<PAGE>
MULTIOPTION CLASSIC
VARIABLE ANNUITY CONTRACT
MINNESOTA LIFE INSURANCE COMPANY
("MINNESOTA LIFE")
400 Robert Street North
St. Paul, Minnesota 55101-2098
Ph 1-800-362-3141
http://www.minnesotamutual.com
This Prospectus describes an individual, flexible payment, variable annuity
contract (the "contract") offered by Minnesota Life Insurance Company. The
contract may be used in connection with all types of personal retirement plans.
It may also be used apart from those plans.
You may invest your contract values in our Variable Annuity Account or our
General Account. The Variable Annuity Account invests in shares of Advantus
Series Fund, Inc. and Class 2 shares of the Templeton Developing Markets Fund, a
series of the 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 includes the information you should know before purchasing a
contract. You should read it and keep it for future reference. A Statement of
Additional Information with the same date contains further contract information.
It has been filed with the Securities and Exchange Commission ("SEC") and is
incorporated by reference into this Prospectus. A copy of the Statement of
Additional Information may be obtained without charge by calling 1-800-362-3141,
or by writing us at our office at 400 Robert Street North, St. Paul, Minnesota
55101-2098. The table of contents for the Statement of Additional Information
may be found at the end of this Prospectus. A copy of the text of this
Prospectus and Statement of Additional Information may also be found at the
SEC's website, http://www.sec.gov, via the EDGAR database.
THIS PROSPECTUS IS NOT VALID UNLESS ATTACHED TO A CURRENT PROSPECTUS OF THE
ADVANTUS SERIES FUND, INC. AND THE TEMPLETON VARIABLE PRODUCTS SERIES FUND CLASS
2.
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 REPRESENTATIONS 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: August
31, 1999
<PAGE>
THIS PROSPECTUS IS NOT AN OFFERING IN ANY JURISDICTION IN WHICH THE OFFERING
WOULD BE UNLAWFUL. WE HAVE NOT AUTHORIZED ANY DEALER, SALESMAN, OR OTHER PERSON
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,
YOU SHOULD NOT RELY ON THEM.
TABLE OF CONTENTS
SPECIAL TERMS 1
QUESTIONS AND ANSWERS ABOUT THE VARIABLE ANNUITY CONTRACTS 2
EXPENSE TABLE 4
CONDENSED FINANCIAL INFORMATION AND FINANCIAL STATEMENTS 8
GENERAL DESCRIPTIONS 9
Minnesota Life Insurance Company 9
Variable Annuity Account 9
The Funds 9
Additions, Deletions or Substitutions 10
CONTRACT CHARGES 11
Sales Charges 11
Mortality and Expense Risk Charges 13
Administrative Charge 13
Premium Taxes 14
Transaction Charges 14
VOTING RIGHTS 14
DESCRIPTION OF THE CONTRACTS 15
General Provisions 15
Annuity Payments and Options 17
Death Benefits 23
Purchase Payments and Value of the Contract 23
Redemptions 27
FEDERAL TAX STATUS 28
PERFORMANCE DATA 34
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM 34
YEAR 2000 COMPUTER PROBLEM 35
STATEMENT OF ADDITIONAL INFORMATION 35
APPENDIX A -- ILLUSTRATION OF VARIABLE ANNUITY VALUES A-1
APPENDIX B -- TYPES OF QUALIFIED PLANS B-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.
FUNDS: the mutual funds whose separate investment portfolios we have designated
as an eligible investment for the Variable Annuity Account, namely, Advantus
Series Fund, Inc. ("Advantus Fund") and Class 2 shares of the Templeton
Developing Markets Fund, a series of the Templeton Variable Products Series 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 Funds.
WE, OUR, US: Minnesota 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;
or for a specified period of time. An annuity with payments which are guaranteed
as to amount during the payment period is a fixed annuity. An annuity with
payments which vary with the investment experience of a separate account is
called a variable annuity.
WHAT CONTRACT IS OFFERED BY THIS PROSPECTUS?
The contract is a variable annuity contract which provides for monthly annuity
payments. These payments may begin immediately or at a future date you specify.
We allocate your purchase payments either to the Variable Annuity Account or to
our General Account. The Variable Annuity Account invests in one or more
Portfolios of Advantus Series Fund, Inc., or Class 2 shares of the Templeton
Developing Markets Fund. There are no interest or principal guarantees on your
contract values in the Variable Annuity Account. In the General Account, your
purchase payments receive interest and principal guarantees.
WHAT INVESTMENT OPTIONS ARE AVAILABLE?
Any purchase payments you allocate to the Variable Annuity Account are invested
exclusively in shares of one or more Fund Portfolios. We reserve the right to
add, combine or remove other eligible Funds and Portfolios.
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
PAGE 2
<PAGE>
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 prospectuses for each Fund, which are attached to this
Prospectus. You should carefully read each prospectus before purchasing 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
among the Portfolios or among the Portfolios and the General Account. 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.
WHAT CHARGES ARE ASSOCIATED WITH THE CONTRACTS?
We deduct a daily charge equal to an annual rate of 1.25% of the net asset value
of the Variable Annuity Account for mortality and expense risk guarantees. We
reserve the right to increase the charge to not more than 1.40%.
We also deduct a daily charge equal to an annual rate of .15% of the net asset
value for administrative expenses incurred by us. We reserve the right to
increase the charge to not more than .40% of the net asset value of the separate
account.
A deferred sales charge of up to 9.0% of your accumulation value may apply if
you make partial withdrawals or surrender your contract within ten contract
years. There are some circumstances where the deferred sales charge will not
apply.
Deductions for any applicable premium taxes may also be made (currently taxes
range from 0.0% to 3.5%) depending on applicable law.
The Portfolios pay investment advisory and other expenses. Total expenses of the
Portfolios range from .40% to 1.91% of average daily net assets of the
Portfolios on an annual basis.
We reserve the right to make a charge of up to $10 for transfers occurring more
frequently than once a month. We also reserve the right to assess a $50 fee to
cover administrative costs associated with an exchange, if you exchange from
another contract to this one.
PAGE 3
<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 and the Templeton Developing Markets Fund; Class 2. Expenses of
the Funds are not fixed or specified under the terms of the Contract, and actual
expenses may vary.
The following contract expense information is intended to illustrate the
expenses of the MultiOption Classic variable annuity contract. All expenses
shown are rounded to the nearest dollar. The information contained in the tables
must be considered with the narrative information which immediately follows them
in this heading.
CONTRACTOWNER 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%
Administrative Fee .15%
----
Total Separate Account Annual Expenses 1.40%
----
----
</TABLE>
Note: We reserve the right to increase the mortality and expense risk fees to
not more than 1.40% on an annual basis and the administrative fees to not more
than .40% on an annual basis.
PAGE 4
<PAGE>
FUND ANNUAL EXPENSES
(As a percentage of average net assets for the described Advantus Series Fund,
Inc. Portfolios and the Templeton Variable Products Series Fund).
<TABLE>
<CAPTION>
TOTAL FUND ANNUAL
OTHER EXPENSES EXPENSES (AFTER
INVESTMENT (AFTER EXPENSE DISTRIBUTION EXPENSE
MANAGEMENT FEES REIMBURSEMENTS) EXPENSES REIMBURSEMENTS)
-------------------- ------------------- --------------- -------------------
<S> <C> <C> <C> <C>
Advantus Series Fund, Inc.:
Growth Portfolio...................... 0.50% 0.03% -- 0.53%
Bond Portfolio........................ 0.50% 0.05% -- 0.55%
Money Market Portfolio................ 0.50% 0.08% -- 0.58%
Asset Allocation Portfolio............ 0.50% 0.03% -- 0.53%
Mortgage Securities Portfolio......... 0.50% 0.07% -- 0.57%
Index 500 Portfolio................... 0.40% 0.04% -- 0.44%
Capital Appreciation Portfolio........ 0.75% 0.03% -- 0.78%
International Stock Portfolio......... 0.70% 0.24% -- 0.94%
Small Company Growth Portfolio........ 0.75% 0.04% -- 0.79%
Maturing Government Bond 2002
Portfolio (1)........................ 0.25% 0.15% -- 0.40%
Maturing Government Bond 2006
Portfolio (1)........................ 0.25% 0.15% -- 0.40%
Maturing Government Bond 2010
Portfolio (1)........................ 0.25% 0.15% -- 0.40%
Value Stock Portfolio................. 0.75% 0.04% -- 0.79%
Small Company Value Portfolio (1)..... 0.75% 0.15% -- 0.90%
Global Bond Portfolio................. 0.60% 0.53% -- 1.13%
Index 400 Mid-Cap Portfolio (1)....... 0.40% 0.15% -- 0.55%
Macro-Cap Value Portfolio (1)......... 0.70% 0.15% -- 0.85%
Micro-Cap Growth Portfolio (1)........ 1.10% 0.15% -- 1.25%
Real Estate Securities Portfolio
(1).................................. 0.75% 0.15% -- 0.90%
Templeton Variable Products Series Fund:
Developing Markets Fund Class 2 (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 (i.e., the total fund expenses absent expense reimbursements)
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) Class 2 of the Fund has a distribution plan or "Rule 12b-1 Plan" which is
described in the Fund's prospectus.
PAGE 5
<PAGE>
CONTRACT OWNER EXPENSE EXAMPLE -- MULTIOPTION CLASSIC ANNUITY
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return, (2) redemption at the end of each time period and (3) any annual
amount that may be excluded from contingent deferred sales charge.
<TABLE>
<CAPTION>
IF YOU ANNUITIZE AT THE END OF
IF YOU SURRENDER YOUR THE APPLICABLE TIME PERIOD OR
CONTRACT AT THE END OF THE YOU DO NOT SURRENDER YOUR
APPLICABLE TIME PERIOD 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 $ 95 $ 123 $ 151 $ 225 $ 20 $ 61 $ 104 $ 225
Bond Portfolio $ 95 $ 123 $ 152 $ 227 $ 20 $ 61 $ 105 $ 227
Money Market Portfolio $ 95 $ 124 $ 154 $ 231 $ 20 $ 62 $ 107 $ 231
Asset Allocation Portfolio $ 95 $ 123 $ 151 $ 225 $ 20 $ 61 $ 104 $ 225
Mortgage Securities Portfolio $ 95 $ 124 $ 153 $ 230 $ 20 $ 62 $ 106 $ 230
Index 500 Portfolio $ 94 $ 120 $ 147 $ 216 $ 19 $ 58 $ 100 $ 216
Capital Appreciation Portfolio $ 97 $ 130 $ 163 $ 251 $ 22 $ 68 $ 117 $ 251
International Stock Portfolio $ 99 $ 134 $ 171 $ 268 $ 24 $ 73 $ 125 $ 268
Small Company Growth Portfolio $ 97 $ 130 $ 164 $ 252 $ 22 $ 69 $ 117 $ 252
Maturing Government Bond 2002
Portfolio $ 94 $ 119 $ 143 $ 201 $ 18 $ 57 $ 96 $ 201
Maturing Government Bond 2006
Portfolio $ 94 $ 119 $ 145 $ 212 $ 18 $ 57 $ 97 $ 212
Maturing Government Bond 2010
Portfolio $ 94 $ 119 $ 145 $ 212 $ 18 $ 57 $ 97 $ 212
Value Stock Portfolio $ 97 $ 130 $ 164 $ 252 $ 22 $ 69 $ 117 $ 252
Small Company Value Portfolio $ 98 $ 133 $ 169 $ 264 $ 23 $ 72 $ 123 $ 264
Global Bond Portfolio $100 $ 140 $ 180 $ 287 $ 26 $ 79 $ 135 $ 287
Index 400 Mid-Cap Portfolio $ 95 $ 123 $ 152 $ 227 $ 20 $ 61 $ 105 $ 227
Macro-Cap Value Portfolio $ 98 $ 132 $ 167 $ 258 $ 23 $ 70 $ 120 $ 258
Micro-Cap Growth Portfolio $101 $ 143 $ 186 $ 298 $ 27 $ 82 $ 141 $ 298
Real Estate Securities Portfolio $ 98 $ 132 $ 167 $ 259 $ 23 $ 71 $ 122 $ 259
Templeton Variable Products
Series Fund
Developing Markets Fund Class 2 $108 $ 161 $ 217 $ 360 $ 33 $102 $ 173 $ 360
</TABLE>
This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or lesser.
PAGE 6
<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 calendar 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 receiving it by
returning it to us or your agent. In some states, the free look period may be
longer than ten days. For example, California's free look period is thirty days.
These rights are subject to change and may vary among the states.
WHAT IF THE OWNER OR ANNUITANT DIES?
If you die before annuity payments begin, we will pay the greater of the
contract accumulation value or total purchase payments, less withdrawals, 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 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.
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.
PAGE 7
<PAGE>
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.
CONDENSED FINANCIAL INFORMATION AND FINANCIAL STATEMENTS
No condensed financial information is included in this prospectus for the
Variable Annuity Account because no variable annuity contracts of this class
have been sold prior to the date of this prospectus. The financial statements of
the Variable Annuity Account and Minnesota Life Insurance Company may be found
in the Statement of Additional Information.
PAGE 8
<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. In 1998,
Minnesota Mutual reorganized as a stock insurance company subsidiary of
Minnesota Mutual Companies, Inc., a mutual insurance holding company, and took
the new name Minnesota Life. Our home office is at 400 Robert Street North, St.
Paul, Minnesota 55101-2098, telephone: 1-800-362-3141. 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 SEC under the Investment Company Act of 1940, but
that registration does not mean that the SEC 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 our general corporate obligations.
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 accounts. 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 9
<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 ("Templeton Fund"), a diversified series 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
portfolio or mutual fund. Sub-accounts may be established when, in our sole
discretion, marketing, tax, investment or other conditions warrant. We will use
similar considerations in determining whether to eliminate one or more of the
sub-accounts of the Variable Annuity Account. The addition of any investment
option may 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 Account with one or more of our other separate accounts.
Shares of the Portfolios of the Funds are also sold to 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. Neither we nor the Funds currently foresee any such
disadvantages either to variable life insurance policy owners or to variable
annuity contract owners.
PAGE 10
<PAGE>
(SIDEBAR)
A deferred sales charge may apply.
(END SIDEBAR)
However, 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.
Possible actions 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
Funds, 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 any purchase payment made for this contract at
the time of receipt. However, when a contract's accumulation value is reduced by
a withdrawal or surrender, 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 your death, or
- the withdrawal is for the purpose of providing annuity payments.
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 11
<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 beginning
of each contract year. The percentages decrease uniformly each month for 120
months from the contract date.
<TABLE>
<CAPTION>
BEGINNING OF
CONTRACT YEAR DEFERRED SALES CHARGE
- ------------- ---------------------
<S> <C>
1 9.0%
2 8.1
3 7.2
4 6.3
5 5.4
6 4.5
7 3.6
8 2.7
9 1.8
10 0.9
11 0
</TABLE>
EXAMPLE
Assuming that all amounts to be withdrawn are subject to a deferred sales load,
if the contractowner requests a withdrawal of $1,000, and the applicable sales
charge is 7.2% (because this is the beginning of the contract year 3), the
contractowner will receive $1,000, the sales charge will be $77.59 (which
represents the sales charge applied to the total amount withdrawn, including the
sales charge) and the total withdrawal amount deducted from the accumulation
value will equal $1,077.59.
Ascend Financial Services, Inc. ("Ascend Financial"), the principal underwriter,
may pay up to 4.75% of the amount of those purchase payments to broker-dealers
responsible for the sales of the contracts. In addition, Ascend Financial or we
will issue credits to broker-dealers which will allow their registered
representatives to attend meetings sponsored by us or our affiliates for
training and educational purposes with respect to 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 12
<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 contract, regardless of how long that annuitant lives or
all annuitants as a group live. This assures an annuitant that neither the
annuitant's own longevity nor an improvement in life expectancy generally will
have an adverse effect on the monthly annuity payments received under the
contract.
Our expense risk is the risk that charges 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% of net asset value. We reserve the
right to increase the charge to not more than 1.40% on an annual basis. This
charge is deducted during both the accumulation phase and the annuity phase of
the contract.
If these deductions are insufficient to cover our actual costs, then we will
absorb the resulting losses. If the deductions are 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. ADMINISTRATIVE CHARGE
We perform all contract administrative services. These include the review of
applications, the preparation and issue of contracts, the receipt of purchase
payments, forwarding amounts to the Fund for investment, the preparation and
mailing of periodic reports and other services.
For providing these services we make a deduction from the Variable Annuity
Account at the annual rate of .15% of the net asset value of the Variable
Annuity Account. We reserve the right to increase this administrative charge to
an annual rate of not more than .40%.
Because the charge is designed to cover administrative expenses, it is taken
during both the accumulation period and the annuity period of the contract.
Since the charge is taken from a contract on each valuation date, there is no
return of any part of the charge in the event that the contract is redeemed. As
the charge is made as a percentage of assets in the Variable Annuity Account,
there is no necessary relationship between the amount of administrative charge
imposed on a given contract and the amount of expenses that may be attributable
to that contract.
PAGE 13
<PAGE>
D. PREMIUM TAXES
Deduction for any applicable state premium taxes may be made from each purchase
payment or when an annuity begins. Currently such taxes range from 0% to 3.5%,
depending on applicable law. Any amount withdrawn from the contract may be
reduced by any premium taxes not previously deducted.
E. TRANSACTION CHARGES
There currently is no charge for any transfer. However, we reserve the right to
charge up to $10, for the second and subsequent transfers in any calendar month.
We also reserve the right to charge a $50 fee to cover administrative costs if
you exchange from another of our contracts to this one.
(SIDEBAR)
You can instruct us how to vote Fund shares.
(END SIDEBAR)
VOTING RIGHTS
We will vote Fund shares held in the Variable Annuity Account at shareholder
meetings of the Funds. We will vote shares attributable to contracts in
accordance with instructions received from contract owners with voting interests
in each sub-account of the Variable Annuity Account. We will vote shares for
which no instructions are received and shares not attributable to contracts in
the same proportion as shares for which instructions have been received. The
number of votes for which a contract owner may provide instructions will be
calculated separately for each sub-account of the Variable Annuity Account. If,
applicable laws should change so that we may be allowed to vote shares in our
own right, then we may elect to do so.
During the accumulation period you hold the voting interest in the contract. The
number of votes will be determined by dividing the accumulation value of the
contract attributable to each sub-account by the net asset value per share of
the Fund shares held by that sub-account.
During the annuity period the annuitant holds the voting interest in the
contract. The number of votes will be determined by dividing the reserve for
each contract allocated to each sub-account by the net asset value per share of
the Fund shares held by that sub-account. After an annuity begins, the votes
attributable to any particular contract will decrease as the reserves decrease.
In determining any voting interest, 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 with respect to voting.
PAGE 14
<PAGE>
DESCRIPTION OF THE CONTRACTS
(SIDEBAR)
The contract is a flexible payment variable annuity contract.
We issue the contract to you and you select the annuitant.
(END SIDEBAR)
A. GENERAL PROVISIONS
1. Flexible Payment Variable Annuity Contract
The contract may be used in connection with all types of tax-qualified plans,
state deferred compensation plans or individual retirement annuities adopted by
or on behalf of individuals. It may also be purchased by individuals not as a
part of any plan. The contract provides for a variable annuity or a fixed
annuity to begin at some future date. Purchase payments are flexible with
respect to the timing and amount.
2. Issuance of Contracts
The contract is issued to you, the contract owner named in the application. You
may be the annuitant or you may specify someone else to be the annuitant.
3. Modification of the Contracts
Your contract may be modified at any time by written agreement between you and
us. However, no modification will adversely affect the rights of an owner 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.
4. Assignment
If the contract is sold in connection with a tax-qualified program, (including
employer sponsored employee pension benefit plans, tax-sheltered annuities and
individual retirement annuities) then:
- your or the annuitant's interest may not be assigned, sold, transferred,
discounted or pledged as collateral for a loan or as security for the
performance of an obligation or for any other purpose, and
- to the maximum extent permitted by law, benefits payable under the
contract shall be exempt from the claims of creditors.
If the contract is not issued in connection with a tax-qualified program, 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 payments to an assignee will be paid in a single
sum. Any claim made by an assignee will be subject to proof of the assignee's
interest and the extent of the assignment.
PAGE 15
<PAGE>
5. Limitations on Purchase Payments
(SIDEBAR)
You cannot pay more than $1 million unless we consent.
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.
(END SIDEBAR)
You choose when to make purchase payments. 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 the contract may not exceed $1,000,000, except
with our consent.
We may cancel the contract, in our discretion, if no purchase payments are made
for a period of two or more full contract years and both:
- the total purchase payments made, less any withdrawals and associated
charges, and
- the accumulation value of the entire contract, are less than $2,000.
We will notify you, in advance, of our intent to exercise this right in our
annual report to you about the status of your contract. We will cancel the
contract ninety days after the contract anniversary unless we receive an
additional purchase payment before the end of that ninety day period. Contracts
issued in some states (for example, New Jersey) do not contain such a
cancellation because the laws of those states do not permit it.
There may be limits on the maximum contributions to retirement plans that
qualify for special tax treatment.
6. Deferment of Payment
We will pay any single sum within seven days after the date the payment is
called for by the terms of the contract, unless the payment is postponed 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
SEC;
(b) any period during which an emergency exists as determined by the SEC as
a result of which it is not reasonably practical to dispose of
securities in the Funds or to fairly determine the value of the assets
of the Funds; or
(c) other periods the SEC by order permits for the protection of the
contract owners.
PAGE 16
<PAGE>
B. ANNUITY PAYMENTS AND OPTIONS
(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)
1. Annuity Payments
Variable annuity payments are determined on the basis of:
- the mortality table specified in the contract, which reflects the age of
the annuitant,
- the type of annuity payment option you select, and
- the investment performance of the Fund Portfolios you select.
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 those units, and thus
the amounts of the monthly annuity payments will, however, reflect investment
gains and losses and investment income of the Funds. Thus, the annuity payments
will vary with the investment experience of the assets of the Portfolio of the
Fund you select.
2. Electing the Retirement Date and Form of Annuity
The contract provides four annuity options. Any one of them may be elected if
permitted by law. Each annuity option may be elected on either a variable
annuity or a fixed annuity basis, or a combination of the two. We may make other
annuity options available on request.
While the contract requires that we must receive your notice of election to
begin annuity payments at least 30 days prior to the annuity commencement date,
we are currently waiving that requirement for variable annuity elections
received at least three valuation days prior to the 15th of the month. We
reserve the right to enforce the 30 day notice requirement at our option at any
time in the future.
The contract permits an annuity payment to begin on the first day of any month.
Under the contract payment must begin before the later of the 85th birthday of
the annuitant, or ten years after the date of issue of the contract. If you do
not make an election, 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.
PAGE 17
<PAGE>
3. Annuity Options
OPTION 1 - LIFE ANNUITY This is an annuity payable monthly during the lifetime
of the annuitant and terminating with the last monthly payment preceding the
death of the annuitant. This option offers the maximum monthly payment since
there is no guarantee of a minimum number of payments or provision for a death
benefit for beneficiaries. It would be possible under this option for the
annuitant to receive only one annuity payment if he died prior to the due date
of the second annuity payment, two if he died before the due date of the third
annuity payment, etc.
OPTION 2 - LIFE ANNUITY WITH A PERIOD CERTAIN OF 120 MONTHS (OPTION 2A), 180
MONTHS (OPTION 2B), OR 240 MONTHS (OPTION 2C) This is an annuity payable
monthly during the lifetime of the annuitant, with the guarantee that if the
annuitant dies before payments have been made for the period certain elected,
payments will continue to the beneficiary during the remainder of the period
certain. If the beneficiary so elects at any time during the remainder of the
period certain, the present value of the remaining guaranteed number of
payments, based on the then current dollar amount of one such payment and using
the same interest rate which served as a basis for the annuity shall be paid in
a single sum to the beneficiary.
OPTION 3 - JOINT AND LAST SURVIVOR ANNUITY This is an annuity payable monthly
during the joint lifetime of the annuitant and a designated joint annuitant and
continuing thereafter during the remaining lifetime of the survivor. Under this
option there is no guarantee of a minimum number of payments or provision for a
death benefit for beneficiaries. If this option is elected, the contract and
payments shall then be the joint property of the annuitant and the designated
joint annuitant. It would be possible under this option for both annuitants to
receive only one annuity payment if they both died prior to the due date of the
second annuity payment, two if they died before the due date of the third
annuity payment, etc.
OPTION 4 - PERIOD CERTAIN ANNUITY This is an annuity payable monthly for a
period certain of 10 to 20 years, as elected. At any time prior to the
annuitant's death, the annuitant may elect to withdraw the commuted value of any
portion of the remaining annuity payments as determined by Minnesota Life.
Redemption requests for any period certain annuity may not be less than the
minimum contract withdrawal amount. Commutation prior to death is not available
on the general account.
If the annuitant dies before all payments have been made for the period certain
elected, payments will continue to the beneficiary during the remainder of the
period certain, or be commuted to a present value as determined by Minnesota
Life and paid as either a single sum or applied to effect a life annuity under
Option 1 or Option 2, at the beneficiary's election.
PAGE 18
<PAGE>
(SIDEBAR)
The amount of your first annuity payment depends on the age of the annuitant and
the annuity option you select.
(END SIDEBAR)
NOTICE - PLEASE READ CAREFULLY
WE HAVE BEEN ADVISED THAT IT IS THE POSITION OF THE INTERNAL REVENUE SERVICE
THAT WHEN WITHDRAWALS (OTHER THAN ANNUITY PAYMENTS) ARE TAKEN FROM AN ANNUITY
CONTRACT IN "PAYOUT" STATUS, SUCH AS BY CANCELING A PERIOD CERTAIN ANNUITY
CONTRACT UNDER OPTION 4 PRIOR TO DEATH OF THE ANNUITANT AND TAKING A COMMUTED
VALUE, THEN ALL AMOUNTS RECEIVED BY THE TAXPAYER ARE TAXABLE AT ORDINARY INCOME
RATES AS AMOUNTS "NOT RECEIVED AS AN ANNUITY". IN ADDITION, SUCH AMOUNTS ARE
TAXABLE TO THE RECIPIENT WITHOUT REGARD TO THE OWNER'S INVESTMENT IN THE
CONTRACT OR ANY INVESTMENT GAIN WHICH MIGHT BE PRESENT IN THE CURRENT ANNUITY
VALUE. THIS ADVERSE TAX RESULT MEANS THAT OWNER OF NON-QUALIFIED CONTRACTS
SHOULD CONSIDER CAREFULLY THE TAX IMPLICATIONS OF ANY WITHDRAWAL REQUESTS PRIOR
TO THE EXERCISE OF THIS RIGHT TO COMMUTE A PERIOD CERTAIN ANNUITY CONTRACT,
PRIOR TO DEATH OF THE ANNUITANT.
4. Determination of Amount of First Monthly Annuity Payment
The first monthly annuity payment under the contract is determined by the
accumulation value of the contract when the annuity begins. In addition, many
states impose a premium tax on the amount used to purchase an annuity benefit,
depending on the type of plan involved. These taxes are deducted from the
accumulation 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 your contract.
The contract contains tables indicating the dollar amount of the first fixed
monthly payment under each optional annuity form for each $1,000 of value
applied (after deduction of any premium taxes not previously deducted). If, when
annuity payments are elected, we are using tables of annuity rates for this
contract which result in larger annuity payments, we will use those tables
instead.
The dollar amount of the first monthly variable annuity payment is determined by
applying the accumulation value (minus any premium tax deduction) to a rate per
$1,000 contained in a table in the contract. The contract table on which the
rate per $1,000 is based assumes an interest rate of 4.5% per annum. The amount
of the first payment depends upon the annuity payment option selected and the
adjusted age(s) of the annuitant and any joint annuitant. A number of annuity
units is then determined by dividing this dollar amount by the then
PAGE 19
<PAGE>
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 Variable Annuity Account. The number of
annuity units is based upon the accumulation 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 payments.
The 4.5% interest rate assumed in the variable annuity determination would
produce level annuity payments if the net investment factor remained constant at
4.5% per year. Subsequent payments will decrease, remain the same or increase
depending upon whether the actual net investment factor is less than, equal to,
or greater than 4.5%.
Annuity payments are always made as of the first day of a month. The contract
requires that we receive notice of election to begin annuity payments at least
thirty days prior to the annuity commencement date. We currently waive this
notice requirement, but reserve the right to enforce it in the future.
Money will be transferred to the General Account for the purpose of electing
fixed annuity payments, or to the appropriate variable sub-accounts for variable
annuity payments, on the first valuation date on or 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 next
valuation date on or following the date on which the request is received. If a
fixed annuity request is received after the third to the last valuation day of
the month prior to commencement, it will be treated as a request received the
following month, and the commencement date will be changed to the first of the
month following the requested commencement date. The account value used to
determine fixed annuity payments will be the value as of the last valuation date
of the month preceding the date the fixed annuity is to begin.
If a variable annuity request is received after the third valuation date
preceding the first valuation date following the fourteenth day of the month
prior to the commencement date, it will be treated as a request received the
following month, and the commencement date will be changed to the first of the
month following the requested commencement date. The account value used to
determine the initial variable annuity payment will be the value as of the first
valuation date following the fourteenth day of the month prior to the variable
annuity begin date.
PAGE 20
<PAGE>
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:
- .996338, and
- the ratio of the value of the accumulation unit for that sub-account for
the valuation date next following the fourteenth day of the preceding
month to the value of the accumulation unit for the valuation date next
following the fourteenth day of the second preceding month (.996338 is a
factor to neutralize the assumed net investment rate, discussed above, of
4.5% per annum built into the first payment calculation which is not
applicable because the actual net investment rate is credited instead).
The value of an annuity unit for a sub-account as of any date other than the
first day of a month is equal to its value as of the first day of the next
succeeding month.
7. Transfer of Annuity Reserves
During the annuity period, we hold amounts as "reserves" for our obligations to
make annuity payments under your contract. You specify where we hold these
reserves. If you specify a sub-account of the Variable Annuity Account, then the
amount of your annuity payments will vary with the performance of that sub-
account. Amounts held as annuity reserves may be transferred among the sub-
accounts. Annuity reserves may also be transferred from a variable annuity to a
fixed annuity during this time. The change must be made by a written request.
The annuitant and joint annuitant, if any, must make such an election.
There are restrictions to such a transfer:
- the transfer of an annuity reserve amount from any sub-account must be at
least equal to $5,000 or the entire amount of the reserve remaining in
that sub-account
- annuity payments must have been in effect for a period of 12 months
before a change may be made
- such transfers can be made only once every 12 months
- we must receive written request for an annuity transfer more than 30 days
in advance of the due date of the annuity payment subject to the transfer
PAGE 21
<PAGE>
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. 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.
Contracts with this transfer feature may not be available in all states.
PAGE 22
<PAGE>
(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 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 purchase payments paid to us as consideration for this
contract, less all contract withdrawals.
Death proceeds will be paid in a single sum to the beneficiary designated unless
an annuity option is elected. 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. 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.
If there are joint owners of the Contract, at the death of the first owner,
there will be no death benefit adjustment to the accumulation value, if the
surviving owner elects to continue the contract.
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 (1) when payments must begin, and (2) the time of distribution
in the event of that spouse's death.
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.
If the annuitant dies after annuity payments have started, we will pay whatever
amount may be required by the terms of the annuity payment option selected. The
remaining value in the Contract must be distributed at least as rapidly as under
the option in effect at the annuitant's death.
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 on or following the date we
receive the purchase payment at our home office. When the contract is originally
issued, application forms are completed by the applicant and forwarded to our
home office. We will review each application form for compliance with our issue
criteria and, if it is accepted, we will issue a contract. Applications received
without instructions as to allocation will be treated as incomplete.
PAGE 23
<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)
If the initial purchase payment is accompanied by an incomplete application,
that purchase payment will not be credited until we receive a completed
application. We will immediately return your initial purchase payment in full if
it appears that the application cannot be completed within five business days
unless you specifically consent to our holding your purchase payment until your
applicaton is completed.
We will credit your purchase payments to your contract in the form of
accumulation units. The number of accumulation units credited with respect to
each purchase payment is determined by dividing the portion of the purchase
payment allocated to each sub-account by the then current accumulation unit
value for that sub-account.
The number of accumulation units so determined shall not be changed by any
subsequent change in the value of an accumulation unit, but the value of an
accumulation unit will vary from valuation date to valuation date to reflect the
investment experience of the 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) 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 we
receive 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.
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.
2. Transfers
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 next determined upon receipt of your request at our
home office. No deferred sales charge will be imposed on such transfers. There
is
PAGE 24
<PAGE>
(SIDEBAR)
Systematic transfers and telephone transfers are available.
(END SIDEBAR)
no dollar amount limitation which is applied to transfers, and we reserve the
right to impose a charge of up to $10 for transfers occurring more frequently
than once a month. No charge is currently imposed.
The contracts permit us to limit the frequency and amount of transfers from our
General Account to the Variable Annuity Account. 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 may be established among the sub-accounts of
the Variable Annuity Account. They may begin on the 10th or 20th of any month
and if a transfer cannot be completed it will be made on the next available
transfer date. In the absence of specific instructions, systematic transfers
will be made on a monthly basis and will remain active until the appropriate
sub-account accumulation value is depleted. Systematic transfer arrangements are
limited to a maximum of twenty sub-accounts. There will be no charge for
systematic transfers.
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 Account or in the Advantus Fund
Maturing Government Bond Portfolios.
PAGE 25
<PAGE>
(SIDEBAR)
Your contract's accumulation value varies with the performance of the Portfolios
you select and is not guaranteed.
(END SIDEBAR)
You may effect transfers, cancel automatic premium plans, or change the
allocation of your future purchase payments by telephone. Telephone transfers
are subject to the same conditions and procedures as written transfer requests.
During periods of marked economic or market changes, you may experience
difficulty in implementing a telephone transfer due to a heavy volume of calls.
If that occurs, 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 at 1-800-362-3141.
Telephone contract services are automatically available to you. 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 the owner to personally identify
themselves in those telephone conversations through information we designate. We
record your telephone transfer instruction conversations and we provide the
contract owners with a written confirmation of your 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. Therefore, the General Account is
not described here.
3. Value of the Contract
The accumulation value of your contract at any time prior to when annuity
payments begin can be determined by multiplying the number of accumulation units
of each sub-account to which you allocate values by the current value of these
units and then adding the values as calculated. There is no assurance that your
accumulation value will equal or exceed your purchase payments. We will advise
you periodically of the number of accumulation units in your contract, the
current value of an accumulation unit, and its total value.
4. Accumulation Unit Value
The value of an accumulation unit for each sub-account of the Variable Annuity
Account was set at $1.000000 on the first valuation date of the sub-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 (described
below) for the valuation period just ended.
PAGE 26
<PAGE>
The value of an accumulation unit a day other than a valuation date is its value
on the next valuation date.
5. Net Investment Factor for Each Valuation Period
The net investment factor is an index used to measure the investment performance
of a sub-account from one valuation period to the next. For any sub-account, the
net investment factor for a valuation period is the gross investment rate for
such sub-account for the valuation period, less a deduction for the mortality
and expense risk charge at the current rate of 1.25% per annum and a deduction
for the administration charge at the current rate of .15% per annum.
The gross investment rate is equal to:
- the net asset value per share of a Portfolio share held in a sub-account
of the Variable Annuity Account determined at the end of the current
valuation period, plus
- the per share amount of any dividend or capital gain distribution by the
Portfolio if the "ex-dividend" date occurs during the current valuation
period, divided by
- the net asset value per share of that Portfolio share determined at the
end of the preceding valuation period.
The gross investment rate may be positive or negative.
E. REDEMPTIONS
1. Partial Withdrawals and Surrender
Prior to the date annuity payments begin you may make partial withdrawals from
your contract in amounts of at least $250. Your request must be in writing and
signed. It may be sent to us via facsimile. Our FAX number is: (651) 665-7942.
Payment of a partial withdrawal or surrender will be made to you within 7 days
after we receive your completed request.
Your accumulation value will be reduced by the amount of your withdrawal and any
applicable 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. 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
PAGE 27
<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.
We are not offering tax advice. You should consult your own tax adviser.
(END SIDEBAR)
Withdrawal values will be determined as of the valuation date we received your
written withdrawal request at our home office. Unless you tell us otherwise,
withdrawals including systematic withdrawals will be made from the sub-accounts
on a pro rata basis.
Before annuity payments begin, you may surrender the contract for its surrender
value. You will receive in a single cash sum the accumulation value computed as
of the valuation date your surrender request is received, reduced by any
applicable deferred sales charge. In lieu of a cash sum payment you may elect an
annuity. In most cases, once annuity payments begin for an annuitant, the
annuitant cannot surrender that annuity benefit and receive a single sum
instead.
2. Right of Cancellation
You should read the contract carefully as soon as you receive it. You may cancel
your 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. If you cancel and return your contract, 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
longer. For example, California's free look period is extended to thirty days.
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. We will pay
any additional amounts necessary to make our refund to you equal to your
purchase payments.
FEDERAL TAX STATUS
INTRODUCTION
Our discussion in this Prospectus is general in nature and is not intended as
tax advice. You 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 make no representation regarding the likelihood of continuation
of current income tax laws or the current interpretations of the Internal
Revenue Service ("IRS"). The Contract may be purchased on a non-tax qualified
basis or purchased and used in connection with certain retirement arrangements
entitled to special income tax treatment under section 401(a), 403(b), 408(b),
408A or 457 of the Code. The ultimate effect of federal income taxes on the
amounts held
PAGE 28
<PAGE>
(SIDEBAR)
Taxes on gains under the contract are normally deferred until there is a
distribution of contract values.
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.
(END SIDEBAR)
under a contract, on annuity payments, and on the economic benefit to the
contract owner, the annuitant, or the beneficiary(ies) 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 we
do 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. As a general rule, deferred
annuity contracts held by an entity (such as a corporation or trust) that is not
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.
The taxable portion of amounts you receive in the event of a full surrender of
an annuity, 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.
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.
The taxable portion is generally determined by a formula that establishes the
ratio of the cost basis of the contract to the expected return under the
contract. The 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,
PAGE 29
<PAGE>
(SIDEBAR)
Transfers, assignments and certain designations of annuitants can have tax
consequences.
(END SIDEBAR)
- 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, where they are made for
the life (or life expectancy) of the taxpayer or the joint lives (or joint life
expectancies) of the taxpayer and beneficiary.
For some types of qualified plans, other tax penalties may apply to certain
distributions.
A transfer of ownership of a contract, 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. If you are contemplating such a transfer, pledge,
designation or assignment you should consult a competent tax adviser about its
potential tax effects.
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 the ownership of serial
contracts or otherwise.
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 ours, we do not control the
Advantus Fund or the investments of its Portfolios. Nonetheless, we believe that
each Portfolio of Advantus Fund 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
PAGE 30
<PAGE>
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 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 Account.
REQUIRED DISTRIBUTIONS
In order to be treated as an annuity contract for federal income tax purposes,
Section 72(s) of the Code requires any nonqualified contract issued after
January 18, 1985 to provide that:
- 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
- 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. 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
PAGE 31
<PAGE>
(SIDEBAR)
Congress may change the tax laws and reduce or eliminate any tax advantages of
the contract.
(END SIDEBAR)
no regulations interpreting these requirements have yet been issued. We intend
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
Death benefits paid upon the death of a contract owner, generally, 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,
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, taking effect before the date of the change). You
should consult a tax adviser with respect to legislative developments and their
effect on the contract.
TAX QUALIFIED PROGRAMS
The contract 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
PAGE 32
<PAGE>
(SIDEBAR)
Distributions are subject to income tax withholding requirements unless you take
steps to prevent it.
(END SIDEBAR)
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.
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,
-- over 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
PAGE 33
<PAGE>
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
The foregoing summary of the federal income tax consequences under these
contracts is not exhaustive. Special rules are provided with respect to
situations not discussed here. Should a plan lose its qualified status,
employees will lose some of the tax benefits described. Statutory changes in the
Code with varying effective dates, and regulations adopted thereunder may also
alter the tax consequences of specific factual situations. Due to the complexity
of the applicable laws, tax advice may be needed by a person purchasing a
variable annuity contract or exercising elections under such a contract. For
further information you should consult a qualified tax adviser.
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, five year and ten year periods and for
the period when the underlying Portfolios first became available to the Variable
Annuity Account. Such performance data may be accompanied by cumulative total
return quotations for the comparable period. For periods prior to the date of
this Prospectus, the quotations will be based on the assumption that the
contract described herein was issued when the underlying Portfolios first became
available to the Variable Annuity Account under other contracts issued by us.
The Money Market Sub-Account may also quote such average annual and cumulative
total return figures. Performance figures used by the Variable Annuity Account
are based on historical information of the sub-accounts for specified periods,
and the figures are not intended to suggest that such performance will continue
in the future. Performance figures of the Variable Annuity Account will reflect
only charges made pursuant to the terms of the contracts offered by this
Prospectus and charges of underlying funds. More detailed information on the
computations is set forth 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
PAGE 34
<PAGE>
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 we provide to the Variable Annuity Account and its contract owners
depend on the smooth functioning of our computer systems. Many computer software
systems in use today cannot distinguish the year 2000 from the year 1900 because
of the way that dates are encoded, stored and calculated. That failure could
have a negative impact on our ability to provide services to contract owners. We
have been actively working on necessary changes to our computer systems to deal
with the year 2000. Although there can be no assurance of complete success, we
believe that we will be able to resolve these issues on a timely basis and that
there will be no material adverse impact on our ability to provide services to
the Variable Annuity Account.
In addition, our operations could be impacted by our service providers' or
suppliers' year 2000 efforts. We have undertaken to assess the efforts of
organizations where there is a significant business relationship. There is no
assurance however that we will not be affected by year 2000 problems of other
organizations.
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information, which contains additional information
including financial statements, is available from the offices of Minnesota Life
at your request. The Table of Contents for that Statement of Additional
Information is as follows:
Directors and Principal Management Officers of Minnesota Life
Distribution of Contracts
Performance Data
Auditors
Registration Statement
Financial Statements
PAGE 35
<PAGE>
APPENDIX A -- ILLUSTRATION OF VARIABLE ANNUITY VALUES
The illustration included in this appendix shows the effect of investment
performance on the monthly variable annuity income. The illustration assumes a
gross investment return, after tax, of: 0%, 6.66% and 12.00%.
For illustration purposes, an average annual expense equal to 2.16% 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 2.16%
includes: 1.25% for mortality and expense risk, .15% for administrative expense,
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 A-1
<PAGE>
ACTUAL 1998 VARIABLE ANNUITY SEPARATE ACCOUNT CHARGES AND FUND EXPENSES
<TABLE>
<CAPTION>
MORTALITY & FUND OTHER
EXPENSE ADMINISTRATIVE MANAGEMENT FUND DISTRIBUTION
SEPARATE ACCOUNT SUB-ACCOUNT NAME RISK CHARGE FEE EXPENSES EXPENSES TOTAL
- ---------------------------------------- ----------- ---------- ---------- -------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Growth.................................. 1.25% .15% .50% .03% -- 1.93%
Bond.................................... 1.25% .15% .50% .05% -- 1.95%
Money Market............................ 1.25% .15% .50% .08% -- 1.98%
Asset Allocation........................ 1.25% .15% .50% .03% -- 1.93%
Mortgage Securities..................... 1.25% .15% .50% .07% -- 1.97%
Index 500............................... 1.25% .15% .40% .04% -- 1.84%
Capital Appreciation.................... 1.25% .15% .75% .03% -- 2.18%
International Stock..................... 1.25% .15% .70% .24% -- 2.34%
Small Company Growth.................... 1.25% .15% .75% .04% -- 2.19%
Maturing Government Bond 2002 (1)....... 1.25% .15% .25% .15% -- 1.80%
Maturing Government Bond 2006 (1)....... 1.25% .15% .25% .15% -- 1.80%
Maturing Government Bond 2010 (1)....... 1.25% .15% .25% .15% -- 1.80%
Value Stock............................. 1.25% .15% .75% .04% -- 2.19%
Small Company Value (1)................. 1.25% .15% .75% .15% -- 2.30%
Global Bond............................. 1.25% .15% .60% .53% -- 2.53%
Index 400 Mid-Cap (1)................... 1.25% .15% .40% .15% -- 1.95%
Macro-Cap Value (1)..................... 1.25% .15% .70% .15% -- 2.25%
Micro-Cap Growth (1).................... 1.25% .15% 1.10% .15% -- 2.65%
Real Estate Securities (1).............. 1.25% .15% .75% .15% -- 2.30%
Templeton Developing Markets Class 2.... 1.25% .15% 1.25% .41% .25%(2) 3.31%
----------- ----- ---------- -------- ----- -----
Average................................. 1.25% .15% .61% .14% .01% 2.16%
</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
ration 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) Class 2 of the Fund has a distribution plan or "Rule 12b-1 Plan" which is
described in the Fund's prospectus.
PAGE A-2
<PAGE>
VARIABLE ANNUITY PAYOUT ILLUSTRATION
<TABLE>
<S> <C>
PREPARED FOR: Client SEX: Male DATE OF BIRTH: 06/01/1934
PRESENTED BY: Minnesota Life ANNUITY COMMENCEMENT: 06/01/1999
ANNUITIZATION OPTION: 10 Year Certain with Life FUNDS: Non-Qualified
Contingency
LIFE EXPECTANCY: 20.0(IRS) 18.1(ML) ISSUE STATE: MN
INITIAL MONTHLY INCOME: $663.26 SINGLE PAYMENT RECEIVED: $100,000.00
AMOUNT ALLOCATED TO VARIABLE: $100,000.00
</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 returns.
<TABLE>
<CAPTION>
MONTHLY INCOME ASSUMING
---------------------------------------------
ANNUAL RATE OF RETURN
---------------------------------------------
BEGINNING 0.00% GROSS 6.66% GROSS 12.00% GROSS
DATE OF YEAR AGE (-2.16% NET) (4.50% NET) (9.84% NET)
- ---------------------------------------- --------- --- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
June 01, 1999........................... 1 65 663 663 663
June 01, 2000........................... 2 66 621 663 697
June 01, 2001........................... 3 67 581 663 733
June 01, 2002........................... 4 68 544 663 770
June 01, 2003........................... 5 69 510 663 810
June 01, 2005........................... 7 71 447 663 894
June 01, 2007........................... 9 73 392 663 988
June 01, 2009........................... 11 75 343 663 1,092
June 01, 2011........................... 13 77 301 663 1,206
June 01, 2013........................... 15 79 264 663 1,333
June 01, 2015........................... 17 81 231 663 1,472
June 01, 2017........................... 19 83 203 663 1,627
June 01, 2019........................... 21 85 178 663 1,797
June 01, 2021........................... 23 87 156 663 1,985
June 01, 2023........................... 25 89 137 663 2,194
June 01, 2025........................... 27 91 120 663 2,423
June 01, 2027........................... 29 93 105 663 2,677
June 01, 2029........................... 31 95 92 663 2,958
June 01, 2031........................... 33 97 81 663 3,268
June 01, 2034........................... 36 100 66 663 3,795
</TABLE>
IF YOU APPLIED THE AMOUNT OF YOUR PURCHASE PAYMENT ALLOCATED TO VARIABLE TO A
FIXED ANNUITY ON THE QUOTATION DATE OF THIS ILLUSTRATION, YOUR FIXED ANNUITY
INCOME WOULD BE $698.41.
Net rate of return reflects expenses totaling 2.16%, which consist of the 1.25%
Variable Annuity Account mortality and expense risk charge, .15% administrative
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 Ascend
Financial Services, Inc., Securities Dealer, Member NASD/SIPC. This illustration
must be accompanied or preceded by a current prospectus for the Variable Annuity
Account, Advantus Series Fund, Inc. and Templeton Variable Products Series Fund.
THE INVESTMENT RETURNS SHOWN ARE HYPOTHETICAL AND ARE NOT A REPRESENTATION OF
FUTURE RESULTS.
THIS IS AN ILLUSTRATION ONLY AND NOT A CONTRACT.
PAGE A-3
<PAGE>
APPENDIX B - 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.
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.
PAGE B-1
<PAGE>
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.
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 B-2
<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: 1-800-362-3141
Statement of Additional Information
The date of this document and the Prospectus is: August 31, 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 1-800-362-3141;
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
<PAGE>
DIRECTORS AND PRINCIPAL MANAGEMENT OFFICERS OF MINNESOTA LIFE
Directors Principal Occupation
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)
Robert E. Hunstad Executive Vice President, Minnesota Life
Insurance Company, St. Paul, Minnesota
Dennis E. Prohofsky Senior Vice President, General Counsel and
Secretary, Minnesota Life Insurance Company,
St. Paul, Minnesota
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)
William N. Westhoff Senior Vice President, Minnesota Life
Insurance Company, St. Paul, Minnesota since
April 1998, prior thereto, Senior Vice
President, Global Investments, American
Express Financial Corporation, Minneapolis,
Minnesota from August 1994 to October 1997;
Senior Vice President, Fixed Income Management,
American Express Financial Corporation,
Minneapolis, Minnesota from November 1989 to
July 1994.
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)
<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.
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. Advantus Capital Management, Inc., is a registered investment
adviser and the investment adviser to the Advantus Series Fund, Inc. Ascend
Financial is registered as a broker-dealer under the Securities Exchange Act of
1934 and is a member of the National Association of Securities Dealers, Inc.
Amounts paid by Minnesota Life to the underwriter for 1998, 1997 and 1996 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.
<PAGE>
PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN
Average annual total return figures for the sub-accounts represent the rates
of return for the sub-accounts for the specified periods ended December
31, 1998. For periods prior to the date of this Prospectus, the figures will
be based on the assumption that the contracts described herein were issued
when the underlying Portfolios first became available to the Variable Annuity
Account. Average annual 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 referenced and the net asset value of that same
investment at the end of the period.
The average annual total return figures published by the Variable Annuity
Account will reflect Minnesota Life's voluntary absorption of certain Fund
expenses. For the period subsequent to March 9, 1987, Minnesota Life is
voluntarily absorbing the fees and expenses that exceed .65% of the average
daily net assets of the Growth, Bond, Money Market, Asset Allocation and
Mortgage Securities Portfolios of the Fund, .55% of the average daily net
assets of the Index 500 Portfolios of the Fund, .90% of the average daily net
assets of the Capital Appreciation and Small Company Growth Portfolios of the
Fund 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
absorbed fees and expenses that exceed .90% of the average daily net assets of
the Value Stock Portfolio, and fees and expenses that exceed .40% of the
average daily net assets of the Maturing Government Bond Portfolios maturing
in 2006 and 2010; and fees and expenses that exceed .20% of the average daily
net assets of the Maturing Government Bond Portfolio maturing in 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 Portfolio maturing in 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.
<PAGE>
The average annual rates of return for the Sub-Accounts, in connection with the
contract described in the Prospectus, for the specified periods ended December
31, 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>
AVERAGE ANNUAL TOTAL RETURN
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 (23.15%) 23.15% (18.74%) 18.74% (15.59%) 15.60% (n/a) n/a 12/3/85
Bond Sub-Account (-3.01%) -3.01% (4.10%) 4.10% (7.07%) 7.10% (n/a) n/a 12/3/85
Money Market Sub-Account (-4.03%) -4.03% (2.51%) 2.53% (3.62%) 3.71% (n/a) n/a 12/3/85
Asset Allocation Sub-Account (13.05%) 13.05% (12.80%) 12.80% (12.52%) 12.52% (n/a) n/a 12/3/85
Mortgage Securities Sub-Account (-2.56%) -2.56% (4.55%) 4.55% (7.36%) 7.38% (n/a) n/a 6/1/87
Index 500 Sub-Account (17.02%) 17.02% (20.62%) 20.62% (16.88%) 16.90% (n/a) n/a 6/1/87
Capital Appreciation
Sub-Account (19.62%) 19.62% (17.27%) 17.27% (16.94%) 16.98% (n/a) n/a 6/1/87
International Stock Sub-Account (-2.53%) -2.53% (7.81%) 7.81% (n/a) n/a (10.43%) 10.44% 5/1/92
Small Company Growth
Sub-Account (-7.41) -7.41% (7.82%) 7.82% (n/a) n/a (9.86%) 9.86% 5/3/93
Maturing Government Bond
2002 Sub-Account (-.34%) 0.22% (n/a) n/a (n/a) n/a (5.91%) 6.81% 5/2/94
Maturing Government Bond
2006 Sub-Account (3.99%) 4.56% (n/a) n/a (n/a) n/a (9.68%) 8.55% 5/2/94
</TABLE>
<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>
Maturing Government Bond
2010 Sub-Account (3.22%) 4.48% (n/a) n/a (n/a) n/a (11.22%) 9.52% 5/2/94
Value Stock Sub-Account (-6.97%) -6.97% (n/a) n/a (n/a) n/a (16.18%) 16.11% 5/2/94
Small Company Value
Sub-Account (-15.34%) -14.74% (n/a) n/a (n/a) n/a (-10.46%) -10.97% 10/1/97
Global Bond Sub-Account (6.22%) 6.22% (n/a) n/a (n/a) n/a (4.90%) 4.90% 10/1/97
Index 400 Mid-Cap Sub-Account (6.11%) 6.68% (n/a) n/a (n/a) n/a (5.25%) 4.80% 10/1/97
Macro-Cap Value Sub-Account (10.68%) 11.85% (n/a) n/a (n/a) n/a (7.39%) 6.12% 10/15/97
Micro-Cap Growth Sub-Account (3.72%) 3.72% (n/a) n/a (n/a) n/a (-8.16%) -8.16% 10/1/97
Real Estate Securities Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (-22.06%) -22.54% 5/1/98
Templeton Developing
Markets Class 2 Sub-Account (-27.81%) -27.81% (n/a) n/a (n/a) n/a (-42.39%) -42.39% 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. 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.
<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 (32.84%) 32.84% (19.73%) 19.73% (15.59%) 15.60% (n/a) n/a 12/3/85
Bond Sub-Account (4.61%) 4.61% (4.97%) 4.97% (7.07%) 7.10% (n/a) n/a 12/3/85
Money Market Sub-Account (3.52%) 3.52% (3.36%) 3.38% (3.62%) 3.71% (n/a) n/a 12/3/85
Asset Allocation
Sub-Account (21.94%) 21.94% (13.73%) 13.73% (12.52%) 12.52% (n/a) n/a 12/3/85
Mortgage Securities
Sub-Account (5.10%) 5.10% (5.42%) 5.42% (7.36%) 7.38% (n/a) n/a 6/1/87
Index 500 Sub-Account (26.22%) 26.22% (21.62%) 21.62% (16.88%) 16.90% (n/a) n/a 6/1/87
Capital Appreciation
Sub-Account (29.02%) 29.02% (18.24%) 18.24% (16.94%) 16.98% (n/a) n/a 6/1/87
International Stock
Sub-Account (5.13%) 5.13% (8.71%) 8.71% (n/a) n/a (10.89%) 10.90% 5/1/92
Small Company Growth
Sub-Account (-.13%) -.13% (8.72%) 8.72% (n/a) n/a (10.55%) 10.55% 5/3/93
Maturing Government Bond
2002 Sub-Account (7.50%) 8.10% (n/a) n/a (n/a) n/a (6.91%) 7.83% 5/2/94
Maturing Government Bond
2006 Sub-Account (12.17%) 12.78% (n/a) n/a (n/a) n/a (9.58%) 10.72% 5/2/94
Maturing Government Bond
2010 Sub-Account (11.33%) 12.70% (n/a) n/a (n/a) n/a (10.56%) 12.27% 5/2/94
Value Stock Sub-Account (.35%) .35% (n/a) n/a (n/a) n/a (17.21%) 17.29% 5/2/94
</TABLE>
<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>
Small Company Value
Sub-Account (-8.69%) -8.04% (n/a) n/a (n/a) n/a (-5.58%) -5.04% 10/1/97
Global Bond Sub-Account (14.57%) 14.57% (n/a) n/a (n/a) n/a (11.25%) 11.25% 10/1/97
Index 400 Mid-Cap
Sub-Account (14.45%) 15.06% (n/a) n/a (n/a) n/a (11.15%) 11.62% 10/1/97
Macro-Cap Value
Sub-Account (19.39%) 20.64% (n/a) n/a (n/a) n/a (12.54%) 13.90% 10/15/97
Micro-Cap Growth
Sub Account (11.10%) 11.88% (n/a) n/a (n/a) n/a (-3.38%) -2.60% 10/1/97
Real Estate Securities
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (-16.20%) -15.69% 5/1/98
Templeton Developing
Markets Class 2
Sub-Account (-22.13%) -22.13% (n/a) n/a (n/a) n/a (-38.90%) -38.90% 10/1/97
</TABLE>
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 2.95% and
2.99%, 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% and decrease uniformly each month for 120 months).
Such figures reflect voluntary absorption of certain expenses of the Advantus
Series Fund, Inc (the "Fund") by Minnesota Life described below.
TOTAL RETURN FIGURES FOR ALL SUB-ACCOUNTS
Cumulative total return quotations for Sub-Accounts represent the total return
for the period since the Sub-Account became available pursuant to the Variable
Annuity Account's registration statement. Therefore, for periods prior to the
date of this Prospectus the quotations will be based on the assumption that the
contracts described herein were available when the underlying Portfolios first
commenced operations. 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 referenced and the net asset value of that same investment at the
end of that period. Such quotations of cumulative total return will not reflect
the deduction of any applicable deferred sales charges.
The cumulative total return figures published by the Variable Annuity Account
relating to the contract described in the Prospectus will reflect Minnesota
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.
Cumulative total return quotations for Sub-Accounts will be accompanied by
average annual total return figures for a one year period, five year period, ten
year period or since inception of the corresponding Fund Portfolios. 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 any deferred sales charge applicable to the contract payments
and to the length of the period referenced. The average annual total return
figures published by the Variable Annuity Account will reflect Minnesota Life's
voluntary absorption of certain Fund expenses described below. The figures in
parentheses show what the average annual total returns would have been had
Minnesota Life not absorbed Fund expenses as described.
<PAGE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
From Inception Date of
to 12/31/98 Inception
----------------------- ---------
<S> <C> <C> <C>
Growth Sub-Account (397.92%) 403.65% 12/3/85
Bond Sub-Account (138.80%) 140.87% 12/3/85
Money Market Sub-Account (59.19%) 64.46% 12/3/85
Asset Allocation Sub-Account (279.05%) 280.21% 12/3/85
Mortgage Securities Sub-Account (122.03%) 122.73% 6/1/87
Index 500 Sub-Account (365.72%) 367.52% 6/1/87
Capital Appreciation Sub-Account (360.89%) 367.34% 6/1/87
International Stock Sub-Account (99.19%) 99.28% 5/1/92
Small Company Growth Sub-Account (76.54%) 76.57% 5/3/93
Maturing Government Bond
2002 Sub-Account (36.61%) 42.14% 5/2/94
Maturing Government Bond
2006 Sub-Account (53.24%) 60.86% 5/2/94
Maturing Government Bond
2010 Sub-Account (59.78%) 71.65% 5/2/94
Value Stock Sub-Account (109.83%) 110.46% 5/2/94
Small Company Value Sub-Account (-6.92%) -6.26% 10/1/97
Global Bond Sub-Account (14.26%) 14.26% 10/1/97
Index 400 Mid-Cap Sub-Account (14.13%) 14.73% 10/1/97
Macro-Cap Value Sub-Account (15.92%) 17.66% 10/15/97
Micro-Cap Growth Sub-Account (-4.02%) -3.24% 10/1/97
Real Estate Securities Sub-Account (-16.20%) -15.69% 5/1/98
Templeton Developing Markets
Class 2 Sub-Account (-45.98%) -45.98% 10/1/97
</TABLE>
<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:
2T
AVM = P(1 + AGR/2)
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 calculate AVM for each Maturing
Government Bond Sub-Account on any day on
<PAGE>
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.
<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, 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 LLP
Minneapolis, Minnesota
February 26, 1999
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------
MONEY ASSET
ASSETS GROWTH BOND MARKET ALLOCATION
----------------------------------------------------
<S> <C> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
Growth Portfolio, 96,545,488 shares at net asset
value of $2.74 per share (cost $203,406,202) .......................... $ 264,331,794 - - -
Bond Portfolio, 102,441,034 shares at net asset
value of $1.31 per share (cost $128,869,094) .......................... - 133,972,916 - -
Money Market Portfolio, 49,909,087 shares at net asset
value of $1.00 per share (cost $49,909,087) ........................... - - 49,909,087 -
Asset Allocation Portfolio, 215,005,440 shares at net asset
value of $2.28 per share (cost $368,808,215) .......................... - - - 489,966,528
Mortgage Securities Portfolio, 79,993,202 shares at net asset
value of $1.22 per share (cost $93,488,099) ........................... - - - -
Index 500 Portfolio, 82,218,507 shares at net asset
value of $3.91 per share (cost $197,526,677) .......................... - - - -
Capital Appreciation Portfolio, 76,158,199 shares at net asset
value of $3.54 per share (cost $166,929,980) .......................... - - - -
-------------- ------------ ---------- -----------
264,331,794 133,972,916 49,909,087 489,966,528
Receivable for investments sold ............................................... 325,133 48,925 62,251 514,055
Receivable from Minnesota Life for contract purchase payments ................. 218,201 274,993 1,098,549 562,192
-------------- ------------- ---------- -----------
Total assets ...................................................... 264,875,128 134,296,834 51,069,887 491,042,775
-------------- ------------- ---------- -----------
LIABILITIES
Payable for investments purchased ............................................. 218,201 274,993 1,098,549 562,192
Payable to Minnesota Life for contract terminations, mortality and
expense charges and administrative charges ............................... 325,133 48,925 62,251 514,055
-------------- ------------- ---------- -----------
Total liabilities ................................................. 543,334 323,918 1,160,800 1,076,247
-------------- ------------- ---------- -----------
Net assets applicable to annuity contract owners .................. $ 264,331,794 133,972,916 49,909,087 489,966,528
-------------- ------------- ---------- -----------
-------------- ------------- ---------- -----------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period (Personal Retirement Plans) .................. $ 255,058,590 127,221,435 47,267,368 477,139,024
Contracts in accumulation period (MegAnnuity) ................................. 6,869,391 5,451,080 2,609,510 7,369,285
Contracts in annuity payment period (Personal Retirement Plans) (note 2) ...... 2,312,411 1,269,861 32,209 4,936,611
Contracts in annuity payment period (MegAnnuity) (note 2) ..................... 91,402 30,540 - 521,608
Contracts in annuity payment period (Adjustable Income Annuity) (note 2) ...... - - - -
-------------- ------------- ---------- -----------
Total contract owners' equity ..................................... $ 264,331,794 133,972,916 49,909,087 489,966,528
-------------- ------------- ---------- -----------
-------------- ------------- ---------- -----------
ACCUMULATION UNITS OUTSTANDING (PERSONAL RETIREMENT PLANS) .................... 47,805,851 51,341,159 27,959,675 120,373,228
-------------- ------------- ---------- -----------
-------------- ------------- ---------- -----------
ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) ................................... 1,628,467 2,162,866 1,463,714 1,987,162
-------------- ------------- ---------- -----------
-------------- ------------- ---------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT (PERSONAL RETIREMENT PLANS) ............. $ 5.34 2.48 1.69 3.96
-------------- ------------- ---------- -----------
-------------- ------------- ---------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY) ............................ $ 4.22 2.52 1.78 3.71
-------------- ------------- ---------- -----------
-------------- ------------- ---------- -----------
<CAPTION>
---------------------------------------
MORTGAGE INDEX CAPITAL
ASSETS SECURITIES 500 APPRECIATION
---------------------------------------
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
Growth Portfolio, 96,545,488 shares at net asset
value of $2.74 per share (cost $203,406,202) .......................... - - -
Bond Portfolio, 102,441,034 shares at net asset
value of $1.31 per share (cost $128,869,094) .......................... - - -
Money Market Portfolio, 49,909,087 shares at net asset
value of $1.00 per share (cost $49,909,087) ........................... - - -
Asset Allocation Portfolio, 215,005,440 shares at net asset
value of $2.28 per share (cost $368,808,215) .......................... - - -
Mortgage Securities Portfolio, 79,993,202 shares at net asset
value of $1.22 per share (cost $93,488,099) ........................... 97,408,573 - -
Index 500 Portfolio, 82,218,507 shares at net asset
value of $3.91 per share (cost $197,526,677) .......................... - 321,468,279 -
Capital Appreciation Portfolio, 76,158,199 shares at net asset
value of $3.54 per share (cost $166,929,980) .......................... - - 269,318,233
-------------- ------------- -----------
97,408,573 321,468,279 269,318,233
Receivable for investments sold ............................................... 83,639 385,513 262,731
Receivable from Minnesota Life for contract purchase payments ................. 105,140 338,121 213,589
-------------- ------------- -----------
Total assets ...................................................... 97,597,352 322,191,913 269,794,553
-------------- ------------- -----------
LIABILITIES
Payable for investments purchased ............................................. 105,140 338,121 213,589
Payable to Minnesota Life for contract terminations, mortality and
expense charges and administrative charges ............................... 83,639 385,513 262,731
-------------- ------------- -----------
Total liabilities ................................................. 188,779 723,634 476,320
-------------- ------------- -----------
Net assets applicable to annuity contract owners .................. 97,408,573 321,468,279 269,318,233
-------------- ------------- -----------
-------------- ------------- -----------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period (Personal Retirement Plans) .................. 94,686,890 289,871,970 258,392,646
Contracts in accumulation period (MegAnnuity) ................................. 1,748,986 13,200,318 8,553,855
Contracts in annuity payment period (Personal Retirement Plans) (note 2) ...... 972,697 2,541,882 2,304,959
Contracts in annuity payment period (MegAnnuity) (note 2) ..................... - 46,186 66,773
Contracts in annuity payment period (Adjustable Income Annuity) (note 2) ...... - 15,807,923 -
-------------- ------------- -----------
Total contract owners' equity ..................................... 97,408,573 321,468,279 269,318,233
-------------- ------------- -----------
-------------- ------------- -----------
ACCUMULATION UNITS OUTSTANDING (PERSONAL RETIREMENT PLANS) .................... 41,507,338 60,268,563 53,894,481
-------------- ------------- -----------
-------------- ------------- -----------
ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) ................................... 686,079 2,780,306 1,800,652
-------------- ------------- -----------
-------------- ------------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT (PERSONAL RETIREMENT PLANS) ............. 2.28 4.81 4.79
-------------- ------------- -----------
-------------- ------------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY) ............................ 2.55 4.75 4.75
-------------- ------------- -----------
-------------- ------------- -----------
</TABLE>
See accompanying notes to financial statments.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------
MATURING MATURING
INTERNATIONAL SMALL GOVERNMENT GOVERNMENT
ASSETS STOCK COMPANY BOND 1998 BOND 2002
----------------------------------------------------
<S> <C> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
International Stock Portfolio, 120,764,194 shares at net asset
value of $1.73 per share (cost $179,680,053) .......................... $ 208,892,703 - - -
Small Company Growth Portfolio, 77,154,307 shares at net asset
value of $1.68 per share (cost $115,246,440) .......................... - 129,255,925 - -
Maturing Government Bond 1998 Portfolio, 0 shares at net asset
value of $0.00 per share (cost $0) .................................... - - - -
Maturing Government Bond 2002 Portfolio, 6,197,524 shares at net asset
value of $1.11 per share (cost $6,692,294) ............................ - - - 6,852,927
Maturing Government Bond 2006 Portfolio, 5,480,023 shares at net asset
value of $1.25 per share (cost $6,333,561) ............................ - - - -
Maturing Government Bond 2010 Portfolio, 4,004,457 shares at net asset
value of $1.41per share (cost $4,992,369) ............................. - - - -
Value Stock Portfolio, 87,806,594 shares at net asset
value of $1.76 per share (cost $142,249,891) .......................... - - - -
-------------- ------------- ----------- -----------
208,892,703 129,255,925 - 6,852,927
Receivable for investments sold................................................ 282,191 147,154 - 320
Receivable from Minnesota Life for contract purchase payments ................. 146,321 176,245 - 21
-------------- ------------- ----------- -----------
Total assets .......................................................... 209,321,215 129,579,324 - 6,853,268
-------------- ------------- ----------- -----------
LIABILITIES
Payable for investments purchased ............................................. 146,321 176,245 - 21
Payable to Minnesota Life for contract terminations, mortality and
expense charges and administrative charges................................ 282,191 147,154 - 320
-------------- ------------- ----------- -----------
Total liabilities...................................................... 428,512 323,399 - 341
-------------- ------------- ----------- -----------
Net assets applicable to annuity contract owners ...................... $ 208,892,703 129,255,925 - 6,852,927
-------------- ------------- ----------- -----------
-------------- ------------- ----------- -----------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period (Personal Retirement Plans)................... $ 201,327,567 124,257,847 - 6,329,988
Contracts in accumulation period (MegAnnuity) 5,246,846 3,120,314 - 499,225
Contracts in annuity payment period (Personal Retirement Plans) (note 2) ...... 2,097,638 1,852,989 - 23,714
Contracts in annuity payment period (MegAnnuity) (note 2) ..................... 220,652 24,775 - -
Contracts in annuity payment period (Adjustable Income Annuity) (note 2) ...... - - - -
-------------- ------------- ----------- -----------
Total contract owners' equity ..................................... $ 208,892,703 129,255,925 - 6,852,927
-------------- ------------- ----------- -----------
-------------- ------------- ----------- -----------
ACCUMULATION UNITS OUTSTANDING (PERSONAL RETIREMENT PLANS)..................... 99,956,739 69,789,850 - 4,526,963
-------------- ------------- ----------- -----------
-------------- ------------- ----------- -----------
ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) 2,464,913 1,681,790 - 339,137
-------------- ------------- ----------- -----------
-------------- ------------- ----------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT (PERSONAL RETIREMENT PLANS).............. $ 2.01 1.78 - 1.40
-------------- ------------- ----------- -----------
-------------- ------------- ----------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY)............................. $ 2.13 1.86 - 1.47
-------------- ------------- ----------- -----------
-------------- ------------- ----------- -----------
<CAPTION>
---------------------------------------
MATURING MATURING
GOVERNMENT GOVERNMENT VALUE
ASSETS BOND 2006 BOND 2010 STOCK
---------------------------------------
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
International Stock Portfolio, 120,764,194 shares at net asset
value of $1.73 per share (cost $179,680,053) .......................... - - -
Small Company Growth Portfolio, 77,154,307 shares at net asset
value of $1.68 per share (cost $115,246,440) .......................... - - -
Maturing Government Bond 1998 Portfolio, 0 shares at net asset
value of $0.00 per share (cost $0) .................................... - - -
Maturing Government Bond 2002 Portfolio, 6,197,524 shares at net asset
value of $1.11 per share (cost $6,692,294) ............................ - - -
Maturing Government Bond 2006 Portfolio, 5,480,023 shares at net asset
value of $1.25 per share (cost $6,333,561) ............................ 6,868,481 - -
Maturing Government Bond 2010 Portfolio, 4,004,457 shares at net asset
value of $1.41per share (cost $4,992,369) ............................. - 5,644,926 -
Value Stock Portfolio, 87,806,594 shares at net asset
value of $1.76 per share (cost $142,249,891) .......................... - - 154,497,444
-------------- ------------- -----------
6,868,481 5,644,926 154,497,444
Receivable for investments sold................................................ 326 270 119,628
Receivable from Minnesota Life for contract purchase payments ................. 3,579 263 101,048
-------------- ------------- -----------
Total assets .......................................................... 6,872,386 5,645,459 154,718,120
-------------- ------------- -----------
LIABILITIES
Payable for investments purchased ............................................. 3,579 263 101,048
Payable to Minnesota Life for contract terminations, mortality and
expense charges and administrative charges................................ 326 270 119,628
-------------- ------------- -----------
Total liabilities...................................................... 3,905 533 220,676
-------------- ------------- -----------
Net assets applicable to annuity contract owners ...................... 6,868,481 5,644,926 154,497,444
-------------- ------------- -----------
-------------- ------------- -----------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period (Personal Retirement Plans)................... 6,094,868 5,061,491 149,650,502
Contracts in accumulation period (MegAnnuity) 368,711 187,877 2,837,220
Contracts in annuity payment period (Personal Retirement Plans) (note 2) ...... 380,018 370,722 1,959,806
Contracts in annuity payment period (MegAnnuity) (note 2) ..................... 24,884 24,836 49,916
Contracts in annuity payment period (Adjustable Income Annuity) (note 2) ...... - - -
-------------- ------------- -----------
Total contract owners' equity ..................................... 6,868,481 5,644,926 154,497,444
-------------- ------------- -----------
-------------- ------------- -----------
ACCUMULATION UNITS OUTSTANDING (PERSONAL RETIREMENT PLANS)..................... 3,881,227 3,046,112 69,982,001
-------------- ------------- -----------
-------------- ------------- -----------
ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) 223,036 107,403 1,260,342
-------------- ------------- -----------
-------------- ------------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT (PERSONAL RETIREMENT PLANS).............. 1.57 1.66 2.14
-------------- ------------- -----------
-------------- ------------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY)............................. 1.65 1.75 2.25
-------------- ------------- -----------
-------------- ------------- -----------
</TABLE>
See accompanying notes to financial statments.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------
SMALL
COMPANY GLOBAL INDEX 400 MACRO-CAP
ASSETS VALUE BOND MID-CAP VALUE
----------------------------------------------------
<S> <C> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
Small Company Value Portfolio, 8,279,227 shares at net asset
value of $0.95 per share (cost $8,313,418) ............................ $ 7,851,143 - - -
Global Bond Portfolio, 29,394,043 shares at net asset
value of $1.05 per share (cost $29,751,795) ........................... - 30,823,257 - -
Index 400 Mid-Cap Portfolio, 8,142,156 shares at net asset
value of $1.15 per share (cost $8,355,475) ............................ - - 9,358,774 -
Macro-Cap Value Portfolio, 8,959,260 shares at net asset
value of $1.14 per share (cost $9,318,264) ............................ - - - 10,209,903
Micro-Cap Growth Portfolio, 7,179,720 shares at net asset
value of $1.01 per share (cost $6,838,083) ............................ - - - -
Real Estate Securities Portfolio, 6,101,949 shares at net asset
value of $0.83 per share (cost $5,928,840) ............................ - - - -
Investment in shares of Templeton Variable Products Series Fund:
Templeton Developing Markets Fund - Class 2, 589,245 shares at net asset
value of $5.12 per share (cost $3,566,831) ............................ - - - -
------------- ------------- ----------- -----------
7,851,143 30,823,257 9,358,774 10,209,903
Receivable for investments sold .............................................. 3,646 5,596 6,406 15,489
Receivable from Minnesota Life for contract purchase payments ................ 15,117 3,039 1,315 25,299
------------- ------------- ----------- -----------
Total assets ..................................................... 7,869,906 30,831,892 9,366,495 10,250,691
------------- ------------- ----------- -----------
LIABILITIES
Payable for investments purchased ............................................ 15,117 3,039 1,315 25,299
Payable to Minnesota Life for contract terminations, mortality and
expense charges and administrative charges................................ 3,646 5,596 6,406 15,489
------------- ------------- ----------- -----------
Total liabilities ................................................ 18,763 8,635 7,721 40,788
------------- ------------- ----------- -----------
Net assets applicable to annuity contract owners ................. $ 7,851,143 30,823,257 9,358,774 10,209,903
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period (Personal Retirement Plans)................... $ 7,155,427 30,698,268 9,037,135 9,972,628
Contracts in accumulation period (MegAnnuity).................................. 340,537 49,097 253,127 117,112
Contracts in annuity payment period (Personal Retirement Plans) (note 2) ...... 355,179 75,892 68,512 120,163
Contracts in annuity payment period (MegAnnuity) (note 2) ..................... - - - -
Contracts in annuity payment period (Adjustable Income Annuity) (note 2) ...... - - - -
------------- ------------- ----------- -----------
Total contract owners' equity .................................... $ 7,851,143 30,823,257 9,358,774 10,209,903
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
ACCUMULATION UNITS OUTSTANDING (PERSONAL RETIREMENT PLANS)..................... 7,555,601 26,841,307 7,779,280 8,485,870
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
ACCUMULATION UNITS OUTSTANDING (MEGANNUITY).................................... 361,348 42,643 217,613 97,581
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT (PERSONAL RETIREMENT PLANS).............. $ 0.95 1.14 1.16 1.18
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY)............................. $ 0.94 1.15 1.15 1.20
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------
REAL TEMPLETON
MICRO-CAP ESTATE DEVELOPING
ASSETS GROWTH SECURITES MARKETS
----------------------------------------
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
Small Company Value Portfolio, 8,279,227 shares at net asset
value of $0.95 per share (cost $8,313,418) ............................ - - -
Global Bond Portfolio, 29,394,043 shares at net asset
value of $1.05 per share (cost $29,751,795) ........................... - - -
Index 400 Mid-Cap Portfolio, 8,142,156 shares at net asset
value of $1.15 per share (cost $8,355,475) ............................ - - -
Macro-Cap Value Portfolio, 8,959,260 shares at net asset
value of $1.14 per share (cost $9,318,264) ............................ - - -
Micro-Cap Growth Portfolio, 7,179,720 shares at net asset
value of $1.01 per share (cost $6,838,083) ............................ 7,241,667 - -
Real Estate Securities Portfolio, 6,101,949 shares at net asset
value of $0.83 per share (cost $5,928,840) ............................ - 5,075,867 -
Investment in shares of Templeton Variable Products Series Fund:
Templeton Developing Markets Fund - Class 2, 589,245 shares at net asset
value of $5.12 per share (cost $3,566,831) ............................ - - 3,016,935
------------- ------------- -----------
7,241,667 5,075,867 3,016,935
Receivable for investments sold .............................................. 1,723 251 2,766
Receivable from Minnesota Life for contract purchase payments ................ 15,563 - 4,508
------------- ------------- -----------
Total assets ..................................................... 7,258,953 5,076,118 3,024,209
------------- ------------- -----------
LIABILITIES
Payable for investments purchased ........................................... 15,563 - 4,508
Payable to Minnesota Life for contract terminations, mortality and
expense charges and administrative charges................................ 1,723 251 2,766
------------- ------------- -----------
Total liabilities ................................................ 17,286 251 7,274
------------- ------------- -----------
Net assets applicable to annuity contract owners ................. 7,241,667 5,075,867 3,016,935
------------- ------------- -----------
------------- ------------- -----------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period (Personal Retirement Plans)................... 7,083,984 5,053,408 2,656,405
Contracts in accumulation period (MegAnnuity).................................. 68,076 10,262 72,851
Contracts in annuity payment period (Personal Retirement Plans) (note 2) ...... 89,607 12,197 287,679
Contracts in annuity payment period (MegAnnuity) (note 2) ..................... - - -
Contracts in annuity payment period (Adjustable Income Annuity) (note 2) ...... - - -
------------- ------------- -----------
Total contract owners' equity .................................... 7,241,667 5,075,867 3,016,935
------------- ------------- -----------
------------- ------------- -----------
ACCUMULATION UNITS OUTSTANDING (PERSONAL RETIREMENT PLANS)..................... 6,922,652 5,887,391 4,908,432
------------- ------------- -----------
------------- ------------- -----------
ACCUMULATION UNITS OUTSTANDING (MEGANNUITY).................................... 71,594 12,024 132,217
------------- ------------- -----------
------------- ------------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT (PERSONAL RETIREMENT PLANS).............. 1.02 0.86 0.54
------------- ------------- -----------
------------- ------------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY)............................. 0.95 0.85 0.55
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------
MONEY ASSET
GROWTH BOND MARKET ALLOCATION
----------------------------------------------------
<S> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) .... $ 1,909,026 6,555,791 1,890,390 11,047,310
Mortality and expense charges (Personal Retirement Plans) (note 3)....... (2,658,497) (1,451,761) (466,160) (5,328,444)
Administrative charges (MegAnnuity) (note 3)............................. (8,428) (7,043) (2,764) (10,057)
Mortality and expense charges (Adjustable Income Annuity) (note 3)....... - - - -
Administrative charges (Adjustable Income Annuity) (note 3).............. - - - -
------------- ------------- ----------- -----------
Investment income (loss) - net ....................................... (757,899) 5,096,987 1,421,466 5,708,809
------------- ------------- ----------- -----------
Realized and unrealized gains on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ........ 30,361,750 1,380,975 - 28,074,004
------------- ------------- ----------- -----------
Realized gains on sales of investments:
Proceeds from sales .................................................. 40,776,604 23,722,219 61,218,353 72,692,099
Cost of investments sold ............................................. (35,169,204) (22,960,184)(61,218,353)(59,657,730)
------------- ------------- ----------- -----------
5,607,400 762,035 - 13,034,369
------------- ------------- ----------- -----------
Net realized gains on investments .................................... 35,969,150 2,143,010 - 41,108,373
------------- ------------- ----------- -----------
Net change in unrealized appreciation or depreciation
of investments .................................................... 28,752,083 (1,508,399) - 41,516,841
------------- ------------- ----------- -----------
Net gains on investments ............................................. 64,721,233 634,611 - 82,625,214
------------- ------------- ----------- -----------
Net increase in net assets resulting from operations ..........................$ 63,963,334 5,731,598 1,421,466 88,334,023
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------
MORTGAGE INDEX CAPITAL
SECURITIES 500 APPRECIATION
----------------------------------------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) .... 4,573,204 2,288,759 -
Mortality and expense charges (Personal Retirement Plans) (note 3)....... (1,072,947) (3,127,575) (2,774,930)
Administrative charges (MegAnnuity) (note 3)............................. (2,378) (17,645) (11,069)
Mortality and expense charges (Adjustable Income Annuity) (note 3)....... - (96,607) -
Administrative charges (Adjustable Income Annuity) (note 3).............. - (18,115) -
------------- ------------- -----------
Investment income (loss) - net ....................................... 3,497,879 (971,183) (2,785,999)
------------- ------------- -----------
Realized and unrealized gains on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ........ - 1,434,626 12,252,180
------------- ------------- -----------
Realized gains on sales of investments:
Proceeds from sales .................................................. 19,602,750 50,990,950 38,947,880
Cost of investments sold ............................................. (18,948,776) (33,412,366)(27,595,912)
------------- ------------- -----------
653,974 17,578,584 11,351,968
------------- ------------- -----------
Net realized gains on investments .................................... 653,974 19,013,210 23,604,148
------------- ------------- -----------
Net change in unrealized appreciation or depreciation
of investments .................................................... 233,763 45,447,205 39,001,666
------------- ------------- -----------
Net gains on investments ............................................. 887,737 64,460,415 62,605,814
------------- ------------- -----------
Net increase in net assets resulting from operations .......................... 4,385,616 63,489,232 59,819,815
------------- ------------- -----------
------------- ------------- -----------
</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 MATURING
GOVERNMENT GOVERNMENT
INTERNATIONAL SMALL BOND BOND
STOCK COMPANY 1998(a) 2002
----------------------------------------------------
<S> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) .... $ 5,761,801 - 382,246 326,670
Mortality and expense charges (Personal Retirement Plans) (note 3)....... (2,627,480) (1,521,739) (38,123) (59,792)
Administrative charges (MegAnnuity) (note 3)............................. (9,218) (4,404) (1,308) (635)
Mortality and expense charges (Adjustable Income Annuity) (note 3)....... - - - -
Administrative charges (Adjustable Income Annuity) (note 3).............. - - - -
-------------- ------------- ----------- -----------
Investment income (loss) - net ...................................... 3,125,103 (1,526,143) 342,815 266,243
-------------- ------------- ----------- -----------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ....... 5,672,652 - 1,890 68,032
-------------- ------------- ----------- -----------
Realized gains on sales of investments:
Proceeds from sales ................................................. 47,036,075 26,980,438 7,585,606 597,145
Cost of investments sold ............................................ (40,009,115) (25,324,578) (7,411,408) (560,708)
-------------- ------------- ----------- -----------
7,026,960 1,655,860 174,198 36,437
-------------- ------------- ----------- -----------
Net realized gains on investments ................................... 12,699,612 1,655,860 176,088 104,469
-------------- ------------- ----------- -----------
Net change in unrealized appreciation or depreciation
of investments ................................................... (5,845,206) (882,409) (344,640) 31,481
-------------- ------------- ----------- -----------
Net gains (losses) on investments ................................... 6,854,406 773,451 (168,552) 135,950
-------------- ------------- ----------- -----------
Net increase (decrease) in net assets resulting from operations ............. $ 9,979,509 (752,692) 174,263 402,193
-------------- ------------- ----------- -----------
-------------- ------------- ----------- -----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------
MATURING MATURING
GOVERNMENT GOVERNMENT
BOND BOND VALUE
2006 2010 STOCK
----------------------------------------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) .... 321,084 165,994 -
Mortality and expense charges (Personal Retirement Plans) (note 3)....... (60,904) (47,738) (1,884,495)
Administrative charges (MegAnnuity) (note 3)............................. (1,311) (1,427) (5,028)
Mortality and expense charges (Adjustable Income Annuity) (note 3)....... - - -
Administrative charges (Adjustable Income Annuity) (note 3).............. - - -
-------------- ------------- -----------
Investment income (loss) - net ...................................... 258,869 116,829 (1,889,523)
-------------- ------------- -----------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ....... 25,390 3,315 243,752
-------------- ------------- -----------
Realized gains on sales of investments:
Proceeds from sales ................................................. 1,342,202 1,595,804 42,205,941
Cost of investments sold ............................................ (1,210,927) (1,415,232)(40,273,249)
-------------- ------------- -----------
131,275 180,572 1,932,692
-------------- ------------- -----------
Net realized gains on investments ................................... 156,665 183,887 2,176,444
-------------- ------------- -----------
Net change in unrealized appreciation or depreciation
of investments ................................................... 218,033 233,938 (307,967)
-------------- ------------- -----------
Net gains (losses) on investments ................................... 374,698 417,825 1,868,477
-------------- ------------- -----------
Net increase (decrease) in net assets resulting from operations ............. 633,567 534,654 (21,046)
-------------- ------------- -----------
-------------- ------------- -----------
</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)..... $ 103,048 1,739,198 58,665 42,070
Mortality and expense charges (Personal Retirement Plans) (note 3)....... (73,235) (334,067) (77,967) (101,166)
Administrative charges (MegAnnuity) (note 3)............................. (418) (67) (161) -
Mortality and expense charges (Adjustable Income Annuity) (note 3)....... - - - -
Administrative charges (Adjustable Income Annuity) (note 3).............. - - - -
------------- ------------- ----------- -----------
Investment income (loss) - net ...................................... 29,395 1,405,064 (19,463) (59,096)
------------- ------------- ----------- -----------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ....... - 793,737 165,220 403,995
------------- ------------- ----------- -----------
Realized gains (losses) on sales of investments:
Proceeds from sales ................................................. 3,500,741 3,194,806 2,744,085 2,649,818
Cost of investments sold ............................................ (3,423,767) (3,123,080) (2,621,594) (2,570,013)
------------- ------------- ----------- -----------
76,974 71,726 122,491 79,805
------------- ------------- ----------- -----------
Net realized gains (losses) on investments .......................... 76,974 865,463 287,711 483,800
------------- ------------- ----------- -----------
Net change in unrealized appreciation or depreciation
of investments ................................................... (617,083) 1,473,702 955,141 1,007,945
------------- ------------- ----------- -----------
Net gains (losses) on investments ................................... (540,109) 2,339,165 1,242,852 1,491,745
------------- ------------- ----------- -----------
Net increase (decrease) in net assets resulting from operations ............. $ (510,714) 3,744,229 1,223,389 1,432,649
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
<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)..... - 194,760 15,399
Mortality and expense charges (Personal Retirement Plans) (note 3)....... (65,447) (39,576) (21,517)
Administrative charges (MegAnnuity) (note 3)............................. (75) - (3)
Mortality and expense charges (Adjustable Income Annuity) (note 3)....... - - -
Administrative charges (Adjustable Income Annuity) (note 3).............. - - -
------------- ------------- -----------
Investment income (loss) - net ...................................... (65,522) 155,184 (6,121)
------------- ------------- -----------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ....... - - 9,453
------------- ------------- -----------
Realized gains (losses) on sales of investments:
Proceeds from sales ................................................. 1,516,834 132,016 182,633
Cost of investments sold ............................................ (1,611,514) (153,674) (233,873)
------------- ------------- -----------
(94,680) (21,658) (51,240)
------------- ------------- -----------
Net realized gains (losses) on investments .......................... (94,680) (21,658) (41,787)
------------- ------------- -----------
Net change in unrealized appreciation or depreciation
of investments ................................................... 953,763 (852,973) (444,051)
------------- ------------- -----------
Net gains (losses) on investments ................................... 859,083 (874,631) (485,838)
------------- ------------- -----------
Net increase (decrease) in net assets resulting from operations ............. 793,561 (719,447) (491,959)
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
(a) For the period from April 24, 1998, commencement of operations, to
December 31, 1998 for Personal Retirement Plans, and for the period from
May 14, 1998, commencement of operations, to December 31, 1998 for
MegAnnuity.
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 .......................................... $ (757,899) 5,096,987 1,421,466 5,708,809
Net realized gains on investments ....................................... 35,969,150 2,143,010 - 41,108,373
Net change in unrealized appreciation or depreciation
of investments ....................................................... 28,752,083 (1,508,399) - 41,516,841
------------- ------------- ----------- -----------
Net increase in net assets resulting from operations ......................... 63,963,334 5,731,598 1,421,466 88,334,023
------------- ------------- ----------- -----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
Personal Retirement Plans............................................. 51,637,934 41,441,722 72,457,091 70,303,040
MegAnnuity............................................................ 2,288,260 2,374,930 3,391,144 1,777,956
Adjustable Income Annuity............................................. - - - -
Contract terminations and withdrawal payments:
Personal Retirement Plans............................................. (36,450,685) (21,212,178)(58,811,259)(65,726,252)
MegAnnuity............................................................ (1,455,740) (866,165) (1,931,680) (1,155,438)
Adjustable Income Annuity............................................. - - - -
Actuarial adjustments for mortality experience on annuities in payment
period:
Personal Retirement Plans............................................. 1,950 (43,058) 27 (4,603)
MegAnnuity............................................................ 18 51 - 62
Adjustable Income Annuity............................................. - - - -
Annuity benefit payments:
Personal Retirement Plans............................................. (201,089) (140,143) (6,516) (441,066)
MegAnnuity............................................................ (4,132) (1,922) - (26,300)
Adjustable Income Annuity............................................. - - - -
------------- ------------- ----------- -----------
Increase in net assets from contract transactions ............................ 15,816,516 21,553,237 15,098,807 4,727,399
------------- ------------- ----------- -----------
Increase in net assets ....................................................... 79,779,850 27,284,835 16,520,273 93,061,422
Net assets at the beginning of year .......................................... 184,551,944 106,688,081 33,388,814 396,905,106
------------- ------------- ----------- -----------
Net assets at the end of year ................................................ $ 264,331,794 133,972,916 49,909,087 489,966,528
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------
MORTGAGE INDEX CAPITAL
SECURITIES 500 APPRECIATION
----------------------------------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net .......................................... 3,497,879 (971,183) (2,785,999)
Net realized gains on investments ....................................... 653,974 19,013,210 23,604,148
Net change in unrealized appreciation or depreciation
of investments ....................................................... 233,763 45,447,205 39,001,666
------------- ------------- -----------
Net increase in net assets resulting from operations ......................... 4,385,616 63,489,232 59,819,815
------------- ------------- -----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
Personal Retirement Plans............................................. 33,557,094 67,949,692 37,672,274
MegAnnuity............................................................ 969,771 3,417,868 1,306,737
Adjustable Income Annuity............................................. - 6,647,680 -
Contract terminations and withdrawal payments:
Personal Retirement Plans............................................. (17,949,781) (42,752,201)(34,786,814)
MegAnnuity............................................................ (479,285) (3,364,285) (1,158,543)
Adjustable Income Annuity............................................. - (655,211) -
Actuarial adjustments for mortality experience on annuities in payment
period:
Personal Retirement Plans............................................. (12,738) (13,196) (1,165)
MegAnnuity............................................................ - 161 16
Adjustable Income Annuity............................................. - 81,585 -
Annuity benefit payments:
Personal Retirement Plans............................................. (85,620) (231,073) (212,803)
MegAnnuity............................................................ - (2,538) (2,573)
Adjustable Income Annuity............................................. - (794,250) -
------------- ------------- -----------
Increase in net assets from contract transactions ............................ 15,999,441 30,284,232 2,817,129
------------- ------------- -----------
Increase in net assets ....................................................... 20,385,057 93,773,464 62,636,944
Net assets at the beginning of year .......................................... 77,023,516 227,694,815 206,681,289
------------- ------------- -----------
Net assets at the end of year ................................................ 97,408,573 321,468,279 269,318,233
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
<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 .......................................... $ 3,125,103 (1,526,143) 342,815 266,243
Net realized gains on investments ....................................... 12,699,612 1,655,860 176,088 104,469
Net change in unrealized appreciation or depreciation
of investments ....................................................... (5,845,206) (882,409) (344,640) 31,481
-------------- ------------- ----------- -----------
Net increase (decrease) in net assets resulting from operations .............. 9,979,509 (752,692) 174,263 402,193
-------------- ------------- ----------- -----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
Personal Retirement Plans ............................................ 36,659,650 28,012,351 1,136,821 2,697,576
MegAnnuity ........................................................... 1,096,968 1,086,917 150 104,356
Adjustable Income Annuity
Contract terminations and withdrawal payments:
Personal Retirement Plans ............................................ (42,040,850) (24,558,706) (5,860,095) (536,207)
MegAnnuity ........................................................... (2,122,613) (689,332) (1,685,590) (8,740)
Adjustable Income Annuity ............................................ - - - -
Actuarial adjustments for mortality experience on annuities in payment
period:
Personal Retirement Plans ............................................ (2,076) (34,522) 39 11,619
MegAnnuity ........................................................... 362 124 - -
Adjustable Income Annuity ............................................ - - - -
Annuity benefit payments:
Personal Retirement Plans ............................................ (220,772) (170,663) (529) (3,389)
MegAnnuity ........................................................... (13,429) (1,198) - -
Adjustable Income Annuity ............................................ - - - -
-------------- ------------- ----------- -----------
Increase (decrease) in net assets from contract transactions ................ (6,642,760) 3,644,971 (6,409,204) 2,265,215
-------------- ------------- ----------- -----------
Increase (decrease) in net assets ............................................ 3,336,749 2,892,279 (6,234,941) 2,667,408
Net assets at the beginning of year .......................................... 205,555,954 126,363,646 6,234,941 4,185,519
-------------- ------------- ----------- -----------
Net assets at the end of year ................................................ $ 208,892,703 129,255,925 - 6,852,927
-------------- ------------- ----------- -----------
-------------- ------------- ----------- -----------
(a) For the period from January 1, 1998, to September 18, 1998, termination of
the sub-account.
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------
MATURING MATURING
OVERNMENT GOVERNMENT
BOND BOND VALUE
2006 2010 STOCK
----------- ------------- ---------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ............................................ 258,869 116,829 (1,889,523)
Net realized gains on investments ......................................... 156,665 183,887 2,176,444
Net change in unrealized appreciation or depreciation
of investments ......................................................... 218,033 233,938 (307,967)
----------- ------------- ---------------
Net increase (decrease) in net assets resulting from operations ................ 633,567 534,654 (21,046)
----------- ------------- ---------------
Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments:
Personal Retirement Plans .............................................. 3,409,399 3,456,312 43,797,257
MegAnnuity ............................................................. 206,525 25,510 1,341,893
Adjustable Income Annuity
Contract terminations and withdrawal payments:
Personal Retirement Plans .............................................. (1,258,332) (1,503,240) (38,307,284)
MegAnnuity ............................................................. (11,210) (64,298) (1,811,450)
Adjustable Income Annuity............................................... - - -
Actuarial adjustments for mortality experience on annuities in payment
period:
Personal Retirement Plans .............................................. 14,151 3,086 3,280
MegAnnuity ............................................................. 1,019 389 539
Adjustable Income Annuity .............................................. - - -
Annuity benefit payments:
Personal Retirement Plans .............................................. (23,275) 20,121 (198,093)
MegAnnuity ............................................................. (2,341) (2,697) (3,411)
Adjustable Income Annuity .............................................. - - -
----------- ------------- ---------------
Increase (decrease) in net assets from contract transactions .................. 2,335,936 1,935,183 4,822,731
----------- ------------- ---------------
Increase (decrease) in net assets .............................................. 2,969,503 2,469,837 4,801,685
Net assets at the beginning of year ............................................ 3,898,978 3,175,089 149,695,759
----------- ------------- ---------------
Net assets at the end of year .................................................. 6,868,481 5,644,926 154,497,444
----------- ------------- ---------------
----------- ------------- ---------------
</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 ......................................... $ 29,395 1,405,064 (19,463) (59,096)
Net realized gains (losses) on investments ............................. 76,974 865,463 287,711 483,800
Net change in unrealized appreciation or depreciation
of investments ...................................................... (617,083) 1,473,702 955,141 1,007,945
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations ............ (510,714) 3,744,229 1,223,389 1,432,649
----------- ----------- ----------- -----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
Personal Retirement Plans ............................................ 6,475,581 4,876,523 5,538,756 6,338,736
MegAnnuity ........................................................... 136,060 44,459 210,696 63,746
Adjustable Income Annuity ............................................ - - - -
Contract terminations and withdrawal payments:
Personal Retirement Plans ............................................ (3,395,717) (2,838,384) (2,645,937) (2,540,858)
MegAnnuity ........................................................... (5,912) (16,675) (17,473) (3,721)
Adjustable Income Annuity ............................................ - - - -
Actuarial adjustments for mortality experience on annuities in payment
period:
Personal Retirement Plans ............................................ (2,310) (880) (576) (869)
MegAnnuity ........................................................... - - - -
Adjustable Income Annuity ............................................ - - - -
Annuity benefit payments:
Personal Retirement Plans ............................................ (23,150) (4,734) (1,971) (3,204)
MegAnnuity ........................................................... - - - -
Adjustable Income Annuity ............................................ - - - -
----------- ----------- ----------- -----------
Increase in net assets from contract transactions ........................... 3,184,552 2,060,309 3,083,495 3,853,830
----------- ----------- ----------- -----------
Increase in net assets ...................................................... 2,673,838 5,804,538 4,306,884 5,286,479
Net assets at the beginning of year ......................................... 5,177,305 25,018,719 5,051,890 4,923,424
----------- ----------- ----------- -----------
Net assets at the end of year ............................................... $ 7,851,143 30,823,257 9,358,774 10,209,903
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(a) For the period from April 24, 1998, commencement of operations, to December
31, 1998.
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------
REAL TEMPLETON
MICRO-CAP ESTATE DEVELOPING
GROWTH SECURITIES(a) MARKETS
----------- ----------- -----------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ......................................... (65,522) 155,184 (6,121)
Net realized gains (losses) on investments ............................. (94,680) (21,658) (41,787)
Net change in unrealized appreciation or depreciation
of investments ...................................................... 953,763 (852,973) (444,051)
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations ............ 793,561 (719,447) (491,959)
----------- ----------- -----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
Personal Retirement Plans ............................................ 3,203,379 5,877,266 3,575,326
MegAnnuity ........................................................... 105,113 10,489 70,613
Adjustable Income Annuity ............................................ - - -
Contract terminations and withdrawal payments:
Personal Retirement Plans ............................................ (1,387,271) (91,132) (650,918)
MegAnnuity ........................................................... (57,134) (1,184) (3,025)
Adjustable Income Annuity ............................................ - - -
Actuarial adjustments for mortality experience on annuities in payment
period:
Personal Retirement Plans ............................................ (805) - (5,630)
MegAnnuity ........................................................... - - -
Adjustable Income Annuity ............................................ - - -
Annuity benefit payments:
Personal Retirement Plans ............................................ (6,101) (125) (15,524)
MegAnnuity ........................................................... - - -
Adjustable Income Annuity ............................................ - - -
----------- ----------- -----------
Increase in net assets from contract transactions ........................... 1,857,181 5,795,314 2,970,842
----------- ----------- -----------
Increase in net assets ...................................................... 2,650,742 5,075,867 2,478,883
Net assets at the beginning of year ......................................... 4,590,925 - 538,052
----------- ----------- -----------
Net assets at the end of year ............................................... 7,241,667 5,075,867 3,016,935
----------- ----------- -----------
----------- ----------- -----------
</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
GROWTH BOND MARKET
------------- ---------------- ----------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ......................... $ (684,633) 3,589,875 1,280,595
Net realized gains on investments ...................... 32,275,233 476,253 --
Net change in unrealized appreciation or depreciation
of investments ...................................... 10,343,283 3,206,825 --
------------ ------------ ------------
Net increase in net assets resulting from operations ........ 41,933,883 7,272,953 1,280,595
------------ ------------ ------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
Personal Retirement Plans ........................... 37,464,249 29,678,709 52,599,130
MegAnnuity .......................................... 668,616 682,476 487,549
Adjustable Income Annuity ........................... -- -- --
Contract terminations and withdrawal payments:
Personal Retirement Plans ........................... (15,679,425) (14,483,737) (57,536,852)
MegAnnuity .......................................... (742,604) (581,596) (696,888)
Adjustable Income Annuity ........................... -- -- --
Actuarial adjustments for mortality experience on
annuities in payment period:
Personal Retirement Plans ........................... 5,455 (4,132) (549,389)
MegAnnuity .......................................... 14 41 --
Adjustable Income Annuity ........................... -- -- --
Annuity benefit payments:
Personal Retirement Plans ........................... (92,583) (80,007) (12,607)
MegAnnuity .......................................... (3,290) (1,834) --
Adjustable Income Annuity ........................... -- -- --
------------ ------------ ------------
Increase (decrease) in net assets from contract transactions. 21,620,432 15,209,920 (5,709,057)
------------ ------------ ------------
Increase (decrease) in net assets ........................... 63,554,315 22,482,873 (4,428,462)
Net assets at the beginning of year ......................... 120,997,629 84,205,208 37,817,276
------------ ------------ ------------
Net assets at the end of year ............................... $ 184,551,944 106,688,081 33,388,814
------------ ------------ ------------
------------ ------------ ------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------
ASSET MORTGAGE INDEX CAPITAL
ALLOCATION SECURITIES 500 APPRECIATION
------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net ......................... 4,845,559 3,459,470 (265,932) (2,176,166)
Net realized gains on investments ...................... 26,640,913 261,834 11,461,591 20,895,800
Net change in unrealized appreciation or depreciation
of investments ...................................... 27,118,688 1,622,327 37,727,377 24,346,437
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations ........ 58,605,160 5,343,631 48,923,036 43,066,071
------------ ------------ ------------ ------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
Personal Retirement Plans ........................... 51,665,342 18,403,459 51,509,928 27,739,494
MegAnnuity .......................................... 726,994 223,009 2,769,830 868,014
Adjustable Income Annuity ........................... -- -- 5,596,884 --
Contract terminations and withdrawal payments:
Personal Retirement Plans ........................... (41,700,448) (13,595,580) (22,382,897) (19,504,571)
MegAnnuity .......................................... (1,313,648) (145,739) (1,508,140) (574,067)
Adjustable Income Annuity ........................... -- -- (441,196) --
Actuarial adjustments for mortality experience on
annuities in payment period:
Personal Retirement Plans ........................... 550,291 4,705 (359,445) 663
MegAnnuity .......................................... 28 -- 175 8
Adjustable Income Annuity ........................... -- -- (83,544) --
Annuity benefit payments:
Personal Retirement Plans ........................... (314,868) (44,690) (152,662) (128,627)
MegAnnuity .......................................... (22,916) -- (2,258) (2,121)
Adjustable Income Annuity ........................... -- -- (261,894) --
------------ ------------ ------------ ------------
Increase (decrease) in net assets from contract transactions. 9,590,775 4,845,164 34,684,781 8,398,793
------------ ------------ ------------ ------------
Increase (decrease) in net assets ........................... 68,195,935 10,188,795 83,607,817 51,464,864
Net assets at the beginning of year ......................... 328,709,171 66,834,721 144,086,998 155,216,425
------------ ------------ ------------ ------------
Net assets at the end of year ............................... 396,905,106 77,023,516 227,694,815 206,681,289
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------
MATURING
GOVERNMENT
INTERNATIONAL SMALL BOND
STOCK COMPANY 1998
------------- ---------------- ----------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ........................... $ 2,852,659 (1,400,029) 265,019
Net realized gains on investments ........................ 6,932,064 2,460,474 57,370
Net change in unrealized appreciation or depreciation
of investments ........................................ 7,315,695 6,489,624 (11,310)
------------- ------------- -------------
Net increase in net assets resulting from operations .......... 17,100,418 7,550,069 311,079
------------- ------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
Personal Retirement Plans ............................. 51,794,301 36,868,064 1,064,388
MegAnnuity ............................................ 1,642,780 1,081,896 224
Adjustable Income Annuity ............................. -- -- --
Contract terminations and withdrawal payments:
Personal Retirement Plans ............................. (19,345,856) (20,954,051) (1,206,624)
MegAnnuity ............................................ (609,321) (630,256) (32,000)
Adjustable Income Annuity ............................. -- -- --
Actuarial adjustments for mortality experience on
annuities in payment period:
Personal Retirement Plans ............................. 50,457 305,163 3
MegAnnuity ............................................ 244 (108) --
Adjustable Income Annuity ............................. -- -- --
Annuity benefit payments:
Personal Retirement Plans ............................. (153,952) (155,161) (117)
MegAnnuity ............................................ (11,839) (1,131) --
Adjustable Income Annuity ............................. -- -- --
------------- ------------- -------------
Increase (decrease) in net assets from contract transactions .. 33,366,814 16,514,416 (174,126)
------------- ------------- -------------
Increase in net assets ........................................ 50,467,232 24,064,485 136,953
Net assets at the beginning of year ........................... 155,088,722 102,299,161 6,097,988
------------- ------------- -------------
Net assets at the end of year ................................. $ 205,555,954 126,363,646 6,234,941
------------- ------------- --------------
------------- ------------- --------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------
MATURING MATURING MATURING
GOVERNMENT GOVERNMENT GOVERNMENT
BOND BOND BOND VALUE
2002 2006 2010 STOCK
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net .......................... 159,835 136,141 87,135 96,327
Net realized gains on investments ....................... 47,083 62,259 50,458 16,779,580
Net change in unrealized appreciation or depreciation
of investments ....................................... 63,352 181,803 252,470 2,275,012
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations ......... 270,270 380,203 390,063 19,150,919
------------- ------------- ------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
Personal Retirement Plans ............................ 684,461 743,477 823,375 68,735,594
MegAnnuity ........................................... 4,317 1 63,688 1,670,036
Adjustable Income Annuity ............................ -- -- -- --
Contract terminations and withdrawal payments:
Personal Retirement Plans ............................ (667,868) (314,002) (859,199) (19,539,662)
MegAnnuity ........................................... -- (1) (50,430) (214,516)
Adjustable Income Annuity ............................ -- -- -- --
Actuarial adjustments for mortality experience on
annuities in payment period:
Personal Retirement Plans ............................ 24 24 -- 25,118
MegAnnuity ........................................... -- -- 34 22
Adjustable Income Annuity ............................ -- -- -- --
Annuity benefit payments:
Personal Retirement Plans ............................ (4,611) (4,781) -- (93,964)
MegAnnuity ........................................... -- -- (4,161) (3,340)
Adjustable Income Annuity ............................ -- -- -- --
------------- ------------- ------------- -------------
Increase (decrease) in net assets from contract transactions.. 16,323 424,718 (26,693) 50,579,288
------------- ------------- ------------- -------------
Increase in net assets ....................................... 286,593 804,921 363,370 69,730,207
Net assets at the beginning of year .......................... 3,898,926 3,094,057 2,811,719 79,965,552
------------- ------------- ------------- -------------
Net assets at the end of year ................................ 4,185,519 3,898,978 3,175,089 149,695,759
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</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 ................................... $ (16,093) 284,292 (15,976)
Net realized gains (losses) on investments ....................... (5,712) 49,279 (13,548)
Net change in unrealized appreciation or depreciation
of investments ................................................ 154,644 (402,240) 48,158
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations ...... 132,839 (68,669) 18,634
----------- ----------- -----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
Personal Retirement Plans ...................................... 5,932,017 26,233,498 5,666,129
MegAnnuity ..................................................... 215,792 15,179 9,629
Adjustable Income Annuity ...................................... -- -- --
Contract terminations and withdrawal payments:
Personal Retirement Plans ...................................... (1,103,343) (1,161,289) (642,502)
MegAnnuity ..................................................... -- -- --
Adjustable Income Annuity ...................................... -- -- --
Actuarial adjustments for mortality experience on
annuities in payment period:
Personal Retirement Plans ...................................... -- -- --
MegAnnuity ..................................................... -- -- --
Adjustable Income Annuity ...................................... -- -- --
Annuity benefit payments:
Personal Retirement Plans ...................................... -- -- --
MegAnnuity ..................................................... -- -- --
Adjustable Income Annuity ...................................... -- -- --
----------- ----------- -----------
Increase in net assets from contract transactions ..................... 5,044,466 25,087,388 5,033,256
----------- ----------- -----------
Increase in net assets ................................................ 5,177,305 25,018,719 5,051,890
Net assets at the beginning of period ................................. -- -- --
----------- ----------- -----------
Net assets at the end of period ....................................... $ 5,177,305 25,018,719 5,051,890
----------- ----------- -----------
----------- ----------- -----------
<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 ................................... 7,581 (18,204) (751)
Net realized gains (losses) on investments ....................... (13,225) 115,770 (10,015)
Net change in unrealized appreciation or depreciation
of investments ................................................ (116,306) (550,179) (105,845)
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations ...... (121,950) (452,613) (116,611)
----------- ----------- -----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
Personal Retirement Plans ...................................... 5,317,960 5,465,120 676,481
MegAnnuity ..................................................... 39,309 14,608 24,403
Adjustable Income Annuity ...................................... -- -- --
Contract terminations and withdrawal payments:
Personal Retirement Plans ...................................... (311,895) (436,190) (45,203)
MegAnnuity ..................................................... -- -- --
Adjustable Income Annuity ...................................... -- -- --
Actuarial adjustments for mortality experience on
annuities in payment period:
Personal Retirement Plans ...................................... -- -- (649)
MegAnnuity ..................................................... -- -- --
Adjustable Income Annuity ...................................... -- -- --
Annuity benefit payments:
Personal Retirement Plans ...................................... -- -- (369)
MegAnnuity ..................................................... -- -- --
Adjustable Income Annuity ...................................... -- -- --
----------- ----------- -----------
Increase in net assets from contract transactions ..................... 5,045,374 5,043,538 654,663
----------- ----------- -----------
Increase in net assets ................................................ 4,923,424 4,590,925 538,052
Net assets at the beginning of period ................................. -- -- --
----------- ----------- -----------
Net assets at the end of period ....................................... $ 4,923,424 4,590,925 538,052
----------- ----------- -----------
----------- ----------- -----------
</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 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 Underlying Funds.
CONTRACTS IN ANNUITY PAYMENT PERIOD
PERSONAL RETIREMENT PLANS:
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.
MEGANNUITY:
Annuity reserves are computed for currently payable contracts according
to the Progressive Annuity Mortality Table, using an assumed interest
rate of 3.5 percent. Charges to annuity reserves for mortality and risk
expense are reimbursed to Minnesota Life if the reserves required are
less than originally estimated. If additional reserves are required,
Minnesota Life reimburses the Account.
ADJUSTABLE INCOME ANNUITY:
Annuity reserves are computed for currently payable contracts according
to the Individual Annuity 1983 Table A, using an assumed interest rate of
4.5 percent. Charges to annuity reserves for mortality and risk expense
are reimbursed to Minnesota Life if the reserves required are less than
originally estimated. If additional reserves are required, Minnesota Life
reimburses the Account.
(3) CONTRACT CHARGES
PERSONAL RETIREMENT PLANS:
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.
MEGANNUITY:
The administrative charge paid to Minnesota Life is equal, on an annual
basis, to .15 percent of the average daily net assets of the Account.
Under certain conditions, the charge may be increased to not more than
.35 percent of the average daily net assets of the Account.
Premium taxes may be deducted from purchase payments or at the
commencement of annuity payments. Currently such taxes range from 0 to
3.5 percent depending on the applicable state law. No premium taxes were
deducted from purchase payments for the years ended December 31, 1998 and
1997.
ADJUSTABLE INCOME ANNUITY:
The mortality and expense risk charge paid to Minnesota Life is computed
daily and is equal, on an annual basis, to .80 percent of the average
daily net assets of the Account. Under certain conditions, the charge may
be increased to not more than 1.40 percent of the average daily net
assets of the Account.
<PAGE>
3
VARIABLE ANNUITY ACCOUNT
(3) CONTRACT CHARGES - CONTINUED
ADJUSTABLE INCOME ANNUITY - CONTINUED
The administrative charge paid to Minnesota Life is computed daily and is
equal, on an annual basis, to .15 percent of the average daily net assets
of the Account. Under certain conditions, the administrative charge may
be increased to not more than .40 percent of the average daily net assets
of the Account.
Contract purchase payments for Adjustable Income Annuity are reflected
net of the following charges paid to Minnesota Life:
A sales charge ranging from 3.75 to 4.50 percent, depending upon
the total amount of purchase payments, is deducted from each
contract purchase payment. Total sales charges deducted from
contract purchase payments for the years ended December 31, 1998
and 1997 amounted to $111,222 and $131,108, respectively.
A risk charge in the amount of 1.25 percent is deducted from each
contract purchase payment. Under certain conditions, the risk
charge may be as high as 2.00 percent. Total risk charges deducted
from contract purchase payments for the years ended December 31,
1998 and 1997 amounted to $30,895 and $36,963, respectively.
A premium tax charge of up to 3.50 percent is deducted from each
contract purchase payment. Total premium tax charges deducted from
contract purchase payments for the years ended December 31, 1998
and 1997 amounted to $121 and $3,218, 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 ...................................... $86,196,971
Bond Portfolio ........................................ 51,753,419
Money Market Portfolio ................................ 77,738,625
Asset Allocation Portfolio ............................ 111,202,312
Mortgage Securities Portfolio.......................... 39,100,069
Index 500 Portfolio ................................... 81,738,625
Capital Appreciation Portfolio ........................ 51,231,190
International Stock Portfolio.......................... 49,191,070
Small Company Growth Portfolio......................... 29,099,266
Maturing Government Bond 1998 Portfolio ............... 1,521,107
Maturing Government Bond 2002 Portfolio ............... 3,196,634
Maturing Government Bond 2006 Portfolio ............... 3,758,807
Maturing Government Bond 2010 Portfolio ............... 3,651,131
Value Stock Portfolio ................................. 45,382,899
Small Company Value Portfolio.......................... 6,714,525
Global Bond Portfolio.................................. 7,453,916
Index 400 Mid-Cap Portfolio ........................... 5,973,337
Macro-Cap Value ....................................... 6,848,547
Micro-Cap Growth Portfolio............................. 3,308,493
Real Estate Securities................................. 6,082,514
Templeton Developing Markets Fund ..................... 3,022,308
</TABLE>
<PAGE>
4
VARIABLE ANNUITY ACCOUNT
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - PERSONAL RETIREMENT PLANS
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
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
<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>
5
VARIABLE ANNUITY ACCOUNT
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - PERSONAL RETIREMENT PLANS -
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
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
<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>
6
VARIABLE ANNUITY ACCOUNT
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MEGANNUITY
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 ................................. 1,448,982 1,506,859 750,434 2,029,532 450,065
Contract purchase
payments .................................... 252,868 298,991 294,872 266,378 99,610
Deductions for contract
terminations and
withdrawal payments ......................... (307,786) (260,574) (419,689) (489,469) (64,968)
----------------------------------------------------------------------------
Units outstanding at
December 31, 1997 ................................. 1,394,064 1,545,276 625,617 1,806,441 484,707
Contract purchase
payments .................................... 657,711 972,566 1,947,733 546,207 395,611
Deductions for contract
terminations and
withdrawal payments ......................... (423,308) (354,976) (1,109,635) (365,486) (194,240)
----------------------------------------------------------------------------
Units outstanding at
December 31, 1998 ................................. 1,628,467 2,162,866 1,463,714 1,987,162 686,079
----------------------------------------------------------------------------
----------------------------------------------------------------------------
<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 ................................. 2,364,949 1,668,256 2,418,015 1,237,091 1,324,838
Contract purchase
payments .................................... 862,257 288,643 851,870 609,428 185
Deductions for contract
terminations and
withdrawal payments ......................... (440,985) (188,401) (302,923) (341,976) (25,975)
---------------------------------------------------------------------------
Units outstanding at
December 31, 1997 ................................. 2,786,221 1,768,498 2,966,962 1,504,543 1,299,048
Contract purchase
payments .................................... 822,831 321,369 497,132 588,895 19
Deductions for contract
terminations and
withdrawal payments ......................... (828,745) (289,215) (999,182) (411,648) (1,299,068)
---------------------------------------------------------------------------
Units outstanding at
December 31, 1998 ................................. 2,780,306 1,800,652 2,464,913 1,681,790 --
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
<PAGE>
7
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 ................................. 269,553 117,035 141,772 798,596 --
Contract purchase
payments .................................... 3,409 -- 6,947 804,813 215,169
Deductions for contract
terminations and
withdrawal payments ......................... -- -- (39,257) (103,369) --
-----------------------------------------------------------------------------
Units outstanding at
December 31, 1997 ................................. 272,962 117,035 109,462 1,500,040 215,169
Contract purchase
payments .................................... 72,286 112,281 14,766 590,073 152,448
Deductions for contract
terminations and
withdrawal payments ......................... (6,111) (6,280) (16,825) (829,771) (6,269)
-----------------------------------------------------------------------------
Units outstanding at
December 31, 1998 ................................. 339,137 223,036 107,403 1,260,342 361,348
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
<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 ........... 15,173 9,788 39,998 18,000 -- 33,388
Deductions for contract
terminations and
withdrawal payments -- -- -- -- -- --
-------------------------------------------------------------------------------------------
Units outstanding at
December 31, 1997 ........ 15,173 9,788 39,998 18,000 -- 33,388
Contract purchase
payments ........... 42,385 225,451 60,652 119,408 13,452 104,595
Deductions for contract
terminations and
withdrawal payments (14,916) (17,626) (3,069) (65,814) (1,428) (5,765)
-------------------------------------------------------------------------------------------
Units outstanding at
December 31, 1998 ........ 42,643 217,613 97,581 71,594 12,024 132,217
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
8
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS
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>
9
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - 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>
10
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - 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>
11
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - 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>
12
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - 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>
13
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - 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>
14
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - 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>
15
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - 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 1.73 1.46 1.30
------------- ------------- -------------- ------------- -------------
------------- ------------- -------------- ------------- -------------
</TABLE>
<PAGE>
16
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - 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>
17
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - CONTINUED
MATURING GOVERNMENT BOND 1998
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994 (b)
-------------------------------------------------------------- TO DECEMBER
1998 (a) 1997 1996 1995 31, 1994
------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period .............$ 1.21 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 ...................$ 0.00 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>
18
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - CONTINUED
MATURING GOVERNMENT BOND 2002
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994 (a)
-------------------------------------------------------- TO DECEMBER
1998 1997 1996 1995 31, 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>
19
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - CONTINUED
MATURING GOVERNMENT BOND 2006
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994 (a)
-------------------------------------------------------- TO DECEMBER
1998 1997 1996 1995 31, 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>
20
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - CONTINUED
MATURING GOVERNMENT BOND 2010
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994 (a)
-------------------------------------------------------- TO DECEMBER
1998 1997 1996 1995 31, 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>
21
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - CONTINUED
VALUE STOCK
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994 (a)
-------------------------------------------------------- TO DECEMBER
1998 1997 1996 1995 31, 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>
22
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - CONTINUED
SMALL COMPANY VALUE
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 1, 1997 (a)
DECEMBER 31, TO DECEMBER
1998 31, 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>
23
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - CONTINUED
<TABLE>
<CAPTION>
GLOBAL BOND
PERIOD FROM
YEAR ENDED OCTOBER 1, 1997 (a)
DECEMBER 31, TO DECEMBER
1998 31, 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>
24
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - CONTINUED
INDEX 400 MID-CAP
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 1, 1997 (a)
DECEMBER 31, TO DECEMBER
1998 31, 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>
25
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - CONTINUED
MACRO-CAP VALUE
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 15,1997 (a)
DECEMBER 31, TO DECEMBER
1998 31, 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>
26
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - CONTINUED
MICRO-CAP GROWTH
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 1, 1997 (a)
DECEMBER 31, TO DECEMBER
1998 31, 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>
27
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - 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>
28
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - PERSONAL RETIREMENT PLANS - CONTINUED
TEMPLETON DEVELOPING MARKETS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 2, 1997 (a)
DECEMBER 31, TO DECEMBER
1998 31, 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>
29
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY
The following tables for each segregated sub-account show certain data for
an accumulation unit outstanding during the periods indicated:
GROWTH
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year.............. $ 3.14 2.35 2.01 1.62 1.61
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ................ 0.03 0.02 0.02 0.01 0.01
Net gains on securities
(both realized and unrealized)... 1.05 0.77 0.32 0.38 -
---------- ---------- ---------- ---------- ----------
Total from investment operations. 1.08 0.79 0.34 0.39 0.01
---------- ---------- ---------- ---------- ----------
Unit value, end of year .................. $ 4.22 3.14 2.35 2.01 1.62
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE>
30
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
BOND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year ..............$ 2.38 2.18 2.12 1.77 1.86
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income ................. 0.13 0.11 0.11 0.07 0.07
Net gains or losses on securities
(both realized and unrealized) ... 0.01 0.09 (0.05) 0.28 (0.16)
---------- ---------- ---------- ---------- ----------
Total from investment operations.. 0.14 0.20 0.06 0.35 (0.09)
---------- ---------- ---------- ---------- ----------
Unit value, end of year ....................$ 2.52 2.38 2.18 2.12 1.77
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE>
31
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
MONEY MARKET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year ............. $ 1.70 1.62 1.55 1.47 1.42
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ................ 0.08 0.08 0.07 0.08 0.05
---------- ---------- ---------- ---------- ----------
Total from investment operations. 0.08 0.08 0.07 0.08 0.05
---------- ---------- ---------- ---------- ----------
Unit value, end of year.................... $ 1.78 1.70 1.62 1.55 1.47
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE>
32
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
ASSET ALLOCATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year...............$ 3.00 2.53 2.25 1.80 1.83
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income ................. 0.08 0.08 0.08 0.06 0.04
Net gains or losses on securities
(both realized and unrealized).... 0.63 0.39 0.20 0.39 (0.07)
---------- ---------- ---------- ---------- ----------
Total from investment operations.. 0.71 0.47 0.28 0.45 (0.03)
---------- ---------- ---------- ---------- ----------
Unit value, end of year.....................$ 3.71 3.00 2.53 2.25 1.80
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE>
33
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
MORTGAGE SECURITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year...............$ 2.40 2.20 2.09 1.78 1.84
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income ................. 0.13 0.14 0.13 0.12 0.08
Net gains or losses on securities
(both realized and unrealized).... 0.02 0.06 (0.02) 0.19 (0.14)
---------- ---------- ---------- ---------- ----------
Total from investment operations.. 0.15 0.20 0.11 0.31 (0.06)
---------- ---------- ---------- ---------- ----------
Unit value, end of year.....................$ 2.55 2.40 2.20 2.09 1.78
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE>
34
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
INDEX 500
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year...............$ 3.72 2.81 2.32 1.70 1.68
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income.................. 0.03 0.03 0.03 0.03 0.02
Net gains on securities
(both realized and unrealized).... 1.00 0.88 0.46 0.59 -
---------- ---------- ---------- ---------- ----------
Total from investment operations.. 1.03 0.91 0.49 0.62 0.02
---------- ---------- ---------- ---------- ----------
Unit value, end of year.....................$ 4.75 3.72 2.81 2.32 1.70
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE>
35
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
CAPITAL APPRECIATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year...............$ 3.64 2.84 2.42 1.97 1.93
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss)........... (0.01) (0.01) - - -
Net gains on securities (both
realized and unrealized).......... 1.12 0.81 0.42 0.45 0.04
---------- ---------- ---------- ---------- ----------
Total from investment operations.. 1.11 0.80 0.42 0.45 0.04
---------- ---------- ---------- ---------- ----------
Unit value, end of year ....................$ 4.75 3.64 2.84 2.42 1.97
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE>
36
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
INTERNATIONAL STOCK
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year...............$ 2.00 1.79 1.50 1.31 1.32
Income (loss) from investment operations:
Net investment income .................. 0.06 0.05 0.04 - 0.03
Net gains (losses) on securities (both
realized and unrealized)........... 0.07 0.16 0.25 0.19 (0.04)
---------- ---------- ---------- ---------- ----------
Total from investment operations... 0.13 0.21 0.29 0.19 (0.01)
---------- ---------- ---------- ---------- ----------
Unit value, end of year ....................$ 2.13 2.00 1.79 1.50 1.31
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE>
37
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
SMALL COMPANY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period.............$ 1.84 1.71 1.60 1.22 1.15
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ................. - - - - -
Net gains on securities (both
realized and unrealized).......... 0.02 0.13 0.11 0.38 0.07
---------- ---------- ---------- ---------- ----------
Total from investment operations.. 0.02 0.13 0.11 0.38 0.07
---------- ---------- ---------- ---------- ----------
Unit value, end of period...................$ 1.86 1.84 1.71 1.60 1.22
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE>
38
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
MATURING GOVERNMENT BOND 1998
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994 (b)
--------------------------------------------------------- TO DECEMBER
1998 (a) 1997 1996 1995 31, 1994
-------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period.................. $ 1.26 1.19 1.15 0.99 1.00
------------- ------------- ------------ ------------ -------------
Income (loss) from investment operations:
Net investment income (loss).................. 0.08 0.06 - 0.06 0.07
Net gains or losses on securities
(both realized and unrealized).............. (0.03) 0.01 0.04 0.10 (0.08)
------------- ------------- ------------ ------------ -------------
Total from investment operations.......... 0.05 0.07 0.04 0.16 (0.01)
------------- ------------- ------------ ------------ -------------
Transfer to other sub-accounts due to
liquidation................................. (1.31) - - - -
------------- ------------- ------------ ------------ -------------
Unit value, end of period....................... $ 0.00 1.26 1.19 1.15 0.99
------------- ------------- ------------ ------------ -------------
------------- ------------- ------------ ------------ -------------
</TABLE>
(a) For the period from January 1, 1998, to September 18, 1998, termination
of the sub-account.
(b) Inception of the segregated sub-account was May 2, 1994, when the units
became effectively registered under the Securities Exchange Act of 1933.
<PAGE>
39
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
MATURING GOVERNMENT BOND 2002
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994 (a)
-------------------------------------------------------- TO DECEMBER
1998 1997 1996 1995 31, 1994
------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period................... $ 1.35 1.24 1.22 0.98 1.00
------------- ------------- ------------ ------------ -------------
Income (loss) from investment operations:
Net investment income......................... 0.08 0.06 0.15 0.07 0.05
Net gains or losses on securities
(both realized and unrealized)............... 0.04 0.05 (0.13) 0.17 (0.07)
------------- ------------- ------------ ------------ -------------
Total from investment operations............ 0.12 0.11 0.02 0.24 (0.02)
------------- ------------- ------------ ------------ -------------
Unit value, end of period......................... $ 1.47 1.35 1.24 1.22 0.98
------------- ------------- ------------ ------------ -------------
------------- ------------- ------------ ------------ -------------
</TABLE>
(a) Inception of the segregated sub-account was May 2, 1994, when the units
became effectively registered under the Securities Exchange Act of 1933.
<PAGE>
40
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
MATURING GOVERNMENT BOND 2006
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994 (a)
-------------------------------------------------------- TO DECEMBER
1998 1997 1996 1995 31, 1994
------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period.................. $ 1.45 1.29 1.31 0.97 1.00
------------- ------------- ------------ ------------ -------------
Income (loss) from investment operations:
Net investment income........................ 0.11 0.06 0.07 0.07 0.05
Net gains or losses on securities
(both realized and unrealized).............. 0.09 0.10 (0.09) 0.27 (0.08)
------------- ------------- ------------ ------------ -------------
Total from investment operations........... 0.20 0.16 (0.02) 0.34 (0.03)
------------- ------------- ------------ ------------ -------------
Unit value, end of period........................ $ 1.65 1.45 1.29 1.31 0.97
------------- ------------- ------------ ------------ -------------
------------- ------------- ------------ ------------ -------------
</TABLE>
(a) Inception of the segregated sub-account was May 2, 1994, when the
units became effectively registered under the Securities Exchange
Act of 1933.
<PAGE>
41
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
MATURING GOVERNMENT BOND 2010
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994 (a)
-------------------------------------------------------- TO DECEMBER
1998 1997 1996 1995 31, 1994
------------- ------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period.................... $ 1.53 1.30 1.35 0.96 1.00
------------ ------------- ------------ ------------ -----------------
Income (loss) from investment operations:
Net investment income........................... 0.08 0.08 - 0.05 0.09
Net gains or losses on securities
(both realized and unrealized)................ 0.14 0.15 (0.05) 0.34 (0.13)
------------ ------------- ------------ ------------ -----------------
Total from investment operations............ 0.22 0.23 (0.05) 0.39 (0.04)
------------ ------------- ------------ ------------ -----------------
Unit value, end of period.......................... $ 1.75 1.53 1.30 1.35 0.96
------------ ------------- ------------ ------------ -----------------
------------ ------------- ------------ ------------ -----------------
</TABLE>
(a) Inception of the segregated sub-account was May 2, 1994, when the
units became effectively registered under the Securities Exchange Act
of 1933.
<PAGE>
42
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
VALUE STOCK
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994 (a)
-------------------------------------------------------- TO DECEMBER
1998 1997 1996 1995 31, 1994
------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period.................... $ 2.22 1.83 1.40 1.06 1.00
------------- ------------- ------------ ------------ -------------
Income from investment operations:
Net investment income.......................... - 0.03 0.02 0.01 0.01
Net gains on securities (both
realized and unrealized)..................... 0.03 0.36 0.41 0.33 0.05
------------- ------------- ------------ ------------ -------------
Total from investment operations............. 0.03 0.39 0.43 0.34 0.06
------------- ------------- ------------ ------------ -------------
Unit value, end of period.......................... $ 2.25 2.22 1.83 1.40 1.06
------------- ------------- ------------ ------------ -------------
------------- ------------- ------------ ------------ -------------
</TABLE>
(a) Inception of the segregated sub-account was May 2, 1994, when the
units became effectively registered under the Securities Exchange
Act of 1933.
<PAGE>
43
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
SMALL COMPANY VALUE
<TABLE>
<CAPTION>
YEAR PERIOD FROM
ENDED OCTOBER 1, 1997 (a)
DECEMBER 31, TO DECEMBER
1998 31, 1997
------------ -------------
<S> <C> <C>
Unit value, beginning of period.............................................................. $ 1.01 1.00
------------ -------------
Income (loss) from investment operations:
Net investment income.................................................................... 0.02 -
Net gains or losses on securities
(both realized and unrealized)......................................................... (0.09) 0.01
------------ -------------
Total from investment operations....................................................... (0.07) 0.01
------------ -------------
Unit value, end of period.................................................................... $ 0.94 1.01
------------ -------------
------------ -------------
</TABLE>
(a) Inception of the segregated sub-account was October 1, 1997, when the
units became effectively registered under the Securities Exchange Act
of 1933.
<PAGE>
44
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
GLOBAL BOND
<TABLE>
<CAPTION>
YEAR PERIOD FROM
ENDED OCTOBER 1, 1997 (a)
DECEMBER 31, TO DECEMBER
1998 31, 1997
------------ -------------
<S> <C> <C>
Unit value, beginning of period ......................................................... $ 0.99 1.00
------------ -------------
Income (loss) from investment operations:
Net investment income ............................................................... 0.07 0.01
Net gains or losses on securities
(both realized and unrealized)...................................................... 0.09 (0.02)
------------ -------------
Total from investment operations.................................................... 0.16 (0.01)
------------ -------------
Unit value, end of period................................................................ $ 1.15 0.99
------------ -------------
------------ -------------
</TABLE>
(a) Inception of the segregated sub-account was October 1, 1997, when the
units became effectively registered under the Securities Exchange Act
of 1933.
<PAGE>
45
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
INDEX 400 MID-CAP
<TABLE>
<CAPTION>
YEAR PERIOD FROM
ENDED OCTOBER 1,1997 (a)
DECEMBER 31, TO DECEMBER
1998 31, 1997
------------ -------------
<S> <C> <C>
Unit value, beginning of period........................................................... $ 0.99 1.00
------------ -------------
Income (loss) from investment operations:
Net investment income................................................................. 0.01 -
Net gains or losses on securities
(both realized and unrealized)....................................................... 0.15 (0.01)
------------ -------------
Total from investment operations..................................................... 0.16 (0.01)
------------ -------------
Unit value, end of period................................................................. $ 1.15 0.99
------------ -------------
------------ -------------
</TABLE>
(a) Inception of the segregated sub-account was October 1, 1997, when the
units became effectively registered under the Securities Exchange Act
of 1933.
<PAGE>
46
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
MACRO-CAP VALUE
<TABLE>
<CAPTION>
YEAR PERIOD FROM
ENDED OCTOBER 1, 1997 (a)
DECEMBER 31, TO DECEMBER
1998 31, 1997
------------ -------------
<S> <C> <C>
Unit value, beginning of period..............................................................$ 0.99 1.00
Income (loss) from investment operations:
Net investment income..................................................................... 0.01 0.01
Net gains or losses on securities
(both realized and unrealized).......................................................... 0.20 (0.02)
------------ -------------
Total from investment operations........................................................ 0.21 (0.01)
------------ -------------
Unit value, end of period....................................................................$ 1.20 0.99
------------ -------------
------------ -------------
</TABLE>
(a) Inception of the segregated sub-account was October 15, 1997, when the
units became effectively registered under the Securities Exchange Act
of 1933.
<PAGE>
47
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
MICRO-CAP GROWTH
<TABLE>
<CAPTION>
YEAR PERIOD FROM
ENDED OCTOBER 1, 1997 (a)
DECEMBER 31, TO DECEMBER
1998 31, 1997
------------ -------------
<S> <C> <C>
Unit value, beginning of period................................................................$ 0.84 1.00
------------ -------------
Income (loss) from investment operations:
Net investment income...................................................................... - -
Net gains or losses on securities
(both realized and unrealized)........................................................... 0.11 (0.16)
------------ -------------
Total from investment operations........................................................ 0.11 (0.16)
------------ -------------
Unit value, end of period......................................................................$ 0.95 0.84
------------ -------------
------------ -------------
</TABLE>
(a) Inception of the segregated sub-account was October 1, 1997, when the
units became effectively registered under the Securities Exchange Act
of 1933.
<PAGE>
48
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
REAL ESTATE SECURITIES
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1998 (a)
TO DECEMBER
31, 1998
-------------
<S> <C>
Unit value, beginning of period..............................................................................$ 1.00
-------------
Income (loss) from investment operations:
Net investment income.................................................................................... 0.08
Net losses on securities
(both realized and unrealized)......................................................................... (0.23)
-------------
Total from investment operations...................................................................... (0.15)
-------------
Unit value, end of period....................................................................................$ 0.85
-------------
-------------
</TABLE>
(a) For the period from May 14, 1998, commencement of operations, to
December 31, 1998.
<PAGE>
49
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
TEMPLETON DEVELOPING MARKETS
<TABLE>
<CAPTION>
YEAR PERIOD FROM
ENDED OCTOBER 1, 1997 (a)
DECEMBER 31, TO DECEMBER
1998 31, 1997
------------ -------------
<S> <C> <C>
Unit value, beginning of period................................................................$ 0.70 1.00
------------ -------------
Income (loss) from investment operations:
Net investment income...................................................................... 0.01 -
Net gains or losses on securities
(both realized and unrealized)........................................................... (0.16) (0.30)
------------ -------------
Total from investment operations........................................................ (0.15) (0.30)
------------ -------------
Unit value, end of period......................................................................$ 0.55 0.70
------------ -------------
------------ -------------
</TABLE>
(a) Inception of the segregated sub-account was October 2, 1997, when the
units became effectively registered under the Securities Exchange Act
of 1933.
<PAGE>
Independent Auditors' Report
The Board of Directors
Minnesota Life Insurance Company
We have audited the accompanying consolidated balance sheets of the Minnesota
Life Insurance Company and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations and comprehensive income,
changes in stockholder's equity and cash flows for each of the years in the
three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Minnesota Life Insurance Company and subsidiaries as of December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplementary
information included in the accompanying schedules is presented for purpose of
additional analysis and is not a required part of the basic consolidated
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic consolidated financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic consolidated financial statements taken as a whole.
Minneapolis, Minnesota
February 8, 1999
66
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Balance Sheets
December 31, 1998 and 1997
Assets
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(In thousands)
<S> <C> <C>
Fixed maturity securities:
Available-for-sale, at fair value (amortized cost
$4,667,688 and $4,518,807) $ 4,914,012 $ 4,719,801
Held-to-maturity, at amortized cost (fair value
$1,161,784 and $1,158,227) 1,086,548 1,088,312
Equity securities, at fair value (cost $579,546 and
$537,441) 749,800 686,638
Mortgage loans, net 681,219 661,337
Real estate, net 38,530 39,964
Policy loans 226,409 213,488
Short-term investments 136,435 112,352
Other invested assets 261,625 216,838
----------- -----------
Total investments 8,094,578 7,738,730
Cash 175,660 96,179
Finance receivables, net 163,411 211,794
Deferred policy acquisition costs 564,382 576,030
Accrued investment income 86,974 83,439
Premiums receivable, net 62,609 68,030
Property and equipment, net 67,448 58,123
Reinsurance recoverables 162,553 150,126
Other assets 61,183 52,852
Separate account assets 6,994,752 5,366,810
----------- -----------
Total assets $16,433,550 $14,402,113
=========== ===========
Liabilities and Stockholder's Equity
Liabilities:
Policy and contract account balances $ 4,242,802 $ 4,275,221
Future policy and contract benefits 1,744,245 1,687,529
Pending policy and contract claims 70,564 64,356
Other policyholders' funds 438,595 416,752
Policyholders' dividends payable 53,957 55,321
Stockholder dividend payable 24,700 --
Unearned premiums and fees 180,191 202,070
Federal income tax liability:
Current 53,039 45,300
Deferred 173,907 166,057
Other liabilities 514,468 334,305
Notes payable 267,000 298,000
Separate account liabilities 6,947,806 5,320,517
----------- -----------
Total liabilities 14,711,274 12,865,428
----------- -----------
Stockholder's equity:
Common stock, $1 par value, 5,000,000 shares
authorized, issued and outstanding 5,000 --
Retained earnings 1,513,661 1,380,012
Accumulated other comprehensive income 203,615 156,673
----------- -----------
Total stockholder's equity 1,722,276 1,536,685
----------- -----------
Total liabilities and stockholder's equity $16,433,550 $14,402,113
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
67
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
Years ended December 31, 1998, 1997, and 1996
Statements of Operations
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Revenues:
Premiums $ 577,693 $ 615,253 $ 612,359
Policy and contract fees 300,361 272,037 245,966
Net investment income 531,081 553,773 530,987
Net realized investment gains 114,652 114,367 55,574
Finance charge income 35,880 43,650 46,932
Other income 73,498 71,707 51,630
---------- ---------- ----------
Total revenues 1,633,165 1,670,787 1,543,448
---------- ---------- ----------
Benefits and expenses:
Policyholders' benefits 519,926 515,873 541,520
Interest credited to policies and con-
tracts 290,870 298,033 288,967
General operating expenses 360,916 369,961 302,618
Commissions 110,211 114,404 103,370
Administrative and sponsorship fees 80,183 81,750 79,360
Dividends to policyholders 25,159 26,776 24,804
Interest on notes payable 22,360 24,192 22,798
Increase in deferred policy acquisition
costs (18,042) (26,878) (19,284)
---------- ---------- ----------
Total benefits and expenses 1,391,583 1,404,111 1,344,153
---------- ---------- ----------
Income from operations before taxes 241,582 266,676 199,295
Federal income tax expense (benefit):
Current 93,584 84,612 68,033
Deferred (15,351) (7,832) 744
---------- ---------- ----------
Total federal income tax expense 78,233 76,780 68,777
---------- ---------- ----------
Net income $ 163,349 $ 189,896 $ 130,518
========== ========== ==========
Other comprehensive income, after tax:
Foreign currency translation adjust-
ments $ (947) $ 947 $ --
Unrealized gains (losses) on securities 47,889 47,414 (44,940)
---------- ---------- ----------
Other comprehensive income, net of tax 46,942 48,361 (44,940)
---------- ---------- ----------
Comprehensive income $ 210,291 $ 238,257 $ 85,578
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
68
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Common stock:
Issued during the year $ 5,000 $ -- $ --
---------- ---------- ----------
Total common stock $ 5,000 $ -- $ --
========== ========== ==========
Retained earnings:
Beginning balance $1,380,012 $1,190,116 $1,059,598
Net income 163,349 189,896 130,518
Retained earnings transfer for common
stock issued (5,000) -- --
Dividends to stockholder (24,700) -- --
---------- ---------- ----------
Total retained earnings $1,513,661 $1,380,012 $1,190,116
========== ========== ==========
Accumulated other comprehensive income:
Beginning balance $ 156,673 $ 108,312 $ 153,252
Change in unrealized appreciation (de-
preciation) of investments 47,889 47,414 (44,940)
Change in unrealized gain on foreign
currency translation (947) 947 --
---------- ---------- ----------
Total accumulated other comprehensive
income $ 203,615 $ 156,673 $ 108,312
========== ========== ==========
Total stockholder's equity $1,722,276 $1,536,685 $1,298,428
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
69
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 163,349 $ 189,896 $ 130,518
Adjustments to reconcile net income to
net cash provided by operating activi-
ties:
Interest credited to annuity and in-
surance contracts 265,841 276,719 275,968
Fees deducted from policy and con-
tract balances (212,901) (214,803) (206,780)
Change in future policy benefits 56,716 76,358 84,389
Change in other policyholders' lia-
bilities (20,802) 7,597 16,099
Change in deferred policy acquisition
costs (18,042) (26,878) (19,284)
Change in premiums due and other re-
ceivables 5,421 (9,280) (26,142)
Change in federal income tax liabili-
ties 15,589 36,049 (38,113)
Net realized investment gains (114,652) (114,367) (55,574)
Other, net 32,380 (23,213) 56,045
----------- ----------- -----------
Net cash provided by operating ac-
tivities 172,899 198,078 217,126
----------- ----------- -----------
Cash Flows from Investing Activities
Proceeds from sales of:
Fixed maturity securities, available-
for-sale 1,835,726 1,099,114 877,682
Equity securities 523,617 601,936 352,901
Mortgage loans -- -- 15,567
Real estate 7,800 9,279 11,678
Other invested assets 21,682 26,877 12,280
Proceeds from maturities and repayments
of:
Fixed maturity securities, available-
for-sale 414,726 403,829 329,550
Fixed maturity securities, held-to-
maturity 148,848 139,394 114,222
Mortgage loans 126,066 109,246 94,703
Purchases of:
Fixed maturity securities, available-
for-sale (2,384,720) (1,498,048) (1,228,048)
Fixed maturity securities, held-to-
maturity (99,530) (82,835) (60,612)
Equity securities (516,907) (585,349) (446,599)
Mortgage loans (141,008) (157,247) (108,691)
Real estate (5,612) (3,908) (3,786)
Other invested assets (75,682) (55,988) (29,271)
Finance receivable originations or pur-
chases (77,141) (115,248) (175,876)
Finance receivable principal payments 109,277 133,762 142,723
Other, net 141,768 (88,626) (40,062)
----------- ----------- -----------
Net cash provided by (used for) in-
vesting activities 28,910 (63,812) (141,639)
----------- ----------- -----------
Cash Flows from Financing Activities
Deposits credited to annuity and insur-
ance contracts 952,622 928,696 657,405
Withdrawals from annuity and insurance
contracts (1,053,844) (1,013,588) (702,681)
Proceeds from issuance of debt 40,000 -- 60,000
Payments on debt (31,000) (21,000) (21,000)
Other, net (6,023) (3,355) (6,898)
----------- ----------- -----------
Net cash used for financing activi-
ties (98,245) (109,247) (13,174)
----------- ----------- -----------
Net increase in cash and short-term in-
vestments 103,564 25,019 62,313
Cash and short-term investments, begin-
ning of year 208,531 183,512 121,199
----------- ----------- -----------
Cash and short-term investments, end of
year $ 312,095 $ 208,531 $ 183,512
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
70
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
(1) Nature of Operations
Conversion to a Mutual Holding Company Structure
Consent was given from the Minnesota Department of Commerce (Department of
Commerce) allowing The Minnesota Mutual Life Insurance Company to implement a
conversion to a mutual holding company. The Minnesota Mutual Life Insurance
Company enacted this privilege effective October 1, 1998. The conversion
created Minnesota Mutual Companies, Inc., a mutual holding company, Securian
Holding Company and Securian Financial Group, Inc., which are intermediate
stock holding companies. The Minnesota Mutual Life Insurance Company was
converted into a stock life insurance company and renamed Minnesota Life
Insurance Company. Minnesota Mutual Companies, Inc. will at all times, in
accordance with the conversion plan and as required by the Mutual Insurance
Holding Company Act, directly or indirectly control Minnesota Life Insurance
Company through the ownership of at least a majority of the voting power of the
voting shares of the capital stock of Minnesota Life Insurance Company. Annuity
contract and life insurance policyholders of Minnesota Life Insurance Company
have certain membership interests consisting primarily of the right to vote on
certain matters involving Minnesota Mutual Companies, Inc. and the right to
receive distributions of surplus in the event of demutualization, dissolution
or liquidation of Minnesota Mutual Companies, Inc.
Description of Business
Minnesota Life Insurance Company, both directly and through its subsidiaries
(collectively, the Company), provides a diversified array of insurance and
financial products and services designed principally to protect and enhance the
long-term financial well-being of individuals and families.
The Company's strategy is to be successful in carefully selected niche
markets, primarily in the United States, while focusing on the retention of
existing business and the maintenance of profitability. To achieve this
objective, the Company has divided its businesses into five strategic business
units which focus on various markets: Individual Insurance, Financial Services,
Group Insurance, Pension and Asset Management. Revenues in 1998 for these
business units were $862,240,000, $273,511,000, $258,928,000, $102,061,000 and
$20,723,000, respectively. Additional revenues of $115,702,000 were reported by
the Company's subsidiaries.
The Company serves over six million people through more than 4,000 associates
located at its St. Paul, Minnesota headquarters and in 75 general agencies and
45 regional offices throughout the United States.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP), which vary in
certain respects from accounting practices prescribed or permitted by state
insurance regulatory authorities. The consolidated financial statements include
the accounts of the Minnesota Life Insurance Company and its subsidiaries. All
material intercompany transactions and balances have been eliminated.
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates and assumptions that affect reported
assets and liabilities, including reporting or disclosure of contingent assets
and liabilities as of the balance sheet date and the reported amounts of
revenues and expenses during the reporting period. Future events, including
changes in mortality, morbidity, interest rates and asset valuations, could
cause actual results to differ from the estimates used in the financial
statements.
Insurance Revenues and Expenses
Premiums on traditional life products, which include individual whole life and
term insurance and immediate annuities, are credited to revenue when due. For
accident and health and group life products, premiums are credited to revenue
over the contract period as earned. Benefits and expenses are recognized in
relation to premiums over the contract period via a provision for future policy
benefits and the amortization of deferred policy acquisition costs.
71
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
Nontraditional life products include individual adjustable and variable life
insurance and group universal and variable life insurance. Revenue from
nontraditional life products and deferred annuities is comprised of policy and
contract fees charged for the cost of insurance, policy administration and
surrenders. Expenses include the portion of claims not covered by and interest
credited to the related policy and contract account balances. Policy
acquisition costs are amortized relative to estimated gross profits or margins.
Deferred Policy Acquisition Costs
The costs of acquiring new and renewal business, which vary with and are
primarily related to the production of new and renewal business, are generally
deferred to the extent recoverable from future premiums or expected gross
profits. Deferrable costs include commissions, underwriting expenses and
certain other selling and issue costs.
For traditional life, accident and health and group life products, deferred
policy acquisition costs are amortized over the premium paying period in
proportion to the ratio of annual premium revenues to ultimate anticipated
premium revenues. The ultimate premium revenues are estimated based upon the
same assumptions used to calculate the future policy benefits.
For nontraditional life products and deferred annuities, deferred policy
acquisition costs are amortized over the estimated lives of the contracts in
relation to the present value of estimated gross profits from surrender charges
and investment, mortality and expense margins.
Deferred policy acquisition costs amortized were $148,098,000, $128,176,000
and $125,978,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Finance Charge Income and Receivables
Finance charge income represents fees and interest charged on consumer loans.
The Company uses the interest (actuarial) method of accounting for finance
charges and interest on finance receivables. Accrual of finance charges and
interest on the smaller balance homogeneous finance receivables is suspended
when a loan is contractually delinquent for more than 60 days and is
subsequently recognized when received. Accrual is resumed when the loan is
contractually less than 60 days past due. Finance charges and interest is
suspended when a loan is considered by management to be impaired. Loan
impairment is measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or as a practical expedient,
at the observable market price of the loan or the fair value of the collateral
if the loan is collateral dependent. When a loan is identified as impaired,
interest previously accrued in the current year is reversed. Interest payments
received on impaired loans are generally applied to principal unless the
remaining principal balance has been determined to be fully collectible. An
allowance for uncollectible amounts is maintained by direct charges to
operations at an amount which management believes, based upon historical losses
and economic conditions, is adequate to absorb probable losses on existing
receivables that may become uncollectible. The reported receivables are net of
this allowance.
Valuation of Investments
Fixed maturity securities (bonds) which the Company has the positive intent and
ability to hold to maturity are classified as held-to-maturity and are carried
at amortized cost, net of write-downs for other than temporary declines in
value. Premiums and discounts are amortized or accreted over the estimated
lives of the securities based on the interest yield method. Fixed maturity
securities, which may be sold prior to maturity, are classified as available-
for-sale and are carried at fair value.
Equity securities (common stocks and preferred stocks) are carried at fair
value. Equity securities also include initial contributions to affiliated
registered investment funds that are managed by a subsidiary of the Company.
These contributions are carried at the market value of the underlying net
assets of the funds.
Mortgage loans are carried at amortized cost less an allowance for
uncollectible amounts. Premiums and discounts are amortized or accreted over
the terms of the mortgage loans based on the interest yield method. A
72
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
mortgage loan is considered impaired if it is probable that contractual amounts
due will not be collected. Impaired mortgage loans are valued at the fair value
of the underlying collateral. Interest income on impaired mortgage loans is
recorded on an accrual basis. However, when the likelihood of collection is
doubtful, interest income is recognized when received.
Fair values of fixed maturity securities and equity securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are estimated using values obtained from independent
pricing services which specialize in matrix pricing and modeling techniques for
estimating fair values. Fair values of mortgage loans are based upon discounted
cash flows, quoted market prices and matrix pricing.
Venture capital limited partnerships are carried at cost, net of write-downs
for other than temporary declines in value and allowances for temporary
declines in value. Cash distributions are recorded as a return of capital
and/or income as appropriate. In-kind distributions are recorded as a return of
capital for the cost basis of the stock received.
Real estate is carried at cost less accumulated depreciation and an allowance
for estimated losses. Accumulated depreciation on real estate at December 31,
1998 and 1997, was $6,713,000 and $6,269,000, respectively.
Policy loans are carried at the unpaid principal balance.
Derivative Financial Instruments
The Company entered into equity swaps in 1996 as part of an overall risk
management strategy. The swaps were used to hedge exposure to market risk on
$400,000,000 of the Company's common stock portfolio. The swaps were based upon
certain stock indices. If, at the time of settlement for a particular swap, the
designated stock index had fallen below a specified level, the counterparty
would pay the Company an amount based upon the decline in the index and the
stock portfolio value protected by the swap. If, at the time of settlement, the
designated stock index had risen, the Company would pay the counterparty an
amount based upon the increase in the index and 25% of the stock portfolio
value protected by the swap. The equity swaps were settled with the
counterparties in August 1997. The swaps were carried at fair value, which were
based upon dealer quotes. Changes in fair value were recorded directly in
stockholder's equity. Upon settlement of the swaps, gains or losses were
recognized in income, and the Company realized a loss of approximately
$31,000,000 in 1997, upon settlement of these equity swaps.
The Company began investing in international bonds denominated in foreign
currencies in 1997. Unrealized gains or losses are recorded on foreign
denominated securities due to the fluctuation in foreign currency exchange
rates and/or related payables and receivables and interest on foreign
securities. The Company uses forward foreign exchange currency contracts as
part of its risk management strategy for international investments. The forward
foreign exchange currency contracts are used to reduce market risks from
changes in foreign exchange rates. These forward foreign exchange currency
contracts are agreements to purchase a specified amount of one currency in
exchange for a specified amount of another currency at a future point in time
at a foreign exchange currency rate agreed upon on the contract open date. No
cash is exchanged at the outset of the contract and no payments are made by
either party until the contract close date. On the contract close date the
contracted amount of the purchased currency is received from the counterparty
and the contracted amount of the sold currency is sent to the counterparty.
Realized and unrealized gains and losses on these forward foreign exchange
contracts are recorded in income as incurred. In addition, these contracts are
generally short-term in nature and there is no material exposure to the Company
at December 31, 1998. Notional amounts for the years ended December 31, 1998
and 1997, were $115,194,000 and $80,997,000, respectively.
73
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
Capital Gains and Losses
Realized and unrealized capital gains and losses are determined on the specific
identification method. Write-downs of held-to-maturity securities and the
provision for credit losses on mortgage loans and real estate are recorded as
realized losses.
Changes in the fair value of fixed maturity securities available-for-sale and
equity securities are recorded as a separate component of stockholder's equity,
net of taxes and related adjustments to deferred policy acquisition costs and
unearned policy and contract fees.
Property and Equipment
Property and equipment are carried at cost, net of accumulated depreciation of
$101,692,000 and $90,926,000 at December 31, 1998 and 1997, respectively.
Buildings are depreciated over 40 years and equipment is generally depreciated
over 5 to 10 years. Depreciation expenses for the years ended December 31,
1998, 1997 and 1996, were $10,765,000, $8,965,000 and $6,454,000, respectively.
Separate Accounts
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the exclusive benefit of pension, variable
annuity and variable life insurance policyholders and contractholders. Assets
consist principally of marketable securities and both assets and liabilities
are reported at fair value, based upon the market value of the investments held
in the segregated funds. The Company receives administrative and investment
advisory fees for services rendered on behalf of these accounts.
The Company periodically invests money in its separate accounts. The market
value of such investments, included with separate account assets, amounted to
$46,945,000 and $46,293,000 at December 31, 1998 and 1997, respectively.
Policyholders' Liabilities
Policy and contract account balances represent the net accumulation of funds
associated with nontraditional life products and deferred annuities. Additions
to the account balances include premiums, deposits and interest credited by the
Company. Decreases in the account balances include surrenders, withdrawals,
benefit payments, and charges assessed for the cost of insurance, policy
administration and surrenders.
Future policy and contract benefits are comprised of reserves for traditional
life, group life, and accident and health products. The reserves were
calculated using the net level premium method based upon assumptions regarding
investment yield, mortality, morbidity, and withdrawal rates determined at the
date of issue, commensurate with the Company's experience. Provision has been
made in certain cases for adverse deviations from these assumptions.
Other policyholders' funds are comprised of dividend accumulations, premium
deposit funds and supplementary contracts without life contingencies.
Participating Business
Dividends on participating policies and other discretionary payments are
declared by the Board of Directors based upon actuarial determinations, which
take into consideration current mortality, interest earnings, expense factors
and federal income taxes. Dividends are recognized as expenses consistent with
the recognition of premiums.
Income Taxes
Current income taxes are charged to operations based upon amounts estimated to
be payable as a result of taxable operations for the current year. Deferred
income tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between financial statement
carrying amounts and income tax bases of assets and liabilities.
74
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Account Policies (continued)
Reinsurance Recoverables
Insurance liabilities are reported before the effects of ceded reinsurance.
Reinsurance recoverables represent amounts due from reinsurers for paid and
unpaid benefits, expense reimbursements, prepaid premiums and future policy
benefits.
Reclassifications
Certain 1997 and 1996 consolidated financial statement balances have been
reclassified to conform to the 1998 presentation.
(3) Investments
Net investment income for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities $445,220 $457,391 $433,985
Equity securities 12,183 16,182 14,275
Mortgage loans 54,785 55,929 63,865
Real estate (236) (407) (475)
Policy loans 15,502 15,231 13,828
Short-term investments 6,147 6,995 6,535
Other invested assets 3,826 3,871 4,901
-------- -------- --------
Gross investment income 537,427 555,192 536,914
Investment expenses (6,346) (1,419) (5,927)
-------- -------- --------
Total $531,081 $553,773 $530,987
======== ======== ========
Net realized investment gains (losses) for the years ended December 31 were
as follows:
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities $ 43,244 $ 3,711 $ (6,536)
Equity securities 47,526 92,765 57,770
Mortgage loans 3,399 2,011 (721)
Real estate 7,809 1,598 7,088
Other invested assets 12,674 14,282 (2,027)
-------- -------- --------
Total $114,652 $114,367 $ 55,574
======== ======== ========
Gross realized gains (losses) on the sales of fixed maturity securities and
equity securities for the years ended December 31 were as follows:
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities, available-for-sale:
Gross realized gains $ 56,428 $ 18,804 $ 19,750
Gross realized losses (13,184) (15,093) (26,286)
Equity securities:
Gross realized gains 107,342 120,437 79,982
Gross realized losses (59,816) (27,672) (22,212)
</TABLE>
75
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3)Investments (continued)
Net unrealized gains (losses) included in stockholder's equity at December 31
were as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
Gross unrealized gains $ 487,479 $ 472,671
Gross unrealized losses (73,440) (118,863)
Adjustment to deferred acquisition costs (119,542) (100,299)
Adjustment to unearned policy and contract fees 15,912 (13,087)
Deferred federal income taxes (106,794) (83,749)
--------- ---------
Net unrealized gains $ 203,615 $ 156,673
========= =========
</TABLE>
76
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3)Investments (continued)
The amortized cost and fair value of investments in marketable securities by
type of investment were as follows:
<TABLE>
<CAPTION>
Gross Unrealized
-----------------
Amortized Fair
Cost Gains Losses Value
---------- -------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
December 31, 1998
Available-for-sale:
United States government and
government agencies and
authorities $ 195,650 $ 17,389 $ 201 $ 212,838
Foreign governments 784 -- 311 473
Corporate securities 2,357,861 204,277 30,648 2,531,490
International bond securities 188,448 22,636 1,298 209,786
Mortgage-backed securities 1,924,945 52,580 18,100 1,959,425
---------- -------- -------- ----------
Total fixed maturities 4,667,688 296,882 50,558 4,914,012
Equity securities-unaffiliated 463,777 157,585 15,057 606,305
Equity securities-affiliated
mutual funds 115,769 27,726 -- 143,495
---------- -------- -------- ----------
Total equity securities 579,546 185,311 15,057 749,800
---------- -------- -------- ----------
Total available-for-sale 5,247,234 482,193 65,615 5,663,812
Held-to maturity:
Corporate securities 894,064 67,496 235 961,325
Mortgage-backed securities 192,484 9,030 1,055 200,459
---------- -------- -------- ----------
Total held-to-maturity 1,086,548 76,526 1,290 1,161,784
---------- -------- -------- ----------
Total $6,333,782 $558,719 $ 66,905 $6,825,596
========== ======== ======== ==========
<CAPTION>
Gross Unrealized
-----------------
Amortized Fair
Cost Gains Losses Value
---------- -------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
December 31, 1997
Available-for-sale:
United States government and
government agencies and authori-
ties $ 239,613 $ 18,627 $ -- $ 258,240
Foreign governments 1,044 -- 29 1,015
Corporate securities 2,273,474 216,056 70,484 2,419,046
International bond securities 150,157 2,565 23,530 129,192
Mortgage-backed securities 1,854,519 66,934 9,145 1,912,308
---------- -------- -------- ----------
Total fixed maturities 4,518,807 304,182 103,188 4,719,801
Equity securities-unaffiliated 421,672 134,558 14,575 541,655
Equity securities-affiliated mu-
tual funds 115,769 29,214 -- 144,983
---------- -------- -------- ----------
Total equity securities 537,441 163,772 14,575 686,638
---------- -------- -------- ----------
Total available-for-sale 5,056,248 467,954 117,763 5,406,439
Held-to maturity:
Corporate securities 893,407 59,850 752 952,505
Mortgage-backed securities 194,905 10,817 -- 205,722
---------- -------- -------- ----------
Total held-to-maturity 1,088,312 70,667 752 1,158,227
---------- -------- -------- ----------
Total $6,144,560 $538,621 $118,515 $6,564,666
========== ======== ======== ==========
</TABLE>
77
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3) Investments (continued)
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1998, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
--------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 38,375 $ 35,299 $ 11,109 $ 11,346
Due after one year through five
years 529,019 616,064 128,658 133,657
Due after five years through ten
years 1,251,763 1,316,512 373,294 403,159
Due after ten years 923,586 986,712 381,003 413,163
---------- ---------- ---------- ----------
2,742,743 2,954,587 894,064 961,325
Mortgage-backed securities 1,924,945 1,959,425 192,484 200,459
---------- ---------- ---------- ----------
Total $4,667,688 $4,914,012 $1,086,548 $1,161,784
========== ========== ========== ==========
</TABLE>
At December 31, 1998 and 1997, fixed maturity securities and short-term
investments with a carrying value of $6,361,000 and $8,000,000, respectively,
were on deposit with various regulatory authorities as required by law.
Allowances for credit losses on investments are reflected on the consolidated
balance sheets as a reduction of the related assets and were as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Mortgage loans $ 1,500 $ 1,500
Investment real estate 841 2,248
------- -------
Total $ 2,341 $ 3,748
======= =======
</TABLE>
At December 31, 1998, the recorded investment in mortgage loans that were
considered to be impaired was $8,798 before allowance for credit losses. These
impaired loans, due to adequate fair market value of underlying collateral, do
not have an allowance for credit losses.
At December 31, 1997, the recorded investment in mortgage loans that were
considered to be impaired was $18,400 before allowance for credit losses. These
impaired loans, due to adequate fair market value of underlying collateral, do
not have an allowance for credit losses.
A general allowance for credit losses was established for potential
impairments in the remainder of the mortgage loan portfolio. The general
allowance was $1,500,000 at December 31, 1998 and 1997.
Changes in the allowance for credit losses on mortgage loans were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $1,500 $1,895 $1,711
Provision for credit losses -- -- 381
Charge-offs -- (395) (197)
------ ------ ------
Balance at end of year $1,500 $1,500 $1,895
====== ====== ======
</TABLE>
78
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3) Investments (continued)
Below is a summary of interest income on impaired mortgage loans.
<TABLE>
<CAPTION>
1998 1997 1996
---- ------ ------
(In thousands)
<S> <C> <C> <C>
Average impaired mortgage loans $14 $3,268 $9,375
Interest income on impaired mortgage loans--contractual 18 556 1,796
Interest income on impaired mortgage loans--collected 17 554 1,742
</TABLE>
(4) Notes Receivable
In connection with the Company's planned construction of an additional home
office facility in St. Paul, Minnesota, the Company entered into a loan
contingency agreement with the Housing and Redevelopment Authority of the City
of St. Paul, Minnesota (HRA) in November 1997. A maximum of $15 million in
funds is available under this loan for condemnation and demolition of the
Company's proposed building site. The note bears interest at a rate of 8.625%,
with principal payments commencing February 2004 and a maturity date of August
2025. Interest payments are accrued and are payable February and August of each
year commencing February 2001. All principal and interest payments are due only
to the extent of available tax increments. As of December 31, 1998, HRA has
drawn $9,669,128 on this loan contingency agreement and accrued interest of
$673,435.
(5) Net Finance Receivables
Finance receivables as of December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Direct installment loans $147,425 $183,424
Retail installment notes 12,209 20,373
Retail revolving credit 17,170 25,426
Accrued interest 2,683 3,116
-------- --------
Gross receivables 179,487 232,339
Allowance for uncollectible amounts (16,076) (20,545)
-------- --------
Finance receivables, net $163,411 $211,794
======== ========
</TABLE>
Direct installment loans at December 31, 1998, consisted of $81,066,000 of
discount basis loans (net of unearned finance charges) and $66,359,000 of
interest-bearing loans. Direct installment loans at December 31, 1997,
consisted of $83,836,000 of discount basis loans (net of unearned finance
charges) and $99,588,000 of interest-bearing loans. Direct installment loans
generally have a maximum term of 84 months. Retail installment notes are
principally discount basis, arise from the sale of household appliances,
furniture, and sundry services, and generally have a maximum term of 48 months.
Direct installment loans included approximately $44,000,000 and $65,000,000 of
real estate secured loans at December 31, 1998 and 1997, respectively.
Revolving credit loans included approximately $16,000,000 and $24,000,000 of
real estate secured loans at December 31, 1998 and 1997, respectively.
Experience has shown that a substantial portion of finance receivables will be
renewed, converted or paid in full prior to maturity.
Principal cash collections of direct installment loans amounted to
$75,011,000, $90,940,000 and $92,438,000 and the percentage of these cash
collections to the average net balances were 47%, 47% and 48% for the years
ended December 31, 1998, 1997 and 1996, respectively.
79
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(5) Net Finance Receivables (continued)
Changes in the allowance for uncollectible amounts for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $20,545 $ 7,497 $ 6,377
Provision for credit losses 10,712 28,206 10,086
Charge-offs (18,440) (17,869) (11,036)
Recoveries 3,259 2,711 2,070
------- ------- -------
Balance at end of year $16,076 $20,545 $ 7,497
======= ======= =======
</TABLE>
At December 31, 1998, the recorded investment in certain direct installment
loans and direct revolving credit loans were considered to be impaired. The
balances of such loans at December 31, 1998 and the related allowance for
credit losses were as follows:
<TABLE>
<CAPTION>
Installment Revolving
Loans Credit Total
----------- --------- -------
(In thousands)
<S> <C> <C> <C>
Balances at December 31, 1998 $7,546 11,190 $18,736
Related allowance for credit losses $3,033 5,486 $ 8,519
</TABLE>
All loans deemed to be impaired are placed on a non-accrual status. No
accrued or unpaid interest was recognized on impaired loans during 1998. The
average quarterly balances of impaired loans during the year ended December 31,
1998 and 1997, was $6,354,000 and $7,397,000, respectively, for installment
basis loans and $12,471,000 and $12,793,000, respectively for revolving credit
direct loans.
There were no material commitments to lend additional funds to customers
whose loans were classified as non-accrual at December 31, 1998.
(6) Income Taxes
Income tax expense varies from the amount computed by applying the federal
income tax rate of 35% to income from operations before taxes. The significant
components of this difference were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Computed tax expense $84,553 $93,337 $69,753
Difference between computed and actual tax ex-
pense:
Dividends received deduction (1,730) (5,573) (2,534)
Special tax on mutual life insurance companies (3,455) 3,341 2,760
Sale of subsidiary -- (4,408) --
Foundation gain -- (4,042) (1,260)
Tax credits (4,416) (3,600) (3,475)
Expense adjustments and other 3,281 (2,275) 3,533
------- ------- -------
Total tax expense $78,233 $76,780 $68,777
======= ======= =======
</TABLE>
80
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(6) Income Taxes (continued)
The tax effects of temporary differences that give rise to the Company's net
deferred federal tax liability were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Policyholders' liabilities $ 16,999 $ 14,374
Pension and post retirement benefits 27,003 23,434
Tax deferred policy acquisition costs 82,940 73,134
Net realized capital losses 8,221 9,609
Other 18,487 20,524
-------- --------
Gross deferred tax assets 153,650 141,075
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs 155,655 152,337
Real estate and property and equipment depreciation 10,275 11,165
Basis difference on investments 10,798 11,061
Net unrealized capital gains 143,354 122,876
Other 7,475 9,693
-------- --------
Gross deferred tax liabilities 327,557 307,132
-------- --------
Net deferred tax liability $173,907 $166,057
======== ========
</TABLE>
A valuation allowance for deferred tax assets was not considered necessary as
of December 31, 1998 and 1997, because the Company believes that it is more
likely than not that the deferred tax assets will be realized through future
reversals of existing taxable temporary differences and future taxable income.
Income taxes paid for the years ended December 31, 1998, 1997 and 1996, were
$91,259,000, $71,108,000 and $79,026,000, respectively.
The Company's tax returns for 1997, 1996 and 1995 are under examination by
the Internal Revenue Service. The Company believes additional taxes, if any,
assessed as a result of these examinations, will not have a material effect on
its financial position.
81
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(7) Liability for Unpaid Accident and Health Claims, Reserve for Losses, and
Claim and Loss Adjustment Expenses
Activity in the liability for unpaid accident and health claims, reserve for
losses and claim and loss adjustment expenses is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Balance at January 1 $409,249 $416,910 $377,302
Less: reinsurance recoverable 104,741 102,161 80,333
-------- -------- --------
Net balance at January 1 304,508 314,749 296,969
-------- -------- --------
Incurred related to:
Current year 92,793 121,153 134,727
Prior years 14,644 7,809 4,821
-------- -------- --------
Total incurred 107,437 128,962 139,548
-------- -------- --------
Paid related to:
Current year 27,660 51,275 51,695
Prior years 58,124 57,475 70,073
-------- -------- --------
Total paid 85,784 108,750 121,768
-------- -------- --------
Decrease in liabilities due to sale of subsidiary -- 30,453 --
-------- -------- --------
Net balance at December 31 326,161 304,508 314,749
Plus: reinsurance recoverable 108,918 104,741 102,161
-------- -------- --------
Balance at December 31 $435,079 $409,249 $416,910
======== ======== ========
</TABLE>
The liability for unpaid accident and health claims, reserve for losses and
claim and loss adjustment expenses is included in future policy and contract
benefits and pending policy and contract claims on the consolidated balance
sheets.
As a result of changes in estimates of claims incurred in prior years, the
accident and health claims, reserve for losses and claim and loss adjustment
expenses incurred increased by $14,644,000, $7,809,000 and $4,821,000 in 1998,
1997 and 1996, respectively. These amounts are the result of normal reserve
development inherent in the uncertainty of establishing the liability for
unpaid accident and health claims, reserve for losses and claim and loss
adjustment expenses.
(8) Employee Benefit Plans
Pension Plans and Post Retirement Plans Other than Pensions
The Company has noncontributory defined benefit retirement plans covering
substantially all employees and certain agents. Benefits are based upon years
of participation and the employee's average monthly compensation or the agent's
adjusted annual compensation. Plan assets are comprised of mostly stocks and
bonds, which are held in the general and separate accounts of the Company and
administered under group annuity contracts issued by the Company. The Company's
funding policy is to contribute annually the minimum amount required by
applicable regulations. The Company also has an unfunded noncontributory
defined benefit retirement plan, which provides certain employees with benefits
in excess of limits for qualified retirement plans.
The Company also has unfunded post retirement plans that provide certain
health care and life insurance benefits to substantially all retired employees
and agents. Eligibility is determined by age at retirement and years of service
after age 30. Health care premiums are shared with retirees, and other cost-
sharing features include deductibles and co-payments.
82
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(8) Employee Benefit Plans (continued)
The change in the benefit obligation and plan assets for the Company's plans
as of December 31 was calculated as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of
year $151,509 $134,959 $ 24,467 $ 24,836
Service cost 8,402 6,847 1,375 1,047
Interest cost 10,436 9,956 1,713 1,872
Amendments 6 -- -- (99)
Actuarial gain 16,298 3,816 4,542 (1,930)
Benefits paid (5,212) (4,069) (861) (1,259)
-------- -------- -------- --------
Benefit obligation at end of year $181,439 $151,509 $ 31,236 $ 24,467
======== ======== ======== ========
Change in plan assets:
Fair value of plan assets at the
beginning of the year $133,505 $118,963 $ -- $ --
Actual return on plan assets 13,068 13,670 -- --
Employer contribution 5,349 4,940 861 1,259
Benefits paid (5,212) (4,069) (861) (1,259)
-------- -------- -------- --------
Fair value of plan assets at the
end of year $146,710 $133,504 $ -- $ --
======== ======== ======== ========
Funded status $(34,729) $(18,005) $(31,236) $(24,467)
Unrecognized net actuarial loss
(gain) 12,283 (1,735) (6,251) (11,353)
Unrecognized prior service cost
(benefit) 5,293 5,865 (2,986) (3,499)
-------- -------- -------- --------
Net amount recognized $(17,153) $(13,875) $(40,473) $(39,319)
======== ======== ======== ========
Amounts recognized in the balance
sheet statement consist of:
Accrued benefit cost $(23,242) $(18,059) $(40,473) $(39,319)
Intangible asset 6,089 4,184 -- --
-------- -------- -------- --------
Net amount recognized $(17,153) $(13,875) $(40,473) $(39,319)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Pension Other
Benefits Benefits
----------- -----------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Weighted average assumptions as of December 31
Discount rate 7.00% 7.48% 7.00% 7.50%
Expected return on plan assets 8.27% 8.32% -- --
Rate of compensation increase 5.32% 5.29% -- --
</TABLE>
83
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(8) Employee Benefit Plans (continued)
For measurement purposes, an 8 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 5.5 percent for 2003 and remain at that level
thereafter.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------- ----------------------
1998 1997 1996 1998 1997 1996
------- ------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost
Service cost $ 8,402 $6,847 $6,315 $1,375 $1,047 $1,041
Interest cost 10,436 9,956 8,852 1,713 1,872 2,074
Expected return on plan as-
sets (10,978) (9,859) (8,751) -- -- --
Amortization of prior serv-
ice cost (benefits) 578 578 578 (513) (510) (501)
Recognized net actuarial
loss (gain) 190 77 10 (559) (480) (177)
------- ------ ------ ------ ------ ------
Net periodic benefit cost $ 8,628 $7,599 $7,004 $2,016 $1,929 $2,437
======= ====== ====== ====== ====== ======
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
vale of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $39,470,000, $31,546,000 and $17,334,000 as of
December 31, 1998, respectively, and $32,622,000, $24,894,000 and $16,703,000
respectively, as of December 31, 1997.
The assumptions presented herein are based on pertinent information available
to management as of December 31, 1998 and 1997. Actual results could differ
from those estimates and assumptions. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would
increase the post retirement benefit obligation as of December 31, 1998 by
$5,875,000 and the estimated eligibility cost and interest cost components of
net periodic benefit costs for 1998 by $788,000. Decreasing the assumed health
care cost trend rates by one percentage point in each year would decrease the
post retirement benefit obligation as of December 31, 1998 by $4,618,000 and
the estimated eligibility cost and interest cost components of net periodic
post retirement benefit costs for 1998 by $598,000.
Profit Sharing Plans
The Company also has profit sharing plans covering substantially all employees
and agents. The Company's contribution rate to the employee plan is determined
annually by the directors of the Company and is applied to each participant's
prior year earnings. The Company's contribution to the agent plan is made as a
certain percentage, based upon years of service, applied to each agent's total
annual compensation. The Company recognized contributions to the plans during
1998, 1997 and 1996 of $8,395,000, $7,173,000 and $6,092,000, respectively.
Participants may elect to receive a portion of their contributions in cash.
(9) Sale of Subsidiary
On October 1, 1997, the Company sold Minnesota Fire and Casualty Company (MFC),
a wholly owned subsidiary, to Harleysville Group, Inc. The Company received net
cash proceeds of approximately $33.5 million from the sale, and realized a gain
of approximately $14.5 million. HomePlus Insurance Company (HomePlus), a
previously wholly owned subsidiary of MFC, was excluded from the sale of
assets. In accordance with the agreement, prior to September 30, 1997, MFC made
a distribution of private placement bonds to the Company with an amortized cost
of approximately $4.3 million and transferred all issued and outstanding shares
of HomePlus to the Company. The carrying value of the transferred shares was
approximately $5.8 million. Under an administrative services agreement with
MFC, the Company has retained MFC to provide financial and other services for
HomePlus.
84
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(10) Reinsurance
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance companies. To the extent that a reinsurer is
unable to meet its obligation under the reinsurance agreement, the Company
remains liable. The Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk to minimize its exposure to
significant losses from reinsurer insolvencies. Allowances are established for
amounts deemed to be uncollectible.
Reinsurance is accounted for over the life of the underlying reinsured
policies using assumptions consistent with those used to account for the
underlying policies.
The effect of reinsurance on premiums for the years ended December 31 was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Direct premiums $553,408 $595,686 $615,098
Reinsurance assumed 91,548 78,097 64,489
Reinsurance ceded (67,263) (58,530) (67,228)
-------- -------- --------
Net premiums $577,693 $615,253 $612,359
======== ======== ========
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $54,174,000,
$58,072,000 and $72,330,000 during 1998, 1997 and 1996, respectively.
(11) Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments has been
determined using available market information as of December 31, 1998 and 1997.
Although management is not aware of any factors that would significantly affect
the estimated fair value, such amounts have not been comprehensively revalued
since those dates. Therefore, estimates of fair value subsequent to the
valuation dates may differ significantly from the amounts presented herein.
Considerable judgement is required to interpret market data to develop the
estimates of fair value. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
Please refer to Note 2 for additional fair value disclosures concerning fixed
maturity securities, equity securities, mortgages and derivatives. The carrying
amounts for policy loans, cash, short-term investments and finance receivables
approximate the assets' fair values.
The interest rates on the finance receivables outstanding as of December 31,
1998 and 1997, are consistent with the rates at which loans would currently be
made to borrowers of similar credit quality and for the same maturity; as such,
the carrying value of the finance receivables outstanding as of December 31,
1998 and 1997, approximate the fair value for those respective dates.
The fair values of deferred annuities, annuity certain contracts and other
fund deposits, which have guaranteed interest rates and surrender charges are
estimated to be the amount payable on demand as of December 31, 1998 and 1997
as those investment contracts have no defined maturity and are similar to a
deposit liability. The amount payable on demand equates to the account balance
less applicable surrender charges. Contracts without guaranteed interest rates
and surrender charges have fair values equal to their accumulation values plus
applicable market value adjustments. The fair values of guaranteed investment
contracts and supplementary contracts without life contingencies are calculated
using discounted cash flows, based on interest rates currently offered for
similar products with maturities consistent with those remaining for the
contracts being valued.
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate the fair value of notes payable.
85
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(11) Fair Value of Financial Instruments (continued)
The carrying amounts and fair values of the Company's financial instruments,
which were classified as assets as of December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities:
Available-for-sale $4,914,012 $4,914,012 $4,719,801 $4,719,801
Held-to-maturity 1,086,548 1,161,784 1,088,312 1,158,227
Equity securities 749,800 749,800 686,638 686,638
Mortgage loans:
Commercial 579,890 603,173 506,860 527,994
Residential 101,329 104,315 154,477 158,334
Policy loans 226,409 226,409 213,488 213,488
Short-term investments 136,435 136,435 112,352 112,352
Cash 175,660 175,660 96,179 96,179
Finance receivables, net 163,411 163,411 211,794 211,794
Venture capital 160,958 164,332 115,856 122,742
Foreign currency exchange con-
tract 1,594 1,594 1,457 1,457
---------- ---------- ---------- ----------
Total financial assets $8,296,046 $8,400,925 $7,907,214 $8,009,006
========== ========== ========== ==========
</TABLE>
The carrying amounts and fair values of the Company's financial instruments,
which were classified as liabilities as of December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Deferred annuities $2,085,408 $2,075,738 $2,131,806 $2,112,301
Annuity certain contracts 57,528 60,766 55,431 57,017
Other fund deposits 722,321 731,122 754,960 753,905
Guaranteed investment contracts 862 862 8,188 8,187
Supplementary contracts without
life contingencies 44,696 44,251 46,700 45,223
Notes payable 267,000 272,834 298,000 302,000
---------- ---------- ---------- ----------
Total financial liabilities $3,177,815 $3,185,573 $3,295,085 $3,278,633
========== ========== ========== ==========
</TABLE>
(12) Notes Payable
In September 1995, the Company issued surplus notes with a face value of
$125,000,000, at 8.25%, due in 2025. The surplus notes are subordinate to all
current and future policyholders' interests, including claims, and indebtedness
of the Company. All payments of interest and principal on the notes are subject
to the approval of the Department of Commerce. The approved accrued interest
was $3,008,000 as of December 31, 1998 and 1997. The issuance costs of
$1,421,000 are deferred and amortized over 30 years on straight-line basis.
86
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(12) Notes Payable (continued)
Notes payable as of December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Corporate-surplus notes, 8.25%, 2025 $125,000 $125,000
Consumer finance subsidiary-senior, 6.53%-8.77%, through
2003 142,000 173,000
-------- --------
Total notes payable $267,000 $298,000
======== ========
</TABLE>
At December 31, 1998, the aggregate minimum annual notes payable maturities
for the next five years were as follows: 1999, $49,000,000; 2000, $33,000,000;
2001, $26,000,000; 2002, $22,000,000; 2003, $12,000,000; thereafter
$125,000,000.
Long-term borrowing agreements involving the consumer finance subsidiary
include provisions with respect to borrowing limitations, payment of cash
dividends on or purchases of common stock, and maintenance of liquid net worth
of $44,070,000. The consumer finance subsidiary was in compliance with all such
provisions at December 31, 1998.
Interest paid on debt for the years ended December 31, 1998, 1997 and 1996,
was $25,008,000, $18,197,000 and $21,849,000, respectively.
(13) Other Comprehensive Income
Effective December 31, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." Comprehensive income is defined as any
change in stockholder's equity originating from non-owner transactions. The
Company had identified those changes as being comprised of net income,
unrealized appreciation (depreciation) on securities, and unrealized foreign
currency translation adjustments. The components of comprehensive income, other
than net income are illustrated below:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- --------
(In thousands)
<S> <C> <C> <C>
Other comprehensive income, before tax:
Foreign currency translation adjustment $ -- $ 1,457 $ --
Less: reclassification adjustment for gains in-
cluded in net income (1,457) -- --
------- ------- --------
(1,457) 1,457 --
Unrealized gains (loss) on securities 162,214 171,654 (18,746)
Less: reclassification adjustment for gains in-
cluded in net income (90,770) (96,476) (51,234)
------- ------- --------
71,444 75,178 (69,980)
Income tax expense related to items of other com-
prehensive income (23,045) (28,274) 25,040
------- ------- --------
Other comprehensive income, net of tax $46,942 $48,361 $(44,940)
======= ======= ========
</TABLE>
(14) Stock Dividends
On December 14, 1998, the Company declared and accrued a dividend to Securian
Financial Group, Inc. in the amount of $24,700,000 to be paid in 1999.
Dividend payments by Minnesota Life Insurance Company to its parent cannot
exceed the greater of 10% of statutory capital and surplus as of the preceding
year end or the statutory net gain from operations for the current calendar
year, without prior approval from the Department of Commerce. Based on this
limitation and 1997 statutory results, Minnesota Life Insurance Company could
have paid $87,069,000 in dividends in 1998 without prior approval.
87
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(15) Year 2000 (Unaudited)
The Company's business units utilize products and systems in the normal course
of business. Some of the Company's products and systems will have been replaced
or modified in order to process dates including the year 2000 and beyond.
The Company began preparing for the new millennium in the early 1980s by
designing systems with the year 2000 in mind. The Company began a comprehensive
Year 2000 project in 1995 to prepare all components of its business to function
properly before, during and after the year 2000.
The Company's goal is to have all computer systems and data prepared for the
year 2000. While the Company has taken extensive steps to renovate, upgrade and
replace applications, it is impossible to guarantee there will be no problems
associated with the year 2000 date change. The Company is currently developing
contingency and continuity plans to help minimize any impact of problems that
do arise.
(16) Commitments and Contingencies
The Company is involved in various pending or threatened legal proceedings
arising out of the normal course of business. In the opinion of management, the
ultimate resolution of such litigation will not have a material adverse effect
on operations or the financial position of the Company.
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance companies. To the extent that a reinsurer is
unable to meet its obligations under the reinsurance agreement, the Company
remains liable. The Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk to minimize its exposure to
significant losses from reinsurer insolvencies. Allowances are established for
amounts deemed uncollectible.
The Company has issued certain participating group annuity and group life
insurance contracts jointly with another life insurance company. The joint
contract issuer has liabilities related to these contracts of $41,010,000 as of
December 31, 1998. To the extent the joint contract issuer is unable to meet
its obligation under the agreement, the Company remains liable.
The Company has long-term commitments to fund venture capital and real estate
investments totaling $165,191,000 as of December 31, 1998. The Company
estimates that $60,000,000 of these commitments will be invested in 1999, with
the remaining $105,191,000 invested over the next four years.
As of December 31, 1998, the Company had committed to purchase bonds and
mortgage loans totaling $198,907,000 but had not completed the purchase
transactions.
At December 31, 1998, the Company had guaranteed the payment of $75,100,000
in policyholders' dividends and discretionary amounts payable in 1999. The
Company has pledged bonds, valued at $76,596,000 to secure this guarantee.
The Company is contingently liable under state regulatory requirements for
possible assessments pertaining to future insolvencies and impairments of
unaffiliated insurance companies. The Company records a liability for future
guaranty fund assessments based upon known insolvencies, according to data
received from the National Organization of Life and Health Insurance Guaranty
Association. An asset is recorded for the amount of guaranty fund assessments
paid, which can be recovered through future premium tax credits.
88
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(17) Statutory Financial Data
The Company also prepares financial statements according to statutory
accounting practices prescribed or permitted by the Department of Commerce for
purposes of filing with the Department of Commerce, the National Association of
Insurance Commissioners and states in which the Company is licensed to do
business. Statutory accounting practices focus primarily on solvency and
surplus adequacy. The significant differences that exist between statutory and
GAAP accounting, and their effects are illustrated below:
<TABLE>
<CAPTION>
Year ended December
----------------------
1998 1997
---------- ----------
(In thousands)
<S> <C> <C>
Statutory capital and surplus $ 947,885 $ 870,688
Adjustments:
Deferred policy acquisition costs 564,382 576,030
Net unrealized investment gains 281,226 213,026
Statutory asset valuation reserve 239,455 242,100
Statutory interest maintenance reserve 49,915 24,169
Premiums and fees deferred or receivable (73,312) (74,025)
Change in reserve basis 117,806 101,415
Separate accounts (56,816) (51,172)
Unearned policy and contract fees (134,373) (126,477)
Surplus notes (125,000) (125,000)
Net deferred income taxes (173,907) (166,057)
Non-admitted assets 36,764 32,611
Policyholders' dividends 60,648 60,036
Other (12,397) (40,659)
---------- ----------
Stockholder's equity as reported in the accompanying
consolidated financial statements $1,722,276 $1,536,685
========== ==========
</TABLE>
<TABLE>
<CAPTION>
As of December 31
----------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Statutory net income $104,609 $167,078 $115,797
Adjustments:
Deferred policy acquisition costs 18,042 26,878 19,284
Statutory interest maintenance reserve 25,746 (538) (8,192)
Premiums and fees deferred or receivable 708 2,175 1,587
Change in reserve basis 3,011 9,699 20,114
Separate accounts (5,644) (6,272) (6,304)
Unearned policy and contract fees (7,896) (12,825) (2,530)
Net deferred income taxes 15,351 7,832 (744)
Policyholders' dividends 1,194 2,708 502
Other 8,228 (6,839) (8,996)
-------- -------- --------
Net income as reported in the accompanying
consolidated financial statements $163,349 $189,896 $130,518
======== ======== ========
</TABLE>
89
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule I
Summary of Investments--Other than Investments in Related Parties
December 31, 1998
<TABLE>
<CAPTION>
As Shown
Market on the balance
Type of investment Cost(3) Value sheet(1)
- ------------------ ---------- ---------- --------------
(In thousands)
<S> <C> <C> <C>
Bonds:
United States government and government
agencies and authorities $ 195,650 $ 212,838 $ 212,838
Foreign governments 784 473 473
Public utilities 343,230 368,246 357,795
Mortgage-backed securities 2,117,429 2,159,884 2,151,909
All other corporate bonds 3,097,143 3,334,355 3,277,545
---------- ---------- ----------
Total bonds 5,754,236 6,075,796 6,000,560
---------- ---------- ----------
Equity securities:
Common stocks:
Public utilities 14,403 18,472 18,472
Banks, trusts and insurance companies 42,538 43,615 43,615
Industrial, miscellaneous and all
other 495,635 659,177 659,177
Nonredeemable preferred stocks 26,970 28,536 28,536
---------- ---------- ----------
Total equity securities 579,546 749,800 749,800
---------- ---------- ----------
Mortgage loans on real estate 681,219 XXXXXX 681,219
Real estate (2) 38,530 XXXXXX 38,530
Policy loans 226,409 XXXXXX 226,409
Other long-term investments 261,625 XXXXXX 261,625
Short-term investments 136,435 XXXXXX 136,435
---------- ---------- ----------
Total 1,344,218 -- 1,344,218
---------- ---------- ----------
Total investments $7,678,000 $6,825,596 $8,094,578
========== ========== ==========
</TABLE>
- -------
(1) Amortized cost for bonds classified as held-to-maturity and fair value for
common stocks and bonds classified as available-for-sale.
(2) The carrying value of real estate acquired in satisfaction of indebtedness
is $-0-.
(3) Original cost for equity securities and original cost reduced by repayments
and adjusted for amortization of premiums or accrual of discounts for bonds
and other investments
See independent auditors' report.
90
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule III
Supplementary Insurance Information
(In thousands)
<TABLE>
<CAPTION>
As of December 31 For the years ended December 31
--------------------------------------------------- -----------------------------------------------------------
Future policy Amortization
Deferred benefits Other policy Benefits, of deferred
policy losses, claims claims and Net claims, losses policy Other
acquisition and settlement Unearned benefits Premium investment and settlement acquisition operating
Segment costs expenses(1) premiums(2) payable revenue(3) income expenses costs expenses
- ------- ----------- -------------- ----------- ------------ ---------- ---------- -------------- ------------ ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998:
Life insurance $421,057 $2,303,580 $146,042 $51,798 $615,856 $246,303 $502,767 $114,589 $342,080
Accident and
health insurance 74,606 496,839 33,568 18,342 167,544 35,822 105,336 12,261 93,876
Annuity 68,719 3,186,148 25 424 93,992 247,970 225,004 21,248 136,527
Property and li-
ability insur-
ance -- 480 556 -- 662 986 2,848 -- 1,187
-------- ---------- -------- ------- -------- -------- -------- -------- --------
$564,382 $5,987,047 $180,191 $70,564 $878,054 $531,081 $835,955 $148,098 $573,670
======== ========== ======== ======= ======== ======== ======== ======== ========
1997:
Life insurance $434,012 $2,229,396 $166,704 $42,627 $576,468 $247,267 $476,747 $102,473 $345,938
Accident and
health insurance 70,593 466,109 34,250 17,153 205,869 40,343 87,424 9,451 101,960
Annuity 71,425 3,266,965 -- 4,576 64,637 261,768 242,738 16,252 129,263
Property and li-
ability insur-
ance -- 280 1,116 -- 40,316 4,395 33,773 -- 13,146
-------- ---------- -------- ------- -------- -------- -------- -------- --------
$576,030 $5,962,750 $202,070 $64,356 $887,290 $553,773 $840,682 $128,176 $590,307
======== ========== ======== ======= ======== ======== ======== ======== ========
1996:
Life insurance $456,461 $2,123,148 $149,152 $51,772 $568,874 $223,762 $478,228 $ 97,386 $290,525
Accident and
health insurance 62,407 437,118 33,770 18,774 160,097 34,202 96,743 14,017 87,222
Annuity 70,649 3,360,614 -- 31 79,245 267,473 243,387 14,575 111,366
Property and li-
ability insur-
ance -- 27,855 24,189 -- 50,109 5,550 36,933 -- 19,033
-------- ---------- -------- ------- -------- -------- -------- -------- --------
$589,517 $5,948,735 $207,111 $70,577 $858,325 $530,987 $855,291 $125,978 $508,146
======== ========== ======== ======= ======== ======== ======== ======== ========
<CAPTION>
Premiums
Segment written(4)
- ------- ----------
<S> <C>
1998:
Life insurance
Accident and
health insurance
Annuity
Property and li-
ability insur-
ance 103
----------
$ 103
==========
1997:
Life insurance
Accident and
health insurance
Annuity
Property and li-
ability insur-
ance 43,376
----------
$43,376
==========
1996:
Life insurance
Accident and
health insurance
Annuity
Property and li-
ability insur-
ance 50,515
----------
$50,515
==========
</TABLE>
- -----
(1) Includes policy and contract account balances
(2) Includes unearned policy and contract fees
(3) Includes policy and contract fees
(4) Applies only to property and liability insurance
See independent auditors' report.
91
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule IV
Reinsurance
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
other from other Net assumed to
Gross amount companies companies amount net
------------ ----------- ----------- ------------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
1998:
Life insurance in
force $158,229,143 $18,656,917 $28,559,482 $168,131,708 17.0%
============ =========== =========== ============
Premiums:
Life insurance $ 338,909 $ 30,532 $ 71,198 $ 379,575 18.8%
Accident and health
insurance 180,081 17,894 1,432 163,619 0.9%
Annuity 33,837 -- -- 33,837 --
Property and liabil-
ity insurance 581 18,837 18,918 662 2857.7%
------------ ----------- ----------- ------------
Total premiums $ 553,408 $ 67,263 $ 91,548 $ 577,693 15.8%
============ =========== =========== ============
1997:
Life insurance in
force $122,120,394 $14,813,351 $25,566,734 $132,873,777 19.2%
============ =========== =========== ============
Premiums:
Life insurance $ 340,984 $ 30,547 $ 63,815 $ 374,252 17.1%
Accident and health
insurance 175,647 16,332 1,310 160,625 0.8%
Annuity 40,060 -- -- 40,060 --
Property and liabil-
ity insurance 38,995 11,651 12,972 40,316 32.2%
------------ ----------- ----------- ------------
Total premiums $ 595,686 $ 58,530 $ 78,097 $ 615,253 12.7%
============ =========== =========== ============
1996:
Life insurance in
force $116,445,975 $15,164,764 $22,957,287 $124,238,498 18.5%
============ =========== =========== ============
Premiums:
Life insurance $ 347,056 $ 45,988 $ 63,044 $ 364,112 17.3%
Accident and health
insurance 174,219 15,511 1,389 160,097 0.9%
Annuity 38,041 -- -- 38,041 --
Property and liabil-
ity insurance 55,782 5,729 56 50,109 0.1%
------------ ----------- ----------- ------------
Total premiums $ 615,098 $ 67,228 $ 64,489 $ 612,359 10.5%
============ =========== =========== ============
</TABLE>
See independent auditors' report.
92
