<PAGE>
File Number 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
VARIABLE ANNUITY ACCOUNT
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(Exact Name of Registrant)
MINNESOTA LIFE INSURANCE COMPANY
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(Name of Depositor)
400 ROBERT STREET NORTH, ST. PAUL, MINNESOTA 55101-2098
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(Address of Depositor's Principal Executive Offices) (Zip Code)
(651) 665-3500
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(Depositor's Telephone Number, Including Area Code)
Dennis E. Prohofsky Copy to:
Senior Vice President, J. Sumner Jones, Esq.
General Counsel and Secretary Jones & Blouch L.L.P.
Minnesota Life Insurance Company 1025 Thomas Jefferson St., N.W.
400 Robert Street North Suite 405 West
St. Paul, Minnesota 55101-2098 Washington, D.C. 20007
- -------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Public Offering: As soon as practicable after the effective
date of this Registration Statement.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
TITLE OF SECURITIES BEING REGISTERED
Variable Annuity Contracts
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
Variable Annuity Account
Cross Reference Sheet to Prospectus
Form N-4
Item Number Caption in Prospectus
1. Cover Page
2. Special Terms
3. Questions and Answers About the Variable Annuity Contract
4. Condensed Financial Information; not applicable Performance Data
5. General Descriptions
6. Contract Charges
7. Description of the Contract; General Descriptions
8. Description of the Contract; Annuity Payments and Options
9. Description of the Contract; Death Benefits
10. Description of the Contract; Purchase Payments and Value of the
Contract and Transfers
11. Description of the Contract; Redemptions
12. Federal Tax Status
13. Not Applicable
14. Table of Contents of the Statement of Additional
Information
<PAGE>
MULTIOPTION ACHIEVER
VARIABLE ANNUITY CONTRACT
MINNESOTA LIFE INSURANCE COMPANY
("MINNESOTA LIFE")
400 Robert Street North
St. Paul, Minnesota 55101-2098
Telephone: 1-800-362-3141
http://www.minnesotamutual.com
This Prospectus describes an individual, flexible payment, variable annuity
contract ("the contract") offered by the 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 the 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 to 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.
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 REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
The date of this Prospectus and of the Statement of Additional Information is:
.
<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 CONTRACT 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
Deferred Sales Charges 11
Mortality and Expense Risk Charge 13
Administrative Charge 14
Contract Fee 14
Premium Taxes 15
Transaction Charges 15
VOTING RIGHTS 15
DESCRIPTION OF THE CONTRACT 16
General Provisions 16
Annuity Payments and Options 18
Death Benefits 23
Purchase Payments and Value of the Contract 25
Redemptions 30
FEDERAL TAX STATUS 31
PERFORMANCE DATA 37
YEAR 2000 COMPUTER PROBLEM 37
STATEMENT OF ADDITIONAL INFORMATION 38
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 Variable
Annuity Account and in the General Account.
ANNUITANT: the person who may receive lifetime benefits under the contract.
ANNUITY: a series of payments for life; for life with a minimum number of
payments guaranteed; for the joint lifetime of the annuitant and another person
and thereafter during the lifetime of the survivor; or for a period certain.
ANNUITY UNIT: an accounting device used to determine the amount of annuity
payments.
CODE: the Internal Revenue Code of 1986, as amended.
CONTRACT OWNER: the owner of the contract, which could be the annuitant, his or
her employer, or a trustee acting on behalf of the employer.
CONTRACT YEAR: a period of one year beginning with the contract date or a
contract anniversary.
FIXED ANNUITY: an annuity providing for payments of guaranteed amounts
throughout the payment period.
FUNDS: the mutual funds whose separate investment portfolios we have designated
as eligible investments for the Variable Annuity Account, currently, 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 our other separate accounts.
PLAN: a tax-qualified employer pension, profit-sharing, or annuity purchase
plan under which benefits are to be provided by the contract.
PURCHASE PAYMENTS: amounts you pay to us under your 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. The investment experience of its assets is separate from that
of our other assets.
VARIABLE ANNUITY: an annuity providing for payments varying in amount in
accordance with the investment experience of the Funds.
WEALTHBUILDER CREDIT: an additional amount, other than a dividend, which we may
credit to your contract.
WE, OUR, US: Minnesota Life Insurance Company.
YOU, YOUR: the contract owner.
PAGE 1
<PAGE>
QUESTIONS AND ANSWERS ABOUT
THE VARIABLE ANNUITY CONTRACT
WHAT IS AN ANNUITY?
An annuity is a series of payments for life; for life with a minimum number of
payments guaranteed; for the joint lifetime of the annuitant and another person;
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 a
variable annuity.
WHAT TYPE OF 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 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 principal and interest 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 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 Fund prospectus before purchasing the
contract.
CAN YOU CHANGE THE PORTFOLIO(S) THAT YOU SELECT?
Yes. You can change your allocation of future purchase payments by giving us
written notice or a telephone call notifying us of the change. Before annuity
payments begin, you may transfer all or a part of your accumulation value among
the Portfolios 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 CONTRACT?
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 7% of purchase payments may apply if you make
partial withdrawals or surrender your contract within seven or fewer years after
your last purchase payment. There are some circumstances where the deferred
sales charge will not apply.
There is a contract fee taken annually from the accumulation value of the
Contract. The charge applied will be equal to the lesser of $30 or 2% of the
accumulation value at the end of the Contract Year taken generally from
contracts with values of less than $50,000.
Deductions for any applicable premium taxes may also be made (currently such
taxes range from 0.0% to 3.5%) depending upon applicable law.
There is a one time contract fee of $200 if you elect a fixed annuity but only
when the annuitized value is less than $10,000 and the annuity purchase rates
exceed the guaranteed minimum.
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 administration costs associated with an exchange, if you exchange this
contract for another of our contracts.
PAGE 3
<PAGE>
EXPENSE TABLE
The tables shown below are to assist you in understanding the costs and expenses
that you 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. 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 Achiever 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.
CONTRACT OWNER EXPENSE EXAMPLE
The amount of the deferred sales charge percentage is as shown in the table
below:
<TABLE>
<CAPTION>
CONTRACT YEARS SINCE PAYMENT CHARGE
- ---------------------------------------- ------
<S> <C>
0-1 7%
1-2 7%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7 and thereafter 0%
</TABLE>
<TABLE>
<S> <C>
Contract Fee: lesser of $30 or 2% of
accumulation value.................... $30
(applied only to a Contract where the
greater of the accumulation value or
purchase payments, less withdrawals,
is less than $50,000)*
</TABLE>
*Minnesota Life reserves the right, not currently imposed, to make a transaction
charge, not to exceed $10, on transfer requests exceeding one per month.
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 rate 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
INVESTMENT OTHER EXPENSES ANNUAL EXPENSES
MANAGEMENT (AFTER EXPENSE DISTRIBUTION (AFTER EXPENSE
FEES REIMBURSEMENTS) EXPENSES REIMBURSEMENTS)
---------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Advantus Series Fund, Inc.:
Growth Portfolio 0.50% 0.03% -- 0.53%
Bond Portfolio 0.50% 0.05% -- 0.55%
Money Market Portfolio 0.50% 0.08% -- 0.58%
Asset Allocation Portfolio 0.50% 0.03% -- 0.53%
Mortgage Securities Portfolio 0.50% 0.07% -- 0.57%
Index 500 Portfolio 0.40% 0.04% -- 0.44%
Capital Appreciation Portfolio 0.75% 0.03% -- 0.78%
International Stock Portfolio 0.70% 0.24% -- 0.94%
Small Company Growth Portfolio 0.75% 0.04% -- 0.79%
Maturing Government Bond 2002 Portfolio(1) 0.25% 0.15% -- 0.40%
Maturing Government Bond 2006 Portfolio(1) 0.25% 0.15% -- 0.40%
Maturing Government Bond 2010 Portfolio(1) 0.25% 0.15% -- 0.40%
Value Stock Portfolio 0.75% 0.04% -- 0.79%
Small Company Value Portfolio(1) 0.75% 0.15% -- 0.90%
Global Bond Portfolio 0.60% 0.53% -- 1.13%
Index 400 Mid-Cap Portfolio(1) 0.40% 0.15% -- 0.55%
Macro-Cap Value Portfolio(1) 0.70% 0.15% -- 0.85%
Micro-Cap Growth Portfolio(1) 1.10% 0.15% -- 1.25%
Real Estate Securities Portfolio(1) 0.75% 0.15% -- 0.90%
Templeton Variable Products Series Fund:
Developing Markets Fund Class 2 shares 1.25% 0.41% 0.25%(2) 1.91%
</TABLE>
(1) Minnesota Life voluntarily absorbed certain expenses of the Maturing
Government Bond 2002, Maturing Government Bond 2006, Maturing Government
Bond 2010, Small Company Value, Index 400 Mid-Cap, Macro-Cap Value,
Micro-Cap Growth, and Real Estate Securities Portfolios for the period ended
December 31, 1998. If these portfolios had been charged for expenses, the
ratio of expenses to average daily net assets would have been 1.07%, 1.12%,
1.33%, 1.83%, 1.36%, 2.53%, 2.10%, and 1.90%, respectively. For these
Portfolios, it is Minnesota Life's intention to waive other fund expenses
during the current fiscal year which exceed, as a percentage of average
daily net assets, .15%. Minnesota Life also reserves the option to reduce
the level of other expenses which it will voluntarily absorb.
(2) 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
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) removal of
any annual amount not subject to contingent deferred sales charge.
<TABLE>
<CAPTION>
IF YOU ANNUITIZE AT THE
END OF THE APPLICABLE TIME
IF YOU SURRENDERED YOUR PERIOD OR YOU DO NOT
CONTRACT AT THE END OF THE SURRENDER
APPLICABLE TIME PERIOD YOUR CONTRACT
----------------------------------------- -----------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS
------- -------- -------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth Portfolio $110 $182 $245 $421 $40 $122 $205
Bond Portfolio $110 $182 $246 $423 $40 $122 $206
Money Market Portfolio $111 $183 $247 $425 $41 $123 $207
Asset Allocation Portfolio $110 $182 $245 $421 $40 $122 $205
Mortgage Securities Portfolio $111 $183 $247 $424 $41 $123 $207
Index 500 Portfolio $109 $179 $241 $413 $39 $119 $201
Capital Appreciation Portfolio $113 $189 $257 $442 $43 $129 $217
International Stock Portfolio $114 $194 $264 $455 $44 $134 $224
Small Company Growth Portfolio $113 $189 $257 $443 $43 $129 $217
Maturing Government Bond 2002 Portfolio $109 $178 $239 $410 $39 $118 $199
Maturing Government Bond 2006 Portfolio $109 $178 $239 $410 $39 $118 $199
Maturing Government Bond 2010 Portfolio $109 $178 $239 $410 $39 $118 $199
Value Stock Portfolio $113 $189 $257 $443 $43 $129 $217
Small Company Value Portfolio $114 $192 $262 $451 $44 $132 $222
International Bond Portfolio $116 $199 $272 $470 $46 $139 $232
Index 400 Mid-Cap Portfolio $110 $182 $246 $423 $40 $122 $206
Macro-Cap Value Portfolio $113 $191 $260 $447 $43 $131 $220
Micro-Cap Growth Portfolio $117 $202 $278 $479 $47 $142 $238
Real Estate Securities Portfolio $114 $192 $262 $451 $44 $132 $222
Templeton Variable Products Series Fund
Developing Markets Fund Class 2 $124 $221 $307 $529 $54 $161 $267
<CAPTION>
10 YEARS
---------
<S> <C>
Growth Portfolio $421
Bond Portfolio $423
Money Market Portfolio $425
Asset Allocation Portfolio $421
Mortgage Securities Portfolio $424
Index 500 Portfolio $413
Capital Appreciation Portfolio $442
International Stock Portfolio $455
Small Company Growth Portfolio $443
Maturing Government Bond 2002 Portfolio $410
Maturing Government Bond 2006 Portfolio $410
Maturing Government Bond 2010 Portfolio $410
Value Stock Portfolio $443
Small Company Value Portfolio $451
International Bond Portfolio $470
Index 400 Mid-Cap Portfolio $423
Macro-Cap Value Portfolio $447
Micro-Cap Growth Portfolio $479
Real Estate Securities Portfolio $451
Templeton Variable Products Series Fund
Developing Markets Fund Class 2 $529
</TABLE>
This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or lesser.
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 requests for partial withdrawals must be in writing.
Partial withdrawals are generally subject to the deferred sales charge. In
addition, a penalty tax on the amount of the taxable distribution may be
assessed upon withdrawals from the variable annuity contract in certain
circumstances, including distributions made prior to the owner's attainment of
age 59 1/2.
PAGE 6
<PAGE>
DO YOU HAVE A RIGHT TO CANCEL YOUR CONTRACT?
Yes. You may cancel your 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 the contract owner dies before annuity payments begin, we will pay the death
benefit to the beneficiary. In the case of joint owners, this amount would be
payable at the death of the second owner. The death benefit payable to the
beneficiary upon the death of the contract owner or annuitant, if applicable, if
the contract owner or annuitant dies prior to his or her 80th birthday, during
the accumulation period is equal to the greater of:
- the amount of the accumulation value payable at death; or
- the total amount of your purchase payments, less all partial withdrawals;
or
- the last "stepped-up value" prior to the date of death, adjusted for any
purchase payments or withdrawals.
If the contract owner or annuitant, if applicable, dies on or after his or her
80th birthday, the death benefit is the greater of:
- the accumulation value payable at death; or
- the total amount of purchase payments, less all partial withdrawals; or
- the last "stepped-up value" prior to age 80, adjusted for any
withdrawals.
The "stepped-up value" will be determined on each contract anniversary that is
an exact multiple of three and is prior to the 80th birthday of the oldest owner
or annuitant, if applicable.
If the annuitant dies after annuity payments have begun, we will pay whatever
death benefit may be called for by the terms of the annuity option selected. If
the owner of this contract is other than a natural person, such as a trust or
other similar entity, we will pay a death benefit of the accumulation value to
the named beneficiary on the death of the annuitant if death occurs prior to the
commencement of annuity payments.
PAGE 7
<PAGE>
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 fixed annuity or a
combination of the two. Other annuity options may be available from us on
request.
WHAT VOTING RIGHTS DO YOU HAVE?
Contract owners and annuitants will be able to direct us as to how to vote
shares of the 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 of 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 Annuity Account invests in a
different Fund Portfolio.
(END SIDEBAR)
GENERAL DESCRIPTIONS
A. MINNESOTA LIFE INSURANCE COMPANY
We are Minnesota Life Insurance Company ("Minnesota Life"), a life insurance
company organized under the laws of Minnesota. Minnesota Life was formerly known
as The Minnesota Mutual Life Insurance Company ("Minnesota Mutual"), a mutual
life insurance company organized in 1880 under the laws of Minnesota. In 1998,
Minnesota Mutual reorganized as a stock insurance company subsidiary of
Minnesota Mutual Companies, Inc., a mutual insurance holding company, and took
the 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 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 we may conduct. The investment performance of
the Variable Annuity Account is entirely independent of both the investment
performance of our General Account and of any of 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 us and 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 these 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 contracts of this class, we may substitute another
fund for a sub-account. Substitution may be with respect to existing
accumulation values, future purchase payments and future annuity payments.
We may also establish additional sub-accounts in the Variable Annuity Account.
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 whatever basis we
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 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 a Fund simultaneously. Neither
we nor the Funds currently foresee any such disadvantages either to variable
life insurance policy
PAGE 10
<PAGE>
(SIDEBAR)
A deferred sales charge may apply.
(END SIDEBAR)
owners or to variable annuity contract owners. However, the Funds' Boards of
Directors intend to monitor events in order to identify any material conflicts
between 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. DEFERRED SALES CHARGE
No sales charge is deducted from a purchase payment made for this contract at
the time of its receipt. However, when a contract's accumulation value is
reduced by a withdrawal or a surrender, a deferred sales charge may be deducted.
This is for expenses related to the sale of the contracts. The amount of the
deferred sales charge is determined from the percentages shown in the table
below. The schedule in the table is applied separately to each purchase payment.
All purchase payments will be allocated to a withdrawal or a surrender for this
purpose on a first-in, first-out basis. It applies only to withdrawal or
surrender of purchase payments we received within seven years of the date of the
withdrawal or surrender.
The applicable deferred sales charge percentage is as shown in the table below:
<TABLE>
<CAPTION>
CONTRACT YEARS SINCE PAYMENT CHARGE
- ---------------------------- ------
<S> <C>
0-1 7%
1-2 7%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7 and thereafter 0%
</TABLE>
The amount of the deferred sales charge is determined by:
- calculating the number of years each purchase payment being withdrawn has
been in the contract;
PAGE 11
<PAGE>
- multiplying each purchase payment withdrawn by the appropriate sales
charge percentage in the table; and
- adding the deferred sales charge from all purchase payments so
calculated. This amount is then deducted from your accumulation value.
The deferred sales charge will not apply to:
- amounts withdrawn in any calendar year that are less than or equal to the
greater of: (1) accumulation value less purchase payments not previously
withdrawn; or (2) 10% of the sum of purchase payments not previously
withdrawn that have been received by us within seven years of withdrawal;
- any amounts withdrawn to pay the contract fee;
- amounts payable as a death benefit upon the death of the owner or the
annuitant, if applicable;
- amounts applied to provide annuity payments under an annuity option;
- a surrender or withdrawal requested any time after the first contract
anniversary when benefits are payable due to a qualifying confinement in
a hospital or medical care facility as described below; or
- a surrender or withdrawal requested any time after the first contract
anniversary in the event that benefits are payable because of the
diagnosis of a terminal illness as described below.
A surrender or withdrawal request made any time after the first contract
anniversary due to the owner's confinement in a hospital or medical care
facility for at least 90 consecutive days will not be subject to a deferred
sales charge. The request must be made while the owner is still confined or
within 60 days after the discharge from a hospital or medical care facility
after a confinement of at least 90 consecutive days. A medical care facility for
this purpose means a facility operated pursuant to law or any state licensed
facility providing medically necessary in-patient care which is:
- prescribed by a licensed Physician in writing; and
- based on physical limitations which prohibit daily living in a non-
institutional setting.
A surrender or withdrawal request made any time after the first contract
anniversary in the event the owner is diagnosed with a terminal illness will
also not be subject to a deferred sales charge. A terminal illness for this
purpose is a condition which:
- is diagnosed by a licensed Physician; and
- is expected to result in death within 12 months for 80% of diagnosed
cases.
PAGE 12
<PAGE>
(SIDEBAR)
We pay broker-dealers to sell the contracts.
(END SIDEBAR)
For purposes of these provisions, we must receive due proof, satisfactory to us,
of the owner's confinement or terminal illness in writing. Physician for this
purpose means:
- a licensed medical doctor (MD) or a licensed doctor of osteopathy (DO)
practicing within the scope of his or her license; and
- not the owner, the annuitant or a member of either the owner's or the
annuitant's immediate families.
If the owner of this contract is other than a natural person, such as a trust or
other similar entity, benefits payable due to nursing home confinement or
terminal illness will be based upon the annuitant.
If the owner, or annuitant in the case of a contract owned by a non-natural
person, is changed subject to the provisions of this contract, there will be a
one year waiting period before the new owner or annuitant is eligible for these
benefits.
The deferred sales charge is designed to compensate us for the distribution
expenses of the contract. To the extent that sales expenses are not recovered
from the sales load, we will recover them from our other assets or surplus
including profits from mortality and expense risk charges.
In addition, we will waive the sales charge on:
- any portion of a contract's purchase payments applied to the purchase of
an Adjustable Income Annuity (an immediate variable annuity product that
we issue) and
- amounts withdrawn because of an excess contribution to a tax-qualified
contract (including for example IRAs and tax sheltered annuities).
Ascend Financial Services, Inc. ("Ascend Financial"), the principal underwriter
for the contracts, may pay up to 4.75% of the amount of purchase payments to
broker-dealers who sell the contracts. In addition, either 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 education purposes with respect to the insurance and/or investment
products that we or our affiliates offer. Such credits may cover the registered
representatives' transportation, hotel accommodations, meals, registration fees
and the like. We may also pay those registered representatives amounts based
upon their production and the persistency of life insurance and annuity business
they place with us.
B. MORTALITY AND EXPENSE RISK CHARGE
We assume mortality risk under the contract 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
PAGE 13
<PAGE>
(SIDEBAR)
The mortality and expense risk charge is 1.25%, but we may increase it to 1.40%.
(END SIDEBAR)
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 the charges under the contract 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.
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 required by law,
any excess will be profit to us. Some or all of such profit may be used to cover
any distribution 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 Funds 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 by 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.
D. CONTRACT FEE
We charge a contract fee for maintaining the records and documents with each
contract. This fee is the lesser of $30 or 2% of accumulation value at the end
of the contract year. The contract fee will apply when the greater of either:
- accumulation value; or
- purchase payments, less withdrawals,
- is less than $50,000 at the end of the contract year.
The fee is deducted on the contract anniversary pro-rata from the General
Account and Separate Account values.
PAGE 14
<PAGE>
E. 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 of 0% to 3.5%,
depending on applicable law. Any amount withdrawn from the Contract may be
reduced by any premium taxes not previously deducted.
F. 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 the contract for another of our variable annuities.
A one time $200 contract fee is imposed if you elect a fixed annuity, when the
annuitized value is less than $10,000 and annuity purchase rates are in excess
of the guaranteed minimum.
(SIDEBAR)
You can instruct us how to vote Fund shares.
(END SIDEBAR)
VOTING RIGHTS
We will vote the Fund shares held in the Variable Annuity Account at shareholder
meetings of the Funds. We will vote shares attributable to contracts in
accordance with instructions received from contract owners with voting interests
in each sub-account of the Variable Annuity Account. We will vote shares for
which no instructions are received and shares not attributable to contracts in
the same proportion as shares for which instructions have been received. The
number of votes for which a contract owner may provide instructions will be
calculated separately for each sub-account of the Variable Annuity Account. If
applicable laws should change so that we were allowed to vote shares in our own
right, then we may elect to do so.
During the accumulation period, 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 shall notify you or 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 15
<PAGE>
(SIDEBAR)
The contract is a flexible payment variable annuity.
We issue the contract to you and you select the annuitant.
(END SIDEBAR)
DESCRIPTION OF THE CONTRACT
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 timing and amount.
2. Issuance of Contract
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 Contract
Your contract may be modified at any time by written agreement between you and
us. However, no such modification will adversely affect the rights of an
annuitant under the contract unless the modification is made to comply with a
law or government regulation. You will have the right to accept or reject the
modification.
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 we make 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 16
<PAGE>
(SIDEBAR)
You cannot pay more than $5 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)
5. Limitations on Purchase Payments
You choose when to make purchase payments. Purchase payments must be at least
$2,000. This minimum may not apply under certain automatic or group payment
plans, or if other retirement plan limitations apply. There may also be limits
on the maximum contributions to retirement plans that qualify for special tax
treatment.
There is no minimum amount which must be allocated to any sub-account of the
Variable Annuity Account. In the Variable Annuity Account, your purchase
payments are invested in the Funds according to your instructions. We will
return your initial payment within five business days if:
- your application fails to specify which Portfolios you desire, or is
otherwise incomplete, and
- you do not consent to our retention of your initial payment until the
application is made complete.
Total purchase payments under the contract may not exceed $5,000,000, except
with our consent.
The contract permits us to cancel your contract, and pay you its accumulation
value if:
- no purchase payments are made for a period of two or more full contract
years, and
- the total purchase payments made, less any withdrawals and associated
charges, are less than $2,000, and
- the accumulation value of the contract is less than $2,000.
We will notify you, in advance, of our intent to exercise this right in our
annual report to you about the status of your contract. We will cancel the
contract ninety days after the contract anniversary unless we receive an
additional purchase payment before the end of that ninety day period. Contracts
issued in some states (for example, New Jersey) do not contain such a
cancellation because the laws of those states do not permit it.
Additional purchase payments will not be accepted while either the owner or
joint owner qualifies under the nursing home or terminal illness provisions for
the waiver of any contingent deferred sales charges.
6. Deferment of Payment
We will pay any single sum payment within seven days after the date the payment
is called for by the terms of the contract, unless the payment is postponed for:
- any period during which the New York Stock Exchange is closed other than
customary weekend and holiday closings, or during which trading on the
New York Stock Exchange is restricted, as determined by the SEC;
PAGE 17
<PAGE>
- 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 Portfolio(s) or to fairly determine the value of the assets of the
Portfolio(s); or
- other periods the SEC by order permits for the protection of the contract
owners.
(SIDEBAR)
Each of the annuity options is available on a fixed, variable or combination
fixed and variable basis.
You tell us when to begin making annuity payments to the annuitant, unless your
retirement plan requires them to commence by a certain age.
(END SIDEBAR)
7. Participation
The contract is non-participating.
B. ANNUITY PAYMENTS AND OPTIONS
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 Portfolios you
select.
2. Electing the Retirement Date and Form of Annuity
The contract provides for 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, if you do not make an election, annuity payments will begin
on the later of:
- the 85th birthday of the annuitant, or
- seven years after the date of issue of the contract.
PAGE 18
<PAGE>
Currently, it is our practice to await your instructions before beginning to pay
annuity payments. If you fail to elect an annuity option, a variable annuity
will be provided and the annuity option will be Option 2A, a life annuity with a
period of 120 months.
The minimum first monthly annuity payment on either a variable or fixed dollar
basis must be at least $20. If the first monthly annuity 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.
The maximum amount which may be applied to provide a fixed annuity under the
contract is $1,000,000.
Benefits under retirement plans that qualify for special tax treatment generally
must commence no later than the April 1 following the year in which the
participant reaches age 70 1/2 and are subject to other conditions and
restrictions.
3. Annuity Options
OPTION 1 - LIFE ANNUITY This is an annuity payable monthly during the lifetime
of the annuitant and terminating with the last scheduled payment preceding the
death of the annuitant. This option offers the maximum monthly payment since
there is no guarantee of a minimum number of payments or provision for a death
benefit for beneficiaries. It would be possible under this option for the
annuitant to receive only one annuity payment if he or she died prior to the due
date of the second annuity payment, two if he or she died before the due date of
the third annuity payment, etc.
OPTION 2 - LIFE ANNUITY WITH A PERIOD CERTAIN OF 120 MONTHS (OPTION 2A), 180
MONTHS (OPTION 2B), OR 240 MONTHS (OPTION 2C) This is an annuity payable
monthly during the lifetime of the annuitant, with the guarantee that if the
annuitant dies before payments have been made for the period certain elected,
payments will continue to the beneficiary during the remainder of the period
certain. If the beneficiary so elects at any time during the remainder of the
period certain, the present value of the remaining guaranteed number of
payments, based on the then current dollar amount of one such payment and using
the same interest rate which served as a basis for the annuity, shall be paid in
a single sum to the beneficiary.
OPTION 3 - JOINT AND LAST SURVIVOR ANNUITY This is an annuity payable monthly
during the joint lifetime of the annuitant and a designated joint annuitant and
continuing thereafter during the remaining lifetime of the survivor. Under this
option there is no guarantee of a minimum number of payments or provision for a
death benefit for beneficiaries. If this option is elected, the contract and
payments shall then be the joint property of the annuitant and the designated
joint annuitant. It would be possible 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.
PAGE 19
<PAGE>
(SIDEBAR)
The amount of your first annuity payment depends on the age of the annuitant and
the annuity option you select.
(END SIDEBAR)
OPTION 4 - PERIOD CERTAIN ANNUITY This is an annuity payable monthly for a
period certain of 10 to 20 years, as elected. If the annuitant dies before
payments have been made for the period certain elected, payments will continue
to the beneficiary during the remainder of the period certain. At any time
during the payment period, the payee may elect that:
- the present value of the remaining guaranteed number of payments, based
on the then current dollar amount of one such payment and using the same
interest rate which served as a basis for the annuity, shall be paid in a
single sum, or
- the commuted amount shall be applied to effect a life annuity under
Option 1 or Option 2.
4. Determination of Amount of First Monthly Annuity Payment
The first monthly annuity payment 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 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
PAGE 20
<PAGE>
4.5% per year. Subsequent variable annuity 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 commencement date.
5. Amount of Second and Subsequent Monthly Annuity Payments
The dollar amount of the second and later variable annuity payments is equal to
the number of annuity units determined for each sub-account times the annuity
unit value for that sub-account as of the due date of the payment. This amount
may increase or decrease from month to month.
6. Value of the Annuity Unit
The value of an annuity unit for a sub-account is determined monthly as of the
first day of each month by multiplying the value on the first day of the
preceding month by the product of:
- .996338, and
PAGE 21
<PAGE>
(SIDEBAR)
You may change Portfolios in the annuity period, subject to some restrictions.
(END SIDEBAR)
- the ratio of the value of the accumulation unit for that sub-account for
the valuation date next following the fourteenth day of the preceding
month to the value of the accumulation unit for the valuation date next
following the fourteenth day of the second preceding month (.996338 is a
factor to neutralize the assumed net investment factor, as discussed
above, of 4.5% per annum built into the first payment calculation which
is not applicable because the actual net investment rate is credited
instead).
The value of an annuity unit for a sub-account as of any date other than the
first day of a month is equal to its value as of the first day of the next
succeeding month.
7. Transfer of Annuity Reserves
During the annuity period, we hold amounts as "reserves" for our obligations to
make annuity payments under your contract. You specify where we hold those
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 the written request for an annuity transfer more than 30
days in advance of the due date of the annuity payment subject to the
transfer.
Upon request, we will make available to you annuity reserve amount sub-account
information.
A transfer will be made on the basis of annuity unit values. The number of
annuity units being transferred from the sub-account 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 the number
of units which are needed to pay that same amount on the transfer date.
PAGE 22
<PAGE>
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 and a $200 contract fee will be imposed but only if the
annuitized value is less than $10,000 and annuity purchase rates are in excess
of the guaranteed minimums. The annuity payment option will remain the same.
Amounts paid as a fixed annuity may not be transferred to a variable annuity.
When we receive a request to make such a transfer to a fixed annuity, it will be
effective for future annuity payments. The transfer will be effective and funds
actually transferred in the middle of the month prior to the next annuity
payment. We will use the same fixed annuity pricing at the time of transfer that
we use to determine an initial fixed annuity payment. However, if your annuity
is based upon annuity units in a sub-account which matures on a date other than
the stated annuity valuation date, then your annuity units will be adjusted to
reflect sub-account performance in the maturing sub-account to which reserves
are transferred for the period between annuity valuation dates. Contracts with
this transfer feature may not be available in all states.
C. DEATH BENEFITS
If you die before annuity payments begin, we will pay the death benefit to the
beneficiary. If the owner of this contract is other than a natural person, such
as a trust or other similar entity, we will pay the death benefit to the
beneficiary on the death of the annuitant, if it occurs prior to the date that
annuity payments have started. The death benefit will be paid in a single sum to
the beneficiary designated unless an annuity payment option is elected.
If the owner or the annuitant, if applicable, dies prior to his or her 80th
birthday, the death benefit is the greater of:
- accumulation value payable at death; or
- the total amount of purchase payments adjusted, less all partial
withdrawals; or
PAGE 23
<PAGE>
- the last "stepped-up value" prior to the date of death, adjusted for any
purchase payments and withdrawals occurring thereafter. The definition of
this "stepped-up value" is described below.
If the contract owner or the annuitant, if applicable, dies on or after his or
her 80th birthday, the death benefit is the greater of:
- the accumulation value payable at death; or
- the total amount of purchase payments, less all partial withdrawals; or
- the last stepped-up value prior to the date of death, adjusted for any
withdrawals occurring thereafter.
The stepped-up value will be determined on each contract anniversary that is an
exact multiple of three and is prior to the 80th birthday of the owner or the
annuitant, if applicable. The stepped-up value is the greater of: (a)
accumulation value on that contract anniversary; or (b) the previous stepped-up
value. Where joint owners exist, there will be no further stepped-up values
after the 80th birthday of the oldest joint owner. After the death of the first
joint owner, stepped-up values may resume on the next contract anniversary that
is an exact multiple of three providing the surviving joint owner continues the
contract and has not yet reached his or her 80th birthday.
The value of the death benefit will be determined as of the valuation date
coincident with or next following the day we receive due proof of death and all
related information necessary to make payment at our home office. Any amount due
as death benefit in excess of the accumulation value will be placed into the
Money Market sub-account at the time of the death benefit determination.
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 the death benefit is payable to the designated beneficiary who
is also the 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. In addition, if a surviving spouse elects
to assume his or her deceased spouse's contract, there will be no adjustment to
the accumulation value in the form of a death benefit.
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 death. If there is no designated beneficiary, then
the entire value in the contract must be distributed within five years after the
death.
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.
PAGE 24
<PAGE>
To illustrate the death benefit, assume a contract is issued to joint owners,
age 69 and 67. A single purchase payment of $50,000 is made and no withdrawals
take place. On the third contract anniversary (owners age 72 and 70), the
accumulation value has increased to $62,500. Both owners are under age 80 so the
guaranteed minimum death benefit is "stepped-up" to $62,500. In the 5th contract
year, the oldest owner (now age 74) dies. The current accumulation value has
decreased to $61,000. The death benefit available to the joint owner is $62,500,
the greater of the accumulation value ($61,000), purchase payments less
withdrawals ($50,000), or the previous stepped-up value ($62,500).
Assume further that the joint owner, being the spouse, chooses to continue the
contract after the first spouse's death. On the sixth contract anniversary the
accumulation value has increased to $70,000 and the surviving owner is now age
73. The death benefit is again stepped-up to the current value of $70,000. On
the ninth contract anniversary (age 76), the accumulation value has decreased to
$69,600, so no additional step-up is applied to the guaranteed minimum death
benefit. On the twelfth contract anniversary (age 79) the accumulation value is
$85,000 and the guaranteed minimum death benefit is stepped-up to $85,000.
On the fifteenth contract anniversary, the owner is now age 82 and is no longer
eligible for further step-ups. At age 86, the remaining owner dies with an
accumulation value of $125,000. The amount payable to the beneficiary is then
the amount of $125,000, since it is the greater of the accumulation value
($125,000), purchase payments less withdrawals ($50,000), or the previous
stepped-up value ($85,000).
Any amounts due as a death benefit in excess of the accumulation value on the
date we receive due proof of death will be directed into the money market sub-
account in fulfillment of the guaranteed death benefit provision of the
Contract.
Prior to any election by the beneficiary of a death benefit payment option,
amounts held in the contract (including amounts paid by us as a death benefit to
the accumulation value) shall continue to be affected by the sub-account
performance as allocated by the contract owner. The beneficiary has the right to
allocate or transfer any amount to any available sub-account option, subject to
the same limitations imposed on the contract owner.
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 allocations will be
treated as incomplete.
PAGE 25
<PAGE>
(SIDEBAR)
Initial purchase payments are credited within 2 business days of our receipt of
a complete application.
Subsequent purchase payments are credited on the day we receive them, or on the
next business day if they arrive late in the day.
(END SIDEBAR)
If your initial purchase payment is accompanied by an incomplete application,
your 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 your application cannot be completed within five business days,
unless you specifically consent to our holding your purchase payment until your
application 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 Portfolios you select.
We will determine the value of accumulation units on each day on which each
Portfolio is valued. The net asset value of the Portfolios' shares shall be
computed once daily, and, in the case of Money Market Portfolio, after the
declaration of the daily dividend, as of the primary closing time for business
on the New York Stock Exchange (currently, 3:00 p.m., Central time), on each
day, Monday through Friday, except:
- days on which changes in the value of that Fund's portfolio securities
will not materially affect the current net asset value of that
Portfolio's shares,
- days during which none of that Portfolio's shares are tendered for
redemption and no order to purchase or sell that Portfolio's shares is
received by that Portfolio 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 may be transferred between our General Account
and the Variable Annuity Account or among the sub-accounts of the Variable
Annuity Account. We will make the transfer on the basis of accumulation unit
values on the valuation date we receive the request at our
PAGE 26
<PAGE>
home office. No deferred sales charge will be imposed on transfers. There is no
dollar amount limitation on 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 of 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 alternation of existing systematic transfer programs will be
effective only upon our written notice to contract owners or 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, for certain contracts we offer
automatic portfolio rebalancing ("APR") on a quarterly, semi-annual and annual
basis. Instructions to us must be in whole percentages totaling 100%. They will
be treated as instructions for transfers to and from the various sub-accounts.
Rebalancing instructions will not affect the current allocation of future
purchase payments; they may differ from those future allocations and are not
limited to any minimum or maximum number of sub-accounts. There will be no
charge for APR transfers and this feature will be available after August 1,
1999. APR is not available for values in the General Account or in the Series
Fund Maturing Government Bond Portfolios.
(SIDEBAR)
Systematic transfers and telephone transfers are available.
(END SIDEBAR)
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<PAGE>
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
telephone 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 telephone conversations through information we designate. We
record your telephone transfer instruction conversations and we provide you 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. MultiOption Wealthbuilder Credit
Where allowed by law, we reserve the right to credit certain additional amounts
("wealthbuilder credit") to your contract if you make large purchase payments.
We pay for your Wealthbuilder credit with funds from our General Account. We
reserve the right to modify, suspend or terminate this wealthbuilder credit
program at any time, or from time to time, without notice.
(SIDEBAR)
If you make very large purchase payments we may credit your contract with extra
values ("wealthbuilder credits").
(END SIDEBAR)
The current breakpoints for qualifying for a wealthbuilder credit are shown
below. Also shown is the value of the wealthbuilder credit as a percentage of
your purchase payment.
<TABLE>
<CAPTION>
WEALTHBUILDER CREDIT AS A
PURCHASE PAYMENT PERCENTAGE OF THE PURCHASE PAYMENT
- ---------------------- ----------------------------------
<S> <C>
$ 0 - 499,999 0.000%
500,000 - 749,999 0.375
750,000 - 999,999 0.750
1,000,000 - 1,499,999 1.125
1,500,000 - 1,999,999 1.500
2,000,000 - 2,499,999 1.875
2,500,000 - 2,999,999 2.250
3,000,000 - 3,999,999 2.625
4,000,000 - 5,000,000 3.000
</TABLE>
PAGE 28
<PAGE>
(SIDEBAR)
Wealthbuilder credits may have tax consequences.
Your contract's accumulation value varies with the performance of the Portfolios
you select and is not guaranteed.
(END SIDEBAR)
Your wealthbuilder credit is added the next business day after your purchase
payments are allocated to your contract, and is allocated to the investment
options in the same manner as the purchase payment. If you exercise your right
to return your contract under the free look provision, the value of any
wealthbuilder credit as of the date your contract is canceled will be deducted
from your accumulated value prior to determining the amount to be returned to
you. However, the amount deducted will not exceed the total sales charge. We do
not consider the wealthbuilder credit to be part of your "investment in the
contract" for income tax purposes (see "Federal Tax Status"). Generally,
wealthbuilder credit will be treated as gain upon distribution. Wealthbuilder
credit amounts may be withdrawn without assessment of the deferred sales charge
(see "Deferred Sales Charge").
Each time a new purchase payment is made, a new wealthbuilder credit will be
calculated. The applicable percentage from the chart will be based on the total
cumulative purchase payments to date, including the new purchase payment, less
all prior purchase payments withdrawn. The new wealthbuilder credit equals this
percentage times the amount of the new purchase payment.
4. 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 so 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 each accumulation unit, and its total value.
5. 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 subsequent valuation date is determined by
multiplying:
- the value of that accumulation unit on the immediately preceding
valuation date by
- the net investment factor for the applicable sub-account (described
below) for the valuation period just ended.
The value of an accumulation unit a day other than a valuation date is its value
on the next valuation date.
6. 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
PAGE 29
<PAGE>
rate for that 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 the
smaller amount satisfies the minimum distribution requirements of the
Code, or
- the withdrawal is requested because of an excess contribution to a tax-
qualified contract.
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.
PAGE 30
<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)
2. Right of Cancellation
You should read your 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 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
for any additional amounts necessary to make our refund to you equal to your
purchase payments.
FEDERAL TAX STATUS
INTRODUCTION
Our tax discussion in this prospectus is general in nature and is not intended
as tax advice. You should consult a competent tax adviser. We make no attempt to
consider any applicable state or other tax laws. In addition, this discussion is
based on our understanding of federal income tax laws as they are currently
interpreted. We make no representation regarding the likelihood of continuation
of current income tax laws or the current interpretations of the Internal
Revenue Service ("IRS"). The contract may be purchased on a non-tax qualified
basis or purchased and used in connection with certain retirement arrangements
entitled to special income tax treatment under section 401(a), 403(b), 408(b),
408A or 457 of the Code. The ultimate effect of federal income taxes on the
amounts held under a contract, on annuity payments, and on the economic benefit
to the contract owner, the annuitant, or the beneficiary(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, we pay no federal income tax on income
dividends received by the Variable Annuity Account or on capital gains arising
from the Variable Annuity Account's activities. The Variable Annuity Account is
not taxed as a "regulated investment company" under the Code and we do not
anticipate any change in that tax status.
PAGE 31
<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 of purchase
payments.
A penalty tax may apply to distributions prior to age 59 1/2.
(END SIDEBAR)
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) for the contract. Amounts withdrawn upon a partial withdrawal 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 tax
rates.
In the case of a withdrawal under an annuity that is part of a tax-qualified
retirement plan, a portion of the amount received is taxable based on the ratio
of the "investment in the contract" to the individual's balance in the
retirement plan, generally the value of the annuity. The "investment in the
contract" generally equals the portion of any deposits made by or on behalf of
an individual under an annuity which was not excluded from the gross income of
the individual. For annuities issued in connection with qualified plans, the
"investment in the contract" can be zero.
The taxable portion for annuity payments, 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, or
- where payment is made by reason of the death of the owner, and
- in certain other circumstances.
The Code also provides an exception to the penalty tax for distributions, in
periodic payments, of substantially equal installments, 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.
PAGE 32
<PAGE>
(SIDEBAR)
Transfers, assignments and certain designations of annuitants can have tax
consequences.
(END SIDEBAR)
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 Department 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 Portfolios, intends to comply with the diversification requirements
prescribed in Regulations Section 1.817-5, which affect how the Portfolio's
assets may be invested. Although the investment adviser of Advantus Fund is an
affiliate of ours, we do not control Advantus Fund or the investments of its
Portfolios. Nonetheless, we believe that each Portfolio of Advantus Fund in
which the Variable Annuity Account owns shares will be operated in compliance
with the requirements prescribed by the Treasury.
Prior to the enactment of Section 817(h), the IRS published several rulings
under which owners of certain variable annuity contracts were treated as owners,
for federal income tax purposes, of the assets held in a separate account used
to support their contracts. In those circumstances, income and gains from the
separate account assets would be includable in the variable annuity contract
owner's gross income. However, the continued effectiveness of the pre-Section
817(h) published rulings is somewhat uncertain. In connection with its issuance
of proposed regulations under Section 817(h) in 1986, the Treasury Department
announced that those regulations did not "provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the contract owner), rather than the
insurance company to be treated as the owner of the assets in the account."
While the Treasury's 1986 announcement stated that guidance would be issued on
the "extent to which the policyholders may direct their investment to particular
sub-accounts without being treated as owners of the underlying assets", no such
guidance has been forthcoming.
The ownership rights under the contract are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
PAGE 33
<PAGE>
that contract owners were not owners of separate account assets. For example,
the owner of a contract has the choice of several sub-accounts in which to
allocate net purchase payments and contract values, and may be able to transfer
among sub-accounts more frequently than in such rulings. Minnesota Life does not
believe that the ownership rights of a contract owner under the Contract would
result in any contract owner being treated as the owner of the assets of the
Variable Annuity Account. However, Minnesota Life does not know what standards
would be applied if the Treasury Department should proceed to issue regulations
or rulings on this issue. Minnesota Life therefore reserves the right to modify
the Contract as necessary to attempt to prevent a contract owner from being
considered the owner of a pro-rata share of the assets of the Variable Annuity
Account.
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 will be considered satisfied if any portion of the owner's
interest which is payable to or for the benefit of a "designated beneficiary"
who is a natural person, is distributed over the life of that beneficiary or
over a period not extending beyond the life expectancy of that beneficiary and
such distributions begin within one year of that owner's death. The owner's
"designated beneficiary", who must be a natural person, is the person designated
by the owner as a beneficiary and to whom ownership of the contract passes by
reason of death. If the owner's "designated beneficiary" is the surviving spouse
of the owner, however, the contract may be continued with the surviving spouse
as the new owner.
Nonqualified contracts issued after January 18, 1985 contain provisions which
are intended to comply with the requirements of Section 72(s) of the Code,
although no regulations interpreting these requirements have yet been issued. 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.
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<PAGE>
(SIDEBAR)
Congress may change the tax laws and reduce or eliminate any tax advantages of
the contract.
(END SIDEBAR)
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
- other specified circumstances.
We make no attempt to provide more than general information about the use of
annuities with the various types of retirement plans. The rights of any person
to any 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 our annuity administration
procedures. Owners, participants and beneficiaries are responsible for
determining that contributions, distributions and other transactions with
respect to the contracts 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
PAGE 35
<PAGE>
(SIDEBAR)
Distributions are subject to income tax withholding requirements unless you take
steps to prevent it.
(END SIDEBAR)
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 annuity contracts 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 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
PAGE 36
<PAGE>
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 contemplating the purchase
of 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 one year, five year and ten year periods and for the
period since the inception of the underlying Portfolios. Such performance data
may be accompanied by cumulative total return quotations for the comparable
periods. For periods prior to the date of this Prospectus the quotations will be
based on the assumption that the 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 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.
YEAR 2000 COMPUTER PROBLEM
The services we provide to the Variable Annuity Account and contract owners
depend on the smooth functioning of our computer systems. Many computer software
systems in use today cannot distinguish the year 2000 from the year 1900 because
of the way that dates are encoded, stored and calculated. That failure could
have a negative impact on our ability to provide services to contract owners. We
have been actively working on necessary changes to our computer systems to deal
with the year 2000. Although there can be no assurance of complete success, we
believe that we will be able to resolve these issues on a timely basis and that
there will be no material adverse impact on our ability to provide services to
the Variable Annuity Account.
In addition, our operations could be impacted by our service providers' or
suppliers' year 2000 efforts. We have undertaken an initiative to assess the
efforts
PAGE 37
<PAGE>
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 us at your request. The table
of contents for that Statement of Additional Information is as follows:
Directors and Principal Management Officers of Minnesota Life
Distribution of Contract
Performance Data
Auditors
Registration Statement
Financial Statements
PAGE 38
<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 Charge
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 ACCOUNT CHARGES AND FUND EXPENSES
<TABLE>
<CAPTION>
FUND
MORTALITY & ADMINISTRATIVE MANAGEMENT OTHER FUND
SEPARATE ACCOUNT SUB-ACCOUNT NAME EXPENSE RISK CHARGE FEE EXPENSES
- ------------------------------------------------------------------ ------------ --------------- ------------- -----------
<S> <C> <C> <C> <C>
Growth............................................................ 1.25% .15% .50% .03%
Bond.............................................................. 1.25% .15% .50% .05%
Money Market...................................................... 1.25% .15% .50% .08%
Asset Allocation.................................................. 1.25% .15% .50% .03%
Mortgage Securities............................................... 1.25% .15% .50% .07%
Index 500......................................................... 1.25% .15% .40% .04%
Capital Appreciation.............................................. 1.25% .15% .75% .03%
International Stock............................................... 1.25% .15% .70% .24%
Small Company Growth.............................................. 1.25% .15% .75% .04%
Maturing Government Bond 2002(1).................................. 1.25% .15% .25% .15%
Maturing Government Bond 2006(1).................................. 1.25% .15% .25% .15%
Maturing Government Bond 2010(1).................................. 1.25% .15% .25% .15%
Value Stock....................................................... 1.25% .15% .75% .04%
Small Company Value(1)............................................ 1.25% .15% .75% .15%
Global Bond....................................................... 1.25% .15% .60% .53%
Index 400 Mid-Cap(1).............................................. 1.25% .15% .40% .15%
Macro-Cap Value(1)................................................ 1.25% .15% .70% .15%
Micro-Cap Growth(1)............................................... 1.25% .15% 1.10% .15%
Real Estate Securities(1)......................................... 1.25% .15% .75% .15%
Templeton Developing Markets Portfolio Class 2.................... 1.25% .15% 1.25% .41%
------------ ----- ------------- -----------
Average........................................................... 1.25% .15% .61% .14%
<CAPTION>
DISTRIBUTION
SEPARATE ACCOUNT SUB-ACCOUNT NAME EXPENSES TOTAL
- ------------------------------------------------------------------ ------------- ---------
<S> <C> <C>
Growth............................................................ -- 1.93%
Bond.............................................................. -- 1.95%
Money Market...................................................... -- 1.98%
Asset Allocation.................................................. -- 1.93%
Mortgage Securities............................................... -- 1.97%
Index 500......................................................... -- 1.84%
Capital Appreciation.............................................. -- 2.18%
International Stock............................................... -- 2.34%
Small Company Growth.............................................. -- 2.19%
Maturing Government Bond 2002(1).................................. -- 1.80%
Maturing Government Bond 2006(1).................................. -- 1.80%
Maturing Government Bond 2010(1).................................. -- 1.80%
Value Stock....................................................... -- 2.19%
Small Company Value(1)............................................ -- 2.30%
Global Bond....................................................... -- 2.53%
Index 400 Mid-Cap(1).............................................. -- 1.95%
Macro-Cap Value(1)................................................ -- 2.25%
Micro-Cap Growth(1)............................................... -- 2.65%
Real Estate Securities(1)......................................... -- 2.30%
Templeton Developing Markets Portfolio Class 2.................... .25%(2) 3.31%
------------- ---------
Average........................................................... .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
ratio of expenses to average daily net assets would have been 1.07%, 1.12%,
1.33%, 1.83%, 1.36%, 2.53%, 2.10%, and 1.90%, respectively. For these
portfolios, it is Minnesota Life's intention to waive other fund expenses
during the current fiscal year which exceed, as a percentage of average
daily net assets, .15%. Minnesota Life also reserves the option to reduce
the level of other expenses which it will voluntarily absorb.
(2) 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 ANNUITIZATION OPTION: 10 Year Certain with Life
Contingency
PRESENTED BY: Minnesota Life ANNUITY COMMENCEMENT: 06/01/1999
SEX: Male DATE OF BIRTH: 06/01/1934 SINGLE PAYMENT RECEIVED: $100,000.00
ISSUE STATE: MN FUNDS: Non-Qualified
LIFE EXPECTANCY: 20.0 (IRS) 18.1 (ML) INITIAL MONTHLY INCOME: $663.26
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 OF 0.00% GROSS 6.66% GROSS
DATE YEAR AGE (-2.16% NET) (4.50% NET)
- -------------------------------------------------------- --------------- --------- ----------------- ---------------
<S> <C> <C> <C> <C>
June 01, 1999........................................... 1 65 663 663
June 01, 2000........................................... 2 66 621 663
June 01, 2001........................................... 3 67 581 663
June 01, 2002........................................... 4 68 544 663
June 01, 2003........................................... 5 69 510 663
June 01, 2005........................................... 7 71 447 663
June 01, 2007........................................... 9 73 392 663
June 01, 2009........................................... 11 75 343 663
June 01, 2011........................................... 13 77 301 663
June 01, 2013........................................... 15 79 264 663
June 01, 2015........................................... 17 81 231 663
June 01, 2017........................................... 19 83 203 663
June 01, 2019........................................... 21 85 178 663
June 01, 2021........................................... 23 87 156 663
June 01, 2023........................................... 25 89 137 663
June 01, 2025........................................... 27 91 120 663
June 01, 2027........................................... 29 93 105 663
June 01, 2029........................................... 31 95 92 663
June 01, 2031........................................... 33 97 81 663
June 01, 2034........................................... 36 100 66 663
<CAPTION>
12.00% GROSS
DATE (9.84% NET)
- -------------------------------------------------------- --------------
<S> <C>
June 01, 1999........................................... 663
June 01, 2000........................................... 697
June 01, 2001........................................... 733
June 01, 2002........................................... 770
June 01, 2003........................................... 810
June 01, 2005........................................... 894
June 01, 2007........................................... 988
June 01, 2009........................................... 1,092
June 01, 2011........................................... 1,206
June 01, 2013........................................... 1,333
June 01, 2015........................................... 1,472
June 01, 2017........................................... 1,627
June 01, 2019........................................... 1,797
June 01, 2021........................................... 1,985
June 01, 2023........................................... 2,194
June 01, 2025........................................... 2,423
June 01, 2027........................................... 2,677
June 01, 2029........................................... 2,958
June 01, 2031........................................... 3,268
June 01, 2034........................................... 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. 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, (an "IRA"). 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 IRS. Purchasers of a contract for use with IRAs
will be provided with supplemental information required by the IRS 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. You 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 or $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 Simple IRAs
are subject to the same restrictions that apply to IRA distributions and are
taxed as ordinary income. Subject to certain
PAGE B-1
<PAGE>
exceptions, premature distributions prior to age 59 1/2 are subject to a 10%
penalty tax, which is increased to 25% if the distribution occurs within the
first two years after the commencement of the employee's participation in the
plan.
ROTH IRAS
Effective January 1, 1998, section 408A of the Code permits certain eligible
individuals to make nondeductible contributions to an individual retirement
program known as a Roth IRA. Contributions to a Roth IRA, which are subject to
certain limitations, must be made in cash or as a rollover or conversion from
another Roth IRA or a traditional IRA. A rollover from, or conversion of, a
traditional IRA to a Roth IRA may be subject to tax, contingent deferred sales
charge and other special rules may apply.
Qualified distributions from a Roth IRA, as defined by the Code, generally are
excluded from gross income. Qualified distributions include those distributions
made more than five years after the taxable year of the first contribution to
the Roth IRA, but only if : (1) the annuity owner has reached age 59 1/2; (2)
the distribution is paid to a beneficiary after the owner's death; (3) the
annuity owner becomes disabled; or (4) the distribution will be used for a first
time home purchase and does not exceed $10,000. Non-qualified distributions are
includable in gross income only to the extent they exceed contributions made to
the Roth IRA. The taxable portion of a non-qualified distribution may be subject
to a 10% penalty tax.
In addition, state laws may not completely follow the federal tax treatment of
Roth IRAs. You should consult your tax adviser for further information regarding
Roth IRAs.
CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS
Code Section 401(a) permits employers to establish various types of retirement
plans for employees, and permits self-employed individuals to establish
retirement plans for themselves and their employees. These retirement plans may
permit the purchase of the contracts to accumulate retirement savings under the
plans. Adverse tax or other legal consequences to the plan, to the participant
or to both may result if this annuity is assigned or transferred to any
individual as a means to provide benefit payments, unless the plan complies with
all legal requirements applicable to such benefits prior to transfer of the
annuity.
DEFERRED COMPENSATION PLANS
Code Section 457 provides for certain deferred compensation plans. These plans
may be offered for service to 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. In
general, all amounts received under a Section 457 plan are taxable and are
subject to federal income tax withholding as wages. Under the provisions of the
Small Business Job Protection Act of 1996, all of the assets and income of a
governmental plan maintained by an eligible employer as a Section 457 plan must
be held in trust or in a qualifying custodial account or annuity contract held
for the exclusive benefit of plan participants and beneficiaries.
PAGE B-2
<PAGE>
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
VARIABLE ANNUITY ACCOUNT
CROSS REFERENCE SHEET TO STATEMENT OF ADDITIONAL INFORMATION
FORM N-4
<TABLE>
<CAPTION>
ITEM NUMBER CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
- --------------------- ---------------------------------------------------------------------------
<S> <C>
15. Cover Page
16. Cover Page
17. Directors and Principal Management Officers of Minnesota Life
18. Not applicable
19. Not applicable
20. Distribution of Contract
21. Performance Data
22. Not applicable
23. Financial Statements
</TABLE>
<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:
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 Variable Annuity Account'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
Minnesota Mutual Center, 400 Robert Street North, St. Paul, Minnesota
55101-2098.
Directors and Principal Management Officers of Minnesota Life
Distribution of Contract
Performance Data
Auditors
Registration Statement
Financial Statements
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS AND PRINCIPAL MANAGEMENT OFFICERS OF MINNESOTA LIFE
Directors Principal Occupation
<S> <C>
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
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)
</TABLE>
-2-
<PAGE>
Principal Officers (other than Directors)
<TABLE>
<CAPTION>
Name Position
<S> <C>
John F. Bruder Senior Vice President
Keith M. Campbell Senior Vice President
Robert E. Hunstad Executive Vice President
James E. Johnson Senior Vice President and Actuary
Dennis E. Prohofsky Senior Vice President, General Counsel
and Secretary
Gregory S. Strong Senior Vice President and Chief
Financial Officer
Terrence M. Sullivan Senior Vice President
Randy F. Wallake Senior Vice President
William N. Westhoff Senior Vice President and Treasurer
</TABLE>
All Directors who are not also officers of Minnesota Life have had the principal
occupation (or employers) shown for at least five years. All officers of
Minnesota Life have been employed by Minnesota Life for at least five years with
the exception of Mr. Westhoff. Mr. Westhoff has been employed by Minnesota Life
since April 1998. Prior thereto, Mr. Westhoff was employed by American Express
Financial Corporation, Minneapolis, Minnesota, from August 1994 to October 1997
as Senior Vice President, Global Investments and from November 1989 to July 1994
as Senior Vice President, Fixed Income Management.
DISTRIBUTION OF CONTRACT
The contract will be sold in a continuous offering 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 payment to associated
dealers on the sale of the contracts, which includes other contracts issued
through the Variable Annuity Account. Agents of Minnesota Life who are also
registered representatives of Ascend Financial are compensated directly by
Minnesota Life.
-3-
<PAGE>
PERFORMANCE DATA
CURRENT YIELD FIGURES FOR MONEY MARKET SUB-ACCOUNT
Current annualized yield quotations for the Money Market Sub-Account are based
on the Sub-Account's net investment income for a seven-day or other specified
period and exclude any realized or unrealized gains or losses on sub-account
securities. Current annualized yield is computed by determining the net change
(exclusive of realized gains and losses from the sale of securities and
unrealized appreciation and depreciation) in the value of a hypothetical account
having a balance of one accumulation unit at the beginning of the specified
period, dividing such net change in account value by the value of the account at
the beginning of the period, and annualizing this quotient on a 365-day basis.
The Variable Annuity Account may also quote the effective yield of the Money
Market Sub-Account for a seven-day or other specified period for which the
current annualized yield is computed by expressing the unannualized return on a
compounded, annualized basis. The yield and effective yield of the Money Market
Sub-Account for the seven-day period ended December 31, 1998 were 3.78% and
3.85%, respectively. Such figures reflect the voluntary absorption of certain
expenses of Advantus Series Fund, Inc. (the "Fund") by Minnesota Life described
below under "Total Return Figures for All Sub-Accounts." Yield figures quoted
by the Money Market Sub-Account will not reflect the deduction of any applicable
deferred sales charges (the deferred sales charge, as a percentage of the
accumulation value withdrawn, begin as of the contract date at 7% for the
flexible payment contract).
TOTAL RETURN FIGURES FOR ALL SUB-ACCOUNTS
Cumulative total return quotations for Sub-Accounts represent the total return
for the period since the Sub-Account became available pursuant to the Variable
Annuity Account's registration statement. Therefore, for periods prior to the
date of this Prospectus the quotations will be based on the assumption that the
contracts described herein were issued when the underlying Portfolios first
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 and the net asset value of that same investment at the end of the
period. Such quotations of cumulative total return will not reflect the
deduction of any applicable deferred sales charges.
The cumulative total return figures published by the Variable Annuity Account
relating to the contract described in the Prospectus will reflect Minnesota
Life's voluntary absorption of certain Fund expenses described below.
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 the 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 the deferred sales charge applicable to the contract
payments and to the length of the period the payments remain in the contract.
The average annual total return figures published by the Variable Annuity
Account will reflect Minnesota Life's voluntary absorption of certain Fund
expenses.
-4-
<PAGE>
<TABLE>
<CAPTION>
From Inception Date of
to 12/31/98 Inception
---------------- ---------
<S> <C> <C> <C>
Growth Sub-Account 12/3/85
Bond Sub-Account 12/3/85
Money Market Sub-Account 12/3/85
Asset Allocation Sub-Account 12/3/85
Mortgage Securities Sub-Account 6/1/87
Index 500 Sub-Account 6/1/87
Capital Appreciation Sub-Account 6/1/87
International Stock Sub-Account 5/1/92
Small Company Growth Sub-Account 5/3/93
Maturing Government Bond
2002 Sub-Account 5/2/94
Maturing Government Bond
2006 Sub-Account 5/2/94
Maturing Government Bond
2010 Sub-Account 5/2/94
Value Stock Sub-Account 5/2/94
Small Company Value Sub-Account 10/1/97
Global Bond Sub-Account 10/1/97
Index 400 Mid-Cap Sub-Account 10/1/97
Macro-Cap Value Sub-Account 0/15/97
Micro-Cap Growth Sub-Account 10/1/97
Real Estate Securities Sub-Account 5/1/98
Templeton Developing Markets Class 2
Sub-Account 10/1/97
</TABLE>
-5-
<PAGE>
Cumulative total return quotations for Sub-Accounts will be accompanied by
average annual total return figures for a one-year period, five-year period and
ten-year period or for the period since the Sub-Account became available
pursuant to the Variable Annuity Account's registration statement if less than
ten years. Average annual total return figures are the average annual
compounded rates of return required for an initial investment of $1,000 to equal
the surrender value of that same investment at the end of the period. The
surrender value will reflect the deduction of the deferred sales charge
applicable to the contract payments and to the length of the period the payments
remain in the contract. The average annual total return figures published by
the Variable Annuity Account will reflect Minnesota Life's voluntary absorption
of certain Fund expenses. For the period subsequent to March 9, 1987, Minnesota
Life is voluntarily absorbing the fees and expenses that exceed .65% of the
average daily net assets of the Growth, Bond, Money Market, Asset Allocation and
Mortgage Securities Portfolios of the Fund, .55% of the average daily net assets
of the Index 500 Portfolio of the Fund, .90% of the average daily net assets of
the Capital Appreciation and Small Company Growth Portfolios of the Fund and
expenses that exceed 1.00% of the average daily net assets of the International
Stock Portfolio of the Fund exclusive of the advisory fee. And, for the period
subsequent to May 2, 1994, Minnesota 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. It should be noted that for the
Maturing Government Bond Portfolios maturing in 2002, Minnesota Life voluntarily
agreed to absorb fees and expenses that exceeded .20% of average daily net
assets of those Portfolios until April 30, 1998. For the period subsequent to
April 30, 1998, Minnesota Life has voluntarily absorbed fees and expenses that
exceed .40% of the average daily net assets of the Maturing Government Bond
Portfolios maturing in 2002. For the period subsequent to October 1,1997,
Minnesota Life has voluntarily agreed to absorb fees and expenses that exceed
.55% of the average daily net assets of the Index 400 Mid-Cap Portfolio, .90% of
the average daily net assets of the Small Company Value Portfolio, 1.25% of the
average daily net assets of the Micro-Cap Growth Portfolio, .85% of the average
daily net assets of the Macro-Cap Value Portfolio and expenses that exceed 1.00%
of the average daily net assets of the Global Bond Portfolio of the Fund
exclusive of the advisory fee. For the period subsequent to May 1, 1998,
Minnesota Life has voluntarily agreed to absorb fees and expenses that exceed
.90% of the average daily net assets of the Real Estate Securities Portfolio.
There is no specified or minimum period of time during which Minnesota Life has
agreed to continue its voluntary absorption of these expenses, and Minnesota
Life may in its discretion cease its absorption of expenses at any time. Should
Minnesota Life cease absorbing expenses the effect would be to increase
substantially Fund expenses and thereby reduce investment return.
-6-
<PAGE>
The average annual rates of return for the Sub-Accounts, in connection with
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. These figures also
assume that the contracts described herein were issued at the inception of
the corresponding Fund Portfolios.
Flexible Premium Deferred Variable Annuity
MultiOption Achiever
<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>
Growth Sub-Account 12/3/85
Bond Sub-Account 12/3/85
Money Market Sub-Account 12/3/85
Asset Allocation Sub-Account 12/3/85
Mortgage Securities
Sub-Account 6/1/87
Index 500 Sub-Account 6/1/87
Capital Appreciation
Sub-Account 6/1/87
International Stock
Sub-Account 5/1/92
Small Company Growth
Sub-Account 5/3/93
Maturing Government Bond
2002 Sub-Account 5/2/94
Maturing Government Bond
2006 Sub-Account 5/2/94
-7-
<PAGE>
Maturing Government Bond
2010 Sub-Account 5/2/94
Value Stock Sub-Account 5/2/94
Small Company Value
Sub-Account 10/1/97
Global Bond Sub-Account 10/1/97
Index 400 Mid-Cap
Sub-Account 10/1/97
Macro-Cap Value
Sub-Account 10/15/97
Micro-Cap Growth
Sub-Account 10/1/97
Real Estate Securities
Sub-Account 5/1/98
Templeton Developing
Markets Class 2 Sub-Account 10/1/97
</TABLE>
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.
-8-
<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>
Growth Sub-Account 12/3/85
Bond Sub-Account 12/3/85
Money Market Sub-Account 12/3/85
Asset Allocation
Sub-Account 12/3/85
Mortgage Securities
Sub-Account 6/1/87
Index 500 Sub-Account 6/1/87
Capital Appreciation
Sub-Account 6/1/87
International Stock
Sub-Account 5/1/92
Small Company Growth
Sub-Account 5/3/93
Maturing Government Bond
2002 Sub-Account 5/2/94
Maturing Government Bond
2006 Sub-Account 5/2/94
Maturing Government Bond
-9-
<PAGE>
2010 Sub-Account 5/2/94
Value Stock Sub-Account 5/2/94
Small Company Value
Sub-Account 10/1/97
Global Bond Sub-Account 10/1/97
Index 400 Mid-Cap
Sub-Account 10/1/97
Macro-Cap Value
Sub-Account 10/15/97
Micro-Cap Growth
Sub-Account 10/1/97
Real Estate Securities
Sub-Account 5/1/98
Templeton Developing
Markets Class 2
Sub-Account 10/1/97
</TABLE>
-10-
<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 Minnesota Life 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, Minnesota Life may calculate AVM for each Maturing
Government Bond Sub-Account on any day on
-11-
<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. Minnesota Life 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.
Minnesota Life expects that a contract owner who holds specific units until the
underlying Portfolio's weighted average maturity date will realize an investment
return and maturity value on those units that do not differ substantially from
the AGR and AVM calculated on the day such units were purchased. The AGR and
AVM calculated with respect to units purchased on any other date, however, may
be materially different.
AUDITORS
The consolidated financial statements of Minnesota Life and the 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
contract offered hereby. This Prospectus does not contain all the information
set forth in the registration statement and amendments thereto and the exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning the Variable Annuity Account, Minnesota Life, and the
contract. Statements contained in this Prospectus as to the contents of
contracts and other legal instruments are summaries, and reference is made to
such instruments as filed.
-12-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees of Minnesota Life Insurance Company
and Contract Owners of Variable Annuity Account:
We have audited the accompanying statements of assets and liabilities of the
Growth, Bond, Money Market, Asset Allocation, Mortgage Securities, Index 500,
Capital Appreciation, International Stock, Small Company, Maturing Government
Bond 1998, Maturing Government Bond 2002, Maturing Government Bond 2006,
Maturing Government Bond 2010, Value Stock, Small Company Value, Global Bond,
Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap Growth, Real Estate Securities,
and Templeton Developing Markets Segregated Sub-Accounts of Variable Annuity
Account (the Account), formerly Minnesota Mutual Variable Annuity Account,
(class of contracts offered for combination Fixed and Variable Annuity Contracts
for Personal Retirement Plans) as of December 31, 1998 and the related
statements of operations, the statements of changes in net assets and the
financial highlights for the periods presented. These financial statements and
the financial highlights are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investments owned at December 31, 1998 were confirmed to us by the
respective Sub-Account mutual fund, or for Advantus Series Fund, Inc., verified
by examination of the underlying portfolios. An audit also includes assessing
the accounting principles used and significant estimates made by management as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Growth, Bond, Money Market,
Asset Allocation, Mortgage Securities, Index 500, Capital Appreciation,
International Stock, Small Company, Maturing Government Bond 1998, Maturing
Government Bond 2002, Maturing Government Bond 2006, Maturing Government Bond
2010, Value Stock, Small Company Value, Global Bond, Index 400 Mid-Cap,
Macro-Cap Value, Micro-Cap Growth, Real Estate Securities, and Templeton
Developing Markets Segregated Sub-Accounts of Variable Annuity Account at
December 31, 1998 and the results of their operations, changes in their net
assets and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 26, 1999
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------
MONEY
ASSETS GROWTH BOND MARKET
------ ------ ---- ------
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
Growth Portfolio, 94,003,103 shares at net asset value of $2.74 per share
(cost $197,886,788) ................................................. $257,371,001 -- --
Bond Portfolio, 98,249,569 shares at net asset value of $1.31 per share
(cost $123,612,781) ................................................. -- 128,491,296 --
Money Market Portfolio, 47,299,577 shares at net asset value of $1.00 per
share (cost $47,299,577) ............................................ -- -- 47,299,577
Asset Allocation Portfolio, 211,542,785 shares at net asset value of $2.28 per
share (cost $362,699,530) ........................................... -- -- --
Mortgage Securities Portfolio, 78,556,912 shares at net asset value of $1.22
per share (cost $91,794,459) ........................................ -- -- --
Index 500 Portfolio, 74,787,567 shares at net asset value of $3.91 per share
(cost $176,991,696) ................................................. -- -- --
Capital Appreciation Portfolio, 73,720,445 shares at net asset value of $3.54
per share (cost $161,670,705) ....................................... -- -- --
----------- ----------- ----------
257,371,001 128,491,296 47,299,577
Receivable for investments sold ....................................................... 325,092 48,892 62,236
Receivable from Minnesota Life for contract purchase payments ......................... 169,062 274,993 1,098,254
----------- ----------- ----------
Total assets ....................................................... 257,865,155 128,815,181 48,460,067
----------- ----------- ----------
LIABILITIES
-----------
Payable for investments purchased ..................................................... 169,062 274,993 1,098,254
Payable to Minnesota Life for contract terminations and mortality and
expense charges .............................................................. 325,092 48,892 62,236
----------- ----------- ----------
Total liabilities .................................................. 494,154 323,885 1,160,490
----------- ----------- ----------
Net assets applicable to annuity contract owners ................... $257,371,001 128,491,296 47,299,577
----------- ----------- ----------
----------- ----------- ----------
CONTRACT OWNERS' EQUITY
-----------------------
Contracts in accumulation period ...................................................... $255,058,590 127,221,435 47,267,368
Contracts in annuity payment period (note 2) .......................................... 2,312,411 1,269,861 32,209
----------- ----------- ----------
Total contract owners' equity ...................................... $257,371,001 128,491,296 47,299,577
----------- ----------- ----------
----------- ----------- ----------
ACCUMULATION UNITS OUTSTANDING ........................................................ 47,805,851 51,341,159 27,959,675
----------- ----------- ----------
----------- ----------- ----------
NET ASSET VALUE PER ACCUMULATION UNIT ................................................. $ 5.34 2.48 1.69
----------- ----------- ----------
----------- ----------- ----------
<CAPTION>
ASSET MORTGAGE INDEX
ASSETS ALLOCATION SECURITIES 500
------ ---------- ---------- -----
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
Growth Portfolio, 94,003,103 shares at net asset value of $2.74 per share
(cost $197,886,788) ................................................. -- -- --
Bond Portfolio, 98,249,569 shares at net asset value of $1.31 per share
(cost $123,612,781) ................................................. -- -- --
Money Market Portfolio, 47,299,577 shares at net asset value of $1.00 per
share (cost $47,299,577) ............................................ -- -- --
Asset Allocation Portfolio, 211,542,785 shares at net asset value of $2.28 per
share (cost $362,699,530) ........................................... 482,075,635 -- --
Mortgage Securities Portfolio, 78,556,912 shares at net asset value of $1.22
per share (cost $91,794,459) ........................................ -- 95,659,587 --
Index 500 Portfolio, 74,787,567 shares at net asset value of $3.91 per share
(cost $176,991,696) ................................................. -- -- 292,413,852
Capital Appreciation Portfolio, 73,720,445 shares at net asset value of $3.54
per share (cost $161,670,705) ....................................... -- -- --
----------- ----------- ----------
482,075,635 95,659,587 292,413,852
Receivable for investments sold ....................................................... 514,008 83,628 384,838
Receivable from Minnesota Life for contract purchase payments ......................... 562,192 105,140 305,777
----------- ----------- ----------
Total assets ....................................................... 483,151,835 95,848,355 293,104,467
----------- ----------- ----------
LIABILITIES
-----------
Payable for investments purchased ..................................................... 562,192 105,140 305,777
Payable to Minnesota Life for contract terminations and mortality and
expense charges .............................................................. 514,008 83,628 384,838
----------- ----------- ----------
Total liabilities .................................................. 1,076,200 188,768 690,615
----------- ----------- ----------
Net assets applicable to annuity contract owners ................... 482,075,635 95,659,587 292,413,852
----------- ----------- ----------
----------- ----------- ----------
CONTRACT OWNERS' EQUITY
-----------------------
Contracts in accumulation period ...................................................... 477,139,024 94,686,890 289,871,970
Contracts in annuity payment period (note 2) .......................................... 4,936,611 972,697 2,541,882
----------- ----------- ----------
Total contract owners' equity ...................................... 482,075,635 95,659,587 292,413,852
----------- ----------- ----------
----------- ----------- ----------
ACCUMULATION UNITS OUTSTANDING ........................................................ 120,373,228 41,507,338 60,268,563
----------- ----------- ----------
----------- ----------- ----------
NET ASSET VALUE PER ACCUMULATION UNIT ................................................. 3.96 2.28 4.81
----------- ----------- ----------
----------- ----------- ----------
<CAPTION>
CAPITAL
ASSETS APPRECIATION
------ ------------
<S> <C>
Investments in shares of Advantus Series Fund, Inc.:
Growth Portfolio, 94,003,103 shares at net asset value of $2.74 per share
(cost $197,886,788) ................................................. --
Bond Portfolio, 98,249,569 shares at net asset value of $1.31 per share
(cost $123,612,781) ................................................. --
Money Market Portfolio, 47,299,577 shares at net asset value of $1.00 per
share (cost $47,299,577) ............................................ --
Asset Allocation Portfolio, 211,542,785 shares at net asset value of $2.28 per
share (cost $362,699,530) ........................................... --
Mortgage Securities Portfolio, 78,556,912 shares at net asset value of $1.22
per share (cost $91,794,459) ........................................ --
Index 500 Portfolio, 74,787,567 shares at net asset value of $3.91 per share
(cost $176,991,696) ................................................. --
Capital Appreciation Portfolio, 73,720,445 shares at net asset value of $3.54
per share (cost $161,670,705) ....................................... 260,697,605
-----------
260,697,605
Receivable for investments sold ....................................................... 239,801
Receivable from Minnesota Life for contract purchase payments ......................... 188,355
-----------
Total assets ....................................................... 261,125,761
-----------
LIABILITIES
-----------
Payable for investments purchased ..................................................... 188,355
Payable to Minnesota Life for contract terminations and mortality and
expense charges .............................................................. 239,801
-----------
Total liabilities .................................................. 428,156
-----------
Net assets applicable to annuity contract owners ................... 260,697,605
-----------
-----------
CONTRACT OWNERS' EQUITY
-----------------------
Contracts in accumulation period ...................................................... 258,392,646
Contracts in annuity payment period (note 2) .......................................... 2,304,959
-----------
Total contract owners' equity ...................................... 260,697,605
-----------
-----------
ACCUMULATION UNITS OUTSTANDING ........................................................ 53,894,481
-----------
-----------
NET ASSET VALUE PER ACCUMULATION UNIT ................................................. 4.79
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------
MATURING
INTERNATIONAL SMALL GOVERNMENT
ASSETS STOCK COMPANY BOND 1998
------ ----- ------- ---------
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
International Stock Portfolio, 117,603,347 shares at net asset value of $1.73
per share (cost $174,954,141) . ..................................... $203,425,205 -- --
Small Company Portfolio, 75,276,968 shares at net asset value of $1.68 per
share (cost $112,397,748) . ......................................... -- 126,110,836 --
Maturing Government Bond 1998 Portfolio, 0 shares at net asset value
of $0.00 per share (cost $0) . ...................................... -- -- --
Maturing Government Bond 2002 Portfolio, 5,746,044 shares at net asset
value of $1.11 per share (cost $6,204,450) . ........................ -- -- --
Maturing Government Bond 2006 Portfolio, 5,165,994 shares at net asset
value of $1.25 per share (cost $5,970,483) . ........................ -- -- --
Maturing Government Bond 2010 Portfolio, 3,853,561 shares at net asset
value of $1.41 per share (cost $4,820,907) . ........................ -- -- --
Value Stock Portfolio, 86,165,729 shares at net asset value of $1.76 per
share (cost $139,531,689) . ......................................... -- -- --
----------- ----------- -----------
203,425,205 126,110,836 --
Receivable for investments sold ....................................................... 282,159 147,136 --
Receivable from Minnesota Life for contract purchase payments . ....................... 146,321 151,611 --
----------- ----------- -----------
Total assets ........................................................ 203,853,685 126,409,583 --
----------- ----------- -----------
LIABILITIES
Payable for investments purchased ..................................................... 146,321 151,611 --
Payable to Minnesota Life for contract terminations and mortality and
expense charges .............................................................. 282,159 147,136 --
----------- ----------- -----------
Total liabilities ................................................... 428,480 298,747 --
----------- ----------- -----------
Net assets applicable to annuity contract owners .................... $203,425,205 126,110,836 --
----------- ----------- -----------
----------- ----------- -----------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period ...................................................... $201,327,567 124,257,847 --
Contracts in annuity payment period (note 2) . ........................................ 2,097,638 1,852,989 --
----------- ----------- -----------
Total contract owners' equity ...................................... $203,425,205 126,110,836 --
----------- ----------- -----------
----------- ----------- -----------
ACCUMULATION UNITS OUTSTANDING ........................................................ 99,956,739 69,789,850 --
----------- ----------- -----------
----------- ----------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT ................................................. $ 2.01 1.78 --
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
MATURING MATURING MATURING
GOVERNMENT GOVERNMENT GOVERNMENT
ASSETS BOND 2002 BOND 2006 BOND 2010
------ --------- --------- ---------
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
International Stock Portfolio, 117,603,347 shares at net asset value of $1.73
per share (cost $174,954,141) . ..................................... -- -- --
Small Company Portfolio, 75,276,968 shares at net asset value of $1.68 per
share (cost $112,397,748) . ......................................... -- -- --
Maturing Government Bond 1998 Portfolio, 0 shares at net asset value
of $0.00 per share (cost $0) . ...................................... -- -- --
Maturing Government Bond 2002 Portfolio, 5,746,044 shares at net asset
value of $1.11 per share (cost $6,204,450) . ........................ 6,353,702 -- --
Maturing Government Bond 2006 Portfolio, 5,165,994 shares at net asset
value of $1.25 per share (cost $5,970,483) . ........................ -- 6,474,886 --
Maturing Government Bond 2010 Portfolio, 3,853,561 shares at net asset
value of $1.41 per share (cost $4,820,907) . ........................ -- -- 5,432,213
Value Stock Portfolio, 86,165,729 shares at net asset value of $1.76 per
share (cost $139,531,689) . ......................................... -- -- --
----------- ----------- -----------
6,353,702 6,474,886 5,432,213
Receivable for investments sold ....................................................... 317 324 269
Receivable from Minnesota Life for contract purchase payments . ....................... 21 3,579 263
----------- ----------- -----------
Total assets ........................................................ 6,354,040 6,478,789 5,432,745
----------- ----------- -----------
LIABILITIES
Payable for investments purchased ..................................................... 21 3,579 263
Payable to Minnesota Life for contract terminations and mortality and
expense charges .............................................................. 317 324 269
----------- ----------- -----------
Total liabilities ................................................... 338 3,903 532
----------- ----------- -----------
Net assets applicable to annuity contract owners .................... 6,353,702 6,474,886 5,432,213
----------- ----------- -----------
----------- ----------- -----------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period ...................................................... 6,329,988 6,094,868 5,061,491
Contracts in annuity payment period (note 2) . ........................................ 23,714 380,018 370,722
----------- ----------- -----------
Total contract owners' equity ...................................... 6,353,702 6,474,886 5,432,213
----------- ----------- -----------
----------- ----------- -----------
ACCUMULATION UNITS OUTSTANDING ........................................................ 4,526,963 3,881,227 3,046,112
----------- ----------- -----------
----------- ----------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT ................................................. 1.40 1.57 1.66
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
VALUE
ASSETS STOCK
------ -----
<S> <C>
Investments in shares of Advantus Series Fund, Inc.:
International Stock Portfolio, 117,603,347 shares at net asset value of $1.73
per share (cost $174,954,141) . ..................................... --
Small Company Portfolio, 75,276,968 shares at net asset value of $1.68 per
share (cost $112,397,748) . ......................................... --
Maturing Government Bond 1998 Portfolio, 0 shares at net asset value
of $0.00 per share (cost $0) . ...................................... --
Maturing Government Bond 2002 Portfolio, 5,746,044 shares at net asset
value of $1.11 per share (cost $6,204,450) . ........................ --
Maturing Government Bond 2006 Portfolio, 5,165,994 shares at net asset
value of $1.25 per share (cost $5,970,483) . ........................ --
Maturing Government Bond 2010 Portfolio, 3,853,561 shares at net asset
value of $1.41 per share (cost $4,820,907) . ........................ --
Value Stock Portfolio, 86,165,729 shares at net asset value of $1.76 per
share (cost $139,531,689) . ......................................... 151,610,308
-----------
151,610,308
Receivable for investments sold ....................................................... 119,611
Receivable from Minnesota Life for contract purchase payments . ....................... 76,414
-----------
Total assets ........................................................ 151,806,333
-----------
LIABILITIES
Payable for investments purchased ..................................................... 76,414
Payable to Minnesota Life for contract terminations and mortality and
expense charges .............................................................. 119,611
-----------
Total liabilities ................................................... 196,025
-----------
Net assets applicable to annuity contract owners .................... 151,610,308
-----------
-----------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period ...................................................... 149,650,502
Contracts in annuity payment period (note 2) . ........................................ 1,959,806
-----------
Total contract owners' equity ...................................... 151,610,308
-----------
-----------
ACCUMULATION UNITS OUTSTANDING ........................................................ 69,982,001
-----------
-----------
NET ASSET VALUE PER ACCUMULATION UNIT ................................................. 2.14
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------
SMALL
COMPANY GLOBAL INDEX 400
ASSETS VALUE BOND MID-CAP
------ ----- ---- -------
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
Small Company Value Portfolio, 7,920,123 shares at net asset value
of $0.95 per share (cost $7,963,923) ............................$ 7,510,606 -- --
Global Bond Portfolio, 29,347,222 shares at net asset
value of $1.05 per share (cost $29,703,500) ..................... -- 30,774,160 --
Index 400 Mid-Cap Portfolio, 7,921,934 shares at net asset value of $1.15
per share (cost $8,146,107) . ................................... -- -- 9,105,647
Macro-Cap Value Portfolio, 8,856,494 shares at net asset value of $1.14
per share (cost $9,213,458) ..................................... -- -- --
Micro-Cap Growth Portfolio, 7,112,227 shares at net asset value of $1.01
per share (cost $6,776,080) ..................................... -- -- --
Real Estate Securities Portfolio, 6,089,612 shares at net asset value
of $.83 per share (cost $5,919,075) ............................. -- -- --
Investment in shares of Templeton Variable Products Series Fund:
Templeton Developing Markets Fund - Class 2, 575,016 shares at net
asset value of $5.12 per share (cost $3,475,444) ................ -- -- --
--------- ---------- ---------
7,510,606 30,774,160 9,105,647
Receivable for investments sold ................................................... 3,644 5,596 6,404
Receivable from Minnesota Life for contract purchase payments ..................... 15,117 3,039 1,315
--------- ---------- ---------
Total assets ................................................... 7,529,367 30,782,795 9,113,366
--------- ---------- ---------
LIABILITIES
Payable for investments purchased ................................................. 15,117 3,039 1,315
Payable to Minnesota Life for contract terminations and mortality and
expense charges .......................................................... 3,644 5,596 6,404
--------- ---------- ---------
Total liabilities .............................................. 18,761 8,635 7,719
--------- ---------- ---------
Net assets applicable to annuity contract owners . .............$ 7,510,606 30,774,160 9,105,647
--------- ---------- ---------
--------- ---------- ---------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period ..................................................$ 7,155,427 30,698,268 9,037,135
Contracts in annuity payment period (note 2) . .................................... 355,179 75,892 68,512
--------- ---------- ---------
Total contract owners' equity ..................................$ 7,510,606 30,774,160 9,105,647
--------- ---------- ---------
--------- ---------- ---------
ACCUMULATION UNITS OUTSTANDING .................................................... 7,555,601 26,841,307 7,779,280
--------- ---------- ---------
--------- ---------- ---------
NET ASSET VALUE PER ACCUMULATION UNIT . ...........................................$ 0.95 1.14 1.16
--------- ---------- ---------
--------- ---------- ---------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------
REAL TEMPLETON
MACRO-CAP MICRO-CAP ESTATE DEVELOPING
ASSETS VALUE GROWTH SECURITES MARKETS
------ ----- ------ --------- -------
<S> <C> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
Small Company Value Portfolio, 7,920,123 shares at net asset value
of $0.95 per share (cost $7,963,923) ............................ -- -- -- --
Global Bond Portfolio, 29,347,222 shares at net asset
value of $1.05 per share (cost $29,703,500) ..................... -- -- -- --
Index 400 Mid-Cap Portfolio, 7,921,934 shares at net asset value of $1.15
per share (cost $8,146,107) . ................................... -- -- -- --
Macro-Cap Value Portfolio, 8,856,494 shares at net asset value of $1.14
per share (cost $9,213,458) ..................................... 10,092,791 -- -- --
Micro-Cap Growth Portfolio, 7,112,227 shares at net asset value of $1.01
per share (cost $6,776,080) ..................................... -- 7,173,591 -- --
Real Estate Securities Portfolio, 6,089,612 shares at net asset value
of $.83 per share (cost $5,919,075) ............................. -- -- 5,065,605 --
Investment in shares of Templeton Variable Products Series Fund:
Templeton Developing Markets Fund - Class 2, 575,016 shares at net
asset value of $5.12 per share (cost $3,475,444) ................ -- -- -- 2,944,084
---------- --------- --------- ---------
10,092,791 7,173,591 5,065,605 2,944,084
Receivable for investments sold ................................................... 15,488 1,723 251 2,766
Receivable from Minnesota Life for contract purchase payments ..................... 25,299 14,963 -- 4,508
---------- --------- --------- ---------
Total assets ................................................... 10,133,578 7,190,277 5,065,856 2,951,358
---------- --------- --------- ---------
LIABILITIES
Payable for investments purchased ................................................. 25,299 14,963 -- 4,508
Payable to Minnesota Life for contract terminations and mortality and
expense charges .......................................................... 15,488 1,723 251 2,766
---------- --------- --------- ---------
Total liabilities .............................................. 40,787 16,686 251 7,274
---------- --------- --------- ---------
Net assets applicable to annuity contract owners . ............. 10,092,791 7,173,591 5,065,605 2,944,084
---------- --------- --------- ---------
---------- --------- --------- ---------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period .................................................. 9,972,628 7,083,984 5,053,408 2,656,405
Contracts in annuity payment period (note 2) . .................................... 120,163 89,607 12,197 287,679
---------- --------- --------- ---------
Total contract owners' equity .................................. 10,092,791 7,173,591 5,065,605 2,944,084
---------- --------- --------- ---------
---------- --------- --------- ---------
ACCUMULATION UNITS OUTSTANDING .................................................... 8,485,870 6,922,652 5,887,391 4,908,432
---------- --------- --------- ---------
---------- --------- --------- ---------
NET ASSET VALUE PER ACCUMULATION UNIT . ........................................... 1.18 1.02 0.86 0.54
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------
MONEY
GROWTH BOND MARKET
------ ---- ------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund
(note 4) ................................................. $ 1,859,402 6,308,157 1,801,627
Mortality and expense charges (note 3) ........................ (2,658,497) (1,451,761) (466,160)
------------ ----------- ----------
Investment income (loss) - net ....................... (799,095) 4,856,396 1,335,467
------------ ----------- ----------
Realized and unrealized gains on investments - net:
Realized gain distributions from underlying mutual fund
(note 4) ................................................. 29,572,509 1,328,811 --
------------ ----------- ----------
Realized gains on sales of investments:
Proceeds from sales .................................. 39,308,322 22,847,141 59,283,909
Cost of investments sold . ........................... (33,878,954) (22,126,231) (59,283,909)
------------ ----------- ----------
5,429,368 720,910 --
------------ ----------- ----------
Net realized gains on investments . .................. 35,001,877 2,049,721 --
------------ ----------- ----------
Net change in unrealized appreciation or depreciation
of investments . ..................................... 28,069,491 (1,445,486) --
------------ ----------- ----------
Net gains on investments ............................. 63,071,368 604,235 --
------------ ----------- ----------
Net increase in net assets resulting from operations ................... $ 62,272,273 5,460,631 1,335,467
------------ ----------- ----------
------------ ----------- ----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------
ASSET MORTGAGE INDEX CAPITAL
ALLOCATION SECURITIES 500 APPRECIATION
---------- ---------- --- ------------
<S> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund
(note 4) ................................................. 10,876,616 4,487,874 2,096,613 --
Mortality and expense charges (note 3) ........................ (5,328,444) (1,072,947) (3,127,575) (2,774,930)
---------- ---------- ---------- ----------
Investment income (loss) - net ....................... 5,548,172 3,414,927 (1,030,962) (2,774,930)
---------- ---------- ---------- ----------
Realized and unrealized gains on investments - net:
Realized gain distributions from underlying mutual fund
(note 4) ................................................. 27,640,228 -- 1,314,187 11,860,550
---------- ---------- ---------- ----------
Realized gains on sales of investments:
Proceeds from sales .................................. 71,500,366 19,121,086 46,124,045 37,775,712
Cost of investments sold . ........................... (58,642,221) (18,479,944) (29,896,003) (26,791,956)
---------- ---------- ---------- ----------
12,858,145 641,142 16,228,042 10,983,756
---------- ---------- ---------- ----------
Net realized gains on investments . .................. 40,498,373 641,142 17,542,229 22,844,306
---------- ---------- ---------- ----------
Net change in unrealized appreciation or depreciation
of investments . ..................................... 40,865,562 232,383 41,483,907 37,765,909
---------- ---------- ---------- ----------
Net gains on investments ............................. 81,363,935 873,525 59,026,136 60,610,215
---------- ---------- ---------- ----------
Net increase in net assets resulting from operations ................... 86,912,107 4,288,452 57,995,174 57,835,285
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
MATURING
GOVERNMENT
INTERNATIONAL SMALL BOND
STOCK COMPANY 1998(a)
--------------- ------------- -------------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) . $ 5,592,851 -- 303,626
Mortality and expense charges (note 3) ............................... (2,627,480) (1,521,739) (38,123)
--------------- ------------- -------------
Investment income (loss) - net . ............................ 2,965,371 (1,521,739) 265,503
--------------- ------------- -------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ..... 5,506,316 -- 1,501
--------------- ------------- -------------
Realized gains on sales of investments:
Proceeds from sales . ....................................... 44,891,177 26,285,629 5,898,708
Cost of investments sold .................................... (38,205,149) (24,630,423) (5,813,258)
--------------- ------------- -------------
6,686,028 1,655,206 85,450
--------------- ------------- -------------
Net realized gains on investments . ......................... 12,192,344 1,655,206 86,951
--------------- ------------- -------------
Net change in unrealized appreciation or depreciation
of investments . ............................................ (5,554,561) (857,220) (225,451)
--------------- ------------- -------------
Net gains (losses) on investments ........................... 6,637,783 797,986 (138,500)
--------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations . ............. $ 9,603,154 (723,753) 127,003
--------------- ------------- -------------
--------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------
MATURING MATURING MATURING
GOVERNMENT GOVERNMENT GOVERNMENT
BOND BOND BOND VALUE
2002 2006 2010 STOCK
---------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) . 302,585 302,849 155,776 --
Mortality and expense charges (note 3) ............................... (59,792) (60,904) (47,738) (1,884,495)
---------- ------------- ------------ -----------
Investment income (loss) - net . ............................ 242,793 241,945 108,038 (1,884,495)
---------- ------------- ------------ -----------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ..... 62,949 23,931 3,111 238,703
---------- ------------- ------------ -----------
Realized gains on sales of investments:
Proceeds from sales . ....................................... 587,770 1,328,360 1,527,770 40,386,591
Cost of investments sold .................................... (551,582) (1,198,645) (1,358,711) (38,526,920)
---------- ------------- ------------ -----------
36,188 129,715 169,059 1,859,671
---------- ------------- ------------ -----------
Net realized gains on investments . ........................ 99,137 153,646 172,170 2,098,374
---------- ------------- ------------ -----------
Net change in unrealized appreciation or depreciation
of investments . ........................................... 23,772 207,803 225,554 (224,889)
---------- ------------- ------------ -----------
Net gains (losses) on investments .......................... 122,909 361,449 397,724 1,873,485
---------- ------------- ------------ -----------
Net increase (decrease) in net assets resulting from operations . ............ 365,702 603,394 505,762 (11,010)
---------- ------------- ------------ -----------
---------- ------------- ------------ -----------
</TABLE>
(a) For the period from January 1, 1998, to September 18, 1998, termination of
the sub-account.
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------
SMALL
COMPANY GLOBALY INDEX 400 MACRO-CAP
VALUE BOND MID-CAP VALUE
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) ..... $ 98,412 1,736,442 57,207 41,587
Mortality and expense charges(note 3) ................................... (73,235) (334,067) (77,967) (101,166)
----------- ------------ ---------- -----------
Investment income (loss) - net ........................................ 25,177 1,402,375 (20,760) (59,579)
----------- ------------ ---------- -----------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ......... - 792,473 160,756 399,366
----------- ------------ ---------- -----------
Realized gains (losses) on sales of investments:
Proceeds from sales ................................................... 3,494,411 3,178,064 2,726,451 2,646,097
Cost of investments sold .............................................. (3,417,008) (3,107,480) (2,604,717) (2,566,484)
----------- ------------ ---------- -----------
77,403 70,584 121,734 79,613
----------- ------------ ---------- -----------
Net realized gains (losses) on investments ............................ 77,403 863,057 282,490 478,979
----------- ------------ ---------- -----------
Net change in unrealized appreciation or depreciation
of investments ..................................................... (605,890) 1,472,544 911,492 995,598
----------- ------------ ---------- -----------
Net gains (losses) on investments ..................................... (528,487) 2,335,601 1,193,982 1,474,577
----------- ------------ ---------- -----------
Net increase (decrease) in net assets resulting from operations ............... $(503,310) 3,737,976 1,173,222 1,414,998
----------- ------------ ---------- -----------
----------- ------------ ---------- -----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------
Real Templeton
Micro-Cap Estate Developing
Growth Securites(a) Markets
--------------- ---------------- -------------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) ...... - 194,366 14,588
Mortality and expense charges (note 3) .................................... (65,447) (39,576) (21,517)
--------------- ---------------- -------------
Investment income (loss) - net ......................................... (65,447) 154,790 (6,929)
--------------- ---------------- -------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) .......... - - 8,955
--------------- ---------------- -------------
Realized gains (losses) on sales of investments:
Proceeds from sales .................................................... 1,459,625 130,832 160,004
Cost of investments sold ............................................... (1,553,341) (152,556) (209,334)
--------------- ---------------- -------------
(93,716) (21,724) (49,330)
--------------- ---------------- -------------
Net realized gains (losses) on investments ............................. (93,716) (21,724) (40,375)
--------------- ---------------- -------------
Net change in unrealized appreciation or depreciation
of investments ...................................................... 947,708 (853,470) (426,587)
--------------- ---------------- -------------
Net gains (losses) on investments ...................................... 853,992 (875,194) (466,962)
--------------- ---------------- -------------
Net increase (decrease) in net assets resulting from operations ................ 788,545 (720,404) (473,891)
--------------- ---------------- -------------
--------------- ---------------- -------------
</TABLE>
(a) For the period from April 24, 1998, commencement of operations,
to December 31, 1998
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------
MONEY ASSET
GROWTH BOND MARKET ALLOCATION
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net ...................................... $ (799,095) 4,856,396 1,335,467 5,548,172
Net realized gains on investments ................................... 35,001,877 2,049,721 - 40,498,373
Net change in unrealized appreciation or depreciation
of investments ................................................... 28,069,491 (1,445,486) - 40,865,562
------------- ------------ ------------ ------------
Net increase in net assets resulting from operations ..................... 62,272,273 5,460,631 1,335,467 86,912,107
------------- ------------ ------------ ------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments .......................................... 51,637,934 41,441,722 72,457,091 70,303,040
Contract terminations and withdrawal payments ....................... (36,450,685) (21,212,178) (58,811,259) (65,726,252)
Actuarial adjustments for mortality experience on annuities
in payment period ................................................ 1,950 (43,058) 27 (4,603)
Annuity benefit payments ............................................ (201,089) (140,143) (6,516) (441,066)
------------- ------------ ------------ ------------
Increase in net assets from contract transactions ........................ 14,988,110 20,046,343 13,639,343 4,131,119
------------- ------------ ------------ ------------
Increase in net assets ................................................... 77,260,383 25,506,974 14,974,810 91,043,226
Net assets at the beginning of year ...................................... 180,110,618 102,984,322 32,324,767 391,032,409
------------- ------------ ------------ ------------
Net assets at the end of year ............................................ $257,371,001 128,491,296 47,299,577 482,075,635
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------
MORTGAGE INDEX CAPITAL
SECURITIES 500 APPRECIATION
-------------- --------------- ----------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ............................................ 3,414,927 (1,030,962) (2,774,930)
Net realized gains on investments ......................................... 641,142 17,542,229 22,844,306
Net change in unrealized appreciation or depreciation
of investments ......................................................... 232,383 41,483,907 37,765,909
-------------- --------------- ----------------
Net increase in net assets resulting from operations ........................... 4,288,452 57,995,174 57,835,285
-------------- --------------- ----------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ................................................ 33,557,094 67,949,692 37,672,274
Contract terminations and withdrawal payments ............................. (17,949,781) (42,752,201) (34,786,814)
Actuarial adjustments for mortality experience on annuities
in payment period ...................................................... (12,738) (13,196) (1,165)
Annuity benefit payments .................................................. (85,620) (231,073) (212,803)
-------------- --------------- ----------------
Increase in net assets from contract transactions .............................. 15,508,955 24,953,222 2,671,492
-------------- --------------- ----------------
Increase in net assets ......................................................... 19,797,407 82,948,396 60,506,777
Net assets at the beginning of year ............................................ 75,862,180 209,465,456 200,190,828
-------------- --------------- ----------------
Net assets at the end of year .................................................. 95,659,587 292,413,852 260,697,605
-------------- --------------- ----------------
-------------- --------------- ----------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------
MATURING MATURING
GOVERNMENT GOVERNMENT
INTERNATIONAL SMALL BOND BOND
STOCK COMPANY 1998(a) 2002
------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net ....................................... $ 2,965,371 (1,521,739) 265,503 242,793
Net realized gains on investments .................................... 12,192,344 1,655,206 86,951 99,137
Net change in unrealized appreciation or depreciation
of investments .................................................... (5,554,561) (857,220) (225,451) 23,772
------------- ------------ ------------- -----------
Net increase in net assets resulting from operations ...................... 9,603,154 (723,753) 127,003 365,702
------------- ------------ ------------- -----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ........................................... 36,659,650 28,012,351 1,136,821 2,697,576
Contract terminations and withdrawal payments ........................ (42,040,850) (24,558,706) (5,860,095) (536,207)
Actuarial adjustments for mortality experience on annuities
in payment period ................................................. (2,076) (34,522) 39 11,619
Annuity benefit payments ............................................. (220,772) (170,663) (529) (3,389)
------------- ------------ ------------- -----------
Increase (decrease) in net assets from contract transactions ............. (5,604,048) 3,248,460 (4,723,764) 2,169,599
------------- ------------ ------------- -----------
Increase in net assets .................................................... 3,999,106 2,524,707 (4,596,761) 2,535,301
Net assets at the beginning of year ....................................... 199,426,099 123,586,129 4,596,761 3,818,401
------------- ------------ ------------- -----------
Net assets at the end of year ............................................. $203,425,205 126,110,836 - 6,353,702
------------- ------------ ------------- -----------
------------- ------------ ------------- -----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
MATURING MATURING
GOVERNMENT GOVERNMENT
BOND BOND VALUE
2006 2010 STOCK
-------------- -------------- ------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ....................................... 241,945 108,038 (1,884,495)
Net realized gains on investments .................................... 153,646 172,170 2,098,374
Net change in unrealized appreciation or depreciation
of investments ................................................... 207,803 225,554 (224,889)
-------------- -------------- ------------
Net increase in net assets resulting from operations ...................... 603,394 505,762 (11,010)
-------------- -------------- ------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ........................................... 3,409,399 3,456,312 43,797,257
Contract terminations and withdrawal payments ........................ (1,258,332) (1,503,240) (38,307,284)
Actuarial adjustments for mortality experience on annuities
in payment period ................................................. 14,151 3,086 3,280
Annuity benefit payments ............................................. (23,275) 20,121 (198,093)
-------------- -------------- ------------
Increase (decrease) in net assets from contract transactions ............. 2,141,943 1,976,279 5,295,160
-------------- -------------- ------------
Increase in net assets .................................................... 2,745,337 2,482,041 5,284,150
Net assets at the beginning of year ....................................... 3,729,549 2,950,172 146,326,158
-------------- -------------- ------------
Net assets at the end of year ............................................. 6,474,886 5,432,213 151,610,308
-------------- -------------- ------------
-------------- -------------- ------------
</TABLE>
(a) For the period from January 1, 1998, to September 18, 1998, termination
of the sub-account.
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------
SMALL
COMPANY GLOBAL INDEX 400 MACRO-CAP
VALUE BOND MID-CAP VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net ......................................$ 25,177 1,402,375 (20,760) (59,579)
Net realized gains (losses) on investments .......................... 77,403 863,057 282,490 478,979
Net change in unrealized appreciation or depreciation
of investments ................................................... (605,890) 1,472,544 911,492 995,598
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations .......... (503,310) 3,737,976 1,173,222 1,414,998
----------- ----------- ----------- -----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments .......................................... 6,475,581 4,876,523 5,538,756 6,338,736
Contract terminations and withdrawal payments ....................... (3,395,717) (2,838,384) (2,645,937) (2,540,858)
Actuarial adjustments for mortality experience on annuities
in payment period ................................................ (2,310) (880) (576) (869)
Annuity benefit payments ............................................ (23,150) (4,734) (1,971) (3,204)
----------- ----------- ----------- -----------
Increase in net assets from contract transactions ........................ 3,054,404 2,032,525 2,890,272 3,793,805
----------- ----------- ----------- -----------
Increase in net assets ................................................... 2,551,094 5,770,501 4,063,494 5,208,803
Net assets at the beginning of year ...................................... 4,959,512 25,003,659 5,042,153 4,883,988
----------- ----------- ----------- -----------
Net assets at the end of year ............................................$ 7,510,606 30,774,160 9,105,647 10,092,791
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------
REAL TEMPLETON
MICRO-CAP ESTATE DEVELOPING
GROWTH SECURITIES(a) MARKETS
---------- ------------- ----------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ....................................... (65,447) 154,790 (6,929)
Net realized gains (losses) on investments ........................... (93,716) (21,724) (40,375)
Net change in unrealized appreciation or depreciation
of investments .................................................... 947,708 (853,470) (426,587)
---------- ------------- ----------
Net increase (decrease) in net assets resulting from operations .......... 788,545 (720,404) (473,891)
---------- ------------- ----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ........................................... 3,203,379 5,877,266 3,575,326
Contract terminations and withdrawal payments ........................(1,387,271) (91,132) (650,918)
Actuarial adjustments for mortality experience on annuities
in payment period ................................................. (805) - (5,630)
Annuity benefit payments ............................................. (6,101) (125) (15,524)
---------- ------------- ----------
Increase in net assets from contract transactions ......................... 1,809,202 5,786,009 2,903,254
---------- ------------- ----------
Increase in net assets .................................................... 2,597,747 5,065,605 2,429,363
Net assets at the beginning of year ....................................... 4,575,844 - 514,721
---------- ------------- ----------
Net assets at the end of year ............................................. 7,173,591 5,065,605 2,944,084
---------- ------------- ----------
---------- ------------- ----------
</TABLE>
(a) For the period from April 24, 1998, commencement of operations, to
December 31, 1998.
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------
MONEY ASSET
GROWTH BOND MARKET ALLOCATION
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net .................................... $ (707,789) 3,423,090 1,223,041 4,703,693
Net realized gains on investments ................................. 31,433,672 448,191 - 26,148,733
Net change in unrealized appreciation or depreciation
of investments ................................................. 10,155,331 3,109,325 - 26,799,187
------------- ------------ ------------ --------------
Net increase in net assets resulting from operations ................... 40,881,214 6,980,606 1,223,041 57,651,613
------------- ------------ ------------ --------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ........................................ 37,464,249 29,678,709 52,599,130 51,665,342
Contract terminations and withdrawal payments ..................... (15,679,425) (14,483,737) (57,536,852) (41,700,448)
Actuarial adjustments for mortality experience on annuities
in payment period .............................................. 5,455 (4,132) (549,389) 550,291
Annuity benefit payments .......................................... (92,583) (80,007) (12,607) (314,868)
------------- ------------ ------------ --------------
Increase (decrease) in net assets from contract transactions ........... 21,697,696 15,110,833 (5,499,718) 10,200,317
------------- ------------ ------------ --------------
Increase (decrease) in net assets ...................................... 62,578,910 22,091,439 (4,276,677) 67,851,930
Net assets at the beginning of year .................................... 117,531,708 80,892,883 36,601,444 323,180,479
------------- ------------ ------------ --------------
Net assets at the end of year .......................................... $180,110,618 102,984,322 32,324,767 391,032,409
------------- ------------ ------------ --------------
------------- ------------ ------------ --------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------
MORTGAGE INDEX CAPITAL
SECURITIES 500 APPRECIATION
-------------- --------------- ------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ............................................ 3,393,365 (340,578) (2,167,763)
Net realized gains on investments ......................................... 258,432 10,716,907 20,271,400
Net change in unrealized appreciation or depreciation
of investments ......................................................... 1,596,944 35,139,477 23,548,588
-------------- --------------- ------------
Net increase in net assets resulting from operations ........................... 5,248,741 45,515,806 41,652,225
-------------- --------------- ------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ................................................ 18,403,459 51,509,928 27,739,494
Contract terminations and withdrawal payments ............................. (13,595,580) (22,382,897) (19,504,571)
Actuarial adjustments for mortality experience on annuities
in payment period ...................................................... 4,705 (359,445) 663
Annuity benefit payments .................................................. (44,690) (152,662) (128,627)
-------------- --------------- ------------
Increase (decrease) in net assets from contract transactions ................... 4,767,894 28,614,924 8,106,959
-------------- --------------- ------------
Increase (decrease) in net assets .............................................. 10,016,635 74,130,730 49,759,184
Net assets at the beginning of year ............................................ 65,845,545 135,334,726 150,431,644
-------------- --------------- ------------
Net assets at the end of year .................................................. 75,862,180 209,465,456 200,190,828
-------------- --------------- ------------
-------------- --------------- ------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------
MATURING MATURING
GOVERNMENT GOVERNMENT
INTERNATIONAL SMALL BOND BOND
STOCK COMPANY 1998 2002
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net ....................................... $ 2,703,915 (1,396,390) 183,738 142,344
Net realized gains on investments .................................... 6,738,520 2,386,100 51,633 44,461
Net change in unrealized appreciation or depreciation
of investments .................................................... 7,074,429 6,377,969 (17,138) 55,287
------------- ----------- ----------- -----------
Net increase in net assets resulting from operations ...................... 16,516,864 7,367,679 218,233 242,092
------------- ----------- ----------- -----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ........................................... 51,794,301 36,868,064 1,064,388 684,461
Contract terminations and withdrawal payments ........................ (19,345,856) (20,954,051) (1,206,624) (667,868)
Actuarial adjustments for mortality experience on annuities
in payment period ................................................. 50,457 305,163 3 24
Annuity benefit payments ............................................. (153,952) (155,161) (117) (4,611)
------------- ----------- ----------- -----------
Increase (decrease) in net assets from contract transactions .............. 32,344,950 16,064,015 (142,350) 12,006
------------- ----------- ----------- -----------
Increase in net assets .................................................... 48,861,814 23,431,694 75,883 254,098
Net assets at the beginning of year ....................................... 150,564,285 100,154,435 4,520,878 3,564,303
------------- ----------- ----------- -----------
Net assets at the end of year ............................................. $ 199,426,099 123,586,129 4,596,761 3,818,401
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
MATURING MATURING
GOVERNMENT GOVERNMENT
BOND BOND VALUE
2006 2010 STOCK
-------------- --------------- -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ....................................... 128,725 78,390 63,632
Net realized gains on investments .................................... 59,986 44,494 16,454,374
Net change in unrealized appreciation or depreciation
of investments .................................................... 172,717 236,051 2,218,967
-------------- --------------- -------------
Net increase in net assets resulting from operations ...................... 361,428 358,935 18,736,973
-------------- --------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ........................................... 743,477 823,375 68,735,594
Contract terminations and withdrawal payments ........................ (314,002) (859,199) (19,539,662)
Actuarial adjustments for mortality experience on annuities
in payment period ................................................. 24 - 25,118
Annuity benefit payments ............................................. (4,781) - (93,964)
-------------- --------------- -------------
Increase (decrease) in net assets from contract transactions .............. 424,718 (35,824) 49,127,086
-------------- --------------- -------------
Increase in net assets .................................................... 786,146 323,111 67,864,059
Net assets at the beginning of year ....................................... 2,943,403 2,627,061 78,462,099
-------------- --------------- -------------
Net assets at the end of year ............................................. 3,729,549 2,950,172 146,326,158
-------------- --------------- -------------
-------------- --------------- -------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------
SMALL
COMPANY GLOBAL INDEX 400
VALUE(a) BOND(b) MID-CAP(a)
------------ ---------- -----------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ....................................... $ (16,022) 284,071 (15,973)
Net realized gains (losses) on investments ........................... (5,713) 49,263 (13,549)
Net change in unrealized appreciation or depreciation
of investments .................................................... 152,573 (401,884) 48,048
------------ ---------- -----------
Net increase (decrease) in net assets resulting from operations .......... 130,838 (68,550) 18,526
------------ ---------- -----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ........................................... 5,932,017 26,233,498 5,666,129
Contract terminations and withdrawal payments ........................ (1,103,343) (1,161,289) (642,502)
Actuarial adjustments for mortality experience on annuities
in payment period ................................................. - - -
Annuity benefit payments ............................................. - - -
------------ ---------- -----------
Increase in net assets from contract transactions ......................... 4,828,674 25,072,209 5,023,627
------------ ---------- -----------
Increase in net assets .................................................... 4,959,512 25,003,659 5,042,153
Net assets at the beginning of period ..................................... - - -
------------ ---------- -----------
Net assets at the end of period ........................................... $ 4,959,512 25,003,659 5,042,153
------------ ---------- -----------
------------ ---------- -----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------
TEMPLETON
MACRO-CAP MICRO-CAP DEVELOPING
VALUE (d) GROWTH (c) MARKETS (e)
------------ ---------- -----------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ....................................... 7,428 (18,203) (749)
Net realized gains (losses) on investments ........................... (13,240) 115,314 (10,017)
Net change in unrealized appreciation or depreciation
of investments .................................................... (116,265) (550,197) (104,773)
------------ ---------- -----------
Net increase (decrease) in net assets resulting from operations .......... (122,077) (453,086) (115,539)
------------ ---------- -----------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments ........................................... 5,317,960 5,465,120 676,481
Contract terminations and withdrawal payments ........................ (311,895) (436,190) (45,203)
Actuarial adjustments for mortality experience on annuities
in payment period ................................................. - - (649)
Annuity benefit payments ............................................. - - (369)
------------ ---------- -----------
Increase in net assets from contract transactions ......................... 5,006,065 5,028,930 630,260
------------ ---------- -----------
Increase in net assets .................................................... 4,883,988 4,575,844 514,721
Net assets at the beginning of period ..................................... - - -
------------ ---------- -----------
Net assets at the end of period ........................................... 4,883,988 4,575,844 514,721
------------ ---------- -----------
------------ ---------- -----------
</TABLE>
(a) For the period from September 29, 1997, commencement of operations, to
December 31, 1997.
(b) For the period from September 24, 1997, commencement of operations, to
December 31, 1997.
(c) For the period from September 15, 1997, commencement of operations, to
December 31, 1997.
(d) For the period from October 15, 1997, commencement of operations, to
December 31, 1997.
(e) For the period from October 2, 1997, commencement of operations, to
December 31, 1997.
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND BASIS OF PRESENTATION
The Variable Annuity Account (the Account), formerly Minnesota Mutual
Variable Annuity Account, was established on September 10, 1984 as a
segregated asset account of Minnesota Life Insurance Company (Minnesota
Life), formerly The Minnesota Mutual Life Insurance Company, under
Minnesota law and is registered as a unit investment trust under the
Investment Company Act of 1940 (as amended). There are currently four
types of contracts each consisting of one to twenty segregated
sub-accounts. The financial statements presented herein include only the
segregated sub-accounts offered in connection with the sale of the
Combination Fixed and Variable Annuity Contracts for Personal Retirement
Plans (Multi-option Annuity) and Multi-Option Select.
The assets of each segregated sub-account are held for the exclusive
benefit of the variable annuity contract owners and are not chargeable
with liabilities arising out of the business conducted by any other
account or by Minnesota Life. Contract owners allocate their variable
annuity purchase payments to one or more of the twenty segregated
sub-accounts. Such payments are then invested in shares of Advantus
Series Fund, Inc. and Templeton Variable Products Series Fund (Underlying
Funds). The Advantus Series Fund, Inc. was organized by Minnesota Life as
the investment vehicle for its variable annuity contracts and variable
life policies. Each of the Underlying Funds is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company.
Payments allocated to the Growth, Bond, Money Market, Asset Allocation,
Mortgage Securities, Index 500, Capital Appreciation, International
Stock, Small Company, Maturing Government Bond 2002, Maturing Government
Bond 2006, Maturing Government Bond 2010, Value Stock, Small Company
Value, Global Bond (formerly International Bond), Index 400 Mid-Cap,
Micro-Cap Value, Micro-Cap Growth, Real Estate Securities, and Templeton
Developing Markets segregated sub-accounts are invested in shares of the
Growth, Bond, Money Market, Asset Allocation, Mortgage Securities, Index
500, Capital Appreciation, International Stock, Small Company, Maturing
Government Bond 2002, Maturing Government Bond 2006, Maturing Government
Bond 2010, Value Stock, Small Company Value, Global Bond (formerly
International Bond), Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap Growth
and Real Estate Securities Portfolios of the Advantus Series Fund, Inc.
and Templeton Developing Markets Fund - Class 2 of the Templeton Variable
Products Series Fund, respectively. The Maturing Government Bond 1998
Portfolio matured on September 18, 1998. Liquidation proceeds from the
Maturing Government Bond 1998 sub-account were reinvested in another
sub-account at the direction of the contract owner. If the contract owner
did not direct the reinvestment, the proceeds were automatically
reinvested in the Money Market sub-account.
Ascend Financial Services, Inc. acts as the underwriter for the Account.
Advantus Capital Management, Inc. acts as the investment adviser for the
Advantus Series Fund, Inc. Ascend Financial Services, Inc. is a wholly-
owned subsidiary of Advantus Capital Management, Inc. and Advantus
Capital Management, Inc. is a wholly-owned subsidiary of Minnesota Life.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements.
Actual results could differ from those estimates.
INVESTMENTS IN UNDERLYING FUNDS
Investments in shares of the Underlying Funds are stated at market value
which is the net asset value per share as determined daily by each of the
Underlying Funds. Investment transactions are accounted for on the date
the shares are purchased or sold. The cost of investments sold is
determined on the average cost method. All dividend distributions
received from the Underlying Funds are reinvested in additional shares of
the Underlying Funds and are recorded by the segregated sub-accounts on
the ex-dividend date.
<PAGE>
2
VARIABLE ANNUITY ACCOUNT
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FEDERAL INCOME TAXES
The Account is treated as part of Minnesota Life for federal income tax
purposes. Under current interpretations of existing federal income tax
law, no income taxes are payable on investment income or capital gain
distributions received by the Account from the Fund.
CONTRACTS IN ANNUITY PAYMENT PERIOD
Annuity reserves are computed for currently payable contracts according
to the mortality and assumed interest rate assumptions used to purchase
the annuity income. Charges to annuity reserves for mortality and risk
expense are reimbursed to Minnesota Life if the reserves required are
less than originally estimated. If additional reserves are required,
Minnesota Life reimburses the Account.
(3) MORTALITY AND EXPENSE AND SALES CHARGES
The mortality and expense charge paid to Minnesota Life is computed daily
and is equal, on an annual basis, to 1.25 percent of the average daily
net assets of the Account. Under certain conditions, the charge may be
increased to 1.40 percent of the average daily net assets of the Account.
A contingent deferred sales charge may be imposed on a Multi-Option
Annuity or Multi-Option Select contract owner during the first ten years
or first seven years, respectively, if a contract's accumulation value is
reduced by a withdrawal or surrender. Total sales charges deducted from
redemption proceeds for the years ended December 31, 1998 and 1997
amounted to $3,304,803 and $1,743,977, respectively.
(4) INVESTMENT TRANSACTIONS
The Account's purchases of Underlying Funds shares, including
reinvestment of dividend distributions, were as follows during the year
ended December 31, 1998:
<TABLE>
<S> <C>
Growth Portfolio ....................................... $83,069,846
Bond Portfolio ......................................... 49,078,691
Money Market Portfolio ................................. 74,258,718
Asset Allocation Portfolio ............................. 108,819,885
Mortgage Securities Portfolio .......................... 38,044,967
Index 500 Portfolio .................................... 71,360,492
Capital Appreciation Portfolio ......................... 49,532,824
International Stock Portfolio .......................... 47,758,816
Small Company Portfolio ................................ 28,012,350
Maturing Government Bond 1998 Portfolio ................ 1,441,948
Maturing Government Bond 2002 Portfolio ................ 3,063,110
Maturing Government Bond 2006 Portfolio ................ 3,736,179
Maturing Government Bond 2010 Portfolio ................ 3,615,198
Value Stock Portfolio .................................. 44,035,958
Small Company Value Portfolio .......................... 6,573,993
Global Bond Portfolio .................................. 7,405,437
Index 400 Mid-Cap Portfolio ............................ 5,756,719
Macro-Cap Value ........................................ 6,779,689
Macro-Cap Growth Portfolio ............................. 3,203,380
Real Estate Securities ................................. 6,071,631
Templeton Developing Markets Fund ...................... 2,930,782
</TABLE>
<PAGE>
3
VARIABLE ANNUITY ACCOUNT
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS
Transactions in units for each segregated sub-account for the years
ended December 31, 1998 and 1997 (period ended December 31, 1998 for
Real Estate Securities) were as follows:
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------
MONEY ASSET MORTGAGE
GROWTH BOND MARKET ALLOCATION SECURITIES
--------------- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1996 ....................... 38,448,452 36,732,062 22,929,634 116,211,650 32,527,955
Contract purchase
payments ............................ 10,771,702 13,082,596 32,831,960 17,230,670 8,805,041
Deductions for contract
terminations and
withdrawal payments ................. (4,514,907) (6,548,254) (35,956,753) (13,950,918) (6,581,799)
--------------- ------------ ------------ -------------- -------------
Units outstanding at
December 31, 1997 ....................... 44,705,247 43,266,404 19,804,841 119,491,402 34,751,197
Contract purchase
payments ............................ 11,145,679 16,757,246 43,552,011 19,570,064 14,779,503
Deductions for contract
terminations and
withdrawal payments ................. (8,045,075) (8,682,491) (35,397,177) (18,688,238) (8,023,362)
--------------- ------------ ------------ -------------- -------------
Units outstanding at
December 31, 1998 ....................... 47,805,851 51,341,159 27,959,675 120,373,228 41,507,338
--------------- ------------ ------------ -------------- -------------
--------------- ------------ ------------ -------------- -------------
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------
MATURING
INDEX CAPITAL INTERNATIONAL SMALL GOVERNMENT
500 APPRECIATION STOCK COMPANY BOND 1998
------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1996 ......................... 46,097,553 51,023,999 86,521,264 59,295,273 3,911,112
Contract purchase
payments .............................. 15,045,840 8,635,068 27,399,036 21,317,225 897,511
Deductions for contract
terminations and
withdrawal payments ................... (6,564,128) (6,076,586) (10,319,698) (12,021,733) (1,019,327)
------------- -------------- ------------- -------------- -------------
Units outstanding at
December 31, 1997 ......................... 54,579,265 53,582,481 103,600,602 68,590,765 3,789,296
Contract purchase
payments .............................. 15,789,448 8,967,037 17,507,237 15,655,645 914,391
Deductions for contract
terminations and
withdrawal payments ................... (10,100,150) (8,655,037) (21,151,100) (14,456,560) (4,703,687)
------------- -------------- ------------- -------------- -------------
Units outstanding at
December 31, 1998 ......................... 60,268,563 53,894,481 99,956,739 69,789,850 -
------------- -------------- ------------- -------------- -------------
------------- -------------- ------------- -------------- -------------
</TABLE>
<PAGE>
4
VARIABLE ANNUITY ACCOUNT
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - CONTINUED
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------------
MATURING MATURING MATURING SMALL
GOVERNMENT GOVERNMENT GOVERNMENT VALUE COMPANY
BOND 2002 BOND 2006 BOND 2010 STOCK VALUE
----------- -------------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1996 .............................. 2,935,860 2,334,109 2,077,124 43,796,523 -
Contract purchase
payments ................................... 553,116 580,185 624,211 34,081,601 5,910,477
Deductions for contract
terminations and
withdrawal payments ........................ (550,128) (248,873) (683,592) (9,626,989) (1,087,973)
----------- -------------- ------------ ---------- -----------
Units outstanding at
December 31, 1997 .............................. 2,938,848 2,665,421 2,017,743 68,251,135 4,822,504
Contract purchase
payments ................................... 1,966,007 2,048,990 1,948,023 20,251,001 5,908,905
Deductions for contract
terminations and
withdrawal payments ........................ (377,892) (833,184) (919,654) (18,520,135) (3,175,808)
----------- -------------- ------------ ---------- -----------
Units outstanding at
December 31, 1998 .............................. 4,526,963 3,881,227 3,046,112 69,982,001 7,555,601
----------- -------------- ------------ ---------- -----------
----------- -------------- ------------ ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------
REAL TEMPLETON
GLOBAL INDEX 400 MACRO-CAP MICRO-CAP ESTATE DEVELOPING
BOND MID-CAP VALUE GROWTH SECURITIES MARKETS
----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1996 ............................ - - - - - -
Contract purchase
payments ................................. 26,222,899 5,600,260 5,329,567 5,472,331 - 807,553
Deductions for contract
terminations and
withdrawal payments ...................... (1,139,554) (580,219) (326,177) (452,853) - (83,179)
----------- ----------- ----------- ------------ ----------- -----------
Units outstanding at
December 31, 1997 ............................ 25,083,345 5,020,041 5,003,390 5,019,478 - 724,374
Contract purchase
payments ................................. 4,365,049 5,194,349 5,753,309 3,282,037 5,998,094 5,312,035
Deductions for contract
terminations and
withdrawal payments ...................... (2,607,087) (2,435,110) (2,270,829) (1,378,864) (110,703) (1,127,977)
----------- ----------- ----------- ------------ ----------- -----------
Units outstanding at
December 31, 1998 ............................ 26,841,307 7,779,280 8,485,870 6,922,652 5,887,391 4,908,432
----------- ----------- ----------- ------------ ----------- -----------
----------- ----------- ----------- ------------ ----------- -----------
</TABLE>
<PAGE>
5
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS
The following tables for each segregated sub-account show certain data
for an accumulation unit outstanding during the periods indicated:
GROWTH
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year....................... $ 4.01 3.04 2.63 2.14 2.15
-------- ------- -------- -------- ------
Income (loss) from investment operations:
Net investment income (loss)...................... (.02) (.02) (.01) (.01) (.01)
Net gains or losses on securities
(both realized and unrealized) ................ 1.35 .99 .42 .50 -
-------- ------- -------- -------- ------
Total from investment operations ............... 1.33 .97 .41 .49 (.01)
-------- ------- -------- -------- ------
Unit value, end of year ............................ $ 5.34 4.01 3.04 2.63 2.14
-------- ------- -------- -------- ------
-------- ------- -------- -------- ------
</TABLE>
<PAGE>
6
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
BOND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year ........................ $ 2.37 2.19 2.15 1.82 1.93
-------- ------- -------- -------- ------
Income (loss) from investment operations:
Net investment income ............................. .10 .09 .08 .04 .05
Net gains or losses on securities
(both realized and unrealized) .................. .01 .09 (.04) .29 (.16)
-------- ------- -------- -------- ------
Total from investment operations ................. .11 .18 .04 .33 (.11)
-------- ------- -------- -------- ------
Unit value, end of year .............................. $ 2.48 2.37 2.19 2.15 1.82
-------- ------- -------- -------- ------
-------- ------- -------- -------- ------
</TABLE>
<PAGE>
7
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MONEY MARKET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year ........................... $ 1.63 1.57 1.52 1.46 1.42
-------- ------- -------- -------- ------
Income from investment operations:
Net investment income ................................. .06 .06 .05 .06 .04
-------- ------- -------- -------- ------
Total from investment operations .................... .06 .06 .05 .06 .04
-------- ------- -------- -------- ------
Unit value, end of year ................................. $ 1.69 1.63 1.57 1.52 1.46
-------- ------- -------- -------- ------
-------- ------- -------- -------- ------
</TABLE>
<PAGE>
8
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
ASSET ALLOCATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year ........................ $ 3.25 2.76 2.49 2.01 2.07
-------- ------- -------- -------- ------
Income (loss) from investment operations:
Net investment income ............................. .05 .04 .04 .04 .01
Net gains or losses on securities
(both realized and unrealized) .................. .66 .45 .23 .44 (.07)
-------- ------- -------- -------- ------
Total from investment operations ................. .71 .49 .27 .48 (.06)
-------- ------- -------- -------- ------
Unit value, end of year .............................. $ 3.96 3.25 2.76 2.49 2.01
-------- ------- -------- -------- ------
-------- ------- -------- -------- ------
</TABLE>
<PAGE>
9
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MORTGAGE SECURITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year ........................ $ 2.17 2.01 1.93 1.66 1.74
-------- ------- -------- -------- ------
Income (loss) from investment operations:
Net investment income ............................. .09 .10 .10 .10 .06
Net gains or losses on securities
(both realized and unrealized) .................. .02 .06 (.02) .17 (.14)
-------- ------- -------- -------- ------
Total from investment operations ................. .11 .16 .08 .27 (.08)
-------- ------- -------- -------- ------
Unit value, end of year .............................. $ 2.28 2.17 2.01 1.93 1.66
-------- ------- -------- -------- ------
-------- ------- -------- -------- ------
</TABLE>
<PAGE>
10
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
INDEX 500
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year....................... $ 3.81 2.91 2.43 1.79 1.80
-------- ------- -------- -------- ------
Income (loss) from investment operations:
Net investment income (loss)...................... (.02) (.01) - .01 -
Net gains or losses on securities
(both realized and unrealized) ................ 1.02 .91 .48 .63 (.01)
-------- ------- -------- -------- ------
Total from investment operations ............... 1.00 .90 .48 .64 (.01)
-------- ------- -------- -------- ------
Unit value, end of year ............................ $ 4.81 3.81 2.91 2.43 1.79
-------- ------- -------- -------- ------
-------- ------- -------- -------- ------
</TABLE>
<PAGE>
11
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
CAPITAL APPRECIATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year ..................... $ 3.71 2.93 2.52 2.08 2.06
-------- ------- -------- -------- ------
Income from investment operations:
Net investment loss.............................. (.05) (.04) (.03) (.03) (.02)
Net gains or losses on securities (both
realized and unrealized) ...................... 1.13 .82 .44 .47 .04
-------- ------- -------- -------- ------
Total from investment operations .............. 1.08 .78 .41 .44 .02
-------- ------- -------- -------- ------
Unit value, end of year ........................... $ 4.79 3.71 2.93 2.52 2.08
-------- ------- -------- -------- ------
-------- ------- -------- -------- ------
</TABLE>
<PAGE>
12
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
INTERNATIONAL STOCK
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year....................... $ 1.91 1.73 1.46 1.30 1.32
-------- ------- -------- -------- ------
Income (loss) from investment operations:
Net investment income (loss)..................... .03 .03 .02 (.02) .01
Net gains or losses on securities
(both realized and unrealized)................ .07 .15 .25 .18 (.03)
-------- ------- -------- -------- ------
Total from investment operations............... .10 .18 .27 .16 (.02)
-------- ------- -------- -------- ------
Unit value, end of year ........................... $ 2.01 1.91 .73 1.46 1.30
-------- ------- -------- -------- ------
-------- ------- -------- -------- ------
</TABLE>
<PAGE>
13
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
SMALL COMPANY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period.................... $ 1.78 1.67 1.59 1.22 1.16
-------- ------- -------- -------- ------
Income from investment operations:
Net investment loss............................. (.02) (.02) (.02) (.02) (.01)
Net gains or losses on securities
(both realized and unrealized)............... .02 .13 .10 .39 .07
-------- ------- -------- -------- ------
Total from investment operations............. - .11 .08 .37 .06
-------- ------- -------- -------- ------
Unit value, end of period.......................... $ 1.78 1.78 1.67 1.59 1.22
-------- ------- -------- -------- ------
-------- ------- -------- -------- ------
</TABLE>
<PAGE>
14
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MATURING GOVERNMENT BOND 1998
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994(b)
----------------------------------------------- TO DECEMBER 31,
1998(a) 1997 1996 1995 1994
------------- -------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ...................... $ 1.21 1.16 1.12 .98 1.00
------------- -------- --------- ---------- --------------
Income (loss) from investment operations:
Net investment income (loss) ..................... .08 .04 (.01) .05 .03
Net gains or losses on securities
(both realized and unrealized) ................ (.04) .01 .05 .09 (.05)
------------- -------- --------- ---------- --------------
Total from investment operations .............. .04 .05 .04 .14 (.02)
------------- -------- --------- ---------- --------------
Transfer to other sub-accounts due to
liquidation ................................... (1.25) - - - -
------------- -------- --------- ---------- --------------
Unit value, end of period ............................. $ - 1.21 1.16 1.12 .98
------------- -------- --------- ---------- --------------
------------- -------- --------- ---------- --------------
</TABLE>
(a) For the period from January 1, 1998 to September 18, 1998, termination
of the sub-account.
(b) Inception of the segregated sub-account was May 2, 1994, when the units
became effectively registered under the Securities Exchange Act of
1933.
<PAGE>
15
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MATURING GOVERNMENT BOND 2002
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994(a)
------------------------------------------ TO DECEMBER 31,
1998 1997 1996 1995 1994
-------- -------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ........................... $ 1.29 1.21 1.20 .97 1.00
-------- -------- --------- ---------- --------------
Income (loss) from investment operations:
Net investment income ................................. .07 .05 .06 .06 .04
Net gains or losses on securities
(both realized and unrealized) ..................... .04 .03 (.05) .17 (.07)
-------- -------- --------- ---------- --------------
Total from investment operations.................... .11 .08 .01 .23 (.03)
-------- -------- --------- ---------- --------------
Unit value, end of period ................................. $ 1.40 1.29 1.21 1.20 .97
-------- -------- --------- ---------- --------------
-------- -------- --------- ---------- --------------
</TABLE>
(a) Inception of the segregated sub-account was May 2, 1994, when the
units became effectively registered under the Securities Exchange
Act of 1933.
<PAGE>
16
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MATURING GOVERNMENT BOND 2006
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994(a)
---------------------------------------------- TO DECEMBER 31,
1998 1997 1996 1995 1994
----------- ------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ...................... $ 1.39 1.25 1.28 .96 1.00
----------- ------- --------- -------- -------------
Income (loss) from investment operations:
Net investment income ........................... .08 .05 .06 .06 .04
Net gains or losses on securities
(both realized and unrealized) ............... .10 .09 (.09) .26 (.08)
----------- ------- --------- -------- -------------
Total from investment operations ............. .18 .14 (.03) .32 (.04)
----------- ------- --------- -------- -------------
Unit value, end of period ........................... $ 1.57 1.39 1.25 1.28 .96
----------- ------- --------- -------- -------------
----------- ------- --------- -------- -------------
</TABLE>
(a) Inception of the segregated sub-account was May 2, 1994, when the
units became effectively registered under the Securities Exchange
Act of 1933.
<PAGE>
17
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MATURING GOVERNMENT BOND 2010
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994(a)
------------------------------------------ TO DECEMBER 31,
1998 1997 1996 1995 1994
-------- -------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ........................... $ 1.47 1.27 1.33 .95 1.00
-------- -------- --------- ---------- --------------
Income (loss) from investment operations:
Net investment income (loss) ........................ .05 .04 (.02) .06 .04
Net gains or losses on securities
(both realized and unrealized) .................. .14 .16 (.04) .32 (.09)
-------- -------- --------- ---------- --------------
Total from investment operations ................ .19 .20 (.06) .38 (.05)
-------- -------- --------- ---------- --------------
Unit value, end of period ................................. $ 1.66 1.47 1.27 1.33 .95
-------- -------- --------- ---------- --------------
-------- -------- --------- ---------- --------------
</TABLE>
(a) Inception of the segregated sub-account was May 2, 1994, when the
units became effectively registered under the Securities Exchange
Act of 1933.
<PAGE>
18
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
VALUE STOCK
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, MAY 2, 1994(a)
------------------------------------------ TO DECEMBER 31,
1998 1997 1996 1995 1994
-------- -------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period .............................. $ 2.13 1.78 1.38 1.05 1.00
-------- -------- --------- ---------- ---------------
Income from investment operations:
Net investment income (loss) ........................... (.03) - - - .01
Net gains or losses on securities
(both realized and unrealized) ..................... .04 .35 .40 .33 .04
-------- -------- --------- ---------- ---------------
Total from investment operations ................... .01 .35 .40 .33 .05
-------- -------- --------- ---------- ---------------
Unit value, end of period .................................... $ 2.14 2.13 1.78 1.38 1.05
-------- -------- --------- ---------- ---------------
-------- -------- --------- ---------- ---------------
</TABLE>
(a) Inception of the segregated sub-account was May 2, 1994, when the
units became effectively registered under the Securities Exchange
Act of 1933.
<PAGE>
19
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
SMALL COMPANY VALUE
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 1, 1997(a)
DECEMBER 31, TO DECEMBER 31,
1998 1997
------------ --------------
<S> <C> <C>
Unit value, beginning of period ...................................... $ 1.03 1.00
------------ --------------
Income (loss) from investment operations:
Net investment income (loss) ..................................... - -
Net gains or losses on securities (both realized and unrealized).. (.08) .03
------------ --------------
Total from investment operations .............................. (.08) .03
------------ --------------
Unit value, end of period ............................................ $ .95 1.03
------------ --------------
------------ --------------
</TABLE>
(a) Inception of the segregated sub-account was October 1, 1997, when
the units became effectively registered under the Securities
Exchange Act of 1933.
<PAGE>
20
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
GLOBAL BOND
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 1, 1997(a)
DECEMBER 31, TO DECEMBER 31,
1998 1997
------------ --------------
<S> <C> <C>
Unit value, beginning of period .................................... $ 1.00 1.00
------------ --------------
Income from investment operations:
Net investment income (loss) .................................. .06 .01
Net gains or losses on securities
(both realized and unrealized) ............................ .08 (.01)
------------ --------------
Total from investment operations .......................... .14 -
------------ --------------
Unit value, end of period .......................................... $ 1.14 1.00
------------ --------------
------------ --------------
</TABLE>
(a) Inception of the segregated sub-account was October 1, 1997, when
the units became effectively registered under the Securities
Exchange Act of 1933.
<PAGE>
21
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
INDEX 400 MID-CAP
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 1, 1997(a)
DECEMBER 31, TO DECEMBER 31,
1998 1997
--------------- --------------
<S> <C> <C>
Unit value, beginning of period ........................................ $ 1.00 1.00
--------------- --------------
Income from investment operations:
Net investment income (loss) ....................................... - -
Net gains or losses on securities
(both realized and unrealized) .................................. .16 -
--------------- --------------
Total from investment operations ................................ .16 -
--------------- --------------
Unit value, end of period .............................................. $ 1.16 1.00
--------------- --------------
--------------- --------------
</TABLE>
(a) Inception of the segregated sub-account was October 1, 1997, when
the units became effectively registered under the Securities
Exchange Act of 1933.
<PAGE>
22
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MACRO-CAP VALUE
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDD OCTOBER 1, 1997(a)
DECEMBER 31, TO DECEMBER 31,
1998 1997
------------ --------------
<S> <C> <C>
Unit value, beginning of period ...................................... $ .98 1.00
------------ --------------
Income (loss) from investment operations:
Net investment income (loss) ................................... (.01) -
Net gains or losses on securities
(both realized and unrealized) .............................. .21 (.02)
------------ --------------
Total from investment operations ........................... .20 (.02)
------------ --------------
Unit value, end of period ............................................ $ 1.18 .98
------------ --------------
------------ --------------
</TABLE>
(a) Inception of the segregated sub-account was October 15, 1997, when
the units became effectively registered under the Securities
Exchange Act of 1933.
<PAGE>
23
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
MICRO-CAP GROWTH
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 1, 1997(a)
DECEMBER 31, TO DECEMBER 31,
1998 1997
--------------- --------------
<S> <C> <C>
Unit value, beginning of period ........................................ $ .91 1.00
--------------- --------------
Income (loss) from investment operations:
Net investment loss ................................................ (.01) (.01)
Net gains or losses on securities (both realized and unrealized) ... .12 (.08)
--------------- --------------
Total from investment operations ................................ .11 (.09)
--------------- --------------
Unit value, end of period .............................................. $ 1.02 .91
--------------- --------------
--------------- --------------
</TABLE>
(a) Inception of the segregated sub-account was October 1, 1997, when
the units became effectively registered under the Securities
Exchange Act of 1933.
<PAGE>
24
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
REAL ESTATE SECURITIES
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 24, 1998(a)
TO DECEMBER 31,
1998
---------------
<S> <C>
Unit value, beginning of period ................................... $ 1.00
---------------
Income (loss) from investment operations:
Net investment income ......................................... .03
Net losses on securities (both realized and unrealized) ....... (.17)
---------------
Total from investment operations ........................... (.14)
---------------
Unit value, end of period ......................................... $ .86
---------------
---------------
</TABLE>
(a) For the period from May 1, 1998, commencement of operations, to
December 31, 1998.
<PAGE>
25
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
TEMPLETON DEVELOPING MARKETS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 2, 1997(a)
DECEMBER 31, TO DECEMBER 31,
1998 1997
--------------- --------------
<S> <C> <C>
Unit value, beginning of period ............................................... $ .69 1.00
--------------- --------------
Income (loss) from investment operations:
Net investment income ..................................................... - -
Net losses on securities (both realized and unrealized) ................... (.15) (.31)
--------------- --------------
Total from investment operations ....................................... (.15) (.31)
--------------- --------------
Unit value, end of period ..................................................... $ .54 .69
--------------- --------------
--------------- --------------
</TABLE>
(a) Inception of the segregated sub-account was October 2, 1997, when
the units became effectively registered under the Securities
Exchange Act of 1933.
<PAGE>
Independent Auditors' Report
The Board of Directors
Minnesota Life Insurance Company
We have audited the accompanying consolidated balance sheets of the Minnesota
Life Insurance Company and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations and comprehensive income,
changes in stockholder's equity and cash flows for each of the years in the
three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Minnesota Life Insurance Company and subsidiaries as of December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplementary
information included in the accompanying schedules is presented for purpose of
additional analysis and is not a required part of the basic consolidated
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic consolidated financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic consolidated financial statements taken as a whole.
Minneapolis, Minnesota
February 8, 1999
66
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Balance Sheets
December 31, 1998 and 1997
Assets
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(In thousands)
<S> <C> <C>
Fixed maturity securities:
Available-for-sale, at fair value (amortized cost
$4,667,688 and $4,518,807) $ 4,914,012 $ 4,719,801
Held-to-maturity, at amortized cost (fair value
$1,161,784 and $1,158,227) 1,086,548 1,088,312
Equity securities, at fair value (cost $579,546 and
$537,441) 749,800 686,638
Mortgage loans, net 681,219 661,337
Real estate, net 38,530 39,964
Policy loans 226,409 213,488
Short-term investments 136,435 112,352
Other invested assets 261,625 216,838
----------- -----------
Total investments 8,094,578 7,738,730
Cash 175,660 96,179
Finance receivables, net 163,411 211,794
Deferred policy acquisition costs 564,382 576,030
Accrued investment income 86,974 83,439
Premiums receivable, net 62,609 68,030
Property and equipment, net 67,448 58,123
Reinsurance recoverables 162,553 150,126
Other assets 61,183 52,852
Separate account assets 6,994,752 5,366,810
----------- -----------
Total assets $16,433,550 $14,402,113
=========== ===========
Liabilities and Stockholder's Equity
Liabilities:
Policy and contract account balances $ 4,242,802 $ 4,275,221
Future policy and contract benefits 1,744,245 1,687,529
Pending policy and contract claims 70,564 64,356
Other policyholders' funds 438,595 416,752
Policyholders' dividends payable 53,957 55,321
Stockholder dividend payable 24,700 --
Unearned premiums and fees 180,191 202,070
Federal income tax liability:
Current 53,039 45,300
Deferred 173,907 166,057
Other liabilities 514,468 334,305
Notes payable 267,000 298,000
Separate account liabilities 6,947,806 5,320,517
----------- -----------
Total liabilities 14,711,274 12,865,428
----------- -----------
Stockholder's equity:
Common stock, $1 par value, 5,000,000 shares
authorized, issued and outstanding 5,000 --
Retained earnings 1,513,661 1,380,012
Accumulated other comprehensive income 203,615 156,673
----------- -----------
Total stockholder's equity 1,722,276 1,536,685
----------- -----------
Total liabilities and stockholder's equity $16,433,550 $14,402,113
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
67
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
Years ended December 31, 1998, 1997, and 1996
Statements of Operations
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Revenues:
Premiums $ 577,693 $ 615,253 $ 612,359
Policy and contract fees 300,361 272,037 245,966
Net investment income 531,081 553,773 530,987
Net realized investment gains 114,652 114,367 55,574
Finance charge income 35,880 43,650 46,932
Other income 73,498 71,707 51,630
---------- ---------- ----------
Total revenues 1,633,165 1,670,787 1,543,448
---------- ---------- ----------
Benefits and expenses:
Policyholders' benefits 519,926 515,873 541,520
Interest credited to policies and con-
tracts 290,870 298,033 288,967
General operating expenses 360,916 369,961 302,618
Commissions 110,211 114,404 103,370
Administrative and sponsorship fees 80,183 81,750 79,360
Dividends to policyholders 25,159 26,776 24,804
Interest on notes payable 22,360 24,192 22,798
Increase in deferred policy acquisition
costs (18,042) (26,878) (19,284)
---------- ---------- ----------
Total benefits and expenses 1,391,583 1,404,111 1,344,153
---------- ---------- ----------
Income from operations before taxes 241,582 266,676 199,295
Federal income tax expense (benefit):
Current 93,584 84,612 68,033
Deferred (15,351) (7,832) 744
---------- ---------- ----------
Total federal income tax expense 78,233 76,780 68,777
---------- ---------- ----------
Net income $ 163,349 $ 189,896 $ 130,518
========== ========== ==========
Other comprehensive income, after tax:
Foreign currency translation adjust-
ments $ (947) $ 947 $ --
Unrealized gains (losses) on securities 47,889 47,414 (44,940)
---------- ---------- ----------
Other comprehensive income, net of tax 46,942 48,361 (44,940)
---------- ---------- ----------
Comprehensive income $ 210,291 $ 238,257 $ 85,578
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
68
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Common stock:
Issued during the year $ 5,000 $ -- $ --
---------- ---------- ----------
Total common stock $ 5,000 $ -- $ --
========== ========== ==========
Retained earnings:
Beginning balance $1,380,012 $1,190,116 $1,059,598
Net income 163,349 189,896 130,518
Retained earnings transfer for common
stock issued (5,000) -- --
Dividends to stockholder (24,700) -- --
---------- ---------- ----------
Total retained earnings $1,513,661 $1,380,012 $1,190,116
========== ========== ==========
Accumulated other comprehensive income:
Beginning balance $ 156,673 $ 108,312 $ 153,252
Change in unrealized appreciation (de-
preciation) of investments 47,889 47,414 (44,940)
Change in unrealized gain on foreign
currency translation (947) 947 --
---------- ---------- ----------
Total accumulated other comprehensive
income $ 203,615 $ 156,673 $ 108,312
========== ========== ==========
Total stockholder's equity $1,722,276 $1,536,685 $1,298,428
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
69
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 163,349 $ 189,896 $ 130,518
Adjustments to reconcile net income to
net cash provided by operating activi-
ties:
Interest credited to annuity and in-
surance contracts 265,841 276,719 275,968
Fees deducted from policy and con-
tract balances (212,901) (214,803) (206,780)
Change in future policy benefits 56,716 76,358 84,389
Change in other policyholders' lia-
bilities (20,802) 7,597 16,099
Change in deferred policy acquisition
costs (18,042) (26,878) (19,284)
Change in premiums due and other re-
ceivables 5,421 (9,280) (26,142)
Change in federal income tax liabili-
ties 15,589 36,049 (38,113)
Net realized investment gains (114,652) (114,367) (55,574)
Other, net 32,380 (23,213) 56,045
----------- ----------- -----------
Net cash provided by operating ac-
tivities 172,899 198,078 217,126
----------- ----------- -----------
Cash Flows from Investing Activities
Proceeds from sales of:
Fixed maturity securities, available-
for-sale 1,835,726 1,099,114 877,682
Equity securities 523,617 601,936 352,901
Mortgage loans -- -- 15,567
Real estate 7,800 9,279 11,678
Other invested assets 21,682 26,877 12,280
Proceeds from maturities and repayments
of:
Fixed maturity securities, available-
for-sale 414,726 403,829 329,550
Fixed maturity securities, held-to-
maturity 148,848 139,394 114,222
Mortgage loans 126,066 109,246 94,703
Purchases of:
Fixed maturity securities, available-
for-sale (2,384,720) (1,498,048) (1,228,048)
Fixed maturity securities, held-to-
maturity (99,530) (82,835) (60,612)
Equity securities (516,907) (585,349) (446,599)
Mortgage loans (141,008) (157,247) (108,691)
Real estate (5,612) (3,908) (3,786)
Other invested assets (75,682) (55,988) (29,271)
Finance receivable originations or pur-
chases (77,141) (115,248) (175,876)
Finance receivable principal payments 109,277 133,762 142,723
Other, net 141,768 (88,626) (40,062)
----------- ----------- -----------
Net cash provided by (used for) in-
vesting activities 28,910 (63,812) (141,639)
----------- ----------- -----------
Cash Flows from Financing Activities
Deposits credited to annuity and insur-
ance contracts 952,622 928,696 657,405
Withdrawals from annuity and insurance
contracts (1,053,844) (1,013,588) (702,681)
Proceeds from issuance of debt 40,000 -- 60,000
Payments on debt (31,000) (21,000) (21,000)
Other, net (6,023) (3,355) (6,898)
----------- ----------- -----------
Net cash used for financing activi-
ties (98,245) (109,247) (13,174)
----------- ----------- -----------
Net increase in cash and short-term in-
vestments 103,564 25,019 62,313
Cash and short-term investments, begin-
ning of year 208,531 183,512 121,199
----------- ----------- -----------
Cash and short-term investments, end of
year $ 312,095 $ 208,531 $ 183,512
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
70
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
(1) Nature of Operations
Conversion to a Mutual Holding Company Structure
Consent was given from the Minnesota Department of Commerce (Department of
Commerce) allowing The Minnesota Mutual Life Insurance Company to implement a
conversion to a mutual holding company. The Minnesota Mutual Life Insurance
Company enacted this privilege effective October 1, 1998. The conversion
created Minnesota Mutual Companies, Inc., a mutual holding company, Securian
Holding Company and Securian Financial Group, Inc., which are intermediate
stock holding companies. The Minnesota Mutual Life Insurance Company was
converted into a stock life insurance company and renamed Minnesota Life
Insurance Company. Minnesota Mutual Companies, Inc. will at all times, in
accordance with the conversion plan and as required by the Mutual Insurance
Holding Company Act, directly or indirectly control Minnesota Life Insurance
Company through the ownership of at least a majority of the voting power of the
voting shares of the capital stock of Minnesota Life Insurance Company. Annuity
contract and life insurance policyholders of Minnesota Life Insurance Company
have certain membership interests consisting primarily of the right to vote on
certain matters involving Minnesota Mutual Companies, Inc. and the right to
receive distributions of surplus in the event of demutualization, dissolution
or liquidation of Minnesota Mutual Companies, Inc.
Description of Business
Minnesota Life Insurance Company, both directly and through its subsidiaries
(collectively, the Company), provides a diversified array of insurance and
financial products and services designed principally to protect and enhance the
long-term financial well-being of individuals and families.
The Company's strategy is to be successful in carefully selected niche
markets, primarily in the United States, while focusing on the retention of
existing business and the maintenance of profitability. To achieve this
objective, the Company has divided its businesses into five strategic business
units which focus on various markets: Individual Insurance, Financial Services,
Group Insurance, Pension and Asset Management. Revenues in 1998 for these
business units were $862,240,000, $273,511,000, $258,928,000, $102,061,000 and
$20,723,000, respectively. Additional revenues of $115,702,000 were reported by
the Company's subsidiaries.
The Company serves over six million people through more than 4,000 associates
located at its St. Paul, Minnesota headquarters and in 75 general agencies and
45 regional offices throughout the United States.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP), which vary in
certain respects from accounting practices prescribed or permitted by state
insurance regulatory authorities. The consolidated financial statements include
the accounts of the Minnesota Life Insurance Company and its subsidiaries. All
material intercompany transactions and balances have been eliminated.
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates and assumptions that affect reported
assets and liabilities, including reporting or disclosure of contingent assets
and liabilities as of the balance sheet date and the reported amounts of
revenues and expenses during the reporting period. Future events, including
changes in mortality, morbidity, interest rates and asset valuations, could
cause actual results to differ from the estimates used in the financial
statements.
Insurance Revenues and Expenses
Premiums on traditional life products, which include individual whole life and
term insurance and immediate annuities, are credited to revenue when due. For
accident and health and group life products, premiums are credited to revenue
over the contract period as earned. Benefits and expenses are recognized in
relation to premiums over the contract period via a provision for future policy
benefits and the amortization of deferred policy acquisition costs.
71
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
Nontraditional life products include individual adjustable and variable life
insurance and group universal and variable life insurance. Revenue from
nontraditional life products and deferred annuities is comprised of policy and
contract fees charged for the cost of insurance, policy administration and
surrenders. Expenses include the portion of claims not covered by and interest
credited to the related policy and contract account balances. Policy
acquisition costs are amortized relative to estimated gross profits or margins.
Deferred Policy Acquisition Costs
The costs of acquiring new and renewal business, which vary with and are
primarily related to the production of new and renewal business, are generally
deferred to the extent recoverable from future premiums or expected gross
profits. Deferrable costs include commissions, underwriting expenses and
certain other selling and issue costs.
For traditional life, accident and health and group life products, deferred
policy acquisition costs are amortized over the premium paying period in
proportion to the ratio of annual premium revenues to ultimate anticipated
premium revenues. The ultimate premium revenues are estimated based upon the
same assumptions used to calculate the future policy benefits.
For nontraditional life products and deferred annuities, deferred policy
acquisition costs are amortized over the estimated lives of the contracts in
relation to the present value of estimated gross profits from surrender charges
and investment, mortality and expense margins.
Deferred policy acquisition costs amortized were $148,098,000, $128,176,000
and $125,978,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Finance Charge Income and Receivables
Finance charge income represents fees and interest charged on consumer loans.
The Company uses the interest (actuarial) method of accounting for finance
charges and interest on finance receivables. Accrual of finance charges and
interest on the smaller balance homogeneous finance receivables is suspended
when a loan is contractually delinquent for more than 60 days and is
subsequently recognized when received. Accrual is resumed when the loan is
contractually less than 60 days past due. Finance charges and interest is
suspended when a loan is considered by management to be impaired. Loan
impairment is measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or as a practical expedient,
at the observable market price of the loan or the fair value of the collateral
if the loan is collateral dependent. When a loan is identified as impaired,
interest previously accrued in the current year is reversed. Interest payments
received on impaired loans are generally applied to principal unless the
remaining principal balance has been determined to be fully collectible. An
allowance for uncollectible amounts is maintained by direct charges to
operations at an amount which management believes, based upon historical losses
and economic conditions, is adequate to absorb probable losses on existing
receivables that may become uncollectible. The reported receivables are net of
this allowance.
Valuation of Investments
Fixed maturity securities (bonds) which the Company has the positive intent and
ability to hold to maturity are classified as held-to-maturity and are carried
at amortized cost, net of write-downs for other than temporary declines in
value. Premiums and discounts are amortized or accreted over the estimated
lives of the securities based on the interest yield method. Fixed maturity
securities, which may be sold prior to maturity, are classified as available-
for-sale and are carried at fair value.
Equity securities (common stocks and preferred stocks) are carried at fair
value. Equity securities also include initial contributions to affiliated
registered investment funds that are managed by a subsidiary of the Company.
These contributions are carried at the market value of the underlying net
assets of the funds.
Mortgage loans are carried at amortized cost less an allowance for
uncollectible amounts. Premiums and discounts are amortized or accreted over
the terms of the mortgage loans based on the interest yield method. A
72
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
mortgage loan is considered impaired if it is probable that contractual amounts
due will not be collected. Impaired mortgage loans are valued at the fair value
of the underlying collateral. Interest income on impaired mortgage loans is
recorded on an accrual basis. However, when the likelihood of collection is
doubtful, interest income is recognized when received.
Fair values of fixed maturity securities and equity securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are estimated using values obtained from independent
pricing services which specialize in matrix pricing and modeling techniques for
estimating fair values. Fair values of mortgage loans are based upon discounted
cash flows, quoted market prices and matrix pricing.
Venture capital limited partnerships are carried at cost, net of write-downs
for other than temporary declines in value and allowances for temporary
declines in value. Cash distributions are recorded as a return of capital
and/or income as appropriate. In-kind distributions are recorded as a return of
capital for the cost basis of the stock received.
Real estate is carried at cost less accumulated depreciation and an allowance
for estimated losses. Accumulated depreciation on real estate at December 31,
1998 and 1997, was $6,713,000 and $6,269,000, respectively.
Policy loans are carried at the unpaid principal balance.
Derivative Financial Instruments
The Company entered into equity swaps in 1996 as part of an overall risk
management strategy. The swaps were used to hedge exposure to market risk on
$400,000,000 of the Company's common stock portfolio. The swaps were based upon
certain stock indices. If, at the time of settlement for a particular swap, the
designated stock index had fallen below a specified level, the counterparty
would pay the Company an amount based upon the decline in the index and the
stock portfolio value protected by the swap. If, at the time of settlement, the
designated stock index had risen, the Company would pay the counterparty an
amount based upon the increase in the index and 25% of the stock portfolio
value protected by the swap. The equity swaps were settled with the
counterparties in August 1997. The swaps were carried at fair value, which were
based upon dealer quotes. Changes in fair value were recorded directly in
stockholder's equity. Upon settlement of the swaps, gains or losses were
recognized in income, and the Company realized a loss of approximately
$31,000,000 in 1997, upon settlement of these equity swaps.
The Company began investing in international bonds denominated in foreign
currencies in 1997. Unrealized gains or losses are recorded on foreign
denominated securities due to the fluctuation in foreign currency exchange
rates and/or related payables and receivables and interest on foreign
securities. The Company uses forward foreign exchange currency contracts as
part of its risk management strategy for international investments. The forward
foreign exchange currency contracts are used to reduce market risks from
changes in foreign exchange rates. These forward foreign exchange currency
contracts are agreements to purchase a specified amount of one currency in
exchange for a specified amount of another currency at a future point in time
at a foreign exchange currency rate agreed upon on the contract open date. No
cash is exchanged at the outset of the contract and no payments are made by
either party until the contract close date. On the contract close date the
contracted amount of the purchased currency is received from the counterparty
and the contracted amount of the sold currency is sent to the counterparty.
Realized and unrealized gains and losses on these forward foreign exchange
contracts are recorded in income as incurred. In addition, these contracts are
generally short-term in nature and there is no material exposure to the Company
at December 31, 1998. Notional amounts for the years ended December 31, 1998
and 1997, were $115,194,000 and $80,997,000, respectively.
73
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
Capital Gains and Losses
Realized and unrealized capital gains and losses are determined on the specific
identification method. Write-downs of held-to-maturity securities and the
provision for credit losses on mortgage loans and real estate are recorded as
realized losses.
Changes in the fair value of fixed maturity securities available-for-sale and
equity securities are recorded as a separate component of stockholder's equity,
net of taxes and related adjustments to deferred policy acquisition costs and
unearned policy and contract fees.
Property and Equipment
Property and equipment are carried at cost, net of accumulated depreciation of
$101,692,000 and $90,926,000 at December 31, 1998 and 1997, respectively.
Buildings are depreciated over 40 years and equipment is generally depreciated
over 5 to 10 years. Depreciation expenses for the years ended December 31,
1998, 1997 and 1996, were $10,765,000, $8,965,000 and $6,454,000, respectively.
Separate Accounts
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the exclusive benefit of pension, variable
annuity and variable life insurance policyholders and contractholders. Assets
consist principally of marketable securities and both assets and liabilities
are reported at fair value, based upon the market value of the investments held
in the segregated funds. The Company receives administrative and investment
advisory fees for services rendered on behalf of these accounts.
The Company periodically invests money in its separate accounts. The market
value of such investments, included with separate account assets, amounted to
$46,945,000 and $46,293,000 at December 31, 1998 and 1997, respectively.
Policyholders' Liabilities
Policy and contract account balances represent the net accumulation of funds
associated with nontraditional life products and deferred annuities. Additions
to the account balances include premiums, deposits and interest credited by the
Company. Decreases in the account balances include surrenders, withdrawals,
benefit payments, and charges assessed for the cost of insurance, policy
administration and surrenders.
Future policy and contract benefits are comprised of reserves for traditional
life, group life, and accident and health products. The reserves were
calculated using the net level premium method based upon assumptions regarding
investment yield, mortality, morbidity, and withdrawal rates determined at the
date of issue, commensurate with the Company's experience. Provision has been
made in certain cases for adverse deviations from these assumptions.
Other policyholders' funds are comprised of dividend accumulations, premium
deposit funds and supplementary contracts without life contingencies.
Participating Business
Dividends on participating policies and other discretionary payments are
declared by the Board of Directors based upon actuarial determinations, which
take into consideration current mortality, interest earnings, expense factors
and federal income taxes. Dividends are recognized as expenses consistent with
the recognition of premiums.
Income Taxes
Current income taxes are charged to operations based upon amounts estimated to
be payable as a result of taxable operations for the current year. Deferred
income tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between financial statement
carrying amounts and income tax bases of assets and liabilities.
74
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Account Policies (continued)
Reinsurance Recoverables
Insurance liabilities are reported before the effects of ceded reinsurance.
Reinsurance recoverables represent amounts due from reinsurers for paid and
unpaid benefits, expense reimbursements, prepaid premiums and future policy
benefits.
Reclassifications
Certain 1997 and 1996 consolidated financial statement balances have been
reclassified to conform to the 1998 presentation.
(3) Investments
Net investment income for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities $445,220 $457,391 $433,985
Equity securities 12,183 16,182 14,275
Mortgage loans 54,785 55,929 63,865
Real estate (236) (407) (475)
Policy loans 15,502 15,231 13,828
Short-term investments 6,147 6,995 6,535
Other invested assets 3,826 3,871 4,901
-------- -------- --------
Gross investment income 537,427 555,192 536,914
Investment expenses (6,346) (1,419) (5,927)
-------- -------- --------
Total $531,081 $553,773 $530,987
======== ======== ========
Net realized investment gains (losses) for the years ended December 31 were
as follows:
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities $ 43,244 $ 3,711 $ (6,536)
Equity securities 47,526 92,765 57,770
Mortgage loans 3,399 2,011 (721)
Real estate 7,809 1,598 7,088
Other invested assets 12,674 14,282 (2,027)
-------- -------- --------
Total $114,652 $114,367 $ 55,574
======== ======== ========
Gross realized gains (losses) on the sales of fixed maturity securities and
equity securities for the years ended December 31 were as follows:
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities, available-for-sale:
Gross realized gains $ 56,428 $ 18,804 $ 19,750
Gross realized losses (13,184) (15,093) (26,286)
Equity securities:
Gross realized gains 107,342 120,437 79,982
Gross realized losses (59,816) (27,672) (22,212)
</TABLE>
75
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3)Investments (continued)
Net unrealized gains (losses) included in stockholder's equity at December 31
were as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
Gross unrealized gains $ 487,479 $ 472,671
Gross unrealized losses (73,440) (118,863)
Adjustment to deferred acquisition costs (119,542) (100,299)
Adjustment to unearned policy and contract fees 15,912 (13,087)
Deferred federal income taxes (106,794) (83,749)
--------- ---------
Net unrealized gains $ 203,615 $ 156,673
========= =========
</TABLE>
76
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3)Investments (continued)
The amortized cost and fair value of investments in marketable securities by
type of investment were as follows:
<TABLE>
<CAPTION>
Gross Unrealized
-----------------
Amortized Fair
Cost Gains Losses Value
---------- -------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
December 31, 1998
Available-for-sale:
United States government and
government agencies and
authorities $ 195,650 $ 17,389 $ 201 $ 212,838
Foreign governments 784 -- 311 473
Corporate securities 2,357,861 204,277 30,648 2,531,490
International bond securities 188,448 22,636 1,298 209,786
Mortgage-backed securities 1,924,945 52,580 18,100 1,959,425
---------- -------- -------- ----------
Total fixed maturities 4,667,688 296,882 50,558 4,914,012
Equity securities-unaffiliated 463,777 157,585 15,057 606,305
Equity securities-affiliated
mutual funds 115,769 27,726 -- 143,495
---------- -------- -------- ----------
Total equity securities 579,546 185,311 15,057 749,800
---------- -------- -------- ----------
Total available-for-sale 5,247,234 482,193 65,615 5,663,812
Held-to maturity:
Corporate securities 894,064 67,496 235 961,325
Mortgage-backed securities 192,484 9,030 1,055 200,459
---------- -------- -------- ----------
Total held-to-maturity 1,086,548 76,526 1,290 1,161,784
---------- -------- -------- ----------
Total $6,333,782 $558,719 $ 66,905 $6,825,596
========== ======== ======== ==========
<CAPTION>
Gross Unrealized
-----------------
Amortized Fair
Cost Gains Losses Value
---------- -------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
December 31, 1997
Available-for-sale:
United States government and
government agencies and authori-
ties $ 239,613 $ 18,627 $ -- $ 258,240
Foreign governments 1,044 -- 29 1,015
Corporate securities 2,273,474 216,056 70,484 2,419,046
International bond securities 150,157 2,565 23,530 129,192
Mortgage-backed securities 1,854,519 66,934 9,145 1,912,308
---------- -------- -------- ----------
Total fixed maturities 4,518,807 304,182 103,188 4,719,801
Equity securities-unaffiliated 421,672 134,558 14,575 541,655
Equity securities-affiliated mu-
tual funds 115,769 29,214 -- 144,983
---------- -------- -------- ----------
Total equity securities 537,441 163,772 14,575 686,638
---------- -------- -------- ----------
Total available-for-sale 5,056,248 467,954 117,763 5,406,439
Held-to maturity:
Corporate securities 893,407 59,850 752 952,505
Mortgage-backed securities 194,905 10,817 -- 205,722
---------- -------- -------- ----------
Total held-to-maturity 1,088,312 70,667 752 1,158,227
---------- -------- -------- ----------
Total $6,144,560 $538,621 $118,515 $6,564,666
========== ======== ======== ==========
</TABLE>
77
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3) Investments (continued)
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1998, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
--------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 38,375 $ 35,299 $ 11,109 $ 11,346
Due after one year through five
years 529,019 616,064 128,658 133,657
Due after five years through ten
years 1,251,763 1,316,512 373,294 403,159
Due after ten years 923,586 986,712 381,003 413,163
---------- ---------- ---------- ----------
2,742,743 2,954,587 894,064 961,325
Mortgage-backed securities 1,924,945 1,959,425 192,484 200,459
---------- ---------- ---------- ----------
Total $4,667,688 $4,914,012 $1,086,548 $1,161,784
========== ========== ========== ==========
</TABLE>
At December 31, 1998 and 1997, fixed maturity securities and short-term
investments with a carrying value of $6,361,000 and $8,000,000, respectively,
were on deposit with various regulatory authorities as required by law.
Allowances for credit losses on investments are reflected on the consolidated
balance sheets as a reduction of the related assets and were as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Mortgage loans $ 1,500 $ 1,500
Investment real estate 841 2,248
------- -------
Total $ 2,341 $ 3,748
======= =======
</TABLE>
At December 31, 1998, the recorded investment in mortgage loans that were
considered to be impaired was $8,798 before allowance for credit losses. These
impaired loans, due to adequate fair market value of underlying collateral, do
not have an allowance for credit losses.
At December 31, 1997, the recorded investment in mortgage loans that were
considered to be impaired was $18,400 before allowance for credit losses. These
impaired loans, due to adequate fair market value of underlying collateral, do
not have an allowance for credit losses.
A general allowance for credit losses was established for potential
impairments in the remainder of the mortgage loan portfolio. The general
allowance was $1,500,000 at December 31, 1998 and 1997.
Changes in the allowance for credit losses on mortgage loans were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $1,500 $1,895 $1,711
Provision for credit losses -- -- 381
Charge-offs -- (395) (197)
------ ------ ------
Balance at end of year $1,500 $1,500 $1,895
====== ====== ======
</TABLE>
78
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3) Investments (continued)
Below is a summary of interest income on impaired mortgage loans.
<TABLE>
<CAPTION>
1998 1997 1996
---- ------ ------
(In thousands)
<S> <C> <C> <C>
Average impaired mortgage loans $14 $3,268 $9,375
Interest income on impaired mortgage loans--contractual 18 556 1,796
Interest income on impaired mortgage loans--collected 17 554 1,742
</TABLE>
(4) Notes Receivable
In connection with the Company's planned construction of an additional home
office facility in St. Paul, Minnesota, the Company entered into a loan
contingency agreement with the Housing and Redevelopment Authority of the City
of St. Paul, Minnesota (HRA) in November 1997. A maximum of $15 million in
funds is available under this loan for condemnation and demolition of the
Company's proposed building site. The note bears interest at a rate of 8.625%,
with principal payments commencing February 2004 and a maturity date of August
2025. Interest payments are accrued and are payable February and August of each
year commencing February 2001. All principal and interest payments are due only
to the extent of available tax increments. As of December 31, 1998, HRA has
drawn $9,669,128 on this loan contingency agreement and accrued interest of
$673,435.
(5) Net Finance Receivables
Finance receivables as of December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Direct installment loans $147,425 $183,424
Retail installment notes 12,209 20,373
Retail revolving credit 17,170 25,426
Accrued interest 2,683 3,116
-------- --------
Gross receivables 179,487 232,339
Allowance for uncollectible amounts (16,076) (20,545)
-------- --------
Finance receivables, net $163,411 $211,794
======== ========
</TABLE>
Direct installment loans at December 31, 1998, consisted of $81,066,000 of
discount basis loans (net of unearned finance charges) and $66,359,000 of
interest-bearing loans. Direct installment loans at December 31, 1997,
consisted of $83,836,000 of discount basis loans (net of unearned finance
charges) and $99,588,000 of interest-bearing loans. Direct installment loans
generally have a maximum term of 84 months. Retail installment notes are
principally discount basis, arise from the sale of household appliances,
furniture, and sundry services, and generally have a maximum term of 48 months.
Direct installment loans included approximately $44,000,000 and $65,000,000 of
real estate secured loans at December 31, 1998 and 1997, respectively.
Revolving credit loans included approximately $16,000,000 and $24,000,000 of
real estate secured loans at December 31, 1998 and 1997, respectively.
Experience has shown that a substantial portion of finance receivables will be
renewed, converted or paid in full prior to maturity.
Principal cash collections of direct installment loans amounted to
$75,011,000, $90,940,000 and $92,438,000 and the percentage of these cash
collections to the average net balances were 47%, 47% and 48% for the years
ended December 31, 1998, 1997 and 1996, respectively.
79
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(5) Net Finance Receivables (continued)
Changes in the allowance for uncollectible amounts for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $20,545 $ 7,497 $ 6,377
Provision for credit losses 10,712 28,206 10,086
Charge-offs (18,440) (17,869) (11,036)
Recoveries 3,259 2,711 2,070
------- ------- -------
Balance at end of year $16,076 $20,545 $ 7,497
======= ======= =======
</TABLE>
At December 31, 1998, the recorded investment in certain direct installment
loans and direct revolving credit loans were considered to be impaired. The
balances of such loans at December 31, 1998 and the related allowance for
credit losses were as follows:
<TABLE>
<CAPTION>
Installment Revolving
Loans Credit Total
----------- --------- -------
(In thousands)
<S> <C> <C> <C>
Balances at December 31, 1998 $7,546 11,190 $18,736
Related allowance for credit losses $3,033 5,486 $ 8,519
</TABLE>
All loans deemed to be impaired are placed on a non-accrual status. No
accrued or unpaid interest was recognized on impaired loans during 1998. The
average quarterly balances of impaired loans during the year ended December 31,
1998 and 1997, was $6,354,000 and $7,397,000, respectively, for installment
basis loans and $12,471,000 and $12,793,000, respectively for revolving credit
direct loans.
There were no material commitments to lend additional funds to customers
whose loans were classified as non-accrual at December 31, 1998.
(6) Income Taxes
Income tax expense varies from the amount computed by applying the federal
income tax rate of 35% to income from operations before taxes. The significant
components of this difference were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Computed tax expense $84,553 $93,337 $69,753
Difference between computed and actual tax ex-
pense:
Dividends received deduction (1,730) (5,573) (2,534)
Special tax on mutual life insurance companies (3,455) 3,341 2,760
Sale of subsidiary -- (4,408) --
Foundation gain -- (4,042) (1,260)
Tax credits (4,416) (3,600) (3,475)
Expense adjustments and other 3,281 (2,275) 3,533
------- ------- -------
Total tax expense $78,233 $76,780 $68,777
======= ======= =======
</TABLE>
80
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(6) Income Taxes (continued)
The tax effects of temporary differences that give rise to the Company's net
deferred federal tax liability were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Policyholders' liabilities $ 16,999 $ 14,374
Pension and post retirement benefits 27,003 23,434
Tax deferred policy acquisition costs 82,940 73,134
Net realized capital losses 8,221 9,609
Other 18,487 20,524
-------- --------
Gross deferred tax assets 153,650 141,075
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs 155,655 152,337
Real estate and property and equipment depreciation 10,275 11,165
Basis difference on investments 10,798 11,061
Net unrealized capital gains 143,354 122,876
Other 7,475 9,693
-------- --------
Gross deferred tax liabilities 327,557 307,132
-------- --------
Net deferred tax liability $173,907 $166,057
======== ========
</TABLE>
A valuation allowance for deferred tax assets was not considered necessary as
of December 31, 1998 and 1997, because the Company believes that it is more
likely than not that the deferred tax assets will be realized through future
reversals of existing taxable temporary differences and future taxable income.
Income taxes paid for the years ended December 31, 1998, 1997 and 1996, were
$91,259,000, $71,108,000 and $79,026,000, respectively.
The Company's tax returns for 1997, 1996 and 1995 are under examination by
the Internal Revenue Service. The Company believes additional taxes, if any,
assessed as a result of these examinations, will not have a material effect on
its financial position.
81
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(7) Liability for Unpaid Accident and Health Claims, Reserve for Losses, and
Claim and Loss Adjustment Expenses
Activity in the liability for unpaid accident and health claims, reserve for
losses and claim and loss adjustment expenses is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Balance at January 1 $409,249 $416,910 $377,302
Less: reinsurance recoverable 104,741 102,161 80,333
-------- -------- --------
Net balance at January 1 304,508 314,749 296,969
-------- -------- --------
Incurred related to:
Current year 92,793 121,153 134,727
Prior years 14,644 7,809 4,821
-------- -------- --------
Total incurred 107,437 128,962 139,548
-------- -------- --------
Paid related to:
Current year 27,660 51,275 51,695
Prior years 58,124 57,475 70,073
-------- -------- --------
Total paid 85,784 108,750 121,768
-------- -------- --------
Decrease in liabilities due to sale of subsidiary -- 30,453 --
-------- -------- --------
Net balance at December 31 326,161 304,508 314,749
Plus: reinsurance recoverable 108,918 104,741 102,161
-------- -------- --------
Balance at December 31 $435,079 $409,249 $416,910
======== ======== ========
</TABLE>
The liability for unpaid accident and health claims, reserve for losses and
claim and loss adjustment expenses is included in future policy and contract
benefits and pending policy and contract claims on the consolidated balance
sheets.
As a result of changes in estimates of claims incurred in prior years, the
accident and health claims, reserve for losses and claim and loss adjustment
expenses incurred increased by $14,644,000, $7,809,000 and $4,821,000 in 1998,
1997 and 1996, respectively. These amounts are the result of normal reserve
development inherent in the uncertainty of establishing the liability for
unpaid accident and health claims, reserve for losses and claim and loss
adjustment expenses.
(8) Employee Benefit Plans
Pension Plans and Post Retirement Plans Other than Pensions
The Company has noncontributory defined benefit retirement plans covering
substantially all employees and certain agents. Benefits are based upon years
of participation and the employee's average monthly compensation or the agent's
adjusted annual compensation. Plan assets are comprised of mostly stocks and
bonds, which are held in the general and separate accounts of the Company and
administered under group annuity contracts issued by the Company. The Company's
funding policy is to contribute annually the minimum amount required by
applicable regulations. The Company also has an unfunded noncontributory
defined benefit retirement plan, which provides certain employees with benefits
in excess of limits for qualified retirement plans.
The Company also has unfunded post retirement plans that provide certain
health care and life insurance benefits to substantially all retired employees
and agents. Eligibility is determined by age at retirement and years of service
after age 30. Health care premiums are shared with retirees, and other cost-
sharing features include deductibles and co-payments.
82
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(8) Employee Benefit Plans (continued)
The change in the benefit obligation and plan assets for the Company's plans
as of December 31 was calculated as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of
year $151,509 $134,959 $ 24,467 $ 24,836
Service cost 8,402 6,847 1,375 1,047
Interest cost 10,436 9,956 1,713 1,872
Amendments 6 -- -- (99)
Actuarial gain 16,298 3,816 4,542 (1,930)
Benefits paid (5,212) (4,069) (861) (1,259)
-------- -------- -------- --------
Benefit obligation at end of year $181,439 $151,509 $ 31,236 $ 24,467
======== ======== ======== ========
Change in plan assets:
Fair value of plan assets at the
beginning of the year $133,505 $118,963 $ -- $ --
Actual return on plan assets 13,068 13,670 -- --
Employer contribution 5,349 4,940 861 1,259
Benefits paid (5,212) (4,069) (861) (1,259)
-------- -------- -------- --------
Fair value of plan assets at the
end of year $146,710 $133,504 $ -- $ --
======== ======== ======== ========
Funded status $(34,729) $(18,005) $(31,236) $(24,467)
Unrecognized net actuarial loss
(gain) 12,283 (1,735) (6,251) (11,353)
Unrecognized prior service cost
(benefit) 5,293 5,865 (2,986) (3,499)
-------- -------- -------- --------
Net amount recognized $(17,153) $(13,875) $(40,473) $(39,319)
======== ======== ======== ========
Amounts recognized in the balance
sheet statement consist of:
Accrued benefit cost $(23,242) $(18,059) $(40,473) $(39,319)
Intangible asset 6,089 4,184 -- --
-------- -------- -------- --------
Net amount recognized $(17,153) $(13,875) $(40,473) $(39,319)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Pension Other
Benefits Benefits
----------- -----------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Weighted average assumptions as of December 31
Discount rate 7.00% 7.48% 7.00% 7.50%
Expected return on plan assets 8.27% 8.32% -- --
Rate of compensation increase 5.32% 5.29% -- --
</TABLE>
83
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(8) Employee Benefit Plans (continued)
For measurement purposes, an 8 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 5.5 percent for 2003 and remain at that level
thereafter.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------- ----------------------
1998 1997 1996 1998 1997 1996
------- ------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost
Service cost $ 8,402 $6,847 $6,315 $1,375 $1,047 $1,041
Interest cost 10,436 9,956 8,852 1,713 1,872 2,074
Expected return on plan as-
sets (10,978) (9,859) (8,751) -- -- --
Amortization of prior serv-
ice cost (benefits) 578 578 578 (513) (510) (501)
Recognized net actuarial
loss (gain) 190 77 10 (559) (480) (177)
------- ------ ------ ------ ------ ------
Net periodic benefit cost $ 8,628 $7,599 $7,004 $2,016 $1,929 $2,437
======= ====== ====== ====== ====== ======
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
vale of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $39,470,000, $31,546,000 and $17,334,000 as of
December 31, 1998, respectively, and $32,622,000, $24,894,000 and $16,703,000
respectively, as of December 31, 1997.
The assumptions presented herein are based on pertinent information available
to management as of December 31, 1998 and 1997. Actual results could differ
from those estimates and assumptions. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would
increase the post retirement benefit obligation as of December 31, 1998 by
$5,875,000 and the estimated eligibility cost and interest cost components of
net periodic benefit costs for 1998 by $788,000. Decreasing the assumed health
care cost trend rates by one percentage point in each year would decrease the
post retirement benefit obligation as of December 31, 1998 by $4,618,000 and
the estimated eligibility cost and interest cost components of net periodic
post retirement benefit costs for 1998 by $598,000.
Profit Sharing Plans
The Company also has profit sharing plans covering substantially all employees
and agents. The Company's contribution rate to the employee plan is determined
annually by the directors of the Company and is applied to each participant's
prior year earnings. The Company's contribution to the agent plan is made as a
certain percentage, based upon years of service, applied to each agent's total
annual compensation. The Company recognized contributions to the plans during
1998, 1997 and 1996 of $8,395,000, $7,173,000 and $6,092,000, respectively.
Participants may elect to receive a portion of their contributions in cash.
(9) Sale of Subsidiary
On October 1, 1997, the Company sold Minnesota Fire and Casualty Company (MFC),
a wholly owned subsidiary, to Harleysville Group, Inc. The Company received net
cash proceeds of approximately $33.5 million from the sale, and realized a gain
of approximately $14.5 million. HomePlus Insurance Company (HomePlus), a
previously wholly owned subsidiary of MFC, was excluded from the sale of
assets. In accordance with the agreement, prior to September 30, 1997, MFC made
a distribution of private placement bonds to the Company with an amortized cost
of approximately $4.3 million and transferred all issued and outstanding shares
of HomePlus to the Company. The carrying value of the transferred shares was
approximately $5.8 million. Under an administrative services agreement with
MFC, the Company has retained MFC to provide financial and other services for
HomePlus.
84
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(10) Reinsurance
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance companies. To the extent that a reinsurer is
unable to meet its obligation under the reinsurance agreement, the Company
remains liable. The Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk to minimize its exposure to
significant losses from reinsurer insolvencies. Allowances are established for
amounts deemed to be uncollectible.
Reinsurance is accounted for over the life of the underlying reinsured
policies using assumptions consistent with those used to account for the
underlying policies.
The effect of reinsurance on premiums for the years ended December 31 was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Direct premiums $553,408 $595,686 $615,098
Reinsurance assumed 91,548 78,097 64,489
Reinsurance ceded (67,263) (58,530) (67,228)
-------- -------- --------
Net premiums $577,693 $615,253 $612,359
======== ======== ========
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $54,174,000,
$58,072,000 and $72,330,000 during 1998, 1997 and 1996, respectively.
(11) Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments has been
determined using available market information as of December 31, 1998 and 1997.
Although management is not aware of any factors that would significantly affect
the estimated fair value, such amounts have not been comprehensively revalued
since those dates. Therefore, estimates of fair value subsequent to the
valuation dates may differ significantly from the amounts presented herein.
Considerable judgement is required to interpret market data to develop the
estimates of fair value. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
Please refer to Note 2 for additional fair value disclosures concerning fixed
maturity securities, equity securities, mortgages and derivatives. The carrying
amounts for policy loans, cash, short-term investments and finance receivables
approximate the assets' fair values.
The interest rates on the finance receivables outstanding as of December 31,
1998 and 1997, are consistent with the rates at which loans would currently be
made to borrowers of similar credit quality and for the same maturity; as such,
the carrying value of the finance receivables outstanding as of December 31,
1998 and 1997, approximate the fair value for those respective dates.
The fair values of deferred annuities, annuity certain contracts and other
fund deposits, which have guaranteed interest rates and surrender charges are
estimated to be the amount payable on demand as of December 31, 1998 and 1997
as those investment contracts have no defined maturity and are similar to a
deposit liability. The amount payable on demand equates to the account balance
less applicable surrender charges. Contracts without guaranteed interest rates
and surrender charges have fair values equal to their accumulation values plus
applicable market value adjustments. The fair values of guaranteed investment
contracts and supplementary contracts without life contingencies are calculated
using discounted cash flows, based on interest rates currently offered for
similar products with maturities consistent with those remaining for the
contracts being valued.
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate the fair value of notes payable.
85
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(11) Fair Value of Financial Instruments (continued)
The carrying amounts and fair values of the Company's financial instruments,
which were classified as assets as of December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities:
Available-for-sale $4,914,012 $4,914,012 $4,719,801 $4,719,801
Held-to-maturity 1,086,548 1,161,784 1,088,312 1,158,227
Equity securities 749,800 749,800 686,638 686,638
Mortgage loans:
Commercial 579,890 603,173 506,860 527,994
Residential 101,329 104,315 154,477 158,334
Policy loans 226,409 226,409 213,488 213,488
Short-term investments 136,435 136,435 112,352 112,352
Cash 175,660 175,660 96,179 96,179
Finance receivables, net 163,411 163,411 211,794 211,794
Venture capital 160,958 164,332 115,856 122,742
Foreign currency exchange con-
tract 1,594 1,594 1,457 1,457
---------- ---------- ---------- ----------
Total financial assets $8,296,046 $8,400,925 $7,907,214 $8,009,006
========== ========== ========== ==========
</TABLE>
The carrying amounts and fair values of the Company's financial instruments,
which were classified as liabilities as of December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Deferred annuities $2,085,408 $2,075,738 $2,131,806 $2,112,301
Annuity certain contracts 57,528 60,766 55,431 57,017
Other fund deposits 722,321 731,122 754,960 753,905
Guaranteed investment contracts 862 862 8,188 8,187
Supplementary contracts without
life contingencies 44,696 44,251 46,700 45,223
Notes payable 267,000 272,834 298,000 302,000
---------- ---------- ---------- ----------
Total financial liabilities $3,177,815 $3,185,573 $3,295,085 $3,278,633
========== ========== ========== ==========
</TABLE>
(12) Notes Payable
In September 1995, the Company issued surplus notes with a face value of
$125,000,000, at 8.25%, due in 2025. The surplus notes are subordinate to all
current and future policyholders' interests, including claims, and indebtedness
of the Company. All payments of interest and principal on the notes are subject
to the approval of the Department of Commerce. The approved accrued interest
was $3,008,000 as of December 31, 1998 and 1997. The issuance costs of
$1,421,000 are deferred and amortized over 30 years on straight-line basis.
86
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(12) Notes Payable (continued)
Notes payable as of December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Corporate-surplus notes, 8.25%, 2025 $125,000 $125,000
Consumer finance subsidiary-senior, 6.53%-8.77%, through
2003 142,000 173,000
-------- --------
Total notes payable $267,000 $298,000
======== ========
</TABLE>
At December 31, 1998, the aggregate minimum annual notes payable maturities
for the next five years were as follows: 1999, $49,000,000; 2000, $33,000,000;
2001, $26,000,000; 2002, $22,000,000; 2003, $12,000,000; thereafter
$125,000,000.
Long-term borrowing agreements involving the consumer finance subsidiary
include provisions with respect to borrowing limitations, payment of cash
dividends on or purchases of common stock, and maintenance of liquid net worth
of $44,070,000. The consumer finance subsidiary was in compliance with all such
provisions at December 31, 1998.
Interest paid on debt for the years ended December 31, 1998, 1997 and 1996,
was $25,008,000, $18,197,000 and $21,849,000, respectively.
(13) Other Comprehensive Income
Effective December 31, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." Comprehensive income is defined as any
change in stockholder's equity originating from non-owner transactions. The
Company had identified those changes as being comprised of net income,
unrealized appreciation (depreciation) on securities, and unrealized foreign
currency translation adjustments. The components of comprehensive income, other
than net income are illustrated below:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- --------
(In thousands)
<S> <C> <C> <C>
Other comprehensive income, before tax:
Foreign currency translation adjustment $ -- $ 1,457 $ --
Less: reclassification adjustment for gains in-
cluded in net income (1,457) -- --
------- ------- --------
(1,457) 1,457 --
Unrealized gains (loss) on securities 162,214 171,654 (18,746)
Less: reclassification adjustment for gains in-
cluded in net income (90,770) (96,476) (51,234)
------- ------- --------
71,444 75,178 (69,980)
Income tax expense related to items of other com-
prehensive income (23,045) (28,274) 25,040
------- ------- --------
Other comprehensive income, net of tax $46,942 $48,361 $(44,940)
======= ======= ========
</TABLE>
(14) Stock Dividends
On December 14, 1998, the Company declared and accrued a dividend to Securian
Financial Group, Inc. in the amount of $24,700,000 to be paid in 1999.
Dividend payments by Minnesota Life Insurance Company to its parent cannot
exceed the greater of 10% of statutory capital and surplus as of the preceding
year end or the statutory net gain from operations for the current calendar
year, without prior approval from the Department of Commerce. Based on this
limitation and 1997 statutory results, Minnesota Life Insurance Company could
have paid $87,069,000 in dividends in 1998 without prior approval.
87
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(15) Year 2000 (Unaudited)
The Company's business units utilize products and systems in the normal course
of business. Some of the Company's products and systems will have been replaced
or modified in order to process dates including the year 2000 and beyond.
The Company began preparing for the new millennium in the early 1980s by
designing systems with the year 2000 in mind. The Company began a comprehensive
Year 2000 project in 1995 to prepare all components of its business to function
properly before, during and after the year 2000.
The Company's goal is to have all computer systems and data prepared for the
year 2000. While the Company has taken extensive steps to renovate, upgrade and
replace applications, it is impossible to guarantee there will be no problems
associated with the year 2000 date change. The Company is currently developing
contingency and continuity plans to help minimize any impact of problems that
do arise.
(16) Commitments and Contingencies
The Company is involved in various pending or threatened legal proceedings
arising out of the normal course of business. In the opinion of management, the
ultimate resolution of such litigation will not have a material adverse effect
on operations or the financial position of the Company.
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance companies. To the extent that a reinsurer is
unable to meet its obligations under the reinsurance agreement, the Company
remains liable. The Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk to minimize its exposure to
significant losses from reinsurer insolvencies. Allowances are established for
amounts deemed uncollectible.
The Company has issued certain participating group annuity and group life
insurance contracts jointly with another life insurance company. The joint
contract issuer has liabilities related to these contracts of $41,010,000 as of
December 31, 1998. To the extent the joint contract issuer is unable to meet
its obligation under the agreement, the Company remains liable.
The Company has long-term commitments to fund venture capital and real estate
investments totaling $165,191,000 as of December 31, 1998. The Company
estimates that $60,000,000 of these commitments will be invested in 1999, with
the remaining $105,191,000 invested over the next four years.
As of December 31, 1998, the Company had committed to purchase bonds and
mortgage loans totaling $198,907,000 but had not completed the purchase
transactions.
At December 31, 1998, the Company had guaranteed the payment of $75,100,000
in policyholders' dividends and discretionary amounts payable in 1999. The
Company has pledged bonds, valued at $76,596,000 to secure this guarantee.
The Company is contingently liable under state regulatory requirements for
possible assessments pertaining to future insolvencies and impairments of
unaffiliated insurance companies. The Company records a liability for future
guaranty fund assessments based upon known insolvencies, according to data
received from the National Organization of Life and Health Insurance Guaranty
Association. An asset is recorded for the amount of guaranty fund assessments
paid, which can be recovered through future premium tax credits.
88
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(17) Statutory Financial Data
The Company also prepares financial statements according to statutory
accounting practices prescribed or permitted by the Department of Commerce for
purposes of filing with the Department of Commerce, the National Association of
Insurance Commissioners and states in which the Company is licensed to do
business. Statutory accounting practices focus primarily on solvency and
surplus adequacy. The significant differences that exist between statutory and
GAAP accounting, and their effects are illustrated below:
<TABLE>
<CAPTION>
Year ended December
----------------------
1998 1997
---------- ----------
(In thousands)
<S> <C> <C>
Statutory capital and surplus $ 947,885 $ 870,688
Adjustments:
Deferred policy acquisition costs 564,382 576,030
Net unrealized investment gains 281,226 213,026
Statutory asset valuation reserve 239,455 242,100
Statutory interest maintenance reserve 49,915 24,169
Premiums and fees deferred or receivable (73,312) (74,025)
Change in reserve basis 117,806 101,415
Separate accounts (56,816) (51,172)
Unearned policy and contract fees (134,373) (126,477)
Surplus notes (125,000) (125,000)
Net deferred income taxes (173,907) (166,057)
Non-admitted assets 36,764 32,611
Policyholders' dividends 60,648 60,036
Other (12,397) (40,659)
---------- ----------
Stockholder's equity as reported in the accompanying
consolidated financial statements $1,722,276 $1,536,685
========== ==========
</TABLE>
<TABLE>
<CAPTION>
As of December 31
----------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Statutory net income $104,609 $167,078 $115,797
Adjustments:
Deferred policy acquisition costs 18,042 26,878 19,284
Statutory interest maintenance reserve 25,746 (538) (8,192)
Premiums and fees deferred or receivable 708 2,175 1,587
Change in reserve basis 3,011 9,699 20,114
Separate accounts (5,644) (6,272) (6,304)
Unearned policy and contract fees (7,896) (12,825) (2,530)
Net deferred income taxes 15,351 7,832 (744)
Policyholders' dividends 1,194 2,708 502
Other 8,228 (6,839) (8,996)
-------- -------- --------
Net income as reported in the accompanying
consolidated financial statements $163,349 $189,896 $130,518
======== ======== ========
</TABLE>
89
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule I
Summary of Investments--Other than Investments in Related Parties
December 31, 1998
<TABLE>
<CAPTION>
As Shown
Market on the balance
Type of investment Cost(3) Value sheet(1)
- ------------------ ---------- ---------- --------------
(In thousands)
<S> <C> <C> <C>
Bonds:
United States government and government
agencies and authorities $ 195,650 $ 212,838 $ 212,838
Foreign governments 784 473 473
Public utilities 343,230 368,246 357,795
Mortgage-backed securities 2,117,429 2,159,884 2,151,909
All other corporate bonds 3,097,143 3,334,355 3,277,545
---------- ---------- ----------
Total bonds 5,754,236 6,075,796 6,000,560
---------- ---------- ----------
Equity securities:
Common stocks:
Public utilities 14,403 18,472 18,472
Banks, trusts and insurance companies 42,538 43,615 43,615
Industrial, miscellaneous and all
other 495,635 659,177 659,177
Nonredeemable preferred stocks 26,970 28,536 28,536
---------- ---------- ----------
Total equity securities 579,546 749,800 749,800
---------- ---------- ----------
Mortgage loans on real estate 681,219 XXXXXX 681,219
Real estate (2) 38,530 XXXXXX 38,530
Policy loans 226,409 XXXXXX 226,409
Other long-term investments 261,625 XXXXXX 261,625
Short-term investments 136,435 XXXXXX 136,435
---------- ---------- ----------
Total 1,344,218 -- 1,344,218
---------- ---------- ----------
Total investments $7,678,000 $6,825,596 $8,094,578
========== ========== ==========
</TABLE>
- -------
(1) Amortized cost for bonds classified as held-to-maturity and fair value for
common stocks and bonds classified as available-for-sale.
(2) The carrying value of real estate acquired in satisfaction of indebtedness
is $-0-.
(3) Original cost for equity securities and original cost reduced by repayments
and adjusted for amortization of premiums or accrual of discounts for bonds
and other investments
See independent auditors' report.
90
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule III
Supplementary Insurance Information
(In thousands)
<TABLE>
<CAPTION>
As of December 31 For the years ended December 31
--------------------------------------------------- -----------------------------------------------------------
Future policy Amortization
Deferred benefits Other policy Benefits, of deferred
policy losses, claims claims and Net claims, losses policy Other
acquisition and settlement Unearned benefits Premium investment and settlement acquisition operating
Segment costs expenses(1) premiums(2) payable revenue(3) income expenses costs expenses
- ------- ----------- -------------- ----------- ------------ ---------- ---------- -------------- ------------ ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998:
Life insurance $421,057 $2,303,580 $146,042 $51,798 $615,856 $246,303 $502,767 $114,589 $342,080
Accident and
health insurance 74,606 496,839 33,568 18,342 167,544 35,822 105,336 12,261 93,876
Annuity 68,719 3,186,148 25 424 93,992 247,970 225,004 21,248 136,527
Property and li-
ability insur-
ance -- 480 556 -- 662 986 2,848 -- 1,187
-------- ---------- -------- ------- -------- -------- -------- -------- --------
$564,382 $5,987,047 $180,191 $70,564 $878,054 $531,081 $835,955 $148,098 $573,670
======== ========== ======== ======= ======== ======== ======== ======== ========
1997:
Life insurance $434,012 $2,229,396 $166,704 $42,627 $576,468 $247,267 $476,747 $102,473 $345,938
Accident and
health insurance 70,593 466,109 34,250 17,153 205,869 40,343 87,424 9,451 101,960
Annuity 71,425 3,266,965 -- 4,576 64,637 261,768 242,738 16,252 129,263
Property and li-
ability insur-
ance -- 280 1,116 -- 40,316 4,395 33,773 -- 13,146
-------- ---------- -------- ------- -------- -------- -------- -------- --------
$576,030 $5,962,750 $202,070 $64,356 $887,290 $553,773 $840,682 $128,176 $590,307
======== ========== ======== ======= ======== ======== ======== ======== ========
1996:
Life insurance $456,461 $2,123,148 $149,152 $51,772 $568,874 $223,762 $478,228 $ 97,386 $290,525
Accident and
health insurance 62,407 437,118 33,770 18,774 160,097 34,202 96,743 14,017 87,222
Annuity 70,649 3,360,614 -- 31 79,245 267,473 243,387 14,575 111,366
Property and li-
ability insur-
ance -- 27,855 24,189 -- 50,109 5,550 36,933 -- 19,033
-------- ---------- -------- ------- -------- -------- -------- -------- --------
$589,517 $5,948,735 $207,111 $70,577 $858,325 $530,987 $855,291 $125,978 $508,146
======== ========== ======== ======= ======== ======== ======== ======== ========
<CAPTION>
Premiums
Segment written(4)
- ------- ----------
<S> <C>
1998:
Life insurance
Accident and
health insurance
Annuity
Property and li-
ability insur-
ance 103
----------
$ 103
==========
1997:
Life insurance
Accident and
health insurance
Annuity
Property and li-
ability insur-
ance 43,376
----------
$43,376
==========
1996:
Life insurance
Accident and
health insurance
Annuity
Property and li-
ability insur-
ance 50,515
----------
$50,515
==========
</TABLE>
- -----
(1) Includes policy and contract account balances
(2) Includes unearned policy and contract fees
(3) Includes policy and contract fees
(4) Applies only to property and liability insurance
See independent auditors' report.
91
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule IV
Reinsurance
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
other from other Net assumed to
Gross amount companies companies amount net
------------ ----------- ----------- ------------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
1998:
Life insurance in
force $158,229,143 $18,656,917 $28,559,482 $168,131,708 17.0%
============ =========== =========== ============
Premiums:
Life insurance $ 338,909 $ 30,532 $ 71,198 $ 379,575 18.8%
Accident and health
insurance 180,081 17,894 1,432 163,619 0.9%
Annuity 33,837 -- -- 33,837 --
Property and liabil-
ity insurance 581 18,837 18,918 662 2857.7%
------------ ----------- ----------- ------------
Total premiums $ 553,408 $ 67,263 $ 91,548 $ 577,693 15.8%
============ =========== =========== ============
1997:
Life insurance in
force $122,120,394 $14,813,351 $25,566,734 $132,873,777 19.2%
============ =========== =========== ============
Premiums:
Life insurance $ 340,984 $ 30,547 $ 63,815 $ 374,252 17.1%
Accident and health
insurance 175,647 16,332 1,310 160,625 0.8%
Annuity 40,060 -- -- 40,060 --
Property and liabil-
ity insurance 38,995 11,651 12,972 40,316 32.2%
------------ ----------- ----------- ------------
Total premiums $ 595,686 $ 58,530 $ 78,097 $ 615,253 12.7%
============ =========== =========== ============
1996:
Life insurance in
force $116,445,975 $15,164,764 $22,957,287 $124,238,498 18.5%
============ =========== =========== ============
Premiums:
Life insurance $ 347,056 $ 45,988 $ 63,044 $ 364,112 17.3%
Accident and health
insurance 174,219 15,511 1,389 160,097 0.9%
Annuity 38,041 -- -- 38,041 --
Property and liabil-
ity insurance 55,782 5,729 56 50,109 0.1%
------------ ----------- ----------- ------------
Total premiums $ 615,098 $ 67,228 $ 64,489 $ 612,359 10.5%
============ =========== =========== ============
</TABLE>
See independent auditors' report.
92
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
Variable Annuity Account
Cross Reference Sheet to Other Information
Form N-4
Item Number Caption in Other Information
24. Financial Statements and Exhibits
25. Directors and Officers of the Depositor
26. Persons Controlled by or Under Common Control with the
Depositor or Registrant
27. Number of Contract Owners
28. Indemnification
29. Principal Underwriters
30. Location of Accounts and Records
31. Management Services
32. Undertakings
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Audited Financial Statements of Variable Annuity Account for the
fiscal year ended December 31, 1998, are included in Part B of this
filing and consist of the following:
1. Independent Auditors' Report.
2. Statements of Assets and Liabilities, December 31, 1998.
3. Statements of Operations, year ended December 31, 1998.
4. Statements of Changes in Net Assets, year ended December 31,
1998.
5. Notes to Financial Statements.
(b) Audited Consolidated Financial Statements and Supplementary Schedules
of the Depositor, Minnesota Life Insurance Company and subsidiaries,
are included in Part B of this filing and consist of the following:
1. Independent Auditors' Report - Minnesota Life Insurance Company
and subsidiaries, for the fiscal year ended December 31, 1998 and
1997.
2. Consolidated Balance Sheets - Minnesota Life Insurance Company
and subsidiaries, for the fiscal year ended December 31, 1998 and
1997.
3. Consolidated Statements of Operations and Comprehensive Income -
Minnesota Life Insurance Company and subsidiaries, for the fiscal
years ended December 31, 1998, 1997 and 1996.
4. Consolidated Statements of Changes in Stockholder's Equity -
Minnesota Life Insurance Company and subsidiaries, for the fiscal
years ended December 31, 1998, 1997 and 1996.
5. Consolidated Statements of Cash Flows - Minnesota Life Insurance
Company and subsidiaries, for the fiscal years ended December 31,
1998, 1997 and 1996.
6. Notes to Consolidated Financial Statements - Minnesota Life
Insurance Company and subsidiaries, for the fiscal years ended
December 31, 1998 and 1997.
7. Schedule I - Summary of Investments-Other than Investments in
Related Parties - Minnesota Life Insurance Company and
subsidiaries, for the fiscal year ended December 31, 1998.
<PAGE>
8. Schedule III - Supplementary Insurance Information - Minnesota
Life Insurance Company and subsidiaries, for the fiscal years
ended December 31, 1998 and 1997.
9. Schedule IV - Reinsurance - Minnesota Life Insurance Company and
subsidiaries, for the fiscal years ended December 31, 1998, 1997
and 1996.
(c) Exhibits
1. The Resolution of The Minnesota Mutual Life Insurance Company's
Executive Committee of its Board of Trustees establishing the
Variable Annuity Account.
2. Not applicable.
3. (a) The Distribution Agreement between The Minnesota Mutual Life
Insurance Company and Ascend Financial Services, Inc.
(b) The Dealer Selling Agreement.
4. (a) The Flexible Payment Deferred Variable Annuity Contract,
form 99-70017.
(b) The Tax Sheltered Annuity Loan Agreement, form 99-70006.
(c) The Tax Sheltered Annuity Amendment, form MHC-88-9213.
(d) The Endorsement, form MHC-82-9032.
(e) The Annuity Payment Endorsement, form MHC-83-9060.
(f) The Qualified Plan Agreement, form MHC-88-9176 Rev. 8-93.
(g) The Individual Retirement Annuity (IRA) Agreement, SEP,
Traditional IRA and Roth-IRA, form MHC-97-9418.
(h) The Individual Retirement Annuity SIMPLE - (IRA)
Agreement, form MHC-98-9431.
5. (a) The Variable Annuity Application, form 99-70020.
6. Certificate of Incorporation and Bylaws.
(a) The Restated Certificate of Incorporation.
(b) The Bylaws of the Depositor.
7. Not applicable.
8. Not applicable.
9. Opinion and consent of Donald F. Gruber, Esq.
10. Consent of KPMG Peat Marwick LLP.
11. Not applicable.
12. Not applicable.
13. Not applicable.
<PAGE>
15. (a) Minnesota Life Insurance Company Power of Attorney To Sign
Registration Statements, dated April 12, 1999.
(b) Minnesota Life Insurance Company Power of Attorney to sign
Registration Statements, dated May 20, 1999.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Insurance Company with Registrant
- ---------------- ---------------------- ---------------
<S> <C> <C>
Anthony L. Andersen Director None
H. B. Fuller Company
2424 Territorial Road
St. Paul, MN 55114
Leslie S. Biller Director None
Wells Fargo & Company
MAC 0101-121
420 Montgomery Street
San Francisco, CA 94104
John F. Bruder Senior Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
Keith M. Campbell Senior Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
Frederick P. Feuerherm Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
John F. Grundhofer Director None
U.S. Bancorp
601 2nd Avenue South
Suite 2900
Minneapolis, MN 55402-4302
Robert E. Hunstad Director and Executive None
Minnesota Life Insurance Vice President
Company
400 Robert Street North
St. Paul, MN 55101
James E. Johnson Senior Vice President None
Minnesota Life Insurance and Actuary
Company
400 Robert Street North
St. Paul, MN 55101
Michael T. Kellett Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Richard D. Lee Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
Richard L. Manke Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
Robert M. Olafson Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
Dennis E. Prohofsky Director Senior Vice None
Minnesota Life Insurance President, General
Company Counsel and Secretary
400 Robert Street North
St. Paul, MN 55101
Dwayne C. Radel Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
Robert L. Senkler Chairman, President and None
Minnesota Life Insurance Chief Executive Officer
Company
400 Robert Street North
St. Paul, MN 55101
Michael E. Shannon Director None
Ecolab, Inc.
370 Wabasha Street
Ecolab Center
St. Paul, MN 55102
Gregory S. Strong Senior Vice President None
Minnesota Life Insurance and Chief Financial
Company Officer
400 Robert Street North
St. Paul, MN 55101
Terrence M. Sullivan Senior Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
Randy F. Wallake Senior Vice President None
Minnesota Life Insurance
Company
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
400 Robert Street North
St. Paul, MN 55101
William N. Westhoff Director, Senior Vice None
Minnesota Life Insurance President and Treasurer
Company
400 Robert Street North
St. Paul, MN 55101
Frederick T. Weyerhaeuser Director None
Clearwater Investment Trust
332 Minnesota Street
Suite W-2090
St. Paul, MN 55101-1308
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
Wholly-owned subsidiary of Minnesota Mutual Companies, Inc.:
Securian Holding Company (Delaware)
Wholly-owned subsidiary of Securian Holding Company:
Securian Financial Group, Inc. (Delaware)
Wholly-owned subsidiary of Securian Financial Group, Inc.
Minnesota Life Insurance Company
Wholly-owned subsidiaries of Minnesota Life Insurance Company:
Advantus Capital Management, Inc.
HomePlus Insurance Company
Northstar Life Insurance Company (New York)
The Ministers Life Insurance Company
MIMLIC Life Insurance Company (Arizona)
Robert Street Energy, Inc.
Capitol City Property Management, Inc.
Personal Finance Company (Delaware)
Enterprise Holding Corporation
Wholly-owned subsidiary of Advantus Capital Management, Inc.:
Ascend Financial Services, Inc.
Wholly-owned subsidiaries of Ascend Financial Services, Inc.:
MIMLIC Insurance Agency of Massachusetts, Inc. (Massachusetts)
MIMLIC Insurance Agency of Texas, Inc. (Texas)
Ascend Insurance Agency of Nevada, Inc. (Nevada)
Ascend Insurance Agency of Oklahoma, Inc. (Oklahoma)
Wholly-owned subsidiaries of Enterprise Holding Corporation:
Financial Ink Corporation
Oakleaf Service Corporation
Concepts in Marketing Research Corporation
<PAGE>
Concepts in Marketing Services Corporation
Lafayette Litho, Inc.
DataPlan Securities, Inc. (Ohio)
MIMLIC Imperial Corporation
MIMLIC Funding, Inc.
MCM Funding 1997-1, Inc.
MCM Funding 1998-1, Inc.
MIMLIC Venture Corporation
HomePlus Insurance Agency, Inc.
Ministers Life Resources, Inc.
Wedgewood Valley Golf, Inc.
Wholly-owned subsidiary of HomePlus Insurance Agency, Inc.:
HomePlus Insurance Agency of Texas, Inc. (Texas)
Majority-owned subsidiary of Ascend Financial Services, Inc.:
MIMLIC Insurance Agency of Ohio, Inc. (Ohio)
Open-end registered investment company offering shares solely to separate
accounts of Minnesota Life Insurance Company:
Advantus Series Fund, Inc.
Fifty percent-owned subsidiary of MIMLIC Imperial Corporation:
C.R.I. Securities, Inc.
Majority-owned subsidiaries of Minnesota Life Insurance Company:
Advantus Enterprise Fund, Inc.
Advantus International Balanced Fund, Inc.
Advantus Venture Fund, Inc.
Advantus Real Estate Securities Fund, Inc.
Less than majority owned, but greater than 25% owned, subsidiaries of Minnesota
Life Insurance Company:
Advantus Money Market Fund, Inc.
MIMLIC Cash Fund, Inc.
Advantus Cornerstone Fund, Inc.
Advantus Index 500 Fund, Inc.
Less than 25% owned subsidiaries of Minnesota Life Insurance Company:
Advantus Horizon Fund, Inc.
Advantus Spectrum Fund, Inc.
Advantus Mortgage Securities Fund, Inc.
Advantus Bond Fund, Inc.
Unless indicated otherwise parenthetically, each of the above corporations is a
Minnesota corporation.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of ___________, 1999, the number of holders of securities of this class were
as follows:
<PAGE>
<TABLE>
<CAPTION>
Number of Record
Title of Class Holders
-------------- ----------------
<S> <C>
Variable Annuity Contracts 0
</TABLE>
ITEM 28. INDEMNIFICATION
The State of Minnesota has an indemnification statute (Minnesota Statutes
300.083), as amended, effective January 1, 1984, which requires indemnification
of individuals only under the circumstances described by the statute. Expenses
incurred in the defense of any action, including attorneys' fees, may be
advanced to the individual after written request by the board of directors upon
receiving an undertaking from the individual to repay any amount advanced unless
it is ultimately determined that he or she is entitled to be indemnified by the
corporation as authorized by the statute and after a determination that the
facts then known to those making the determination would not preclude
indemnification.
Indemnification is required for persons made a part to a proceeding by reason of
their official capacity so long as they acted in good faith, received no
improper personal benefit and have not been indemnified by another organization.
In the case of a criminal proceeding, they must also have had no reasonable
cause to believe the conduct was unlawful. In respect to other acts arising out
of official capacity: (1) where the person is acting directly for the
corporation there must be a reasonable belief by the person that his or her
conduct was in the best interests of the corporation or, (2) where the person is
serving another organization or plan at the request of the corporation, the
person must have reasonably believed that his or her conduct was not opposed to
the best interests of the corporation. In the case of persons not directors,
officers or policy-making employees, determination of eligibility for
indemnification may be made by a board-appointed committee of which a director
is a member. For other employees, directors and officers, the determination of
eligibility is made by the Board or a committee of the Board, special legal
counsel, the shareholder of the corporation or pursuant to a judicial
proceeding.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of
Minnesota Life Insurance Company and Minnesota Mutual Variable Annuity Account
pursuant to the foregoing provisions, or otherwise, Minnesota Life Insurance
Company and Minnesota Mutual Variable Annuity Account have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by Minnesota Life Insurance Company and Minnesota Mutual
Variable Annuity Account of expenses incurred or paid by a director, officer or
controlling person of Minnesota Life Insurance Company and Minnesota Mutual
Variable Annuity Account in the successful defense of any action, suit or
proceeding) is asserted by such director, officer of controlling person in
connection with the securities being registered, Minnesota Life Insurance
Company and Minnesota Mutual Variable Annuity Account will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as
<PAGE>
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) The principal underwriter is Ascend Financial Services, Inc..
Ascend Financial Services, Inc. is also the principal underwriter
for twelve mutual funds (Advantus Horizon Fund, Inc.; Advantus
Spectrum Fund, Inc.; Advantus Money Market Fund, Inc.; Advantus
Mortgage Securities Fund, Inc.; Advantus Bond Fund, Inc.;
Advantus Cornerstone Fund, Inc.; Advantus Enterprise Fund, Inc.;
Advantus International Balanced Fund, Inc.; Advantus Venture
Fund, Inc.; Advantus Index 500 Fund, Inc.; Advantus Real Estate
Securities Fund, Inc.; and the MIMLIC Cash Fund, Inc.) and for
four additional registered separate accounts of Minnesota Life
Insurance Company, all of which offer annual contracts and life
insurance policies on a variable basis.
(b) Directors and Officers of Underwriter.
DIRECTORS AND OFFICERS OF UNDERWRITER
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices Offices
Business Address with Underwriter with Registrant
- ------------------ ---------------- ---------------
<S> <C> <C>
Robert E. Hunstad Director None
Minnesota Life
Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101
George I. Connolly President, Chief None
Ascend Financial Services, Inc. Executive Officer, Chief
400 Robert Street North Compliance Officer and
St. Paul, Minnesota 55101 Director
Margaret Milosevich Vice President, Chief Assistant
Ascend Financial Services, Inc. Operations Officer, Secretary
400 Robert Street North Treasurer and Secretary
St. Paul, Minnesota 55101
Dennis E. Prohofsky Director None
Minnesota Life
Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101
Thomas L. Clark Assistant Treasurer Assistant
Ascend Financial Services, Inc. and Assistant Secretary Secretary
400 Robert Street North
St. Paul, Minnesota 55101
</TABLE>
(c) All commissions and other compensation received by each principal
underwriter, directly or indirectly, from the Registrant during the
Registrant's last fiscal year:
<PAGE>
<TABLE>
<CAPTION>
Name of Net Underwriting Compensation on
Principal Discounts and Redemption or Brokerage Other
Underwriter Commissions Annuitization Commissions Compensation
- ----------- ---------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Ascend Financial,
Services Inc. $15,989,724 ___ ___ ___
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules promulgated thereunder are in the physical
possession of Minnesota Life Insurance Company, St. Paul, Minnesota 55101-2098.
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
(a) Minnesota Life Insurance Company hereby represents that it will
file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial
statements in the registration statement are never more than 16
months old for so long as payments under the variable annuity
contracts may be accepted.
(b) Minnesota Life Insurance Company hereby represents that it will
include as part of any application to purchase a contract offered by
the prospectus, a space that an applicant can check to request a
Statement of Additional Information.
(c) Minnesota Life Insurance Company hereby represents that it will
deliver any Statement of Additional Information and any financial
statements required to be made available under this form promptly
upon written or oral request.
(d) Minnesota Life Insurance Company hereby represents that, as to the
variable annuity contract which is the subject of this Registration
Statement, File No. ________, the fees and charges deducted under the
contract, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred and the risks assumed
by the Minnesota Life Insurance Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of St. Paul and the State
of Minnesota on the 21st day of May, 1999.
VARIABLE ANNUITY ACCOUNT
(Registrant)
By: MINNESOTA LIFE INSURANCE COMPANY
(Depositor)
By______________________________________
Robert L. Senkler
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Depositor,
Minnesota Life Insurance Company, has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Saint Paul, and State of Minnesota, on the 21st day of May, 1999.
MINNESOTA LIFE INSURANCE COMPANY
By______________________________________
Robert L. Senkler
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in their capacities
with the Depositor and on the date indicated.
Signature Title Date
- ---------------------------- ----------------------- ---------------
Chairman, President and May 21, 1999
- ---------------------------- Chief Executive Officer
Robert L. Senkler
* Director
- ----------------------------
Anthony L. Andersen
* Director
- ----------------------------
Leslie S. Biller
* Director
- ----------------------------
John F. Grundhofer
** Director
- ----------------------------
Robert E. Hunstad
* Director
- ----------------------------
Michael E. Shannon
Director
- ----------------------------
Frederick T. Weyerhaeuser
** Director and Senior May 21, 1999
- ---------------------------- Vice President (treasurer)
Gregory S. Strong
** Director and Senior May 21, 1999
- ---------------------------- Vice President
William W. Westhoff (treasurer)
** Director and May 21, 1999
- ---------------------------- Attorney-in-Fact
Dennis E. Prohofsky
* Pursuant to power of attorney dated April 12, 1999, a copy of which is filed
herewith.
** Pursuant to power of attorney dated May 20, 1999, a copy of which is filed
herewith.
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
1. The Resolution of The Minnesota Mutual Life Insurance Company's
Executive Committee of its Board of Trustees establishing the
Variable Annuity Account.
3. (a) The Distribution Agreement between The Minnesota Mutual
Life Insurance Company and Ascend Financial Services, Inc.
(b) The Dealer Selling Agreement.
4. (a) The Flexible Payment Deferred Variable Annuity Contract,
form 99-70017.
(b) The Tax Sheltered Annuity Loan Agreement, form 99-70006.
(c) The Tax Sheltered Annuity Amendment, form MHC-88-9213.
(d) The Endorsement, form MHC-82-9032.
(e) The Annuity Payment Endorsement, form MHC-83-9060.
(f) The Qualified Plan Agreement, form MHC-88-9176 Rev. 8-93.
(g) The Individual Retirement Annuity (IRA)
Agreement, SEP, Traditional IRA and Roth-IRA, form
MHC-97-9418.
(h) The Individual Retirement Annuity SIMPLE - (IRA)
Agreement, form MHC-98-9431.
5. (a) The Variable Annuity Application, form 99-70020.
6. (a) The Restated Certificate of Incorporation.
(b) The Bylaws of the Depositor.
9. Opinion and consent of Donald F. Gruber, Esq.
10. Consent of KPMG Peat Marwick LLP
15. (a) Minnesota Life Insurance Company Power of Attorney To Sign
Registration Statements, dated April 12, 1999.
(b) Minnesota Life Insurance Company Power of Attorney to sign
Registration Statements, dated May 20, 1999.
<PAGE>
CERTIFICATE OF SECRETARY
I, Dennis E. Prohofsky, hereby certify that I am the Secretary of
Minnesota Life Insurance Company, Saint Paul, Minnesota; that I have charge,
custody and control of the record books and corporate seal of said Company;
that the following is a true and correct copy of a resolution adopted by the
Executive Committee of said Company at a meeting held September 10, 1984, at
which meeting a quorum was present and acting throughout; and that the
meeting was duly called for the purpose of acting upon the attached
"Resolution - Separate Account H".
I hereby certify that the attached resolution has not been modified,
amended or rescinded and continues in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate
seal of Minnesota Life Insurance Company this first day of May, 1985.
/s/ Dennis E. Prohofsky
----------------------
Secretary
(Seal)
<PAGE>
RESOLUTION-SEPARATE ACCOUNT H
"RESOLVED, That the Company hereby establishes a separate account in accordance
with Subdivision 1 of Section 61A.14 of Minnesota Statutes 1967, as amended, for
the purpose of issuing contracts on a variable basis, which account shall be
known as Minnesota Mutual Variable fund H, or by such other name as the Chief
Executive Officer may determine;
FURTHER RESOLVED, That such separate account be registered as unit investment
trust pursuant to the provisions of the Investment company Act of 1940, as
amended, and that application be made for such exemptions from that Act as may
be necessary or desirable;
FURTHER RESOLVED, That there be prepared and filed with the Securities and
Exchange Commission in accordance with the provisions, of the Securities Act of
1933, as amended, a registration statement, and any amendments thereto, relating
to such contracts on a variable basis as may be offered to the public;
FURTHER RESOLVED, That the chief executive officer of the Company or such
officer or officers as he may designate be, and they hereby are, authorized to
seek such exemptive or other relief as may be necessary or appropriate in
connection with the separate account or the offered contracts; and
FURTHER RESOLVED, That the chief executive officer of the Company or such
officer or officers as he may designate be, and they hereby are, authorized and
directed to take such further actions as may in their judgment be necessary and
desirable to implement the foregoing resolutions."
<PAGE>
DISTRIBUTION AGREEMENT
AGREEMENT made this _____ day of _____________, 1985, between and among The
Minnesota Mutual Life Insurance Company, a Minnesota corporation ("Minnesota
Mutual"), and MIMLIC Sales Corporation, a Minnesota corporation ("Distributor").
WITNESSETH:
WHEREAS, Minnesota Mutual is the depositor of Minnesota Mutual Variable
Annuity Account, (the "Account"); and
WHEREAS, Minnesota Mutual proposes to offer for sale certain variable
annuity contracts (the "contracts") which may be deemed to be securities under
the Securities Act of 1933 ("1933 Act") and the laws of some states; and
WHEREAS, the Distributor, a wholly-owned subsidiary of MIMLIC Corporation,
which is in turn a wholly-owned subsidiary of Minnesota Mutual, is registered as
a broker-dealer with the Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934 ("1934 Act") and is a member of the National
Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, the parties desire to have the Distributor act as principal
underwriter of the contracts and assume full responsibility for the securities
activities of each "person associated" (as that term is defined in Section
3(a)(18) of the 1934 Act) with the Distributor and engaged directly or
indirectly in the sale of the contracts (the "associated persons"); and
WHEREAS, the parties desire to have Minnesota Mutual perform certain
services in connection with the sale of the contracts;
NOW, THEREFORE, in consideration of the covenants and mutual promises of
the parties made to each other, it is hereby covenanted and agreed as follows:
1. The Distributor will act as the exclusive principal underwriter of the
contracts and as such will assume full responsibility for the securities
activities of all the associated persons. The Distributor will train the
associated persons, use its best efforts to prepare them to complete
satisfactorily the applicable NASD and state examinations so that they may be
qualified, register the associated persons as its registered representatives
before they engage in securities activities, and supervise and control them in
the performance of such activities. Unless otherwise permitted by applicable
state law, all persons engaged in the sale of the contracts must also be agents
of Minnesota Mutual.
2. The Distributor will assume full responsibility for the continued
compliance by itself and the associated persons with the NASD Rules of Fair
Practice and Federal and state laws, to the extent applicable, in connection
with the sale of the contracts. The Distributor will make timely filings with
the SEC, NASD, and any other regulatory authorities of all reports and any sales
literature relating to the contracts required by law to be filed by the
Distributor. Minnesota Mutual will make available to the Distributor copies of
any agreements or plans intended for use in connection with the sale of
<PAGE>
contracts in sufficient number and in adequate time for clearance by the
appropriate regulatory authorities before they are used, and it is agreed that
the parties will use their best efforts to obtain such clearance as
expeditiously as is reasonably possible.
3. With the consent of Minnesota Mutual, Distributor may enter into
agreements with other broker-dealers duly licensed under applicable Federal and
state laws for the sale and distribution of the contracts and may perform such
duties as may be provided for in such agreements.
4. Minnesota Mutual, with respect to the contracts, will prepare and file
all registration statements and prospectuses (including amendments) and all
reports required by law to be filed with Federal and state regulatory
authorities. Minnesota Mutual will bear the cost of printing and mailing all
notices, proxies, proxy statements, and periodic reports that are to be
transmitted to persons having voting rights under the contracts. Minnesota
Mutual will make prompt and reasonable efforts to effect and keep in effect, at
its expense, the registration or qualification of its contracts in such
jurisdictions as may be required by federal and state regulatory authorities.
5. Minnesota Mutual will (a) maintain and preserve in accordance with Rules
17a-3 and 17a-4 under the 1934 Act all books and records required to be
maintained by it in connection with the offer and sale of the contracts, which
books and records shall be and remain the property of the Distributor and shall
at all times be subject to inspection by the SEC in accordance with Section
17(a) of the 1934 Act and by all other regulatory bodies having jurisdiction,
and (b) upon or prior to completion of each "transaction" as that term is used
in Rule 10b-10 of the 1934 Act, send a written confirmation for each such
transaction reflecting the facts of the transaction and showing that it is being
sent by Minnesota Mutual acting in the capacity of agent for the Distributor.
6. All purchase payments and any other monies payable upon the sale,
distribution, renewal or other transaction involving the contracts shall be paid
or remitted directly to, and all checks shall be drawn to the order of,
Minnesota Mutual, and the Distributor shall not have or be deemed to have any
interest in such payments or monies. All such payments and monies received by
the Distributor shall be remitted daily by the Distributor to Minnnesota Mutual
for allocation to the Account in accordance with the contracts and any
prospectus with respect to the contracts.
7. Minnesota Mutual will, in connection with the sale of the contracts, pay
on behalf of the Distributor all amounts (including sales commissions) due to
the sales representatives of the Distributor or to broker-dealers who have
entered into sales agreements with the Distributor. The records in respect of
such payments shall be properly reflected on the books and records maintained by
the Minnesota Mutual.
8. As compensation for the Distributor's assuming the expenses and
performing the services to be assumed and performed by it pursuant to this
Agreement, the Distributor shall receive from Minnesota Mutual the following
amounts:
(a) Upon receipt of proper evidence of expenditures, an amount sufficient
to reimburse the Distributor for its expenses incurred in carrying out
the terms of this Agreement, and
<PAGE>
(b) such other amounts as may from time to time be agreed upon by the
Distributor and Minnesota Mutual.
9. As compensation for its services performed and expenses incurred under
this Agreement, Minnesota Mutual will receive all amounts deducted as
administrative, sales, mortality and expense risk charges under the contracts,
as specified in the contracts and in the prospectus or prospectuses forming a
part of any registration statement with respect to the contracts filed with the
SEC under the 1933 Act. It is understood that Minnesota Mutual assumes the risk
that the above compensation for its services under the contracts may not prove
sufficient to cover its actual expenses in connection therewith and that its
compensation for assuming such risk shall be included in and limited to the
foregoing charges described in said prospectus(es).
10. Minnesota Mutual will, except as otherwise provided in this Agreement,
bear the cost of all services and expenses, including legal services and
expenses and registration, filing and other fees, in connection with (a)
registering and qualifying the contracts and (to the extent requested by the
Distributor) the associated persons with Federal and state regulatory
authorities and the NASD and (b) printing and distributing all contracts and all
registration statements and prospectuses (including amendments), notices,
periodic reports, sales literature and advertising prepared, filed or
distributed with respect to the contracts.
11. Each party hereto shall advise the others promptly of (a) any action of
the SEC or any authorities of any state or territory, of which it has knowledge,
affecting registration or qualification of the contracts, or the right to offer
the contracts for sale, and (b) the happening of any event which makes untrue
any statement, or which requires the making of any change, in the registration
statement or prospectus in order to make the statements therein not misleading.
12. The services of the Distributor and Minnesota Mutual under this
Agreement are not deemed to be exclusive and the Distributor and Minnesota
Mutual shall be free to render similar services to others, including, without
implied limitation, such other separate accounts as are now or hereafter
established by Minnesota Mutual, so long as the services of the Distributor and
Minnesota Mutual hereunder are not impaired or interfered with thereby.
13. This Agreement shall upon execution become effective as of the date
first above written, and shall continue in effect indefinitely unless terminated
by either party on 60 days' written notice to the other.
14. This Agreement may be amended at any time by mutual consent of the
parties.
15. This Agreement shall be governed by and construed in accordance with
the laws of Minnesota.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
Witness: ________________________ By: _______________________________________
Secretary Chairman of the Board
MIMLIC SALES CORPORATION
Witness: ________________________ By: _______________________________________
Vice President President
<PAGE>
DEALER SELLING AGREEMENT
(VARIABLE CONTRACTS)
THIS AGREEMENT, made this ____ day of ____________, 1998, by and between
Ascend Financial Services, Inc., a Minnesota corporation (the "Underwriter"),
having its principal office at 400 Robert Street North, St. Paul, Minnesota
55101, Minnesota Life Insurance Company (the "Issuer"), having its principal
office at 400 Robert Street North, St. Paul, Minnesota 55101, and
_____________________ (the "Dealer"), having its principal office at
__________________________.
WHEREAS, the Underwriter has entered into certain distribution agreements
relating to variable life insurance policies and variable annuity contracts
issued by separate accounts of the Issuer (such variable life insurance policies
and variable annuity contracts hereinafter referred to collectively as the
"Variable Contracts"), under which the Underwriter was engaged and agreed to act
as principal underwriter in the sale and distribution of such Variable Contracts
to the public, either through dealers or otherwise; and
WHEREAS, the parties hereto desire that the Dealer sell and distribute to
the public those Variable Contracts identified on Appendix A hereto, as may be
amended from time to time by the Underwriter upon written notice to the Dealer
of such change and effective as of the date set forth in such notice;
NOW, THEREFORE, the Underwriter hereby authorizes the Dealer to sell and
distribute the Variable Contracts to the public subject to the following terms
and conditions.
1. ACCEPTANCE OF APPLICATIONS; PROSPECTUSES AND REGISTRATION STATEMENTS.
Applications solicited by the Dealer will be accepted only in the amounts and on
the terms which are set forth in the then current Prospectuses (and/or
Statements of Additional Information, if any) for the Variable Contracts.
Applications shall be promptly forwarded to Issuer, upon receipt and approval by
the Dealer. Underwriter represents and warrants that the Prospectuses (and/or
Statements of Additional Information, if any) for the Variable Contracts are or
will be filed with the Securities and Exchange Commission ("SEC"), that such
filings conform in all material respects with the requirements of the SEC and
that, except as Underwriter has given written notice to Dealer, there are
effective Registration Statements relating to such Variable Contracts.
Underwriter shall give written notice to Dealer either (i) of specified states
or jurisdiction in which the Variable Contracts may be offered and sold by the
Dealer under all securities and insurance laws applicable to the Issuer and
Underwriter or (ii) of all states or jurisdictions where the Variable Contracts
may not be offered or sold, but Underwriter does not assume any responsibility
as to the Dealer's right to sell the Variable Contracts in any state or
jurisdiction. Underwriter, during the term of this Agreement, shall (i) notify
Dealer in writing of the issuance by the SEC of any stop order with respect to a
Registration Statement or the initiation of any proceedings for such purpose or
any other purpose relating to the registration and/or offering of the Variable
Contracts, (ii) of any other action or circumstance known to them that may
prevent the lawful sale of the Variable Contracts in any state or jurisdiction,
and (iii) advise the Dealer in writing of any amendment to any Registration
Statement or supplement to any Prospectus. The Underwriter shall make available
to Dealer such number of copies of the Prospectus, as amended or supplemented,
(and/or Statements of Additional Information, if any)
<PAGE>
or any Approved Supplement Sales Literature (as defined in Paragraph 5) as the
Dealer may reasonably request.
2. DEALER COMMISSION. The Dealer shall receive, for sales of Variable
Contracts by the Dealer, the commissions or other payments specified in Appendix
B attached hereto; provided that the amount of such commissions or other
payments may be changed from time to time by the Underwriter upon notice to the
Dealer of such change. The effective date of such change shall be as set forth
in such notice. Dealer assumes sole responsibility to pay commissions due
Dealer's agents or registered representatives in connection with sales of the
Variable Contracts. Upon termination of this Agreement, for any reason, all
compensation otherwise payable to Dealer hereunder shall cease automatically,
including any renewal or trailing compensation. In the event of such
termination, however, Dealer shall receive any earned first year commissions
attributable to transactions entered into but not settled prior to the effective
date of termination.
In the event that a Registered Representative listed in Appendix C ceases
to be associated with the Dealer, and this Agreement is not then terminated, all
compensation otherwise payable to Dealer hereunder and attributable to Variable
Contracts sold by that Registered Representative shall cease automatically.
3. PREMIUM AND PURCHASE PAYMENTS. Initial premium and purchase payments for
the Variable Contracts shall be allocated as described in the then current
Prospectuses (and/or Statements of Additional Information, if any) for the
Variable Contracts and as instructed from time to time by the Underwriter.
Premium and purchase payments shall be forwarded to the Issuer promptly upon
receipt. Each premium and purchase payment shall be confirmed by the Dealer to
the Underwriter in writing on the day such payment is received.
All other premium payments and all monies or other settlements received by
the Dealer for or on behalf of the Underwriter or Issuer shall be received by
the Dealer in fiduciary capacity in trust for the Underwriter and Issuer and
shall be promptly transmitted to the Issuer, and, in no event, shall the Dealer
commingle such premiums and monies with other funds. The Dealer shall keep
correct accounts and records of all business transacted and monies collected by
Dealer for the Underwriter or Issuer to the extent required by the Underwriter,
which accounts and records shall be open at all times, during normal business
hours, to inspection and examination by the Underwriter's authorized
representative. All accounts, records and any supplies furnished to the Dealer
for its use, consumption or distribution to customers by the Underwriter shall
remain the property of the Underwriter and to the extent remaining shall be
returned to the Underwriter upon demand.
4. FAILURE OF ORDER. The Underwriter and the Issuer each reserves the right
at any time to refuse to accept and approve any application for the Variable
Contracts obtained by the Dealer, and each reserves the right to settle any
claims against the Underwriter and the Issuer arising from the sale of the
Variable Contracts by the Dealer and to refund to the owner of any Variable
Contract payments made by him on his Variable Contract, without the Dealer's
consent. In the event any order for a Variable Contract is rejected by the
Underwriter or the Issuer or any premium or purchase payment received for a
Variable Contract cannot be collected, otherwise proves insufficient or
worthless, or is not paid, any compensation paid to the Dealer hereunder shall,
promptly upon notice to the Dealer, be returned by the Dealer to the Underwriter
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<PAGE>
either in cash or as a charge against the Dealer's account with the Underwriter,
as the Underwriter may elect. The Underwriter or Issuer shall also have the
right to refund any premiums or purchase payments paid on a Variable Contract if
it believes this is proper where a Variable Contract is rescinded, cancelled, or
not accepted, or for any other reason it believes is proper. The Dealer agrees
to return to the Underwriter, upon its request, all Dealer commissions credited
on any premiums or purchase payments which are refunded. The Dealer hereby
agrees that until the Underwriter receives full reimbursement in cash, the
amount of compensation due and owing the Underwriter shall constitute a debt to
the Underwriter which the Underwriter may collect by any lawful means, and after
written notice is given to Dealer, with interest thereon at the maximum rate
possible.
5. DEALER'S UNDERTAKINGS. In offering and selling the Variable Contracts,
the Dealer shall comply with all state and federal laws and regulations
applicable to it, all rules of the National Association of Securities Dealers,
Inc. (the "NASD") applicable to it, and all policies and rules of the
Underwriter applicable to it and communicated in writing to it. In the event of
the suspension, revocation, cancellation or other impairment of the Dealer's
membership in the NASD or the Dealer's registration, license or qualification to
sell the Variable Contracts under any applicable state or federal law or
regulation, the Dealer shall give the Underwriter prompt notice of such
suspension, revocation, cancellation or other impairment, and the Dealer's
authority under this Agreement shall thereupon terminate as provided in
Paragraph 12.
The Dealer shall not sell any of the Variable Contracts pursuant to this
Agreement unless the then current applicable Prospectus is furnished to the
purchaser prior to the offer and sale. The Dealer shall not use any supplemental
sales literature of any kind without prior written approval of the Underwriter
unless it is furnished by the Underwriter for such purpose ("Approved
Supplemental Sales Literature"). No person is authorized to make any
representation concerning the Variable Contracts, the Issuer or the Issuer's
separate accounts except those contained in the then current Prospectuses
(and/or Statements of Additional Information, if any) or Approved Supplemental
Sales Literature. In offering and selling the Variable Contracts, the Dealer
shall rely solely on the representations contained in the then current
Prospectuses (and/or Statements of Additional Information, if any) or Approved
Supplemental Sales Literature.
Dealer agrees to furnish to Underwriter such information as may from time
to time be requested by Underwriter for the purpose of complying with the
applicable provisions of federal or state securities laws and the by-laws, rules
or regulations of the NASD or any other securities regulatory authority. Dealer
shall immediately notify the Compliance Department of Underwriter of any
proceeding, suit or action, whether criminal, civil or administrative, or the
commencement by the NASD or any other securities regulatory authority or any
other state or federal authority of any investigation, if such proceeding, suit,
action or investigation arises out of or in connection with Dealer's activities
as broker or dealer, or insurance agent or agency, with respect to the Variable
Contracts. Dealer shall also immediately notify the Compliance Department of
Underwriter of any complaint by a customer or prospective customer or regulatory
authority regarding the Variable Contracts or Dealer's activities as broker or
dealer, or insurance agent or agency, with respect to the Variable Contracts.
Except for those books and records required by law or regulation to be
maintained by Dealer, all books, documents, prospectuses, application forms or
other materials or supplies in
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<PAGE>
the possession of Dealer which pertain to the Variable Contracts or to the
business of Underwriter or the Issuer shall be the property of Underwriter or
the Issuer, as the case may be, which at any and all times shall be open to
inspection by any duly authorized representative of Underwriter or Issuer and at
the termination of this Agreement shall be returned to Underwriter.
6. APPOINTMENT OF DEALER BY ISSUER. If required by the insurance laws of
any jurisdiction, the Issuer hereby appoints the Dealer as its agent for
purposes of offering the Variable Contracts in such jurisdiction.
7. INSURANCE LICENSING. Dealer shall, at all times when performing its
functions under this Agreement, be validly licensed as an insurance agent or
agency in the states and other local jurisdictions that require such licensing
or registration in connection with Dealer's offer and sale of the Variable
Contracts; or, in those states in which Dealer cannot obtain a corporate
insurance agent's license, Dealer shall maintain a contractual relationship with
an agency which shall be validly licensed as an insurance agency, with variable
insurance contract authority, in such jurisdiction or jurisdictions (the
"Agency"). Dealer warrants that its contractual relationship with any such
Agency is currently, and will continue, in compliance with any applicable rules
or positions of the SEC or the NASD, or their respective staffs, as necessary to
avoid registration by such Agency as a broker-dealer under the Securities
Exchange Act of 1934 (the "1934 Act"), as amended, as a result of the activities
of Dealer and such Agency in connection with the offer and sale of the Variable
Contracts. Dealer shall provide Underwriter with a list of all Agencies relied
upon by Dealer to comply with this paragraph and with evidence of their valid
insurance licenses in the applicable jurisdictions, and Dealer hereby covenants
to maintain the completeness and accuracy of such list. If required by the law
of any state or jurisdiction where Dealer is not licensed as an insurance
agency, commissions payable to Dealer hereunder shall be paid to the appropriate
Agency, and Dealer hereby appoints Agency to receive on its behalf any and all
such commissions.
8. REPRESENTATIONS AND AGREEMENTS OF THE DEALER. By accepting this
Agreement, and except as modified by Paragraph 7, the Dealer represents that it:
(i) is registered as a broker-dealer under the 1934 Act, as amended; (ii) is
qualified to act under all applicable securities and insurance statutes, rules
and regulations in each jurisdiction in which it will offer the Variable
Contracts; (iii) is a member in good standing of the NASD; and (iv) will
maintain such registrations, qualifications and memberships throughout the term
of this Agreement.
9. DEALER'S EMPLOYEES. By accepting this Agreement, the Dealer
assumes full responsibility for the actions and course of conduct of its
registered representatives in the solicitation of applications for the purchase
of the Variable Contracts. The Dealer shall provide thorough and prior training
to its registered representatives concerning the selling methods to be used in
connection with the offer and sale of the Variable Contracts, giving special
emphasis to the principles of full and fair disclosure to prospective investors.
The Dealer may solicit sales of the Variable Contracts only through registered
representatives of the Dealer, who shall also have such variable contract or
other insurance licenses as are necessary for the sale of the Variable Contracts
and who shall have been appointed agents of the Issuer, a list of which
registered representatives as of the date hereof is attached hereto as Appendix
C. The Issuer may refuse to appoint as its agent any registered representative
of the Dealer if such registered representative is deemed by the Issuer to be
unsuitable for any reason. The Dealer shall supervise all activities of persons
associated with it relating to the sale of the Variable Contracts with a view to
preventing
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<PAGE>
violations of any rules of the NASD or any applicable federal or state laws or
regulations. THE DEALER SHALL FROM TIME TO TIME PROVIDE THE UNDERWRITER WITH AN
UPDATED LIST OF THE DEALER'S REGISTERED REPRESENTATIVES, AND SHALL GIVE THE
UNDERWRITER PROMPT NOTICE IN THE EVENT OF (a) THE SUSPENSION, REVOCATION,
CANCELLATION OR OTHER IMPAIRMENT OF ANY SUCH REGISTERED REPRESENTATIVE'S
REGISTRATION WITH THE NASD OR ANY SUCH REGISTERED REPRESENTATIVE'S REGISTRATION,
LICENSE OR QUALIFICATION TO SELL THE VARIABLE CONTRACTS UNDER ANY APPLICABLE
STATE OR FEDERAL LAW OR REGULATION, OR (b) THE TERMINATION OF ANY SUCH
REGISTERED REPRESENTATIVE'S ASSOCIATION WITH THE DEALER.
10. INDEMNIFICATION PROVISIONS.
A. INDEMNIFICATION BY UNDERWRITER. The Underwriter hereby agrees to
indemnify and to hold harmless the Dealer, each of its directors, officers or
employees and each person, if any, who controls the Dealer within the meaning of
Section 15 of the Securities Act of 1933 (the "1933 Act") or Section 20(a) of
the 1934 Act and their respective successors and assigns (hereinafter in this
paragraph separately and collectively referred to as the "Defendants") from and
against any and all losses, claims, demands or liabilities (or actions in
respect thereof), joint or several, to which the Defendants may become subject
under the 1933 Act, at common law or otherwise (including any legal or other
expense reasonably incurred in connection therewith), insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon: (i) any untrue or allegedly untrue statement of a material fact
contained in the then current Prospectus (and/or Statement of Additional
Information, if any) of any Variable Contract or arise out of or are based upon
the omission or alleged omission to state therein a material fact that is
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, nor misleading, or arise
out of any claim based upon any Approved Supplemental Sales Literature, or (ii)
the failure of Underwriter or its officers, directors, employees or agents to
comply with any applicable provisions of this Agreement; provided that this
indemnity agreement is subject to the condition that notice be given as provided
below.
B. FIDELITY BOND OF DEALER AND INDEMNIFICATION BY DEALER. Dealer represents
that all directors, officers, partners, employees or registered representatives
of Dealer who are authorized pursuant to this Agreement to sell the Variable
Contracts or who have access to premiums or other monies belonging to the
Underwriter or Issuer, including but not limited to monies submitted with
applications for purchase of the Variable Contracts or monies being returned to
Variable Contract owners, are and shall be covered by a blanket fidelity bond,
including coverage for larceny and embezzlement, issued by a reputable bonding
company. This bond shall be maintained by Dealer at Dealer's expense. Such bond
shall be at least of the form, type and amount required under the NASD Rules of
Fair Practice. The maintenance by the Dealer of the NASD Fidelity Bond shall
constitute compliance with this requirement. The Underwriter may require
evidence, satisfactory to it, that such coverage is in force. Dealer shall give
prompt written notice to the Underwriter of any notice of cancellation or change
of coverage with respect to such bond.
Dealer hereby assigns any proceeds received from the fidelity bonding
company to the Underwriter and Issuer to the extent of the Underwriter's or
Issuer's loss due to activities under this Agreement covered by the bond. If
there is any deficiency amount, whether due to a deductible or otherwise, Dealer
shall promptly pay to the Underwriter or Issuer such amount on
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<PAGE>
demand, and Dealer hereby indemnifies and holds harmless the Underwriter
and Issuer from any such deficiency and from the costs of collection thereof,
including reasonable attorneys fees.
Dealer also agrees to indemnify and hold harmless the Underwriter and
Issuer, and their officers, directors and employees and each person who controls
them within the meaning of Section 15 of the 1933 Act or Section 20(a) of the
1934 Act and their respective successors and assigns (hereinafter in this
paragraph separately and collectively referred to as Defendants) against any and
all losses, claims, damages or liabilities, including reasonable attorneys fees,
to which they may become subject under the 1933 Act, the 1934 Act, or other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon: (i) any oral or written
misrepresentations, or any unauthorized action or statement, by Dealer or its
officers, directors, employees or agents, or (ii) the failure of Dealer or its
officers, directors, employees or agents to comply with any applicable
provisions of this Agreement; provided, that this indemnity agreement is subject
to the condition that notice be given as provided below.
C. NOTICE AND DEFENSE. Upon the presentation in writing of any claim or the
commencement of any suit against any Defendant in respect of which
indemnification may be sought from the indemnifying party on account of its
agreement contained in the preceding paragraphs, such Defendant shall with
reasonable promptness give notice in writing of such suit to the indemnifying
party, but failure to so give such notice shall not relieve the indemnifying
party from any liability that it may have to the Defendants otherwise than on
account of this indemnity agreement. The indemnifying party shall be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any such claim or suit with counsel chosen by it and satisfactory
to the Defendants who are parties to such suit or against whom such claim is
presented. If the indemnifying party elects to assume the defense and retain
such counsel as herein provided, such Defendant shall bear the fees and expenses
subsequently incurred of any additional counsel retained by them, except the
reasonable costs of investigation and such other costs as are approved by the
indemnifying party; provided, that if counsel for an indemnified Defendant
determines in good faith that there is a conflict which requires separate
representation for the indemnified Defendant, the indemnified Defendant shall be
entitled to indemnification for the reasonable expenses of one additional
counsel and local counsel to the extent provided above. Such counsel shall, to
the fullest extent consistent with its professional responsibilities, cooperate
with the indemnifying party and its counsel. The indemnifying party's
obligations under this Paragraph 10 shall survive the termination of this
Agreement.
D. SETTLEMENT; CONTRIBUTION. The indemnifying party shall not be liable
under this Agreement for any settlement made by an indemnified party without the
indemnifying party's prior written consent, and the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss or
liability by reason of the settlement of any claim or action with the consent of
the indemnifying party. The indemnifying party shall not settle any such claim
or action without prior written consent of the indemnified party. If the
foregoing indemnifications should, for reasons of public policy, not be
available to any indemnified party, then indemnifying party will contribute to
the amount paid or payable by the indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party on the one hand and such
indemnified party on the other arising out of the matters contemplated by this
Agreement.
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<PAGE>
11. ASSIGNMENT. This Agreement may not be assigned by the Dealer without
consent of the Underwriter and Issuer.
12. TERMINATION. Any party may terminate this Agreement at any time upon
giving written notice to the other parties hereto. This Agreement shall
terminate automatically in the event of the suspension, revocation, cancellation
or other impairment of the Dealer's membership in the NASD or the Dealer's
registration, license or qualification to sell the Variable Contracts under any
applicable state or federal law or regulation. This Agreement shall also
automatically terminate should there be any material change in the ownership of
the Dealer from that existing at the date of this Agreement without the consent
of the Underwriter.
13. FIRST CLAIM ON EARNINGS. Underwriter shall have a right of set-off on
all of the Dealer's earnings under this Agreement. This means that Underwriter
as and when it elects may keep all or any part of such earnings to reduce any
debt Dealer owes Underwriter or Issuer. While Underwriter may release Dealer's
earnings while Dealer owes a debt to Underwriter or Issuer, this does not mean
Underwriter has waived this right of set-off to Dealer's earnings. Underwriter's
right of set- off also takes precedence over claims of Dealer's creditors. All
Dealer's earnings kept by Underwriter will be used to reduce debt owed to
Underwriter.
14. CONFIDENTIALITY. During the term of this Agreement, a party may acquire
access to confidential or proprietary information of another, including, but not
limited to, the Underwriter's, the Issuer's or the Dealer's business affairs,
customers, policyholders, clients, property, methods of operation, procedures,
marketing policies and practices, computer software and operational systems
(collectively, "Confidential Information"); provided, however, that the term
"Confidential Information" does not include information which: (a) becomes
generally available to the public other than as a result of a disclosure by a
party or its agents or employees; (b) was available to a party prior to its
disclosure to the other; (c) has become available to a party from a source other
than that of the parties to this Agreement; (d) is intended to be transferred to
another person or entity upon the termination of this Agreement; (e) is required
to be disclosed to any regulatory authority or self regulatory organization or
pursuant to a court order or subpoena; or (f) is derived from customers.
Confidential Information designated as such by a party shall constitute
proprietary information and/or trade secrets of such party and will be the sole
property of such party. Each party agrees that:
(a) it shall use such Confidential Information only for the purposes of
carrying our its obligations under, and performing any inspections or audits
permitted by, this Agreement;
(b) all Confidential Information and any physical and electronic
embodiments thereof will be held by each party in strict confidence;
(c) it shall take reasonable steps to ensure that its employees,
representatives and agents are informed of the contents of this Paragraph 14 and
that they shall comply with its terms;
-7-
<PAGE>
(d) it will not reveal, disclose, publish, sell or distribute such
Confidential Information to other present or future agents or broker-dealers, or
to any other person or entity, without prior written consent of the other
parties;
(e) the parties shall immediately return any Confidential Information in
their possession to the other upon (i) such party's request at any time or (ii)
the termination of this Agreement.
The parties recognize that the disclosure of Confidential Information by
the other or its employees, representatives or agents may give rise to
irreparable injury, which may not be adequately compensated damages.
Accordingly, in the event of a breach or threatened breach by a party or its
employees, representatives or agents of the provisions of this Paragraph 14, the
non-breaching party shall be entitled to an injunction restraining the other
party and its employees from disclosing, in whole or in part, the Confidential
Information.
15. NATURE OF RELATIONSHIP; LIMITATIONS ON DEALER'S AUTHORITY. The Dealer
shall act as an independent contractor and not on behalf or subject to the
control of the Underwriter or Issuer. Nothing herein shall constitute the Dealer
as a partner of the Underwriter or Issuer, any other broker-dealer, any
registered representative of the Underwriter, or render any such entity liable
for obligations of the Dealer. The Dealer's participation in the sale and
distribution of the Variable Contracts as contemplated by this Agreement is not
exclusive and the Underwriter may engage other broker-dealers and/or their
registered representatives to participate in the sale and distribution of the
Variable Contracts on terms and conditions which may differ from the terms and
conditions of this Agreement. The Dealer understands that Dealer has no
authority to start any legal proceedings on Underwriter's or Issuer's behalf or
in their names or to incur any expenses or obligations in the name of the
Underwriter or Issuer, and Dealer agrees to indemnify and save the Underwriter
and Issuer harmless from any and all expenses or obligations incurred by Dealer
in the name of the Underwriter or Issuer for which Dealer is responsible. Dealer
agrees to pay all expenses incurred by Dealer in connection with Dealer's work.
16. SECTION HEADINGS. The titles of the sections and paragraphs of this
Agreement are for convenience only and shall not in any way affect the
interpretation of any provision or condition of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in counterparts which,
taken together, shall constitute the whole of the Agreement as between the
parties.
18. NOTICE. Any notice to be given to a party hereto pursuant to this
Agreement shall be in writing, addressed to such party at the address of such
party set forth in the preamble hereof, or such other address as such other
party may from time to time designate in writing to the party hereto giving
notice. Any notice delivered by the mails, postage fully prepaid, shall be
deemed to have been given five (5) days after mailing or, if earlier, upon
receipt.
19. WAIVER. The Underwriter or Issuer may choose from time to time not to
enforce a provision of this Agreement or one of its rules. This does not mean
that it has waived
-8-
<PAGE>
the right to enforce it in the future. Also, it does not mean that it ratifies
or consents to those actions of the Dealer which are not in accord with this
Agreement or its rules.
20. AMENDMENT. This Agreement may not be amended except by written
agreement by the parties hereto.
21. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the State of Minnesota.
DEALER:
---------------------------------------------------
(Name)
---------------------------------------------------
(Tax Identification Number)
---------------------------------------------------
(Street Address)
---------------------------------------------------
(City) (State) (Zip)
By
---------------------------------------------------
Its
---------------------------------------------------
Ascend Financial Services, Inc.
By
----------------------------
Its
----------------------------
Date: , 1998
-------------
Minnesota Life Insurance Company
By
----------------------------
Its
----------------------------
Date: , 1998
--------------
-9-
<PAGE>
APPENDIX A
TO THE
DEALER SELLING AGREEMENT
BETWEEN
ASCEND FINANCIAL SERVICES, INC., MINNESOTA LIFE INSURANCE COMPANY
AND ___________________
DATE OF THIS APPENDIX A: ____________, 1998
The Variable Contracts covered by this Agreement shall include the following:
Variable Life Insurance Policies
--------------------------------
Variable Adjustable Life
Variable Adjustable Life Second Death
Variable Group Universal Life
Variable Annuity Contracts
--------------------------
MultiOption Annuity
MultiOption Select Annuity
Adjustable Income Annuity
MegAnnuity
MultiOption Classic Annuity
MultiOption Achiever Annuity
<PAGE>
APPENDIX B
SCHEDULE OF DEALER COMPENSATION
ON
VARIABLE ANNUITY CONTRACTS
During the term of this Agreement and while a Registered Representative of the
Dealer named on Appendix C continues to be the agent named by the Policyholder,
Dealer shall receive the Dealer Commissions and other compensation described
below for variable annuity contracts sold pursuant to this Agreement. Service
fees, if any, will be paid provided a Registered Representative of the Dealer
named on Appendix C continues to service the contract to the satisfaction of the
Issuer.
I. DEALER COMMISSIONS
A. Commissions for MultiOption Annuities (Forms 92-9283 and 92-9284)
A commission of 3.0% of the amount of each purchase payment
received under the Contract.
<TABLE>
<CAPTION>
------------------------------------------------------------
Cumulative Contribution Amount Rate of commissions
------------------------------------------------------------
<S> <C>
$25 - 499,999 3.00%
$500,000 - 749,999 2.75%
$750,000 - 999,999 2.50%
$1,000,000 - 1,499,999 2.25%
$1,500,000 - 1,999,999 2.00%
$2,000,000 - 2,499,999 1.75%
$2,500,000 - 2,999,999 1.50%
$3,000,000 - 3,999,999 1.25%
$4,000,000 - 5,000,000 1.00%
$5,000,000+ 0.00%
</TABLE>
C. Commissions for Adjustable Income Annuity Contract:
Each time a new purchase payment is made, a new commission will
be calculated. The applicable percentage from the chart below
will be based on the total cumulative purchase payments to date
under a Contract, including the new purchase payment. The new
commission equals this percentage times the amount of the new
purchase payment.
Annuity-1
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Cumulative Contribution Amount Rate of commissions
-------------------------------------------------------------------
<S> <C>
$25 - 499,999 3.00%
$500,000 - 749,999 2.75%
$750,000 - 999,999 2.50%
$1,000,000 - 1,499,999 2.25%
$1,500,000 - 1,999,999 2.00%
$2,000,000 - 2,499,999 1.75%
$2,500,000 - 2,999,999 1.50%
$3,000,000 - 3,999,999 1.25%
$4,000,000 - 5,000,000 1.00%
over $5,000,000 0.00%
</TABLE>
In addition, a trail commission in an amount equal to .03125% of the cash value
held in each Contract at the end of each calendar quarter (.125% annually). Any
trail commission shall cease upon expiration of the cash value period of the
contract.
D. Trailing Commissions for MultiOption, MultiOption Select and
Adjustable Income Annuities
Trailing commissions on each of MultiOption, MultiOption Select
and Adjustable Income Annuities are payable in an amount equal to
.03125% of Qualifying Accumulation Values at the end of each
calendar quarter (.125% annually); provided, that such trailing
commissions will not be paid unless the aggregate of all
Qualifying Accumulation Values, as of the end of the quarter for
which such trailing commissions are determined, is at least
$100,000.
"Qualifying Accumulation Values" means, with respect to each
MultiOption annuity contract included in your Variable Annuity
Business, all separate account accumulation values held under such
contract; provided, that the separate account accumulation values
held under any contract shall not be Qualifying Accumulation
Values unless such separate account accumulation values are at
least:
SINGLE PREMIUM CONTRACTS
$10,000
FLEXIBLE PAYMENT CONTRACTS
$15,000 in contract years 1-5
$25,000 in contract years 6-10
$35,000 in contract years 11 and later
ADJUSTABLE INCOME ANNUITY
$10,000 Cash Value
Annuity-2
<PAGE>
Trailing commissions will be calculated and paid one month
following the end of each quarter. No trailing commissions will
be paid after an Agent's relationship has been terminated.
E. Commissions For MegAnnuity
A trail commission in an amount equal to .05% of the accumulation
value in excess of $5 million, excluding values in Maturing
Government Bond Portfolios, held in each Contract at the end of
each calendar quarter (.20% annually).
Trailing commissions will be calculated and paid one month
following the end of each quarter. No trailing commissions will
be paid after the agency relationship has been terminated.
II. COMMISSIONS ON ANNUITIZATION BUSINESS
Commissions will be credited on annuitization business (except
MultiOption Select, Form 94-9307) if the values have been held by
Minnesota Life is a deferred annuity for at least five (5) years.
If those values have been held by Minnesota Life in a deferred annuity
for 60 months through 119 months, 1.5% of those values will be
credited. If the values have been held by Minnesota Life in a deferred
annuity for 120 months or more, 3.0% of those values will be credited.
In calculating this commission, any new contributions made within the
last two (2) years will not be considered.
On Multi-Option Select, commissions will be credited on annualization
business as follows:
(i) 3.0% commissions will be credited on all gains annuitized
(ii) Contributions held in contract for 60 months through 119 months,
1.5% of values will be credited
(iii) Contributions held in contract for 120 months or more, 3.0% of
values will be credited.
III. COMMISSION ADJUSTMENT BALANCE
If after all commission adjustments have been made, a balance is due
the Underwriter, a charge-back equal to the outstanding balance will
be made against future commission payments, until all negative amounts
have been recovered.
IV. BONUSES AND SERVICE FEES
Bonuses and service fees attributable to the contracts, if any, shall
be paid in accordance with the terms set forth in the standard
Minnesota Life Agent's Contract, a copy which has been provided to
Dealer and is incorporated herein by reference.
No bonus or service fees shall be paid to Dealer with respect to any
contract sold by a registered representative of Dealer who, at the time
of calculation of such amount, is not
Annuity-3
<PAGE>
then an agent of Minnesota Life, nor shall any such contract, its
persistency, premiums or commissions otherwise payable in connection
therewith be included in the calculation of bonuses or service fees,
if any, due Dealer.
Annuity-4
<PAGE>
APPENDIX C
REGISTERED REPRESENTATIVES OF THE DEALER
WHO ARE ALSO APPOINTED AGENTS OF THE ISSUER
C-1
<PAGE>
READ YOUR CONTRACT CAREFULLY
THIS IS A LEGAL CONTRACT
We promise to pay, subject to the provisions of this contract, the benefits
described by this contract.
We make this promise and issue this contract in consideration of the application
for this contract and the payment of the purchase payments.
The owner and the beneficiary are as named in the application unless they are
changed as provided for in this contract.
Minnesota Life Insurance Company, a stock company, is a subsidiary of Minnesota
Mutual Companies, Inc., a mutual insurance holding company. You are a member of
Minnesota Mutual Companies, Inc. which holds its annual meetings on the first
Tuesday in March of each year at 3:00 p.m. local time. The meetings are held at
400 Robert Street North, St. Paul, Minnesota 55101-2098.
Signed for Minnesota Life Insurance Company at St. Paul, Minnesota, on the
contract date.
/s/ Robert L. Senkler
President
/s/ Dennis E. Prohofsky
Secretary
Registrar
NOTICE OF YOUR RIGHT TO EXAMINE THIS CONTRACT FOR 10 DAYS.
IT IS IMPORTANT TO US THAT YOU ARE SATISFIED WITH THIS CONTRACT. IF YOU ARE NOT
SATISFIED, YOU MAY RETURN THE CONTRACT TO US OR TO YOUR AGENT WITHIN 10 DAYS OF
ITS RECEIPT. IF YOU EXERCISE THIS RIGHT, YOU WILL RECEIVE THE GREATER OF (a)
THE ACCUMULATION VALUE OF THIS CONTRACT ATTRIBUTABLE TO YOUR PURCHASE PAYMENTS,
OR (b) THE AMOUNT OF PURCHASE PAYMENTS PAID BY YOU UNDER THIS CONTRACT. WE WILL
PAY THIS REFUND WITHIN 7 DAYS AFTER WE RECEIVE YOUR NOTICE OF CANCELLATION.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT. THE SEPARATE ACCOUNT INFORMATION MAY BE FOUND AT PAGE __.
MINNESOTA LIFE
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101-2098
FLEXIBLE PAYMENT DEFERRED
VARIABLE ANNUITY CONTRACT
FIXED OR VARIABLE ANNUITY BENEFITS
A NONPARTICIPATING CONTRACT
99-70017
<PAGE>
CONTRACT INDEX
Alphabetical Index to the Provisions of Your Contract
Page
----
Additional Information 18
Allocation of Purchase Payments 6
Amount Payable at Death 16
Annuity Payment Options 13
Annuity Provisions 12
Assignment 18
Beneficiary 18
Contract Charges 7
Definitions 3
General Information 5
Misstatement 18
Purchase Payments 5
Transfer Provisions 11
Valuation 9
Withdrawal and Surrender 11
99-70017 Minnesota Life 2
<PAGE>
DEFINITIONS
- --------------------------------------------------------------------------------
When we use the following words, this is what we mean:
1940 ACT
The Investment Company Act of 1940, as amended, or any similar successor federal
legislation.
ACCUMULATION UNIT
An accumulation unit is a measure of your interest in each sub-account of the
separate account.
ACCUMULATION VALUE
The sum of your values under this contract in the general account and/or the
separate account. In the general account, this is the general account
accumulation value. In the separate account, this is the separate account
accumulation value. The separate account portion is composed of your interest
in one or more sub-accounts of the separate account. Your interest in the
sub-accounts shall be valued separately. The total of those values will be the
separate account accumulation value.
AGE
The age of a person at nearest birthday.
ANNUITANT
The person named as annuitant on page 1 who may receive lifetime benefits under
this contract. Joint annuitants will be considered a single entity.
ANNUITY COMMENCEMENT DATE
The date on which annuity payments are elected to begin. This may be the
maturity date or a date you select prior to the maturity date.
ANNUITY PAYMENTS
Payments made at regular intervals to the annuitant or any other payee. Annuity
payments will be due and payable only on the first day of a calendar month.
BENEFICIARY
The person, persons or entity designated to receive any death benefits payable
under the contract. Prior to the commencement of annuity payments, the
beneficiary is the first person on the following list who is alive on the date
of your death: the joint owner (if any), the primary (Class 1) beneficiary, the
secondary (Class 2) beneficiary or if none of the above is alive, to the
executor or administrator of your estate.
CONTRACT ANNIVERSARY
The same day and month as the contract date for each succeeding year of this
contract.
CONTRACT DATE
The effective date of this contract. It is also the date from which we
determine contract anniversaries and contract years.
CONTRACT YEAR
A period of one year beginning with the contract date or a contract anniversary.
DEATH BENEFIT
The amount payable to the beneficiary upon your death.
99-70017 Minnesota Life 3
<PAGE>
FIXED ANNUITY
Annuity payments with guaranteed payments of a pre-established dollar amount
during the payment period.
FUND
The mutual fund or separate investment portfolio within a series mutual fund
which is designated as an eligible investment for the separate account.
GENERAL ACCOUNT
All assets of Minnesota Life other than those in the Variable Annuity Account or
in other separate accounts established by us. You may not transfer or otherwise
allocate or contribute amounts to the general account that would cause the
general account accumulation value to exceed $1,000,000 without our prior
consent.
JOINT OWNER
The person designated to share equally in all rights and privileges of this
contract. Only your spouse may be named as joint owner. Both signatures will
be required to exercise your rights under this contract.
PURCHASE PAYMENTS
Amounts paid to us as consideration for the benefits provided by this contract.
Total purchase payments may not exceed $5,000,000 without our consent. The
amount of each Purchase Payment must be at least $2,000. This minimum may not
apply under certain automatic or group payment plans which may be established
and agreed to by us, or because of other retirement plan limitations.
SEPARATE ACCOUNT
A separate investment account titled Variable Annuity Account. This separate
account was established by us for this class of contracts under Minnesota law.
The separate account is composed of several sub-accounts. The assets of the
separate account are ours. Those assets are not subject to claims arising out
of any other business of ours.
SURRENDER VALUE
The amount payable to you on surrender of this contract is equal to the
accumulation value after deduction of all applicable charges. Amounts
surrendered may be subject to a deferred sales charge.
TRANSFER
A transfer is a reallocation of values under this contract. It may be between
the general account and the separate account or among the sub-accounts of the
separate account.
VALUATION DATE
Any date on which a fund is valued.
VALUATION PERIOD
The period between successive valuation dates measured from the time of one
determination to the next.
VARIABLE ANNUITY
Annuity payments which increase or decrease in amount to reflect the investment
experience of the separate account and its sub-accounts. The dollar amount of
each annuity payment is not guaranteed.
99-70017 Minnesota Life 4
<PAGE>
WE, OUR, US
Minnesota Life Insurance Company.
WRITTEN REQUEST
A request in writing signed by you. In the case of joint owners, the signatures
of both owners will be required. In some cases, we may provide a form for your
use. We also may require that this contract be sent to our home office with
your written request.
YOU, YOUR
The owner of this contract. The owner may be the annuitant or someone else.
The owner shall be that person named as owner in the application. The owner may
be changed. Joint owners will be considered a single entity.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
WHAT IS YOUR AGREEMENT WITH US?
This contract and the copy of the application attached to it contain the entire
contract between you and us. Any statements made in the application either by
you or the annuitant will, in the absence of fraud, be considered
representations and not warranties. Also, any statement made either by you or
the annuitant will not be used to void this contract or defend against a claim
under this contract unless the statement is contained in the application.
No change or waiver of any of the provisions of this contract will be valid
unless made in writing by us. It must also be signed by our president, a vice
president, our secretary or an assistant secretary. No agent or other person
has the authority to change or waive any provision of this contract.
Any additional agreement attached to this contract will become a part of this
contract. It will be subject to all the terms and conditions of this contract
unless we state otherwise in the agreement.
HOW DO YOU EXERCISE YOUR RIGHTS UNDER THIS CONTRACT?
You can exercise all the rights under this contract. You can do this by making
a written request to us. You have these rights during the annuitant's lifetime
and before annuity payments begin. We will deal with you, unless this contract
provides otherwise, on the basis that you have full ownership and control of
this contract.
HOW WILL YOU KNOW THE VALUE OF YOUR CONTRACT?
At least annually, we will provide you with a report showing the current
accumulation value and surrender value of this contract. It will also show the
current accumulation unit values for each sub-account in which you have value.
In addition, we will provide you with an annual report which summarizes the
year's transactions. The report will be as of a date within two months of its
mailing.
PURCHASE PAYMENTS
- --------------------------------------------------------------------------------
WHERE DO YOU MAKE PURCHASE PAYMENTS?
All purchase payments must be made at our home office. Our home office is at
400 Robert Street North, St. Paul, Minnesota 55101-2098.
99-70017 Minnesota Life 5
<PAGE>
When we receive a purchase payment from you at our home office, we will send you
a confirmation.
DO YOU CHOOSE WHEN TO MAKE PURCHASE PAYMENTS?
Yes. You may choose when to make purchase payments. During periods in which
you are eligible for a withdrawal or surrender without charge due to your
confinement in a hospital or medical care facility; or, in the event you are
diagnosed with a terminal illness, additional purchase payments may not be
made. Eligibility for these benefits is as defined in the "Withdrawal and
Surrender" section of this contract.
ARE THERE OTHER METHODS OF MAKING PURCHASE PAYMENTS?
Yes. It may be possible for you to arrange with your employer to make your
purchase payments by payroll deduction. Or, under some plans, your employer may
make purchase payments on your behalf. Also, your bank or other financial
institution may consent to have your purchase payments automatically withdrawn
from your account and paid directly to us.
WHAT DEDUCTIONS ARE MADE FROM PURCHASE PAYMENTS?
There are usually no deductions made from the purchase payments. However, we do
reserve the right to make a deduction from the purchase payments for state
premium taxes, where applicable.
HOW ARE PURCHASE PAYMENTS ALLOCATED?
They are allocated to the general account or to the separate account and its
sub-accounts. The allocation is made as you direct. Initially, you must
indicate your allocation in the application. You may change your allocation for
future purchase payments by giving us written notice or by telephone where
permitted.
Applications received without instructions as to allocation will be treated as
incomplete. We will return such purchase payments immediately and in full if we
cannot credit them within five valuation days after receipt.
WHAT ARE THE INVESTMENTS OF THE SEPARATE ACCOUNT?
The separate account is divided into sub-accounts. For each sub-account, there
is a fund for the investment of that sub-account's assets. Purchase payments
are invested in the funds at their net asset value. The net asset value per
share for each fund is determined by adding the current value of all securities
and all other assets held by such fund, subtracting liabilities, and dividing
the remainder by the number of shares outstanding.
If investment in a fund should no longer be possible or if we determine it
becomes inappropriate for contracts of this class, we may substitute another
fund. Substitution may be with respect to existing accumulation values, future
purchase payments and future annuity payments.
No transfer of assets from one separate account to another affecting owners of
contracts delivered in a given state can be made except, where required, with
the approval of the Commissioner of Insurance of that state.
WHAT SUB-ACCOUNT OPTIONS ARE AVAILABLE?
The separate account is composed of the sub-accounts shown on page 1 as of the
contract date. Purchase payments may be applied to one or more of these
sub-accounts. They may also be made to any other sub-account which may be
established by us under the separate account for contracts of this class. We
99-70017 Minnesota Life 6
<PAGE>
reserve the right to add, combine or remove any sub-accounts of the separate
account.
IS THERE A MINIMUM AMOUNT WHICH MUST BE ALLOCATED TO THE GENERAL ACCOUNT OR THE
SEPARATE ACCOUNT?
No.
MAY WE MAKE CHANGES TO THE SEPARATE ACCOUNT?
Yes. We reserve the right to transfer assets of the separate account to another
separate account. The transfer will be of assets associated with this class of
contracts. We will make that determination. If this type of transfer is made,
the term "separate account", as used in this contract, shall then mean the
separate account to which the assets were transferred.
We reserve the right, when permitted by law, to:
(a) deregister the separate account under the 1940 Act;
(b) restrict or eliminate any voting rights of contract owners or other
persons who have voting rights as to the separate account; and
(c) combine the separate account with one or more other separate accounts.
WHEN ARE PURCHASE PAYMENTS CREDITED TO THE CONTRACT?
Purchase payments are credited to the contract on the valuation date coincident
with or next following the day they are received in our home office. If they
are received on a day which is not a valuation date, those amounts will be
credited on the next valuation date.
MAY YOU STOP MAKING PURCHASE PAYMENTS?
Yes. You may stop making purchase payments at any time. If you stop making
purchase payments, the contract remains in force as a paid-up annuity according
to its terms. Its value may be applied to provide annuity payments at a later
date. You may make purchase payments again at any time before annuity payments
start unless the contract has been surrendered.
MAY WE CANCEL THE CONTRACT?
Yes. We may, in our discretion, cancel a contract if no purchase payments are
made for a period of two or more full contract years and both (a) the total
purchase payments made, less any withdrawals and associated charges, and (b) the
accumulation value of the contract, are less than $2,000. If such a
cancellation takes place, we will pay the accumulation value to you.
We will notify you of our intention to exercise these rights in our annual
report. We will act 90 days after the contract anniversary unless an additional
purchase payment is received before the end of that 90 day period.
CONTRACT CHARGES
- --------------------------------------------------------------------------------
ARE THERE CHARGES UNDER THIS CONTRACT?
Yes. There may be a deferred sales charge. Also, there are certain charges
which are made directly to the separate account and a transaction charge.
WHAT IS THE DEFERRED SALES CHARGE?
The deferred sales charge is the charge made on contract withdrawals or
surrenders. It is made during the seven year period following the receipt of
99-70017 Minnesota Life 7
<PAGE>
each purchase payment. The amount withdrawn plus any deferred sales charge is
deducted from the accumulation value. In the separate account, accumulation
units will be cancelled of a value equal to the applicable charge and the amount
of the withdrawal.
WHAT IS THE AMOUNT OF THE DEFERRED SALES CHARGE?
The amount of the deferred sales charge is determined from the percentages shown
in the table below. All purchase payments will be allocated to a withdrawal or
surrender on a first-in, first-out basis for the purpose of determining the
amount of the deferred sales charge. The deferred sales charge applies only to
withdrawal or surrender of purchase payments received by us within seven years
of the date of the withdrawal or surrender. The deferred sales charge
percentage is as shown in the table below:
<TABLE>
<CAPTION>
Years Since
Payment/contribution Charge
-------------------- ------
<S> <C>
0-1 7%
1-2 7
2-3 6
3-4 5
4-5 4
5-6 3
6-7 2
7 and thereafter -0-
</TABLE>
The amount of the deferred sales charge is determined by: (a) calculating the
number of years each purchase payment being withdrawn has been in the contract;
(b) multiplying each purchase payment being withdrawn by the appropriate
deferred sales charge percentage in the table; and (c) adding the deferred sales
charge from all purchase payments as calculated in (b).
ARE THERE CIRCUMSTANCES WHERE THE DEFERRED SALES CHARGE WILL NOT APPLY?
Yes. The deferred sales charge will not apply when:
- - Amounts are payable as a death benefit upon your death.
- - Amounts are applied to provide annuity payments under an annuity payment
option.
- - A withdrawal or surrender is requested any time after the first contract
anniversary due to your confinement in a hospital or medical care facility
as defined in the "Withdrawal and Surrender" section of the contract.
- - A withdrawal or surrender is requested any time after the first contract
anniversary in the event you are diagnosed with a terminal illness as
defined in the "Withdrawal and Surrender" section of this contract.
- - Amounts are withdrawn to pay the contract fee.
- - Amounts are withdrawn in any calendar year that are less than or equal to
the greater of:
(a) Accumulation value less purchase payments not previously withdrawn; or
(b) 10% of the sum of purchase payments not previously withdrawn that have
been received by us within seven years of the date of withdrawal.
WHAT IS THE CONTRACT FEE UNDER THIS CONTRACT?
The contract fee is an annual charge deducted from the accumulation value on the
contract anniversary. The contract fee will apply when the greater of:
99-70017 Minnesota Life 8
<PAGE>
(a) the accumulation value; or
(b) purchase payments less withdrawals;
is less than $50,000 at the end of the contract year.
The contract fee will be the lesser of $30 or 2% of the accumulation value at
the end of the contract year. The contract fee will be deducted on the contract
anniversary from the accumulation value on a pro rata basis from the general
account and all available variable sub-accounts.
WHAT IS THE TRANSACTION CHARGE UNDER THIS CONTRACT?
We reserve the right to deduct a transaction charge, not to exceed $10, for each
transfer when the frequency of such transfer request exceeds one every calendar
month. If applied, this charge will reduce the amount of your transfer.
ARE THERE CHARGES ASSOCIATED WITH THE SEPARATE ACCOUNT?
Yes, there are charges associated with the separate account. They are the
mortality risk charge, the expense risk charge and the administrative charge.
These charges are deducted on each valuation date from the separate account. On
an annual basis, they may not exceed 1.80% of the net asset value of the
separate account.
WHAT IS THE MORTALITY RISK PREMIUM CHARGE?
This is a charge to compensate us for the mortality guarantees we make under the
contract. Actual mortality results incurred by us shall not adversely affect
any payments or values under this contract. On an annual basis, it shall not
exceed .80% of the net asset value of the separate account.
WHAT IS THE EXPENSE RISK CHARGE?
This is a charge to compensate us for the guarantee that the deductions provided
in this contract will be sufficient to cover our actual expenses. Actual
expense results incurred by us shall not adversely affect any payments or values
under this contract. On an annual basis, it shall not exceed .60% of the net
asset value of the separate account.
WHAT IS THE ADMINISTRATIVE CHARGE?
The administrative charge is to compensate us for the administrative expenses
incurred by us. On an annual basis, it shall not exceed .40% of the net asset
value of the separate account.
VALUATION
- --------------------------------------------------------------------------------
HOW IS YOUR ACCUMULATION VALUE DETERMINED?
It is determined separately for your accumulation value in the general account
and the separate account. The separate account value will include all
sub-accounts of the separate account.
For the general account, it is the sum of all purchase payments allocated to the
general account plus interest and transfers into the general account, less
deductions for any transfers out of the general account, previously applied
deferred sales charges and contract fees, and any previous withdrawals.
For each sub-account of the separate account, it is your accumulation units
multiplied by the accumulation unit value.
99-70017 Minnesota Life 9
<PAGE>
HOW IS THE VALUE OF AN ACCUMULATION UNIT DETERMINED?
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. This determination is made as of the valuation date
coincident with or next following the date on which we receive your purchase
payment at our home office. Once determined, the number of accumulation units
will not be affected by changes in the accumulation unit value. However, the
total number of accumulation units for a sub-account will be affected by
future contract transactions including that sub-account. In addition, the
units of each sub-account will be increased by subsequent purchase payments
and transfers to that sub-account. The units of each sub-account will be
decreased by deductions for contract fees, deferred sales charges, and for
transfers or withdrawals from that sub-account.
The accumulation unit value will increase or decrease on each valuation date.
The amount of any increase or decrease will depend on the net investment
experience of the sub-account of the separate account during the valuation
period. The value of an accumulation unit for each sub-account was originally
set at $1.00 on the first valuation date. For any subsequent valuation date,
its value is equal to its value on the preceding valuation date multiplied by
the net investment factor for that sub-account for the valuation period ending
on the subsequent valuation date.
WHAT IS THE NET INVESTMENT FACTOR FOR EACH SUB-ACCOUNT?
The net investment factor for a valuation period is the gross investment rate
for such valuation period, less a deduction for the charges associated with the
separate account at a rate of not more than 1.80% per annum.
The gross investment rate is equal to:
(a) the net asset value per share of a fund share held in the sub-account
of the separate account determined at the end of the current valuation
period; plus
(b) the per-share amount of any dividend or capital gain distributions by
the fund if the "ex-dividend" date occurs during the current valuation
period; divided by
(c) the net asset value per share of that fund share held in the
sub-account determined at the end of the preceding valuation period.
DOES THE CONTRACT CREDIT INTEREST ON THE GENERAL ACCOUNT?
Yes. This contract credits interest on the general account accumulation value
of this contract. Interest is credited at a rate of at least 3% per year,
compounded annually. We guarantee this rate for the life of this contract and
until an annuity payment begins.
MAY ADDITIONAL INTEREST BE CREDITED ON THE GENERAL ACCOUNT?
Yes. As conditions permit, we will credit additional amounts of interest to the
general account accumulation value.
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<PAGE>
TRANSFER PROVISIONS
- --------------------------------------------------------------------------------
MAY YOU MAKE TRANSFERS OF AMOUNTS UNDER THE CONTRACT?
Yes. Before annuity payments begin, you may make transfers by written request
or where permitted, by telephone. We will make the transfer on the basis of
accumulation unit values on the valuation date coincident with or next following
the day we receive the request at our home office.
You may make transfers among sub-accounts of the separate account or from the
separate account to the general account. You may also make transfers from the
general account to the separate account. However, once annuity payments begin
transfers from the general account to the separate account are not permitted.
Systematic transfer arrangements may also be available.
DO ANY OTHER RESTRICTIONS APPLY?
Yes. We reserve the right to limit the amount and frequency of transfers from
the general account to the separate account. We further reserve the right to
make a charge, not to exceed $10, for each transfer among the sub-accounts of
the separate account when the frequency of such transfer requests exceeds one
every calendar month. If applied, this charge will be deducted from your
accumulation value.
MAY TRANSFERS TAKE PLACE ONCE AN ANNUITY BEGINS?
Yes. However, transfers are limited. They may be made only with respect to any
variable annuity payments. See the "Annuity Payment Options" section of this
contract.
WITHDRAWAL AND SURRENDER
- --------------------------------------------------------------------------------
MAY YOU WITHDRAW FUNDS FROM THIS CONTRACT?
Yes. At any time before annuity payments begin, you may request a partial
withdrawal from the accumulation value. You must make a written request for any
withdrawals. The amount of any withdrawal must be for at least $250. In the
event of a cash withdrawal, the accumulation value will be reduced by the amount
requested and by the deferred sales charge, if any.
Unless instructed otherwise by you, withdrawals will be made from your interest
in each sub-account of the separate account and the general account in the same
proportion that the value of your interest in any sub-account bears to your
total accumulation value. Withdrawal amounts will be determined as of the
valuation date coincident with or next following the date your written request
is received at our home office.
Systematic withdrawal plans of a fixed amount or a fixed amount over a specified
period are also available.
MAY YOU SURRENDER THE CONTRACT?
Yes. At any time before annuity payments begin, you may surrender this contract
for its surrender value. The surrender value will be determined as of the
valuation date coincident with or next following the date your written request
is received at our home office.
ARE THERE SPECIAL WITHDRAWAL OR SURRENDER PROVISIONS?
Yes. Deferred sales charges will not apply when:
99-70017 Minnesota Life 11
<PAGE>
- - A withdrawal or surrender is requested any time after the first contract
anniversary due to your confinement in a hospital or medical care facility
for at least 90 consecutive days. The request must be made while you are
still confined or within 60 days after the discharge from a hospital or
medical care facility after a confinement of at least 90 consecutive days.
Medical care facility means a facility operated pursuant to law or any
state licensed facility providing medically necessary inpatient care which
is: (a) prescribed by a licensed Physician in writing; and (b) based on
physical limitations which prohibit daily living in a non-institutional
setting.
- - A withdrawal or surrender is requested any time after the first contract
anniversary in the event you are diagnosed with a terminal illness.
Terminal illness is a condition: (a) diagnosed by a licensed Physician;
and (b) is expected to result in death within 12 months for 80% of
diagnosed cases.
For purposes of these provisions, we must receive due proof, satisfactory to us,
of your confinement or terminal illness in writing. Physician means: (a) a
licensed medical doctor (MD) or a licensed doctor of osteopathy (DO) practicing
within the scope of his or her license; and (b) not you, the annuitant or a
member of either your or the annuitant's immediate families. If the owner of
this contract is other than a natural person, such as a trust or other similar
entity, benefits payable due to nursing home confinement or terminal illness
will be based upon the annuitant. If the owner, or annuitant in the case of a
contract owned by a non-natural person, is changed subject to the provisions of
this contract, a one year waiting period will apply before the new owner or
annuitant is eligible for these benefits.
HOW WILL WITHDRAWAL OR SURRENDER BENEFITS BE PAID?
We will pay these benefits in a single sum. If this contract is surrendered you
may elect one of the annuity payment options. This election is subject to the
provisions of this contract.
ANNUITY PROVISIONS
- --------------------------------------------------------------------------------
WHEN DO ANNUITY PAYMENTS BEGIN?
You must notify us in writing: (a) that annuity payments are to be made to the
annuitant; (b) when these payments are to begin; (c) the form of the annuity;
and (d) what annuity payment option has been selected. We must receive this
notice at least 30 days before annuity payments are to begin. This contract
permits annuity payments to begin no later than age 85 or seven years after the
date of issue of this contract, whichever is later. However, the beginning date
for annuity payments must be consistent with any restrictions applicable to the
plan under which this contract may have been purchased.
WHAT VALUE IS AVAILABLE TO BE APPLIED TO PROVIDE ANNUITY PAYMENTS?
On the date annuity payments are to begin, we will apply the accumulation value.
WHAT TYPES OF ANNUITIES ARE AVAILABLE?
Both fixed and variable annuities are available under this contract.
ARE THERE RESTRICTIONS ON ANNUITY PAYMENTS?
Yes. We require that the first monthly fixed or variable annuity payment must
be at least $20. It may be less if a payment of a smaller minimum amount is
required by law. If the first monthly fixed or variable annuity
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<PAGE>
payment would be less than that amount, we reserve the right to pay you the
surrender value in a lump sum. This payment would be in lieu of all other
rights under this contract.
In addition, we restrict the maximum amount which may be applied to provide a
fixed annuity under this contract. The maximum amount which may be applied
under this contract for a fixed annuity is $1,000,000.
MAY WE REQUIRE INFORMATION BEFORE MAKING ANNUITY PAYMENTS?
Yes. We reserve the right to require proof satisfactory to us of the age of the
annuitant and of any joint annuitant before payments begin.
We may also require proof that a person is alive before making any annuity
payment which is based on the survival of that person.
IF YOU MAKE NO ELECTION, WHEN DO ANNUITY PAYMENTS BEGIN?
If you do not elect another date, annuity payments will begin on the later of
the first day of the month immediately following: (a) the 85th birthday of the
annuitant; or (b) seven years after the date of issue of this contract.
IF YOU FAIL TO ELECT AN ANNUITY PAYMENT OPTION, IS THERE AN OPTION UNDER WHICH
ANNUITY PAYMENTS WILL BE MADE?
Yes. If you do not elect an annuity payment option, we will make monthly
payments on the basis of Option 2A, a life annuity with a period certain of 120
months.
IF YOU FAIL TO ELECT AN ANNUITY FORM, IS THERE A FORM UNDER WHICH ANNUITY
PAYMENTS WILL BE MADE?
Yes. If you do not elect an annuity payment form, we will make annuity payments
in the form of a variable annuity using the Money Market Sub-Account.
MUST AN ANNUITY PAYMENT OPTION BE ELECTED?
No. You may elect a lump sum payment instead. If you do so, you and the
annuitant shall have no further rights under this contract.
ANNUITY PAYMENT OPTIONS
- --------------------------------------------------------------------------------
WHAT ANNUITY PAYMENT OPTIONS ARE AVAILABLE?
The following annuity payment options are available:
Option 1 -- Life Annuity -- annuity payments payable monthly for the lifetime of
the annuitant, ending with the last payment due prior to the annuitant's death.
Option 2 -- Life Annuity with a Period Certain -- annuity payments payable
monthly for the lifetime of the annuitant; provided, if the annuitant dies
before payments have been made for the entire period certain, those remaining
certain payments will be made to the beneficiary.
The period certain may be for 120 months (Option 2A); for 180 months (Option
2B); or for 240 months (Option 2C).
Option 3 -- Joint and Last Survivor Annuity -- annuity payments payable monthly
for the joint lifetimes of the annuitant and a designated joint annuitant. The
payments end with the last payment due before the survivor's
99-70017 Minnesota Life 13
<PAGE>
death. If this option is elected, the contract and payments shall be the joint
property of the annuitant and the designated joint annuitant.
Option 4 -- Fixed Period Annuity -- annuity payments payable monthly for a fixed
period of from ten to twenty years. If the annuitant dies before all payments
for the fixed period are received, payments will continue for the remainder of
the fixed period to the beneficiary.
ARE OTHER ANNUITY PAYMENT OPTIONS AVAILABLE?
Yes. Other options may be available. They will be as agreed upon between you
and us.
HOW WILL ANNUITY PAYMENTS BE MADE?
Annuity payments under a fixed or variable annuity payment option will be made
on a monthly basis to the annuitant or other designated payee, unless we agree
to a different payment schedule.
AFTER THE DEATH OF THE ANNUITANT, MAY THE BENEFICIARY RECEIVE A LUMP SUM PAYMENT
INSTEAD OF THE REMAINING PERIOD CERTAIN ANNUITY PAYMENTS?
Yes. The beneficiary may elect to have the present value of the remaining
period certain payments paid in a lump sum. This right exists under Options 2
and 4.
The lump sum payment will be the commuted value of the remaining period certain
payments. It will be based on the then current dollar amount of one payment.
We will use the same interest rate which served as a basis for the annuity.
HOW IS THE AMOUNT OF A VARIABLE ANNUITY PAYMENT DETERMINED?
The dollar amount of the first variable annuity payment is determined by
applying the available value to a rate per $1,000 which is based on the
Individual Annuity 1983 Table A female mortality rates with an age setback of
one year and an interest rate of 4.50%, compounded annually. The amount of the
first variable annuity payment depends upon the annuity payment option selected,
the adjusted age of any annuitant and joint annuitant and the amount applied.
Annuitant and joint annuitant age are determined as of the annuity commencement
date and adjusted based on the year of commencement as follows:
<TABLE>
<CAPTION>
Annuity Commencement Date Age Adjustment
------------------------- --------------
<S> <C>
2000 - 2009 -1
2010 - 2019 -2
2020 - 2029 -3
2030 and later -4
</TABLE>
A number of annuity units is determined by dividing this dollar amount by the
then current annuity unit value. This determination is made separately for each
sub-account of the separate account. The number of annuity units remains
unchanged during the period of annuity payments, except for transfers and in the
case of certain joint annuity payment options which provide for a reduction in
payment after the death of an annuitant.
The dollar amount of the second and later variable annuity payments is equal to
the number of annuity units determined for each sub-account multiplied by the
annuity unit value for that sub-account as of the due date of the payment. This
amount may increase or decrease.
99-70017 Minnesota Life 14
<PAGE>
The value of an annuity unit for a sub-account is determined each month as of
the first day of the month. The value is equal to the annuity unit value for
that sub-account as of the first day of the preceding month multiplied by the
product of: (a) .996338; and (b) a sub-account investment factor. This
investment factor is the accumulation unit value for that sub-account on the
valuation date next following the fourteenth day of the preceding month divided
by the accumulation unit value for that sub-account on the valuation date next
following the fourteenth day of the second preceding month. For any date other
than the first of a month, the annuity unit value is that on the first day of
the next month.
The dollar amount determined for each sub-account will be aggregated for
purposes of making payment.
HOW IS THE AMOUNT OF A FIXED ANNUITY PAYMENT DETERMINED?
The tables shown in Appendix A are used to determine the amount of guaranteed
monthly fixed annuity payments. They show the dollar amount of each payment
that can be provided with each $1,000 of available value.
WILL THESE TABLES ALWAYS BE USED FOR ANNUITY PURCHASES?
Not necessarily. If, when annuity payments are elected, we are using tables of
annuity purchase rates for this class of contract which would result in larger
annuity payments, we will use those tables instead.
ONCE ANNUITY PAYMENTS BEGIN, MAY AN ANNUITY OPTION, WHETHER FIXED OR VARIABLE,
BE CHANGED?
No.
MAY AMOUNTS BE TRANSFERRED DURING THE ANNUITY PERIOD?
Yes. Amounts held as annuity reserves may be transferred among the variable
annuity sub-accounts during the annuity period. Annuity reserves may also be
transferred from a variable annuity to a fixed annuity during this time. The
maximum amount which may be applied for a fixed annuity is $1,000,000.
HOW DOES AN ANNUITANT CHANGE SUB-ACCOUNT ELECTIONS OR TRANSFER AMOUNTS TO A
FIXED ANNUITY?
The change must be made by written request. The annuitant and joint annuitant,
if any, must make such an election.
HOW WILL A TRANSFER OF VARIABLE ANNUITY SUB-ACCOUNTS BE MADE?
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
stay the same.
When you tell us to make such a transfer it will be effective for future annuity
payments. Your transfer will be effective and funds will be actually
transferred in the middle of the month prior to the next annuity payment
affected by your request. We will use the described valuation procedures and
the adjusted age of the annuitant and any joint annuitant to determine an
initial variable annuity payment.
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.
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<PAGE>
ARE THERE ANY RESTRICTIONS ON ANNUITY SUB-ACCOUNT TRANSFERS?
Yes. We reserve the right to require that transfers during the annuity payment
period meet the following conditions:
- - 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, if less.
- - Variable annuity payments must be in effect for a period of 12 months
before a change may be made.
- - Transfers are limited to one in any 12 month period.
Your written request for an annuity sub-account transfer must be received by us
at least 30 days in advance of the due date of the annuity payment subject to
the transfer.
MAY AMOUNTS HELD AS RESERVES TO PAY A VARIABLE ANNUITY BE TRANSFERRED TO A FIXED
ANNUITY?
Yes. However, the restrictions which apply to annuity sub-account transfers
will apply here as well.
When you tell us to make such a transfer it will be effective for future annuity
payments. Your transfer will be effective and funds will be actually
transferred in the middle of the month prior to the next annuity payment. We
will use the described fixed annuity pricing at the time of transfer to
determine an initial fixed annuity payment.
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 payment option will remain the same.
MAY AMOUNTS PAID AS A FIXED ANNUITY BE TRANSFERRED TO A VARIABLE ANNUITY?
No.
AMOUNT PAYABLE AT DEATH
- --------------------------------------------------------------------------------
WHAT AMOUNT IS PAYABLE AT DEATH?
If you die before annuity payments begin, we will pay the death benefit of the
contract to the beneficiary. If the owner of this contract is other than a
natural person, such as a trust or other similar entity, we will pay the death
benefit to the beneficiary on the death of the annuitant, if death occurs prior
to the date that annuity payments begin.
If you die prior to your 80th birthday, the death benefit is the greater of:
(a) the accumulation value; (b) the sum of purchase payments adjusted for any
amounts previously withdrawn; or (c) the last stepped-up value prior to the date
of death, adjusted for any purchase payments and withdrawals occurring
thereafter.
If you die on or after your 80th birthday, the death benefit is the greater of:
(a) the accumulation value; (b) the sum of purchase payments adjusted for any
amounts previously withdrawn; or (c) the last stepped-up value prior to the date
of death, adjusted for any withdrawals occurring thereafter.
The stepped-up value will be determined on every third contract anniversary
prior to your 80th birthday. The stepped-up value is the greater of: (a)
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the accumulation value on that contract anniversary; or (b) the previous
stepped-up value, adjusted for any withdrawals occurring thereafter. Where
joint owners exist, there will be no further stepped-up values after the 80th
birthday of the oldest joint owner. After death of the first joint owner,
stepped-up values may resume on the next third contract anniversary that the
surviving joint owner continues the contract and has not reached his or her 80th
birthday.
The value of the death benefit will be determined as of the valuation date
coincident with or next following the day we receive at our home office due
proof of death and all related information necessary to make payment.
If there are joint owners of this 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 the contract interest is payable to your designated
beneficiary who is your surviving spouse, that spouse shall be treated as the
contract owner for purposes of: (a) when payments must begin; and (b) the time
of distribution in the event of your spouse's death. In addition, if a
surviving spouse elects to assume his or her deceased spouse's contract, there
will be no adjustment to the accumulation value in the form of a death benefit.
If the annuitant dies after annuity payments begin, we will pay whatever amount
may be called for 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 as of the annuitant's death.
TO WHOM WILL WE PAY THOSE BENEFITS?
When we receive due proof of death satisfactory to us, we will calculate the
amount payable as a death benefit under this contract. Amounts will be payable
to the beneficiary or beneficiaries. The beneficiary will be the person or
persons named in the application for this contract unless you subsequently
change the beneficiary. In that event, we will pay the amount payable at death
to the beneficiary named in your last change of beneficiary request as provided
in this contract.
HOW WILL THE AMOUNT PAYABLE AT DEATH BE PAID?
We will pay that amount in a single sum unless another form of settlement has
been requested and agreed to by us. All payments by us are payable at our home
office. Proof of any claim under this contract must be submitted in writing to
us at our home office.
Any amounts due as a death benefit in excess of the accumulation value on the
date we receive due proof of death will be directed into the money-market
sub-account in fulfillment of the guaranteed death benefit provisions of the
contract.
WHEN MUST DEATH BENEFITS BE PAID?
If you die on or before the date when annuity payments begin and if the
designated beneficiary is a person other than your spouse, that beneficiary may
elect an annuity option measured by a period not longer than that beneficiary's
life expectancy. Annuity payments must begin not later than one year after your
death. If there is no designated beneficiary, then the entire interest in this
contract must be distributed within five years after your death. If the
annuitant dies after annuity payments have begun, any
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payments received by a non-spouse beneficiary must be distributed at least as
rapidly as under the method elected by the annuitant as of the date of death.
WHAT HAPPENS IF ONE OR ALL OF THE BENEFICIARIES DIE?
Before annuity payments begin, if a beneficiary dies, that beneficiary's
interest in this contract ends with that beneficiary's death. Only those
beneficiaries who survive will be eligible to share in a death benefit. If no
beneficiary survives you prior to the date an annuity begins we will pay the
accumulation value of this contract to the executors or administrators of your
estate.
After annuity payments have begun, if there is no beneficiary after the death of
the annuitant, any remaining value under the annuity option will be paid to the
annuitant's estate.
CAN YOU CHANGE THE BENEFICIARY?
Yes. You can file a written request with us to change the beneficiary. Your
written request will not be effective until it is recorded in our home office
records. After it has been recorded, it will take effect as of the date you
signed the request. However, if the annuitant dies before the request has been
recorded, the request will not be effective as to those death proceeds we have
paid before the request was recorded in our home office records.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
CAN YOU ASSIGN THIS CONTRACT?
Unless this contract provides otherwise, you may assign all rights to this
contract during the lifetime of the annuitant. We will not be bound by any
assignment until we have recorded written notice of it at our home office. We
are not responsible for the validity of any assignment. An assignment will not
apply to any payment or action made by us before it was recorded. Any proceeds
payable 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.
If this contract is issued pursuant to a retirement plan which receives
favorable tax treatment under the provisions of Section 401, 403, 404, 408, 408A
or 457 of the Internal Revenue Code, then, it may not be assigned, pledged or
otherwise transferred except under such conditions as may be allowed under
applicable law.
ARE THE CONTRACT BENEFITS PROTECTED?
Yes. To the extent permitted by law, no benefit provided by this contract will
be subject to any creditor's claim or process of law.
HOW WILL BENEFITS BE DETERMINED?
Any paid-up benefit, withdrawal benefit, surrender benefit, or any other benefit
described by this contract shall be calculated as of the date the provisions of
the contract are exercised.
WILL THERE BE AN ADJUSTMENT IF A PERSON'S AGE IS MISSTATED?
Yes. If a person's age has been misstated, the amount payable under this
contract as an annuity will be that amount which would have been paid based upon
that person's correct age. In the case of an overpayment, we may either deduct
the required amount from that person's payments under this contract; or, we may
require you to pay us in cash; or we may do both until we are
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fully repaid. In the case of an underpayment, we will pay the required amount
with the next payment.
MUST YOU PROVIDE ADDITIONAL INFORMATION?
Yes. You must provide any other information we need to administer this
contract. If you cannot do so, we may ask the person concerned for that
information. We shall not be liable for any payment based upon information
given to us in error or not given to us.
DO CONTRACT VALUES COMPLY WITH STATE REQUIREMENTS?
Yes. Amounts payable at death, withdrawal and surrender benefits, accumulation
values and the paid-up annuity benefit described by this contract are not less
than the minimum benefits required by any statute of the state in which this
contract is delivered.
WHAT ANNUITY RESERVES WILL WE HOLD UNDER THIS CONTRACT?
Reserves held by us for annuity payments under this contract shall not be less
than those reserves required by the law in the state in which this contract is
delivered.
MAY THIS CONTRACT BE MODIFIED?
Yes. This contract may be modified at any time by written agreement between you
and us. However, no such modification will adversely affect the rights of an
annuitant under this contract unless the modification is made to comply with a
law or government regulation. Such modification will be in writing. You will
have the right to accept or reject such a modification.
WHO OWNS THE GENERAL ACCOUNT AND THE SEPARATE ACCOUNT?
We have exclusive and absolute ownership of the assets of both the general
account and the separate account.
WHEN WILL LUMP SUM PAYMENTS BE MADE?
Usually, we will make payment within seven days after payment is called for by
the terms of the contract. However, in the case of payments from the general
account we reserve the right to defer payment of withdrawal or surrender
benefits for up to six months. We reserve the right to defer payment for any
period during which the New York Stock Exchange is closed for trading (except
for normal holiday closing) or when the Securities and Exchange Commission has
determined that a state of emergency exists which may make such determination
and payment impractical.
DO YOU HAVE ADDITIONAL VOTING RIGHTS?
Yes. If you have separate account accumulation or annuity units under this
contract you may direct us with respect to the voting rights of fund shares held
by us and attributable to this contract where shareholder approval is required
by law.
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APPENDIX A
The following tables show the minimum dollar amount of monthly fixed annuity
payment that can be provided with each $1,000 of available value.
The rates shown are based upon an interest rate of 3% per year, compounded
annually, and Individual Annuity 1983 Table A mortality rates with an age
setback of one year, blended to provide genderless rates. Dollar amounts for
ages or payment frequencies other than those shown here will be calculated on
the same basis and may be obtained from us upon request.
Annuitant and joint annuitant age is determined as of the annuity commencement
date and adjusted based on the year of commencement as follows:
<TABLE>
<CAPTION>
Annuity Commencement Year Age Adjustment
------------------------- --------------
<S> <C>
2000 - 2009 -1
2010 - 2019 -2
2020 - 2029 -3
2030 and later -4
</TABLE>
<TABLE>
<CAPTION>
Life with Life with Life with
Annuitant Life 120 Months 180 Months 240 Months
Adjusted Age (Option 1) (Option 2A) (Option 2B) (Option 2C)
- ------------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
50 $3.92 $3.90 $3.87 $3.83
55 4.26 4.23 4.18 4.10
60 4.72 4.66 4.56 4.43
65 5.35 5.21 5.03 4.78
70 6.23 5.94 5.57 5.10
75 7.49 6.82 6.10 5.34
80 9.36 7.80 6.52 5.46
85 12.12 8.65 6.75 5.50
</TABLE>
<TABLE>
<CAPTION>
Joint and Last Survivor (Option 3)
Annuitant
Adjusted Age Joint Annuitant Adjusted Age
- -------------- -----------------------------------------------------------------------------
40 45 50 55 60 65 70 75 80 85
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $3.29 $3.40 $3.52 $3.62 $3.70 $3.77 $3.82 $3.86 $3.88 $3.90
55 3.33 3.47 3.62 3.76 3.89 4.01 4.09 4.16 4.20 4.23
60 3.36 3.52 3.70 3.89 4.09 4.26 4.41 4.52 4.61 4.66
65 3.39 3.56 3.77 4.01 4.26 4.52 4.76 4.96 5.12 5.22
70 3.40 3.59 3.82 4.09 4.41 4.76 5.13 5.46 5.74 5.94
75 3.42 3.61 3.86 4.16 4.52 4.96 5.46 5.99 6.47 6.86
80 3.42 3.63 3.88 4.20 4.61 5.12 5.74 6.47 7.24 7.94
85 3.43 3.64 3.90 4.23 4.66 5.22 5.94 6.86 7.94 9.07
</TABLE>
99-70018 Minnesota Life 20
<PAGE>
Option 4 -- Fixed Period Annuity
<TABLE>
<CAPTION>
Fixed Period Dollar Amount
Years of Payment
------------ -------------
<S> <C>
10 $9.61
11 8.86
12 8.24
13 7.71
14 7.26
15 6.87
16 6.53
17 6.23
18 5.96
19 5.73
20 5.51
</TABLE>
99-70018 Minnesota Life 21
<PAGE>
APPENDIX A
The following tables show the minimum dollar amount of monthly fixed annuity
payment that can be provided with each $1,000 of available value.
The rates shown are based upon an interest rate of 3% per year, compounded
annually, and Individual Annuity 1983 Table A mortality rates with an age
setback of one year. Dollar amounts for ages or payment frequencies other than
those shown here will be calculated on the same basis and may be obtained from
us upon request.
Annuitant and joint annuitant age is determined as of the annuity commencement
date and adjusted based on the year of commencement as follows:
<TABLE>
<CAPTION>
Annuity Commencement Year Age Adjustment
------------------------- --------------
<S> <C>
2000 - 2009 -1
2010 - 2019 -2
2020 - 2029 -3
2030 and later -4
</TABLE>
<TABLE>
<CAPTION>
Life with Life with Life with
Male Annuitant Life 120 Months 180 Months 240 Months
Adjusted Age (Option 1) (Option 2A) (Option 2B) (Option 2C)
- -------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
50 $4.19 $4.15 $4.10 $4.03
55 4.60 4.54 4.45 4.32
60 5.15 5.03 4.87 4.64
65 5.91 5.66 5.36 4.96
70 6.97 6.44 5.86 5.23
75 8.45 7.32 6.31 5.40
80 10.55 8.17 6.62 5.48
85 13.46 8.86 6.79 5.51
<CAPTION>
Female
Annuitant
Adjusted Age
- ------------
<S> <C> <C> <C> <C>
50 $3.84 $3.83 $3.81 $3.77
55 4.18 4.15 4.11 4.04
60 4.61 4.56 4.48 4.37
65 5.21 5.10 4.95 4.72
70 6.04 5.80 5.49 5.06
75 7.26 6.69 6.04 5.32
80 9.07 7.69 6.48 5.45
85 11.79 8.59 6.74 5.50
<CAPTION>
Joint and Last Survivor (Option 3)
Male Annuitant
Adjusted Age Female Annuitant Adjusted Age
- -------------- --------------------------------------------------------------------------------------------
40 45 50 55 60 65 70 75 80 85
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $3.29 $3.42 $3.56 $3.69 $3.82 $3.93 $4.01 $4.08 $4.12 $4.15
55 3.32 3.47 3.64 3.82 3.99 4.16 4.29 4.40 4.48 4.53
60 3.34 3.51 3.70 3.92 4.15 4.39 4.61 4.79 4.93 5.02
65 3.36 3.54 3.75 4.00 4.29 4.61 4.94 5.24 5.48 5.66
70 3.37 3.56 3.78 4.06 4.40 4.80 5.25 5.70 6.12 6.45
75 3.38 3.57 3.81 4.11 4.48 4.95 5.51 6.15 6.80 7.37
80 3.38 3.58 3.82 4.14 4.54 5.05 5.71 6.52 7.45 8.37
85 3.38 3.58 3.83 4.15 4.57 5.12 5.84 6.80 7.99 9.33
</TABLE>
99-70019 Minnesota Life 20
<PAGE>
Option 4 -- Fixed Period Annuity
<TABLE>
<CAPTION>
Fixed Period Dollar Amount
Years of Payment
------------ -------------
<S> <C>
10 $9.61
11 8.86
12 8.24
13 7.71
14 7.26
15 6.87
16 6.53
17 6.23
18 5.96
19 5.73
20 5.51
</TABLE>
99-70019 Minnesota Life 21
<PAGE>
- --------------------------------------------------------------------------------
MINNESOTA LIFE TAX SHELTERED ANNUITY
LOAN AGREEMENT
- --------------------------------------------------------------------------------
WHAT DOES THIS AGREEMENT PROVIDE?
This agreement modifies your contract. These changes will allow contract loans
when the contract is used as a tax sheltered annuity. A tax sheltered annuity
is described under Section 403(b) of the Internal Revenue Code, as amended.
CONTRACT LOANS
- --------------------------------------------------------------------------------
CAN YOU BORROW MONEY ON YOUR CONTRACT?
Yes. At any time after the second contract anniversary, you may borrow up to
the maximum loan amount. The maximum amount will be determined as of the date
we receive your request for a loan. We will require your written request for a
contract loan. We will charge interest on the loan in arrears.
At your request, we will send you a loan agreement for your signature. The
contract will be the only security required for your loan.
ARE THERE LIMITATIONS ON THE AMOUNT WHICH MAY BE BORROWED?
Yes. There is both a minimum loan amount and a maximum loan amount. In each
case, the loan amount may not exceed one-half of the surrender value of the
general account portion of your loan.
WHAT IS THE MINIMUM LOAN AMOUNT?
The minimum loan amount is $1,000.
WHAT IS THE MAXIMUM LOAN AMOUNT?
The maximum loan amount is the lesser of:
(a) $50,000, reduced by the highest outstanding balance of any previous loan
made during the past one-year period ending on the day before the date of the
current loan; or
(b) the greater of one-half of your contract's accumulation value, or $10,000.
However, no loan amount may exceed an amount equal to one-half of your general
account balance at the time of the loan. You may transfer amounts to the
general account from your separate account accumulation value to satisfy this
limitation.
WHAT ARE THE CONDITIONS OF THE LOAN REPAYMENT?
You must execute a loan agreement. The loan agreement will require repayment of
the loan over a period of five years or less. Repayment must be made in
substantially equal payments. The loan repayment schedule will require the
level amortization of the loan over the repayment period. Early repayment may
be made without penalty. You may repay the balance of the loan at any time.
99-70006 Minnesota Life Insurance Company
<PAGE>
Failure to meet the repayment schedule, within any grace period, will result in
a default of the loan. A defaulted loan will result in a deemed distribution of
the outstanding loan balance, interest due and any applicable charges under the
contract, including surrender charges. If amounts under your contract are
eligible for distribution, (e.g., you are over age 59 1/2, employment
terminated, disability or death) the amount distributed will be withdrawn from
your contract and your surrender value will be reduced by the distribution
amount along with any applicable surrender charge. If amounts are not eligible
for distribution under your contract, then the defaulted amounts plus any
accrued interest plus any applicable surrender charge, will be withdrawn when
amounts under your contract become eligible for distribution.
Whether amounts are distributed or deemed to be distributed, the amounts will be
considered a current taxable event in the year of the default and you will
receive a 1099-R. These amounts may also be subject to income tax, penalty tax
and the contract may be disqualified as a tax-sheltered annuity.
WHAT INTEREST RATE DO YOU HAVE TO PAY?
The loan interest rate will be set quarterly on the first day of each calendar
quarter. It will apply to the loan balance in that calendar quarter. This rate
will not exceed the greater of the "published monthly average" for the calendar
month ending two months before the beginning of the calendar quarter, or the
composite interest rate in effect on the contract plus 1%.
The "published monthly average" means the Moody's Composite Average of Yields on
Bonds as published by the Moody's Investors Service.
WHAT HAPPENS IF YOU DO NOT REPAY YOUR LOAN?
Your contract will remain in force so long as there is a surrender value. If
there is a loan equal to the surrender value and if it is not repaid, a
distribution of the surrender value will cause the contract to terminate.
As discussed above, failure to pay a loan also results in a default which may
cause tax consequences.
ARE THERE OTHER LIMITATIONS ON CONTRACT LOANS?
Yes. Those additional limitations are:
a) Only one loan may be outstanding at any time.
b) If there is an outstanding loan on the contract, then any withdrawals
will be limited to the surrender value less the current loan balance
and any applicable surrender charges.
c) A loan is not available if annuity payments have begun.
d) The general account accumulation value of your contract securing a
loan may not be transferred to the separate account.
MAY THE CONTRACT BE SURRENDERED WHILE THERE IS A LOAN?
Yes. If there is a loan and the contract is surrendered, the loan is due
immediately. If it is not repaid prior to the surrender, the payment on
surrender will be the surrender
99-70006 Minnesota Life Insurance Company
<PAGE>
value less the current loan balance and any applicable surrender charge.
ANNUITY PROVISIONS
- --------------------------------------------------------------------------------
ARE ANNUITY PROVISIONS ALWAYS AVAILABLE?
No. Annuity payments may not begin during a period when a contract loan is in
effect.
MAY THIS AGREEMENT BE AMENDED?
Yes. This agreement may be amended. It may be amended only to reflect any
change in the Internal Revenue Code, regulations or published revenue rulings.
You will be deemed to have consented to such an amendment. We will promptly
furnish you with any such amendment.
This agreement is effective as of the original contract date unless a different
effective date is shown here.
99-70006 Minnesota Life Insurance Company
<PAGE>
Exhibit 4(c)
MINNESOTA LIFE TAX SHELTERED ANNUITY AMENDMENT
Minnesota Life Insurance Company - 400 Robert Street North - St. Paul, Minnesota
55101-2098. We have made the following changes to your contract. They modify
the contract. They are considered to be a part of it. This agreement is
effective as of the original contract date unless a different effective date
is shown here.
WHAT DOES THIS AGREEMENT PROVIDE?
This Agreement modifies your contract. The Agreement is used when the contract
is issued to fund a tax sheltered annuity program. This is as described in
Section 403(b) of the Internal Revenue Code (hereinafter "Code"), as amended.
PURCHASE PAYMENTS
ARE PURCHASE PAYMENTS LIMITED?
Yes. Where the annuitant has a tax sheltered annuity, purchase payments may be
limited. Elective deferrals which are purchase payments made by salary
reduction are limited to: (a) $9,500; or (b) an indexed amount, if greater.
A special increased limit in the case of an annuitant who has completed 15 years
of service with an educational organization, a hospital, a home health service
agency, a church, a convention or association of churches, or a health and
welfare service agency may be available. The limit for any one year is
increased by the lesser of:
(a) $3,000;
(b) $15,000 reduced by amounts already excluded for prior taxable years by
reason of this special exception; or
(c) the excess of $5,000 multiplied by the number of years of service the
annuitant has with the employer less all prior elective deferrals.
The amount of salary reduction excludable from an annuitant's gross income may
actually be less than the amount permitted under this limit on elective
deferrals. This may be true if the annuitant's exclusion allowance, described
in Section 403(b)(2), of the Code or the overall limit as described in Section
415(c) of the Code is less.
WITHDRAWAL AND SURRENDERS
ARE THERE RESTRICTIONS ON WHEN WITHDRAWALS FROM THIS CONTRACT MAY BE MADE?
Yes. Contracts issued to fund 403(b) tax sheltered annuity programs must
restrict certain withdrawals. Any purchase payment made after January 1, 1989
pursuant to a salary reduction agreement between you and your employer may be
paid only when:
MHC-88-9213 Minnesota Life Insurance Company
<PAGE>
(a) you attain age 59 1/2;
(b) when you separate from service with your employer;
(c) when you die;
(d) when you become disabled; or
(e) if you qualify for a hardship withdrawal.
WHAT IS MEANT BY A HARDSHIP WITHDRAWAL?
A hardship withdrawal is one that is made on account of an immediate and heavy
financial need and a withdrawal is necessary to satisfy that financial need.
You may be required to provide us with information so that we may be satisfied
that your hardship is one described in the Code and its regulations.
WHAT AMOUNT MAY BE WITHDRAWN UNDER THE HARDSHIP PROVISION?
You may withdraw only the amount represented by your salary reduction
contributions. Any earnings attributable to such contributions may not be
withdrawn.
MAY TAX PENALTIES APPLY?
Yes. If a withdrawal or surrender occurs before the annuitant is age 59 1/2,
the annuitant may be subject to tax penalties. These penalties are imposed
under the Code. The annuitant may not be subject to tax penalties on amounts
received before age 59 1/2 if:
(a) the annuitant becomes disabled as defined by the Code;
(b) The amount received is in excess of the allowed elective deferral and
returned to the annuitant before the required tax return filing date for
that year, together with any earned interest; or
(c) if the entire amount in the contract is received and reinvested in a
similar plan entitled to similar tax treatment.
We will not be liable for any tax penalties on amounts received or paid by us
under this contract. We also retain the right to treat any transaction treated
by law as a contract distribution as a complete contract surrender.
MHC-88-9213 Minnesota Life Insurance Company
<PAGE>
GENERAL INFORMATION
IS THERE A TIME WHEN DISTRIBUTIONS FROM THIS CONTRACT MUST BE MADE?
Yes. Distributions must begin within 90 days after the end of the year in which
the annuitant reaches age 70 1/2. Distributions may be made as withdrawals or
under one of the available annuity forms. In order to avoid tax penalties, you
will have to meet certain minimum distribution requirements.
IS THIS CONTRACT TRANSFERABLE?
No. This contract is non-transferable. It may not be sold or assigned.
/s/ Dennis E. Prohofsky
Secretary
/s/ Robert L. Senkler
President
MHC-88-9213 Minnesota Life Insurance Company
<PAGE>
- -------------------------------------------------------------------------------
MINNESOTA LIFE ENDORSEMENT
- -------------------------------------------------------------------------------
This endorsement, when attached to the contract, modifies certain contract
provisions so as to change the contract to a Single Payment Immediate Annuity.
Notwithstanding any provisions of this contract to the contrary, a
participant may request that the purchase payment be applied to provide for
immediate annuity payments to begin within sixty days of the purchase
payment. In that event neither an administrative charge nor any reduction in
the accumulation value will be made. The greater of the then current
immediate annuity purchase rates offered by Minnesota Life or the guaranteed
purchase rates as shown in the contract will be used to determine the monthly
annuity payments.
/s/ Dennis E. Prohofsky /s/ Robert L. Senkler
Secretary President
MHC-82-9032 Minnesota Life Insurance Company
<PAGE>
- -------------------------------------------------------------------------------
MINNESOTA LIFE ANNUITY PAYMENT ENDORSEMENT
- -------------------------------------------------------------------------------
Minnesota Life Insurance Company certifies that the Annuitant named in the
Schedule below is entitled to the Annuity Payments described in this
schedule. Payments are to commence on the Annuity Commencement Date.
ANNUITY PAYMENTS SCHEDULE
ANNUITANT _____________________________________________________________________
ANNUITANT'S DATE OF BIRTH _____________________________________________________
ANNUITY COMMENCEMENT DATE _____________________________________________________
FORM OF ANNUITY PAYMENT _______________________________________________________
FIXED ANNUITY PAYMENT $ _______________________________________________________
NUMBER OF VARIABLE ANNUITY UNITS ______________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
INITIAL VARIABLE ANNUITY PAYMENT $ ____________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
JOINT ANNUITANT _______________________________________________________________
JOINT ANNUITANT'S DATE OF BIRTH _______________________________________________
ANNUITANT'S BENEFICIARY _______________________________________________________
/s/ Dennis E. Prohofsky /s/ Robert L. Senkler
Secretary Registrar President
MHC-83-9060 Minnesota Life Insurance Company
<PAGE>
Exhibit 4(f)
MINNESOTA LIFE QUALIFIED PLAN AGREEMENT
WHAT DOES THIS AGREEMENT PROVIDE?
Minnesota Life - 400 Robert Street North - St. Paul, Minnesota 55101-2098.
The Agreement modifies the contract. The Agreement is used when an annuity
contract is distributed by a pension or profit sharing plan. The plan must
be qualified under Section 401(a) of the Internal Revenue Code, ("Code") as
amended.
IS THIS CONTRACT TRANSFERABLE?
No. This contract is non-transferable. It may not be sold or assigned. There
is an exception if the contract is the subject of a domestic relations order.
IS THERE AN AUTOMATIC FORM OF RETIREMENT BENEFIT?
Yes. The automatic form is payable if the annuitant is married when a contract
benefit is paid. The automatic form is a joint and 100% to survivor annuity.
It is payable to the annuitant and the annuitant's spouse. The automatic option
is a life annuity if the annuitant is single when a contract benefit is paid.
It is payable to the annuitant.
MAY ANOTHER PAYMENT OPTION OF THE RETIREMENT BENEFIT BE ELECTED?
Yes. However, there are two conditions. First, the annuitant must elect a
different contract option. This election must be made within the 90 day period
before the benefit is paid. Second, the spouse of a married annuitant must
consent to any election of an optional form. This consent must be made on a
Minnesota Life form. It must contain a notarized statement. Any consent by a
spouse herein shall be effective only with respect to such spouse. Any annuity
payment option may not provide for payments over a period longer than the life
or the life expectancy of the annuitant or the joint annuitant.
ARE THERE RULES AS TO WHEN ANNUITY PAYMENT MUST BEGIN?
Yes. Payments under the contract must begin no later than April 1st following
the calendar year in which the annuitant attains age 70 1/2.
IS THERE A PRE-RETIREMENT DEATH BENEFIT?
Yes. The pre-retirement death benefit is payable if the annuitant dies before
annuity payments have started. It is the amount provided by the accumulation
value of the contract.
IS THE BENEFICIARY OF THE PRE-RETIREMENT DEATH BENEFIT SPECIFIED?
Yes. If the annuitant was married for a period of at least one year at the time
of death, the beneficiary of the pre-retirement death benefit is the annuitant's
spouse. The spouse's payment option is a life annuity.
MHC-88-9176 Minnesota Life 1
<PAGE>
If the annuitant was not married or was married less than one year at death, the
general rule does not apply. The beneficiary of this benefit is then the
designated beneficiary. The automatic annuity payment option in this case is a
lump sum payment.
MAY THE ANNUITANT WHO HAS BEEN MARRIED FOR AT LEAST ONE YEAR ELECT ANOTHER
BENEFICIARY FOR THE PRE-RETIREMENT DEATH BENEFIT?
Yes. Such an annuitant may choose a beneficiary. It may be a person other than
the spouse. The spouse must consent to such an election. The consent must be
obtained prior to the annuitant's death. This consent must be on a Minnesota
Life form. It must include a notarized statement. Consent must also be
obtained if there is a subsequent change of beneficiary.
MAY ANOTHER PAYMENT OPTION BE ELECTED FOR THE PRE-RETIREMENT DEATH BENEFIT?
Yes. On the annuitant's death, the beneficiary may elect any contract option.
The option elected must be permitted by the code.
MAY THE PAYMENT OF THE PRE-RETIREMENT DEATH BENEFIT BE DEFERRED?
Yes. The pre-retirement death benefit may begin at any time after the
annuitant's death. If the beneficiary is the annuitant's spouse, the spouse may
elect to defer the benefit. The benefit must begin by the time the annuitant
would have been age 70 1/2.
Payment rules differ if the beneficiary is not the annuitant's spouse. In that
case payment must begin no later than one year from the annuitant's death.
Payment must be: (a) in lump sum; (b) in substantially equal installments over
the life of that beneficiary; and (c) over a period not longer than that
beneficiary's life expectancy.
ARE THERE ANY EXCEPTIONS TO THESE DISTRIBUTION REQUIREMENTS?
No.
ARE THERE ADDITIONAL REQUIREMENTS THAT APPLY TO WITHDRAWALS AND SURRENDERS?
Yes. They may not be made without the written consent of the spouse entitled to
the pre-retirement death benefits.
ARE CONTRACT DISTRIBUTIONS TAXABLE?
Yes. Distributions from this contract are taxable. In addition, tax penalties
may apply to distributions which are classified as premature distributions. Tax
penalties may apply to amounts in excess of statutory limitations as described
in the Code.
Minnesota Life will not be liable for any tax or tax penalties on contract
amounts received or paid.
MHC-88-9176 Minnesota Life 2
<PAGE>
MAY THIS CONTRACT BE ROLLED OVER OR EXCHANGED FOR ANOTHER CONTRACT OR FOR AN
INDIVIDUAL RETIREMENT ACCOUNT OR ANNUITY PLAN?
No. This contract may not be exchanged or rolled over. The issuance of this
contract to you is treated as a distribution from a qualified pension plan.
WILL MINNESOTA LIFE PROVIDE TAX ADVICE WITH RESPECT TO CONTRACT DISTRIBUTIONS?
No. For tax advice you must see your own tax adviser.
This Agreement is effective as of the original contract date. For purposes of
the deferred sales charge, the contract year shall be determined from the date
shown here:
MHC-88-9176 Minnesota Life 3
<PAGE>
Minnesota Life INDIVIDUAL RETIREMENT ANNUITY
(IRA) AGREEMENT
SEP, TRADITIONAL IRA AND ROTH-IRA
WHAT DOES THIS AGREEMENT PROVIDE?
This agreement modifies the contract. Provisions are changed before issue. In
the event of a conflict between the provisions of this agreement and the
contract to which it is attached, the provisions of this agreement will control.
These changes will allow its use: (a) with a Simplified Employee Pension
(herein "SEP"); and/or (b) as a Traditional Individual Retirement Annuity under
the Employee Retirement Income Security Act of 1974, as amended (herein "IRA");
and/or (c) as a Roth Individual Retirement Annuity under section 408A of the
Internal Revenue Code (herein "Roth-IRA"). The provisions that apply for
Traditional IRAs generally apply for SEPs, unless otherwise stated.
PURCHASE PAYMENTS
ARE TRADITIONAL IRA PURCHASE PAYMENTS LIMITED?
Yes. Where the annuitant has an IRA, purchase payments may be limited. An
annual cash purchase payment may not exceed the lesser of: (a) the amount of
compensation includible in gross income in any taxable year; or (b) $2,000, or
such other maximum amount as may be allowed by law.
Where an annuitant establishes an IRA along with a lower earning spouse,
purchase payments may be limited. They are also limited if the annuitant is the
lower earning spouse. The cash purchase payments for both annuities and
accounts must then be considered together. They may not exceed the lesser of:
(a) the amount of compensation includible in the working spouse's compensation
includible in gross income in any taxable year; or (b) $4,000, or such other
maximum amount as may be allowed by law. In no event may an annuitant's annual
purchase payment exceed the cash amount of: (a) $2,000; or (b) the maximum
annual contribution allowed for an IRA.
The annuitant's employer may make purchase payments under the annuitant's SEP up
to the lesser of 15% of the annuitant's compensation (exclusive of compensation
in excess of $160,000) or $30,000. Other limits will apply if the annuitant's
IRA is used as part of a salary reduction SEP.
The annuitant, or the annuitant and his or her employer, are responsible for
determining the maximum purchase payments that may be made to an IRA.
ARE ROTH-IRA PURCHASE PAYMENTS LIMITED?
Yes. Where the annuitant has a Roth-IRA, purchase payments may be limited.
Annual purchase payments for all IRAs maintained by the annuitant may not exceed
the lesser of 100% of the annuitant's compensation includible in gross income in
any taxable year or $2,000. The maximum purchase payment that an annuitant may
make to a Roth-IRA will depend on the amount of the annuitant's income. The
maximum annual purchase payment allowed for a Roth-IRA is gradually reduced to
$0 between certain levels of Adjusted Gross Income ("AGI"). Adjusted gross
income is defined in section 408A(c)(3) of the Code and does not include amounts
transferred or rolled over to Traditional IRAs or Roth-IRAs. In accordance with
section 408A(c)(3) of the Code, if an annuitant is single, the $2,000 limit is
phased out between AGI of $95,000 and $110,000; if an annuitant is married and
files a joint federal income tax return, it is phased out between $150,000 and
$160,000; and if an annuitant is married and
MHC-97-9418 Minnesota Life Insurance Company 1
<PAGE>
files a separate federal income tax return, it is phased out between $0 and
$10,000.
If an annuitant is married, the maximum purchase payment to the lower-earning
spouse's Spousal Roth-IRA may not exceed the lesser of: (a) 100% of both
spouses' combined compensation minus any Roth-IRA or deductible Traditional IRA
contribution for the spouse with the higher compensation; or (b) $2,000. A
maximum of $4,000 may be contributed to both spouses' Spousal Roth-IRAs.
Purchase payments can be divided between the spouses' IRAs as the annuitant and
his spouse wish, but annual purchase payments to either one of the IRAs may not
exceed $2,000.
DO PURCHASE PAYMENT LIMITATIONS APPLY TO A ROLLOVER TO A ROTH-IRA?
No. However, some individuals are not eligible to make rollover purchase
payments to a Roth-IRA.
A qualified rollover is a rollover contribution from another Roth-IRA or
Traditional individual retirement account or annuity in accordance with sections
408(d)(3), 408A(c)(3)(B), 408A(c)(6) and 408A(e) of the Code. A cash purchase
payment may be the amount received by or on behalf of the annuitant as all or
any portion of a distribution which is a rollover contribution. The
distribution may be one from a Traditional IRA or Roth-IRA, but may not be an
eligible rollover distribution from a tax-exempt employee's trust or a qualified
employee annuity plan.
A rollover or transfer from a Traditional IRA to a Roth-IRA will not be
permitted if the annuitant's AGI for the tax year exceeds $100,000 or if the
annuitant is married and files a separate federal income tax return. A rollover
contribution must be received by us not later than 60 days after the annuitant
receives it.
DO PURCHASE PAYMENT LIMITATIONS APPLY TO A ROLLOVER?
No. Limits on purchase payments to the contract do not apply with a rollover
contribution. A rollover contribution is one within the meaning of sections
408(d)(3), 402(c), 403(a)(4), 403(b)(8), 408A(c)(3)(B), 408A(c)(6), 408A(d)(3)
or 408A(e) of the Internal Revenue Code (herein "Code") or a purchase payment
made in accordance with the terms of a SEP as described in section 408(k) of the
Code. In that case, a cash purchase payment may be the amount received by or on
behalf of an annuitant as all or any portion of a distribution which is a
rollover contribution. The distribution may be one from an individual
retirement account, annuity or bond plan; or an eligible rollover distribution
from a tax-exempt employee's trust; a qualified employee annuity plan; or such
other plan as may be allowed by law. A Roth-IRA, however, may not receive a
rollover contribution directly from any plan other than a Traditional IRA or
another Roth-IRA. In addition, a rollover or transfer from a Traditional IRA to
a Roth-IRA will not be permitted if the annuitant's AGI for the tax year exceeds
$100,000; or if the annuitant is married and files a separate federal income tax
return. A rollover contribution must be received by us not later than 60 days
after the annuitant receives it. A direct rollover payment may be made to us
from the plan making the distribution. A purchase payment may not include
contributions to a tax-qualified plan made by the annuitant as an employee.
MAY THE ANNUITANT ALWAYS MAKE PURCHASE PAYMENTS?
No. We will not accept purchase payments under this contract as of a date the
annuitant is not eligible for a SEP, IRA or Roth-IRA.
MHC-97-9418 Minnesota Life 2
<PAGE>
In addition, no additional cash contributions or rollover contributions may be
accepted under the contract if: (a) the owner dies before the distribution of
the entire interest in the contract; and (b) the beneficiary is not the
surviving spouse.
Purchase payments which exceed those allowed for an IRA or Roth-IRA may be
returned. We will send them to the annuitant. Return is without regard to the
provisions of this contract dealing with withdrawals. Excess purchase payments
to a SEP may similarly be returned. We will send them to the payer.
The annuitant has the sole responsibility for determining whether any purchase
payments meet applicable income tax requirements.
DISTRIBUTION PROVISIONS
ARE THERE RULES FOR THE TIMING OF DISTRIBUTIONS FROM AN IRA?
Yes. The distribution of an annuitant's value shall be made in accordance with
the minimum distribution requirements of section 408(b)(3) of the Code and the
regulations thereunder, including the incidental death benefit provisions of
section 1.401(a)(9)-2 of the proposed regulations. All of these rules are
incorporated herein by reference.
The annuitant's accumulation value, or withdrawal value if applicable, must be
distributed or begin to be distributed, by the annuitant's required beginning
date. This is the April 1 following the calendar year in which the annuitant
reaches age 70 1/2. For each succeeding year, a distribution must be made on or
before December 31.
The annuitant or, if applicable, the annuitant's beneficiary, is responsible for
assuring that the required minimum distribution is taken in a timely manner and
that the correct amount is distributed.
ARE THERE RULES FOR THE TIMING OF DISTRIBUTIONS FROM A ROTH-IRA WHILE THE
ANNUITANT IS ALIVE?
No. The rules that apply to Traditional IRAs regarding required distributions
while an annuitant is alive do not apply to Roth-IRAs.
WHAT FORMS OF DISTRIBUTION ARE AVAILABLE FROM AN IRA?
By the required beginning date the annuitant may elect to have the accumulation
value, or withdrawal value if applicable, distributed. It must be in one of the
following forms:
(a) a single sum payment;
(b) equal or substantially equal payments over the life of the annuitant;
(c) equal or substantially equal payments over the joint lives of the annuitant
and spouse;
(d) equal or substantially equal payments over a specified period that may not
be longer than the annuitant's life expectancy;
(e) equal or substantially equal payments over a specified period that may not
be longer than the joint life and last survivor expectancy of the annuitant
and spouse.
MHC-97-9418 Minnesota Life 3
<PAGE>
Options (b), (c), (d), and (e) can be satisfied by an annuity form elected by
the annuitant or by systematic withdrawal.
Payments must be made in periodic payments at intervals of no longer than one
year. In addition, payments must be either nonincreasing or they may increase
only as provided in Q&A F-3 of section 1.401(a)(9)-1 of the Proposed Income Tax
Regulations or such final regulations as adopted.
ARE THERE SPECIAL RULES IF THE ANNUITANT DIES BEFORE THE ENTIRE VALUE IN THE
CONTRACT IS DISTRIBUTED?
Yes. If the annuitant dies on or after the date distributions have begun, the
entire remaining value must be distributed at least as rapidly as under the
method of distribution being used as of the date of the annuitant's death. If
the annuitant dies before distributions have begun, the entire remaining value
must be distributed as elected by the annuitant or, if the annuitant has not so
elected, as elected by the beneficiary or beneficiaries, as follows:
(a) by December 31st of the year containing the fifth anniversary of the
annuitant's death; or
(b) in equal or substantially equal payments over the life or life expectancy
of the designated beneficiary or beneficiaries starting by December 31st of
the year following the year of the annuitant's death. If, however, the
beneficiary is the annuitant's surviving spouse, then this distribution is
not required to begin until later. It must begin by December 31st of the
year in which the annuitant would have turned 70 1/2. Minimum payments to
the surviving spouse will be calculated in accordance with the applicable
regulations.
ARE OTHER OPTIONS AVAILABLE TO A SPOUSE BENEFICIARY?
Yes. In addition to the options discussed above, the spouse beneficiary has
other options. He or she may elect to treat the annuitant's IRA or Roth-IRA as
his or her own. This is done by either: (a) not taking a distribution within
the required time period; or (b) making eligible IRA or Roth-IRA contributions
to it.
If the beneficiary chooses one of these options then he or she is the contract
owner. He or she will assume all rights and privileges under the contract.
This right is available only to the spouse of the annuitant.
HOW ARE LIFE EXPECTANCIES FOR CALCULATING REQUIRED DISTRIBUTIONS DETERMINED?
Life expectancy is computed by use of the expected return multiples in Table V
and VI of section 1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the annuitant prior to the commencement of
distributions or, if applicable, by the surviving spouse where the annuitant
dies before distributions have commenced, life expectancies of an annuitant or
spouse beneficiary shall be recalculated annually for purposes of required
distributions. An election not to recalculate shall be irrevocable and shall
apply to all subsequent years. The life expectancy of a nonspouse beneficiary
shall not be recalculated. Instead, life expectancy will be calculated using
the attained age of such beneficiary during the calendar year in which the
annuitant attains age 70 1/2; and payments for subsequent years shall be
calculated based on such life expectancy reduced by one for each calendar year
which has elapsed since the calendar year life expectancy was first calculated.
MHC-97-9418 Minnesota Life 4
<PAGE>
In the case of a Roth-IRA, life expectancy will be calculated using the attained
age of such beneficiary in the calendar year distributions are required to
begin; and payments for subsequent years shall be calculated based on such life
expectancy reduced by one for each calendar year which has elapsed since the
calendar year life expectancy was first calculated.
MAY THE ANNUITANT SATISFY MINIMUM DISTRIBUTION REQUIREMENTS BY RECEIVING A
DISTRIBUTION FROM ANOTHER IRA?
Yes. An annuitant may satisfy the minimum distribution requirements under
sections 408(a)(6) and 408(b)(3) of the Code by receiving a distribution from
one IRA that is equal to the amount required to satisfy the minimum distribution
requirements for two or more IRAs. For this purpose, the owner of two or more
IRAs may use the "alternative method" described in Notice 88-38, to satisfy the
minimum distribution requirements described above.
WITHDRAWAL BENEFITS
ARE THERE LIMITS ON WITHDRAWALS FROM AN IRA?
Yes. These limits apply to a partial withdrawal or a surrender of the contract
before the annuitant's age 59 1/2. In that case, we must receive notice of the
intended disposition of the proceeds. This will not apply if the annuitant dies
or is disabled.
ARE ALL WITHDRAWALS FROM ROTH-IRAS SUBJECT TO FEDERAL INCOME TAX?
No. Purchase payments to Roth-IRAs are not deductible. Any partial withdrawal
or surrender of the contract that includes a return of the annuitant's purchase
payment(s) will not be taxable to the extent it is attributable to the purchase
payment(s). Earnings on the purchase payment(s) that are withdrawn are subject
to income tax if withdrawn within 5 years of the annuitant's first contribution
to a Roth-IRA or within 5 years of a rollover purchase payment. In addition,
earnings will be subject to income tax if withdrawn before the annuitant reaches
age 59 1/2; unless the earnings are being withdrawn because of the annuitant's
death or disability or to pay first-time home buyer expenses. If a withdrawal
is made, we must receive notice of the reason for withdrawal or intended
disposition of the proceeds. Income tax will also not apply to distributions
made if the amount received is in excess of the allowed contribution and
returned to the annuitant before the required tax return filing date for that
year, together with any earned interest; or if the entire contract is received
and reinvested in a similar plan entitled to similar tax treatment.
MAY TAX PENALTIES APPLY FOR WITHDRAWALS FROM AN IRA?
Yes. If a withdrawal or surrender occurs before the annuitant is age 59 1/2,
the annuitant may be subject to tax penalties. These penalties are imposed
under the Code. The annuitant may not be subject to tax penalties on amounts
received before age 59 1/2 if: (1) the annuitant becomes disabled as defined by
the Code; (2) the amount received is in excess of the allowed deduction and
returned to the annuitant before the required tax return filing date for that
year, together with any earned interest; or (3) if the entire amount in the
contract is received and reinvested in a similar plan entitled to similar tax
treatment. Additional exceptions to tax penalties may be available to the
annuitant.
We will not be liable for any tax penalties under this contract. We are not
liable for penalties on amounts received or paid by us under this contract.
MHC-97-9418 Minnesota Life 5
<PAGE>
Any transaction treated by law as a contract distribution may be treated by us
as a complete contract surrender.
MAY TAX PENALTIES APPLY FOR WITHDRAWALS FROM ROTH-IRAS?
Yes. Certain tax penalties are imposed under the Code. If the annuitant owes
income tax on the amount withdrawn, the annuitant will also generally be subject
to a 10% premature withdrawal tax penalty on the amount on which the annuitant
paid income tax. However, the tax penalties will not apply if earnings in the
Roth-IRA are withdrawn within 5 years of the annuitant's first contribution to a
Roth-IRA or within 5 years of a rollover purchase payment from a Traditional IRA
if the distribution is: (1) made on or after the date on which the annuitant
attains age 59 1/2; (2) made because of the annuitant's disability or death; or
(3) made because the amount received was in excess of the allowed contribution
and returned to the annuitant before the required tax return filing date for
that year, together with any earned interest. In addition, the tax penalty will
not apply to a distribution if the entire contract is received and reinvested in
a similar plan entitled to similar tax treatment. Additional exceptions to tax
penalties may be available to the annuitant.
We will not be liable for any tax penalties under this contract. We are not
liable for penalties on amounts received or paid by us under this contract. Any
transaction treated by law as a contract distribution may be treated by us as a
complete contract surrender.
GENERAL INFORMATION
IS THE INTEREST OF THE ANNUITANT IN THIS CONTRACT NONFORFEITABLE?
Yes. The entire interest of the annuitant in this contract is nonforfeitable.
The annuitant shall possess the entire benefit provided by this contract. This
contract is established for the exclusive benefit of the annuitant and his or
her beneficiaries.
HOW WILL A REFUND OF PREMIUMS BE APPLIED?
Any refund of premiums (other than those attributable to excess purchase
payments) will be applied, before the close of the calendar year following the
year of the refund, toward the payment of future premiums or the purchase of
additional benefits.
MAY THIS AGREEMENT BE AMENDED?
Yes. This contract may be amended as required to reflect any change in the
Code, regulations or published revenue rulings. The annuitant will be deemed to
have consented to any such amendment. We will promptly furnish any such
amendment to the annuitant.
This agreement is effective as of the original contract date unless a different
effective date is shown here.
Secretary
President
MHC-97-9418 Minnesota Life 6
<PAGE>
MINNESOTA LIFE INDIVIDUAL RETIREMENT ANNUITY
SIMPLE - (IRA) AGREEMENT
WHAT DOES THIS AGREEMENT PROVIDE?
This agreement modifies the contract. Provisions are changed before issue. In
the event of a conflict between the provisions of this agreement and the
contract to which it is attached, the provisions of this agreement will control.
These changes will allow its use with a Savings Incentive Match Plan for
Employees (herein "SIMPLE-IRA").
PURCHASE PAYMENTS
ARE SIMPLE-IRA PURCHASE PAYMENTS LIMITED?
Yes. Where the annuitant's employer establishes a SIMPLE-IRA, purchase payments
may be limited. The annual cash purchase payments must be the lesser of: (a)
an amount equal to 100% of the compensation included in gross income in any
taxable year; or (b) $6,000, or such other maximum amount as may be allowed by
law. Mandated employer purchase payments, in addition to your purchase
payments, can range from 0% to 3% of your annual compensation.
DO PURCHASE PAYMENT LIMITATIONS APPLY TO A ROLLOVER?
No. Limits on purchase payments to the contract do not apply with a rollover
contribution. A rollover contribution is one within the meaning of sections
408(d)(3)(G) of the Internal Revenue Code (herein "Code") or a purchase payment
made in accordance with the terms of a SIMPLE-IRA as described in section 408(p)
of the Code. In that case, a cash purchase payment may be the amount received
by or on behalf of an annuitant as all or any portion of a distribution which is
a rollover contribution. The distribution may be one as allowed by law. A
rollover contribution must be received by us not later than 60 days after the
annuitant receives it. A direct rollover payment may be made to us from the
plan making the distribution. A purchase payment may not include contributions
to a tax-qualified plan made by the annuitant as an employee.
MAY THE ANNUITANT ALWAYS MAKE PURCHASE PAYMENTS?
No. We will not accept purchase payments under this contract as of a date the
annuitant is not eligible for a SIMPLE-IRA.
In addition, no additional cash contributions or rollover contributions may be
accepted under the contract if: (a) the owner dies before the distribution of
the entire interest in the contract; and (b) the beneficiary is not the
surviving spouse.
Purchase payments which exceed those allowed for a SIMPLE-IRA may be returned.
We will send them to the payer. Return is without regard to the provisions of
this contract dealing with withdrawals.
DISTRIBUTION PROVISIONS
ARE THERE RULES FOR THE TIMING OF DISTRIBUTIONS?
Yes. The distribution of an annuitant's value shall be made in accordance with
the minimum distribution requirements of section 408(b)(3) of the Code and the
regulations thereunder, including the incidental death benefit provisions of
section 1.401(a)(9)-2 of the proposed regulations. All of these rules are
incorporated herein by reference.
MHC-98-9431 Minnesota Life Insurance Company 1
<PAGE>
The annuitant's accumulation value, or withdrawal value if applicable, must be
distributed or begin to be distributed, by the annuitant's required beginning
date. This is the April 1 following the calendar year in which the annuitant
reaches age 70 1/2. For each succeeding year, a distribution must be made on or
before December 31.
WHAT FORMS OF DISTRIBUTION ARE AVAILABLE?
By the required beginning date the annuitant may elect to have the accumulation
value, or withdrawal value if applicable, distributed. It must be in one of the
following forms:
(a) a single sum payment;
(b) equal or substantially equal payments over the life of the annuitant;
(c) equal or substantially equal payments over the joint lives of the annuitant
and spouse;
(d) equal or substantially equal payments over a specified period that may not
be longer than the annuitant's life expectancy;
(e) equal or substantially equal payments over a specified period that may not
be longer than the joint life and last survivor expectancy of the annuitant
and spouse.
Options (b), (c), (d), and (e) can be satisfied by an annuity form elected by
the annuitant or by systematic withdrawal.
Payments must be made in periodic payments at intervals of no longer than one
year. In addition, payments must be either nonincreasing or they may increase
only as provided in Q&A F-3 of section 1.401(a)(9)-1 of the Proposed Income Tax
Regulations or such final regulations as adopted.
ARE THERE SPECIAL RULES IF THE ANNUITANT DIES BEFORE THE ENTIRE VALUE IN THE
CONTRACT IS DISTRIBUTED?
Yes. If the annuitant dies on or after the date distributions have begun, the
entire remaining value must be distributed at least as rapidly as under the
method of distribution being used as of the date of the annuitant's death. If
the annuitant dies before distributions have begun, the entire remaining value
must be distributed as elected by the annuitant or, if the annuitant has not so
elected, as elected by the beneficiary or beneficiaries, as follows:
(a) by December 31st of the year containing the fifth anniversary of the
annuitant's death; or
(b) in equal or substantially equal payments over the life or life expectancy
of the designated beneficiary or beneficiaries starting by December 31st of
the year following the year of the annuitant's death. If, however, the
beneficiary is the annuitant's surviving spouse, then this distribution is
not required to begin until later. It must begin by December 31st of the
year in which the annuitant would have turned 70 1/2.
ARE OTHER OPTIONS AVAILABLE TO A SPOUSE BENEFICIARY?
Yes. In addition to the options discussed above, the spouse beneficiary has
other options. He or she may elect to treat the annuitant's IRA as his or her
MHC-98-9431 Minnesota Life 2
<PAGE>
own. This is done by either: (a) not taking a distribution within the required
time period; or (b) making eligible IRA contributions to it.
If the beneficiary chooses one of these options then he or she is the contract
owner. He or she will assume all rights and privileges under the contract.
This right is available only to the spouse of the annuitant.
HOW ARE LIFE EXPECTANCIES FOR CALCULATING REQUIRED DISTRIBUTIONS DETERMINED?
Life expectancy is computed by use of the expected return multiples in Table V
and VI of section 1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the annuitant prior to the commencement of
distributions or, if applicable, by the surviving spouse where the annuitant
dies before distributions have commenced, life expectancies of an annuitant or
spouse beneficiary shall be recalculated annually for purposes of required
distributions. An election not to recalculate shall be irrevocable and shall
apply to all subsequent years. The life expectancy of a nonspouse beneficiary
shall not be recalculated. Instead, life expectancy will be calculated using
the attained age of such beneficiary during the calendar year in which the
annuitant attains age 70 1/2, and payments for subsequent years shall be
calculated based on such life expectancy reduced by one for each calendar year
which has elapsed since the calendar year life expectancy was first calculated.
MAY THE ANNUITANT SATISFY MINIMUM DISTRIBUTION REQUIREMENTS BY RECEIVING A
DISTRIBUTION FROM ANOTHER IRA?
Yes. An annuitant may satisfy the minimum distribution requirements under
sections 408(a)(6) and 408(b)(3) of the Code by receiving a distribution from
one IRA that is equal to the amount required to satisfy the minimum distribution
requirements for two or more IRAs. For this purpose, the owner of two or more
IRAs may use the "alternative method" described in Notice 88-38, to satisfy the
minimum distribution requirements described above.
WITHDRAWAL BENEFITS
ARE THERE LIMITS ON WITHDRAWALS?
Yes. These limits apply to a partial withdrawal or a surrender of the contract
before the annuitant's age 59 1/2. In that case, we must receive notice of the
intended disposition of the proceeds. This will not apply if the annuitant dies
or is disabled.
MAY TAX PENALTIES APPLY?
Yes. If a withdrawal or surrender occurs before the annuitant is age 59 1/2,
the annuitant may be subject to tax penalties. These penalties are imposed
under the Code. The annuitant may not be subject to tax penalties on amounts
received before age 59 1/2 if: (1) the annuitant becomes disabled as defined by
the Code; (2) the amount received is in excess of the allowed deduction and
returned to the annuitant before the required tax return filing date for that
year, together with any earned interest; or (3) if the entire amount in the
contract is received and reinvested in a similar plan entitled to similar tax
treatment. Additional exceptions to tax penalties may be available to the
annuitant.
We will not be liable for any tax penalties under this contract. We are not
liable for penalties on amounts received or paid by us under this contract.
MHC-98-9431 Minnesota Life 3
<PAGE>
Any transaction treated by law as a contract distribution may be treated by us
as a complete contract surrender.
GENERAL INFORMATION
IS THE INTEREST OF THE ANNUITANT IN THIS CONTRACT NONFORFEITABLE?
Yes. The entire interest of the annuitant in this contract is nonforfeitable.
The annuitant shall possess the entire benefit provided by this contract. This
contract is established for the exclusive benefit of the annuitant and his or
her beneficiaries.
HOW WILL A REFUND OF PREMIUMS BE APPLIED?
Any refund of premiums (other than those attributable to excess purchase
payments) will be applied, before the close of the calendar year following the
year of the refund, toward the payment of future premiums or the purchase of
additional benefits.
MAY THIS AGREEMENT BE AMENDED?
Yes. This contract may be amended as required to reflect any change in the
Code, regulations or published revenue rulings. The annuitant will be deemed to
have consented to any such amendment. We will promptly furnish any such
amendment to the annuitant.
This agreement is effective as of the original contract date unless a different
effective date is shown here.
/s/ Dennis E. Prohofsky
Secretary
/s/ Robert L.Senkler
President
MHC-98-9431 Minnesota Life 4
<PAGE>
- --------------------------------------------------------------------------------
MINNESOTA LIFE VARIABLE ANNUITY APPLICATION
- --------------------------------------------------------------------------------
Minnesota Life Insurance Company - Annuity Services - 400 Robert Street North -
St. Paul, Minnesota 55101-2098 - Toll Free 1-800-362-3141
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
OWNER NAME DATE OF BIRTH SEX TAXPAYER I.D. (Soc. Sec. # or EIN)
(Please print) / / M / / F
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STREET ADDRESS (Legal) DAYTIME PHONE NUMBER
( )
--------------------------------------------------------------------------------------------------------
CITY, STATE, ZIP CITIZENSHIP
/ / US OTHER
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OWNER EMPLOYER YRS EMPLOYED OCCUPATION
--------------------------------------------------------------------------------------------------------
EMPLOYER ADDRESS (STREET)
--------------------------------------------------------------------------------------------------------
CITY/TOWN STATE ZIP CODE IS OWNER EMPLOYED/REGISTERED BY A NASD MEMBER FIRM
/ / Y / / N FIRM NAME
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- ------------------------------------------------------------------------------------------------------------------------------------
JOINT OWNER NAME DATE OF BIRTH SEX SOCIAL SECURITY NUMBER
(Optional-must be / / M / / F
spouse of owner) --------------------------------------------------------------------------------------------------------
STREET ADDRESS (Legal) DAYTIME PHONE NUMBER
( )
--------------------------------------------------------------------------------------------------------
CITY, STATE, ZIP CITIZENSHIP
/ / US OTHER
--------------------------------------------------------------------------------------------------------
JOINT OWNER EMPLOYER YRS EMPLOYED OCCUPATION
--------------------------------------------------------------------------------------------------------
EMPLOYER ADDRESS (STREET)
--------------------------------------------------------------------------------------------------------
CITY/TOWN STATE ZIP CODE IS JOINT OWNER EMPLOYED/REGISTERED BY A NASD MEMBER FIRM
/ / Y / / N FIRM NAME
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUITANT NAME DATE OF BIRTH SEX TAXPAYER I.D. (Soc. Sec. # or EIN)
(If other than owner) / / M / / F
--------------------------------------------------------------------------------------------------------
STREET ADDRESS (Legal)
--------------------------------------------------------------------------------------------------------
CITY, STATE, ZIP
- ------------------------------------------------------------------------------------------------------------------------------------
JOINT ANNUITANT NAME DATE OF BIRTH SEX SOCIAL SECURITY NUMBER
(Optional-must be spouse / / M / / F
of annuitant) --------------------------------------------------------------------------------------------------------
STREET ADDRESS (Legal)
--------------------------------------------------------------------------------------------------------
CITY, STATE, ZIP
- ------------------------------------------------------------------------------------------------------------------------------------
BENEFICIARY CLASS NAME RELATIONSHIP DATE OF BIRTH SEX SOCIAL SECURITY NUMBER
--------------------------------------------------------------------------------------------------------
/ / M / / F
--------------------------------------------------------------------------------------------------------
/ / M / / F
- ------------------------------------------------------------------------------------------------------------------------------------
TYPE OF PLAN / / Non-Qualified (NQ) / / Public Employee Deferred Compensation (IRC Section 457)
/ / 1035 Exchange (attach appropriate / / Non-Qualified Deferred Compensation
forms) / / Simplified Employee Pension (SEP)
/ / Under the ______ (state) UTMA/UGMA / / Savings Incentive Match Plans for Employees (SIMPLE)
Custodian Name ____________________ / / Tax Sheltered Annuity (IRC Section 403(b)-(TSA)
/ / Individual Retirement Annuity (IRA) / / Qualified Retirement Plan (IRC Section 401)
/ / Purchase Payment for the year _____ / / Other _____________________
/ / Rollover (attach appropriate forms)
/ / Transfer (attach appropriate forms)
/ / Roth Individual Retirement Annuity (ROTH)
/ / Contributory ROTH
/ / Rollover ROTH
- ------------------------------------------------------------------------------------------------------------------------------------
TYPE OF CONTRACT / / MultiOption Achiever / / MultiOption Classic
/ / Immediate / / Deferred / / Immediate / / Deferred
- ------------------------------------------------------------------------------------------------------------------------------------
PURCHASE PAYMENT MAKE CHECK PAYABLE TO MINNESOTA LIFE
METHOD (CHECK ALL
THAT APPLY) / / $___________ remitted with application / / Automatic Payment Plan (attach authorization and
/ / $_________ as Cash Rollover voided check) Commencing Month _________________
/ / for tax year _____________________ Day _____ (must be between 1st & 26th of
/ / Direct Transfer/1035 Exchange/Rollover the month)
- ------------------------------------------------------------------------------------------------------------------------------------
PURCHASE PAYMENT / / Send Individual Purchase Reminder Notice (IRA or
REMINDER NOTICE Non-qualified only) on the 1st day of ____ (month) for $________ and continuing
(CHECK ONE IF APPLICABLE) / / Quarterly / / Semi-Annually / / Annually
/ / Send Purchase Payment Reminder Notice to employer
beginning ____________ (month) for $__________ and continuing
/ / Annually (1) / / Semi-Annually (2) / / Quarterly (4)
/ / Monthly (12) / / Semi-Monthly (24) / / Bi-Weekly (26)
/ / Add to Existing Case ____________________________
- ------------------------------------------------------------------------------------------------------------------------------------
99-70020
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
PURCHASE PAYMENT _________% General _________% International Stock
ACCOUNT ALLOCATION _________% Maturing Government Bond - 2002 _________% Small Company Growth
_________% Maturing Government Bond - 2006 _________% Value Stock
_________% Maturing Government Bond - 2010 _________% Small Company Value
_________% Growth _________% Global Bond
_________% Bond _________% Index 400 Mid-Cap
_________% Money Market _________% Templeton Developing Markets
_________% Asset Allocation _________% Macro-Cap Value
_________% Mortgage Securities _________% Micro-Cap Growth
_________% Index 500 _________% Real Estate Securities
_________% Capital Appreciation _________% Other ___________________
---------
---------
TOTAL 100%
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIAL
INSTRUCTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT SUMMARY APPROXIMATE ANNUAL INCOME ESTIMATED NET WORTH ESTIMATED LIQUID NET WORTH FEDERAL TAX BRACKET
PROFILE FOR (from all sources) (exclusive of car and home) (cash and cash equivalents) / / 0-15% / / 29%+
ANNUITANT / / 16-28%
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INVESTMENT OBJECTIVE: (CHECK ONE)
/ / Conservative Income / / Current Income / / Conservative Growth / / Growth / / Aggressive Growth
--------------------------------------------------------------------------------------------------------
# of Dependents RISK TOLERANCE: (CHECK ONE) TIME HORIZON / / 9-11 yrs
/ / Conservative / / Moderate / / Aggressive / / less than 3 yrs
/ / 4-8 yrs
/ / 12+ yrs
--------------------------------------------------------------------------------------------------------
PRIOR INVESTMENT EXPERIENCE / / Mutual Funds / / Limited Partnerships / / Bonds
/ / Years of Experience ______ / / Annuities / / Stocks / / Options/Futures
- ------------------------------------------------------------------------------------------------------------------------------------
OWNER/ANNUITANT - I/we represent that the statements and answers in this application are full, complete and true to the
SIGNATURES best of my/our knowledge. I/we agree that they are to be considered the basis of any contract issued
to me/us. I/we have read and agreed with applicable statements.
- I ACKNOWLEDGE RECEIPT OF A CURRENT VARIABLE ANNUITY ACCOUNT PROSPECTUS AND THE CURRENT PROSPECTUSES
FOR THE ADVANTUS SERIES FUND AND TEMPLETON DEVELOPING MARKETS FUND. I UNDERSTAND THAT ALL PAYMENTS
AND VALUES OF ANY CONTRACT ISSUED, WHEN BASED UPON THE INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT,
ARE VARIABLE AND ARE NOT GUARANTEED AS TO A FIXED DOLLAR AMOUNT.
--------------------------------------------------------------------------------------------------------
SIGNED AT (County, State) DATE SIGNATURE OF OWNER SIGNATURE OF ANNUITANT
x x
--------------------------------------------------------------------------------------------------------
AMOUNT REMITTED WITH APPLICATION SIGNATURE OF JOINT OWNER SIGNATURE OF JOINT ANNUITANT
$ x x
- ------------------------------------------------------------------------------------------------------------------------------------
TO BE COMPLETED BY To the best of my knowledge this contract / / will / / will not replace or change an existing
REPRESENTATIVE insurance or annuity contract. I certify that a current prospectus was delivered. No written sales
materials were used other than those furnished by the Home Office. I believe the information provided
by this client is true and accurate to the best of my knowledge.
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REPRESENTATIVE NAME (PRINT) REPRESENTATIVE SIGNATURE AGENCY CODE AGENT CODE
x %
--------------------------------------------------------------------------------------------------------
x %
- ------------------------------------------------------------------------------------------------------------------------------------
TO BE COMPLETED DEALER NAME DATE SIGNATURE OF AUTHORIZED DEALER
BY DEALER x
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This application becomes effective only upon approval of Ascend Financial Services, Inc.
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HOME OFFICE PRINCIPAL SIGNATURE DATE CONTRACT NUMBER CASE NUMBER
--------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
MINNESOTA LIFE INSURANCE COMPANY
Robert L. Senkler and Dennis E. Prohofsky, respectively, the President and
Secretary of Minnesota Life Insurance Company, a corporation under and existing
by virtue of the laws of the State of Minnesota, do hereby certify that the
following Restated Certificate of Incorporation was duly adopted by an
affirmative vote of a majority of the stockholders at a special meeting of the
Company on December 10, 1998.
This Restated Certificate of Incorporation of Minnesota Life Insurance Company
supersedes and takes the place of the existing Certificate of Incorporation and
all amendments to it:
ARTICLE I
The name of the Company is Minnesota Life Insurance Company (the "Company").
ARTICLE II
The principal office of the Company shall be located at 400 Robert Street North,
Saint Paul, Minnesota 55101-2098.
ARTICLE III
The Company is incorporated for the purpose of transacting the business of and
making insurance upon the lives of individuals and every assurance pertaining
thereto or connected therewith, to grant, purchase and dispose of annuities and
endowments of every kind and description whatsoever, to provide an indemnity
against death and for weekly or other periodic indemnity for disability
occasioned by accident or sickness to the person of the assured and to have all
the further rights, powers and privileges granted or permitted life insurance
companies organized under the provisions of Minnesota Statutes, Chapter 300, and
all Acts amendatory thereof or additional thereto.
ARTICLE IV
The duration and continuation of the Company shall be perpetual.
ARTICLE V
The authorized capital stock of this Company shall be 5,000,000 shares initially
paid in by operation of Minnesota Statutes Section 60A.077 and subsequently paid
in cash, consisting of shares of Common Stock, with par value of $1.00 per
share. Each share of the Common Stock shall have one vote per share.
No shareholder of the Company shall have any pre-emptive or preferential right,
nor be entitled as such as a matter of right, to subscribe for or purchase any
part of any new or additional issue of stock of the Company of any class or
series, whether issued for money or for consideration other than money, or of
any issue of securities convertible into stock of the Company.
ARTICLE VI
The corporate powers of the Company shall be vested in a Board of Directors of
at least five persons and shall be exercised by the Board of Directors and by
such officers, agents, employees and committees as the Board of Directors may,
in its discretion, from time to time appoint and empower. The Board of
Directors shall have the power from time to time to make, amend or repeal such
bylaws, rules and regulations for the transaction of the business of the Company
as the Board of Directors may deem expedient and as are not inconsistent with
this Certificate of Incorporation or the constitution or other laws of the State
of Minnesota.
The directors of the Company shall be divided into three classes, as nearly
equal in number as reasonably possible: the first class, the second class and
the third class. Each such director shall serve for a term ending on the third
annual meeting of stockholders following the annual meeting at which such
director was elected, provided, that the directors first elected to the first
class shall serve for a term ending upon the election of directors at the annual
meeting in 2000, the directors
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<PAGE>
first elected to the second class shall serve for a term ending upon the
election of directors at the annual meeting in 2001, and the directors first
elected to the third class shall serve for a term ending upon the election of
directors at the annual meeting in 2002.
At each annual election, commencing at the annual meeting in 2000, the
successors to the class of directors whose term expires at that time shall be
elected by stockholders to hold office for a term of three years to succeed
those directors whose term expires, so that the term of one class of directors
shall expire each year.
Notwithstanding the requirement that the three classes of directors shall be as
nearly equal in number of directors as reasonably possible, in the event of any
change in the authorized number of directors, each director then continuing to
serve as such shall nevertheless continue as a director of the class of which he
or she is a member until the expiration of his or her current term, or his or
her prior resignation, disqualification, disability or removal. There shall be
no cumulative voting in the election of the directors.
Any vacancy on the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office, an increase in the number of
directorships or other cause shall be filled only by the affirmative vote of a
majority of directors then in office, although less than a quorum or by the sole
remaining director. A director so chosen shall hold office for a term expiring
at the annual meeting at which the term of the class to which he or she has been
elected expires. If the number of directors is changed, any increase or
decrease shall be apportioned among the three classes by a two-thirds (2/3) vote
of the directors then in office. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
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<PAGE>
ARTICLE VII
The incumbent members of the Board of Directors as of the date of the filing of
this Restated Certificate of Incorporation shall continue to be directors of the
Company until their successors are duly elected and qualified in accordance with
the bylaws. The current members of the Board of Directors who shall continue to
be directors of the Company and their respective addresses are:
NAME OF DIRECTOR ADDRESS
Giulio Agostini 3M
3M Center - Executive 220-14W-08
St. Paul, MN 55144-1000
Anthony L. Andersen H. B. Fuller Company
2424 Territorial Road
St. Paul, MN 55114
Leslie S. Biller Norwest Corporation
Sixth and Marquette
Minneapolis, MN 55479-1052
John F. Grundhofer U.S. Bancorp
601 2nd Avenue South
Suite 2900
Minneapolis, MN 55402-4302
Harold V. Haverty 701 Fourth Avenue South, Suite 300
Minneapolis, MN 55415
David S. Kidwell The Curtis L. Carlson School of
Management
University of Minnesota
321 19th Avenue South
Minneapolis, MN 55455
Reatha C. King General Mills Foundation
P O Box 1113
Minneapolis, MN 55440
Thomas E. Rohricht Doherty, Rumble & Butler P.A.
2800 Minnesota World Trade Center
30 East Seventh Street
St. Paul, MN 55101-4999
Terry T. Saario Bravo!, LLC
900 Hennepin Avenue
Minneapolis, MN 55403
Robert L. Senkler Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Michael E. Shannon Ecolab, Inc.
370 Wabasha Street
Ecolab Center
St. Paul, MN 55102
Frederick T. Weyerhaeuser Clearwater Investment Trust
332 Minnesota Street
Suite W-2090
St. Paul, MN 55101-1308
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<PAGE>
ARTICLE VIII
A director of the Company shall not be liable to the Company or the stockholders
of the Company for monetary damages for a breach of the fiduciary duty of care
as a director, except to the extent such exemption from liability or limitation
thereof is not permitted under the Minnesota Statutes, Section 300.64, as the
same currently exists or hereafter is amended. Specifically such exemption
shall not apply to:
(a) a breach of the director's duty of loyalty to the Company or its
stockholders;
(b) acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of the law;
(c) acts prohibited under Minnesota Statutes, Section 300.60, as the same
currently exists or is hereafter amended;
(d) payment of a dividend when the Company is insolvent;
(e) intentional neglect or refusal to perform a duty imposed by law;
(f) a transaction from which the director derives an improper personal
benefit; or
(g) an act or omission occurring prior to the date when this Restated
Certificate of Incorporation became effective.
ARTICLE IX
In no event shall any funds or investments be held in the name of any individual
who is an officer or employee of the Company. The Board of Directors shall
designate those banks and financial institutions in which the Company funds
shall be deposited. The Board by separate resolution also shall designate the
persons authorized to withdraw or transfer funds held in those accounts. No
funds shall be withdrawn or transferred from those accounts except upon the
authorization of the person or persons so authorized.
ARTICLE X
The annual meeting of the Company shall be held on the first Tuesday in May of
each year, if not a legal holiday, and if a legal holiday, then on the next day
not a legal holiday.
ARTICLE XI
The Company is authorized to issue any or all of its policies with or without
participation in profits, savings or unabsorbed portions of premiums; to
classify such policies issued on a participating or nonparticipating basis; and
to determine the right to participate and the extent of participation of any
class or classes of such policies, at the discretion of the Board of Directors.
The declaration and crediting of any policy dividend shall be subject to
approval by majority vote of the Minnesota Mutual Companies, Inc. Board of
Directors.
ARTICLE XII
This Restated Certificate of Incorporation may be amended at any annual meeting
of the Company, or any special meeting of the Company called for that expressly
stated purpose, by the affirmative vote of a majority of the stockholders.
IN WITNESS WHEREOF, the undersigned have executed this Restated Certificate of
Incorporation.
, 1998
- ------------------------------ -----------------------------------
Robert L. Senkler
Chairman of the Board, President
and Chief Executive Officer
, 1998
- ------------------------------ -----------------------------------
Dennis E. Prohofsky
Senior Vice President, Secretary
and General Counsel
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<PAGE>
BYLAWS
of
MINNESOTA LIFE INSURANCE COMPANY
As adopted on October 1, 1998
<PAGE>
BYLAWS
OF
MINNESOTA LIFE INSURANCE COMPANY
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.1 ANNUAL MEETING.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.2 SPECIAL MEETINGS.. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.3 PLACE AND HOUR OF MEETING. . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.4 NOTICE OF MEETINGS; RECORD DATE. . . . . . . . . . . . . . . . . . . . .1
SECTION 1.5 QUORUM.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.6 VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 1.7 VOTING BY PROXY. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 1.8 VOTING OF SHARES BY CERTAIN HOLDERS. . . . . . . . . . . . . . . . . . .2
ARTICLE II BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 2.1 NUMBER.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 2.1 NON-OVERLAPPING DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 2.2 FILLING OF VACANCIES.. . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 2.3 PLACE OF MEETING, CORPORATE BOOKS. . . . . . . . . . . . . . . . . . . .2
SECTION 2.4 REGULAR MEETINGS.. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
SECTION 2.5 SPECIAL MEETINGS.. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
SECTION 2.6 QUORUM.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
SECTION 2.7 COMPENSATION OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . .3
SECTION 2.8 ACTION BY UNANIMOUS WRITTEN CONSENT OF DIRECTORS.. . . . . . . . . . . .3
SECTION 2.9 REMOVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
ARTICLE III COMMITTEES OF THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . .3
SECTION 3.1 CREATION OF COMMITTEES.. . . . . . . . . . . . . . . . . . . . . . . . .3
SECTION 3.2 APPOINTMENTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 3.3 QUALIFICATIONS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 3.4 COMMITTEE CHAIRS.. . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 3.5 MEETINGS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 3.6 QUORUM.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 3.7 VACANCIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 3.8 MINUTES AND REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 3.9 AUDIT COMMITTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 3.10 INVESTMENT COMMITTEE. . . . . . . . . . . . . . . . . . . . . . . . . .5
SECTION 3.11 COMMITTEE OF NON-OVERLAPPING DIRECTORS. . . . . . . . . . . . . . . . .5
<PAGE>
ARTICLE IV OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
SECTION 4.1 NUMBER.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
SECTION 4.2 ELECTION.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
SECTION 4.3 TERM OF OFFICE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
SECTION 4.4 REMOVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
SECTION 4.5 VACANCIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
SECTION 4.6 DUTIES OF OFFICERS.. . . . . . . . . . . . . . . . . . . . . . . . . . .6
SECTION 4.7 ABSENCE OR DISABILITY. . . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE V INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES . . . . . . . . . . .7
ARTICLE VI DISPOSITION OF FUNDS AND INVESTMENTS. . . . . . . . . . . . . . . . . . .7
SECTION 6.1 FUNDS AND INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . .7
SECTION 6.2 DEPOSITS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE VII CORPORATE STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
SECTION 7.1 CERTIFICATES FOR SHARES. . . . . . . . . . . . . . . . . . . . . . . . .7
SECTION 7.2 TRANSFER OF SHARES.. . . . . . . . . . . . . . . . . . . . . . . . . . .7
SECTION 7.3 TRANSFER BOOKS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE VIII AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
</TABLE>
<PAGE>
BYLAWS
OF
MINNESOTA LIFE INSURANCE COMPANY
ARTICLE I
STOCKHOLDERS
SECTION 1.1 ANNUAL MEETING.
The annual meeting of stockholders shall be held on the first Tuesday in May of
each year, if not a legal holiday, and if a legal holiday, then on the next day
not a legal holiday, when members of the Board of Directors shall be elected to
succeed those whose terms are then expiring and such other business shall be
transacted as may properly be brought before the meeting.
SECTION 1.2 SPECIAL MEETINGS.
Special meetings of stockholders for the transaction of such business as may
properly come before the meeting may be called by order of the Board of
Directors or by stockholders holding together at least a majority of all the
shares of the Company entitled to vote at the meeting. Business transacted at
all special meetings of stockholders shall be confined to the purpose or
purposes stated in the notice of the meeting.
SECTION 1.3 PLACE AND HOUR OF MEETING.
Every annual meeting of stockholders shall commence at such hour as shall be
determined by the Board of Directors. Every meeting of stockholders, whether an
annual or a special meeting, shall be held at the principal office of the
Company at 400 Robert Street North in the City of Saint Paul, in the State of
Minnesota (the "Home Office"), or at such other place as may be selected by the
Board of Directors.
SECTION 1.4 NOTICE OF MEETINGS; RECORD DATE.
Notice of each meeting of stockholders shall be mailed to each stockholder of
the Company not less than thirty days previous to such meeting, and every such
notice shall state the day and hour and the place at which the meeting is to be
held and, in the case of any special meeting, shall indicate briefly the purpose
or purposes thereof. The Board of Directors may fix in advance a date, not less
than twenty calendar days preceding the dates of the aforenamed occurrences, as
a record date for the determination of the shareholders entitled to notice of,
and to vote at, any such meeting and any adjournment thereof, or entitled to
receive payment of any such dividend or to any such allotment of rights, or to
exercise the rights in respect of any such change, conversion or exchange of
shares. In such case, such stockholders, and only such stockholders as are
stockholders of the Company of record on the record date so fixed, are entitled
to notice of, and to vote at, such meeting and any adjournment thereof, or to
receive payment of such dividend, or to receive such allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the Company after such record date so fixed. If the
Board of Directors shall not set a record date for the determination of the
stockholders entitled to notice of, and to vote at, a meeting of stockholders,
only the stockholders who are stockholders of record at the close of business on
the 20th day preceding the date of the meeting are entitled to notice of, and to
vote at, the meeting and any adjournment of the meeting.
SECTION 1.5 QUORUM.
A majority of the outstanding shares entitled to notice of and to vote at a
meeting, present in person or by proxy conforming the requirements of Section
1.7 of these bylaws, shall constitute a quorum for the transaction of any
business coming before any regular or special meeting of stockholders duly and
properly called, except as provided by law, the Restated Certificate of
Incorporation of the Company, or these bylaws. If, however, such quorum of
stockholders shall not be present or represented at any meeting of stockholders,
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a requisite number of stockholders shall be
present. At any such adjourned meeting at which the requisite number of
stockholders shall be represented, any business may be transacted which might
have been transacted at the meeting as originally notified.
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<PAGE>
SECTION 1.6 VOTING RIGHTS.
Each outstanding share of Common Stock shall be entitled to one vote upon each
matter submitted to a vote at any annual or special meeting of stockholders.
SECTION 1.7 VOTING BY PROXY.
Any stockholder may vote by proxy at any meeting of stockholders. To be valid,
the proxy appointment must be in writing and must be filed with, and received
by, the Secretary at the Home Office of the Company at least five days before
the meeting at which it is to be used, exclusive of the day of the meeting, but
inclusive of the day of receipt and filing of the proxy. A proxy appointment
may be for a specified period of time not to exceed one year. A proxy may be
revoked by a stockholder at any time by written notice to the Secretary of the
Company, or by executing a new proxy appointment and filing it as required
herein, or by personally appearing and exercising his or her rights as a
stockholder at any meeting of the stockholders.
SECTION 1.8 VOTING OF SHARES BY CERTAIN HOLDERS.
(a) Shares of stock in the name of another corporation, foreign or
domestic, are to be voted by such officer, agent, or proxy as the bylaws of such
corporation may determine.
(b) Shares of stock in the name of a deceased person are to be voted
by his executor or administrator in person or by proxy.
(c) Shares of stock in the name of a fiduciary, such as guardian,
curator, or trustee are to be voted by such fiduciary either in person or by
proxy, provided the books of the Company show the stock to be in the name of
such fiduciary in such capacity.
(d) Shares of stock in the name of a receiver are to be voted by such
receiver, and shares held by, or in the control of, a receiver are to be voted
by such receiver without the transfer thereof into his name, if such voting
authority is contained in an appropriate order of the court by which such
receiver was appointed.
(e) Shares of stock which have been pledged are to be voted by the
pledgor until the shares of stock have been transferred into the name of the
pledgee, and thereafter, the pledgee is entitled to vote the shares so
transferred.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1 NUMBER.
The Board of Directors shall consist of such number of Directors, not fewer than
five or more than sixteen, as the Board shall from time to time determine.
SECTION 2.1 NON-OVERLAPPING DIRECTORS.
Commencing with the first annual election of directors, and unless and until
Minnesota Mutual Companies, Inc. (or any successor mutual insurance holding
company) is converted from a mutual insurance holding company to a stock
company, the Board of Directors shall at all times include at least three
directors who are not concurrently serving as directors on the board(s) of
Minnesota Mutual Companies, Inc., Securian Holding Company or Securian Financial
Group, Inc. ("Non-overlapping Directors").
SECTION 2.2 FILLING OF VACANCIES.
If the office of any Director becomes vacant for any reason, a majority of the
remaining Directors may choose a successor. Each Director so chosen shall hold
office until the next regular annual meeting of the shareholders and until his
or her successor has been duly elected and qualified. Not more than one-third
of the maximum number of Directors may be so chosen by the Board between regular
annual meetings of the shareholders.
SECTION 2.3 PLACE OF MEETING, CORPORATE BOOKS.
The Board of Directors may hold its meetings and keep the books of the Company
at the Home Office of the Company, or at such other place or places as they may
from time to time by resolution determine, except as otherwise required by law.
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<PAGE>
SECTION 2.4 REGULAR MEETINGS.
Regular meetings of the Board shall be held at such times and places as are
fixed from time to time by resolution of the Board. Notice need not be given of
those regular meetings of the Board held at the times and places fixed by
resolution, nor need notice be given of adjourned meetings. If either or both
the time or place of a regular meeting are other than that fixed by resolution,
a telephonic or written notice shall be given to each Director not less than
twenty-four hours prior to the time of that regular meeting.
SECTION 2.5 SPECIAL MEETINGS.
Special meetings of the Board may be held at any time upon call either of the
Chair of the Board, or of the Chief Executive Officer, or upon written request
of any three or more directors. Except as otherwise provided, notice of a
special meeting shall be given to each director either in writing or by
telephone. Notice of at least seventy-two hours prior to the meeting time is
required if written notice is deposited in the United States mail in the City of
Saint Paul. Notice of at least twenty-four hours prior to the meeting time is
required if written notice is left at either the place of business or residence
of each director. Notice of at least six hours prior to the meeting time is
required if all directors are personally either served with a written notice or
contacted by telephone. Notice need not be given to the directors of adjourned
special meetings. Also, special meetings may be held at any time without notice
if all of the directors are present, or if, before the meeting, those not
present waive such notice in writing. Notice of a special meeting shall state
the purpose of the meeting.
SECTION 2.6 QUORUM.
At all meetings of the Board of Directors, a majority of the directors then in
office shall be necessary and sufficient to constitute a quorum for the
transaction of business, but if, at any meeting, less than a quorum shall be
present, a majority of those present may adjourn the meeting from time to time,
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by statute or by the Restated Certificate of
Incorporation of the Company or by these bylaws.
SECTION 2.7 COMPENSATION OF DIRECTORS.
Members of the Board of Directors, who are not salaried officers of the Company,
shall receive such annual compensation as shall be fixed from time to time by
resolution of the Board of directors; and, in addition, the directors who are
not salaried officers of the Company shall receive a sum in such amount as shall
be fixed from time to time by resolution of the Board of Directors, and the
expenses of attendance, if any, for attendance at each regular or special
meeting of the Board, whether or not an adjournment be had because of the
absence of a quorum.
SECTION 2.8 ACTION BY UNANIMOUS WRITTEN CONSENT OF DIRECTORS.
If all the directors severally or collectively consent in writing to any action
taken or to be taken by the directors, such consents have the same force and
effect as a unanimous vote of the directors at a meeting duly held, and may be
stated as such in any certificate or document filed with the Secretary of State
of Minnesota or any other state in the United States of America or other
Country. The Secretary of the Company shall file such consents with the minutes
of the meetings of the Board of Directors.
SECTION 2.9 REMOVAL.
Any director or the entire Board of Directors may be removed at any time but
only for cause or pursuant to the Company's retirement policy in effect when the
director was first elected.
ARTICLE III
COMMITTEES OF THE BOARD
SECTION 3.1 CREATION OF COMMITTEES.
The following designated standing committees of the Board are hereby authorized
and created: Audit, Investment, and Non-overlapping Directors. In addition,
the Board is authorized to create any other committee or committees of the Board
as the Board from time to time deems necessary. The name, duration and duties
of each other committee and the number of members thereof shall be as prescribed
in the action creating the committee. In the event the Board of Directors
creates an Executive Committee invested with the full powers of the Board of
Directors
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<PAGE>
between meetings of the Board of Directors, then that Committee must have at
least the same proportion of Non-overlapping Directors as does the full Board of
Directors.
SECTION 3.2 APPOINTMENTS.
The members of each standing Board committee shall consist of those Directors
appointed by the Board of Directors. Each Director appointed to a Board
committee shall continue to serve on that committee at the will and pleasure of
the Board for the period specified in his or her appointment or until his or her
earlier death, resignation or removal.
SECTION 3.3 QUALIFICATIONS.
Each Director is qualified to be appointed and successively reappointed to one
or more committees.
SECTION 3.4 COMMITTEE CHAIRS.
The Board shall appoint one of the members of each of the Board committees to
chair that committee and, in its discretion, may also appoint one of the members
of each of the committees to serve as a vice chair of that committee. If
neither the committee chair nor the committee vice chair is present at a meeting
of a committee, the committee members present at that committee meeting shall
elect another committee member to chair that meeting.
SECTION 3.5 MEETINGS.
Each committee shall meet at such times as the chair of that committee may
designate or as a majority of that committee may determine, subject to a minimum
of not less than two meetings per calendar year.
SECTION 3.6 QUORUM.
A majority of each Board committee shall constitute a quorum at each meeting of
that committee. At any meeting of a committee at which a quorum is present, the
committee may continue to transact business until adjournment, even though
committee member(s) may have left the meeting so that less than a quorum is
present at the meeting. If a quorum is not present for a committee meeting, the
chair of that committee may request the Board to appoint a sufficient number of
other directors to serve as members of the committee only for that meeting, so
as to obtain a quorum. If the Board makes the requested appointments, any
action so taken at the committee meeting shall be valid and binding.
SECTION 3.7 VACANCIES.
In the case of the death, resignation or removal of a member of a committee, the
Board may appoint another Director to fill the vacancy so created on that
committee for the balance of the unexpired appointment. The appointment shall
be subject to the qualifications set forth for that committee.
SECTION 3.8 MINUTES AND REPORTS.
Each committee shall keep a written record of its acts and proceedings and shall
submit that record to the Board of Directors at a regular meeting of the Board
and at such other times as requested by the Board or when a majority of the
committee deems it desirable to do so. Failure to submit a record will not,
however, invalidate any action taken by the committee prior to the time the
record of the action was, or should have been, submitted to the Board. The
minutes of each committee shall be recorded by the person designated by the
chair of that committee.
SECTION 3.9 AUDIT COMMITTEE.
The Audit Committee shall consist of not fewer than four directors that are not
officers or employees of Minnesota Mutual Companies, Inc. or any of its
subsidiaries. The committee shall have the following powers and duties:
(a) Annually recommend to the Board a firm of independent certified public
accountants to audit the Company's books, records and accounts.
(b) Approve the scope of audits to be conducted by the independent
certified public accountants, taking into account the principal risks inherent
in the Company's business and the recommendations from the independent
accountants as to scope of audit.
-4-
<PAGE>
(c) Review all recommendations made by the independent certified public
accountants in their audit reports to the Board.
(d) Approve the scope of audits to be conducted by the Company's internal
auditors and review the reports of those audits.
(e) Review the reports which result from the examinations of the Company
conducted by state insurance authorities.
(f) Review corporate litigation involving extra-contractual damages.
(g) Periodically review the Company's plans for data security and disaster
recovery.
(h) Advise the Board of the results of the committee's reviews and
recommendations resulting therefrom.
SECTION 3.10 INVESTMENT COMMITTEE.
The Investment Committee shall consist of not fewer than four directors and
shall have the following powers and duties which shall be exercised not less
than once every twelve months:
(a) Review the written investment policy for the Company investments,
recommend changes thereto, and submit to the Board for its approval and adoption
the policy and procedures for the ensuing twelve months.
(b) Review all investments of Company funds, including their acquisition
and sale and report findings to the Board.
(c) Furnish the Board with summaries of investment transactions.
(d) Review compliance with the written investment policy and valuation
procedures and submit findings to the Board.
SECTION 3.11 COMMITTEE OF NON-OVERLAPPING DIRECTORS.
The Committee of Non-overlapping Directors shall consist of not fewer than three
Non-overlapping Directors (as described in Section 2.1 of these bylaws) and
shall have the following powers and duties:
(a) Review all agreements and material transactions between and among the
Company, its affiliates and subsidiaries to assure that such agreements and
transactions are fair and reasonable and that they comply with Minnesota
Statutes, Section 60D, and all Acts amendatory thereof or additional thereto.
For purposes of this section, the term "material" shall have the definition set
forth in Minnesota Statutes, Section 60D.19, subd. 4, as it may be amended from
time to time.
(b) Such other powers and duties as determined by the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 4.1 NUMBER.
The officers of the Company shall be a Chief Executive Officer, a President, one
or more Vice Presidents, a Treasurer, an Actuary, a Controller, a Secretary, and
one or more Assistant Secretaries. In addition, there may be such other
officers as the Board of Directors from time to time may deem necessary. One
individual may hold two or more offices, except those of President and
Secretary.
SECTION 4.2 ELECTION.
Officers shall be elected or appointed by the Board of Directors.
SECTION 4.3 TERM OF OFFICE.
Each officer shall serve for the term stated in his or her election or
appointment or until his or her earlier death, resignation or removal.
-5-
<PAGE>
SECTION 4.4 REMOVAL.
Any officer may be removed from office, with or without cause, at any time by
the affirmative vote of the majority of the Board of Directors then in office.
SECTION 4.5 VACANCIES.
Any vacancy in any office from any cause may be filled by the Board of Directors
at its next meeting.
SECTION 4.6 DUTIES OF OFFICERS.
The duties of the officers shall be as follows:
(a) CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall have
general active management of the business of the Company and, in the absence of
the Chair of the Board, shall preside at all meetings of the members and the
Board of Directors, and shall see that all orders and resolutions of the Board
are carried into effect. Except where, by law, the signature of the President
is required, the Chief Executive Officer shall possess the same power as the
President to sign and execute all authorized certificates, contracts, bonds, and
other obligations of the Company.
(b) PRESIDENT. The President, in the absence of the Chair of the Board
and the Chief Executive Officer, shall preside at all meetings of the members
and the Board of Directors. The President shall be the chief administrative
officer of the Company and shall have the power to sign and execute all
authorized certificates, contracts, bonds, and other obligations of the Company.
The President also shall perform such other duties as are incident to the office
or are properly required of him or her by the Board or the Chief Executive
Officer.
(c) VICE PRESIDENTS. Each Vice President will perform those duties as
from time to time may be assigned by the Chief Executive Officer. In the
absence of the President, a Vice President designated by the Board of Directors
shall perform the duties of the President. A Vice President shall have the
power to sign and execute all authorized certificates, contracts, bonds and
other obligations of the Company. One or more of the Vice Presidents may be
entitled Executive Vice President, Senior Vice President, Vice President, Second
Vice President, or such other variation thereof as may be designated by the
Board.
(d) SECRETARY. The Secretary shall give notice and keep the minutes of
all meetings of the members and of the Board of Directors and shall give and
serve all notices of the Company. The Secretary or an Assistant Secretary shall
have the power to sign with the Chief Executive Officer, President, or any Vice
President in the name of the Company all authorized certificates, contracts,
bonds, or other obligations of the company and may affix the Company Seal
thereto. The Secretary shall have charge and custody of the books and papers of
the Company and in general shall perform all duties incident to the office of
Secretary, except as otherwise specifically provided in these bylaws, and such
other duties as from time to time may be assigned by the Chief Executive
Officer. If Assistant Secretaries are elected or appointed, they shall have
those powers and perform those duties as from time to time may be assigned to
them by the Chief Executive Officer and, in the absence of the Secretary, one of
them shall perform the duties of the Secretary.
(e) TREASURER. The Treasurer shall have those powers and shall perform
those duties as from time to time may be assigned by the Chief Executive
Officer. If Assistant Treasurers are elected or appointed, they shall have
those powers and perform those duties as from time to time may be assigned to
them by the Chief Executive Officer and, in the absence of the Treasurer, one of
them shall perform the duties of the Treasurer.
(f) CONTROLLER. The Controller shall have those powers and shall perform
those duties as from time to time may be assigned by the Chief Executive
Officer.
(g) ACTUARY. The Actuary shall have those powers and shall perform those
duties as from time to time may be assigned by the Chief Executive Officer.
(h) OTHER OFFICERS. Other officers elected or appointed by the Board of
Directors shall have those powers and perform those duties as from time to time
may be assigned by the Chief Executive Officer.
-6-
<PAGE>
SECTION 4.7 ABSENCE OR DISABILITY.
In the case of the absence or disability of any officer of the Company or of any
person authorized to act in his or her place during such period of absence or
disability, the Board of Directors from time to time may delegate the powers and
duties of such officer to any other officer, or any Director, or any other
person whom they may select.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
The Company shall, to the fullest extent permitted under Minnesota Statutes,
Section 300.083, as the same currently exists or hereafter is amended, indemnify
(and advance expenses to) the directors, officers and employees of this Company.
The provisions of this Article shall not be deemed to limit or preclude
indemnification of a director, officer or employee by the Company for any
liability which has not been eliminated by the provisions of this Article.
ARTICLE VI
DISPOSITION OF FUNDS AND INVESTMENTS
SECTION 6.1 FUNDS AND INVESTMENTS.
All funds and investments of the Company shall be held in the name of "Minnesota
Life Insurance Company" or its nominee or as otherwise provided in accordance
with applicable Minnesota Statutes, as amended from time to time. In no event
shall any funds or investments be held in the name of any individual who is an
officer or employee of the Company.
SECTION 6.2 DEPOSITS.
The Board of Directors shall designate those banks and financial institutions in
which Company funds shall be deposited. The Board by separate resolution also
shall designate the persons authorized to withdraw or transfer funds held in
those accounts. No funds shall be withdrawn or transferred from those accounts
except upon the authorization of the person or persons so authorized.
ARTICLE VII
CORPORATE STOCK
SECTION 7.1 CERTIFICATES FOR SHARES.
The Board of Directors is to prescribe the form of the certificate(s) of stock
of the Company. The certificate is to be signed by the President or Vice
President and by the Secretary, Treasurer, or Assistant Secretary or Assistant
Treasurer, is to be sealed with the seal of the Company and is to be numbered
consecutively. The name of the owner of the certificate, the number of shares
of stock represented thereby, and the date of issue are to be recorded on the
books of the Company. Certificates of stock surrendered to the Company for
transfer are to be canceled, and new certificates of stock representing the
transferred shares issued. New stock certificates may be issued to replace
lost, destroyed or mutilated certificates upon such terms and with such security
to the Company as the Board of Directors may require.
SECTION 7.2 TRANSFER OF SHARES.
Shares of stock of the Company may be transferred on the books of the Company by
the delivery of the certificates representing such shares to the Company for
cancellation, and with an assignment in writing on the back of the certificate
executed by the person named in the certificates as the owner thereof, or by a
written power of attorney executed for such purpose by such person. The person
registered on the books of the Company as the owner of shares of stock of the
Company is deemed the owner thereof and is entitled to all rights of ownership
with respect to such shares.
SECTION 7.3 TRANSFER BOOKS.
Transfer books are to be maintained under the direction of the Secretary,
showing the ownership and transfer of all certificates of stock issued by the
Company.
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<PAGE>
ARTICLE VIII
AMENDMENTS
These bylaws may be amended by the Board of Directors or by the stockholders at
a regular meeting, or at a special meeting called for that expressly-stated
purpose, by the affirmative vote of a majority of the stockholders present, in
person or by proxy, at the meeting.
-8-
<PAGE>
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101-2098
651.665.3500 Tel
MINNESOTA LIFE
A MINNESOTA MUTUAL COMPANY
May 21, 1999
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101-2098
Gentlepersons:
In my capacity as counsel for the Minnesota Life Insurance Company (the
"Company"), I have reviewed certain legal matters relating to the Company's
Separate Account entitled Variable Annuity Account (the "Account") in connection
with its Registration Statement on Form N-4. This Registration Statement is to
be filed by the Company and the Account with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to certain
variable annuity contracts.
Based upon that review, I am of the following opinion:
1. The Account is a separate account of the Company duly created and
validly existing pursuant to the laws of the State of Minnesota; and
2. The issuance and sale of the variable annuity contracts funded
by the Account have been duly authorized by the Company and such
contracts, when issued in accordance with and as described in the
current Prospectus contained in the Registration Statement, and upon
compliance with applicable local and federal laws, will be legal and
binding obligations of the Company in accordance with their terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
Donald F. Gruber
Assistant General Counsel
<PAGE>
(KPMG Peat Marwick LLP Letterhead)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Minnesota Life Insurance Company and
Contract Owners of Variable Annuity Account:
We consent to the use of our report included herein and to the references to our
Firm under the headings "AUDITORS" for Part B of the Registration Statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
May 21, 1999
<PAGE>
Minnesota Life Insurance Company
Power of Attorney
To Sign Registration Statements
WHEREAS, Minnesota Life Insurance Company ("Minnesota Life") has
established certain separate accounts to fund certain variable annuity and
variable life insurance contracts, and
WHEREAS, Variable Fund D ("Fund D") is a separate account of Minnesota Life
registered as a unit investment trust under the Investment Company Act of 1940
offering variable annuity contracts registered under the Securities Act of 1933,
and
WHEREAS, Variable Annuity Account ("Variable Annuity Account") is a
separate account of Minnesota Life registered as a unit investment trust under
the Investment Company Act of 1940 offering variable annuity contracts
registered under the Securities Act of 1933, and
WHEREAS, Minnesota Life Variable Life Account ("Variable Life Account") is
a separate account of Minnesota Life registered as a unit investment trust under
the Investment Company Act of 1940 offering variable adjustable life insurance
policies registered under the Securities Act of 1933,
WHEREAS, Group Variable Annuity Account ("Group Variable Annuity Account")
is a separate account of Minnesota Life which has been established for the
purpose of issuing group annuity contracts on a variable basis and which is to
be registered as a unit investment trust under the Investment Company Act of
1940 offering group variable annuity contracts and certificates to be registered
under the Securities Act of 1933;
WHEREAS, Minnesota Life Variable Universal Life Account ("Variable
Universal Life Account") is a separate account of Minnesota Life which has been
established for the purpose of issuing group and individual variable universal
life insurance policies on a variable basis and which is to be registered as a
unit investment trust under the Investment Company Act of 1940 offering group
and individual variable universal life insurance policies to be registered under
the Securities Act of 1933;
NOW THEREFORE, We, the undersigned Directors and Officers of Minnesota
Life, do hereby appoint Dennis E. Prohofsky and Garold M. Felland, and each of
them individually, as attorney in fact for the purpose of signing in their names
and on their behalf as Directors of Minnesota Life and filing with the
Securities and Exchange Commission Registration Statements, or any amendment
thereto, for the purpose of: a) registering contracts and policies of Fund D,
the Variable Annuity Account, the Variable Life Account, the Group Variable
Annuity Account and the Variable Universal Life Account for sale by those
entities and Minnesota Life under the Securities Act of 1933; and b) registering
Fund D, the Variable Annuity Account, the Variable Life Account, the Group
Variable Annuity Account and the Variable Universal Life Account as unit
investment trusts under the Investment Company Act of 1940.
<TABLE>
<CAPTION>
<S><C>
Signature Title Date
--------- ----- ----
/s/Robert L. Senkler Chairman of the Board, April 12, 1999
- ------------------------------- President and Chief
Robert L. Senkler Executive Officer
/s/Giulio Agostini Director April 12, 1999
- -------------------------------
Giulio Agostini
/s/Anthony L. Andersen Director April 12, 1999
- -------------------------------
Anthony L. Andersen
/s/Leslie S. Biller Director April 12, 1999
- -------------------------------
Leslie S. Biller
/s/John F. Grundhofer Director April 12, 1999
- -------------------------------
John F. Grundhofer
/s/David S. Kidwell, Ph.D. Director April 12, 1999
- -------------------------------
David S. Kidwell, Ph.D.
<PAGE>
/s/Reatha C. King, Ph.D. Director April 12, 1999
- -------------------------------
Reatha C. King, Ph.D.
/s/Thomas E. Rohricht Director April 12, 1999
- -------------------------------
Thomas E. Rohricht
/s/Michael E. Shannon Director April 12, 1999
- -------------------------------
Michael E. Shannon
Director
- -------------------------------
Frederick T. Weyerhaeuser
</TABLE>
<PAGE>
Minnesota Life Insurance Company
Power of Attorney
To Sign Registration Statements
WHEREAS, Minnesota Life Insurance Company ("Minnesota Life") has
established certain separate accounts to fund certain variable annuity and
variable life insurance contracts, and
WHEREAS, Variable Fund D ("Fund D") is a separate account of Minnesota Life
registered as a unit investment trust under the Investment Company Act of 1940
offering variable annuity contracts registered under the Securities Act of 1933,
and
WHEREAS, Variable Annuity Account ("Variable Annuity Account") is a
separate account of Minnesota Life registered as a unit investment trust under
the Investment Company Act of 1940 offering variable annuity contracts
registered under the Securities Act of 1933, and
WHEREAS, Minnesota Life Variable Life Account ("Variable Life Account") is
a separate account of Minnesota Life registered as a unit investment trust under
the Investment Company Act of 1940 offering variable adjustable life insurance
policies registered under the Securities Act of 1933,
WHEREAS, Group Variable Annuity Account ("Group Variable Annuity Account")
is a separate account of Minnesota Life which has been established for the
purpose of issuing group annuity contracts on a variable basis and which is to
be registered as a unit investment trust under the Investment Company Act of
1940 offering group variable annuity contracts and certificates to be registered
under the Securities Act of 1933;
WHEREAS, Minnesota Life Variable Universal Life Account ("Variable
Universal Life Account") is a separate account of Minnesota Life which has been
established for the purpose of issuing group and individual variable universal
life insurance policies on a variable basis and which is to be registered as a
unit investment trust under the Investment Company Act of 1940 offering group
and individual variable universal life insurance policies to be registered under
the Securities Act of 1933;
NOW THEREFORE, We, the undersigned Directors and Officers of Minnesota
Life, do hereby appoint Dennis E. Prohofsky and Garold M. Felland, and each of
them individually, as attorney in fact for the purpose of signing in their names
and on their behalf as Directors of Minnesota Life and filing with the
Securities and Exchange Commission Registration Statements, or any amendment
thereto, for the purpose of: a) registering contracts and policies of Fund D,
the Variable Annuity Account, the Variable Life Account, the Group Variable
Annuity Account and the Variable Universal Life Account for sale by those
entities and Minnesota Life under the Securities Act of 1933; and b) registering
Fund D, the Variable Annuity Account, the Variable Life Account, the Group
Variable Annuity Account and the Variable Universal Life Account as unit
investment trusts under the Investment Company Act of 1940.
<PAGE>
<TABLE>
<CAPTION>
<S><C>
Signature Title Date
--------- ----- ----
Chairman of the Board, , 1999
- ------------------------------- President and Chief
Robert L. Senkler Executive Officer
Director , 1999
- -------------------------------
Anthony L. Andersen
Director , 1999
- -------------------------------
Leslie S. Biller
Director , 1999
- -------------------------------
John F. Grundhofer
/s/ Robert E. Hunstad Director May 20, 1999
- -------------------------------
Robert E. Hunstad
/s/Dennis E. Prohofsky Director May 20, 1999
- -------------------------------
Dennis E. Prohofsky
Director , 1999
- -------------------------------
Michael E. Shannon
Director , 1999
- -------------------------------
Frederick T. Weyerhaeuser
/s/William N. Westhoff Director May 20, 1999
- -------------------------------
William N. Westhoff
</TABLE>
