<PAGE>
File Number 2-97564
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 17
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment Number X 16
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VARIABLE ANNUITY ACCOUNT
(formerly Minnesota Mutual 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)
Dennis E. Prohofsky Copy to:
Senior Vice President, J. Sumner Jones, Esq.
General Counsel and Secretary Jones & Blouch L.L.P.
Minnesota Life Insurance Company 1025 Thomas Jefferson St., N.W.
400 Robert Street North Suite 405 West
St. Paul, Minnesota 55101-2098 Washington, D.C. 20007
(Name and Address of Agent for Service)
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (check appropriate box)
immediately upon filing pursuant to paragraph (b)
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X on May 3, 1999 pursuant to paragraph (b) of Rule 485
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60 days after filing pursuant to paragraph (a)(i)
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on (date) pursuant to paragraph (a)(i)
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75 days after filing pursuant to paragraph (a)(ii)
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on (date) pursuant to paragraph (a)(ii) of Rule 485.
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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
<PAGE>
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
5. General Descriptions
6. Contract Charges
7. Description of the Contracts
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>
VARIABLE ANNUITY CONTRACT PROSPECTUS
FLEXIBLE PAYMENT VARIABLE ANNUITY CONTRACT
SINGLE PAYMENT VARIABLE ANNUITY CONTRACT OF MINNESOTA LIFE'S VARIABLE ANNUITY
ACCOUNT
COMBINATION FIXED AND VARIABLE ANNUITY CONTRACTS FOR PERSONAL RETIREMENT PLANS
MINNESOTA LIFE INSURANCE COMPANY
("MINNESOTA LIFE")
400 Robert Street North
St. Paul, Minnesota 55101-2098
Ph 651/665-3500
http://www.minnesotamutual.com
This Prospectus describes individual, single and flexible payment, variable
annuity contracts (the "Contract(s)") offered by Minnesota Life Insurance
Company. The contracts may be used in connection with all types of personal
retirement plans. They may also be used apart from those plans.
Your Contract values are invested in our Variable Annuity Account. The Variable
Annuity Account invests in shares of the Advantus Series Fund, Inc. and Class 2
of the Templeton Developing Markets Fund, 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 amounts you allocate to those
Portfolios.
This Prospectus sets forth concisely the information that a prospective investor
should know before investing in the Variable Annuity Account. Read it and keep
it for future reference. A Statement of Additional Information with the same
date contains further contract information. It has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
Prospectus. A copy of the Statement of Additional Information may be obtained
without charge by calling (651) 665-3500, or by writing to us 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 document and 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, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON.
TABLE OF CONTENTS
SPECIAL TERMS 1
QUESTIONS AND ANSWERS ABOUT THE VARIABLE ANNUITY CONTRACTS 2
EXPENSE TABLE 5
GENERAL DESCRIPTIONS 11
Minnesota Life Insurance Company 11
Variable Annuity Account 11
The Funds 11
Additions, Deletions or Substitutions 12
CONTRACT CHARGES 13
Sales Charges 13
Mortality and Expense Risk Charges 15
EXCHANGE OFFER 15
VOTING RIGHTS 16
DESCRIPTION OF THE CONTRACTS 17
General Provisions 17
Annuity Payments and Options 19
Death Benefits 25
Purchase Payments and Value of the Contract 26
Redemptions 29
FEDERAL TAX STATUS 31
PERFORMANCE DATA 37
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM 37
YEAR 2000 COMPUTER PROBLEM 37
STATEMENT OF ADDITIONAL INFORMATION 38
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: the sum of your values under a contract in the General
Account and in the Variable Annuity Account.
ANNUITANT: the person who may receive lifetime benefits under the contract.
ANNUITY: a series of payments for life; for life with a minimum number of
payments guaranteed; for the joint lifetime of the annuitant and another person
and thereafter during the lifetime of the survivor; or for a period certain.
ANNUITY UNIT: an accounting device used to determine the amount of annuity
payments.
CODE: the Internal Revenue Code of 1986, as amended.
CONTRACT OWNER: the owner of the contract, which could be the annuitant, his
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 whose separate investment portfolio, we have designated
as an eligible investment for the Variable Annuity Account, namely, Advantus
Series Fund, Inc. ("Advantus Fund") and its Portfolios and Class 2 of the
Templeton Developing Markets Fund ("Templeton Fund").
GENERAL ACCOUNT: all of our assets other than those in the Variable Annuity
Account or in other separate accounts established by us.
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 (formerly "The Minnesota Mutual
Life Insurance Company").
YOU, YOUR: the Contract Owner.
PAGE 1
<PAGE>
QUESTIONS AND ANSWERS ABOUT
THE VARIABLE ANNUITY CONTRACTS
WHAT IS AN ANNUITY?
An annuity is a series of payments for life; for life with a minimum number of
payments guaranteed; for the joint lifetime of the annuitant and another person
and thereafter during the lifetime of the survivor; or for a period certain. An
annuity with payments which are guaranteed as to amount during the payment
period is a fixed annuity. An annuity with payments which vary during the
payment period in accordance with the investment experience of a separate
account is called a variable annuity.
WHAT ARE THE CONTRACTS OFFERED BY THIS PROSPECTUS?
The contracts are combined fixed and variable annuity contracts issued by us
which provide for monthly annuity payments. These payments may begin immediately
or at a future date you specify. We allocate your purchase payments either to
our General Account or Variable Annuity Account, as you specify. In the General
Account, your purchase payments receive interest and principal guarantees. In
the Variable Annuity Account, your purchase payments are invested in each Fund.
There are no interest or principal guarantees on your contract values.
WHAT TYPES OF VARIABLE ANNUITY CONTRACTS ARE AVAILABLE?
We offer two types of contracts. They are the single payment variable annuity
contract and the flexible payment variable annuity contract.
WHAT INVESTMENT OPTIONS ARE AVAILABLE FOR THE VARIABLE ANNUITY ACCOUNT?
Purchase payments allocated to the Variable Annuity Account are invested
exclusively in shares of one or more Fund Portfolios. We reserve the right to
add, combine or remove other eligible funds.
PAGE 2
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The available Portfolios of the Advantus 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 the Fund's prospectus before investing 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 from
one Portfolio to another or among the Portfolios. 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 1.25% for mortality and
expense risk guarantees. We reserve the right to increase the charge to not more
than 1.40%.
For more information on charges, see the heading "Contract Charges" in this
Prospectus. The deferred sales charge is discussed below.
PAGE 3
<PAGE>
We deduct a deferred sales charge on contract withdrawals, surrenders and some
annuity elections during the first ten contract years for expenses relating to
the sale of the contracts. The amount of any deferred sales charge is deducted
from the accumulation value.
Under the flexible payment variable annuity contract, the amount of deferred
sales charge, as a percentage of the amount surrendered, withdrawn or applied to
provide an annuity, decreases uniformly during the first ten contract years from
an initial charge of 9% to no charge after ten contract years.
Under the single payment variable annuity contract, the amount of the deferred
sales charge, as a percentage of the amount surrendered, withdrawn or applied to
provide an annuity, decreases uniformly during the first ten contract years from
an initial charge of 6% to no charge after ten contract years.
The deferred sales charge is not applicable to some partial withdrawals from the
contracts. Also, there is no deferred sales charge on amounts paid in the event
of the death of the owner and the accumulation value is applied to provide
annuity payments under an option where benefits are expected to continue for a
period of at least five years. In addition, a deferred sales charge may apply.
We may also deduct any applicable premium taxes (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.
The Expense Tables that follow provide detailed cost and expense information.
PAGE 4
<PAGE>
EXPENSE TABLE
The tables shown below are to assist a contract owner in understanding the costs
and expenses that a contract will bear directly or indirectly. The table does
not reflect deductions for any applicable premium taxes which may be made from
each purchase payment depending upon the applicable law. Surrender amounts in
years shown reflect the contract owner's ability to withdraw an amount equal to
ten percent of the accumulation value at the end of the previous calendar year
without the imposition of the deferred sales charge. The tables show the
expenses of each portfolio of Advantus Series Fund, Inc. after expense
reimbursement.
The following contract expense information is intended to illustrate the
expenses of the MultiOption Annuity variable annuity contracts. 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.
SINGLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Deferred Sales Load (as a percentage of 6% decreasing uniformly by .05% for
amount surrendered) each of the first 120 months from the
contract date
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<TABLE>
<S> <C>
Mortality and Expense Risk Fees 1.25%
----
Total Separate Account Annual Expenses 1.25%
----
----
</TABLE>
FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Deferred Sales Load (as a percentage of 9% decreasing uniformly by .075% for
amount surrendered) each of the first 120 months from the
contract date
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<TABLE>
<S> <C>
Mortality and Expense Risk Fees 1.25%
----
Total Separate Account Annual Expenses 1.25%
----
----
</TABLE>
PAGE 5
<PAGE>
FUND ANNUAL EXPENSES
(As a percentage of average net assets for the described Advantus Series Fund,
Inc. Portfolios and the Templeton Developing Markets Fund).
<TABLE>
<CAPTION>
OTHER TOTAL FUND
INVESTMENT EXPENSES ANNUAL EXPENSES
MANAGEMENT (AFTER EXPENSE DISTRIBUTION (AFTER EXPENSE
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. The Rule 12b-1 Plan allows for an
annual fee equal to .25% of average daily net assets of the Developing Markets
Fund Class 2. This fee is included in other expenses.
PAGE 6
<PAGE>
CONTRACT OWNER EXPENSE EXAMPLE
SINGLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
IF YOU ANNUITIZE AT THE END
IF YOU SURRENDERED YOUR OF THE APPLICABLE TIME PERIOD
CONTRACT AT THE END OF THE OR YOU DO NOT
APPLICABLE TIME PERIOD SURRENDER YOUR CONTRACT*
-------------------------------- -------------------------------
1 3 5 10 1 3 5 10
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
----- ------ ------ ------ ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Portfolio................. $ 68 $ 98 $ 128 $ 209 $ 18 $ 56 $ 96 $ 209
Bond Portfolio................... $ 68 $ 98 $ 129 $ 212 $ 18 $ 57 $ 97 $ 212
Money Market Portfolio........... $ 69 $ 99 $ 131 $ 215 $ 19 $ 58 $ 99 $ 215
Asset Allocation Portfolio....... $ 68 $ 98 $ 128 $ 209 $ 18 $ 56 $ 96 $ 209
Mortgage Securities Portfolio.... $ 69 $ 99 $ 130 $ 214 $ 18 $ 57 $ 99 $ 214
Index 500 Portfolio.............. $ 67 $ 95 $ 124 $ 200 $ 17 $ 53 $ 92 $ 200
Capital Appreciation Portfolio... $ 71 $ 105 $ 141 $ 236 $ 21 $ 64 $ 109 $ 236
International Stock Portfolio.... $ 72 $ 110 $ 148 $ 252 $ 22 $ 69 $ 117 $ 252
Small Company Growth Portfolio... $ 71 $ 105 $ 141 $ 237 $ 21 $ 64 $ 110 $ 237
Maturing Government Bond 2002
Portfolio....................... $ 67 $ 94 $ 122 $ 195 $ 17 $ 52 $ 90 $ 195
Maturing Government Bond 2006
Portfolio....................... $ 67 $ 94 $ 122 $ 195 $ 17 $ 52 $ 90 $ 195
Maturing Government Bond 2010
Portfolio....................... $ 67 $ 94 $ 122 $ 195 $ 17 $ 52 $ 90 $ 195
Value Stock Portfolio............ $ 71 $ 105 $ 141 $ 237 $ 21 $ 64 $ 110 $ 237
Small Company Value Portfolio.... $ 72 $ 108 $ 146 $ 248 $ 22 $ 67 $ 115 $ 248
Global Bond Portfolio............ $ 74 $ 115 $ 158 $ 272 $ 24 $ 74 $ 127 $ 272
Index 400 Mid-Cap Portfolio...... $ 68 $ 98 $ 129 $ 212 $ 18 $ 57 $ 97 $ 212
Macro-Cap Value Portfolio........ $ 71 $ 107 $ 144 $ 243 $ 21 $ 66 $ 113 $ 243
Micro-Cap Growth Portfolio....... $ 75 $ 119 $ 164 $ 284 $ 25 $ 78 $ 133 $ 284
Real Estate Securities
Portfolio....................... $ 72 $ 108 $ 145 $ 244 $ 22 $ 67 $ 114 $ 244
Templeton Developing Markets
Portfolio....................... $ 81 $ 137 $ 195 $ 347 $ 32 $ 97 $ 165 $ 347
</TABLE>
This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or lesser.
PAGE 7
<PAGE>
CONTRACT OWNER EXPENSE EXAMPLE
FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
IF YOU ANNUITIZE AT THE END
IF YOU SURRENDERED YOUR OF THE APPLICABLE TIME PERIOD
CONTRACT AT THE END OF THE OR YOU DO NOT
APPLICABLE TIME PERIOD SURRENDER YOUR CONTRACT*
--------------------------------- -------------------------------
3 5 10 1 3 5 10
1 YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
------ ------ ------ ------ ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Portfolio................. $ 93 $ 118 $ 144 $ 209 $ 18 $ 56 $ 96 $ 209
Bond Portfolio................... $ 94 $ 119 $ 145 $ 212 $ 18 $ 57 $ 97 $ 212
Money Market Portfolio........... $ 94 $ 120 $ 146 $ 215 $ 19 $ 58 $ 99 $ 215
Asset Allocation Portfolio....... $ 93 $ 118 $ 144 $ 209 $ 18 $ 56 $ 96 $ 209
Mortgage Securities Portfolio.... $ 94 $ 120 $ 146 $ 214 $ 18 $ 57 $ 99 $ 214
Index 500 Portfolio.............. $ 92 $ 116 $ 139 $ 200 $ 17 $ 53 $ 92 $ 200
Capital Appreciation Portfolio... $ 96 $ 126 $ 156 $ 236 $ 21 $ 64 $ 109 $ 236
International Stock Portfolio.... $ 97 $ 130 $ 164 $ 252 $ 22 $ 69 $ 117 $ 252
Small Company Growth Portfolio... $ 96 $ 126 $ 157 $ 237 $ 21 $ 64 $ 110 $ 237
Maturing Government Bond 2002
Portfolio....................... $ 92 $ 115 $ 137 $ 195 $ 17 $ 52 $ 90 $ 195
Maturing Government Bond 2006
Portfolio....................... $ 92 $ 115 $ 137 $ 195 $ 17 $ 52 $ 90 $ 195
Maturing Government Bond 2010
Portfolio....................... $ 92 $ 115 $ 137 $ 195 $ 17 $ 52 $ 90 $ 195
Value Stock Portfolio............ $ 96 $ 126 $ 157 $ 237 $ 21 $ 64 $ 110 $ 237
Small Company Value Portfolio.... $ 97 $ 129 $ 162 $ 248 $ 22 $ 67 $ 115 $ 248
Global Bond Portfolio............ $ 99 $ 136 $ 173 $ 272 $ 24 $ 74 $ 127 $ 272
Index 400 Mid-Cap Portfolio...... $ 94 $ 119 $ 145 $ 212 $ 18 $ 57 $ 97 $ 212
Macro-Cap Value Portfolio........ $ 96 $ 128 $ 160 $ 243 $ 21 $ 66 $ 113 $ 243
Micro-Cap Growth Portfolio....... $ 100 $ 139 $ 179 $ 284 $ 25 $ 78 $ 133 $ 284
Real Estate Securities
Portfolio....................... $ 96 $ 128 $ 160 $ 244 $ 22 $ 67 $ 114 $ 244
Templeton Developing Markets
Portfolio....................... $ 106 $ 157 $ 210 $ 347 $ 32 $ 97 $ 165 $ 347
</TABLE>
*Annuitize for this purpose means the election of an Annuity Option under which
benefits are expected to continue for at least 5 years.
The examples contained in the table should not be considered a representation of
past or future expenses. Actual expenses may be greater or less than those
shown.
CONDENSED FINANCIAL INFORMATION AND FINANCIAL STATEMENTS
The financial history of each sub-account may be found in the Appendix under the
heading "Condensed Financial Information." The complete financial statements of
the Variable Annuity Account and Minnesota Life are included in the Statement of
Additional Information.
PAGE 8
<PAGE>
CAN YOU MAKE PARTIAL WITHDRAWALS FROM THE CONTRACT?
Yes. You may make withdrawals of the accumulation value of your contract before
an annuity begins. Your request for a partial withdrawal must be in writing.
Partial withdrawals are generally subject to the deferred sales charge. However,
if withdrawals during the first calendar year are equal to or less than 10% of
the purchase payments made during the first year and, if in subsequent calendar
years they are equal to or less than 10% of the accumulation value at the end of
the previous calendar year, the deferred sales charge will not apply to those
partial withdrawals. The deferred sales charge described above will apply to all
withdrawal amounts which exceed 10% of that accumulation value in any calendar
year. In addition, a penalty tax on the amount of the taxable distribution may
be assessed upon withdrawals from variable 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 your receipt of the
contract by returning it to us or your agent. In some states, the free look
period may be extended. In California, the free look period is extended to 30
days' time. These rights are subject to change and may vary among the states.
IS THERE A GUARANTEED DEATH BENEFIT?
Yes. The single payment variable annuity 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 during the first
year as consideration for this contract, less all contract withdrawals.
We will always use this method for all contracts offered by this Prospectus. The
total purchase payment amount will include all contributions, even those made
after 12 months, to determine the death benefit.
WHAT ANNUITY OPTIONS ARE AVAILABLE?
The annuity options available are:
- a life annuity;
- a life annuity with a period certain of 120 months, 180 months or 240
months;
- a joint and last survivor annuity; and
- a period certain annuity.
PAGE 9
<PAGE>
Each annuity option may be elected as a variable annuity or a fixed annuity or a
combination of the two. Other annuity options may be available from us on
request.
WHAT IF THE OWNER DIES?
If you die before payments begin, we will pay the contract accumulation value
contract to the beneficiary. If the annuitant dies after annuity payments have
begun, we will pay whatever death benefit may be called for by the annuity
option selected.
If the owner of this contract is other than a natural person, such as a trust,
we will pay a death benefit of the accumulation value to the named beneficiary
on the death of the annuitant if death occurs before annuity payments begin.
WHAT VOTING RIGHTS DO YOU HAVE?
Contract owners and annuitants will be able to direct us as to how to vote
shares of the Funds held for their contracts where shareholder approval is
required by law in the affairs of the Funds.
PAGE 10
<PAGE>
(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 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 a 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.
C. THE FUNDS
Advantus Fund is a mutual fund advised by Advantus Capital Management, Inc.
("Advantus Capital"). Advantus Fund issues its shares only to use in our
separate account. It may offer shares to separate accounts of insurance
companies affiliated with us in the future.
Advantus Capital is a wholly-owned subsidiary of Minnesota Life.
PAGE 11
<PAGE>
(SIDEBAR)
We may change the Portfolios offered under the contract.
(END SIDEBAR)
Advantus Capital has retained investment sub-advisers to manage the investments
of certain Portfolios of Advantus 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 diversified portfolio of Templeton Variable Products
Series Fund. The investment adviser of Templeton Developing Markets Fund is
Templeton Asset Management Ltd.
Prospectuses for Advantus 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 for 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 Fund.
Sub-accounts may be established when, in our sole discretion, marketing, tax,
investment or other conditions warrant such action. 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.
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
PAGE 12
<PAGE>
(SIDEBAR)
A deferred sales charge may apply.
(END SIDEBAR)
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. SALES CHARGES
No sales charge is deducted from the purchase payment made for this contract.
However, when a contract's accumulation value is reduced by a withdrawal,
surrender or applied to provide an annuity, a deferred sales charge may be
deducted. This is for expenses relating to the sale of the contracts.
No deferred sales charge is deducted from the accumulation value withdrawn if:
- the withdrawal occurs after a contract has been in force for at least ten
contract years,
- withdrawals during the first calendar year are equal to or less than 10%
of the purchase payments and, if in subsequent calendar years they are
equal to or less than 10% of the accumulation value at the end of the
previous calendar year,
- the withdrawal is on account of the annuitant's death, or
- the withdrawal is for the purpose of providing annuity payments under an
option where payments are expected to continue for at least five years.
If withdrawals in a calendar year exceed 10% of those purchase payments or
accumulation value, the sales charge applies to the amount of the excess
withdrawal. We will waive the sales charge on that portion of a contract's
accumulation value which is applied to the purchase of our Adjustable Income
Annuity, which is an immediate variable annuity contract. We will also waive the
sales charge on amounts withdrawn because of an excess contribution to a tax-
qualified contract for example, an IRA or a tax-sheltered annuity.
PAGE 13
<PAGE>
(SIDEBAR)
We pay broker-dealers to sell the contracts.
(END SIDEBAR)
The sales charge is deducted from the remaining accumulation value of the
contract except in the case of a surrender, where it reduces the amount paid to
you. We will deduct the sales charge proportionally from the fixed and variable
accumulation value of the contract.
The amount of the deferred sales charge, shown as a percentage of the
accumulation value withdrawn, follows. Percentages are shown as of the contract
date and the end of each of the first ten contract years. The percentages
decrease uniformly each month for 120 months from the contract date.
<TABLE>
<CAPTION>
DEFERRED SALES CHARGE
-----------------------------------
FLEXIBLE PAYMENT SINGLE PAYMENT
BEGINNING OF VARIABLE ANNUITY VARIABLE ANNUITY
CONTRACT YEAR CONTRACT CONTRACT
- ------------- ---------------- ----------------
<S> <C> <C>
1 9.0% 6.0%
2 8.1 5.4
3 7.2 4.8
4 6.3 4.2
5 5.4 3.6
6 4.5 3.0
7 3.6 2.4
8 2.7 1.8
9 1.8 1.2
10 0.9 0.6
11 0 0
</TABLE>
Deduction for any applicable state premium taxes may be made from each purchase
payment or at the commencement of annuity payments. (Currently, such taxes range
from 0.5% to 3.5%, depending on the applicable law.) An amount withdrawn from
the contract may be reduced by any premium taxes not previously deducted.
As a percentage of purchase payments paid to the contracts, Ascend Financial
Services, Inc. ("Ascend Financial"), the principal underwriter, may pay up to
4.5% of the amount of those purchase payments to broker-dealers responsible for
the sales of the contracts. In addition, Ascend Financial or we will pay, based
uniformly on the sale of variable annuity contracts by broker-dealers, credits
which allow registered representatives responsible for sales of variable annuity
contracts to attend conventions and other meetings sponsored by us or our
affiliates for the purpose of promoting the sale of the insurance and/or
investment products that we offer. Credits may cover things such as the
registered representatives' transportation, hotel accommodations, meals, and
registration fees. We may also pay those registered representatives amounts
based upon their production and the persistency of life insurance and annuity
business placed with us.
PAGE 14
<PAGE>
(SIDEBAR)
The mortality and expense risk charge is 1.25%. We may increase it to 1.40%.
(END SIDEBAR)
B. MORTALITY AND EXPENSE RISK CHARGES
We assume the mortality risk under the contracts by our obligation to continue
to make monthly annuity payments, in accordance with the annuity rate tables and
other provisions in the contracts, regardless of how long that annuitant lives
or all annuitants live. This assures an annuitant that neither the annuitant's
own longevity nor an improvement in life expectancy generally will have an
adverse effect on the monthly annuity payments received under the contract.
Our expense risk is the risk that claims under the contracts will be inadequate
to cover our expenses.
For assuming these risks, we currently make a deduction from the Variable
Annuity Account at the annual rate of 1.25%. We reserve the right to increase
the charge to not more than 1.40%.
If these deductions are insufficient to cover our actual costs, then we will
absorb the resulting losses. If the deductions prove to be more than sufficient
after the establishment of any contingency reserves deemed prudent or as
required by law, any excess will be profit (or "retained earnings") to us. Some
or all of such profit may be used to cover any distributions costs not recovered
through the deferred sales charge.
C. PORTFOLIO CHARGES
Each of the portfolios pays investment advisory and other expenses. A full
discussion of these charges may be found in the attached prospectuses for the
Portfolios.
EXCHANGE OFFER
Persons owning or having an interest in certain of our fixed and variable
annuities may exchange them for the contract and transfer current accumulation
values into them.
Contract which can be exchanged are: individual fixed annuities issued by us and
The Ministers Life Insurance Company, except SPDA 3 and SecureOption III;
participants under our group annuities offering fixed benefits in situations
other than where the contract is issued in connection with a tax-qualified stock
bonus, pension or profit sharing plan and variable annuity contracts issued by
our Variable Fund D with a contingent deferred sales charge.
If you own a combination fixed and variable annuity contract, where any general
account assets are beyond a withdrawal charge period you may also be eligible
for a contract exchange. For these contracts, you cannot change allocations as
between fixed and variable accumulations at the time of the exchange. In
addition, for contracts with interests in our Variable Fund D, other than those
with a contingent deferred sales load, the contract or your participation in it
must be of at least ten year's duration. No charge is made on this transfer.
PAGE 15
<PAGE>
(SIDEBAR)
You can instruct us how to vote Fund shares.
(END SIDEBAR)
For contracts described in this Prospectus, where the contract type is to be
exchanged, as from a single payment contract to a flexible payment contract, we
will allow that exchange only during the original contract's first contract year
and if there have been no transfers or withdrawals. Also, for contracts
described in this Prospectus, we will allow exchanges of qualified plan types
which are essentially changes of plan type as, for example, when a person wishes
to convert an existing IRA into a Roth IRA. In some circumstances where
contracts are being exchanged we may charge $50 to cover administrative expense.
For exchanges from an annuity where a sales charge is deducted from each
purchase payment, accumulation values credited to a contract at the time of
transfer will not be subject to a deferred sales charge at any time. However,
purchase payments made later to the contract may be subject to a deferred sales
charge if those amounts are then withdrawn, surrendered or applied to provide an
annuity. The deferred sales charge will be applied so that the contract year of
the contract will be the same as the prior annuity.
For exchanges from annuities where a deferred sales charge may be made on
withdrawals, surrenders or when amounts are applied to provide an annuity, no
deferred sales charge will be made at the time of transfer. However, a deferred
sales charge may be deducted from the accumulation value of the contract on such
a basis so that the contract year of the contract will be determined as of the
contract date of the annuity from which the accumulation value was transferred
or, if transfer is of participation in a group annuity, from the first day of
the month in which contributions were first received from the individual under
the group annuity contract on behalf of that individual.
In thinking about an exchange, you should review the contract you now own and
the contracts described in the Prospectus. To make an exchange, your completed
application, Annuity Exchange Authorization and existing annuity contract should
be returned to us.
VOTING RIGHTS
We will vote Fund shares held in the Variable Annuity 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 may be allowed to vote shares in our own right,
then we may elect to do so.
PAGE 16
<PAGE>
(SIDEBAR)
The contract is a flexible payment variable annuity. It is also available as a
single payment contract.
We issue the contract to you and you select the annuitant.
(END SIDEBAR)
During the accumulation period you hold the voting interest in each contract.
The number of votes is reached by dividing the accumulation value of the
contract attributable to each sub-account by the net asset value per share of
the Fund shares held by that sub-account.
During the annuity period the annuitant holds the voting interest in each
contract. The number of votes is reached by dividing the reserve for each
contract allocated to each sub-account by the net asset value per share of the
Fund shares held by that sub-account. After an annuity begins, the votes for
contract will decrease as the reserves decrease. In determining any voting
interest, we count fractional shares.
We will notify you or the annuitant of a Fund shareholders' meeting if the
contract has shares to vote. We will also send proxy materials and a form of
instruction so that you can instruct us about voting.
DESCRIPTION OF THE CONTRACTS
A. GENERAL PROVISIONS
1. Types of Contracts Offered
(a) Single Payment Variable Annuity Contract
This type of contract may be used in connection with a pension or
profit-sharing plan under which plan contributions have been
accumulating. It may be used in connection with a plan which has
previously been funded with insurance or annuity contracts. It may be
used under state deferred compensation plans or individual retirement
annuity programs. It may also be purchased by individuals not as a part
of any qualified plan. The contract provides for a fixed or variable
annuity to begin at some future date with the purchase payment made
either in a lump sum or in a series of payments in a single contract
year.
(b) Flexible Payment Variable Annuity Contract
This type of contract may be used in connection with all types of plans,
state deferred compensation plans or individual retirement annuities
adopted by or on behalf of individuals. It may also be purchased by
individuals not as a part of any plan. The contract provides for a
variable annuity or a fixed annuity to begin at some future date with
the purchase payments for the contract to be paid prior to the annuity
commencement date in a series of payments flexible in respect to the
date and amount of payment.
2. Issuance of Contracts
The contracts are issued to you, the contract owner named in the application.
The owner of the contract may be the annuitant or someone else.
PAGE 17
<PAGE>
(SIDEBAR)
You cannot pay more than $1 million unless we consent.
(END SIDEBAR)
3. Modification of the Contracts
Your contract may be modified at any time by written agreement between you and
us. However, no modification will adversely affect the rights of an annuitant
under the contract unless the modification is made to comply with a law or
government regulation. You will have the right to accept or reject the
modification. This right of acceptance or rejection is limited for contracts
used as individual retirement annuities.
4. Assignment
If the contract is sold in connection with a tax-qualified program, (including
employer sponsored employee pension benefit plans, tax-sheltered annuities and
individual retirement annuities,)
- your or the annuitant's interest may 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, any
person's interest in the contract may be assigned during the lifetime of the
annuitant.
We will not be bound by any assignment until we have recorded written notice of
it at our home office. We are not responsible for the validity of any
assignment. An assignment will not apply to any payment or action made by us
before it was recorded. Any proceeds which become payable to an assignee will be
payable in a single sum. Any claim made by an assignee will be subject to proof
of the assignee's interest and the extent of the assignment.
5. Limitations on Purchase Payments
For the single payment variable annuity contract, the single payment will be
deemed to include all purchase payments made within 12 months of the contract
date. The amount of an initial purchase payment must be at least $5,000. The
amount of any subsequent payment during that 12 month period must be at least
$1,000.
Some states, for example, New Jersey, will limit these contracts to a single
purchase payment and contracts issued there are so limited.
You choose when to make purchase payments under a flexible payment variable
annuity contract. There is no minimum purchase payment amount and there is no
minimum amount which must be allocated to any sub-account of the Variable
Annuity Account or to the General Account.
Total purchase payments under either contract may not exceed $1,000,000, except
with our consent.
We may cancel a flexible payment contract, at our discretion, if no purchase
payments are made for a period of two or more full contract years and both
PAGE 18
<PAGE>
(SIDEBAR)
We may cancel your contract if you stop making payments and have a small
accumulation value.
We normally pay lump sum payments within 7 days, but may delay payments in
certain circumstances.
The contract is non-participating.
(END SIDEBAR)
(a) the total purchase payments made, less any withdrawals and associated
charges, and (b) the accumulation value of the entire contract, are less than
$2,000. If such a cancellation takes place, we will pay you the accumulation
value of your contract and we will notify you, in advance, of our intent to
exercise this right in our annual report which advises contract owners of the
status of their contracts. We will act to cancel the contract ninety days after
the contract anniversary unless an additional purchase payment is received
before the end of that ninety day period. Contracts issued in some states, for
example, New Jersey, do not permit such a cancellation and contracts issued
there do not contain this provision.
There may be limits on the maximum contributions to retirement plans that
qualify for special tax treatment.
6. Deferment of Payment
Whenever any payment under a contract is to be made in a single sum, payment
will be made within seven days after the date such payment is called for by the
terms of the contract, except as payment may be subject for postponement for:
(a) any period during which the New York Stock Exchange is closed other
than customary weekend and holiday closings, or during which trading
on the New York Stock Exchange is restricted, as determined by the
Securities and Exchange Commission;
(b) any period during which an emergency exists as determined by the
Commission as a result of which it is not reasonably practical to
dispose of securities in the Fund or to fairly determine the value of
the assets of the Fund; or
(c) such other periods as the Commission may by order permit for the
protection of the contract owners.
7. Participation
The contracts are non-participating. Contracts issued prior to October 1, 1998
were participating. The amounts, if any, that will be distributable under
participating contracts in the future will be determined by us and credited to
the contracts on a basis we determine. We do not anticipate dividend payments.
B. ANNUITY PAYMENTS AND OPTIONS
1. Annuity Payments
Variable annuity payments are determined on the basis of (a) the mortality table
specified in the contract, which reflects the age of the annuitant, (b) the type
of annuity payment option selected, and (c) the investment performance of the
Fund Portfolios selected by the contract owner. The amount of the variable
annuity payments will not be affected by adverse mortality experience or by an
increase in our expenses in excess of the expense deductions provided for in the
contract. The annuitant will receive the value of a fixed number of annuity
units each month. The value of such units, and thus the amounts of the monthly
annuity
PAGE 19
<PAGE>
(SIDEBAR)
Each of the annuity options is available on a fixed, variable or combination
fixed and variable basis.
You tell us when to start making annuity payments to the annuitant, unless your
retirement plan requires them to begin by a certain age.
(END SIDEBAR)
payments will, however, reflect investment gains and losses and investment
income of the 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 which may be
elected if permitted by law. Each annuity option may be elected on either a
variable annuity or a fixed annuity basis, or a combination of the two. Other
annuity options may be available from us on request.
While the contracts require that notice of election to begin annuity payments
must be received by us at least 30 days prior to the annuity commencement date,
we are currently waiving that requirement for such variable annuity elections
received at least 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.
Each contract permits an annuity payment to begin on the first day of any month.
Under the contracts payment must begin before the later of the 85th birthday of
the annuitant, or five years after the date of issue of the contracts. 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
payment would be less than $20, we may fulfill our obligation by paying in a
single sum the surrender value of the contract which would otherwise have been
applied to provide annuity payments.
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,
PAGE 20
<PAGE>
(SIDEBAR)
The amount of your first annuity payment depends on the age of the annuitant and
the annuity option you select.
(END SIDEBAR)
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 5 to 20 years, as elected. If the annuitant dies before
payments have been made for the period certain elected, payments will continue
during the remainder of the fixed period to the beneficiary. Contracts issued
prior to May of 1993, or such later date as we receive regulatory approval to
issue these new contracts in a state and are administratively able to do so, may
allow the election of a period certain option of less than five years. In the
event of the death of the annuitant, you or the beneficiary may elect that (1)
the present value of the remaining guaranteed number of payments, based on the
then current dollar amount of one such payment and using the same interest rate
which served as a basis for the annuity, shall be paid in a single sum, or (2)
such commuted amount shall be applied to effect a life annuity under Option 1 or
Option 2.
4. Determination of Amount of First Monthly Annuity Payment
Under the contracts described in this Prospectus, the first monthly annuity
payment is determined by the available value of the contract when an annuity
begins. In addition, a number of states do impose a premium tax on the amount
used to purchase an annuity benefit, depending on the type of plan involved.
Where applicable, these taxes currently range from 0.0% to 3.5% and are deducted
from the contract value applied to provide annuity payments. We reserve the
right to make such deductions from purchase payments as they are received.
The amount of the first monthly payment depends on the optional annuity form
elected and the adjusted age of the annuitant. A formula for determining the
adjusted age is contained in the contract.
The contracts contain tables indicating the dollar amount of the first fixed
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% per annum, assuming births in the year 1900 and
subtracting six years from your age when applying it to the rates. Also, for
PAGE 21
<PAGE>
contracts issued after 1993 or such later date as we may be able to issue this
contract in a jurisdiction, the contract contains a provision that applies a
contract fee of $200 when a fixed annuity is elected. 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 dollar amount of the first monthly variable annuity payment is determined by
applying the available value (after deduction of any premium taxes not
previously deducted) to a rate per $1,000 which is based on the Progressive
Annuity Table with interest at the rate of 4.5% per annum, assuming births in
the year 1900 and with an age setback of six years. The amount of the first
payment depends upon the annuity payment option selected and the adjusted age of
the annuity and any joint annuitant. A number of annuity units is then
determined by dividing this dollar amount by the then current annuity unit
value. Thereafter, the number of annuity units remains unchanged during the
period of annuity payments. This determination is made separately for each
sub-account of the separate account. The number of annuity units is based upon
the available value in each sub-account as of the date annuity payments are to
begin.
The dollar amount determined for each sub-account will then be aggregated for
purposes of making payment.
The 4.5% interest rate assumed in the variable annuity determination would
produce level annuity payments if the net investment rate remained constant at
4.5% per year. Subsequent payments will decrease, remain the same or increase
depending upon whether the actual net investment rate is less than, equal to, or
greater than 4.5%. A higher interest rate means a higher initial payment, but a
more slowly rising (or more rapidly falling) series of subsequent payments. A
lower assumption has the opposite effect. For contracts issued prior to May of
1993, or such later date as when we receive regulatory approval to issue these
new contracts in a state and are administratively able to do so, which utilized
such a lower rate, the payments will differ from these contracts in the manner
described.
Annuity payments are always made as of the first day of a month. The contracts
require that notice of election to begin annuity payments must be received by us
at least thirty days prior to the annuity commencement date. However, Minnesota
Life currently waives this requirement, and at the same time reserves the right
to enforce the thirty day notice at its option in the future.
Money will be transferred to the General Account for the purpose of electing
fixed annuity payments, or to the appropriate variable sub-accounts for variable
annuity payments, on the valuation date coinciding with the first valuation date
following the fourteenth day of the month preceding the date on which the
annuity is to begin.
If a request for a fixed annuity is received between the first valuation date
following the fourteenth day of the month and the second to last valuation date
of the month prior to commencement, the transfer will occur on the valuation
date coincident with or next following the date on which the request is
received.
PAGE 22
<PAGE>
(SIDEBAR)
You may change Portfolios in the annuity period, subject to some restrictions.
(END SIDEBAR)
If a fixed annuity request is received after the third to the last valuation day
of the month prior to commencement, it will be treated as a request received the
following month, and the commencement date will be changed to the first of the
month following the requested commencement date. The account value used to
determine fixed annuity payments will be the value as of the last valuation date
of the month preceding the date the fixed annuity is to begin.
If a variable annuity request is received after the third valuation date
preceding the first valuation date following the fourteenth day of the month
prior to the commencement date, it will be treated as a request received the
following month, and the commencement date will be changed to the first of the
month following the requested commencement date. The account value used to
determine the initial variable annuity payment will be the value as of the first
valuation date following the fourteenth day of the month prior to the variable
annuity begin date.
5. Amount of Second and Subsequent Monthly Annuity Payments
The dollar amount of the second and later variable annuity payments is equal to
the number of annuity units determined for each sub-account times the annuity
unit value for that sub-account as of the due date of the payment. This amount
may increase or decrease from month to month.
6. Value of the Annuity Unit
The value of an annuity unit for a sub-account is determined monthly as of the
first day of each month by multiplying the value on the first day of the
preceding month by the product of (a) .996338, and (b) the ratio of the value of
the accumulation unit for that sub-account for the valuation date next following
the fourteenth day of the preceding month to the value of the accumulation unit
for the valuation date next following the fourteenth day of the second preceding
month (.996338 is a factor to neutralize the assumed net investment rate,
discussed in Section 3 above, of 4.5% per annum built into the first payment
calculation which is not applicable because the actual net investment rate is
credited instead). The value of an annuity unit for a sub-account as of any date
other than the first day of a month is equal to its value as of the first day of
the next succeeding month.
7. Transfer of Annuity Reserves
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.
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<PAGE>
There are restrictions to such a transfer. The transfer of an annuity reserve
amount from any sub-account must be at least equal to $5,000 or the entire
amount of the reserve remaining in that sub-account. In addition, annuity
payments must have been in effect for a period of 12 months before a change may
be made. Such transfers can be made only once every 12 months. The written
request for an annuity transfer must be received by us more than 30 days in
advance of the due date of the annuity payment subject to the transfer. Upon
request, we will make available to you annuity reserve amount sub-account
information.
A transfer will be made on the basis of annuity unit values. The number of
annuity units from the sub-account being transferred will be converted to a
number of annuity units in the new sub-account. The annuity payment option will
remain the same and cannot be changed. After this conversion, a number of
annuity units in the new sub-account will be payable under the elected option.
The first payment after conversion will be of the same amount as it would have
been without the transfer. The number of annuity units will be set at that
number of units which are needed to pay that same amount on the transfer date.
When we receive a request for the transfer of variable annuity reserves, it will
be effective for future annuity payments. The transfer will be effective and
funds actually transferred in the middle of the month prior to the next annuity
payment affected by your request. We will use the same valuation procedures to
determine your variable annuity payment that we used initially. 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.
Amounts held as reserves to pay a variable annuity may also be transferred to a
fixed annuity during the annuity period. However, the restrictions which apply
to annuity sub-account transfers will apply in this case as well. The amount
transferred will then be applied to provide a fixed annuity amount. This amount
will be based upon the adjusted age of the 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.
When we receive a request to make such a transfer to a fixed annuity, it will be
effective for future annuity payments. The transfer will be effective and funds
actually transferred in the middle of the month prior to the next annuity
payment. We will use the same fixed annuity pricing at the time of transfer that
we use to determine an initial fixed annuity payment.
Contracts with this transfer feature may not be available in all states.
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(SIDEBAR)
If you die prior to commencement of annuity payments, there is a death benefit
that is guaranteed to be not less than your purchase payments.
(END SIDEBAR)
C. DEATH BENEFITS
The contracts provide that in the event of the death of the owner before annuity
payments begin, the amount payable at death will be the contract accumulation
value determined as of the valuation date coincident with or next following the
date due proof of death is received by us at our home office. Death proceeds
will be paid in a single sum to the beneficiary designated unless an annuity
option is elected. Payment will be made within 7 days after we receive due proof
of death. Except as noted below, the entire interest in the contract must be
distributed within 5 years of the owner's death.
The single payment variable annuity 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 during the first 12
months as consideration for this contract, less all contract withdrawals.
For the flexible payment variable annuity contract, we use this same method
except that total purchase payments will include all contributions, even those
made after 12 months, to determine the death benefit for contracts offered by
this Prospectus.
If the owner dies on or before the date on which annuity payments begin, we will
pay the greater of the accumulated value or the guaranteed death benefit to the
designated beneficiary. If the designated beneficiary is a person other than the
owner's spouse, that beneficiary may elect an annuity option measured by a
period not longer than that beneficiary's life expectancy only so long as
annuity payments begin not later than one year after the owner's death. If there
is no designated beneficiary, then the entire interest in a contract must be
distributed within five years after the owner's death. If the annuitant dies
after annuity payments have begun, any payments received by a non-spouse
beneficiary must be distributed at least as rapidly as under the method elected
by the annuitant as of the date of death.
If any portion of your contract is payable to your designated beneficiary who is
also your surviving spouse that spouse shall be treated as the contract owner
for purposes of:
- 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,
we will pay a death benefit of the accumulation value to the named beneficiary
on the death of the annuitant, if death occurs before annuity payments begin.
PAGE 25
<PAGE>
(SIDEBAR)
Initial purchase payments are credited within 2 business days of our receipt of
a complete application.
Subsequent purchase payments are credited on the day we receive them, or on the
next business day if they arrive late in the day.
(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 we receive it 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 for
compliance with our issue criteria and, if it is accepted, we will issue a
contract.
If the initial purchase payment is accompanied by an incomplete application,
that purchase payment will not be credited until the valuation date coincident
with or next following the date a completed application is received. We will
offer to return the initial purchase payment accompanying an incomplete
application if it appears that the application cannot be completed within five
business days.
Purchase payments are credited to the contract in accumulation units. We
determine the number of accumulation units from each purchase payment 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 Funds.
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 Funds' shares are
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 (the primary close of trading is 3:00 p.m.
(Central time), but this time may be changed) on each day, Monday through
Friday, except:
- days on which changes in the value of Fund's portfolio securities will
not materially affect the current net asset value of such Fund's shares,
- days during which no Fund's shares are tendered for redemption and no
order to purchase or sell Fund's shares is received by such Fund and
- customary national business holidays on which the New York Stock Exchange
is closed for trading.
The value of accumulation units will be the same on all purchase payments
received by us at our home office on that day prior to the close of the
Exchange. Purchase payments received after the close of business of the Exchange
will be priced on the next valuation date.
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<PAGE>
(SIDEBAR)
Systematic transfers and telephone transfers are available.
(END SIDEBAR)
In addition to providing for the allocation of purchase payments to the sub-
accounts of the Variable Annuity Account, the contracts allow you to allocate
purchase payments to our General Account for accumulation at a guaranteed
interest rate.
Applications received without instructions as to allocation will be treated as
incomplete. Upon your written request, values under the contract may be
transferred between our General Account and the Variable Annuity Account or
among the sub-accounts of the Variable Annuity Account. We will make the
transfer on the basis of accumulation unit values on the valuation date
coincident with or next following the day we receive the request at our home
office. No deferred sales charge will be imposed on such transfers. There is no
dollar
amount limitation which is applied to transfers. The contracts permit us to
limit the frequency and amount of transfers from our General Account to the
Variable Annuity Account.
Currently, except as provided below, we limit such transfers to a single such
transfer during any calendar year and to any amount which is no more than 20% of
the General Account accumulation value at the time of the transfer.
However, in the case of General Account accumulation values of $1,000 or less,
we will allow a one-time transfer of the entire accumulation value amount from
the General Account to the sub-accounts of the Variable Annuity Account.
Where you have a systematic transfer arrangement with us, you may transfer
General Account current interest earnings or a specified amount from the General
Account on a monthly, quarterly, semi-annual or annual basis. If you transfer a
specified amount from the General Account, the maximum initial amount that may
be transferred may not exceed 10% of your current General Account accumulation
value at the time of the first transfer. For contracts where the General Account
accumulation value is increased during the year because of transfers into the
General Account or additional purchase payments, made after the program is
established, systematic transfers are allowed to the extent of the greater of
the current transfer amount or 10% of the then current General Account
accumulation value. Even with respect to systematic transfer plans, we reserve
the right to alter the terms of such programs once established where funds are
being transferred out of the General Account. Our alteration of existing
systematic transfer programs will be effective only upon our written notice to
contract owners of changes affecting their election.
Systematic transfer arrangements are limited to a maximum of twenty sub-
accounts.
Transfer arrangements may be established to begin on the 10th or 20th of any
month. If a transfer cannot be completed because of a holiday or weekend, it
will be made on the next available transfer date. In the absence of specific
instructions, transfers will be made on a monthly basis and will remain active
PAGE 27
<PAGE>
until the appropriate General Account accumulation value or sub-account is
depleted. There is no charge for systematic transfers at this time, however we
reserve the right to impose charges.
As a type of systematic transfer arrangement, 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 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.
APR is not available for values in the General Accounts or in the Series Fund
Maturing Government Bond Portfolios. APR will be available after August 1, 1999.
Also, you or persons authorized by you may effect transfers, or a change in the
allocation of future premiums or the termination of Automatic Premium Plans
(APP), by means of a telephone call. Transfers or requests made by a call are
subject to the same conditions and procedures that apply to written transfer
requests. During periods of marked economic or market changes, you may
experience difficulty in completing a telephone transfer due to a heavy volume
of calls. If that happens, you should consider submitting a written transfer
request while continuing to attempt a telephone redemption. 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.
While for some contract owners we have used a form to pre-authorize telephone
transactions, we now make 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.
The interests of contract owners arising from the allocation of purchase
payments or the transfer of contract values to our General Account are not
registered under the Securities Act of 1933. We are not registered as an
investment company under the Investment Company Act of 1940. Accordingly, such
interests are not subject to the provisions of those acts that would apply if
registration under such acts were required.
PAGE 28
<PAGE>
(SIDEBAR)
Your contract's accumulation value varies with the performance of the Portfolios
you select and is not guaranteed.
(END SIDEBAR)
2. Value of the Contract
The Accumulation Value of the contract at any time annuity payments begin 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 the total value will equal or exceed the purchase payments made. You will
be advised periodically of the number of accumulation units in your contract,
the current value of an accumulation unit, and its total value.
3. 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. The value of an accumulation unit on any valuation date thereafter 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 for the
valuation period just ended.
The value of an accumulation unit a day other than a valuation date is its value
on the next valuation date.
4. Net Investment Factor for Each Valuation Period
The net investment factor is an index used to measure the investment performance
of a sub-account from one valuation period to the next. For any sub-account, the
net investment factor for a valuation period is the gross investment rate for
such sub-account for the valuation period, less a deduction for the mortality
and expense risk charge at the current rate of 1.25% per annum.
The gross investment rate is equal to:
- 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.
E. REDEMPTIONS
1. Partial Withdrawals and Surrender
Both contracts, provide that before annuity payments begin you may make partial
withdrawals. They must be for at least $250. You must make a written request for
any withdrawal.
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<PAGE>
(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)
If you make a withdrawal, the accumulation value will be reduced by the amount
withdrawn and any deferred sales charge. Unless you tell us otherwise,
withdrawals will be made from the General Account accumulation value and from
the Variable Annuity Account accumulation value in the same proportion. If we
have no instructions from you, 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 or where the withdrawal is
requested because of an excess contribution to a tax-qualified contract. We can
only make pro-rata withdrawals from twenty sub-accounts on systematic
withdrawals. If you use more than that number, you will have to identify those
sub-accounts from which you wish funds taken.
Before annuity payments begin, you may surrender the contract for its surrender
value. You will receive in a single sum the accumulation value computed as of
the valuation date next following the date of surrender, reduced by any
applicable deferred sales charge and the administrative charge. Or you may elect
an annuity.
Once annuity payments begin for an annuitant, the annuitant cannot surrender
that annuity benefit and receive a single sum instead.
You may also submit your signed written withdrawal or surrender requests to
Minnesota Life by facsimile (FAX) transmission. Our FAX number is (651)
665-7942. You may give us transfer instructions or changes as to future
allocations of premium payments the same way. Payment of a partial withdrawal or
surrender will be made to you within 7 days after we receive your completed
request.
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.
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. In California, the free
look period is extended to thirty days' time. Those rights are subject to change
and may vary among the states.
The liability of the Variable Annuity Account is limited to the accumulation
value of the contract at the time it is returned for cancellation. Any
additional amounts necessary to make our refund to you equal to the purchase
payments will be made by us.
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<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)
FEDERAL TAX STATUS
INTRODUCTION
This discussion on taxes is general in nature. It is not intended as tax advice.
Each person concerned should consult a competent tax adviser. No attempt is made
to consider any applicable state or other tax laws. In addition, this discussion
is based on our understanding of federal income tax laws as they are currently
interpreted. We do not represent the likelihood of the continuation of current
income tax laws or the current interpretations of the Internal Revenue Service.
The Contract may be purchased on a non-tax qualified basis ("Non-Qualified
Contract") 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 ("Qualified Contract"). The ultimate
effect of federal income taxes on the amounts held under a Contract, on annuity
payments, and on the economic benefit to the Contract Owner, the Annuitant, or
the beneficiary may depend on the tax status of the individual concerned.
We are taxed as a "life insurance company" under the Internal Revenue Code. The
operations of the Variable Annuity Account form a part of, and are taxed with,
our other business activities. Currently, no federal income tax is payable by us
on income dividends received by the Variable Annuity Account or on capital gains
arising from the Variable Annuity Account's activities. The Variable Annuity
Account is not taxed as a "regulated investment company" under the Code and it
does not anticipate any change in that tax status.
TAXATION OF ANNUITY CONTRACTS IN GENERAL
Section 72 of the Code governs taxation of nonqualified annuities in general and
some aspects of qualified programs. No taxes are 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.
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 (i.e., purchase
payments) of 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 gain rates.
PAGE 31
<PAGE>
(SIDEBAR)
Ordinary income tax rates apply to amounts distributed in excess of purchase
payments. Gains are assumed to be distributed before return or 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)
In the case of a withdrawal under an annuity that is part of a tax-qualified
retirement plan, a portion of the amount received is taxable based on the ratio
of the "investment in the contract" to the individual's balance in the
retirement plan, generally the value of the annuity. The "investment in the
contract" generally equals the portion of any deposits made by or on behalf of
an individual under an annuity which was not excluded from the gross income of
the individual. For annuities issued in connection with qualified plans, the
"investment in the contract" can be zero.
For annuity payments, the taxable portion is generally determined by a formula
that establishes 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,
- 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, be made for the life (or
life expectancy) of the taxpayer or the joint lives (or joint life expectancies)
of the taxpayer and beneficiary.
For some types of qualified plans, other tax penalties may apply to certain
distributions.
A transfer of ownership of a contract, 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 nonqualified deferred annuity contracts issued by the same company (or
its affiliates) to the same contract owner during any calendar year shall be
treated as one annuity contract. Additional rules may be promulgated under this
provision to prevent avoidance of its effect through serial contracts or
otherwise. For further information on these rules, see your tax adviser.
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<PAGE>
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 investment 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 from being
considered the owner of a pro-rata share of the assets of the Variable Annuity
Account.
PAGE 33
<PAGE>
(SIDEBAR)
Congress may change the tax laws and reduce or eliminate any tax advantages of
the contract.
(END SIDEBAR)
REQUIRED DISTRIBUTIONS
In order to be treated as an annuity contract for federal income tax purposes,
Section 72(s) of the Code requires any nonqualified contract issued after
January 18, 1985 to provide that (a) if an owner dies on or after the annuity
starting date but prior to the time the entire interest in the contract has been
distributed, the remaining portion of such interest will be distributed at least
as rapidly as under the method of distribution being used as of the date of that
owner's death; and (b) if an owner dies prior to the annuity starting date, the
entire interest in the contract must be distributed within five years after the
date of the owner's death.
These requirements shall be considered satisfied if any portion of the owner's
interest which is payable to or for the benefit of a "designated beneficiary",
who must be a natural person, is distributed over the life of such beneficiary
or over a period not extending beyond the life expectancy of that beneficiary
and such distributions begin within one year of that owner's death. The owner's
"designated beneficiary" is the person designated by such owner as a beneficiary
and to whom ownership of the contract passes by reason of death. It must be a
natural person. However, if the owner's "designated beneficiary" is the
surviving spouse of the owner, the contract may be continued with the surviving
spouse as the new owner.
Nonqualified contracts issued after January 18, 1985 contain provisions which
are intended to comply with the requirements of Section 72(s) of the Code,
although no regulations interpreting these requirements have yet been issued.
Minnesota 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 34
<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 in other specified circumstances.
We make no attempt to provide more than general information about use of
annuities with the various types of retirement plans. 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 35
<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 60 days after the distribution
has been received. Such a taxpayer must replace withheld amounts with other
funds to avoid taxation on the amount previously withheld.
SEE YOUR OWN TAX ADVISER
It should be understood that the foregoing description of the federal income tax
consequences under these contracts is not exhaustive and that there may be
special rules for situations not discussed here. 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 new regulations may also alter the tax consequences
of specific factual situations. Due to the complexity of the applicable laws,
you may need tax advice before purchasing a variable annuity contract or
exercising elections under such a contract. For further information you should
consult a qualified tax adviser.
PAGE 36
<PAGE>
PERFORMANCE DATA
From time to time the Variable Annuity Account may publish advertisements
containing performance data relating to its sub-accounts. In the case of the
Money Market Sub-Account, the Variable Annuity Account will publish yield or
effective yield quotations for a seven-day or other specified period. In the
case of the other sub-accounts, performance data will consist of average annual
total return quotations for a one-year period and for the period since the
sub-account became available pursuant to the Variable Annuity Account's
registration statement, and 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 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 along with information
on the computations in the Statement of Additional Information.
RESTRICTIONS UNDER THE TEXAS OPTIONAL
RETIREMENT PROGRAM
Section 36.105, Title 110B of the Texas Revised Civil Statutes, consistent with
prior interpretations of the Attorney General of the State of Texas, permits
participants in the Texas Optional Retirement Program (ORP) to redeem their
interests in a variable annuity contract issued under the ORP only upon (1)
termination of employment in all institutions of higher education as defined in
Texas law, (2) retirement, or (3) death. Accordingly, participants in the ORP
will be required to obtain certifications from their employers of their status
with respect to ORP employers before they may redeem their contract or transfer
contract values to another carrier qualified to participate in ORP.
YEAR 2000 COMPUTER PROBLEM
The services provided by us to the Separate Account and its contract owners
depend on the smooth functioning of its computer systems. Many computer software
systems in use today cannot distinguish the year 2000 from the year 1900 because
of the way that dates are encoded, stored and calculated. That failure could
have a negative impact on the ability of Minnesota Life to provide services to
contract owners. Minnesota Life has been actively working on necessary changes
to its computer systems to deal with the year 2000. Although
PAGE 37
<PAGE>
there can be no assurance of complete success, we believe that it will be able
to resolve these issues on a timely basis and that there will be no material
adverse impact on its ability to provide services to the Separate Account.
In addition, Minnesota Life's operations could be impacted by its service
providers' or suppliers' year 2000 efforts. Minnesota Life has undertaken an
initiative to assess the efforts of organizations where there is a significant
business relationship; however there is no assurance that Minnesota Life 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 Contracts
Performance Data
Auditors
Registration Statement
Financial Statements
PAGE 38
<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.......... $4.01 $3.04 $2.63 $2.14 $2.15
Unit value at end of period................ $5.34 $4.01 $3.04 $2.63 $2.14
Number of units outstanding at end of
period.................................... 47,805,851 44,705,247 38,448,452 35,809,340 33,090,790
Bond Sub-Account:
Unit value at beginning of period.......... $2.37 $2.19 $2.15 $1.82 $1.93
Unit value at end of period................ $2.48 $2.37 $2.19 $2.15 $1.82
Number of units outstanding at end of
period.................................... 51,341,159 43,266,404 36,732,062 28,069,241 23,798,963
Money Market Sub-Account:
Unit value at beginning of period.......... $1.63 $1.57 $1.52 $1.46 $1.42
Unit value at end of period................ $1.69 $1.63 $1.57 $1.52 $1.46
Number of units outstanding at end of
period.................................... 27,959,675 19,804,841 22,929,634 14,809,515 11,720,778
Asset Allocation Sub-Account:
Unit value at beginning of period.......... $3.25 $2.76 $2.49 $2.01 $2.07
Unit value at end of period................ $3.96 $3.25 $2.76 $2.49 $2.01
Number of units outstanding at end of
period.................................... 120,373,228 119,491,402 116,211,650 110,975,477 109,044,286
Mortgage Securities Sub-Account:
Unit value at beginning of period.......... $2.17 $2.01 $1.93 $1.66 $1.74
Unit value at end of period................ $2.28 $2.17 $2.01 $1.93 $1.66
Number of units outstanding at end of
period.................................... 41,507,338 34,751,197 32,527,955 31,277,934 31,542,405
Index 500 Sub-Account:
Unit value at beginning of period.......... $3.81 $2.91 $2.43 $1.79 $1.80
Unit value at end of period................ $4.81 $3.81 $2.91 $2.43 $1.79
Number of units outstanding at end of
period.................................... 60,268,563 54,579,265 46,097,553 35,272,024 29,639,298
Capital Appreciation Sub-Account:
Unit value at beginning of period.......... $3.71 $2.93 $2.52 $2.08 $2.06
Unit value at end of period................ $4.79 $3.71 $2.93 $2.52 $2.08
Number of units outstanding at end of
period.................................... 53,894,481 53,582,481 51,023,999 45,964,468 40,739,415
International Stock Sub-Account:
Unit value at beginning of period.......... $1.91 $1.73 $1.46 $1.30 $1.32
Unit value at end of period................ $2.01 $1.91 $1.73 $1.46 $1.30
Number of units outstanding at end of
period.................................... 99,956,739 103,600,602 86,521,264 68,725,183 61,474,893
Small Company Growth Sub-Account:
Unit value at beginning of period.......... $1.78 $1.67 $1.59 $1.22 $1.16
Unit value at end of period................ $1.78 $1.78 $1.67 $1.59 $1.22
Number of units outstanding at end of
period.................................... 69,789,850 68,590,765 59,295,273 43,234,716 29,723,609
<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.......... $2.08 $2.01 $1.52 $1.54 $1.23
Unit value at end of period................ $2.15 $2.08 $2.01 $1.52 $1.54
Number of units outstanding at end of
period.................................... 25,980,318 18,152,996 10,204,896 6,759,950 4,899,370
Bond Sub-Account:
Unit value at beginning of period.......... $1.77 $1.68 $1.45 $1.37 $1.23
Unit value at end of period................ $1.93 $1.77 $1.68 $1.45 $1.37
Number of units outstanding at end of
period.................................... 18,794,458 11,267,890 6,184,694 5,250,072 3,880,390
Money Market Sub-Account:
Unit value at beginning of period.......... $1.40 $1.38 $1.32 $1.24 $1.16
Unit value at end of period................ $1.42 $1.40 $1.38 $1.32 $1.24
Number of units outstanding at end of
period.................................... 9,783,391 7,414,734 6,618,010 6,183,393 4,053,104
Asset Allocation Sub-Account:
Unit value at beginning of period.......... $1.97 $1.86 $1.46 $1.43 $1.20
Unit value at end of period................ $2.07 $1.97 $1.86 $1.46 $1.43
Number of units outstanding at end of
period.................................... 99,680,197 66,121,882 33,820,537 22,938,615 16,134,930
Mortgage Securities Sub-Account:
Unit value at beginning of period.......... $1.61 $1.54 $1.34 $1.24 $1.10
Unit value at end of period................ $1.74 $1.61 $1.54 $1.34 $1.24
Number of units outstanding at end of
period.................................... 33,032,291 20,284,849 9,817,276 8,632,895 6,903,370
Index 500 Sub-Account:
Unit value at beginning of period.......... $1.66 $1.56 $1.22 $1.29 $1.00
Unit value at end of period................ $1.80 $1.66 $1.56 $1.22 $1.29
Number of units outstanding at end of
period.................................... 23,455,059 16,294,129 11,254,609 13,788,252 10,567,879
Capital Appreciation Sub-Account:
Unit value at beginning of period.......... $1.89 $1.82 $1.30 $1.34 $0.98
Unit value at end of period................ $2.06 $1.89 $1.82 $1.30 $1.34
Number of units outstanding at end of
period.................................... 30,907,396 21,822,440 10,874,168 6,767,806 3,831,974
International Stock Sub-Account:
Unit value at beginning of period.......... $0.93 $1.00(b)
Unit value at end of period................ $1.32 $0.93
Number of units outstanding at end of
period.................................... 38,637,487 16,751,564
Small Company Growth Sub-Account:
Unit value at beginning of period.......... $1.00(c)
Unit value at end of period................ $1.16
Number of units outstanding at end of
period.................................... 9,554,322
</TABLE>
PAGE A-1
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Maturing Government Bond 2002
Sub-Account:
Unit value at beginning of period..... $1.29 $1.21 $1.20 $0.97 $1.00(d)
Unit value at end of period........... $1.40 $1.29 $1.21 $1.20 $0.97
Number of units outstanding at end of
period............................... 4,526,963 2,938,848 2,935,860 2,417,823 2,528,509
Maturing Government Bond 2006
Sub-Account:
Unit value at beginning of period..... $1.39 $1.25 $1.28 $0.96 $1.00(d)
Unit value at end of period........... $1.57 $1.39 $1.25 $1.28 $0.96
Number of units outstanding at end of
period............................... 3,881,227 2,665,421 2,334,109 1,878,731 1,808,705
Maturing Government Bond 2010
Sub-Account:
Unit value at beginning of period..... $1.47 $1.27 $1.33 $0.95 $1.00(d)
Unit value at end of period........... $1.66 $1.47 $1.27 $1.33 $0.95
Number of units outstanding at end of
period............................... 3,046,112 2,017,743 2,077,124 924,681 913,358
Value Stock Sub-Account:
Unit value at beginning of period..... $2.13 $1.78 $1.38 $1.05 $1.00(d)
Unit value at end of period........... $2.14 $2.13 $1.78 $1.38 $1.05
Number of units outstanding at end of
period............................... 69,982,001 68,251,135 43,796,523 18,744,902 7,178,675
Small Company Value Sub-Account:
Unit value at beginning of period..... $1.03 $1.00(e)
Unit value at end of period........... $0.95 $1.03
Number of units outstanding at end of
period............................... 7,555,601 4,822,504
Global Bond Sub-Account:
Unit value at beginning of period..... $1.00 $1.00(e)
Unit value at end of period........... $1.14 $1.00
Number of units outstanding at end of
period............................... 26,841,307 25,083,345
Index 400 Mid-Cap Sub-Account:
Unit value at beginning of period..... $1.00 $1.00(e)
Unit value at end of period........... $1.16 $1.00
Number of units outstanding at end of
period............................... 7,779,280 5,020,041
Macro-Cap Value Sub-Account:
Unit value at beginning of period..... $0.98 $1.00(f)
Unit value at end of period........... $1.18 $0.98
Number of units outstanding at end of
period............................... 8,485,870 5,003,390
Micro-Cap Growth Sub-Account:
Unit value at beginning of period..... $0.91 $1.00(e)
Unit value at end of period........... $1.02 $0.91
Number of units outstanding at end of
period............................... 6,922,652 5,019,879
Real Estate Securities
Unit value at beginning of period..... $1.00(g)
Unit value at end of period........... $0.86
Number of units outstanding at end of
period............................... 5,887,391
Templeton Developing Markets
Sub-Account:
Unit value at beginning of period..... $0.69 $1.00(e)
Unit value at end of period........... $0.54 $0.69
Number of units outstanding at end of
period............................... 4,908,432 724,374
</TABLE>
(a) The information for the sub-account is shown for the period June 1, 1987 to
December 31, 1987. June 1, 1987 was the effective date of the 1933 Act
Registration for the sub-account.
(b) 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 for the sub-account.
(c) 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 for the sub-account.
(d) 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 for the sub-account.
(e) The information for the sub-account is shown for the period October 1, 1997
(date sub-account became available) to December 31, 1997.
(f) The information for the sub-account is shown for the period October 15, 1997
(date sub-account became available) to December 31, 1997.
(g) The information for the sub-account is shown for the period April 24, 1998
(date 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%, 6.51% and 12.00%.
For illustration purposes, an average annual expense equal to 2.01% 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 2.01%
includes: 1.25% for mortality and expense risk, 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 4.50%. After the first variable annuity payment, future payments will
increase if the annualized net rate of return exceeds the initial interest rate,
and will decrease if the annualized net rate of return is less than the initial
interest rate.
The illustration provided is for a male, age 65, selecting a life and 10 year
certain annuity option with $100,000 of non-qualified funds, residing in the
State of Minnesota. Upon request, we will provide a comparable illustration
based upon the proposed annuitant's date of birth, sex, annuity option, state of
residence, type of funds, value of funds, and selected gross annual rate of
return (not to exceed 12%).
PAGE B-1
<PAGE>
ACTUAL 1998 VARIABLE ANNUITY SEPARATE ACCOUNT CHARGES AND FUND EXPENSES
<TABLE>
<CAPTION>
FUND
MORTALITY & MANAGEMENT OTHER FUND DISTRIBUTION
SEPARATE ACCOUNT SUB-ACCOUNT NAME EXPENSE RISK FEE EXPENSES EXPENSES TOTAL
- -------------------------------------------------- ------------ ------------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Growth............................................ 1.25% .50% .03% -- 1.78%
Bond.............................................. 1.25% .50% .05% -- 1.80%
Money Market...................................... 1.25% .50% .08% -- 1.83%
Asset Allocation.................................. 1.25% .50% .03% -- 1.78%
Mortgage Securities............................... 1.25% .50% .07% -- 1.82%
Index 500......................................... 1.25% .40% .04% -- 1.69%
Capital Appreciation.............................. 1.25% .75% .03% -- 2.03%
International Stock............................... 1.25% .70% .24% -- 2.19%
Small Company Growth.............................. 1.25% .75% .04% -- 2.04%
Maturing Government Bond 2002..................... 1.25% .25% .15% -- 1.65%
Maturing Government Bond 2006..................... 1.25% .25% .15% -- 1.65%
Maturing Government Bond 2010..................... 1.25% .25% .15% -- 1.65%
Value Stock....................................... 1.25% .75% .04% -- 2.04%
Small Company Value............................... 1.25% .75% .15% -- 2.15%
Global Bond....................................... 1.25% .60% .53% -- 2.38%
Index 400 Mid-Cap................................. 1.25% .40% .15% -- 1.80%
Macro-Cap Value................................... 1.25% .70% .15% -- 2.10%
Micro-Cap Growth.................................. 1.25% 1.10% .15% -- 2.50%
Real Estate Securities............................ 1.25% .75% .15% -- 2.15%
Templeton Developing Markets Class 2.............. 1.25% 1.25% .41% .25% 3.16%
------------ ------------- ----------- ------------ ---------
Average........................................... 1.25% .61% .14% .01% 2.01%
</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) 18.1(ML) FUNDS: Non-Qualified
INITIAL MONTHLY INCOME: $663.26
</TABLE>
The monthly variable annuity income amount shown below assumes a constant annual
investment return. The initial interest rate of 4.50% is the assumed rate used
to calculate the first monthly payment. Thereafter, monthly payments will
increase or decrease based upon the relationship between the initial interest
rate and the performance of the sub-account(s) selected. The investment returns
shown are hypothetical and not a representation of future results.
<TABLE>
<CAPTION>
ANNUAL RATE OF RETURN
--------------------------------------------------
BEGINNING OF 0.00% GROSS 6.51% GROSS 10.00% GROSS
DATE YEAR AGE (-2.01% NET) (4.50% NET) (7.99% NET)
- ---------------------------- --------------- --------- ----------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
May 1, 1999................. 1 65 $ 663 $ 663 $ 663
May 1, 2000................. 2 66 622 663 685
May 1, 2001................. 3 67 583 663 708
May 1, 2002................. 4 68 547 663 732
May 1, 2003................. 5 69 513 663 756
May 1, 2005................. 7 71 451 663 808
May 1, 2007................. 9 73 396 663 863
May 1, 2009................. 11 75 349 663 921
May 1, 2011................. 13 77 307 663 984
May 1, 2013................. 15 79 270 663 1,051
May 1, 2015................. 17 81 237 663 1,122
May 1, 2017................. 19 83 208 663 1,198
May 1, 2019................. 21 85 183 663 1,279
May 1, 2021................. 23 87 161 663 1,366
May 1, 2023................. 25 89 142 663 1,459
May 1, 2025................. 27 91 125 663 1,558
May 1, 2027................. 29 93 110 663 1,664
May 1, 2029................. 31 95 96 663 1,777
May 1, 2031................. 33 97 85 663 1,898
May 1, 2034................. 36 100 70 663 2,094
</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 $663.26.
Net rates of return reflect expenses totaling 2.01%, which consist of the 1.25%
Variable Annuity Account mortality and expense risk charge and .76% for the
Series 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 or 100% of the Owner's adjusted gross
income and may be deductible in whole or in part depending on the individual's
income. The limit on the amount contributed to an IRA does not apply to
distributions from certain other types of qualified plans that are "rolled over"
on a tax-deferred basis into an IRA. Amounts in the IRA (other than
nondeductible contributions) are taxed when distributed from the IRA.
Distributions prior to age 59 1/2 (unless certain exceptions apply) are subject
to a 10% penalty tax.
SIMPLIFIED EMPLOYEE PENSION (SEP) IRAS
Employers may establish Simplified Employee Pension (SEP) IRAs under Code
section 408(k) to provide IRA contributions on behalf of their employees. In
addition to all of the general Code rules governing IRAs, such plans are subject
to certain Code requirements regarding participation and amounts of
contributions.
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 contribute to a Roth IRA. Contributions to a Roth IRA, which are
subject to certain limitations, are not deductible and must be made in cash or
as a rollover or transfer from another Roth IRA or other IRA. A rollover from or
conversion of an IRA to a Roth IRA may be subject to tax and a contingent
deferred sales charge. 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 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, 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 400 Robert Street North, St.
Paul, Minnesota 55101-2098.
Directors and Principal Management Officers of Minnesota Life
Distribution of Contracts
Performance Data
Auditors
Registration Statement
Financial Statements
1
<PAGE>
DIRECTORS AND PRINCIPAL MANAGEMENT OFFICERS OF MINNESOTA LIFE
Directors Principal Occupation
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, Clearwater Management
Company, St. Paul, Minnesota (Financial
Management)
2
<PAGE>
Principal Officers (other than Directors)
Name Position
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
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 CONTRACTS
The contracts will be sold in a continuous offering by our life insurance
agents who are also registered representatives of Ascend Financial Services,
Inc. ("Ascend Financial") or other broker-dealers who have entered into
selling agreements with Ascend Financial. Ascend Financial acts as principal
underwriter of the contracts. Ascend Financial is a wholly-owned subsidiary
of Advantus Capital Management, Inc., which in turn is a wholly-owned
subsidiary of Minnesota Life. Ascend Financial is also the sole owner of the
shares of Advantus Capital Management Inc., 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. and
Amounts paid by Minnesota Life to the underwriter for 1998, 1997 and 1996
were $15,989,724, $15,067,613, and $13,034,146, respectively, 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.
3
<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 3.09% and
3.14%, respectively. Yield figures quoted by the Money Market Sub-Account
will not reflect the deduction of any applicable deferred sales charges (the
deferred sales charges, as a percentage of the accumulation value withdrawn,
begin as of the contract date at 9% for the flexible payment contract and at
6% for the single payment contract, and decrease uniformly each month for 120
months).
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. Such quotations of cumulative total return
will not reflect the deduction of any applicable deferred sales charges.
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. On May 1, 1999, the name of the Small Company Sub-Account will
be the Small Company 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.
4
<PAGE>
<TABLE>
<CAPTION>
From Inception Date of
to 12/31/98 Inception
-------------- ---------
<S> <C> <C>
Growth Sub-Account (405.33%) 410.37% 12/3/85
Bond Sub-Account (143.84%) 145.17% 12/3/85
Money Market Sub-Account (64.91%) 67.72% 12/3/85
Asset Allocation Sub-Account (285.13%) 286.04% 12/3/85
Mortgage Securities Sub-Account (127.50%) 127.93% 6/1/87
Index 500 Sub-Account (378.72%) 380.27% 6/1/87
Capital Appreciation Sub-Account (100.34%) 101.84% 6/1/87
International Stock Sub-Account (77.82%) 77.86% 5/1/92
Small Company Growth Sub-Account (39.79%) 39.79% 5/3/93
Maturing Government Bond
2002 Sub-Account (41.23%) 43.08% 5/2/94
Maturing Government Bond
2006 Sub-Account (58.61%) 61.93% 5/2/94
Maturing Government Bond
2010 Sub-Account (65.42%) 72.79% 5/2/94
Value Stock Sub-Account (113.47%) 113.83% 5/2/94
Small Company Value Sub-Account (-6.13%) -6.09% 10/1/97
Global Bond Sub-Account (14.46%) 14.46% 10/1/97
Index 400 Mid-Cap Sub-Account (14.85%) 14.94% 10/1/97
Macro-Cap Value Sub-Account (17.22%) 17.52% 10/15/97
Micro-Cap Growth Sub-Account (-13.98%) -13.20% 10/1/97
Real Estate Securities Sub-Account (-14.69%) -14.61% 5/1/98
Templeton Developing Markets
Class 2 Sub-Account (-45.88%) -45.88% 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 ten-year period or for the period since the Sub-Account became available
pursuant to the Variable Annuity Account's registration statement if less
than ten years. Average annual total return figures are the average annual
compounded rates of return required for an initial investment of $1,000 to
equal the surrender value of that same investment at the end of the period.
The surrender value will reflect the deduction of the deferred sales charge
applicable to the contract (flexible premium/single premium) and to the
length of the period advertised. The average annual total return figures
published by the Variable Annuity Account will reflect Minnesota Life's
voluntary absorption of certain Fund expenses.
5
<PAGE>
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 Portfolios of the Fund, .90% of the average daily net assets of
the Capital Appreciation and Small Company Portfolios of the Funds and
expenses that exceed 1.00% of the average daily net assets of the
International Stock Portfolios of the Fund exclusive of the advisory fee. For
the period subsequent to May 2, 1994, Minnesota Life has voluntarily agreed
to absorb fees and expenses that exceed .90% of the average daily net assets
of the Value Stock Portfolios, fees and expenses that exceed .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 da ily
net assets of the Maturing Government Bond Portfolios maturing in 1998 and
2002. Subsequent to May 1, 1998, Minnesota Life has voluntarily absorbed
fees and expenses that exceed .40% of the average daily net assets of the
Maturing Government Bond Portfolios maturing in 1998 and 2002.
For the period subsequent to October 1, 1997, 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 of the Fund 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.
6
<PAGE>
The average annual rates of return for the Sub-Accounts, in connection with both
the flexible premium and single premium contracts described in the Prospectus,
for the specified periods ended December 31, 1998 are shown in the tables 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.
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM CONTRACT
Year Ended Five Years Ten Years From Inception Date of
12/31/98 Ended 12/31/98 Ended 12/31/98 to 12/31/98 Inception
-------- -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Sub-Account (23.33%) 23.33% (18.91%) 18.91% (15.75%) 15.76% (n/a) n/a 12/3/85
Bond Sub-Account (-2.88%) -2.88% (4.25%) 4.25% (7.21%) 7.24% (n/a) n/a 12/3/85
Money Market
Sub-Account (-3.88%) -3.88% (2.57%) 2.68% (3.69%) 3.86% (n/a) n/a 12/3/85
Asset Allocation
Sub-Account (13.21%) 13.21% (12.96%) 12.96% (12.68%) 12.68% (n/a) n/a 12/3/85
Mortgage Securities
Sub-Account (-2.42%) -2.42% (4.70%) 4.70% (7.51%) 7.53% (n/a) n/a 6/1/87
Index 500 Sub-Account (17.19%) 17.19% (20.79%) 20.79% (17.04%) 17.06% (n/a) n/a 6/1/87
Capital Appreciation
Sub-Account (19.79%) 19.79% (17.43%) 17.43% (17.11%) 17.16% (n/a) n/a 6/1/87
International Stock
Sub-Account (-2.39%) -2.39% (7.97%) 7.97% (n/a) n/a (10.58%) 10.59% 5/1/92
Small Company Growth
Sub-Account (-7.28%) -7.28% (7.98%) 7.98% (n/a) n/a (10.01%) 10.01% 5/3/93
7
<PAGE>
Maturing Government Bond
2002 Sub-Account (-.24%) .36% (n/a) n/a (n/a) n/a (6.10%) 6.96% 5/2/94
Maturing Government Bond
2006 Sub-Account (4.08%) 4.71% (n/a) n/a (n/a) n/a (8.76%) 9.83% 5/2/94
Maturing Government Bond
2010 Sub-Account (3.24%) 4.63% (n/a) n/a (n/a) n/a (9.35%) 11.37% 5/2/94
Value Stock
Sub-Account (-6.84%) -6.84% (n/a) n/a (n/a) n/a (16.27%) 16.33% 5/2/94
Small Company Value
Sub-Account (-15.28%) -14.62% (n/a) n/a (n/a) n/a (-10.40%) -10.32% 10/1/97
Global Bond
Sub-Account (6.37%) 6.37% (n/a) n/a (n/a) n/a (5.04%) 5.04% 10/1/97
Index 400 Mid-Cap
Sub-Account (6.21%) 6.83% (n/a) n/a (n/a) n/a (5.08%) 5.39% 10/1/97
Macro-Cap Value
Sub-Account (10.34%) 11.61% (n/a) n/a (n/a) n/a (6.66%) 7.51% 10/15/97
Micro-Cap Growth
Sub-Account (3.87%) 3.87% (n/a) n/a (n/a) n/a (-8.80%) -8.02% 10/1/97
Real Estate Securities
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (-22.52%) -22.00% 5/1/98
Templeton Developing
Markets Class 2
Sub-Account (-27.70%) -27.70% (n/a) n/a (n/a) n/a (-42.25%) -42.25% 10/1/97
<CAPTION>
SINGLE PREMIUM CONTRACT
Year Ended Five Years Ten Years From Inception Date of
12/31/98 Ended 12/31/98 Ended 12/31/98 to 12/31/98 Inception
-------- -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Sub-Account (26.56%) 26.56% (19.24%) 19.24% (15.75%) 15.76% (n/a) n/a 12/3/85
Bond Sub-Account (-.33%) -.33% (4.54%) 4.54% (7.21%) 7.24% (n/a) n/a 12/3/85
Money Market
Sub-Account (-1.36%) -1.36% (2.86%) 2.97% (3.69%) 3.86% (n/a) n/a 12/3/85
Asset Allocation
Sub-Account (16.18%) 16.18% (13.27%) 13.27% (12.68%) 12.68% (n/a) n/a 12/3/85
Mortgage Securities
Sub-Account (.13%) .13% (5.00%) 5.00% (7.51%) 7.53% (n/a) n/a 6/1/87
Index 500 Sub-Account (20.26%) 20.26% (21.13%) 21.13% (17.04%) 17.06% (n/a) n/a 6/1/87
Capital Appreciation
Sub-Account (22.93%) 22.93% (17.76%) 17.76% (17.11%) 17.16% (n/a) n/a 6/1/87
8
<PAGE>
International Stock
Sub-Account (.17%) .17% (8.27%) 8.27% (n/a) n/a (10.73%) 10.74% 5/1/92
Small Company Growth
Sub-Account (-4.85%) -4.85% (8.28%) 8.28% (n/a) n/a (10.25%) 10.25% 5/3/93
Maturing Government Bond
2002 Sub-Account (2.39%) 2.99% (n/a) n/a (n/a) n/a (6.44%) 7.30% 5/2/94
Maturing Government Bond
2006 Sub-Account (6.83%) 7.46% (n/a) n/a (n/a) n/a (9.11%) 10.18% 5/2/94
Maturing Government Bond
2010 Sub-Account (5.99%) 7.38% (n/a) n/a (n/a) n/a (9.71%) 11.73% 5/2/94
Value Stock
Sub-Account (-4.39%) -4.39% (n/a) n/a (n/a) n/a (16.65%) 16.71% 5/2/94
Small Company Value
Sub-Account (-13.04%) -12.38% (n/a) n/a (n/a) n/a (-8.58%) -8.50% 10/1/97
Global Bond
Sub-Account (9.16%) 9.16% (n/a) n/a (n/a) n/a (7.17%) 7.17% 10/1/97
Index 400 Mid-Cap
Sub-Account (9.01%) 9.63% (n/a) n/a (n/a) n/a (7.21%) 7.52% 10/1/97
Macro-Cap Value
Sub-Account (13.27%) 14.54% (n/a) n/a (n/a) n/a (8.91%) 9.76% 10/15/97
Micro-Cap Growth
Sub-Account (6.59%) 6.59% (n/a) n/a (n/a) n/a (-6.93%) -6.15% 10/1/97
Real Estate Securities
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (-20.39%) -19.87% 5/1/98
Templeton Developing
Markets Class 2
Sub-Account (-25.81%) -25.81% (n/a) n/a (n/a) n/a (-41.08%) -41.08% 10/1/97
</TABLE>
The average annual total return figures described above may be accompanied by
other average annual total return quotations which do not reflect the deduction
of any deferred sales charges. Such other average annual total return figures
will be calculated as described above, except that the initial $1,000 investment
will be equated to that same investment's net asset value, rather than its
surrender value, at the end of the period. The average annual rates of return,
as thus calculated, for the Sub-Accounts of the contracts described in the
Prospectus for the specified periods ended December 31, 1998 are shown in the
table below. Inasmuch as no deferred sales charges are reflected in these
figures, they are the same for both the flexible premium and the single premium
contracts. The figures in parentheses show what the average annual rates of
return, without the application of applicable deferred sales charges, would have
been had Minnesota Life not absorbed Fund expenses as described above.
9
<PAGE>
<TABLE>
<CAPTION>
Year Ended Five Years Ten Years From Inception Date of
12/31/98 Ended 12/31/98 Ended 12/31/98 to 12/31/98 Inception
-------- -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Sub-Account (33.03%) 33.03% (19.90%) 19.90% (15.75%) 15.76% (n/a) n/a 12/3/85
Bond Sub-Account (4.76%) 4.76% (5.11%) 5.11% (7.21%) 7.24% (n/a) n/a 12/3/85
Money Market
Sub-Account (3.68%) 3.68% (3.42%) 3.53% (3.69%) 3.86% (n/a) n/a 12/3/85
Asset Allocation
Sub-Account (22.11%) 22.11% (13.90%) 13.90% (12.68%) 12.68% (n/a) n/a 12/3/85
Mortgage Securities
Sub-Account (5.25%) 5.25% (5.57%) 5.57% (7.51%) 7.53% (n/a) n/a 6/1/87
Index 500 Sub-Account (26.40%) 26.40% (21.80%) 21.80% (17.04%) 17.06% (n/a) n/a 6/1/87
Capital Appreciation
Sub-Account (29.21%) 29.21% (18.41%) 18.41% (17.11%) 17.16% (n/a) n/a 6/1/87
International Stock
Sub-Account (5.28%) 5.28% (8.86%) 8.86% (n/a) n/a (11.04%) 11.05% 5/1/92
Small Company Growth
Sub-Account (.01%) .01% (8.87%) 8.87% (n/a) n/a (10.71%) 10.71% 5/3/93
Maturing Government
Bond 2002
Sub-Account (7.65%) 8.25% (n/a) n/a (n/a) n/a (7.12%) 7.98% 5/2/94
Maturing Government
Bond 2006
Sub-Account (12.32%) 12.95% (n/a) n/a (n/a) n/a (9.81%) 10.88% 5/2/94
Maturing Government
Bond 2010
Sub-Account (11.47%) 12.86% (n/a) n/a (n/a) n/a (10.41%) 12.43% 5/2/94
10
<PAGE>
Value Stock
Sub-Account (.49%) .49% (n/a) n/a (n/a) n/a (17.38%) 17.44% 5/2/94
Small Company Value
Sub-Account (-8.57%) -7.91% (n/a) n/a (n/a) n/a (-4.98%) -4.90% 10/1/97
Global Bond
Sub-Account (14.73%) 14.73% (n/a) n/a (n/a) n/a (11.39%) 11.39% 10/1/97
Index 400 Mid-Cap
Sub-Account (14.61%) 15.23% (n/a) n/a (n/a) n/a (11.45%) 11.76% 10/1/97
Macro-Cap Value
Sub-Account (19.12%) 20.39% (n/a) n/a (n/a) n/a (13.37%) 14.22% 10/15/97
Micro-Cap Growth
Sub Account (12.03%) 12.03% (n/a) n/a (n/a) n/a (-3.23%) -2.45% 10/1/97
Real Estate
Securities
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (-16.14%) -15.62% 5/1/98
Templeton Developing
Markets Class 2
Sub-Account (-22.02%) -22.02% (n/a) n/a (n/a) n/a (-38.76%) -38.76% 10/1/97
</TABLE>
11
<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) to the power of 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 Company may
12
<PAGE>
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 any other date, however, may be
materially different.
AUDITORS
The consolidated financial statements of Minnesota Life and 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.
13
<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,
(class of contracts offered for combination Fixed and Variable Annuity Contracts
for Personal Retirement Plans) 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, 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, 94,003,103 shares at net asset value of $2.74 per share
(cost $197,886,788) ................................................. $257,371,001 -- --
Bond Portfolio, 98,249,569 shares at net asset value of $1.31 per share
(cost $123,612,781) ................................................. -- 128,491,296 --
Money Market Portfolio, 47,299,577 shares at net asset value of $1.00 per
share (cost $47,299,577) ............................................ -- -- 47,299,577
Asset Allocation Portfolio, 211,542,785 shares at net asset value of $2.28 per
share (cost $362,699,530) ........................................... -- -- --
Mortgage Securities Portfolio, 78,556,912 shares at net asset value of $1.22
per share (cost $91,794,459) ........................................ -- -- --
Index 500 Portfolio, 74,787,567 shares at net asset value of $3.91 per share
(cost $176,991,696) ................................................. -- -- --
Capital Appreciation Portfolio, 73,720,445 shares at net asset value of $3.54
per share (cost $161,670,705) ....................................... -- -- --
----------- ----------- ----------
257,371,001 128,491,296 47,299,577
Receivable for investments sold ....................................................... 325,092 48,892 62,236
Receivable from Minnesota Life for contract purchase payments ......................... 169,062 274,993 1,098,254
----------- ----------- ----------
Total assets ....................................................... 257,865,155 128,815,181 48,460,067
----------- ----------- ----------
LIABILITIES
-----------
Payable for investments purchased ..................................................... 169,062 274,993 1,098,254
Payable to Minnesota Life for contract terminations and mortality and
expense charges .............................................................. 325,092 48,892 62,236
----------- ----------- ----------
Total liabilities .................................................. 494,154 323,885 1,160,490
----------- ----------- ----------
Net assets applicable to annuity contract owners ................... $257,371,001 128,491,296 47,299,577
----------- ----------- ----------
----------- ----------- ----------
CONTRACT OWNERS' EQUITY
-----------------------
Contracts in accumulation period ...................................................... $255,058,590 127,221,435 47,267,368
Contracts in annuity payment period (note 2) .......................................... 2,312,411 1,269,861 32,209
----------- ----------- ----------
Total contract owners' equity ...................................... $257,371,001 128,491,296 47,299,577
----------- ----------- ----------
----------- ----------- ----------
ACCUMULATION UNITS OUTSTANDING ........................................................ 47,805,851 51,341,159 27,959,675
----------- ----------- ----------
----------- ----------- ----------
NET ASSET VALUE PER ACCUMULATION UNIT ................................................. $ 5.34 2.48 1.69
----------- ----------- ----------
----------- ----------- ----------
<CAPTION>
ASSET MORTGAGE INDEX
ASSETS ALLOCATION SECURITIES 500
------ ---------- ---------- -----
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
Growth Portfolio, 94,003,103 shares at net asset value of $2.74 per share
(cost $197,886,788) ................................................. -- -- --
Bond Portfolio, 98,249,569 shares at net asset value of $1.31 per share
(cost $123,612,781) ................................................. -- -- --
Money Market Portfolio, 47,299,577 shares at net asset value of $1.00 per
share (cost $47,299,577) ............................................ -- -- --
Asset Allocation Portfolio, 211,542,785 shares at net asset value of $2.28 per
share (cost $362,699,530) ........................................... 482,075,635 -- --
Mortgage Securities Portfolio, 78,556,912 shares at net asset value of $1.22
per share (cost $91,794,459) ........................................ -- 95,659,587 --
Index 500 Portfolio, 74,787,567 shares at net asset value of $3.91 per share
(cost $176,991,696) ................................................. -- -- 292,413,852
Capital Appreciation Portfolio, 73,720,445 shares at net asset value of $3.54
per share (cost $161,670,705) ....................................... -- -- --
----------- ----------- ----------
482,075,635 95,659,587 292,413,852
Receivable for investments sold ....................................................... 514,008 83,628 384,838
Receivable from Minnesota Life for contract purchase payments ......................... 562,192 105,140 305,777
----------- ----------- ----------
Total assets ....................................................... 483,151,835 95,848,355 293,104,467
----------- ----------- ----------
LIABILITIES
-----------
Payable for investments purchased ..................................................... 562,192 105,140 305,777
Payable to Minnesota Life for contract terminations and mortality and
expense charges .............................................................. 514,008 83,628 384,838
----------- ----------- ----------
Total liabilities .................................................. 1,076,200 188,768 690,615
----------- ----------- ----------
Net assets applicable to annuity contract owners ................... 482,075,635 95,659,587 292,413,852
----------- ----------- ----------
----------- ----------- ----------
CONTRACT OWNERS' EQUITY
-----------------------
Contracts in accumulation period ...................................................... 477,139,024 94,686,890 289,871,970
Contracts in annuity payment period (note 2) .......................................... 4,936,611 972,697 2,541,882
----------- ----------- ----------
Total contract owners' equity ...................................... 482,075,635 95,659,587 292,413,852
----------- ----------- ----------
----------- ----------- ----------
ACCUMULATION UNITS OUTSTANDING ........................................................ 120,373,228 41,507,338 60,268,563
----------- ----------- ----------
----------- ----------- ----------
NET ASSET VALUE PER ACCUMULATION UNIT ................................................. 3.96 2.28 4.81
----------- ----------- ----------
----------- ----------- ----------
<CAPTION>
CAPITAL
ASSETS APPRECIATION
------ ------------
<S> <C>
Investments in shares of Advantus Series Fund, Inc.:
Growth Portfolio, 94,003,103 shares at net asset value of $2.74 per share
(cost $197,886,788) ................................................. --
Bond Portfolio, 98,249,569 shares at net asset value of $1.31 per share
(cost $123,612,781) ................................................. --
Money Market Portfolio, 47,299,577 shares at net asset value of $1.00 per
share (cost $47,299,577) ............................................ --
Asset Allocation Portfolio, 211,542,785 shares at net asset value of $2.28 per
share (cost $362,699,530) ........................................... --
Mortgage Securities Portfolio, 78,556,912 shares at net asset value of $1.22
per share (cost $91,794,459) ........................................ --
Index 500 Portfolio, 74,787,567 shares at net asset value of $3.91 per share
(cost $176,991,696) ................................................. --
Capital Appreciation Portfolio, 73,720,445 shares at net asset value of $3.54
per share (cost $161,670,705) ....................................... 260,697,605
-----------
260,697,605
Receivable for investments sold ....................................................... 239,801
Receivable from Minnesota Life for contract purchase payments ......................... 188,355
-----------
Total assets ....................................................... 261,125,761
-----------
LIABILITIES
-----------
Payable for investments purchased ..................................................... 188,355
Payable to Minnesota Life for contract terminations and mortality and
expense charges .............................................................. 239,801
-----------
Total liabilities .................................................. 428,156
-----------
Net assets applicable to annuity contract owners ................... 260,697,605
-----------
-----------
CONTRACT OWNERS' EQUITY
-----------------------
Contracts in accumulation period ...................................................... 258,392,646
Contracts in annuity payment period (note 2) .......................................... 2,304,959
-----------
Total contract owners' equity ...................................... 260,697,605
-----------
-----------
ACCUMULATION UNITS OUTSTANDING ........................................................ 53,894,481
-----------
-----------
NET ASSET VALUE PER ACCUMULATION UNIT ................................................. 4.79
-----------
-----------
</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, 117,603,347 shares at net asset value of $1.73
per share (cost $174,954,141) . ..................................... $203,425,205 -- --
Small Company Portfolio, 75,276,968 shares at net asset value of $1.68 per
share (cost $112,397,748) . ......................................... -- 126,110,836 --
Maturing Government Bond 1998 Portfolio, 0 shares at net asset value
of $0.00 per share (cost $0) . ...................................... -- -- --
Maturing Government Bond 2002 Portfolio, 5,746,044 shares at net asset
value of $1.11 per share (cost $6,204,450) . ........................ -- -- --
Maturing Government Bond 2006 Portfolio, 5,165,994 shares at net asset
value of $1.25 per share (cost $5,970,483) . ........................ -- -- --
Maturing Government Bond 2010 Portfolio, 3,853,561 shares at net asset
value of $1.41 per share (cost $4,820,907) . ........................ -- -- --
Value Stock Portfolio, 86,165,729 shares at net asset value of $1.76 per
share (cost $139,531,689) . ......................................... -- -- --
----------- ----------- -----------
203,425,205 126,110,836 --
Receivable for investments sold ....................................................... 282,159 147,136 --
Receivable from Minnesota Life for contract purchase payments . ....................... 146,321 151,611 --
----------- ----------- -----------
Total assets ........................................................ 203,853,685 126,409,583 --
----------- ----------- -----------
LIABILITIES
Payable for investments purchased ..................................................... 146,321 151,611 --
Payable to Minnesota Life for contract terminations and mortality and
expense charges .............................................................. 282,159 147,136 --
----------- ----------- -----------
Total liabilities ................................................... 428,480 298,747 --
----------- ----------- -----------
Net assets applicable to annuity contract owners .................... $203,425,205 126,110,836 --
----------- ----------- -----------
----------- ----------- -----------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period ...................................................... $201,327,567 124,257,847 --
Contracts in annuity payment period (note 2) . ........................................ 2,097,638 1,852,989 --
----------- ----------- -----------
Total contract owners' equity ...................................... $203,425,205 126,110,836 --
----------- ----------- -----------
----------- ----------- -----------
ACCUMULATION UNITS OUTSTANDING ........................................................ 99,956,739 69,789,850 --
----------- ----------- -----------
----------- ----------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT ................................................. $ 2.01 1.78 --
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
MATURING MATURING MATURING
GOVERNMENT GOVERNMENT GOVERNMENT
ASSETS BOND 2002 BOND 2006 BOND 2010
------ --------- --------- ---------
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
International Stock Portfolio, 117,603,347 shares at net asset value of $1.73
per share (cost $174,954,141) . ..................................... -- -- --
Small Company Portfolio, 75,276,968 shares at net asset value of $1.68 per
share (cost $112,397,748) . ......................................... -- -- --
Maturing Government Bond 1998 Portfolio, 0 shares at net asset value
of $0.00 per share (cost $0) . ...................................... -- -- --
Maturing Government Bond 2002 Portfolio, 5,746,044 shares at net asset
value of $1.11 per share (cost $6,204,450) . ........................ 6,353,702 -- --
Maturing Government Bond 2006 Portfolio, 5,165,994 shares at net asset
value of $1.25 per share (cost $5,970,483) . ........................ -- 6,474,886 --
Maturing Government Bond 2010 Portfolio, 3,853,561 shares at net asset
value of $1.41 per share (cost $4,820,907) . ........................ -- -- 5,432,213
Value Stock Portfolio, 86,165,729 shares at net asset value of $1.76 per
share (cost $139,531,689) . ......................................... -- -- --
----------- ----------- -----------
6,353,702 6,474,886 5,432,213
Receivable for investments sold ....................................................... 317 324 269
Receivable from Minnesota Life for contract purchase payments . ....................... 21 3,579 263
----------- ----------- -----------
Total assets ........................................................ 6,354,040 6,478,789 5,432,745
----------- ----------- -----------
LIABILITIES
Payable for investments purchased ..................................................... 21 3,579 263
Payable to Minnesota Life for contract terminations and mortality and
expense charges .............................................................. 317 324 269
----------- ----------- -----------
Total liabilities ................................................... 338 3,903 532
----------- ----------- -----------
Net assets applicable to annuity contract owners .................... 6,353,702 6,474,886 5,432,213
----------- ----------- -----------
----------- ----------- -----------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period ...................................................... 6,329,988 6,094,868 5,061,491
Contracts in annuity payment period (note 2) . ........................................ 23,714 380,018 370,722
----------- ----------- -----------
Total contract owners' equity ...................................... 6,353,702 6,474,886 5,432,213
----------- ----------- -----------
----------- ----------- -----------
ACCUMULATION UNITS OUTSTANDING ........................................................ 4,526,963 3,881,227 3,046,112
----------- ----------- -----------
----------- ----------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT ................................................. 1.40 1.57 1.66
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
VALUE
ASSETS STOCK
------ -----
<S> <C>
Investments in shares of Advantus Series Fund, Inc.:
International Stock Portfolio, 117,603,347 shares at net asset value of $1.73
per share (cost $174,954,141) . ..................................... --
Small Company Portfolio, 75,276,968 shares at net asset value of $1.68 per
share (cost $112,397,748) . ......................................... --
Maturing Government Bond 1998 Portfolio, 0 shares at net asset value
of $0.00 per share (cost $0) . ...................................... --
Maturing Government Bond 2002 Portfolio, 5,746,044 shares at net asset
value of $1.11 per share (cost $6,204,450) . ........................ --
Maturing Government Bond 2006 Portfolio, 5,165,994 shares at net asset
value of $1.25 per share (cost $5,970,483) . ........................ --
Maturing Government Bond 2010 Portfolio, 3,853,561 shares at net asset
value of $1.41 per share (cost $4,820,907) . ........................ --
Value Stock Portfolio, 86,165,729 shares at net asset value of $1.76 per
share (cost $139,531,689) . ......................................... 151,610,308
-----------
151,610,308
Receivable for investments sold ....................................................... 119,611
Receivable from Minnesota Life for contract purchase payments . ....................... 76,414
-----------
Total assets ........................................................ 151,806,333
-----------
LIABILITIES
Payable for investments purchased ..................................................... 76,414
Payable to Minnesota Life for contract terminations and mortality and
expense charges .............................................................. 119,611
-----------
Total liabilities ................................................... 196,025
-----------
Net assets applicable to annuity contract owners .................... 151,610,308
-----------
-----------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period ...................................................... 149,650,502
Contracts in annuity payment period (note 2) . ........................................ 1,959,806
-----------
Total contract owners' equity ...................................... 151,610,308
-----------
-----------
ACCUMULATION UNITS OUTSTANDING ........................................................ 69,982,001
-----------
-----------
NET ASSET VALUE PER ACCUMULATION UNIT ................................................. 2.14
-----------
-----------
</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, 7,920,123 shares at net asset value
of $0.95 per share (cost $7,963,923) ............................$ 7,510,606 -- --
Global Bond Portfolio, 29,347,222 shares at net asset
value of $1.05 per share (cost $29,703,500) ..................... -- 30,774,160 --
Index 400 Mid-Cap Portfolio, 7,921,934 shares at net asset value of $1.15
per share (cost $8,146,107) . ................................... -- -- 9,105,647
Macro-Cap Value Portfolio, 8,856,494 shares at net asset value of $1.14
per share (cost $9,213,458) ..................................... -- -- --
Micro-Cap Growth Portfolio, 7,112,227 shares at net asset value of $1.01
per share (cost $6,776,080) ..................................... -- -- --
Real Estate Securities Portfolio, 6,089,612 shares at net asset value
of $.83 per share (cost $5,919,075) ............................. -- -- --
Investment in shares of Templeton Variable Products Series Fund:
Templeton Developing Markets Fund - Class 2, 575,016 shares at net
asset value of $5.12 per share (cost $3,475,444) ................ -- -- --
--------- ---------- ---------
7,510,606 30,774,160 9,105,647
Receivable for investments sold ................................................... 3,644 5,596 6,404
Receivable from Minnesota Life for contract purchase payments ..................... 15,117 3,039 1,315
--------- ---------- ---------
Total assets ................................................... 7,529,367 30,782,795 9,113,366
--------- ---------- ---------
LIABILITIES
Payable for investments purchased ................................................. 15,117 3,039 1,315
Payable to Minnesota Life for contract terminations and mortality and
expense charges .......................................................... 3,644 5,596 6,404
--------- ---------- ---------
Total liabilities .............................................. 18,761 8,635 7,719
--------- ---------- ---------
Net assets applicable to annuity contract owners . .............$ 7,510,606 30,774,160 9,105,647
--------- ---------- ---------
--------- ---------- ---------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period ..................................................$ 7,155,427 30,698,268 9,037,135
Contracts in annuity payment period (note 2) . .................................... 355,179 75,892 68,512
--------- ---------- ---------
Total contract owners' equity ..................................$ 7,510,606 30,774,160 9,105,647
--------- ---------- ---------
--------- ---------- ---------
ACCUMULATION UNITS OUTSTANDING .................................................... 7,555,601 26,841,307 7,779,280
--------- ---------- ---------
--------- ---------- ---------
NET ASSET VALUE PER ACCUMULATION UNIT . ...........................................$ 0.95 1.14 1.16
--------- ---------- ---------
--------- ---------- ---------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------
REAL TEMPLETON
MACRO-CAP MICRO-CAP ESTATE DEVELOPING
ASSETS VALUE GROWTH SECURITES MARKETS
------ ----- ------ --------- -------
<S> <C> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
Small Company Value Portfolio, 7,920,123 shares at net asset value
of $0.95 per share (cost $7,963,923) ............................ -- -- -- --
Global Bond Portfolio, 29,347,222 shares at net asset
value of $1.05 per share (cost $29,703,500) ..................... -- -- -- --
Index 400 Mid-Cap Portfolio, 7,921,934 shares at net asset value of $1.15
per share (cost $8,146,107) . ................................... -- -- -- --
Macro-Cap Value Portfolio, 8,856,494 shares at net asset value of $1.14
per share (cost $9,213,458) ..................................... 10,092,791 -- -- --
Micro-Cap Growth Portfolio, 7,112,227 shares at net asset value of $1.01
per share (cost $6,776,080) ..................................... -- 7,173,591 -- --
Real Estate Securities Portfolio, 6,089,612 shares at net asset value
of $.83 per share (cost $5,919,075) ............................. -- -- 5,065,605 --
Investment in shares of Templeton Variable Products Series Fund:
Templeton Developing Markets Fund - Class 2, 575,016 shares at net
asset value of $5.12 per share (cost $3,475,444) ................ -- -- -- 2,944,084
---------- --------- --------- ---------
10,092,791 7,173,591 5,065,605 2,944,084
Receivable for investments sold ................................................... 15,488 1,723 251 2,766
Receivable from Minnesota Life for contract purchase payments ..................... 25,299 14,963 -- 4,508
---------- --------- --------- ---------
Total assets ................................................... 10,133,578 7,190,277 5,065,856 2,951,358
---------- --------- --------- ---------
LIABILITIES
Payable for investments purchased ................................................. 25,299 14,963 -- 4,508
Payable to Minnesota Life for contract terminations and mortality and
expense charges .......................................................... 15,488 1,723 251 2,766
---------- --------- --------- ---------
Total liabilities .............................................. 40,787 16,686 251 7,274
---------- --------- --------- ---------
Net assets applicable to annuity contract owners . ............. 10,092,791 7,173,591 5,065,605 2,944,084
---------- --------- --------- ---------
---------- --------- --------- ---------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period .................................................. 9,972,628 7,083,984 5,053,408 2,656,405
Contracts in annuity payment period (note 2) . .................................... 120,163 89,607 12,197 287,679
---------- --------- --------- ---------
Total contract owners' equity .................................. 10,092,791 7,173,591 5,065,605 2,944,084
---------- --------- --------- ---------
---------- --------- --------- ---------
ACCUMULATION UNITS OUTSTANDING .................................................... 8,485,870 6,922,652 5,887,391 4,908,432
---------- --------- --------- ---------
---------- --------- --------- ---------
NET ASSET VALUE PER ACCUMULATION UNIT . ........................................... 1.18 1.02 0.86 0.54
---------- --------- --------- ---------
---------- --------- --------- ---------
</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) ................................................. $ 1,859,402 6,308,157 1,801,627
Mortality and expense charges (note 3) ........................ (2,658,497) (1,451,761) (466,160)
------------ ----------- ----------
Investment income (loss) - net ....................... (799,095) 4,856,396 1,335,467
------------ ----------- ----------
Realized and unrealized gains on investments - net:
Realized gain distributions from underlying mutual fund
(note 4) ................................................. 29,572,509 1,328,811 --
------------ ----------- ----------
Realized gains on sales of investments:
Proceeds from sales .................................. 39,308,322 22,847,141 59,283,909
Cost of investments sold . ........................... (33,878,954) (22,126,231) (59,283,909)
------------ ----------- ----------
5,429,368 720,910 --
------------ ----------- ----------
Net realized gains on investments . .................. 35,001,877 2,049,721 --
------------ ----------- ----------
Net change in unrealized appreciation or depreciation
of investments . ..................................... 28,069,491 (1,445,486) --
------------ ----------- ----------
Net gains on investments ............................. 63,071,368 604,235 --
------------ ----------- ----------
Net increase in net assets resulting from operations ................... $ 62,272,273 5,460,631 1,335,467
------------ ----------- ----------
------------ ----------- ----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------
ASSET MORTGAGE INDEX CAPITAL
ALLOCATION SECURITIES 500 APPRECIATION
---------- ---------- --- ------------
<S> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund
(note 4) ................................................. 10,876,616 4,487,874 2,096,613 --
Mortality and expense charges (note 3) ........................ (5,328,444) (1,072,947) (3,127,575) (2,774,930)
---------- ---------- ---------- ----------
Investment income (loss) - net ....................... 5,548,172 3,414,927 (1,030,962) (2,774,930)
---------- ---------- ---------- ----------
Realized and unrealized gains on investments - net:
Realized gain distributions from underlying mutual fund
(note 4) ................................................. 27,640,228 -- 1,314,187 11,860,550
---------- ---------- ---------- ----------
Realized gains on sales of investments:
Proceeds from sales .................................. 71,500,366 19,121,086 46,124,045 37,775,712
Cost of investments sold . ........................... (58,642,221) (18,479,944) (29,896,003) (26,791,956)
---------- ---------- ---------- ----------
12,858,145 641,142 16,228,042 10,983,756
---------- ---------- ---------- ----------
Net realized gains on investments . .................. 40,498,373 641,142 17,542,229 22,844,306
---------- ---------- ---------- ----------
Net change in unrealized appreciation or depreciation
of investments . ..................................... 40,865,562 232,383 41,483,907 37,765,909
---------- ---------- ---------- ----------
Net gains on investments ............................. 81,363,935 873,525 59,026,136 60,610,215
---------- ---------- ---------- ----------
Net increase in net assets resulting from operations ................... 86,912,107 4,288,452 57,995,174 57,835,285
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</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) . $ 5,592,851 -- 303,626
Mortality and expense charges (note 3) ............................... (2,627,480) (1,521,739) (38,123)
--------------- ------------- -------------
Investment income (loss) - net . ............................ 2,965,371 (1,521,739) 265,503
--------------- ------------- -------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ..... 5,506,316 -- 1,501
--------------- ------------- -------------
Realized gains on sales of investments:
Proceeds from sales . ....................................... 44,891,177 26,285,629 5,898,708
Cost of investments sold .................................... (38,205,149) (24,630,423) (5,813,258)
--------------- ------------- -------------
6,686,028 1,655,206 85,450
--------------- ------------- -------------
Net realized gains on investments . ......................... 12,192,344 1,655,206 86,951
--------------- ------------- -------------
Net change in unrealized appreciation or depreciation
of investments . ............................................ (5,554,561) (857,220) (225,451)
--------------- ------------- -------------
Net gains (losses) on investments ........................... 6,637,783 797,986 (138,500)
--------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations . ............. $ 9,603,154 (723,753) 127,003
--------------- ------------- -------------
--------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------
MATURING MATURING MATURING
GOVERNMENT GOVERNMENT GOVERNMENT
BOND BOND BOND VALUE
2002 2006 2010 STOCK
---------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) . 302,585 302,849 155,776 --
Mortality and expense charges (note 3) ............................... (59,792) (60,904) (47,738) (1,884,495)
---------- ------------- ------------ -----------
Investment income (loss) - net . ............................ 242,793 241,945 108,038 (1,884,495)
---------- ------------- ------------ -----------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ..... 62,949 23,931 3,111 238,703
---------- ------------- ------------ -----------
Realized gains on sales of investments:
Proceeds from sales . ....................................... 587,770 1,328,360 1,527,770 40,386,591
Cost of investments sold .................................... (551,582) (1,198,645) (1,358,711) (38,526,920)
---------- ------------- ------------ -----------
36,188 129,715 169,059 1,859,671
---------- ------------- ------------ -----------
Net realized gains on investments . ........................ 99,137 153,646 172,170 2,098,374
---------- ------------- ------------ -----------
Net change in unrealized appreciation or depreciation
of investments . ........................................... 23,772 207,803 225,554 (224,889)
---------- ------------- ------------ -----------
Net gains (losses) on investments .......................... 122,909 361,449 397,724 1,873,485
---------- ------------- ------------ -----------
Net increase (decrease) in net assets resulting from operations . ............ 365,702 603,394 505,762 (11,010)
---------- ------------- ------------ -----------
---------- ------------- ------------ -----------
</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 MACRO-CAP
VALUE BOND MID-CAP VALUE
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) ..... $ 98,412 1,736,442 57,207 41,587
Mortality and expense charges(note 3) ................................... (73,235) (334,067) (77,967) (101,166)
----------- ------------ ---------- -----------
Investment income (loss) - net ........................................ 25,177 1,402,375 (20,760) (59,579)
----------- ------------ ---------- -----------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ......... - 792,473 160,756 399,366
----------- ------------ ---------- -----------
Realized gains (losses) on sales of investments:
Proceeds from sales ................................................... 3,494,411 3,178,064 2,726,451 2,646,097
Cost of investments sold .............................................. (3,417,008) (3,107,480) (2,604,717) (2,566,484)
----------- ------------ ---------- -----------
77,403 70,584 121,734 79,613
----------- ------------ ---------- -----------
Net realized gains (losses) on investments ............................ 77,403 863,057 282,490 478,979
----------- ------------ ---------- -----------
Net change in unrealized appreciation or depreciation
of investments ..................................................... (605,890) 1,472,544 911,492 995,598
----------- ------------ ---------- -----------
Net gains (losses) on investments ..................................... (528,487) 2,335,601 1,193,982 1,474,577
----------- ------------ ---------- -----------
Net increase (decrease) in net assets resulting from operations ............... $(503,310) 3,737,976 1,173,222 1,414,998
----------- ------------ ---------- -----------
----------- ------------ ---------- -----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------
Real Templeton
Micro-Cap Estate Developing
Growth Securites(a) Markets
--------------- ---------------- -------------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) ...... - 194,366 14,588
Mortality and expense charges (note 3) .................................... (65,447) (39,576) (21,517)
--------------- ---------------- -------------
Investment income (loss) - net ......................................... (65,447) 154,790 (6,929)
--------------- ---------------- -------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) .......... - - 8,955
--------------- ---------------- -------------
Realized gains (losses) on sales of investments:
Proceeds from sales .................................................... 1,459,625 130,832 160,004
Cost of investments sold ............................................... (1,553,341) (152,556) (209,334)
--------------- ---------------- -------------
(93,716) (21,724) (49,330)
--------------- ---------------- -------------
Net realized gains (losses) on investments ............................. (93,716) (21,724) (40,375)
--------------- ---------------- -------------
Net change in unrealized appreciation or depreciation
of investments ...................................................... 947,708 (853,470) (426,587)
--------------- ---------------- -------------
Net gains (losses) on investments ...................................... 853,992 (875,194) (466,962)
--------------- ---------------- -------------
Net increase (decrease) in net assets resulting from operations ................ 788,545 (720,404) (473,891)
--------------- ---------------- -------------
--------------- ---------------- -------------
</TABLE>
(a) For the period from April 24, 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 ASSET
GROWTH BOND MARKET ALLOCATION
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net ...................................... $ (799,095) 4,856,396 1,335,467 5,548,172
Net realized gains on investments ................................... 35,001,877 2,049,721 - 40,498,373
Net change in unrealized appreciation or depreciation
of investments ................................................... 28,069,491 (1,445,486) - 40,865,562
------------- ------------ ------------ ------------
Net increase in net assets resulting from operations ..................... 62,272,273 5,460,631 1,335,467 86,912,107
------------- ------------ ------------ ------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments .......................................... 51,637,934 41,441,722 72,457,091 70,303,040
Contract terminations and withdrawal payments ....................... (36,450,685) (21,212,178) (58,811,259) (65,726,252)
Actuarial adjustments for mortality experience on annuities
in payment period ................................................ 1,950 (43,058) 27 (4,603)
Annuity benefit payments ............................................ (201,089) (140,143) (6,516) (441,066)
------------- ------------ ------------ ------------
Increase in net assets from contract transactions ........................ 14,988,110 20,046,343 13,639,343 4,131,119
------------- ------------ ------------ ------------
Increase in net assets ................................................... 77,260,383 25,506,974 14,974,810 91,043,226
Net assets at the beginning of year ...................................... 180,110,618 102,984,322 32,324,767 391,032,409
------------- ------------ ------------ ------------
Net assets at the end of year ............................................ $257,371,001 128,491,296 47,299,577 482,075,635
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------
MORTGAGE INDEX CAPITAL
SECURITIES 500 APPRECIATION
-------------- --------------- ----------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ............................................ 3,414,927 (1,030,962) (2,774,930)
Net realized gains on investments ......................................... 641,142 17,542,229 22,844,306
Net change in unrealized appreciation or depreciation
of investments ......................................................... 232,383 41,483,907 37,765,909
-------------- --------------- ----------------
Net increase in net assets resulting from operations ........................... 4,288,452 57,995,174 57,835,285
-------------- --------------- ----------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ................................................ 33,557,094 67,949,692 37,672,274
Contract terminations and withdrawal payments ............................. (17,949,781) (42,752,201) (34,786,814)
Actuarial adjustments for mortality experience on annuities
in payment period ...................................................... (12,738) (13,196) (1,165)
Annuity benefit payments .................................................. (85,620) (231,073) (212,803)
-------------- --------------- ----------------
Increase in net assets from contract transactions .............................. 15,508,955 24,953,222 2,671,492
-------------- --------------- ----------------
Increase in net assets ......................................................... 19,797,407 82,948,396 60,506,777
Net assets at the beginning of year ............................................ 75,862,180 209,465,456 200,190,828
-------------- --------------- ----------------
Net assets at the end of year .................................................. 95,659,587 292,413,852 260,697,605
-------------- --------------- ----------------
-------------- --------------- ----------------
</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 MATURING
GOVERNMENT GOVERNMENT
INTERNATIONAL SMALL BOND BOND
STOCK COMPANY 1998(a) 2002
------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net ....................................... $ 2,965,371 (1,521,739) 265,503 242,793
Net realized gains on investments .................................... 12,192,344 1,655,206 86,951 99,137
Net change in unrealized appreciation or depreciation
of investments .................................................... (5,554,561) (857,220) (225,451) 23,772
------------- ------------ ------------- -----------
Net increase in net assets resulting from operations ...................... 9,603,154 (723,753) 127,003 365,702
------------- ------------ ------------- -----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ........................................... 36,659,650 28,012,351 1,136,821 2,697,576
Contract terminations and withdrawal payments ........................ (42,040,850) (24,558,706) (5,860,095) (536,207)
Actuarial adjustments for mortality experience on annuities
in payment period ................................................. (2,076) (34,522) 39 11,619
Annuity benefit payments ............................................. (220,772) (170,663) (529) (3,389)
------------- ------------ ------------- -----------
Increase (decrease) in net assets from contract transactions ............. (5,604,048) 3,248,460 (4,723,764) 2,169,599
------------- ------------ ------------- -----------
Increase in net assets .................................................... 3,999,106 2,524,707 (4,596,761) 2,535,301
Net assets at the beginning of year ....................................... 199,426,099 123,586,129 4,596,761 3,818,401
------------- ------------ ------------- -----------
Net assets at the end of year ............................................. $203,425,205 126,110,836 - 6,353,702
------------- ------------ ------------- -----------
------------- ------------ ------------- -----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
MATURING MATURING
GOVERNMENT GOVERNMENT
BOND BOND VALUE
2006 2010 STOCK
-------------- -------------- ------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ....................................... 241,945 108,038 (1,884,495)
Net realized gains on investments .................................... 153,646 172,170 2,098,374
Net change in unrealized appreciation or depreciation
of investments ................................................... 207,803 225,554 (224,889)
-------------- -------------- ------------
Net increase in net assets resulting from operations ...................... 603,394 505,762 (11,010)
-------------- -------------- ------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ........................................... 3,409,399 3,456,312 43,797,257
Contract terminations and withdrawal payments ........................ (1,258,332) (1,503,240) (38,307,284)
Actuarial adjustments for mortality experience on annuities
in payment period ................................................. 14,151 3,086 3,280
Annuity benefit payments ............................................. (23,275) 20,121 (198,093)
-------------- -------------- ------------
Increase (decrease) in net assets from contract transactions ............. 2,141,943 1,976,279 5,295,160
-------------- -------------- ------------
Increase in net assets .................................................... 2,745,337 2,482,041 5,284,150
Net assets at the beginning of year ....................................... 3,729,549 2,950,172 146,326,158
-------------- -------------- ------------
Net assets at the end of year ............................................. 6,474,886 5,432,213 151,610,308
-------------- -------------- ------------
-------------- -------------- ------------
</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
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------
SMALL
COMPANY GLOBAL INDEX 400 MACRO-CAP
VALUE BOND MID-CAP VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net ......................................$ 25,177 1,402,375 (20,760) (59,579)
Net realized gains (losses) on investments .......................... 77,403 863,057 282,490 478,979
Net change in unrealized appreciation or depreciation
of investments ................................................... (605,890) 1,472,544 911,492 995,598
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations .......... (503,310) 3,737,976 1,173,222 1,414,998
----------- ----------- ----------- -----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments .......................................... 6,475,581 4,876,523 5,538,756 6,338,736
Contract terminations and withdrawal payments ....................... (3,395,717) (2,838,384) (2,645,937) (2,540,858)
Actuarial adjustments for mortality experience on annuities
in payment period ................................................ (2,310) (880) (576) (869)
Annuity benefit payments ............................................ (23,150) (4,734) (1,971) (3,204)
----------- ----------- ----------- -----------
Increase in net assets from contract transactions ........................ 3,054,404 2,032,525 2,890,272 3,793,805
----------- ----------- ----------- -----------
Increase in net assets ................................................... 2,551,094 5,770,501 4,063,494 5,208,803
Net assets at the beginning of year ...................................... 4,959,512 25,003,659 5,042,153 4,883,988
----------- ----------- ----------- -----------
Net assets at the end of year ............................................$ 7,510,606 30,774,160 9,105,647 10,092,791
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------
REAL TEMPLETON
MICRO-CAP ESTATE DEVELOPING
GROWTH SECURITIES(a) MARKETS
---------- ------------- ----------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ....................................... (65,447) 154,790 (6,929)
Net realized gains (losses) on investments ........................... (93,716) (21,724) (40,375)
Net change in unrealized appreciation or depreciation
of investments .................................................... 947,708 (853,470) (426,587)
---------- ------------- ----------
Net increase (decrease) in net assets resulting from operations .......... 788,545 (720,404) (473,891)
---------- ------------- ----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ........................................... 3,203,379 5,877,266 3,575,326
Contract terminations and withdrawal payments ........................(1,387,271) (91,132) (650,918)
Actuarial adjustments for mortality experience on annuities
in payment period ................................................. (805) - (5,630)
Annuity benefit payments ............................................. (6,101) (125) (15,524)
---------- ------------- ----------
Increase in net assets from contract transactions ......................... 1,809,202 5,786,009 2,903,254
---------- ------------- ----------
Increase in net assets .................................................... 2,597,747 5,065,605 2,429,363
Net assets at the beginning of year ....................................... 4,575,844 - 514,721
---------- ------------- ----------
Net assets at the end of year ............................................. 7,173,591 5,065,605 2,944,084
---------- ------------- ----------
---------- ------------- ----------
</TABLE>
(a) For the period from April 24, 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 ASSET
GROWTH BOND MARKET ALLOCATION
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net .................................... $ (707,789) 3,423,090 1,223,041 4,703,693
Net realized gains on investments ................................. 31,433,672 448,191 - 26,148,733
Net change in unrealized appreciation or depreciation
of investments ................................................. 10,155,331 3,109,325 - 26,799,187
------------- ------------ ------------ --------------
Net increase in net assets resulting from operations ................... 40,881,214 6,980,606 1,223,041 57,651,613
------------- ------------ ------------ --------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ........................................ 37,464,249 29,678,709 52,599,130 51,665,342
Contract terminations and withdrawal payments ..................... (15,679,425) (14,483,737) (57,536,852) (41,700,448)
Actuarial adjustments for mortality experience on annuities
in payment period .............................................. 5,455 (4,132) (549,389) 550,291
Annuity benefit payments .......................................... (92,583) (80,007) (12,607) (314,868)
------------- ------------ ------------ --------------
Increase (decrease) in net assets from contract transactions ........... 21,697,696 15,110,833 (5,499,718) 10,200,317
------------- ------------ ------------ --------------
Increase (decrease) in net assets ...................................... 62,578,910 22,091,439 (4,276,677) 67,851,930
Net assets at the beginning of year .................................... 117,531,708 80,892,883 36,601,444 323,180,479
------------- ------------ ------------ --------------
Net assets at the end of year .......................................... $180,110,618 102,984,322 32,324,767 391,032,409
------------- ------------ ------------ --------------
------------- ------------ ------------ --------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------
MORTGAGE INDEX CAPITAL
SECURITIES 500 APPRECIATION
-------------- --------------- ------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ............................................ 3,393,365 (340,578) (2,167,763)
Net realized gains on investments ......................................... 258,432 10,716,907 20,271,400
Net change in unrealized appreciation or depreciation
of investments ......................................................... 1,596,944 35,139,477 23,548,588
-------------- --------------- ------------
Net increase in net assets resulting from operations ........................... 5,248,741 45,515,806 41,652,225
-------------- --------------- ------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ................................................ 18,403,459 51,509,928 27,739,494
Contract terminations and withdrawal payments ............................. (13,595,580) (22,382,897) (19,504,571)
Actuarial adjustments for mortality experience on annuities
in payment period ...................................................... 4,705 (359,445) 663
Annuity benefit payments .................................................. (44,690) (152,662) (128,627)
-------------- --------------- ------------
Increase (decrease) in net assets from contract transactions ................... 4,767,894 28,614,924 8,106,959
-------------- --------------- ------------
Increase (decrease) in net assets .............................................. 10,016,635 74,130,730 49,759,184
Net assets at the beginning of year ............................................ 65,845,545 135,334,726 150,431,644
-------------- --------------- ------------
Net assets at the end of year .................................................. 75,862,180 209,465,456 200,190,828
-------------- --------------- ------------
-------------- --------------- ------------
</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 MATURING
GOVERNMENT GOVERNMENT
INTERNATIONAL SMALL BOND BOND
STOCK COMPANY 1998 2002
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net ....................................... $ 2,703,915 (1,396,390) 183,738 142,344
Net realized gains on investments .................................... 6,738,520 2,386,100 51,633 44,461
Net change in unrealized appreciation or depreciation
of investments .................................................... 7,074,429 6,377,969 (17,138) 55,287
------------- ----------- ----------- -----------
Net increase in net assets resulting from operations ...................... 16,516,864 7,367,679 218,233 242,092
------------- ----------- ----------- -----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ........................................... 51,794,301 36,868,064 1,064,388 684,461
Contract terminations and withdrawal payments ........................ (19,345,856) (20,954,051) (1,206,624) (667,868)
Actuarial adjustments for mortality experience on annuities
in payment period ................................................. 50,457 305,163 3 24
Annuity benefit payments ............................................. (153,952) (155,161) (117) (4,611)
------------- ----------- ----------- -----------
Increase (decrease) in net assets from contract transactions .............. 32,344,950 16,064,015 (142,350) 12,006
------------- ----------- ----------- -----------
Increase in net assets .................................................... 48,861,814 23,431,694 75,883 254,098
Net assets at the beginning of year ....................................... 150,564,285 100,154,435 4,520,878 3,564,303
------------- ----------- ----------- -----------
Net assets at the end of year ............................................. $ 199,426,099 123,586,129 4,596,761 3,818,401
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
MATURING MATURING
GOVERNMENT GOVERNMENT
BOND BOND VALUE
2006 2010 STOCK
-------------- --------------- -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ....................................... 128,725 78,390 63,632
Net realized gains on investments .................................... 59,986 44,494 16,454,374
Net change in unrealized appreciation or depreciation
of investments .................................................... 172,717 236,051 2,218,967
-------------- --------------- -------------
Net increase in net assets resulting from operations ...................... 361,428 358,935 18,736,973
-------------- --------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ........................................... 743,477 823,375 68,735,594
Contract terminations and withdrawal payments ........................ (314,002) (859,199) (19,539,662)
Actuarial adjustments for mortality experience on annuities
in payment period ................................................. 24 - 25,118
Annuity benefit payments ............................................. (4,781) - (93,964)
-------------- --------------- -------------
Increase (decrease) in net assets from contract transactions .............. 424,718 (35,824) 49,127,086
-------------- --------------- -------------
Increase in net assets .................................................... 786,146 323,111 67,864,059
Net assets at the beginning of year ....................................... 2,943,403 2,627,061 78,462,099
-------------- --------------- -------------
Net assets at the end of year ............................................. 3,729,549 2,950,172 146,326,158
-------------- --------------- -------------
-------------- --------------- -------------
</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
------------------------------------------
SMALL
COMPANY GLOBAL INDEX 400
VALUE(a) BOND(b) MID-CAP(a)
------------ ---------- -----------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ....................................... $ (16,022) 284,071 (15,973)
Net realized gains (losses) on investments ........................... (5,713) 49,263 (13,549)
Net change in unrealized appreciation or depreciation
of investments .................................................... 152,573 (401,884) 48,048
------------ ---------- -----------
Net increase (decrease) in net assets resulting from operations .......... 130,838 (68,550) 18,526
------------ ---------- -----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ........................................... 5,932,017 26,233,498 5,666,129
Contract terminations and withdrawal payments ........................ (1,103,343) (1,161,289) (642,502)
Actuarial adjustments for mortality experience on annuities
in payment period ................................................. - - -
Annuity benefit payments ............................................. - - -
------------ ---------- -----------
Increase in net assets from contract transactions ......................... 4,828,674 25,072,209 5,023,627
------------ ---------- -----------
Increase in net assets .................................................... 4,959,512 25,003,659 5,042,153
Net assets at the beginning of period ..................................... - - -
------------ ---------- -----------
Net assets at the end of period ........................................... $ 4,959,512 25,003,659 5,042,153
------------ ---------- -----------
------------ ---------- -----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------
TEMPLETON
MACRO-CAP MICRO-CAP DEVELOPING
VALUE (d) GROWTH (c) MARKETS (e)
------------ ---------- -----------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ....................................... 7,428 (18,203) (749)
Net realized gains (losses) on investments ........................... (13,240) 115,314 (10,017)
Net change in unrealized appreciation or depreciation
of investments .................................................... (116,265) (550,197) (104,773)
------------ ---------- -----------
Net increase (decrease) in net assets resulting from operations .......... (122,077) (453,086) (115,539)
------------ ---------- -----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ........................................... 5,317,960 5,465,120 676,481
Contract terminations and withdrawal payments ........................ (311,895) (436,190) (45,203)
Actuarial adjustments for mortality experience on annuities
in payment period ................................................. - - (649)
Annuity benefit payments ............................................. - - (369)
------------ ---------- -----------
Increase in net assets from contract transactions ......................... 5,006,065 5,028,930 630,260
------------ ---------- -----------
Increase in net assets .................................................... 4,883,988 4,575,844 514,721
Net assets at the beginning of period ..................................... - - -
------------ ---------- -----------
Net assets at the end of period ........................................... 4,883,988 4,575,844 514,721
------------ ---------- -----------
------------ ---------- -----------
</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 OF PRESENTATION
The 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 herein include only the
segregated sub-accounts offered in connection with the sale of the
Combination Fixed and Variable Annuity Contracts for Personal Retirement
Plans (Multi-option Annuity) and Multi-Option Select.
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,
Micro-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 Portfolios 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.
INVESTMENTS IN UNDERLYING FUNDS
Investments in shares of the Underlying Funds are stated at market value
which is the net asset value per share as determined daily by each of the
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 the Underlying Funds are reinvested in additional shares of
the Underlying Funds and are recorded by the segregated sub-accounts on
the ex-dividend date.
<PAGE>
2
VARIABLE ANNUITY ACCOUNT
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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 Fund.
CONTRACTS IN ANNUITY PAYMENT PERIOD
Annuity reserves are computed for currently payable contracts according
to the mortality and assumed interest rate assumptions used to purchase
the annuity income. 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) MORTALITY AND EXPENSE AND SALES CHARGES
The mortality and expense charge paid to Minnesota Life is computed daily
and is equal, on an annual basis, to 1.25 percent of the average daily
net assets of the Account. Under certain conditions, the charge may be
increased to 1.40 percent of the average daily net assets of the Account.
A contingent deferred sales charge may be imposed on a Multi-Option
Annuity or Multi-Option Select contract owner during the first ten years
or first seven years, respectively, if a contract's accumulation value is
reduced by a withdrawal or surrender. Total sales charges deducted from
redemption proceeds for the years ended December 31, 1998 and 1997
amounted to $3,304,803 and $1,743,977, respectively.
(4) INVESTMENT TRANSACTIONS
The Account's purchases of Underlying Funds shares, including
reinvestment of dividend distributions, were as follows during the year
ended December 31, 1998:
<TABLE>
<S> <C>
Growth Portfolio ....................................... $83,069,846
Bond Portfolio ......................................... 49,078,691
Money Market Portfolio ................................. 74,258,718
Asset Allocation Portfolio ............................. 108,819,885
Mortgage Securities Portfolio .......................... 38,044,967
Index 500 Portfolio .................................... 71,360,492
Capital Appreciation Portfolio ......................... 49,532,824
International Stock Portfolio .......................... 47,758,816
Small Company Portfolio ................................ 28,012,350
Maturing Government Bond 1998 Portfolio ................ 1,441,948
Maturing Government Bond 2002 Portfolio ................ 3,063,110
Maturing Government Bond 2006 Portfolio ................ 3,736,179
Maturing Government Bond 2010 Portfolio ................ 3,615,198
Value Stock Portfolio .................................. 44,035,958
Small Company Value Portfolio .......................... 6,573,993
Global Bond Portfolio .................................. 7,405,437
Index 400 Mid-Cap Portfolio ............................ 5,756,719
Macro-Cap Value ........................................ 6,779,689
Macro-Cap Growth Portfolio ............................. 3,203,380
Real Estate Securities ................................. 6,071,631
Templeton Developing Markets Fund ...................... 2,930,782
</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 ASSET MORTGAGE
GROWTH BOND MARKET ALLOCATION SECURITIES
--------------- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1996 ....................... 38,448,452 36,732,062 22,929,634 116,211,650 32,527,955
Contract purchase
payments ............................ 10,771,702 13,082,596 32,831,960 17,230,670 8,805,041
Deductions for contract
terminations and
withdrawal payments ................. (4,514,907) (6,548,254) (35,956,753) (13,950,918) (6,581,799)
--------------- ------------ ------------ -------------- -------------
Units outstanding at
December 31, 1997 ....................... 44,705,247 43,266,404 19,804,841 119,491,402 34,751,197
Contract purchase
payments ............................ 11,145,679 16,757,246 43,552,011 19,570,064 14,779,503
Deductions for contract
terminations and
withdrawal payments ................. (8,045,075) (8,682,491) (35,397,177) (18,688,238) (8,023,362)
--------------- ------------ ------------ -------------- -------------
Units outstanding at
December 31, 1998 ....................... 47,805,851 51,341,159 27,959,675 120,373,228 41,507,338
--------------- ------------ ------------ -------------- -------------
--------------- ------------ ------------ -------------- -------------
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------
MATURING
INDEX CAPITAL INTERNATIONAL SMALL GOVERNMENT
500 APPRECIATION STOCK COMPANY BOND 1998
------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1996 ......................... 46,097,553 51,023,999 86,521,264 59,295,273 3,911,112
Contract purchase
payments .............................. 15,045,840 8,635,068 27,399,036 21,317,225 897,511
Deductions for contract
terminations and
withdrawal payments ................... (6,564,128) (6,076,586) (10,319,698) (12,021,733) (1,019,327)
------------- -------------- ------------- -------------- -------------
Units outstanding at
December 31, 1997 ......................... 54,579,265 53,582,481 103,600,602 68,590,765 3,789,296
Contract purchase
payments .............................. 15,789,448 8,967,037 17,507,237 15,655,645 914,391
Deductions for contract
terminations and
withdrawal payments ................... (10,100,150) (8,655,037) (21,151,100) (14,456,560) (4,703,687)
------------- -------------- ------------- -------------- -------------
Units outstanding at
December 31, 1998 ......................... 60,268,563 53,894,481 99,956,739 69,789,850 -
------------- -------------- ------------- -------------- -------------
------------- -------------- ------------- -------------- -------------
</TABLE>
<PAGE>
4
VARIABLE ANNUITY ACCOUNT
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - CONTINUED
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------------
MATURING MATURING MATURING SMALL
GOVERNMENT GOVERNMENT GOVERNMENT VALUE COMPANY
BOND 2002 BOND 2006 BOND 2010 STOCK VALUE
----------- -------------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1996 .............................. 2,935,860 2,334,109 2,077,124 43,796,523 -
Contract purchase
payments ................................... 553,116 580,185 624,211 34,081,601 5,910,477
Deductions for contract
terminations and
withdrawal payments ........................ (550,128) (248,873) (683,592) (9,626,989) (1,087,973)
----------- -------------- ------------ ---------- -----------
Units outstanding at
December 31, 1997 .............................. 2,938,848 2,665,421 2,017,743 68,251,135 4,822,504
Contract purchase
payments ................................... 1,966,007 2,048,990 1,948,023 20,251,001 5,908,905
Deductions for contract
terminations and
withdrawal payments ........................ (377,892) (833,184) (919,654) (18,520,135) (3,175,808)
----------- -------------- ------------ ---------- -----------
Units outstanding at
December 31, 1998 .............................. 4,526,963 3,881,227 3,046,112 69,982,001 7,555,601
----------- -------------- ------------ ---------- -----------
----------- -------------- ------------ ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------
REAL TEMPLETON
GLOBAL INDEX 400 MACRO-CAP MICRO-CAP ESTATE DEVELOPING
BOND MID-CAP VALUE GROWTH SECURITIES MARKETS
----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1996 ............................ - - - - - -
Contract purchase
payments ................................. 26,222,899 5,600,260 5,329,567 5,472,331 - 807,553
Deductions for contract
terminations and
withdrawal payments ...................... (1,139,554) (580,219) (326,177) (452,853) - (83,179)
----------- ----------- ----------- ------------ ----------- -----------
Units outstanding at
December 31, 1997 ............................ 25,083,345 5,020,041 5,003,390 5,019,478 - 724,374
Contract purchase
payments ................................. 4,365,049 5,194,349 5,753,309 3,282,037 5,998,094 5,312,035
Deductions for contract
terminations and
withdrawal payments ...................... (2,607,087) (2,435,110) (2,270,829) (1,378,864) (110,703) (1,127,977)
----------- ----------- ----------- ------------ ----------- -----------
Units outstanding at
December 31, 1998 ............................ 26,841,307 7,779,280 8,485,870 6,922,652 5,887,391 4,908,432
----------- ----------- ----------- ------------ ----------- -----------
----------- ----------- ----------- ------------ ----------- -----------
</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....................... $ 4.01 3.04 2.63 2.14 2.15
-------- ------- -------- -------- ------
Income (loss) from investment operations:
Net investment income (loss)...................... (.02) (.02) (.01) (.01) (.01)
Net gains or losses on securities
(both realized and unrealized) ................ 1.35 .99 .42 .50 -
-------- ------- -------- -------- ------
Total from investment operations ............... 1.33 .97 .41 .49 (.01)
-------- ------- -------- -------- ------
Unit value, end of year ............................ $ 5.34 4.01 3.04 2.63 2.14
-------- ------- -------- -------- ------
-------- ------- -------- -------- ------
</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 ........................ $ 2.37 2.19 2.15 1.82 1.93
-------- ------- -------- -------- ------
Income (loss) from investment operations:
Net investment income ............................. .10 .09 .08 .04 .05
Net gains or losses on securities
(both realized and unrealized) .................. .01 .09 (.04) .29 (.16)
-------- ------- -------- -------- ------
Total from investment operations ................. .11 .18 .04 .33 (.11)
-------- ------- -------- -------- ------
Unit value, end of year .............................. $ 2.48 2.37 2.19 2.15 1.82
-------- ------- -------- -------- ------
-------- ------- -------- -------- ------
</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 ........................... $ 1.63 1.57 1.52 1.46 1.42
-------- ------- -------- -------- ------
Income from investment operations:
Net investment income ................................. .06 .06 .05 .06 .04
-------- ------- -------- -------- ------
Total from investment operations .................... .06 .06 .05 .06 .04
-------- ------- -------- -------- ------
Unit value, end of year ................................. $ 1.69 1.63 1.57 1.52 1.46
-------- ------- -------- -------- ------
-------- ------- -------- -------- ------
</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 ........................ $ 3.25 2.76 2.49 2.01 2.07
-------- ------- -------- -------- ------
Income (loss) from investment operations:
Net investment income ............................. .05 .04 .04 .04 .01
Net gains or losses on securities
(both realized and unrealized) .................. .66 .45 .23 .44 (.07)
-------- ------- -------- -------- ------
Total from investment operations ................. .71 .49 .27 .48 (.06)
-------- ------- -------- -------- ------
Unit value, end of year .............................. $ 3.96 3.25 2.76 2.49 2.01
-------- ------- -------- -------- ------
-------- ------- -------- -------- ------
</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 ........................ $ 2.17 2.01 1.93 1.66 1.74
-------- ------- -------- -------- ------
Income (loss) from investment operations:
Net investment income ............................. .09 .10 .10 .10 .06
Net gains or losses on securities
(both realized and unrealized) .................. .02 .06 (.02) .17 (.14)
-------- ------- -------- -------- ------
Total from investment operations ................. .11 .16 .08 .27 (.08)
-------- ------- -------- -------- ------
Unit value, end of year .............................. $ 2.28 2.17 2.01 1.93 1.66
-------- ------- -------- -------- ------
-------- ------- -------- -------- ------
</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....................... $ 3.81 2.91 2.43 1.79 1.80
-------- ------- -------- -------- ------
Income (loss) from investment operations:
Net investment income (loss)...................... (.02) (.01) - .01 -
Net gains or losses on securities
(both realized and unrealized) ................ 1.02 .91 .48 .63 (.01)
-------- ------- -------- -------- ------
Total from investment operations ............... 1.00 .90 .48 .64 (.01)
-------- ------- -------- -------- ------
Unit value, end of year ............................ $ 4.81 3.81 2.91 2.43 1.79
-------- ------- -------- -------- ------
-------- ------- -------- -------- ------
</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 ..................... $ 3.71 2.93 2.52 2.08 2.06
-------- ------- -------- -------- ------
Income from investment operations:
Net investment loss.............................. (.05) (.04) (.03) (.03) (.02)
Net gains or losses on securities (both
realized and unrealized) ...................... 1.13 .82 .44 .47 .04
-------- ------- -------- -------- ------
Total from investment operations .............. 1.08 .78 .41 .44 .02
-------- ------- -------- -------- ------
Unit value, end of year ........................... $ 4.79 3.71 2.93 2.52 2.08
-------- ------- -------- -------- ------
-------- ------- -------- -------- ------
</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....................... $ 1.91 1.73 1.46 1.30 1.32
-------- ------- -------- -------- ------
Income (loss) from investment operations:
Net investment income (loss)..................... .03 .03 .02 (.02) .01
Net gains or losses on securities
(both realized and unrealized)................ .07 .15 .25 .18 (.03)
-------- ------- -------- -------- ------
Total from investment operations............... .10 .18 .27 .16 (.02)
-------- ------- -------- -------- ------
Unit value, end of year ........................... $ 2.01 1.91 .73 1.46 1.30
-------- ------- -------- -------- ------
-------- ------- -------- -------- ------
</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.................... $ 1.78 1.67 1.59 1.22 1.16
-------- ------- -------- -------- ------
Income from investment operations:
Net investment loss............................. (.02) (.02) (.02) (.02) (.01)
Net gains or losses on securities
(both realized and unrealized)............... .02 .13 .10 .39 .07
-------- ------- -------- -------- ------
Total from investment operations............. - .11 .08 .37 .06
-------- ------- -------- -------- ------
Unit value, end of period.......................... $ 1.78 1.78 1.67 1.59 1.22
-------- ------- -------- -------- ------
-------- ------- -------- -------- ------
</TABLE>
<PAGE>
14
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MATURING GOVERNMENT BOND 1998
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994(b)
----------------------------------------------- TO DECEMBER 31,
1998(a) 1997 1996 1995 1994
------------- -------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ...................... $ 1.21 1.16 1.12 .98 1.00
------------- -------- --------- ---------- --------------
Income (loss) from investment operations:
Net investment income (loss) ..................... .08 .04 (.01) .05 .03
Net gains or losses on securities
(both realized and unrealized) ................ (.04) .01 .05 .09 (.05)
------------- -------- --------- ---------- --------------
Total from investment operations .............. .04 .05 .04 .14 (.02)
------------- -------- --------- ---------- --------------
Transfer to other sub-accounts due to
liquidation ................................... (1.25) - - - -
------------- -------- --------- ---------- --------------
Unit value, end of period ............................. $ - 1.21 1.16 1.12 .98
------------- -------- --------- ---------- --------------
------------- -------- --------- ---------- --------------
</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>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994(a)
------------------------------------------ TO DECEMBER 31,
1998 1997 1996 1995 1994
-------- -------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ........................... $ 1.29 1.21 1.20 .97 1.00
-------- -------- --------- ---------- --------------
Income (loss) from investment operations:
Net investment income ................................. .07 .05 .06 .06 .04
Net gains or losses on securities
(both realized and unrealized) ..................... .04 .03 (.05) .17 (.07)
-------- -------- --------- ---------- --------------
Total from investment operations.................... .11 .08 .01 .23 (.03)
-------- -------- --------- ---------- --------------
Unit value, end of period ................................. $ 1.40 1.29 1.21 1.20 .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>
16
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MATURING GOVERNMENT BOND 2006
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994(a)
---------------------------------------------- TO DECEMBER 31,
1998 1997 1996 1995 1994
----------- ------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ...................... $ 1.39 1.25 1.28 .96 1.00
----------- ------- --------- -------- -------------
Income (loss) from investment operations:
Net investment income ........................... .08 .05 .06 .06 .04
Net gains or losses on securities
(both realized and unrealized) ............... .10 .09 (.09) .26 (.08)
----------- ------- --------- -------- -------------
Total from investment operations ............. .18 .14 (.03) .32 (.04)
----------- ------- --------- -------- -------------
Unit value, end of period ........................... $ 1.57 1.39 1.25 1.28 .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>
17
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MATURING GOVERNMENT BOND 2010
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994(a)
------------------------------------------ TO DECEMBER 31,
1998 1997 1996 1995 1994
-------- -------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ........................... $ 1.47 1.27 1.33 .95 1.00
-------- -------- --------- ---------- --------------
Income (loss) from investment operations:
Net investment income (loss) ........................ .05 .04 (.02) .06 .04
Net gains or losses on securities
(both realized and unrealized) .................. .14 .16 (.04) .32 (.09)
-------- -------- --------- ---------- --------------
Total from investment operations ................ .19 .20 (.06) .38 (.05)
-------- -------- --------- ---------- --------------
Unit value, end of period ................................. $ 1.66 1.47 1.27 1.33 .95
-------- -------- --------- ---------- --------------
-------- -------- --------- ---------- --------------
</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>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994(a)
------------------------------------------ TO DECEMBER 31,
1998 1997 1996 1995 1994
-------- -------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period .............................. $ 2.13 1.78 1.38 1.05 1.00
-------- -------- --------- ---------- ---------------
Income from investment operations:
Net investment income (loss) ........................... (.03) - - - .01
Net gains or losses on securities
(both realized and unrealized) ..................... .04 .35 .40 .33 .04
-------- -------- --------- ---------- ---------------
Total from investment operations ................... .01 .35 .40 .33 .05
-------- -------- --------- ---------- ---------------
Unit value, end of period .................................... $ 2.14 2.13 1.78 1.38 1.05
-------- -------- --------- ---------- ---------------
-------- -------- --------- ---------- ---------------
</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>
PERIOD FROM
YEAR ENDED OCTOBER 1, 1997(a)
DECEMBER 31, TO DECEMBER 31,
1998 1997
------------ --------------
<S> <C> <C>
Unit value, beginning of period ...................................... $ 1.03 1.00
------------ --------------
Income (loss) from investment operations:
Net investment income (loss) ..................................... - -
Net gains or losses on securities (both realized and unrealized).. (.08) .03
------------ --------------
Total from investment operations .............................. (.08) .03
------------ --------------
Unit value, end of period ............................................ $ .95 1.03
------------ --------------
------------ --------------
</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>
PERIOD FROM
YEAR ENDED OCTOBER 1, 1997(a)
DECEMBER 31, TO DECEMBER 31,
1998 1997
------------ --------------
<S> <C> <C>
Unit value, beginning of period .................................... $ 1.00 1.00
------------ --------------
Income from investment operations:
Net investment income (loss) .................................. .06 .01
Net gains or losses on securities
(both realized and unrealized) ............................ .08 (.01)
------------ --------------
Total from investment operations .......................... .14 -
------------ --------------
Unit value, end of period .......................................... $ 1.14 1.00
------------ --------------
------------ --------------
</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>
PERIOD FROM
YEAR ENDED OCTOBER 1, 1997(a)
DECEMBER 31, TO DECEMBER 31,
1998 1997
--------------- --------------
<S> <C> <C>
Unit value, beginning of period ........................................ $ 1.00 1.00
--------------- --------------
Income from investment operations:
Net investment income (loss) ....................................... - -
Net gains or losses on securities
(both realized and unrealized) .................................. .16 -
--------------- --------------
Total from investment operations ................................ .16 -
--------------- --------------
Unit value, end of period .............................................. $ 1.16 1.00
--------------- --------------
--------------- --------------
</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>
PERIOD FROM
YEAR ENDD OCTOBER 1, 1997(a)
DECEMBER 31, TO DECEMBER 31,
1998 1997
------------ --------------
<S> <C> <C>
Unit value, beginning of period ...................................... $ .98 1.00
------------ --------------
Income (loss) from investment operations:
Net investment income (loss) ................................... (.01) -
Net gains or losses on securities
(both realized and unrealized) .............................. .21 (.02)
------------ --------------
Total from investment operations ........................... .20 (.02)
------------ --------------
Unit value, end of period ............................................ $ 1.18 .98
------------ --------------
------------ --------------
</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>
PERIOD FROM
YEAR ENDED OCTOBER 1, 1997(a)
DECEMBER 31, TO DECEMBER 31,
1998 1997
--------------- --------------
<S> <C> <C>
Unit value, beginning of period ........................................ $ .91 1.00
--------------- --------------
Income (loss) from investment operations:
Net investment loss ................................................ (.01) (.01)
Net gains or losses on securities (both realized and unrealized) ... .12 (.08)
--------------- --------------
Total from investment operations ................................ .11 (.09)
--------------- --------------
Unit value, end of period .............................................. $ 1.02 .91
--------------- --------------
--------------- --------------
</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 24, 1998(a)
TO DECEMBER 31,
1998
---------------
<S> <C>
Unit value, beginning of period ................................... $ 1.00
---------------
Income (loss) from investment operations:
Net investment income ......................................... .03
Net losses on securities (both realized and unrealized) ....... (.17)
---------------
Total from investment operations ........................... (.14)
---------------
Unit value, end of period ......................................... $ .86
---------------
---------------
</TABLE>
(a) For the period from May 1, 1998, commencement of operations, to
December 31, 1998.
<PAGE>
25
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
TEMPLETON DEVELOPING MARKETS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 2, 1997(a)
DECEMBER 31, TO DECEMBER 31,
1998 1997
--------------- --------------
<S> <C> <C>
Unit value, beginning of period ............................................... $ .69 1.00
--------------- --------------
Income (loss) from investment operations:
Net investment income ..................................................... - -
Net losses on securities (both realized and unrealized) ................... (.15) (.31)
--------------- --------------
Total from investment operations ....................................... (.15) (.31)
--------------- --------------
Unit value, end of period ..................................................... $ .54 .69
--------------- --------------
--------------- --------------
</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. Indemnification
29. Principal Underwriters
30. Location of Accounts 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, year ended December 31,
1998.
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 2-97564, Post-Effective Amendment
Number 14, is hereby incorporated by reference.
2. Not applicable.
3. 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 2-97564,
Post-Effective Amendment Number 15, is hereby incorporated by
reference.
<PAGE>
4. (a) The Flexible Payment Deferred Variable Annuity, form
84-9091 previously filed as this exhibit to Registrant's Form
N-4, File Number 2-97564, Post-Effective Amendment Number 14, is
hereby incorporated by reference.
(b) The Single Payment Deferred Variable Annuity, form 84-9092
previously filed as this exhibit to Registrant's Form N-4, File
Number 2-97564, Post-Effective Amendment Number 14, is hereby
incorporated by reference.
(c) The Qualified Plan Agreement, form 84-9094 previously filed as
this exhibit to Registrant's Form N-4, File Number 2-97564,
Post-Effective Amendment Number 14, is hereby incorporated by
reference.
(d) The Individual Retirement Annuity Agreement, form 83-9058 Rev.
3-1997 previously filed as this exhibit to Registrant's Form
N-4, File Number 2-97564, Post-Effective Amendment Number 14,
is hereby incorporated by reference.
(e) The Retirement Certificate, form MHC-83-9060 previously filed
as this exhibit to Registrant's Form N-4, File Number
2-97564, Post-Effective Amendment Number 16, is hereby
incorporated by reference.
(f) The Endorsement, form 86-9135 previously filed as this exhibit
to Registrant's Form N-4, File Number 2-97564, Post-Effective
Amendment Number 14, is hereby incorporated by reference.
(g) The Endorsement, form 87-9171 previously filed as this exhibit
to Registrant's Form N-4, File Number 2-97564, Post-Effective
Amendment Number 14, is hereby incorporated by reference.
(h) The Flexible Payment Deferred Variable Annuity Contract, form
84-9091 Rev. 1-88 previously filed as this exhibit to
Registrant's Form N-4, File Number 2-97564, Post-Effective
Amendment Number 14, is hereby incorporated by reference.
(i) The Single Payment Deferred Variable Annuity Contract, form 84-
9092 Rev. 1-88 previously filed as this exhibit to
Registrant's Form N-4, File Number 2-97564, Post-Effective
Amendment Number 14, is hereby incorporated by reference.
(j) Tax Sheltered Annuity Amendment, form MHC-88-9213 previously
filed as this exhibit to Registrant's Form N-4, File Number
2-97564, Post-Effective Amendment Number 16, is hereby
incorporated by reference.
(k) Rider, Texas Optional Retirement Program, form F. 22976 Rev. 9-
81 previously filed as this exhibit to Registrant's Form N-4,
File Number 2-97564, Post-Effective Amendment Number 14, is
hereby incorporated by reference.
(l) The Flexible Payment Deferred Variable Annuity Contract, form
84-9091 Rev. 3-91 previously filed as this exhibit to
Registrant's Form N-4, File Number 2-97564, Post-Effective
Amendment Number 14, is hereby incorporated by reference.
(m) Endorsement, form 91-9256 previously filed as this exhibit to
Registrant's Form N-4, File Number 2-97564, Post-Effective
Amendment Number 14, is hereby incorporated by reference.
<PAGE>
(n) The Single Payment Deferred Variable Annuity Contract, form 84-
9092 Rev. 3-91 previously filed as this exhibit to
Registrant's Form N-4, File Number 2-97564, Post-Effective
Amendment Number 14, is hereby incorporated by reference.
(o) Endorsement, form 91-9257 previously filed as this exhibit to
Registrant's Form N-4, File Number 2-97564, Post-Effective
Amendment Number 14, is hereby incorporated by reference.
(p) Single Payment Deferred Variable Annuity Contract, form
number MHC-92-9284 previously filed as this exhibit to
Registrant's Form N-4, File Number 2-97564, Post-Effective
Amendment Number 16, is hereby incorporated by reference.
(q) Flexible Payment Deferred Variable Annuity Contract, form
number MHC-92-9283 previously filed as this exhibit to
Registrant's Form N-4, File Number 2-97564, Post-Effective
Amendment Number 16, is hereby incorporated by reference.
(r) 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 2-97564, Post-Effective Amendment Number 16, is
hereby incorporated by reference.
(s) Individual Retirement Annuity, SIMPLE - (IRA) Agreement, form
number MHC-98-9431 previously filed as this exhibit to
Registrant's Form N-4, File Number 2-97564, Post-Effective
Amendment Number 16, is hereby incorporated by reference.
5. (a) Amendment to the Application, Texas Optional Retirement
Program, form 81-9013 previously filed as this exhibit to
Registrant's Form N-4, File Number 2-97564, Post-Effective
Amendment Number 14, is hereby incorporated by reference.
(b) Variable Annuity Application, form number MHC-84-9093 Rev.
7-1998 previously filed as this exhibit to Registrant's Form
N-4, File Number 2-97564, Post-Effective Amendment Number 16,
is hereby incorporated by reference.
(c) Variable Annuity Application, form number 92-9286 Rev. 9-1997
previously filed as this exhibit to Registrant's Form N-4,
File Number 2-97564, Post-Effective Amendment Number 14, is
hereby incorporated by reference.
6. Certificate of Incorporation and Bylaws.
(a) Restated Certificate of Incorporation of Minnesota Life
Insurance Company previously filed as this exhibit to
Registrant's Form N-4, File Number 2-97564, Post-Effective
Amendment Number 16, is hereby incorporated by reference.
(b) Bylaws of Minnesota Life Insurance Company previously filed
as this exhibit to Registrant's Form N-4, File Number
2-97564, Post-Effective Amendment Number 16, 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
2-97564, Post-Effective Amendment Number 14, 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
2-97564, Post-Effective Amendment Number 14, 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 2-97564, Post-Effective Amendment Number 14, is
hereby incorporated by reference.
(d) Managed Segregated Sub-Account Performance Calculations
previously filed as this exhibit to Registrant's Form N-4,
File Number 2-97564, Post-Effective Amendment Number 14, 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 2-97564, Post-Effective Amendment Number
14, 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 2-97564, Post-Effective Amendment Number 14, 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 2-97564, Post-Effective Amendment Number
14, 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 2-97564, Post-Effective Amendment Number
14, 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 2-97564, Post-Effective Amendment Number 14, is
hereby incorporated by reference.
(j) Value Stock Segregated Sub-Account Performance Calculation
previously filed as this exhibit to Registrant's Form N-4,
File Number 2-97564, Post-Effective Amendment Number 14, is
hereby incorporated by reference.
(k) Maturing Government Bond - 1998 Segregated Sub-Account
Performance Calculation previously filed as this exhibit to
Registrant's Form N-4, File Number 2-97564, Post-Effective
Amendment Number 14, is hereby incorporated by reference.
(l) Maturing Government Bond - 2002 Segregated Sub-Account
Performance Calculation previously filed as this exhibit to
Registrant's Form N-4, File Number 2-97564, Post-Effective
Amendment Number 14, is hereby incorporated by reference.
(m) Maturing Government Bond - 2006 Segregated Sub-Account
Performance Calculation previously filed as this exhibit to
Registrant's Form N-4, File Number 2-97564, Post-Effective
Amendment Number 14, is hereby incorporated by reference.
(n) Maturing Government Bond - 2010 Segregated Sub-Account
Performance Calculation previously filed as this exhibit to
Registrant's Form N-4, File Number 2-97564, Post-Effective
Amendment Number 14, is hereby incorporated by reference.
15. Minnesota Life Insurance Company Power of Attorney
To Sign Registration Statements
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Name and Principal Positions and Offices Positions and Offices
Business Address with Insurance Company with Registrant
- ------------------ ---------------------- ---------------------
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
Well Fargo & Company
420 Montgomery Street
MAC 0101-121
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
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 and Actuary
Insurance Company
400 Robert Street North
St. Paul, MN 55101
<PAGE>
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
Dennis E. Prohofsky Senior Vice President, None
Minnesota Life General Counsel and
Insurance 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 Chief Executive Officer
Insurance 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 and None
Minnesota Life Chief Financial Officer
Insurance Company
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
Frederick T. Weyerhaeuser Director None
Clearwater Management Company
and Clearwater Investment Trust
332 Minnesota Street
Suite W-2090
<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.
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:
<PAGE>
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.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 25, 1999, the number of holders of securities of the Registrant
were as follows:
Number of Record
Title of Class Holders
-------------- ----------------
Variable Annuity Contracts 49,124
ITEM 28. INDEMNIFICATION
The statement with respect to indemnification. Previously filed.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) The principal underwriter is Ascend Funancial Services, Inc.
Ascend Financial Services, Inc. is also 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 annuity contracts and life insurance policies
on a variable basis.
<PAGE>
DIRECTORS AND OFFICERS OF UNDERWRITER
Positions and Positions and
Name and Principal Offices Offices
Business Address with Underwriter with Registrant
- ------------------ ---------------- ---------------
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
Ascend Financial Services, Inc. Operations Officer, Secretary
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
Ascend Financial Services, Inc. and Assistant Secretary Secretary
400 Robert Street North
St. Paul, Minnesota 55101
Name of Net Underwriting Compensation on
Principal Discounts and Redemption or Brokerage Other
Underwriter Commissions Annuitization Commissions Compensation
- ----------- ---------------- ---------------- ----------- ------------
Ascend
Financial
Services, Inc. $15,989,724
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.
<PAGE>
Item 32. Undertakings
(a) The Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure
that the audited financial statements in the registration statement
are never more than 16 months old for so long as payments under the
Contracts may be accepted.
(b) The Registrant hereby undertakes to include as part of any application
to purchase a contract offered by the prospectus a space that an
applicant can check to request a Statement of Additional Information.
(c) The Registrant hereby undertakes to deliver any Statement of
Additional Information and any financial statement required to be made
available under this form promptly upon written or oral request.
(d) Minnesota Life Insurance Company hereby represents that, as
to the variable annuity contract which is the subject of this
Registration Statement, File No. 2-97564, 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 and the Investment
Company Act of 1940 the Registrant certifies that it meets the requirements
of Securities Act 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.
Signature Title Date
- --------- ----- -----
Chairman, President and April 30, 1999
- -------------------------- Chief Executive Officer
Robert L. Senkler
* Director
- --------------------------
Giulio Agostini
* Director
- --------------------------
Anthony L. Anderson
* 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
Director
- --------------------------
Frederick T. Weyerhaeuser
Senior Vice President April 30, 1999
- -------------------------- (chief financial officer)
Gregory S. Strong
Senior Vice President April 30, 1999
- -------------------------- (chief financial officer)
Gregory S. Strong
Attorney-in-Fact April 30, 1999
- --------------------------
Dennis E. Prohofsky
* Pursuant to power of attorney dated April 12, 1999, a copy of which is filed
herewith.
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
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
<PAGE>
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101-2098
651.865.3500 Tel
MINNESOTA LIFE
A MINNESOTA MUTUAL COMPANY
April 30, 1999
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 17 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 2-97564).
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 Directors 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 Directors 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>
<S><C>
Signature Title Date
--------- ----- ----
/s/Robert L. Senkler Chairman of the Board, April 12, 1999
- ------------------------------- President and Chief
Robert L. Senkler Executive Officer
/s/Giulio Agostini Director April 12, 1999
- -------------------------------
Giulio 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
/s/David S. Kidwell, Ph.D. Director April 12, 1999
- -------------------------------
David S. Kidwell, Ph.D.
<PAGE>
/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>
