012
Equity securities-unaffiliated 463,777 157,585 15,057 606,305
Equity securities-affiliated
mutual funds 115,769 27,726 -- 143,495
---------- -------- -------- ----------
Total equity securities 579,546 185,311 15,057 749,800
---------- -------- -------- ----------
Total available-for-sale 5,247,234 482,193 65,615 5,663,812
Held-to maturity:
Corporate securities 894,064 67,496 235 961,325
Mortgage-backed securities 192,484 9,030 1,055 200,459
---------- -------- -------- ----------
Total held-to-maturity 1,086,548 76,526 1,290 1,161,784
---------- -------- -------- ----------
Total $6,333,782 $558,719 $ 66,905 $6,825,596
========== ======== ======== ==========
<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
government agencies and authori-
ties $ 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 mu-
tual funds 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
========== ======== ======== ==========
</TABLE>
77
<PAGE>
Minnesota 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, 1998, 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 $ 38,375 $ 35,299 $ 11,109 $ 11,346
Due after one year through five
years 529,019 616,064 128,658 133,657
Due after five years through ten
years 1,251,763 1,316,512 373,294 403,159
Due after ten years 923,586 986,712 381,003 413,163
---------- ---------- ---------- ----------
2,742,743 2,954,587 894,064 961,325
Mortgage-backed securities 1,924,945 1,959,425 192,484 200,459
---------- ---------- ---------- ----------
Total $4,667,688 $4,914,012 $1,086,548 $1,161,784
========== ========== ========== ==========
</TABLE>
At December 31, 1998 and 1997, fixed maturity securities and short-term
investments with a carrying value of $6,361,000 and $8,000,000, respectively,
were on deposit with various regulatory authorities as required by law.
Allowances for credit losses on investments are reflected on the consolidated
balance sheets as a reduction of the related assets and were as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Mortgage loans $ 1,500 $ 1,500
Investment real estate 841 2,248
------- -------
Total $ 2,341 $ 3,748
======= =======
</TABLE>
At December 31, 1998, the recorded investment in mortgage loans that were
considered to be impaired was $8,798 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, 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.
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, 1998 and 1997.
Changes in the allowance for credit losses on mortgage loans were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $1,500 $1,895 $1,711
Provision for credit losses -- -- 381
Charge-offs -- (395) (197)
------ ------ ------
Balance at end of year $1,500 $1,500 $1,895
====== ====== ======
</TABLE>
78
<PAGE>
Minnesota 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>
1998 1997 1996
---- ------ ------
(In thousands)
<S> <C> <C> <C>
Average impaired mortgage loans $14 $3,268 $9,375
Interest income on impaired mortgage loans--contractual 18 556 1,796
Interest income on impaired mortgage loans--collected 17 554 1,742
</TABLE>
(4) Notes Receivable
In connection with the Company's planned construction of an additional home
office facility in St. Paul, Minnesota, the Company entered into a loan
contingency agreement with the Housing and Redevelopment Authority of the City
of St. 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, 1998, HRA has
drawn $9,669,128 on this loan contingency agreement and accrued interest of
$673,435.
(5) Net Finance Receivables
Finance receivables as of December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Direct installment loans $147,425 $183,424
Retail installment notes 12,209 20,373
Retail revolving credit 17,170 25,426
Accrued interest 2,683 3,116
-------- --------
Gross receivables 179,487 232,339
Allowance for uncollectible amounts (16,076) (20,545)
-------- --------
Finance receivables, net $163,411 $211,794
======== ========
</TABLE>
Direct installment loans at December 31, 1998, consisted of $81,066,000 of
discount basis loans (net of unearned finance charges) and $66,359,000 of
interest-bearing loans. Direct installment loans at December 31, 1997,
consisted of $83,836,000 of discount basis loans (net of unearned finance
charges) and $99,588,000 of interest-bearing loans. 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 $44,000,000 and $65,000,000 of
real estate secured loans at December 31, 1998 and 1997, respectively.
Revolving credit loans included approximately $16,000,000 and $24,000,000 of
real estate secured loans at December 31, 1998 and 1997, 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
$75,011,000, $90,940,000 and $92,438,000 and the percentage of these cash
collections to the average net balances were 47%, 47% and 48% for the years
ended December 31, 1998, 1997 and 1996, respectively.
79
<PAGE>
Minnesota 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>
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $20,545 $ 7,497 $ 6,377
Provision for credit losses 10,712 28,206 10,086
Charge-offs (18,440) (17,869) (11,036)
Recoveries 3,259 2,711 2,070
------- ------- -------
Balance at end of year $16,076 $20,545 $ 7,497
======= ======= =======
</TABLE>
At December 31, 1998, 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, 1998 and the related allowance for
credit losses were as follows:
<TABLE>
<CAPTION>
Installment Revolving
Loans Credit Total
----------- --------- -------
(In thousands)
<S> <C> <C> <C>
Balances at December 31, 1998 $7,546 11,190 $18,736
Related allowance for credit losses $3,033 5,486 $ 8,519
</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 1998. The
average quarterly balances of impaired loans during the year ended December 31,
1998 and 1997, was $6,354,000 and $7,397,000, respectively, for installment
basis loans and $12,471,000 and $12,793,000, respectively for 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, 1998.
(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>
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Computed tax expense $84,553 $93,337 $69,753
Difference between computed and actual tax ex-
pense:
Dividends received deduction (1,730) (5,573) (2,534)
Special tax on mutual life insurance companies (3,455) 3,341 2,760
Sale of subsidiary -- (4,408) --
Foundation gain -- (4,042) (1,260)
Tax credits (4,416) (3,600) (3,475)
Expense adjustments and other 3,281 (2,275) 3,533
------- ------- -------
Total tax expense $78,233 $76,780 $68,777
======= ======= =======
</TABLE>
80
<PAGE>
Minnesota 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>
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Policyholders' liabilities $ 16,999 $ 14,374
Pension and post retirement benefits 27,003 23,434
Tax deferred policy acquisition costs 82,940 73,134
Net realized capital losses 8,221 9,609
Other 18,487 20,524
-------- --------
Gross deferred tax assets 153,650 141,075
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs 155,655 152,337
Real estate and property and equipment depreciation 10,275 11,165
Basis difference on investments 10,798 11,061
Net unrealized capital gains 143,354 122,876
Other 7,475 9,693
-------- --------
Gross deferred tax liabilities 327,557 307,132
-------- --------
Net deferred tax liability $173,907 $166,057
======== ========
</TABLE>
A valuation allowance for deferred tax assets was not considered necessary as
of December 31, 1998 and 1997, 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, 1998, 1997 and 1996, were
$91,259,000, $71,108,000 and $79,026,000, respectively.
The Company's tax returns for 1997, 1996 and 1995 are under examination by
the Internal Revenue Service. The Company believes additional taxes, if any,
assessed as a result of these examinations, will not have a material effect on
its financial position.
81
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(7) Liability for Unpaid Accident and Health Claims, Reserve for Losses, and
Claim and Loss Adjustment Expenses
Activity in the liability for unpaid accident and health claims, reserve for
losses and claim and loss adjustment expenses is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Balance at January 1 $409,249 $416,910 $377,302
Less: reinsurance recoverable 104,741 102,161 80,333
-------- -------- --------
Net balance at January 1 304,508 314,749 296,969
-------- -------- --------
Incurred related to:
Current year 92,793 121,153 134,727
Prior years 14,644 7,809 4,821
-------- -------- --------
Total incurred 107,437 128,962 139,548
-------- -------- --------
Paid related to:
Current year 27,660 51,275 51,695
Prior years 58,124 57,475 70,073
-------- -------- --------
Total paid 85,784 108,750 121,768
-------- -------- --------
Decrease in liabilities due to sale of subsidiary -- 30,453 --
-------- -------- --------
Net balance at December 31 326,161 304,508 314,749
Plus: reinsurance recoverable 108,918 104,741 102,161
-------- -------- --------
Balance at December 31 $435,079 $409,249 $416,910
======== ======== ========
</TABLE>
The liability for unpaid accident and health claims, reserve for losses and
claim and loss 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, reserve for losses and claim and loss adjustment
expenses incurred increased by $14,644,000, $7,809,000 and $4,821,000 in 1998,
1997 and 1996, respectively. These amounts are the result of normal reserve
development inherent in the uncertainty of establishing the liability for
unpaid accident and health claims, reserve for losses and claim and loss
adjustment expenses.
(8) Employee Benefit Plans
Pension Plans and Post Retirement Plans Other than Pensions
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.
The Company also has unfunded post retirement 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.
82
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(8) Employee Benefit Plans (continued)
The change in the benefit obligation and plan assets for the Company's plans
as of December 31 was calculated as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of
year $151,509 $134,959 $ 24,467 $ 24,836
Service cost 8,402 6,847 1,375 1,047
Interest cost 10,436 9,956 1,713 1,872
Amendments 6 -- -- (99)
Actuarial gain 16,298 3,816 4,542 (1,930)
Benefits paid (5,212) (4,069) (861) (1,259)
-------- -------- -------- --------
Benefit obligation at end of year $181,439 $151,509 $ 31,236 $ 24,467
======== ======== ======== ========
Change in plan assets:
Fair value of plan assets at the
beginning of the year $133,505 $118,963 $ -- $ --
Actual return on plan assets 13,068 13,670 -- --
Employer contribution 5,349 4,940 861 1,259
Benefits paid (5,212) (4,069) (861) (1,259)
-------- -------- -------- --------
Fair value of plan assets at the
end of year $146,710 $133,504 $ -- $ --
======== ======== ======== ========
Funded status $(34,729) $(18,005) $(31,236) $(24,467)
Unrecognized net actuarial loss
(gain) 12,283 (1,735) (6,251) (11,353)
Unrecognized prior service cost
(benefit) 5,293 5,865 (2,986) (3,499)
-------- -------- -------- --------
Net amount recognized $(17,153) $(13,875) $(40,473) $(39,319)
======== ======== ======== ========
Amounts recognized in the balance
sheet statement consist of:
Accrued benefit cost $(23,242) $(18,059) $(40,473) $(39,319)
Intangible asset 6,089 4,184 -- --
-------- -------- -------- --------
Net amount recognized $(17,153) $(13,875) $(40,473) $(39,319)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Pension Other
Benefits Benefits
----------- -----------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Weighted average assumptions as of December 31
Discount rate 7.00% 7.48% 7.00% 7.50%
Expected return on plan assets 8.27% 8.32% -- --
Rate of compensation increase 5.32% 5.29% -- --
</TABLE>
83
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(8) Employee Benefit Plans (continued)
For measurement purposes, an 8 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 5.5 percent for 2003 and remain at that level
thereafter.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------- ----------------------
1998 1997 1996 1998 1997 1996
------- ------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost
Service cost $ 8,402 $6,847 $6,315 $1,375 $1,047 $1,041
Interest cost 10,436 9,956 8,852 1,713 1,872 2,074
Expected return on plan as-
sets (10,978) (9,859) (8,751) -- -- --
Amortization of prior serv-
ice cost (benefits) 578 578 578 (513) (510) (501)
Recognized net actuarial
loss (gain) 190 77 10 (559) (480) (177)
------- ------ ------ ------ ------ ------
Net periodic benefit cost $ 8,628 $7,599 $7,004 $2,016 $1,929 $2,437
======= ====== ====== ====== ====== ======
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
vale of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $39,470,000, $31,546,000 and $17,334,000 as of
December 31, 1998, respectively, and $32,622,000, $24,894,000 and $16,703,000
respectively, as of December 31, 1997.
The assumptions presented herein are based on pertinent information available
to management as of December 31, 1998 and 1997. 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 post retirement benefit obligation as of December 31, 1998 by
$5,875,000 and the estimated eligibility cost and interest cost components of
net periodic benefit costs for 1998 by $788,000. Decreasing the assumed health
care cost trend rates by one percentage point in each year would decrease the
post retirement benefit obligation as of December 31, 1998 by $4,618,000 and
the estimated eligibility cost and interest cost components of net periodic
post retirement benefit costs for 1998 by $598,000.
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 directors 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
1998, 1997 and 1996 of $8,395,000, $7,173,000 and $6,092,000, respectively.
Participants may elect to receive a portion of their contributions in cash.
(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.
84
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(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.
The effect of reinsurance on premiums for the years ended December 31 was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Direct premiums $553,408 $595,686 $615,098
Reinsurance assumed 91,548 78,097 64,489
Reinsurance ceded (67,263) (58,530) (67,228)
-------- -------- --------
Net premiums $577,693 $615,253 $612,359
======== ======== ========
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $54,174,000,
$58,072,000 and $72,330,000 during 1998, 1997 and 1996, 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, 1998 and 1997.
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,
1998 and 1997, 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,
1998 and 1997, 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, 1998 and 1997
as those investment 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.
85
<PAGE>
Minnesota 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>
1998 1997
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities:
Available-for-sale $4,914,012 $4,914,012 $4,719,801 $4,719,801
Held-to-maturity 1,086,548 1,161,784 1,088,312 1,158,227
Equity securities 749,800 749,800 686,638 686,638
Mortgage loans:
Commercial 579,890 603,173 506,860 527,994
Residential 101,329 104,315 154,477 158,334
Policy loans 226,409 226,409 213,488 213,488
Short-term investments 136,435 136,435 112,352 112,352
Cash 175,660 175,660 96,179 96,179
Finance receivables, net 163,411 163,411 211,794 211,794
Venture capital 160,958 164,332 115,856 122,742
Foreign currency exchange con-
tract 1,594 1,594 1,457 1,457
---------- ---------- ---------- ----------
Total financial assets $8,296,046 $8,400,925 $7,907,214 $8,009,006
========== ========== ========== ==========
</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>
1998 1997
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Deferred annuities $2,085,408 $2,075,738 $2,131,806 $2,112,301
Annuity certain contracts 57,528 60,766 55,431 57,017
Other fund deposits 722,321 731,122 754,960 753,905
Guaranteed investment contracts 862 862 8,188 8,187
Supplementary contracts without
life contingencies 44,696 44,251 46,700 45,223
Notes payable 267,000 272,834 298,000 302,000
---------- ---------- ---------- ----------
Total financial liabilities $3,177,815 $3,185,573 $3,295,085 $3,278,633
========== ========== ========== ==========
</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 policyholders' interests, including claims, and indebtedness
of the Company. All payments of interest and principal on the notes are subject
to the approval of the Department of Commerce. The approved accrued interest
was $3,008,000 as of December 31, 1998 and 1997. The issuance costs of
$1,421,000 are deferred and amortized over 30 years on straight-line basis.
86
<PAGE>
Minnesota 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>
1998 1997
-------- --------
(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 142,000 173,000
-------- --------
Total notes payable $267,000 $298,000
======== ========
</TABLE>
At December 31, 1998, the aggregate minimum annual notes payable maturities
for the next five years were as follows: 1999, $49,000,000; 2000, $33,000,000;
2001, $26,000,000; 2002, $22,000,000; 2003, $12,000,000; thereafter
$125,000,000.
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 $44,070,000. The consumer finance subsidiary was in compliance with all such
provisions at December 31, 1998.
Interest paid on debt for the years ended December 31, 1998, 1997 and 1996,
was $25,008,000, $18,197,000 and $21,849,000, respectively.
(13) Other Comprehensive Income
Effective December 31, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." Comprehensive income is defined as any
change in stockholder's equity originating from non-owner transactions. The
Company had identified those changes as being comprised of net income,
unrealized appreciation (depreciation) on securities, and unrealized foreign
currency translation adjustments. The components of comprehensive income, other
than net income are illustrated below:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- --------
(In thousands)
<S> <C> <C> <C>
Other comprehensive income, before tax:
Foreign currency translation adjustment $ -- $ 1,457 $ --
Less: reclassification adjustment for gains in-
cluded in net income (1,457) -- --
------- ------- --------
(1,457) 1,457 --
Unrealized gains (loss) on securities 162,214 171,654 (18,746)
Less: reclassification adjustment for gains in-
cluded in net income (90,770) (96,476) (51,234)
------- ------- --------
71,444 75,178 (69,980)
Income tax expense related to items of other com-
prehensive income (23,045) (28,274) 25,040
------- ------- --------
Other comprehensive income, net of tax $46,942 $48,361 $(44,940)
======= ======= ========
</TABLE>
(14) Stock Dividends
On December 14, 1998, the Company declared and accrued a dividend to Securian
Financial Group, Inc. in the amount of $24,700,000 to be paid in 1999.
Dividend payments by Minnesota Life Insurance Company to its parent cannot
exceed the greater of 10% of statutory capital and surplus as of the preceding
year end or the statutory net gain from operations for the current calendar
year, without prior approval from the Department of Commerce. Based on this
limitation and 1997 statutory results, Minnesota Life Insurance Company could
have paid $87,069,000 in dividends in 1998 without prior approval.
87
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(15) Year 2000 (Unaudited)
The Company's business units utilize products and systems in the normal course
of business. Some of the Company's products and systems will have been replaced
or modified in order to process dates including the year 2000 and beyond.
The Company began preparing for the new millennium in the early 1980s by
designing systems with the year 2000 in mind. The Company began a comprehensive
Year 2000 project in 1995 to prepare all components of its business to function
properly before, during and after the year 2000.
The Company's goal is to have all computer systems and data prepared for the
year 2000. While the Company has taken extensive steps to renovate, upgrade and
replace applications, it is impossible to guarantee there will be no problems
associated with the year 2000 date change. The Company is currently developing
contingency and continuity plans to help minimize any impact of problems that
do arise.
(16) 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 $41,010,000 as of
December 31, 1998. 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 $165,191,000 as of December 31, 1998. The Company
estimates that $60,000,000 of these commitments will be invested in 1999, with
the remaining $105,191,000 invested over the next four years.
As of December 31, 1998, the Company had committed to purchase bonds and
mortgage loans totaling $198,907,000 but had not completed the purchase
transactions.
At December 31, 1998, the Company had guaranteed the payment of $75,100,000
in policyholders' dividends and discretionary amounts payable in 1999. The
Company has pledged bonds, valued at $76,596,000 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.
88
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(17) 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. The significant differences that exist between statutory and
GAAP accounting, and their effects are illustrated below:
<TABLE>
<CAPTION>
Year ended December
----------------------
1998 1997
---------- ----------
(In thousands)
<S> <C> <C>
Statutory capital and surplus $ 947,885 $ 870,688
Adjustments:
Deferred policy acquisition costs 564,382 576,030
Net unrealized investment gains 281,226 213,026
Statutory asset valuation reserve 239,455 242,100
Statutory interest maintenance reserve 49,915 24,169
Premiums and fees deferred or receivable (73,312) (74,025)
Change in reserve basis 117,806 101,415
Separate accounts (56,816) (51,172)
Unearned policy and contract fees (134,373) (126,477)
Surplus notes (125,000) (125,000)
Net deferred income taxes (173,907) (166,057)
Non-admitted assets 36,764 32,611
Policyholders' dividends 60,648 60,036
Other (12,397) (40,659)
---------- ----------
Stockholder's equity as reported in the accompanying
consolidated financial statements $1,722,276 $1,536,685
========== ==========
</TABLE>
<TABLE>
<CAPTION>
As of December 31
----------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Statutory net income $104,609 $167,078 $115,797
Adjustments:
Deferred policy acquisition costs 18,042 26,878 19,284
Statutory interest maintenance reserve 25,746 (538) (8,192)
Premiums and fees deferred or receivable 708 2,175 1,587
Change in reserve basis 3,011 9,699 20,114
Separate accounts (5,644) (6,272) (6,304)
Unearned policy and contract fees (7,896) (12,825) (2,530)
Net deferred income taxes 15,351 7,832 (744)
Policyholders' dividends 1,194 2,708 502
Other 8,228 (6,839) (8,996)
-------- -------- --------
Net income as reported in the accompanying
consolidated financial statements $163,349 $189,896 $130,518
======== ======== ========
</TABLE>
89
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule I
Summary of Investments--Other than Investments in Related Parties
December 31, 1998
<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 $ 195,650 $ 212,838 $ 212,838
Foreign governments 784 473 473
Public utilities 343,230 368,246 357,795
Mortgage-backed securities 2,117,429 2,159,884 2,151,909
All other corporate bonds 3,097,143 3,334,355 3,277,545
---------- ---------- ----------
Total bonds 5,754,236 6,075,796 6,000,560
---------- ---------- ----------
Equity securities:
Common stocks:
Public utilities 14,403 18,472 18,472
Banks, trusts and insurance companies 42,538 43,615 43,615
Industrial, miscellaneous and all
other 495,635 659,177 659,177
Nonredeemable preferred stocks 26,970 28,536 28,536
---------- ---------- ----------
Total equity securities 579,546 749,800 749,800
---------- ---------- ----------
Mortgage loans on real estate 681,219 XXXXXX 681,219
Real estate (2) 38,530 XXXXXX 38,530
Policy loans 226,409 XXXXXX 226,409
Other long-term investments 261,625 XXXXXX 261,625
Short-term investments 136,435 XXXXXX 136,435
---------- ---------- ----------
Total 1,344,218 -- 1,344,218
---------- ---------- ----------
Total investments $7,678,000 $6,825,596 $8,094,578
========== ========== ==========
</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
See independent auditors' report.
90
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule III
Supplementary Insurance Information
(In thousands)
<TABLE>
<CAPTION>
As of December 31 For the years ended December 31
--------------------------------------------------- -----------------------------------------------------------
Future policy Amortization
Deferred benefits Other policy Benefits, of deferred
policy losses, claims claims and Net claims, losses policy Other
acquisition and settlement Unearned benefits Premium investment and settlement acquisition operating
Segment costs expenses(1) premiums(2) payable revenue(3) income expenses costs expenses
- ------- ----------- -------------- ----------- ------------ ---------- ---------- -------------- ------------ ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998:
Life insurance $421,057 $2,303,580 $146,042 $51,798 $615,856 $246,303 $502,767 $114,589 $342,080
Accident and
health insurance 74,606 496,839 33,568 18,342 167,544 35,822 105,336 12,261 93,876
Annuity 68,719 3,186,148 25 424 93,992 247,970 225,004 21,248 136,527
Property and li-
ability insur-
ance -- 480 556 -- 662 986 2,848 -- 1,187
-------- ---------- -------- ------- -------- -------- -------- -------- --------
$564,382 $5,987,047 $180,191 $70,564 $878,054 $531,081 $835,955 $148,098 $573,670
======== ========== ======== ======= ======== ======== ======== ======== ========
1997:
Life insurance $434,012 $2,229,396 $166,704 $42,627 $576,468 $247,267 $476,747 $102,473 $345,938
Accident and
health insurance 70,593 466,109 34,250 17,153 205,869 40,343 87,424 9,451 101,960
Annuity 71,425 3,266,965 -- 4,576 64,637 261,768 242,738 16,252 129,263
Property and li-
ability insur-
ance -- 280 1,116 -- 40,316 4,395 33,773 -- 13,146
-------- ---------- -------- ------- -------- -------- -------- -------- --------
$576,030 $5,962,750 $202,070 $64,356 $887,290 $553,773 $840,682 $128,176 $590,307
======== ========== ======== ======= ======== ======== ======== ======== ========
1996:
Life insurance $456,461 $2,123,148 $149,152 $51,772 $568,874 $223,762 $478,228 $ 97,386 $290,525
Accident and
health insurance 62,407 437,118 33,770 18,774 160,097 34,202 96,743 14,017 87,222
Annuity 70,649 3,360,614 -- 31 79,245 267,473 243,387 14,575 111,366
Property and li-
ability insur-
ance -- 27,855 24,189 -- 50,109 5,550 36,933 -- 19,033
-------- ---------- -------- ------- -------- -------- -------- -------- --------
$589,517 $5,948,735 $207,111 $70,577 $858,325 $530,987 $855,291 $125,978 $508,146
======== ========== ======== ======= ======== ======== ======== ======== ========
<CAPTION>
Premiums
Segment written(4)
- ------- ----------
<S> <C>
1998:
Life insurance
Accident and
health insurance
Annuity
Property and li-
ability insur-
ance 103
----------
$ 103
==========
1997:
Life insurance
Accident and
health insurance
Annuity
Property and li-
ability insur-
ance 43,376
----------
$43,376
==========
1996:
Life insurance
Accident and
health insurance
Annuity
Property and li-
ability insur-
ance 50,515
----------
$50,515
==========
</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
See independent auditors' report.
91
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule IV
Reinsurance
For the years ended December 31, 1998, 1997 and 1996
<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>
1998:
Life insurance in
force $158,229,143 $18,656,917 $28,559,482 $168,131,708 17.0%
============ =========== =========== ============
Premiums:
Life insurance $ 338,909 $ 30,532 $ 71,198 $ 379,575 18.8%
Accident and health
insurance 180,081 17,894 1,432 163,619 0.9%
Annuity 33,837 -- -- 33,837 --
Property and liabil-
ity insurance 581 18,837 18,918 662 2857.7%
------------ ----------- ----------- ------------
Total premiums $ 553,408 $ 67,263 $ 91,548 $ 577,693 15.8%
============ =========== =========== ============
1997:
Life insurance in
force $122,120,394 $14,813,351 $25,566,734 $132,873,777 19.2%
============ =========== =========== ============
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 liabil-
ity 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 liabil-
ity insurance 55,782 5,729 56 50,109 0.1%
------------ ----------- ----------- ------------
Total premiums $ 615,098 $ 67,228 $ 64,489 $ 612,359 10.5%
============ =========== =========== ============
</TABLE>
See independent auditors' report.
92
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
Variable Annuity Account
Cross Reference Sheet to Other Information
Form N-4
Item Number Caption in Other Information
24. Financial Statements and Exhibits
25. Directors and Officers of the Depositor
26. Persons Controlled by or Under Common Control
with the Depositor or Registrant
27. Number of Contract Owners
28. Indemnifications
29. Principal Underwriters
30. Location of Accountrsa and Records
31. Management Services
32. Undertakings
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Audited Financial Statements of Variable Annuity Account for the
fiscal year ended December 31, 1998, are included in Part B of
this filing and consist of the following:
1. Independent Auditors' Report.
2. Statements of Assets and Liabilities, December 31, 1998.
3. Statements of Operations, year ended December 31, 1998.
4. Statements of Changes in Net Assets, December 31, 1998 and
December 31, 1997.
5. Notes to Financial Statements.
(b) Audited Consolidated Financial Statements and Supplementary
Schedules of the Depositor, Minnesota Life Insurance Company and
subsidiaries, are included in Part B of this filing and consist
of the following:
1. Independent Auditors' Report - Minnesota Life Insurance
Company and subsidiaries, for the fiscal year ended
December 31, 1998 and 1997.
2. Consolidated Balance Sheets - Minnesota Life Insurance
Company and subsidiaries, for the fiscal year ended
December 31, 1998 and 1997.
3. Consolidated Statements of Operations and Comprehensive
Income - Minnesota Life Insurance Company and
subsidiaries, for the fiscal years ended December 31,
1998, 1997 and 1996.
4. Consolidated Statements of Changes in Stockholder's Equity
- Minnesota Life Insurance Company and subsidiaries, for
the fiscal years ended December 31, 1998, 1997 and 1996.
5. Consolidated Statements of Cash Flows - Minnesota Life
Insurance Company and subsidiaries, for the fiscal years
ended December 31, 1998, 1997 and 1996.
6. Notes to Consolidated Financial Statements - Minnesota
Life Insurance Company and subsidiaries, for the fiscal
years ended December 31, 1998 and 1997.
7. Schedule I - Summary of Investments-Other than Investments
in Related Parties - Minnesota Life Insurance Company and
subsidiaries, for the fiscal year ended December 31, 1998.
8. Schedule III - Supplementary Insurance Information -
Minnesota Life Insurance Company and subsidiaries, for the
fiscal years ended December 31, 1998 and 1997.
9. Schedule IV - Reinsurance - Minnesota Life Insurance
Company and subsidiaries, for the fiscal years ended
December 31, 1998, 1997 and 1996.
(c) Exhibits
1. The Resolution of The Minnesota Mutual Life Insurance
Company's Executive Committee of its Board of Trustees
establishing the Variable Annuity Account previously filed as
this exhibit to Registrant's Form N-4, File Number 33-12333,
Post-Effective Amendment Number 10, is hereby incorporated by
reference.
2. Not applicable.
<PAGE>
3. (a) The Distribution Agreement between The Minnesota Mutual Life
Insurance Company and Ascend Financial Services, Inc.
previously filed as this exhibit to Registrant's Form N-4,
File Number 33-12333, Post-Effective Amendment Number 10,
is hereby incorporated by reference.
(b) Schedule A previously filed as this exhibit to Registrant's
Form N-4, File Number 33-12333, Post-Effective Amendment
Number 10, is hereby incorporated by reference.
4. (a) Flexible Payment Deferred Variable Annuity Contract, form
MHC-87-9154 previously filed as this exhibit to Registrant's
Form N-4, File Number 33-12333, Post-Effective Amendment
Number 12, is hereby incorporated by reference.
(b) Individual Retirement Annuity Agreement, form 83-9058 Rev.
3-1997 previously filed as this exhibit to Registrant's Form
N-4, File Number 33-12333, Post-Effective Amendment Number
10, is hereby incorporated by reference.
(c) Endorsement, form 87-9157 previously filed as this exhibit
to Registrant's Form N-4, File Number 33-12333,
Post-Effective Amendment Number 10, is hereby incorporated by
reference.
(d) Endorsement, form 87-9164 previously filed as this exhibit
to Registrant's Form N-4, File Number 33-12333,
Post-Effective Amendment Number 10, is hereby incorporated by
reference.
(e) Flexible Payment Deferred Variable Annuity Contract, form
87-9154 Rev. 2-88 previously filed as this exhibit to
Registrant's Form N-4. File Number 33-12333, Post-Effective
Amendment Number 10, is hereby incorporated by reference.
(f) Endorsement, form 87-9172 previously filed as this exhibit
to Registrant's Form N-4, File Number 33-12333,
Post-Effective Amendment Number 10, is hereby incorporated by
reference.
(g) Tax Sheltered Annuity Amendment, form MHC-88-9213 previously
filed as this exhibit to Registrant's Form N-4, File Number
33-12333, Post-Effective Amendment Number 12, is hereby
incorporated by reference.
(h) Endorsement, form 91-9258 previously filed as this exhibit to
Registrant's Form N-4, File Number 33-12333, Post-Effective
Amendment Number 10, is hereby incorporated by reference.
(i) Flexible Payment Deferred Variable Annuity Contract, form
87-9154 Rev. 3-91 previously filed as this exhibit to
Registrant's Form N-4, File Number 33-12333, Post-Effective
Amendment Number 10, is hereby incorporated by reference.
(j) Individual Retirement Annuity (IRA) Agreement, SEP,
Traditional IRA and Roth-IRA, form number MHC-97-9418
previously filed as this exhibit to Registrant's Form N-4,
File Number 33-12333, Post-Effective Amendment Number 12, is
hereby incorporated by reference.
(k) Individual Retirement Annuity, SIMPLE - (IRA) Agreement, form
number MHC-98-9431 previously filed as this exhibit to
Registrant's Form N-4, File Number 33-12333, Post-Effective
Amendment Number 12, is hereby incorporated by reference.
5. (a) Application, form 87-9155 Rev. 6-87 previously filed as this
exhibit to Registrant's Form N-4, File Number 33-12333,
Post-Effective Amendment Number 10, is hereby incorporated by
reference.
<PAGE>
(b) Application, form 87-9156 Rev. 6-87 previously filed as this
exhibit to Registrant's Form N-4, File Number 33-12333,
Post-Effective Amendment Number 10, is hereby incorporated
by reference.
(c) Application, form MHC-84-9093 Rev. 7-1998 previously filed as
this exhibit to Registrant's Form N-4, File Number 33-12333,
Post-Effective Amendment Number 12, is hereby incorporated by
reference.
6. Certificate of Incorporation and Bylaws.
(a) The Restated Certificate of Incorporation previously filed as
this exhibit to Registrant's Form N-4, File Number 33-12333,
Post-Effective Amendment Number 12, is hereby incorporated by
reference.
(b) The Bylaws of the Depositor previously filed as this exhibit
to Registrant's Form N-4, File Number 33-12333,
Post-Effective Amendment Number 12, is hereby incorporated by
reference.
7. Not applicable.
8. Not applicable.
9. Opinion and consent of Donald F. Gruber, Esq.
10. Consent of KPMG Peat Marwick LLP.
11. Not applicable.
12. Not applicable.
13. Schedule for Computation of Performance Quotation
(a) Stock Segregated Sub-Account Performance Calculations
previously filed as this exhibit to Registrant's Form N-4,
File Number 33-12333, Post-Effective Amendment Number 10, is
hereby incorporated by reference.
(b) Bond Segregated Sub-Account Performance Calculations
previously filed as this exhibit to Registrant's Form N-4,
File Number 33-12333, Post-Effective Amendment Number 10, is
hereby incorporated by reference.
(c) Money Market Segregated Sub-Account Performance Calculations
previously filed as this exhibit to Registrant's Form N-4,
File Number 33-12333, Post-Effective Amendment Number 10, is
hereby incorporated by reference.
<PAGE>
(d) Managed Segregated Sub-Account Performance Calculations
previously filed as this exhibit to Registrant's Form N-4,
File Number 33-12333, Post-Effective Amendment Number 10, is
hereby incorporated by reference.
(e) Mortgage Securities Segregated Sub-Account Performance
Calculations previously filed as this exhibit to
Registrant's Form N-4, File Number 33-12333, Post-Effective
Amendment Number 10, is hereby incorporated by reference.
(f) Index Segregated Sub-Account Performance Calculations
previously filed as this exhibit to Registrant's Form N-4,
File Number 33-12333, Post-Effective Amendment Number 10, is
hereby incorporated by reference.
(g) Aggressive Growth Segregated Sub-Account Performance
Calculations previously filed as this exhibit to
Registrant's Form N-4, File Number 33-12333, Post-Effective
Amendment Number 10, is hereby incorporated by reference.
(h) International Stock Segregated Sub-Account Performance
Calculations previously filed as this exhibit to Registrant's
Form N-4, File Number 33-12333, Post-Effective Amendment
Number 10, is hereby incorporated by reference.
(i) Small Company Segregated Sub-Account Performance Calculations
previously filed as this exhibit to Registrant's Form N-4,
File Number 33-12333, Post-Effective Amendment Number 10, is
hereby incorporated by reference.
(j) Value Stock Segregated Sub-Account Performance Calculations
previously filed as this exhibit to Registrant's Form N-4,
File Number 33-12333, Post-Effective Amendment Number 10, is
hereby incorporated by reference.
(k) Maturing Government Bond - 1998 Segregated Sub-Account
Performance Calculations previously filed as this exhibit to
Registrant's Form N-4, File Number 33-12333, Post-Effective
Amendment Number 10, is hereby incorporated by reference.
(l) Maturing Government Bond - 2002 Segregated Sub-Account
Performance Calculations previously filed as this exhibit to
Registrant's Form N-4, File Number 33-12333, Post-Effective
Amendment Number 10, is hereby incorporated by reference.
(m) Maturing Government Bond - 2006 Segregated Sub-Account
Performance Calculations previously filed as this exhibit to
Registrant's Form N-4, File Number 33-12333, Post-Effective
Amendment Number 10, is hereby incorporated by reference.
(n) Maturing Government Bond - 2010 Segregated Sub-Account
Performance Calculations previously filed as this exhibit to
Registrant's Form N-4, File Number 33-12333, Post-Effective
Amendment Number 10, is hereby incorporated by reference.
<PAGE>
15. Minnesota Life Insurance Company Power of Attorney To Sign
Registration Statements.
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address With Insurance Company With Registrant
- ------------------ ---------------------- ---------------------
<S> <C> <C>
Giulio Agostini Director None
3M
3M Center -
Executive 220-14W-08
St. Paul, MN 55144-1000
Anthony L. Andersen Director None
H. B. Fuller Company
2424 Territorial Road
St. Paul, MN 55114
Leslie S. Biller Director None
Wells Fargo & Company
MAC 0101-121
420 Montgomery Street
San Francisco, CA 94104
John F. Bruder Senior Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
Keith M. Campbell Senior Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
John F. Grundhofer Director None
U.S. Bancorp
601 2nd Avenue South
Suite 2900
Minneapolis, MN 55402-4302
Robert E. Hunstad Executive Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
James E. Johnson Senior Vice President None
Minnesota Life Insurance and Actuary
Company
400 Robert Street North
St. Paul, MN 55101
David S. Kidwell, Ph.D. Director None
The Curtis L. Carlson
School of Management
University of Minnesota
321 19th Avenue South
Minneapolis, MN 55455
Reatha C. King, Ph.D. Director None
General Mills Foundation
P. O. Box 1113
Minneapolis, MN 55440
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Dennis E. Prohofsky Senior Vice President, None
Minnesota Life Insurance General Counsel and
Company Secretary
400 Robert Street North
St. Paul, MN 55101
Thomas E. Rohricht Director None
Doherty, Rumble & Butler
Professional Association
2800 Minnesota World Trade
Center
30 East Seventh Street
St. Paul, MN 55101-4999
Robert L. Senkler Chairman, President and None
Minnesota Life Insurance Chief Executive Officer
Company
400 Robert Street North
St. Paul, MN 55101
Michael E. Shannon Director None
Ecolab, Inc.
370 Wabasha Street
Ecolab Center
St. Paul, MN 55102
Gregory S. Strong Senior Vice President None
Minnesota Life Insurance and Chief Financial
Company Officer
400 Robert Street North
St. Paul, MN 55101
Terrence M. Sullivan Senior Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
Randy F. Wallake Senior Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
William N. Westhoff Senior Vice President None
Minnesota Life Insurance and Treasurer
Company
400 Robert Street North
St. Paul, MN 55101
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Frederick T. Weyerhaeuser Director None
Clearwater Investment Trust
332 Minnesota Street
Suite W-2090
St. Paul, MN 55101-1308
</TABLE>
<PAGE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
Wholly-owned subsidiary of Minnesota Mutual Companies, Inc.:
Securian Holding Company (Delaware)
Wholly-owned subsidiary of Securian Holding Company:
Securian Financial Group, Inc. (Delaware)
Wholly-owned subsidiary of Securian Financial Group, Inc.
Minnesota Life Insurance Company
Wholly-owned subsidiaries of Minnesota Life Insurance Company:
Advantus Capital Management, Inc.
HomePlus Insurance Company
Northstar Life Insurance Company (New York)
The Ministers Life Insurance Company
MIMLIC Life Insurance Company (Arizona)
Robert Street Energy, Inc.
Capitol City Property Management, Inc.
Personal Finance Company (Delaware)
Enterprise Holding Corporation
Wholly-owned subsidiary of Advantus Capital Management, Inc.:
Ascend Financial Services, Inc.
Wholly-owned subsidiaries of Ascend Financial Services, Inc.:
MIMLIC Insurance Agency of Massachusetts, Inc. (Massachusetts)
MIMLIC Insurance Agency of Texas, Inc. (Texas)
Ascend Insurance Agency of Nevada, Inc. (Nevada)
Ascend Insurance Agency of Oklahoma, Inc. (Oklahoma)
Wholly-owned subsidiaries of Enterprise Holding Corporation:
Financial Ink Corporation
Oakleaf Service Corporation
Concepts in Marketing Research Corporation
Concepts in Marketing Services Corporation
Lafayette Litho, Inc.
DataPlan Securities, Inc. (Ohio)
MIMLIC Imperial Corporation
MIMLIC Funding, Inc.
MCM Funding 1997-1, Inc.
MCM Funding 1998-1, Inc.
<PAGE>
MIMLIC Venture Corporation
HomePlus Insurance Agency, Inc.
Ministers Life Resources, Inc.
Wedgewood Valley Golf, Inc.
Wholly-owned subsidiary of HomePlus Insurance Agency, Inc.:
HomePlus Insurance Agency of Texas, Inc. (Texas)
Majority-owned subsidiary of Ascend Financial Services, Inc.:
MIMLIC Insurance Agency of Ohio, Inc. (Ohio)
Open-end registered investment company offering shares solely to separate
accounts of Minnesota Life Insurance Company:
Advantus Series Fund, Inc.
Fifty percent-owned subsidiary of MIMLIC Imperial Corporation:
C.R.I. Securities, Inc.
Majority-owned subsidiaries of Minnesota Life Insurance Company:
Advantus Enterprise Fund, Inc.
Advantus International Balanced Fund, Inc.
Advantus Venture Fund, Inc.
Advantus Real Estate Securities Fund, Inc.
Less than majority owned, but greater than 25% owned, subsidiaries of Minnesota
Life Insurance Company:
Advantus Money Market Fund, Inc.
MIMLIC Cash Fund, Inc.
Advantus Cornerstone Fund, Inc.
Advantus Index 500 Fund, Inc.
Less than 25% owned subsidiaries of Minnesota Life Insurance Company:
Advantus Horizon Fund, Inc.
Advantus Spectrum Fund, Inc.
Advantus Mortgage Securities Fund, Inc.
Advantus Bond Fund, Inc.
Unless indicated otherwise parenthetically, each of the above corporations is a
Minnesota corporation.
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 25, 1999, the number of holders of securities of the Registrant
were as follows:
<TABLE>
<CAPTION>
Number of Record
Title of Class Holders
-------------- ----------------
<S> <C>
Variable Annuity Contracts 1,528
</TABLE>
ITEM 28. INDEMNIFICATION
The statement with respect to indemnification. Previously filed.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) The principal underwriter is Ascend Financial Services, Inc.
Ascend Financial Services, Inc. also is the principal
underwriter for twelve mutual funds (Advantus Horizon Fund,
Inc.; Advantus Spectrum Fund, Inc.; Advantus Money Market Fund,
Inc.; Advantus Mortgage Securities Fund, Inc.; Advantus Bond
Fund, Inc.; Advantus Cornerstone Fund, Inc.; Advantus
Enterprise Fund, Inc.; Advantus International Balanced Fund,
Inc.; Advantus Venture Fund, Inc.; Advantus Index 500 Fund,
Inc.; Advantus Real Estate Securities Fund, Inc.; and the MIMLIC
Cash Fund, Inc.) and for four additional registered separate
accounts of Minnesota Life Insurance Company, all of which offer
annual contracts and life insurance policies on a variable basis.
<PAGE>
(b) Directors and Officers of Underwriter.
DIRECTORS AND OFFICERS OF UNDERWRITER
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
NAME AND PRINCIPAL OFFICES OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- ------------------ ---------------- ---------------
<S> <C> <C>
Robert E. Hunstad Director None
Minnesota Life
Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101
George I. Connolly President, Chief None
Ascend Financial Services, Inc. Executive Officer, Chief
400 Robert Street North Compliance Officer and
St. Paul, Minnesota 55101 Director
Margaret Milosevich Vice President, Chief Assistant Secretary
Ascend Financial Services, Inc. Operations Officer,
400 Robert Street North Treasurer and Secretary
St. Paul, Minnesota 55101
Dennis E. Prohofsky Director None
Minnesota Life
Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101
Thomas L. Clark Assistant Treasurer Assistant Secretary
Ascend Financial Services, Inc. and Assistant Secretary
400 Robert Street North
St. Paul, Minnesota 55101
</TABLE>
(c) All commissions and other compensation received by each principal
underwriter, directly or indirectly, from the Registrant during
the Registrant's last fiscal year:
<TABLE>
<CAPTION>
NAME OF NET UNDERWRITING COMPENSATION ON
PRINCIPAL DISCOUNTS AND REDEMPTION OR BROKERAGE OTHER
UNDERWRITER COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION
- ----------- ---------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Ascend Financial Services, Inc. $15,989,724
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules promulgated thereunder are in the
physical possession of Minnesota Life Insurance Company, St. Paul, Minnesota
55101-2098.
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
<PAGE>
(a) Previously filed.
(b) Previously filed.
(c) Previously filed.
(d) Minnesota Life Insurance Company hereby represents that, as to the
variable annuity contract which is the subject of this Registration
Statement, File, No. 33-12333, the fees and charges deducted under
the contract, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred and the risks
assumed by Minnesota Life Insurance Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the Registrant
certifies that it meets the requirements of Securities Rule 485(b) for
effectiveness of this Amendment to the Registration Statement and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of St. Paul and the State of
Minnesota on the 30th day of April, 1999.
VARIABLE ANNUITY ACCOUNT
(Registrant)
By: MINNESOTA LIFE INSURANCE COMPANY
(Depositor)
By__________________________________
Robert L. Senkler
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Depositor,
Minnesota Life Insurance Company, has duly caused this Post-Effective Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Saint Paul, and State of Minnesota, on
the 30th day of April, 1999.
MINNESOTA LIFE INSURANCE COMPANY
By__________________________________
Robert L. Senkler
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in their capacities
with the Depositor and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman, President and April 30, 1999
Robert L. Senkler Chief Executive Officer
* Director
- ----------------------------
Giulio Agostini
* Director
- ----------------------------
Anthony L. Andersen
* Director
- ----------------------------
Leslie S. Biller
* Director
- ----------------------------
John F. Grundhofer
* Director
- ----------------------------
David S. Kidwell, Ph.D.
* Director
- ----------------------------
Reatha C. King, Ph.D.
* Director
- ----------------------------
Thomas E. Rohricht
* Director
- ----------------------------
Michael E. Shannon
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Director
- ----------------------------
Frederick T. Weyerhaeuser
Senior Vice President April 30, 1999
- ---------------------------- (chief financial officer)
Gregory S. Strong
Senior Vice President April 30, 1999
- ---------------------------- (chief accounting officer)
Gregory S. Strong
Attorney-in-Fact April 30, 1999
- ----------------------------
Dennis E. Prohofsky
</TABLE>
* Pursuant to power of attorney dated April 12, 1999, a copy of which is filed
herewith.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
- -------------- ----------------------
<S> <C>
9. Opinion and consent of Donald F. Gruber, Esq.
10. Consent of KPMG Peat Marwick LLP
15. Minnesota Life Insurance Company Power of Attorney To Sign Registration Statements.
</TABLE>
<PAGE>
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101-2098
Tel: 651.665.3500
April 30, 1999
MINNESOTA LIFE
A Minnesota Mutual Company
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101-2098
Gentlepersons:
In my capacity as counsel for the Minnesota Life Insurance Company (the
"Company"), I have reviewed certain legal matters relating to the Company's
Separate Account entitled Variable Annuity Account (the "Account") in
connection with Post-Effective Amendment Number 13 to its Registration
Statement on Form N-4. This Post-Effective Amendment is to be filed by the
Company and the Account with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, with respect to certain variable annuity
contracts (Securities and Exchange Commission File Number 33-12333).
Based upon that review, I am of the following opinion:
1. The Account is a separate account of the Company duly created and
validly existing pursuant to the laws of the State of Minnesota; and
2. The issuance and sale of the variable annuity contracts funded by
the Account have been duly authorized by the Company and such
contracts, when issued in accordance with and as described in the
current Prospectus contained in the Registration Statement, and
upon compliance with applicable local and federal laws, will be
legal and binding obligations of the Company in accordance with
their terms.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Sincerely,
Donald F. Gruber
Assistant General Counsel
<PAGE>
[KPMG Peat Marwick LLP Letterhead]
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Minnesota Life Insurance Company and
Contract Owners of Variable Annuity Account:
We consent to the use of our report included herein and to the references to
our Firm under the headings "AUDITORS" for Part B of the Registration
Statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 30, 1999
<PAGE>
Minnesota Life Insurance Company
Power of Attorney
To Sign Registration Statements
WHEREAS, Minnesota Life Insurance Company ("Minnesota Life") has
established certain separate accounts to fund certain variable annuity and
variable life insurance contracts, and
WHEREAS, Variable Fund D ("Fund D") is a separate account of Minnesota
Life registered as a unit investment trust under the Investment Company Act of
1940 offering variable annuity contracts registered under the Securities Act of
1933, and
WHEREAS, Variable Annuity Account ("Variable Annuity Account") is a
separate account of Minnesota Life registered as a unit investment trust under
the Investment Company Act of 1940 offering variable annuity contracts
registered under the Securities Act of 1933, and
WHEREAS, Minnesota Life Variable Life Account ("Variable Life Account")
is a separate account of Minnesota Life registered as a unit investment trust
under the Investment Company Act of 1940 offering variable adjustable life
insurance policies registered under the Securities Act of 1933,
WHEREAS, Group Variable Annuity Account ("Group Variable Annuity
Account") is a separate account of Minnesota Life which has been established for
the purpose of issuing group annuity contracts on a variable basis and which is
to be registered as a unit investment trust under the Investment Company Act of
1940 offering group variable annuity contracts and certificates to be registered
under the Securities Act of 1933;
WHEREAS, Minnesota Life Variable Universal Life Account ("Variable
Universal Life Account") is a separate account of Minnesota Life which has been
established for the purpose of issuing group and individual variable universal
life insurance policies on a variable basis and which is to be registered as a
unit investment trust under the Investment Company Act of 1940 offering group
and individual variable universal life insurance policies to be registered under
the Securities Act of 1933;
NOW THEREFORE, We, the undersigned Trustees and Officers of Minnesota
Life, do hereby appoint Dennis E. Prohofsky and Garold M. Felland, and each of
them individually, as attorney in fact for the purpose of signing in their names
and on their behalf as Trustees of Minnesota Life and filing with the Securities
and Exchange Commission Registration Statements, or any amendment thereto, for
the purpose of: a) registering contracts and policies of Fund D, the Variable
Annuity Account, the Variable Life Account, the Group Variable Annuity Account
and the Variable Universal Life Account for sale by those entities and Minnesota
Life under the Securities Act of 1933; and b) registering Fund D, the Variable
Annuity Account, the Variable Life Account, the Group Variable Annuity Account
and the Variable Universal Life Account as unit investment trusts under the
Investment Company Act of 1940.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Robert L. Senkler Chairman of the Board, April 12, 1999
- ------------------------------- President and Chief
Robert L. Senkler Executive Officer
/s/Guilio Agostini Director April 12, 1999
- -------------------------------
Guilio Agostini
/s/Anthony L. Andersen Director April 12, 1999
- -------------------------------
Anthony L. Andersen
/s/Leslie S. Biller Director April 12, 1999
- -------------------------------
Leslie S. Biller
/s/John F. Grundhofer Director April 12, 1999
- -------------------------------
John F. Grundhofer
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/David S. Kidwell, Ph.D. Director April 12, 1999
- -------------------------------
David S. Kidwell, Ph.D.
/s/Reatha C. King, Ph.D. Director April 12, 1999
- -------------------------------
Reatha C. King, Ph.D.
/s/Thomas E. Rohricht Director April 12, 1999
- -------------------------------
Thomas E. Rohricht
/s/Michael E. Shannon Director April 12, 1999
- -------------------------------
Michael E. Shannon
Director
- -------------------------------
Frederick T. Weyerhaeuser
</TABLE>
