<PAGE>
VARIABLE ANNUITY CONTRACT PROSPECTUS
FLEXIBLE PAYMENT AND SINGLE PAYMENT VARIABLE ANNUITY CONTRACTS
OF MINNESOTA LIFE'S VARIABLE ANNUITY ACCOUNT
COMBINATION FIXED AND VARIABLE ANNUITY CONTRACTS FOR PERSONAL RETIREMENT PLANS
MINNESOTA LIFE INSURANCE COMPANY
("MINNESOTA LIFE")
400 Robert Street North
St. Paul, Minnesota 55101-2098
Telephone: 1-800-362-3141
http://www.minnesotamutual.com
This Prospectus describes individual, single and flexible payment, variable
annuity contracts (the "Contract(s)") offered by Minnesota Life Insurance
Company. The contracts may be used in connection with all types of personal
retirement plans. They may also be used apart from those plans.
You may invest your contract values in our Variable Annuity Account or our
General Account. The Variable Annuity Account invests in the following Fund
portfolios:
- - Advantus Series Fund, Inc.
- All portfolios, except for the Maturing Government Bond portfolios, which
are only available to contracts issued prior to May 1, 2000.
- - Franklin Templeton Variable Insurance Products Trust
- Templeton Developing Markets Securities Fund -- Class 2 Shares (previously
Templeton Developing Markets Fund)
- Templeton Asset Strategy Fund -- Class 2 Shares (available August 1, 2000)
- Franklin Small Cap Fund -- Class 2 Shares (available August 1, 2000)
- - Janus Aspen Series
- Capital Appreciation Portfolio -- Service Shares
- International Growth Portfolio -- Service Shares
- - Fidelity Variable Insurance Products Funds
- Mid Cap Portfolio -- Service Class 2 Shares
- Contrafund-Registered Trademark- Portfolio -- Service Class 2 Shares
- Equity-Income Portfolio -- Service Class 2 Shares
- - Warburg Pincus Trust
- Global Post-Venture Capital Portfolio (available August 1, 2000)
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. A copy of the
text of this Prospectus and the Statement of Additional Information may also be
found at the SEC's web site: http://www.sec.gov, via its EDGAR database.
THIS PROSPECTUS IS NOT VALID UNLESS ACCOMPANIED BY A CURRENT PROSPECTUS OF
THE FUND PORTFOLIOS SHOWN ABOVE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
The date of this Prospectus and of the Statement of Additional Information is:
May 1, 2000
<PAGE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
NO DEALER, SALESMAN, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THE PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON.
TABLE OF CONTENTS
SPECIAL TERMS 1
QUESTIONS AND ANSWERS ABOUT THE VARIABLE ANNUITY CONTRACTS 2
EXPENSE TABLE 5
GENERAL DESCRIPTIONS 12
Minnesota Life Insurance Company 12
Variable Annuity Account 12
The Funds 13
Additions, Deletions or Substitutions 14
CONTRACT CHARGES 15
Sales Charges 15
Mortality and Expense Risk Charges 16
Premium Taxes 17
EXCHANGE OFFER 17
VOTING RIGHTS 18
DESCRIPTION OF THE CONTRACTS 19
General Provisions 19
Annuity Payments and Options 21
Death Benefits 26
Purchase Payments and Value of the Contract 27
Redemptions 31
FEDERAL TAX STATUS 32
PERFORMANCE DATA 38
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM 39
STATEMENT OF ADDITIONAL INFORMATION 39
APPENDIX A -- CONDENSED FINANCIAL INFORMATION A-1
APPENDIX B -- ILLUSTRATION OF VARIABLE ANNUITY VALUES B-1
APPENDIX C -- TYPES OF QUALIFIED PLANS C-1
<PAGE>
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCUMULATION UNIT: an accounting device used to determine the value of a
contract before annuity payments begin.
ACCUMULATION VALUE: the sum of your values under a contract in the General
Account and in the Variable Annuity Account.
ANNUITANT: the person who may receive lifetime benefits under the contract.
ANNUITY: a series of payments for life; for life with a minimum number of
payments guaranteed; for the joint lifetime of the annuitant and another person
and thereafter during the lifetime of the survivor; or for a period certain.
ANNUITY UNIT: an accounting device used to determine the amount of annuity
payments.
CODE: the Internal Revenue Code of 1986, as amended.
CONTRACT OWNER: the owner of the contract, which could be the annuitant, his
employer, or a trustee acting on behalf of the employer.
CONTRACT YEAR: a period of one year beginning with the contract date or a
contract anniversary.
FIXED ANNUITY: an annuity providing for payments of guaranteed amounts
throughout the payment period.
FUND(S) OR PORTFOLIO(S): the mutual funds whose separate investment portfolios
we have designated as eligible investments for the Variable Annuity Account.
Currently these include the funds or portfolios shown on the cover page of this
prospectus.
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 paid 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 kept separate from
our other assets.
VARIABLE ANNUITY: an annuity providing for payments varying in amount in
accordance with the investment experience of the Fund.
WE, OUR, US: Minnesota Life Insurance Company.
YOU, YOUR: the Contract Owner.
PAGE 1
<PAGE>
QUESTIONS AND ANSWERS ABOUT
THE VARIABLE ANNUITY CONTRACTS
WHAT IS AN ANNUITY?
An annuity is a series of payments for life; for life with a minimum number of
payments guaranteed; for the joint lifetime of the annuitant and another person
and thereafter during the lifetime of the survivor; or for a period certain. An
annuity with payments which are guaranteed as to amount during the payment
period is a fixed annuity. An annuity with payments which vary during the
payment period in accordance with the investment experience of a separate
account is called a variable annuity.
WHAT ARE THE CONTRACTS OFFERED BY THIS PROSPECTUS?
The contracts are combined fixed and variable annuity contracts issued by us
which provide for monthly annuity payments. These payments may begin immediately
or at a future date you specify. We allocate your purchase payments either to
our General Account or Variable Annuity Account. The Variable Annuity Account
invests in one or more Fund Portfolios. There are no interest or principal
guarantees on your contract values, in the Variable Annuity Account. In the
General Account, your purchase payments receive interest and principal
guarantees.
WHAT TYPES OF VARIABLE ANNUITY CONTRACTS ARE AVAILABLE?
We offer two types of contracts. They are the single payment variable annuity
contract and the flexible payment variable annuity contract.
WHAT INVESTMENT OPTIONS ARE AVAILABLE FOR THE VARIABLE ANNUITY ACCOUNT?
Purchase payments allocated to the Variable Annuity Account are invested
exclusively in shares of one or more Fund Portfolios. We reserve the right to
add, combine or remove other eligible funds.
PAGE 2
<PAGE>
The available Portfolios of the Advantus Fund are:
Growth Portfolio
Bond Portfolio
Money Market Portfolio
Asset Allocation Portfolio
Mortgage Securities Portfolio
Index 500 Portfolio
Capital Appreciation Portfolio
International Stock Portfolio
Small Company Growth Portfolio
Maturing Government Bond Portfolios (only available to contracts issued
prior to May 1, 2000)
Value Stock Portfolio
Small Company Value Portfolio
Global Bond Portfolio
Index 400 Mid-Cap Portfolio
Macro-Cap Value Portfolio
Micro-Cap Growth Portfolio
Real Estate Securities Portfolio
The Variable Annuity Account also invests in:
- - Franklin Templeton Variable Insurance Products Trust
- Templeton Developing Markets Securities Fund -- Class 2 Shares (previously
Templeton Developing Markets Fund)
- Templeton Asset Strategy Fund -- Class 2 Shares (available August 1, 2000)
- Franklin Small Cap Fund -- Class 2 Shares (available August 1, 2000)
- - Janus Aspen Series
- Capital Appreciation Portfolio -- Service Shares
- International Growth Portfolio -- Service Shares
- - Fidelity Variable Insurance Products Funds
- Mid Cap Portfolio -- Service Class 2 Shares
- Contrafund Portfolio -- Service Class 2 Shares
- Equity-Income Portfolio -- Service Class 2 Shares
- - Warburg Pincus Trust
- Global Post-Venture Capital Portfolio (available August 1, 2000)
There is no assurance that any Portfolio will meet its objectives. Detailed
information about the investment objectives and policies of the Portfolios can
be found in the current prospectus for each Fund, which are attached to this
prospectus. You should carefully read the Fund's prospectus before investing in
the contract.
CAN YOU CHANGE THE PORTFOLIO SELECTED?
Yes. You may change your allocation of future purchase payments by giving us
written notice or a telephone call notifying us of the change. Before annuity
payments begin, you may transfer all or a part of your accumulation value from
PAGE 3
<PAGE>
one Portfolio to another and/or 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. During the
annuity period, annuity reserves may be transferred only from a variable annuity
to a fixed annuity. Currently no charges are imposed on transfers between
portfolios, however we reserve the right to impose such charges in the future.
WHAT CHARGES ARE ASSOCIATED WITH THE CONTRACTS?
We deduct a daily charge equal to an annual rate of 1.25% for mortality and
expense risk guarantees. We reserve the right to increase the charge to not more
than 1.40%.
We deduct a deferred sales charge on contract withdrawals, surrenders and some
annuity elections during the first ten contract years for expenses relating to
the sale of the contracts. The amount of any deferred sales charge is deducted
from the accumulation value.
Under the flexible payment variable annuity contract, the amount of deferred
sales charge, as a percentage of the amount surrendered, withdrawn or applied to
provide an annuity, decreases uniformly during the first ten contract years from
an initial charge of 9% to no charge after ten contract years.
Under the single payment variable annuity contract, the amount of the deferred
sales charge, as a percentage of the amount surrendered, withdrawn or applied to
provide an annuity, decreases uniformly during the first ten contract years from
an initial charge of 6% to no charge after ten contract years.
The deferred sales charge is not applicable to some partial withdrawals from the
contracts. Also, there is no deferred sales charge on amounts paid in the event
of the death of the owner and the accumulation value is applied to provide
annuity payments under an option where benefits are expected to continue for a
period of at least five years.
We may also deduct any applicable premium taxes (currently such taxes range from
0.0% to 3.5%) depending upon applicable law.
The Portfolios pay investment advisory and other expenses. Total expenses of the
Portfolios range from .40% to 1.81% of average daily net assets of the
Portfolios on an annual basis.
We reserve the right to impose a charge on transfers between portfolios, however
no charge is currently imposed. We also reserve the right to assess a $100 fee
to cover administrative costs associated with an exchange, if you exchange from
another contract to this one.
PAGE 4
<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.
The following contract expense information is intended to illustrate the
expenses of the MultiOption Annuity variable annuity contracts. All expenses
shown are rounded to the nearest dollar. The information contained in the tables
must be considered with the narrative information which immediately follows them
in this heading.
SINGLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Deferred Sales Load (as a percentage of 6% decreasing uniformly by .05% for
amount surrendered) each of the first 120 months from the
contract date
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<TABLE>
<CAPTION>
MAXIMUM
CURRENT POSSIBLE
CHARGE CHARGE
---------------------------------------- ----------------------------------------
<S> <C> <C>
Mortality and Expense Risk Fees 1.25% 1.40%
----
Total Separate Account Annual Expenses 1.25% 1.40%
----
----
</TABLE>
FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Deferred Sales Load (as a percentage of 9% decreasing uniformly by .075% for
amount surrendered) each of the first 120 months from the
contract date
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<TABLE>
<CAPTION>
MAXIMUM
CURRENT POSSIBLE
CHARGE CHARGE
---------------------------------------- ----------------------------------------
<S> <C> <C>
Mortality and Expense Risk Fees 1.25% 1.40%
----
Total Separate Account Annual Expenses 1.25% 1.40%
----
----
</TABLE>
Note: We reserve the right to increase the mortality and expense risk fee to
not more than the amount shown in the column 'Maximum Possible Charge'.
PAGE 5
<PAGE>
FUND ANNUAL EXPENSES
(As a percentage of average net assets for the described Advantus Series Fund,
Inc., the Franklin Templeton Variable Insurance Products Trust, Fidelity
Variable Insurance Products Funds, Janus Aspen Series, and Warburg Pincus
Trust.)
<TABLE>
<CAPTION>
TOTAL ANNUAL TOTAL ANNUAL
FUND OPERATING TOTAL FUND OPERATING
EXPENSES WITHOUT WAIVERS EXPENSES WITH
MANAGEMENT OTHER DISTRIBUTION WAIVERS OR AND WAIVERS OR
FEE EXPENSES (12B-1) FEES REDUCTIONS REDUCTIONS REDUCTIONS
----------- -------- ------------ ---------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
ADVANTUS SERIES FUND, INC.: (1)
Growth Portfolio 0.45% 0.03% 0.25% 0.73% -- 0.73%
Bond Portfolio 0.30% 0.06% 0.25% 0.61% -- 0.61%
Money Market Portfolio 0.25% 0.06% 0.25% 0.56% -- 0.56%
Asset Allocation Portfolio 0.35% 0.03% 0.25% 0.63% -- 0.63%
Mortgage Securities Portfolio 0.30% 0.06% 0.25% 0.61% -- 0.61%
Index 500 Portfolio 0.12% 0.05% 0.25% 0.42% -- 0.42%
Capital Appreciation Portfolio 0.50% 0.04% 0.25% 0.79% -- 0.79%
International Stock Portfolio (2) 0.59% 0.19% 0.25% 1.03% -- 1.03%
Small Company Growth Portfolio 0.65% 0.05% 0.25% 0.95% -- 0.95%
Maturing Government Bond 2002
Portfolio (2) 0.25% 0.83% -- 1.08% 0.68% 0.40%
Maturing Government Bond 2006
Portfolio (2) 0.25% 1.01% -- 1.26% 0.86% 0.40%
Maturing Government Bond 2010
Portfolio (2) 0.25% 1.18% -- 1.43% 1.03% 0.40%
Value Stock Portfolio 0.50% 0.05% 0.25% 0.80% -- 0.80%
Small Company Value Portfolio (2) 0.70% 0.81% 0.25% 1.76% 0.66% 1.10%
Global Bond Portfolio (2) 0.60% 0.34% 0.25% 1.19% -- 1.19%
Index 400 Mid-Cap Portfolio (2) 0.15% 0.60% 0.25% 1.00% 0.45% 0.55%
Macro-Cap Value Portfolio (2) 0.50% 0.78% 0.25% 1.53% 0.63% 0.90%
Micro-Cap Growth Portfolio (2) 0.95% 0.47% 0.25% 1.67% 0.32% 1.35%
Real Estate Securities
Portfolio (2) 0.60% 1.30% 0.25% 2.15% 1.15% 1.00%
FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST --
CLASS 2 SHARES:
Templeton Developing Markets
Securities Fund (7) 1.25% 0.31% 0.25% 1.81% -- 1.81%
Templeton Asset Strategy Fund (7) 0.60% 0.18% 0.25% 1.03% -- 1.03%
Franklin Small Cap Fund (3) 0.55% 0.27% 0.25% 1.07% -- 1.07%
FIDELITY VARIABLE INSURANCE PRODUCTS
FUNDS -- SERVICE CLASS 2 SHARES:
VIP Mid Cap Portfolio (4) 0.57% 0.43% 0.25% 1.25% -- 1.25%
VIP Contrafund Portfolio (4) 0.58% 0.12% 0.25% 0.95% -- 0.95%
VIP Equity-Income Portfolio (4) 0.48% 0.10% 0.25% 0.83% -- 0.83%
JANUS ASPEN SERIES -- SERVICE
SHARES:
Capital Appreciation
Portfolio -- (5) 0.65% 0.04% 0.25% 0.94% -- 0.94%
International Growth
Portfolio -- (5) 0.65% 0.11% 0.25% 1.01% -- 1.01%
WARBURG PINCUS TRUST
Global Post-Venture Capital
Portfolio (6) 1.25% 0.33% -- 1.58% 0.18% 1.40%
</TABLE>
(1) The shareholders of the fund approved new management fees for certain
portfolios and a distribution (Rule 12b-1) fee, effective May 1, 2000. The table
shows the new management and distribution fees that will be in effect May 1,
2000 and other expenses incurred in fiscal year 1999.
PAGE 6
<PAGE>
(2) Minnesota Life voluntarily waived certain expenses for these portfolios for
the period ended December 31, 1999. If these portfolios had been charged for
expenses, the ratio of expenses to average daily net assets would have been as
shown in the column "Total annual fund operating expenses without waivers or
reductions." It is Advantus Capital's intention to waive other fund expenses
during the current fiscal year which exceed, as a percentage of average daily
net assets, .15% except for the International Stock and Global Bond portfolios
where other fund expenses must exceed 1.00%. Advantus Capital reserves the
option to reduce the level of other fund expenses which it will voluntarily
absorb.
(3) On 2/8/00, a merger and reorganization was approved that combined the assets
of the fund with a similar fund of the Templeton Variable Products Series Fund,
effective 5/1/00. On 2/8/00, fund shareholders approved new management fees,
which apply to the combined fund effective 5/1/00. The table shows restated
total expenses based on the new fees and assets of the fund as of 12/31/99, and
not the assets of the combined fund. However, if the table reflected both the
new fees and the combined assets, the fund's expenses after 5/1/00 would be
estimated as: FRANKLIN SMALL CAP FUND -- CLASS 2 Management Fees 0.55%,
Distribution and Service Fees 0.25%, Other Expenses 0.27%, and Total Fund
Operating Expenses 1.07%. The fund's class 2 distribution plan or "Rule 12b-1
plan" is described in the fund's prospectus.
(4) Service Class 2 shares became effective January 11, 2000 and therefore
operating expenses are estimates for each fund for the fiscal year ended
December 31, 2000. The estimates do not reflect the effect of any expense
reimbursements or reduction during the period.
(5) Expenses are based on the estimated expenses that the new Service Shares
Class of each Portfolio expects to incur in its initial fiscal year. All
expenses are shown without the effect of expense offset arrangements.
(6) Fee waivers and expense reimbursements or credits reduced expenses of the
portfolio in 1999, but may be reduced at any time. See the fund prospectus for
more details.
(7) On 2/8/00, shareholders approved a merger and reorganization that combined
the assets of the fund with a similar fund of the Franklin Templeton Variable
Insurance Products Trust ("VIP") effective 5/1/00. On 2/8/00, VIP fund
shareholders approved new management fees, which apply to the combined fund
effective 5/1/00. The table shows restated total expenses based on the new fees
and the assets of the fund as of 12/31/99, and not the assets of the combined
fund. However, if the table reflected both the new fees and the combined assets,
the fund's expenses after 5/1/00 would be estimated as: TEMPLETON DEVELOPING
MARKETS SECURITIES FUND -- CLASS 2 Management Fees 1.25%, Distribution and
Service Fees 0.25%, Other Expenses 0.29%, and Total Fund Operating Expenses
1.79%. TEMPLETON ASSET STRATEGY FUND -- CLASS 2 Management Fees 0.60%,
Distribution and Service Fees 0.25%, Other Expenses 0.14%, and Total Fund
Operating Expenses 0.99%. The fund's Class 2 distribution plan or "Rule 12b-1
plan" is described in the fund's prospectus.
PAGE 7
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CONTRACT OWNER EXPENSE EXAMPLE -- CURRENT CHARGES
SINGLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
You would pay the following expenses on a $1,000 investment assuming:
(1) 5% annual return and
(2) redemption at the end of each time period, and
(3) surrender amounts reflect any annual amount that may be excluded from the
contingent deferred sales charge.
<TABLE>
<CAPTION>
IF YOU ANNUITIZE AT
IF YOU SURRENDERED THE END OF THE
YOUR CONTRACT AT APPLICABLE TIME PERIOD
THE END OF THE OR YOU DO NOT
APPLICABLE TIME PERIOD SURRENDER YOUR CONTRACT
---------------------------------- ----------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ADVANTUS SERIES FUND, INC.:
Growth Portfolio $70 $103 $138 $231 $20 $62 $107 $231
Bond Portfolio $69 $100 $132 $218 $19 $58 $101 $218
Money Market Portfolio $69 $ 98 $130 $213 $18 $57 $ 98 $213
Asset Allocation Portfolio $69 $101 $133 $220 $19 $59 $102 $220
Mortgage Securities Portfolio $69 $100 $132 $218 $19 $58 $101 $218
Index 500 Portfolio $67 $ 94 $123 $198 $17 $53 $ 91 $198
Capital Appreciation Portfolio $71 $105 $141 $237 $21 $64 $110 $237
International Stock Portfolio $73 $112 $153 $262 $23 $71 $122 $262
Small Company Growth Portfolio $72 $110 $149 $253 $22 $69 $118 $253
Maturing Government Bond 2002
Portfolio $67 $ 94 $122 $195 $17 $52 $ 90 $195
Maturing Government Bond 2006
Portfolio $67 $ 94 $122 $195 $17 $52 $ 90 $195
Maturing Government Bond 2010
Portfolio $67 $ 94 $122 $195 $17 $52 $ 90 $195
Value Stock Portfolio $71 $106 $142 $238 $21 $64 $110 $238
Small Company Value Portfolio $74 $114 $156 $269 $24 $73 $126 $269
Global Bond Portfolio $75 $117 $161 $278 $25 $76 $130 $278
Index 400 Mid-Cap Portfolio $68 $ 98 $129 $212 $18 $57 $ 97 $212
Macro-Cap Value Portfolio $72 $108 $146 $248 $22 $67 $115 $248
Micro-Cap Growth Portfolio $76 $121 $168 $293 $26 $81 $138 $293
Real Estate Securities Portfolio $73 $111 $150 $254 $23 $70 $119 $254
FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST --
CLASS 2 SHARES:
Templeton Developing Markets
Securities Fund $80 $135 $190 $337 $31 $95 $161 $337
Templeton Asset Strategy Fund $73 $112 $153 $262 $23 $71 $122 $262
Franklin Small Cap Fund $73 $113 $155 $266 $24 $72 $124 $266
FIDELITY VARIABLE INSURANCE
PRODUCTS FUNDS -- SERVICE CLASS 2
SHARES:
VIP Fund -- Mid Cap $75 $119 $164 $284 $25 $78 $133 $284
VIP Fund -- Contrafund $72 $110 $149 $253 $22 $69 $118 $253
VIP Fund -- Equity-Income $71 $106 $143 $241 $21 $65 $112 $241
JANUS ASPEN SERIES -- SERVICE
SHARES:
Capital Appreciation Portfolio $72 $110 $148 $252 $22 $69 $117 $252
International Growth Portfolio $73 $112 $152 $260 $23 $71 $121 $260
WARBURG PINCUS TRUST:
Global Post-Venture Capital
Portfolio $77 $123 $171 $298 $27 $82 $141 $298
</TABLE>
This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
PAGE 8
<PAGE>
CONTRACT OWNER EXPENSE EXAMPLE -- CURRENT CHARGES
FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
You would pay the following expenses on a $1,000 investment assuming:
(1) 5% annual return and
(2) redemption at the end of each time period and
(3) surrender amounts reflect any annual amount that may be excluded from the
contingent deferred sales charge.
<TABLE>
<CAPTION>
IF YOU ANNUITIZE AT THE END
IF YOU SURRENDERED YOUR OF THE APPLICABLE TIME PERIOD
CONTRACT AT THE END OF THE OR YOU DO NOT
APPLICABLE TIME PERIOD SURRENDER YOUR CONTRACT*
---------------------------------- ----------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ADVANTUS SERIES FUND, INC.:
Growth Portfolio $ 95 $124 $154 $231 $20 $62 $107 $231
Bond Portfolio $ 94 $121 $148 $218 $19 $58 $101 $218
Money Market Portfolio $ 94 $119 $145 $213 $18 $57 $ 98 $213
Asset Allocation Portfolio $ 94 $121 $149 $220 $19 $59 $102 $220
Mortgage Securities Portfolio $ 94 $121 $148 $218 $19 $58 $101 $218
Index 500 Portfolio $ 92 $115 $138 $198 $17 $53 $ 91 $198
Capital Appreciation Portfolio $ 96 $126 $157 $237 $21 $64 $110 $237
International Stock Portfolio $ 98 $133 $168 $262 $23 $71 $122 $262
Small Company Growth Portfolio $ 97 $130 $164 $253 $22 $69 $118 $253
Maturing Government Bond 2002
Portfolio $ 92 $115 $137 $195 $17 $52 $ 90 $195
Maturing Government Bond 2006
Portfolio $ 92 $115 $137 $195 $17 $52 $ 90 $195
Maturing Government Bond 2010
Portfolio $ 92 $115 $137 $195 $17 $52 $ 90 $195
Value Stock Portfolio $ 96 $126 $157 $238 $21 $64 $110 $238
Small Company Value Portfolio $ 99 $135 $172 $269 $24 $73 $126 $269
Global Bond Portfolio $ 99 $137 $176 $278 $25 $76 $130 $278
Index 400 Mid-Cap Portfolio $ 94 $119 $145 $212 $18 $57 $ 97 $212
Macro-Cap Value Portfolio $ 97 $129 $162 $248 $22 $67 $115 $248
Micro-Cap Growth Portfolio $101 $142 $184 $293 $26 $81 $138 $293
Real Estate Securities Portfolio $ 97 $131 $165 $254 $23 $70 $119 $254
FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST --
CLASS 2 SHARES:
Templeton Developing Markets
Securities Fund $105 $155 $205 $337 $31 $95 $161 $337
Templeton Asset Strategy Fund $ 98 $133 $168 $262 $23 $71 $122 $262
Franklin Small Cap Fund $ 98 $134 $170 $266 $24 $72 $124 $266
FIDELITY VARIABLE INSURANCE
PRODUCTS FUNDS -- SERVICE CLASS
2 SHARES:
VIP Fund -- Mid Cap $100 $139 $179 $284 $25 $78 $133 $284
VIP Fund -- Contrafund $ 97 $130 $164 $253 $22 $69 $118 $253
VIP Fund -- Equity-Income $ 96 $127 $159 $241 $21 $65 $112 $241
JANUS ASPEN SERIES -- SERVICE
SHARES:
Capital Appreciation Portfolio $ 97 $130 $164 $252 $22 $69 $117 $252
International Growth Portfolio $ 98 $132 $167 $260 $23 $71 $121 $260
WARBURG PINCUS TRUST:
Global Post-Venture Capital
Portfolio $101 $143 $186 $298 $27 $82 $141 $298
</TABLE>
*Annuitize for this purpose means the election of an Annuity Option under which
benefits are expected to continue for at least 5 years.
The examples contained in the table should not be considered a representation of
past or future expenses. Actual expenses may be greater or less than those
shown.
CONDENSED FINANCIAL INFORMATION AND FINANCIAL STATEMENTS
The financial history of each sub-account may be found in the Appendix under the
heading "Condensed Financial Information." The complete financial statements of
the Variable Annuity Account and Minnesota Life are included in the Statement of
Additional Information.
PAGE 9
<PAGE>
CAN YOU MAKE PARTIAL WITHDRAWALS FROM THE CONTRACT?
Yes. You may make withdrawals of the accumulation value of your contract before
an annuity begins. Your request for a partial withdrawal must be in writing.
Partial withdrawals are generally subject to the deferred sales charge. However,
if withdrawals during the first calendar year are equal to or less than 10% of
the purchase payments made during the first year and, if in subsequent calendar
years they are equal to or less than 10% of the accumulation value at the end of
the previous calendar year, the deferred sales charge will not apply to those
partial withdrawals. The deferred sales charge described above will apply to all
withdrawal amounts which exceed 10% of that accumulation value in any calendar
year. In addition, a penalty tax on the amount of the taxable distribution may
be assessed upon withdrawals from variable annuity contracts in certain
circumstances including distributions made prior to the owner's attainment of
age 59 1/2.
DO YOU HAVE A RIGHT TO CANCEL THE CONTRACT?
Yes. You may cancel the contract any time within ten days of your receipt of the
contract by returning it to us or your agent. In some states, the free look
period may be extended. In California, the free look period is extended to 30
days' time. These rights are subject to change and may vary among the states.
IS THERE A GUARANTEED DEATH BENEFIT?
Yes. The single payment and flexible payment variable annuity contract each have
a guaranteed death benefit if you die before annuity payments have started. The
death benefit in the case of the single payment contract shall be equal to the
greater of:
- the amount of the accumulation value payable at death; or
- the amount of the total purchase payments paid to us during the first
year as consideration for this contract, less all contract withdrawals.
The death benefit in the case of the flexible payment contract shall be equal to
the greater of:
- the amount of the accumulation value payable at death; or
- the amount of the total purchase payments paid to us, less all contract
withdrawals.
WHAT ANNUITY OPTIONS ARE AVAILABLE?
The annuity options available are:
- a life annuity;
- a life annuity with a period certain of 120 months, 180 months or 240
months;
- a joint and last survivor annuity; and
- a period certain annuity.
PAGE 10
<PAGE>
Each annuity option may be elected as a variable annuity or a fixed annuity or a
combination of the two. Other annuity options may be available from us on
request.
WHAT IF THE OWNER DIES?
If you die before payments begin, we will pay the contract accumulation value or
total purchase payments, less withdrawals, to the beneficiary. If the annuitant
dies after annuity payments have begun, we will pay whatever death benefit may
be called for by the annuity option selected.
If the owner of this contract is other than a natural person, such as a trust,
we will pay a death benefit of the accumulation value to the named beneficiary
on the death of the annuitant if death occurs before annuity payments begin.
WHAT VOTING RIGHTS DO YOU HAVE?
Contract owners and annuitants will be able to direct us as to how to vote
shares of the Funds held for their contracts where shareholder approval is
required by law in the affairs of the Funds.
PAGE 11
<PAGE>
(SIDEBAR)
We are a life insurance company.
The Variable Annuity Account is one of our separate accounts.
Each of the sub-accounts of the Variable Account invests in a different Fund
Portfolio.
(END SIDEBAR)
GENERAL DESCRIPTIONS
A. MINNESOTA LIFE INSURANCE COMPANY
We are Minnesota Life Insurance company ("Minnesota Life"), a life insurance
company organized under the laws of Minnesota. Minnesota Life was formerly known
as The Minnesota Mutual Life Insurance Company ("Minnesota Mutual"), a mutual
life insurance company organized in 1880 under the laws of Minnesota. On
October 1, 1998, a plan of reorganization created a mutual insurance holding
company named Minnesota Mutual Companies, Inc. Minnesota Mutual reorganized as
a stock insurance company subsidiary of the new holding company and took the
name Minnesota Life. Our home office is at 400 Robert Street North, St. Paul,
Minnesota 55101-2098, telephone: (651) 665-3500. We are licensed to do a life
insurance business in all states of the United States (except New York where we
are an authorized reinsurer), the District of Columbia, Canada, Puerto Rico and
Guam.
B. VARIABLE ANNUITY ACCOUNT
We established the Variable Annuity Account on September 10, 1984, in accordance
with Minnesota law. The separate account is registered as a "unit investment
trust" with the Securities and Exchange Commission under the Investment Company
Act of 1940, but that registration does not mean that the Securities and
Exchange Commission supervises the management, or the investment practices or
policies, of the Variable Annuity Account.
The assets of the Variable Annuity Account are not chargeable with liabilities
arising out of any other business which we may conduct. The investment
performance of the Variable Annuity Account is entirely independent of both the
investment performance of our General Account and our other separate accounts.
All obligations under the contracts are general corporate obligations of
Minnesota Life.
The Variable Annuity Account has 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.
PAGE 12
<PAGE>
C. THE FUNDS
Below is a list of the Portfolios and their investment adviser or sub-adviser.
Prospectuses for the Funds must accompany this Prospectus. You should carefully
read these Prospectuses before investing in the contract.
<TABLE>
<CAPTION>
INVESTMENT INVESTMENT
FUND/PORTFOLIO ADVISER SUB-ADVISER
-------------- ------- -----------
<S> <C> <C>
ADVANTUS SERIES FUND, INC.:
- ------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio Advantus Capital Management, Inc.
Bond Portfolio Advantus Capital Management, Inc.
Money Market Portfolio Advantus Capital Management, Inc.
Asset Allocation Portfolio Advantus Capital Management, Inc.
Mortgage Securities Portfolio Advantus Capital Management, Inc.
Index 500 Portfolio Advantus Capital Management, Inc.
Capital Appreciation Portfolio Advantus Capital Management, Inc. Credit Suisse Asset Management,
LLC
International Stock Portfolio Advantus Capital Management, Inc. Templeton Investment Counsel,
Inc.
Small Company Growth Portfolio Advantus Capital Management, Inc. Credit Suisse Asset Management,
LLC
Maturing Government Bond Portfolio - 2002, Advantus Capital Management, Inc.
- 2006, - 2010
Value Stock Portfolio Advantus Capital Management, Inc.
Small Company Value Portfolio Advantus Capital Management, Inc. State Street Research &
Management Company
Global Bond Portfolio Advantus Capital Management, Inc. Julius Baer Investment
Management Inc.
Index 400 Mid-Cap Portfolio Advantus Capital Management, Inc.
Macro-Cap Value Portfolio Advantus Capital Management, Inc. J.P. Morgan Investment
Management Inc.
Micro-Cap Growth Portfolio Advantus Capital Management, Inc. Wall Street Associates
Real Estate Securities Portfolio Advantus Capital Management, Inc.
FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST:
- ------------------------------------------------------------------------------------------------------------------------------
Templeton Dev. Mkt. Securities Fund - Templeton Asset Management Ltd.
Class 2 Shares
Templeton Asset Strategy Fund - Class 2 Shares Templeton Investment Counsel,
Inc.
Franklin Small Cap Fund - Class 2 Shares Franklin Advisers, Inc.
JANUS ASPEN SERIES:
- ------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Portfolio - Service Shares Janus Capital
International Growth Portfolio - Service Shares Janus Capital
FIDELITY VARIABLE INSURANCE PRODUCTS
FUNDS:
- ------------------------------------------------------------------------------------------------------------------------------
Mid Cap Portfolio - Service Class 2 Shares Fidelity Management & Research
Contrafund Portfolio - Service Class 2 Shares Fidelity Management & Research
Equity-Income Portfolio - Service Class 2 Fidelity Management & Research
Shares
WARBURG PINCUS TRUST:
- ------------------------------------------------------------------------------------------------------------------------------
Global Post-Venture Capital Portfolio Credit Suisse Asset Management,
LLC
</TABLE>
PAGE 13
<PAGE>
(SIDEBAR)
We may change the Portfolios offered under the contract.
(END SIDEBAR)
D. ADDITIONS, DELETIONS OR SUBSTITUTIONS
We retain the right, subject to any applicable law, to make substitutions with
respect to the investments of the sub-accounts of the Variable Annuity Account.
If investment in a Fund should no longer be possible or if we determine it
becomes inappropriate for these contracts, we may substitute another Fund for a
sub-account. Substitution may be with respect to existing accumulation values,
future purchase payments and future annuity payments.
We may also establish additional sub-accounts in the Variable Annuity Account.
We reserve the right to add, combine or remove any sub-accounts of the Variable
Annuity Account. Each additional sub-account will purchase shares in a different
Fund. Sub-accounts may be established when, in our sole discretion, marketing,
tax, investment or other conditions warrant such action. We will use similar
considerations in determining whether to eliminate one or more of the sub-
accounts of the Variable Annuity Account. The addition of any investment option
will be made available to existing contract owners on any basis we may
determine.
We also reserve the right, when permitted by law, to de-register the Variable
Annuity Account under the Investment Company Act of 1940, to restrict or
eliminate any voting rights of the contract owners, and to combine the Variable
Annuity Account with one or more of our other separate accounts.
Shares of the Portfolios of the Funds are also sold to some of our other
separate accounts, which may invest premiums under variable life policies. It is
conceivable that in the future it may be disadvantageous for variable life
insurance separate accounts and variable annuity separate accounts to invest in
the Fund simultaneously. Although neither we nor the Funds currently foresee any
such disadvantages either to variable life insurance policy owners or to
variable annuity contract owners, the Funds' Boards of Directors intend to
monitor events in order to identify any material conflicts between such policy
owners and contract owners and to determine what action, if any, should be taken
in response thereto. An action could include the sale of Fund shares by one or
more of the separate accounts, which could have adverse consequences. Material
conflicts could result from, for example,
- changes in state insurance laws,
- changes in federal income tax laws
- changes in the investment management of any of the Portfolios of the
Fund, or
- differences in voting instructions between those given by policy owners
and those given by contract owners.
PAGE 14
<PAGE>
(SIDEBAR)
A deferred sales charge may apply.
(END SIDEBAR)
CONTRACT CHARGES
A. SALES CHARGES
No sales charge is deducted from any 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 surrender, a deferred sales charge may be deducted.
This is for expenses related to the sale of the contracts.
The sales charge is deducted from the remaining accumulation value of the
contract except in the case of a surrender, where it reduces the amount paid to
you. We will deduct the sales charge proportionally from the fixed and variable
accumulation value of the contract.
The amount of the deferred sales charge, shown as a percentage of the
accumulation value withdrawn, follows. Percentages are shown as of the contract
date and the end of each of the first ten contract years. The percentages
decrease uniformly each month for 120 months from the contract date.
<TABLE>
<CAPTION>
DEFERRED SALES CHARGE
----------------------------------
FLEXIBLE PAYMENT SINGLE PAYMENT
BEGINNING OF VARIABLE ANNUITY VARIABLE ANNUITY
CONTRACT YEAR CONTRACT CONTRACT
- ------------- ---------------- ----------------
<S> <C> <C>
1 9.0% 6.0%
2 8.1 5.4
3 7.2 4.8
4 6.3 4.2
5 5.4 3.6
6 4.5 3.0
7 3.6 2.4
8 2.7 1.8
9 1.8 1.2
10 0.9 0.6
11 0 0
</TABLE>
No deferred sales charge is deducted from the accumulation value withdrawn if:
- the withdrawal occurs after a contract has been in force for at least ten
contract years,
- withdrawals during the first calendar year are equal to or less than 10%
of the purchase payments and, if in subsequent calendar years they are
equal to or less than 10% of the accumulation value at the end of the
previous calendar year,
- the withdrawal is on account of the annuitant's death, or
- the withdrawal is for the purpose of providing annuity payments under an
option where payments are expected to continue for at least five years.
PAGE 15
<PAGE>
(SIDEBAR)
We pay broker-dealers to sell the contracts.
The mortality and expense risk charge is 1.25%. We may increase it to 1.40%.
(END SIDEBAR)
- the amount is withdrawn because of an excess contribution to a tax-
qualified contract (including for example IRAs and tax sheltered
annuities);
- certain amounts of a contract's accumulation value are withdrawn and
applied to the purchase of our Adjustable Income Annuity contract, an
immediate variable annuity contract (see the Adjustable Income Annuity
prospectus for details);
If withdrawals in a calendar year exceed 10% of those purchase payments or
accumulation value, the sales charge applies to the amount of the excess
withdrawal.
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.
As a percentage of purchase payments paid to the contracts, Ascend Financial
Services, Inc. ("Ascend Financial"), the principal underwriter, may pay up to
4.75% of the amount of those purchase payments to broker-dealers responsible for
the sales of the contracts. In addition, Ascend Financial or we will pay, based
uniformly on the sale of variable annuity contracts by broker-dealers, credits
which allow registered representatives responsible for sales of variable annuity
contracts to attend conventions and other meetings sponsored by us or our
affiliates for the purpose of promoting the sale of the insurance and/or
investment products that we offer. Credits may cover things such as the
registered representatives' transportation, hotel accommodations, meals, and
registration fees. We may also pay those registered representatives amounts
based upon their production and the persistency of life insurance and annuity
business placed with us.
B. MORTALITY AND EXPENSE RISK CHARGES
We assume the mortality risk under the contracts by our obligation to continue
to make monthly annuity payments, in accordance with the annuity rate tables and
other provisions in the contracts, regardless of how long that annuitant lives
or all annuitants live. This assures an annuitant that neither the annuitant's
own longevity nor an improvement in life expectancy generally will have an
adverse effect on the monthly annuity payments received under the contract.
Our expense risk is the risk that charges under the contracts will be inadequate
to cover our expenses.
For assuming these risks, we currently make a deduction from the Variable
Annuity Account at the annual rate of 1.25%. We reserve the right to increase
the charge to not more than 1.40%.
PAGE 16
<PAGE>
If these deductions are insufficient to cover our actual costs, then we will
absorb the resulting losses. If the deductions prove to be more than sufficient
after the establishment of any contingency reserves deemed prudent or as
required by law, any excess will be profit (or "retained earnings") to us. Some
or all of such profit may be used to cover any distributions costs not recovered
through the deferred sales charge.
C. PREMIUM TAXES
Deduction for any applicable state premium taxes may be made from each purchase
payment or at the commencement of annuity payments. (Currently, such taxes range
from 0.0% to 3.5%, depending on the applicable law.) An amount withdrawn from
the contract may be reduced by any premium taxes not previously deducted.
EXCHANGE OFFER
In states where our MultiOption Classic and Achiever contracts are not yet
available, persons owning or having an interest in certain of our fixed and
variable annuities may exchange them for the contract and transfer current
accumulation values into them.
Contracts which can be exchanged are: individual fixed annuities issued by us
and The Ministers Life Insurance Company, except SPDA 3 and SecureOption III;
participants under our group annuities offering fixed benefits in situations
other than where the contract is issued in connection with a tax-qualified stock
bonus, pension or profit sharing plan and variable annuity contracts issued by
our Variable Fund D with a contingent deferred sales charge.
If you own a combination fixed and variable annuity contract, where any general
account assets are beyond a withdrawal charge period you may also be eligible
for a contract exchange. For these contracts, you cannot change allocations as
between fixed and variable accumulations at the time of the exchange. In
addition, for contracts with interests in our Variable Fund D, other than those
with a contingent deferred sales load, the contract or your participation in it
must be of at least ten year's duration. No charge is made on this transfer.
For contracts described in this Prospectus, where the contract type is to be
exchanged, as from a single payment contract to a flexible payment contract, we
will allow that exchange only during the original contract's first contract year
and if there have been no transfers or withdrawals. Also, for contracts
described in this Prospectus, we will allow exchanges of qualified plan types
which are essentially changes of plan type as, for example, when a person wishes
to convert an existing IRA into a Roth IRA. In some circumstances where
contracts are being exchanged we may charge $100 to cover administrative
expense.
PAGE 17
<PAGE>
(SIDEBAR)
You can instruct us how to vote Fund shares.
(END SIDEBAR)
For exchanges from an annuity where a sales charge is deducted from each
purchase payment, accumulation values credited to a contract at the time of
transfer will not be subject to a deferred sales charge at any time. However,
purchase payments made later to the contract may be subject to a deferred sales
charge if those amounts are then withdrawn, surrendered or applied to provide an
annuity. The deferred sales charge will be applied so that the contract year of
the contract will be the same as the prior annuity.
For exchanges from annuities where a deferred sales charge may otherwise be made
on withdrawals, or surrenders, no deferred sales charge will be made at the time
of transfer. However, a deferred sales charge may be deducted from the
accumulation value of the contract on such a basis so that the contract year of
the contract will be determined as of the contract date of the annuity from
which the accumulation value was transferred or, if transfer is of participation
in a group annuity, from the first day of the month in which contributions were
first received from the individual under the group annuity contract on behalf of
that individual.
In thinking about an exchange, you should review the contract you now own and
the contracts described in the Prospectus. To make an exchange, your completed
application, Annuity Exchange Authorization and existing annuity contract should
be returned to us.
VOTING RIGHTS
We will vote Fund shares held in the Variable Annuity at shareholder meetings of
the Funds. We will vote shares attributable to contracts in accordance with
instructions received from contract owners with voting interests in each sub-
account of the Variable Annuity Account. We will vote shares for which no
instructions are received and shares not attributable to contracts in the same
proportion as shares for which instructions have been received. The number of
votes for which a contract owner may provide instructions will be calculated
separately for each sub-account of the Variable Annuity Account. If, applicable
laws should change so that we may be allowed to vote shares in our own right,
then we may elect to do so.
During the accumulation period you hold the voting interest in each contract.
The number of votes is reached by dividing the accumulation value of the
contract attributable to each sub-account by the net asset value per share of
the Fund shares held by that sub-account.
During the annuity period the annuitant holds the voting interest in each
contract. The number of votes is reached by dividing the reserve for each
contract allocated to each sub-account by the net asset value per share of the
Fund shares held by that sub-account. After an annuity begins, the votes for
contract will decrease as the reserves decrease. In determining any voting
interest, we count fractional shares.
PAGE 18
<PAGE>
(SIDEBAR)
The contract is a flexible payment variable annuity. It is also available as a
single payment contract.
We issue the contract to you and you select the annuitant.
(END SIDEBAR)
We will notify you or the annuitant of a Fund shareholders' meeting if the
contract has shares to vote. We will also send proxy materials and a form of
instruction so that you can instruct us about voting.
DESCRIPTION OF THE CONTRACTS
A. GENERAL PROVISIONS
1. Types of Contracts Offered
(a) Single Payment Variable Annuity Contract
This type of contract may be used in connection with a pension or
profit-sharing plan under which plan contributions have been
accumulating. It may be used in connection with a plan which has
previously been funded with insurance or annuity contracts. It may be
used under state deferred compensation plans or individual retirement
annuity programs. It may also be purchased by individuals not as a part
of any qualified plan. The contract provides for a fixed or variable
annuity to begin at some future date with the purchase payment made
either in a lump sum or in a series of payments in a single contract
year.
(b) Flexible Payment Variable Annuity Contract
This type of contract may be used in connection with all types of plans,
state deferred compensation plans or individual retirement annuities
adopted by or on behalf of individuals. It may also be purchased by
individuals not as a part of any plan. The contract provides for a
variable annuity or a fixed annuity to begin at some future date with
the purchase payments for the contract to be paid prior to the annuity
commencement date in a series of payments flexible in respect to the
date and amount of payment.
2. Issuance of Contracts
The contracts are issued to you, the contract owner named in the application.
The owner of the contract may be the annuitant or someone else.
3. Modification of the Contracts
Your contract may be modified at any time by written agreement between you and
us. However, no modification will adversely affect the rights of an annuitant
under the contract unless the modification is made to comply with a law or
government regulation. You will have the right to accept or reject the
modification. This right of acceptance or rejection is limited for contracts
used as individual retirement annuities.
PAGE 19
<PAGE>
(SIDEBAR)
You cannot pay more than $1 million unless we consent.
We may cancel your contract if you stop making payments and have a small
accumulation value.
(END SIDEBAR)
4. Assignment
If the contract is sold in connection with a tax-qualified program, (including
employer sponsored employee pension benefit plans, tax-sheltered annuities and
individual retirement annuities,)
- your or the annuitant's interest may not be assigned, sold, transferred,
discounted or pledged as collateral for a loan or as security for the
performance of an obligation or for any other purpose, and
- to the maximum extent permitted by law, benefits payable under the
contract shall be exempt from the claims of creditors.
If the contract is not issued in connection with a tax-qualified program, any
person's interest in the contract may be assigned during the lifetime of the
annuitant.
We will not be bound by any assignment until we have recorded written notice of
it at our home office. We are not responsible for the validity of any
assignment. An assignment will not apply to any payment or action made by us
before it was recorded. Any proceeds which become payable to an assignee will be
payable in a single sum. Any claim made by an assignee will be subject to proof
of the assignee's interest and the extent of the assignment.
5. Limitations on Purchase Payments
For the single payment variable annuity contract, the single payment will be
deemed to include all purchase payments made within 12 months of the contract
date. The amount of an initial purchase payment must be at least $5,000. The
amount of any subsequent payment during that 12 month period must be at least
$1,000.
Some states, for example, New Jersey, will limit these contracts to a single
purchase payment and contracts issued there are so limited.
You choose when to make purchase payments under a flexible payment variable
annuity contract. There is no minimum purchase payment amount and there is no
minimum amount which must be allocated to any sub-account of the Variable
Annuity Account or to the General Account.
Total purchase payments under either contract may not exceed $1,000,000, except
with our consent.
We may cancel a flexible payment contract, at our discretion, if no purchase
payments are made for a period of two or more full contract years and both
(a) the total purchase payments made, less any withdrawals and associated
charges, and (b) the accumulation value of the entire contract, are less than
$2,000. If such a cancellation takes place, we will pay you the accumulation
value of your contract and we will notify you, in advance, of our intent to
exercise this right in our annual report which advises contract owners of the
status of their contracts. We will act to cancel the contract ninety days after
the contract anniversary unless an additional purchase payment is received
before the end of
PAGE 20
<PAGE>
(SIDEBAR)
We normally pay lump sum payments within 7 days, but may delay payments in
certain circumstances.
The contract is non-participating.
(END SIDEBAR)
that ninety day period. Contracts issued in some states, for example, New
Jersey, do not permit such a cancellation and contracts issued there do not
contain this provision.
There may be limits on the maximum contributions to retirement plans that
qualify for special tax treatment.
6. Deferment of Payment
Whenever any payment under a contract is to be made in a single sum, payment
will be made within seven days after the date such payment is called for by the
terms of the contract, except as payment may be subject for postponement for:
(a) any period during which the New York Stock Exchange is closed other
than customary weekend and holiday closings, or during which trading
on the New York Stock Exchange is restricted, as determined by the
Securities and Exchange Commission;
(b) any period during which an emergency exists as determined by the
Commission as a result of which it is not reasonably practical to
dispose of securities in the Fund or to fairly determine the value of
the assets of the Fund; or
(c) such other periods as the Commission may by order permit for the
protection of the contract owners.
7. Participation
The contracts are non-participating. Contracts issued prior to October 1, 1998
were participating. The amounts, if any, that will be distributable under
participating contracts in the future will be determined by us and credited to
the contracts on a basis we determine. We do not anticipate dividend payments.
B. ANNUITY PAYMENTS AND OPTIONS
1. Annuity Payments
Variable annuity payments are determined on the basis of (a) the mortality table
specified in the contract, which reflects the age of the annuitant, (b) the type
of annuity payment option selected, and (c) the investment performance of the
Fund Portfolios selected by the contract owner. The amount of the variable
annuity payments will not be affected by adverse mortality experience or by an
increase in our expenses in excess of the expense deductions provided for in the
contract. The annuitant will receive the value of a fixed number of annuity
units each month. The value of such units, and thus the amounts of the monthly
annuity payments will, however, reflect investment gains and losses and
investment income of the Funds, and thus the annuity payments will vary with the
investment experience of the assets of the Portfolio of the Fund selected by the
contract owner.
PAGE 21
<PAGE>
(SIDEBAR)
Each of the annuity options is available on a fixed, variable or combination
fixed and variable basis.
You tell us when to start making annuity payments to the annuitant, unless your
retirement plan requires them to begin by a certain age.
(END SIDEBAR)
2. Electing the Retirement Date and Form of Annuity
The contracts provide for four optional annuity forms, any one of which may be
elected if permitted by law. Each annuity option may be elected on either a
variable annuity or a fixed annuity basis, or a combination of the two. Other
annuity options may be available from us on request.
While the contracts require that notice of election to begin annuity payments
must be received by us at least 30 days prior to the annuity commencement date,
we are currently waiving that requirement for such variable annuity elections
received at least three valuation days prior to the 15th of the month. We
reserve the right to enforce the 30 day notice requirement at our option at any
time in the future.
Each contract permits an annuity payment to begin on the first day of any month.
Under the contracts payment must begin before the later of the 85th birthday of
the annuitant, or five years after the date of issue of the contracts. A
variable annuity will be provided and the annuity option shall be Option 2A, a
life annuity with a period of 120 months. The minimum first monthly annuity
payment on either a variable or fixed dollar basis is $20. If such first monthly
payment would be less than $20, we may fulfill our obligation by paying in a
single sum the surrender value of the contract which would otherwise have been
applied to provide annuity payments.
Except for Option 4, once annuity payments have commenced, you cannot surrender
an annuity benefit and receive a single sum settlement in lieu thereof.
Benefits under retirement plans that qualify for special tax treatment generally
must commence no later than the April 1 following the year in which the
participant reaches age 70 1/2 and are subject to other conditions and
restrictions.
3. Optional Annuity Forms
OPTION 1 - LIFE ANNUITY This is an annuity payable monthly during the lifetime
of the annuitant and terminating with the last monthly payment preceding the
death of the annuitant. This option offers the maximum monthly payment (of those
options involving life contingencies) since there is no guarantee of a minimum
number of payments or provision for a death benefit for beneficiaries. It would
be possible under this option for the annuitant to receive only one annuity
payment if he died prior to the due date of the second annuity payment, two if
he died before the due date of the third annuity payment, etc.
OPTION 2 - LIFE ANNUITY WITH A PERIOD CERTAIN OF 120 MONTHS (OPTION 2A), 180
MONTHS (OPTION 2B), OR 240 MONTHS (OPTION 2C) This is an annuity payable
monthly during the lifetime of the annuitant, with the guarantee that if the
annuitant dies before payments have been made for the period certain elected,
payments will continue to the beneficiary during the remainder of the period
certain. If the beneficiary so elects at any time during the remainder of the
period
PAGE 22
<PAGE>
(SIDEBAR)
The amount of your first annuity payment depends on the age of the annuitant and
the annuity option you select.
(END SIDEBAR)
certain, the present value of the remaining guaranteed number of payments, based
on the then current dollar amount of one such payment and using the same
interest rate which served as a basis for the annuity shall be paid in a single
sum to the beneficiary.
OPTION 3 - JOINT AND LAST SURVIVOR ANNUITY This is an annuity payable monthly
during the joint lifetime of the annuitant and a designated joint annuitant and
continuing thereafter during the remaining lifetime of the survivor. Under this
option there is no guarantee of a minimum number of payments or provision for a
death benefit for beneficiaries. If this option is elected, the contract and
payments shall then be the joint property of the annuitant and the designated
joint annuitant. It would be possible under this option for both annuitants to
receive only one annuity payment if they both died prior to the due date of the
second annuity payment, two if they died before the due date of the third
annuity payment, etc.
OPTION 4 - PERIOD CERTAIN ANNUITY This is an annuity payable monthly for a
period certain of from 5 to 20 years, as elected. If the annuitant dies before
payments have been made for the period certain elected, payments will continue
during the remainder of the fixed period to the beneficiary. Contracts issued
prior to May of 1993, or such later date as we receive regulatory approval to
issue these new contracts in a state and are administratively able to do so, may
allow the election of a period certain option of less than five years. In the
event of the death of the annuitant, you or the beneficiary may elect that
(1) the present value of the remaining guaranteed number of payments, based on
the then current dollar amount of one such payment and using the same interest
rate which served as a basis for the annuity, shall be paid in a single sum, or
(2) such commuted amount shall be applied to effect a life annuity under Option
1 or Option 2.
4. Determination of Amount of First Monthly Annuity Payment
The first monthly annuity payment under the contract is determined by the
accumulation value of the contract when the annuity begins. In addition, a few
states impose a premium tax on the amount used to purchase an annuity benefit,
depending on the type of plan involved. These taxes currently range from 0.00%
to 3.50% and 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 annuity payment option
elected and the adjusted age of the annuitant and any joint 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 annuity payment option for each $1,000 of value
applied (after deduction of any premium taxes not previously deducted). For
contracts issued after May, 1993, a $200 fee may be deducted from the
accumulation value when a fixed annuity is elected.
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
PAGE 23
<PAGE>
per $1,000 which is based on the Progressive Annuity table with an age setback
of six years and an interest rate of 4.50% compounded annually. 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, except for transfers and in the case of
certain joint annuity payment options which provide for a reduction in payment
after the death of the annuitant. 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 4.50% interest rate assumed in the variable annuity determination would
produce level annuity payments if the net investment factor remained constant at
4.50% 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 4.50%. A higher interest rate means a higher
initial payment, but a more slowly rising (or more rapidly falling) series of
subsequent payments. A lower assumption has the opposite effect. For contracts
issued prior to May, 1993 which utilized such a lower rate, the payments will
differ in the manner described here.
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. The transfer will occur on the valuation date on or next
following the date on which the request is received. The account value used to
determine the fixed annuity payment will be the value as of the last valuation
date of the month preceding the annuity 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
annuity commencement date.
If the request for a fixed or variable annuity payment is not received at least
three valuation days prior to the date used to determine the account value as
described above, the annuity commencement date will be changed to the first of
the month following the requested annuity commencement date.
If, when annuity payments are elected, we are using annuity rates for this
contract which result in larger annuity payments, we will use those rates
instead.
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<PAGE>
(SIDEBAR)
You may change Portfolios in the annuity period, subject to some restrictions.
(END SIDEBAR)
5. Amount of Second and Subsequent Monthly Annuity Payments
The dollar amount of the second and later variable annuity payments is equal to
the number of annuity units determined for each sub-account times the annuity
unit value for that sub-account as of the due date of the payment. This amount
may increase or decrease from month to month.
6. Value of the Annuity Unit
The value of an annuity unit for a sub-account is determined monthly as of the
first day of each month by multiplying the value on the first day of the
preceding month by the product of (a) .996338, and (b) the ratio of the value of
the accumulation unit for that sub-account for the valuation date next following
the fourteenth day of the preceding month to the value of the accumulation unit
for the valuation date next following the fourteenth day of the second preceding
month (.996338 is a factor to neutralize the assumed net investment rate,
discussed in Section 3 above, of 4.5% per annum built into the first payment
calculation which is not applicable because the actual net investment rate is
credited instead). The value of an annuity unit for a sub-account as of any date
other than the first day of a month is equal to its value as of the first day of
the next succeeding month.
7. Transfer of Annuity Reserves
Annuity reserves are the measure of assets attributable to the contracts and
held during the annuity period. During the annuity period amounts held as
annuity reserves may be transferred among the variable annuity 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; and the written request for an
annuity transfer must be received by us more than 30 days in advance of the due
date of the annuity payment subject to the transfer. Upon request, we will make
available to you annuity reserve amount sub-account information.
A transfer will be made on the basis of annuity unit values. The number of
annuity units from the sub-account being transferred will be converted to a
number of annuity units in the new sub-account. The annuity payment option will
remain the same and cannot be changed. After this conversion, a number of
annuity units in the new sub-account will be payable under the elected option.
The first payment after conversion will be of the same amount as it would have
been without the transfer. The number of annuity units will be set at that
number of units which are needed to pay that same amount on the transfer date.
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(SIDEBAR)
If you die prior to commencement of annuity payments, there is a death benefit
that is guaranteed to be not less than your purchase payments less withdrawals.
(END SIDEBAR)
When we receive a request for the transfer of variable annuity reserves, it will
be effective for future annuity payments. The transfer will be effective and
funds actually transferred in the middle of the month prior to the next annuity
payment affected by your request. We will use the same valuation procedures to
determine your variable annuity payment that we used initially. However, if your
annuity is based upon annuity units in a sub-account which matures on a date
other than the stated annuity valuation date, then your annuity units will be
adjusted to reflect sub-account performance in the maturing sub-account and the
sub-account to which reserves are transferred for the period between annuity
valuation dates.
Amounts held as reserves to pay a variable annuity may also be transferred to a
fixed annuity during the annuity period. However, the restrictions which apply
to annuity sub-account transfers will apply in this case as well. The amount
transferred will then be applied to provide a fixed annuity amount. This amount
will be based upon the adjusted age of the annuitant and any joint annuitant at
the time of the transfer. The annuity payment option will remain the same.
Amounts paid as a fixed annuity may not be transferred to a variable annuity.
When we receive a request to make such a transfer to a fixed annuity, it will be
effective for future annuity payments. The transfer will be effective and funds
actually transferred in the middle of the month prior to the next annuity
payment. We will use the same fixed annuity pricing at the time of transfer that
we use to determine an initial fixed annuity payment. Contracts with this
transfer feature may not be available in all states.
C. DEATH BENEFITS
The contracts provide that in the event of the death of the owner before annuity
payments begin, the amount payable at death will be the contract accumulation
value determined as of the valuation date coincident with or next following the
date due proof of death is received by us at our home office, less any
withdrawals. Death proceeds will be paid in a single sum to the beneficiary
designated unless an annuity option is elected. Payment will be made within 7
days after we receive due proof of death. Except as noted below, the entire
interest in the contract must be distributed within 5 years of the owner's
death.
The single payment and flexible payment variable annuity contract each have a
guaranteed death benefit if you die before annuity payments have started. The
death benefit for the single payment contract shall be equal to the greater of:
- the amount of the accumulation value payable at death; or
- the amount of the total purchase payments paid to us during the first 12
months as consideration for this contract, less all contract withdrawals.
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(SIDEBAR)
Initial purchase payments are credited within 2 business days of our receipt of
a complete application.
(END SIDEBAR)
The death benefit in the case of the flexible payment contract shall be equal to
the greater of:
- the amount of the accumulation value payable at death; or
- the amount of the total purchase payments paid to us less all contract
withdrawals.
If the owner dies on or before the date on which annuity payments begin, we will
pay the death benefit to the designated beneficiary. If the designated
beneficiary is a person other than the owner's spouse, that beneficiary may
elect an annuity option measured by a period not longer than that beneficiary's
life expectancy only so long as annuity payments begin not later than one year
after the owner's death. If there is no designated beneficiary, then the entire
interest in a contract must be distributed within five years after the owner's
death. If the annuitant dies after annuity payments have begun, any payments
received by a non-spouse beneficiary must be distributed at least as rapidly as
under the method elected by the annuitant as of the date of death.
If any portion of your contract is payable to your designated beneficiary who is
also your surviving spouse that spouse shall be treated as the contract owner
for purposes of:
- when payments must begin, and
- the time of distribution in the event of that spouse's death.
If the owner of this contract is other than a natural person, such as a trust,
we will pay a death benefit of the accumulation value to the named beneficiary
on the death of the annuitant, if death occurs before annuity payments begin.
D. PURCHASE PAYMENTS AND VALUE OF THE CONTRACT
1. Crediting Accumulation Units
During the accumulation period - the period before annuity payments begin - each
purchase payment is credited on the valuation date coincident with or next
following the date we receive it at our home office. When the contracts are
originally issued, application forms are completed by the applicant and
forwarded to our home office. We will review each application form for
compliance with our issue criteria and, if it is accepted, we will issue a
contract. Applications received without instructions as to allocation will be
treated as incomplete.
If the initial purchase payment is accompanied by an incomplete application,
that purchase payment will not be credited until the valuation date coincident
with or next following the date a completed application is received. We will
offer to return the initial purchase payment accompanying an incomplete
application if it appears that the application cannot be completed within five
business days.
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(SIDEBAR)
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)
Purchase payments are credited to the contract in accumulation units. We
determine the number of accumulation units from each purchase payment by
dividing the portion of the purchase payment allocated to each sub-account by
the then current accumulation unit value for that sub-account.
The number of accumulation units so determined shall not be changed by any
subsequent change in the value of an accumulation unit, but the value of an
accumulation unit will vary from valuation date to valuation date to reflect the
investment experience of the Funds.
We will determine the value of accumulation units on each day on which the
Portfolios of the Funds are valued. The net asset value of the Funds' shares are
computed once daily, and, in the case of Money Market Portfolio, after the
declaration of the daily dividend, as of the primary closing time for business
on the New York Stock Exchange (the primary close of trading is 3:00 p.m.
(Central time), but this time may be changed) on each day, Monday through
Friday, except:
- days on which changes in the value of Fund's portfolio securities will
not materially affect the current net asset value of such Fund's shares,
- days during which no Fund's shares are tendered for redemption and no
order to purchase or sell Fund's shares is received by such Fund and
- customary national business holidays on which the New York Stock Exchange
is closed for trading.
The value of accumulation units will be the same on all purchase payments
received by us at our home office on that day prior to the close of the
Exchange. Purchase payments received after the close of business of the Exchange
will be priced on the next valuation date.
In addition to providing for the allocation of purchase payments to the sub-
accounts of the Variable Annuity Account, the contracts allow you to allocate
purchase payments to our General Account for accumulation at a guaranteed
interest rate.
2. Transfers
Upon your written request, values under the contract may be transferred between
our General Account and the Variable Annuity Account or among the sub-accounts
of the Variable Annuity Account. We will make the transfer on the basis of
accumulation unit values on the valuation date coincident with or next following
the day we receive the request at our home office. No deferred sales charge will
be imposed on such transfers. There is no dollar amount limitation which is
applied to transfers.
The contracts permit us to limit the frequency and amount of transfers from our
General Account to the Variable Annuity Account. Currently, except as provided
below, we limit such transfers to a single such transfer during any calendar
year and to any amount which is no more than 20% of the General Account
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(SIDEBAR)
Systematic transfers and telephone transfers are available.
(END SIDEBAR)
accumulation value at the time of the transfer. However, in the case of General
Account accumulation values of $1,000 or less, we will allow a one-time transfer
of the entire accumulation value amount from the General Account to the sub-
accounts of the Variable Annuity Account.
Where you have a systematic transfer arrangement with us, you may transfer
General Account current interest earnings or a specified amount from the General
Account on a monthly, quarterly, semi-annual or annual basis. If you transfer a
specified amount from the General Account, the maximum initial amount that may
be transferred may not exceed 10% of your current General Account accumulation
value at the time of the first transfer. For contracts where the General Account
accumulation value is increased during the year because of transfers into the
General Account or additional purchase payments, made after the program is
established, systematic transfers are allowed to the extent of the greater of
the current transfer amount or 10% of the then current General Account
accumulation value. Even with respect to systematic transfer plans, we reserve
the right to alter the terms of such programs once established where funds are
being transferred out of the General Account. Our alteration of existing
systematic transfer programs will be effective only upon our written notice to
contract owners.
Systematic transfer arrangements may be established to begin on the 10th or 20th
of any month. If a transfer cannot be completed because of a holiday or weekend,
it will be made on the next available transfer date. In the absence of specific
instructions, transfers will be made on a monthly basis and will remain active
until the appropriate General Account accumulation value or sub-account is
depleted. Systematic transfer arrangements are limited to a maximum of twenty
sub-accounts. There is no charge for systematic transfers at this time, however
we reserve the right to impose charges.
As a type of systematic transfer arrangement, we offer automatic portfolio
rebalancing ("APR") on a quarterly, semi-annual and annual basis. Instructions
to us must be in whole percentages totaling 100%. They will be treated as
instructions for transfers to and from the various sub-accounts. Rebalancing
instructions will not affect the current allocation of future contributions;
they may differ from those future allocations and are not limited to any minimum
or maximum number of sub-accounts. There will be no charge for APR transfers.
APR is not available for values in the General Accounts or in the Series Fund
Maturing Government Bond Portfolios.
You or persons authorized by you may effect transfers, or a change in the
allocation of future premiums or the termination of Automatic Premium Plans
(APP), by means of a telephone call. Transfers or requests made by a call are
subject to the same conditions and procedures that apply to written transfer
requests. During periods of marked economic or market changes, you may
experience difficulty in completing a telephone transfer due to a heavy volume
of calls. If that happens, you should consider submitting a written transfer
request while continuing to attempt a telephone redemption. We reserve the right
to
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(SIDEBAR)
Your contract's accumulation value varies with the performance of the Portfolios
you select and is not guaranteed.
(END SIDEBAR)
restrict the frequency of -- or otherwise modify, condition, terminate or impose
charges upon -- telephone transfer privileges.
While for some contract owners we have used a form to pre-authorize telephone
transactions, we now make this service automatically available to all contract
owners. We will employ reasonable procedures to satisfy ourselves that
instructions received from contract owners are genuine and, to the extent that
we do not, we may be liable for any losses due to unauthorized or fraudulent
instructions. We require contract owners or a person authorized by you to
personally identify themselves in those telephone conversations through contract
numbers, social security numbers and such other information as we may deem to be
reasonable. We record telephone transfer instruction conversations and we
provide the contract owners with a written confirmation of the telephone
transfer. For more information on transactions related to your Contract, you may
contact us at 1-800-362-3141. In addition, you may be able to contact us or your
registered representative via Internet e-mail through our web site. Please
remember that an e-mail is not a valid substitute for a written request that
requires your signature.
The underlying funds may restrict the amounts or frequency of transfers to or
from sub-accounts of the separate amount in order to protect fund shareholders.
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.
3. Value of the Contract
The Accumulation Value of the contract at any time before annuity payments begin
can be determined by multiplying the number of accumulation units credited to
the contract for each sub-account by the current value of an accumulation unit
for each respective sub-account. There is no assurance that the total value will
equal or exceed the purchase payments made. You will be advised periodically of
the number of accumulation units in your contract, the current value of an
accumulation unit, and its total value.
4. Accumulation Unit Value
The value of an accumulation unit for each sub-account of the Variable Annuity
Account was set at $1.000000 on the first valuation date of the Variable Annuity
Account. The value of an accumulation unit on any valuation date thereafter is
determined by multiplying
- the value of an accumulation unit on the immediately preceding valuation
date by
- the net investment factor for the applicable sub-account for the
valuation period just ended.
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<PAGE>
The value of an accumulation unit a day other than a valuation date is its value
on the next valuation date.
5. Net Investment Factor for Each Valuation Period
The net investment factor is an index used to measure the investment performance
of a sub-account from one valuation period to the next. For any sub-account, the
net investment factor for a valuation period is the gross investment rate for
such sub-account for the valuation period, less a deduction for the mortality
and expense risk charge at the current rate of 1.25% per annum.
The gross investment rate is equal to:
- the net asset value per share of a Portfolio share held in a sub-account
of the Variable Annuity Account determined at the end of the current
valuation period, plus
- the per share amount of any dividend or capital gain distribution by the
Portfolio if the "ex-dividend" date occurs during the current valuation
period, divided by
- the net asset value per share of that Portfolio share determined at the
end of the preceding valuation period.
The gross investment rate may be positive or negative.
E. REDEMPTIONS
1. Partial Withdrawals and Surrender
Both contracts, provide that before annuity payments begin you may make partial
withdrawals. They must be for at least $250. You must make a written request for
any withdrawal.
If you make a withdrawal, the accumulation value will be reduced by the amount
withdrawn and any deferred sales charge. Unless you tell us otherwise,
withdrawals will be made from the General Account accumulation value and from
the Variable Annuity Account accumulation value in the same proportion. If we
have no instructions from you, withdrawals will be made from the sub-accounts on
a pro-rata basis.
We will waive the applicable dollar amount limitation on withdrawals where a
systematic withdrawal program is in place and such a smaller amount satisfies
the minimum distribution requirements of the Code or where the withdrawal is
requested because of an excess contribution to a tax-qualified contract. We can
only make pro-rata withdrawals from twenty sub-accounts on systematic
withdrawals. If you use more than that number, you will have to identify those
sub-accounts from which you wish funds taken.
Before annuity payments begin, you may surrender the contract for its surrender
value. You will receive in a single sum the accumulation value computed as of
the valuation date next following the date of surrender, reduced by any
applicable deferred sales charge and the administrative charge. Or you may elect
an annuity.
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<PAGE>
(SIDEBAR)
You can cancel your contract within 10 days of receiving it and we will refund
you the greater of your accumulation value or your purchase payments.
We are not offering tax advice. You should consult your own tax adviser.
(END SIDEBAR)
You may also submit your signed written withdrawal or surrender requests to
Minnesota Life by facsimile (FAX) transmission. Our FAX number is
(651) 665-7942. You may give us transfer instructions or changes as to future
allocations of premium payments the same way. Payment of a partial withdrawal or
surrender will be made to you within 7 days after we receive your completed
request.
2. Right of Cancellation
You should read the contract carefully as soon as it is received. You may cancel
the purchase of a contract within ten days after its delivery, for any reason,
by giving us written notice at 400 Robert Street North, St. Paul, Minnesota
55101-2098, of an intention to cancel. If the contract is canceled and returned,
we will refund to you the greater of:
- the accumulation value of the contract, or
- the amount of purchase payments paid under the contract.
Payment of the requested refund will be made to you within seven days after we
receive notice of cancellation.
In some states, the free look period may be extended. In California, the free
look period is extended to thirty days' time. Those rights are subject to change
and may vary among the states.
The liability of the Variable Annuity Account is limited to the accumulation
value of the contract at the time it is returned for cancellation. Any
additional amounts necessary to make our refund to you equal to the purchase
payments will be made by us.
FEDERAL TAX STATUS
INTRODUCTION
This discussion on taxes is general in nature. It is not intended as tax advice.
Each person concerned should consult a competent tax adviser. No attempt is made
to consider any applicable state or other tax laws. In addition, this discussion
is based on our understanding of federal income tax laws as they are currently
interpreted. We do not represent the likelihood of the continuation of current
income tax laws or the current interpretations of the Internal Revenue Service.
The Contract may be purchased on a non-tax qualified basis ("Non-Qualified
Contract") or purchased and used in connection with certain retirement
arrangements entitled to special income tax treatment under section 401(a),
403(b), 408(b), 408A or 457 of the Code ("Qualified Contract"). The ultimate
effect of federal income taxes on the amounts held under a Contract, on annuity
payments, and on the economic benefit to the Contract Owner, the Annuitant, or
the beneficiary may depend on the tax status of the individual concerned.
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<PAGE>
(SIDEBAR)
Taxes on gains under the contract are normally deferred until there is a
distribution of contract values.
Ordinary income tax rates apply to amounts distributed in excess of purchase
payments. Gains are assumed to be distributed before return or purchase
payments.
(END SIDEBAR)
We are taxed as a "life insurance company" under the Internal Revenue Code. The
operations of the Variable Annuity Account form a part of, and are taxed with,
our other business activities. Currently, no federal income tax is payable by us
on income dividends received by the Variable Annuity Account or on capital gains
arising from the Variable Annuity Account's activities. The Variable Annuity
Account is not taxed as a "regulated investment company" under the Code and it
does not anticipate any change in that tax status.
TAXATION OF ANNUITY CONTRACTS IN GENERAL
Section 72 of the Code governs taxation of nonqualified annuities in general and
some aspects of qualified programs. No taxes are generally imposed on increases
in the value of a contract until distribution occurs, either in the form of a
payment in a single sum or as annuity payments under the annuity option elected.
As a general rule, deferred annuity contracts held by a corporation, trust or
other similar entity, as opposed to a natural person, are not treated as annuity
contracts for federal tax purposes. The investment income on such contracts is
taxed as ordinary income that is received or accrued by the owner of the
contract during the taxable year.
For payments made in the event of a full surrender of an annuity, the taxable
portion is generally the amount in excess of the cost basis (i.e., purchase
payments) of the contract. Amounts withdrawn upon a partial surrender from the
variable annuity contracts not part of a qualified program are treated first as
taxable income to the extent of the excess of the contract value over the
purchase payments made under the contract. All taxable amounts received under an
annuity contract are subject to tax at ordinary rather than capital gain rates.
In the case of a withdrawal under an annuity that is part of a tax-qualified
retirement plan, a portion of the amount received is taxable based on the ratio
of the "investment in the contract" to the individual's balance in the
retirement plan, generally the value of the annuity. The "investment in the
contract" generally equals the portion of any deposits made by or on behalf of
an individual under an annuity which was not excluded from the gross income of
the individual. For annuities issued in connection with qualified plans, the
"investment in the contract" can be zero.
For annuity payments, the taxable portion is generally determined by a formula
that establishes the ratio that the cost basis of the contract bears to the
expected return under the contract. Such taxable part is taxed at ordinary
income rates.
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<PAGE>
(SIDEBAR)
A penalty tax may apply to distributions prior to age 59 1/2.
Transfers, assignments and certain designations of annuitants can have tax
consequences.
(END SIDEBAR)
The Code imposes a 10% penalty tax on the taxable portion of certain
distributions from annuity contracts. This additional tax does not apply where
the taxpayer is:
- 59 1/2 or older,
- where payment is made on account of the taxpayer's disability,
- where payment is made by reason of the death of the owner, and
- in certain other circumstances.
The Code also provides an exception to the penalty tax for distributions, in
periodic payments, of substantially equal installments, be made for the life (or
life expectancy) of the taxpayer or the joint lives (or joint life expectancies)
of the taxpayer and beneficiary.
For some types of qualified plans, other tax penalties may apply to certain
distributions.
A transfer of ownership of a contract, a pledge of any interest in a contract as
security for a loan, the designation of an annuitant or other payee who is not
also the contract owner, or the assignment of the contract may result in certain
income or gift tax consequences to the contract owner that are beyond the scope
of this discussion. A contract owner who is contemplating any such transfer,
pledge, designation or assignment should consult a competent tax adviser with
respect to the potential tax effects of that transaction.
For purposes of determining a contract owner's gross income, the Code provides
that all nonqualified deferred annuity contracts issued by the same company (or
its affiliates) to the same contract owner during any calendar year shall be
treated as one annuity contract. Additional rules may be promulgated under this
provision to prevent avoidance of its effect through serial contracts or
otherwise. For further information on these rules, see your tax adviser.
DIVERSIFICATION REQUIREMENTS
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of the Variable Annuity Account to
be "adequately diversified" in order for the contract to be treated as an
annuity contract for Federal tax purposes. The Variable Annuity Account, through
the Fund, intends to comply with the diversification requirements prescribed in
Regulations Section 1.817-5, which affect how the Fund's assets may be invested.
Although the investment adviser is an affiliate of Minnesota Life, Minnesota
Life does not have control over the Fund or its investments. Nonetheless,
Minnesota Life believes that each Portfolio of the Fund in which the Variable
Annuity Account owns shares will be operated in compliance with the requirements
prescribed by the Treasury.
PAGE 34
<PAGE>
Prior to the enactment of Section 817(h), the IRS published several rulings
under which owners of certain variable annuity contracts were treated as owners,
for federal income tax purposes, of the assets held in a separate account used
to support their contracts. In those circumstances, income and gains from the
separate account assets would be includable in the variable annuity contract
owner's gross income. However, the continued effectiveness of the pre-
Section 817(h) published rulings is somewhat uncertain. In connection with its
issuance of proposed regulations under Section 817(h) in 1986, the Treasury
Department announced that those regulations did not "provide guidance concerning
the circumstances in which investor control of the investments of a segregated
asset account may cause the investor (i.e., the contract owner), rather than the
insurance company to be treated as the owner of the assets in the account."
While the Treasury's 1986 announcement stated that guidance would be issued on
the "extent to which the policyholders may direct their investment to particular
sub-accounts without being treated as owners of the underlying assets", no such
guidance has been forthcoming.
The ownership rights under the contract are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that contract owners were not owners of separate account assets. For example,
the owner of a contract has the choice of several sub-accounts in which to
allocate net purchase payments and contract values, and may be able to transfer
among sub-accounts more frequently than in such rulings. Minnesota Life does not
believe that the ownership rights of a contract owner under the Contract would
result in any contract owner being treated as the owner of the assets of the
Variable Annuity Account. However, Minnesota Life does not know what standards
would be applied if the Treasury Department should proceed to issue regulations
or rulings on this issue. Minnesota Life therefore reserves the right to modify
the Contract as necessary to attempt to prevent a contract owner from being
considered the owner of a pro-rata share of the assets of the Variable Annuity
Account.
REQUIRED DISTRIBUTIONS
In order to be treated as an annuity contract for federal income tax purposes,
Section 72(s) of the Code requires any nonqualified contract issued after
January 18, 1985 to provide that (a) if an owner dies on or after the annuity
starting date but prior to the time the entire interest in the contract has been
distributed, the remaining portion of such interest will be distributed at least
as rapidly as under the method of distribution being used as of the date of that
owner's death; and (b) if an owner dies prior to the annuity starting date, the
entire interest in the contract must be distributed within five years after the
date of the owner's death.
PAGE 35
<PAGE>
(SIDEBAR)
Congress may change the tax laws and reduce or eliminate any tax advantages of
the contract.
(END SIDEBAR)
These requirements shall be considered satisfied if any portion of the owner's
interest which is payable to or for the benefit of a "designated beneficiary",
who must be a natural person, is distributed over the life of such beneficiary
or over a period not extending beyond the life expectancy of that beneficiary
and such distributions begin within one year of that owner's death. The owner's
"designated beneficiary" is the person designated by such owner as a beneficiary
and to whom ownership of the contract passes by reason of death. It must be a
natural person. However, if the owner's "designated beneficiary" is the
surviving spouse of the owner, the contract may be continued with the surviving
spouse as the new owner.
Nonqualified contracts issued after January 18, 1985 contain provisions which
are intended to comply with the requirements of Section 72(s) of the Code,
although no regulations interpreting these requirements have yet been issued.
Minnesota Life intends to review such provisions and modify them if necessary to
assure that they comply with the requirements of Code Section 72(s) when
clarified by regulation or otherwise.
Other rules may apply to qualified contracts.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a contract because of the death of the owner.
Generally, such amounts are includable in the income of the recipient as
follows: (1) if distributed in a lump sum, they are taxed in the same manner as
a full surrender of the contract, as described above, or (2) if distributed
under an annuity option, they are taxed in the same manner as annuity payments,
as described above.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of there being any change is uncertain, there is always
the possibility that the tax treatment of the Contracts could change by
legislation or other means. Moreover, it is also possible that any change could
be retroactive (that is, effective prior to the date of the change). You should
consult a tax adviser with respect to legislative developments and their effect
on the Contract.
TAX QUALIFIED PROGRAMS
The annuity is designed for use with several types of retirement plans that
qualify for special tax treatment. The tax rules applicable to participants and
beneficiaries in retirement plans vary according to the type of plan and the
terms and conditions of the plan. Special favorable tax treatment may be
available for certain types of contributions and distributions. Adverse tax
consequences may result from:
- contributions in excess of specified limits;
- distributions prior to age 59 1/2 (subject to certain exceptions);
PAGE 36
<PAGE>
(SIDEBAR)
Distributions are subject to income tax withholding requirements unless you take
steps to prevent it.
(END SIDEBAR)
- distributions that do not conform to specified minimum distribution
rules; and in other specified circumstances.
We make no attempt to provide more than general information about use of
annuities with the various types of retirement plans. The rights of any person
to benefits under annuity contracts purchased in connection with these plans may
be subject to the terms and conditions of the plans themselves, regardless of
the terms and conditions of the annuity issued in connection with such a plan.
Some retirement plans are subject to transfer restrictions, distribution and
other requirements that are not incorporated into the annuity or our annuity
administration procedures. Owners, participants and beneficiaries are
responsible for determining that contributions, distributions and other
transactions with respect to the annuities comply with applicable law. If you
intend to purchase a contract for use with any retirement plan, you should
consult your legal counsel and tax adviser regarding the suitability of the
contract.
For qualified plans under Section 401(a), 403(b), and 457, the Code requires
that distributions generally must commence no later than April 1 of the calendar
year following the calendar year in which the Owner (or plan participant)
(i) reaches age 70 1/2 or (ii) retires, and must be made in a specified form or
manner. If the plan participant is a "5 percent owner" (as defined in the Code),
distributions generally must begin no later than April 1 of the calendar year
following the calendar year in which the Owner (or plan participant) reaches age
70 1/2. For IRAs described in Section 408, distributions generally must commence
no later than April 1 of the calendar year following the calendar year in which
the Owner (or plan participant) reaches age 70 1/2. Roth IRAs under
Section 408A do not require distributions at any time prior to the Owner's
death.
WITHHOLDING
In general, distributions from annuities are subject to federal income tax
withholding unless the recipient elects not to have tax withheld. Different
rules may apply to payments delivered outside the United States. Some states
have enacted similar rules.
Recent changes to the Code allow the rollover of most distributions from tax-
qualified plans and Section 403(b) annuities directly to other tax-qualified
plans that will accept such distributions and to individual retirement accounts
and individual retirement annuities. Distributions which may not be rolled over
are those which are:
- one of a series of substantially equal annual (or more frequent) payments
made over the life or life expectancy of the employee, the joint lives or
joint expectancies of the employee and the employee's designated
beneficiary, or for a specified period of ten years or more;
- a required minimum distribution; or
- the non-taxable portion of a distribution.
PAGE 37
<PAGE>
Any distribution eligible for rollover, which may include payment to an
employee, an employee's surviving spouse or an ex-spouse who is an alternate
payee, will be subject to federal tax withholding at a 20% rate unless the
distribution is made as a direct rollover to a tax-qualified plan or to an
individual retirement account or annuity. It may be noted that amounts received
by individuals which are eligible for rollover may still be placed in another
tax-qualified plan or individual retirement account or individual retirement
annuity if the transaction is completed within 60 days after the distribution
has been received. Such a taxpayer must replace withheld amounts with other
funds to avoid taxation on the amount previously withheld.
SEE YOUR OWN TAX ADVISER
It should be understood that the foregoing description of the federal income tax
consequences under these contracts is not exhaustive and that there may be
special rules for situations not discussed here. It should also be understood
that should a plan lose its qualified status, employees will lose some of the
tax benefits described. Statutory changes in the Internal Revenue Code with
varying effective dates, and new regulations may also alter the tax consequences
of specific factual situations. Due to the complexity of the applicable laws,
you may need tax advice before purchasing a variable annuity contract or
exercising elections under such a contract. For further information you should
consult a tax adviser.
PERFORMANCE DATA
From time to time the Variable Annuity Account may publish advertisements
containing performance data relating to its sub-accounts. In the case of the
Money Market Sub-Account, the Variable Annuity Account will publish yield or
effective yield quotations for a seven-day or other specified period. In the
case of the other sub-accounts, performance data will consist of average annual
total return quotations for a one-year period and for the period since the
sub-account became available pursuant to the Variable Annuity Account's
registration statement, and may also include cumulative total return quotations
for the period since the sub-account became available pursuant to such
registration statement.
The Money Market Sub-Account may also quote such average annual and cumulative
total return figures. Performance figures used by the Variable Annuity Account
are based on historical information of the sub-accounts for specified periods,
and the figures are not intended to suggest that such performance will continue
in the future. Performance figures of the Variable Annuity Account will reflect
only charges made against the net asset value of the Variable Annuity Account
pursuant to the terms of the contracts offered by this Prospectus. The various
performance figures used in Variable Annuity Account advertisements relating to
the contracts described in this Prospectus are summarized along with information
on the computations in the Statement of Additional Information.
PAGE 38
<PAGE>
RESTRICTIONS UNDER THE TEXAS OPTIONAL
RETIREMENT PROGRAM
Section 36.105, Title 110B of the Texas Revised Civil Statutes, consistent with
prior interpretations of the Attorney General of the State of Texas, permits
participants in the Texas Optional Retirement Program (ORP) to redeem their
interests in a variable annuity contract issued under the ORP only upon
(1) termination of employment in all institutions of higher education as defined
in Texas law, (2) retirement, or (3) death. Accordingly, participants in the ORP
will be required to obtain certifications from their employers of their status
with respect to ORP employers before they may redeem their contract or transfer
contract values to another carrier qualified to participate in ORP.
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information, which contains additional information
including financial statements, is available from the offices of Minnesota Life
at your request. The Table of Contents for that Statement of Additional
Information is as follows:
Directors and Principal Management Officers of Minnesota Life
Distribution of Contracts
Performance Data
Auditors
Registration Statement
Financial Statements
PAGE 39
<PAGE>
APPENDIX A -- CONDENSED FINANCIAL INFORMATION
The financial statements of the Variable Annuity Account and the Consolidated
Financial Statements of Minnesota Life Insurance Company may be found in the
Statement of Additional Information. The table below gives per unit
information about the financial history of each sub-account for the periods
indicated. Sub-accounts that became available after December 31, 1999 are not
included. This information should be read in conjunction with the financial
statements and related notes of the Variable Annuity Account included in the
Statement of Additional Information.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Growth Sub-Account:
Unit value at beginning of period.......... $5.34 $4.01 $3.04 $2.63 $2.14
Unit value at end of period................ $6.62 $5.34 $4.01 $3.04 $2.63
Number of units outstanding at end of
period.................................... 49,216,657 47,805,851 44,705,247 38,448,452 35,809,340
Bond Sub-Account:
Unit value at beginning of period.......... $2.48 $2.37 $2.19 $2.15 $1.82
Unit value at end of period................ $2.38 $2.48 $2.37 $2.19 $2.15
Number of units outstanding at end of
period.................................... 48,459,470 51,341,159 43,266,404 36,732,062 28,069,241
Money Market Sub-Account:
Unit value at beginning of period.......... $1.69 $1.63 $1.57 $1.52 $1.46
Unit value at end of period................ $1.75 $1.69 $1.63 $1.57 $1.52
Number of units outstanding at end of
period.................................... 41,200,616 27,959,675 19,804,841 22,929,634 14,809,515
Asset Allocation Sub-Account:
Unit value at beginning of period.......... $3.96 $3.25 $2.76 $2.49 $2.01
Unit value at end of period................ $4.51 $3.96 $3.25 $2.76 $2.49
Number of units outstanding at end of
period.................................... 121,522,399 120,373,228 119,491,402 116,211,650 110,975,477
Mortgage Securities Sub-Account:
Unit value at beginning of period.......... $2.28 $2.17 $2.01 $1.93 $1.66
Unit value at end of period................ $2.30 $2.28 $2.17 $2.01 $1.93
Number of units outstanding at end of
period.................................... 40,987,593 41,507,338 34,751,197 32,527,955 31,277,934
Index 500 Sub-Account:
Unit value at beginning of period.......... $4.81 $3.81 $2.91 $2.43 $1.79
Unit value at end of period................ $5.72 $4.81 $3.81 $2.91 $2.43
Number of units outstanding at end of
period.................................... 64,735,863 60,268,563 54,579,265 46,097,553 35,272,024
Capital Appreciation Sub-Account:
Unit value at beginning of period.......... $4.79 $3.71 $2.93 $2.52 $2.08
Unit value at end of period................ $5.76 $4.79 $3.71 $2.93 $2.52
Number of units outstanding at end of
period.................................... 49,725,886 53,894,481 53,582,481 51,023,999 45,964,468
International Stock Sub-Account:
Unit value at beginning of period.......... $2.01 $1.91 $1.73 $1.46 $1.30
Unit value at end of period................ $2.41 $2.01 $1.91 $1.73 $1.46
Number of units outstanding at end of
period.................................... 89,983,922 99,956,739 103,600,602 86,521,264 68,725,183
Small Company Growth Sub-Account:
Unit value at beginning of period.......... $1.78 $1.78 $1.67 $1.59 $1.22
Unit value at end of period................ $2.56 $1.78 $1.78 $1.67 $1.59
Number of units outstanding at end of
period.................................... 61,721,924 69,789,850 68,590,765 59,295,273 43,234,716
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Growth Sub-Account:
Unit value at beginning of period.......... $2.15 $2.08 $2.01 $1.52 $1.54
Unit value at end of period................ $2.14 $2.15 $2.08 $2.01 $1.52
Number of units outstanding at end of
period.................................... 33,090,790 25,980,318 18,152,996 10,204,896 6,759,950
Bond Sub-Account:
Unit value at beginning of period.......... $1.93 $1.77 $1.68 $1.45 $1.37
Unit value at end of period................ $1.82 $1.93 $1.77 $1.68 $1.45
Number of units outstanding at end of
period.................................... 23,798,963 18,794,458 11,267,890 6,184,694 5,250,072
Money Market Sub-Account:
Unit value at beginning of period.......... $1.42 $1.40 $1.38 $1.32 $1.24
Unit value at end of period................ $1.46 $1.42 $1.40 $1.38 $1.32
Number of units outstanding at end of
period.................................... 11,720,778 9,783,391 7,414,734 6,618,010 6,183,393
Asset Allocation Sub-Account:
Unit value at beginning of period.......... $2.07 $1.97 $1.86 $1.46 $1.43
Unit value at end of period................ $2.01 $2.07 $1.97 $1.86 $1.46
Number of units outstanding at end of
period.................................... 109,044,286 99,680,197 66,121,882 33,820,537 22,938,615
Mortgage Securities Sub-Account:
Unit value at beginning of period.......... $1.74 $1.61 $1.54 $1.34 $1.24
Unit value at end of period................ $1.66 $1.74 $1.61 $1.54 $1.34
Number of units outstanding at end of
period.................................... 31,542,405 33,032,291 20,284,849 9,817,276 8,632,895
Index 500 Sub-Account:
Unit value at beginning of period.......... $1.80 $1.66 $1.56 $1.22 $1.29
Unit value at end of period................ $1.79 $1.80 $1.66 $1.56 $1.22
Number of units outstanding at end of
period.................................... 29,639,298 23,455,059 16,294,129 11,254,609 13,788,252
Capital Appreciation Sub-Account:
Unit value at beginning of period.......... $2.06 $1.89 $1.82 $1.30 $1.34
Unit value at end of period................ $2.08 $2.06 $1.89 $1.82 $1.30
Number of units outstanding at end of
period.................................... 40,739,415 30,907,396 21,822,440 10,874,168 6,767,806
International Stock Sub-Account:
Unit value at beginning of period.......... $1.32 $0.93 $1.00(a)
Unit value at end of period................ $1.30 $1.32 $0.93
Number of units outstanding at end of
period.................................... 61,474,893 38,637,487 16,751,564
Small Company Growth Sub-Account:
Unit value at beginning of period.......... $1.16 $1.00(b)
Unit value at end of period................ $1.22 $1.16
Number of units outstanding at end of
period.................................... 29,723,609 9,554,322
</TABLE>
PAGE A-1
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Maturing Government Bond 2002
Sub-Account:
Unit value at beginning of period..... $1.40 $1.29 $1.21 $1.20 $0.97 $1.00(c)
Unit value at end of period........... $1.37 $1.40 $1.29 $1.21 $1.20 $0.97
Number of units outstanding at end of
period............................... 5,090,494 4,526,963 2,938,848 2,935,860 2,417,823 2,528,509
Maturing Government Bond 2006
Sub-Account:
Unit value at beginning of period..... $1.57 $1.39 $1.25 $1.28 $0.96 $1.00(c)
Unit value at end of period........... $1.43 $1.57 $1.39 $1.25 $1.28 $0.96
Number of units outstanding at end of
period............................... 3,776,193 3,881,227 2,665,421 2,334,109 1,878,731 1,808,705
Maturing Government Bond 2010
Sub-Account:
Unit value at beginning of period..... $1.66 $1.47 $1.27 $1.33 $0.95 $1.00(c)
Unit value at end of period........... $1.45 $1.66 $1.47 $1.27 $1.33 $0.95
Number of units outstanding at end of
period............................... 3,079,844 3,046,112 2,017,743 2,077,124 924,681 913,358
Value Stock Sub-Account:
Unit value at beginning of period..... $2.14 $2.13 $1.78 $1.38 $1.05 $1.00(c)
Unit value at end of period........... $2.12 $2.14 $2.13 $1.78 $1.38 $1.05
Number of units outstanding at end of
period............................... 61,230,340 69,982,001 68,251,135 43,796,523 18,744,902 7,178,675
Small Company Value Sub-Account:
Unit value at beginning of period..... $0.95 $1.03 $1.00(d)
Unit value at end of period........... $0.91 $0.95 $1.03
Number of units outstanding at end of
period............................... 10,422,707 7,555,601 4,822,504
Global Bond Sub-Account:
Unit value at beginning of period..... $1.14 $1.00 $1.00(d)
Unit value at end of period........... $1.04 $1.14 $1.00
Number of units outstanding at end of
period............................... 28,982,189 26,841,307 25,083,345
Index 400 Mid-Cap Sub-Account:
Unit value at beginning of period..... $1.16 $1.00 $1.00(d)
Unit value at end of period........... $1.32 $1.16 $1.00
Number of units outstanding at end of
period............................... 11,781,426 7,779,280 5,020,041
Macro-Cap Value Sub-Account:
Unit value at beginning of period..... $1.18 $0.98 $1.00(e)
Unit value at end of period........... $1.24 $1.18 $0.98
Number of units outstanding at end of
period............................... 14,276,707 8,485,870 5,003,390
Micro-Cap Growth Sub-Account:
Unit value at beginning of period..... $1.02 $0.91 $1.00(d)
Unit value at end of period........... $2.51 $1.02 $0.91
Number of units outstanding at end of
period............................... 11,992,142 6,922,652 5,019,879
Real Estate Securities Sub-Account:
Unit value at beginning of period..... $0.86 $1.00(f)
Unit value at end of period........... $0.81 $0.86
Number of units outstanding at end of
period............................... 6,242,074 5,887,391
Templeton Developing Markets Securities
Sub-Account:
Unit value at beginning of period..... $0.54 $0.69 $1.00(d)
Unit value at end of period........... $0.82 $0.54 $0.69
Number of units outstanding at end of
period............................... 9,817,346 4,908,432 724,374
</TABLE>
(a) Period from May 1, 1992, commencement of operations, to December 31, 1992.
(b) Period from May 3, 1993, commencement of operations, to December 31, 1993.
(c) Period from May 2, 1994, commencement of operations, to December 31, 1994.
(d) Period from October 1, 1997, commencement of operations, to December 31,
1997.
(e) Period from October 15, 1997, commencement of operations, to December 31,
1997.
(f) Period from April 24, 1998, commencement of operations, to December 31,
1998.
PAGE A-2
<PAGE>
APPENDIX B -- ILLUSTRATION OF VARIABLE ANNUITY VALUES
The illustration included in this Appendix shows the effect of investment
performance on the monthly variable annuity income. The illustration assumes a
gross investment return of: 0.00%, 6.69% and 10.00%.
For illustration purposes, an average annual expense equal to 2.19% 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 average expense charge of
2.19% includes: 1.25% for Mortality and Expense Risk, and an average of 0.94%for
the fund management fee, other fund expenses, and distribution fee. The average
is calculated from the Fund Annual Expense table found in the front of this
prospectus and is based on the total annual fund operating expenses with waivers
or reductions applied. All portfolios, including those that may not be available
until a later date, have been included in the average except for the Maturing
Government Bond portfolios which are only available for contracts issued prior
to May 1, 2000.
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 the 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 on the proposed annuitant"s date of birth, sex, annuity option, state of
residence, type of funds, value of funds, and selected gross annual rate of
return (not to exceed 12%).
PAGE B-1
<PAGE>
VARIABLE ANNUITY INCOME DETAIL
<TABLE>
<S> <C>
PREPARED FOR: Client SEX: Male DATE OF BIRTH: 06/01/1935
PRESENTED BY: Minnesota Life ANNUITY COMMENCEMENT: 06/01/2000
ANNUITIZATION OPTION: 10 Year Certain with FUNDS: Non-Qualified
Life Contingency ISSUE STATE: MN
LIFE EXPECTANCY: 20.0(IRS) 18.1(ML) SINGLE PAYMENT RECEIVED: $100,000.00
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 0.00% GROSS 6.69% GROSS 10.00% GROSS
DATE OF YEAR AGE (-2.19% NET) (4.50% NET) (7.81% NET)
- ---- --------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
June 01, 2000...................... 1 65 663 663 663
June 01, 2001...................... 2 66 621 663 684
June 01, 2002...................... 3 67 581 663 706
June 01, 2003...................... 4 68 544 663 728
June 01, 2004...................... 5 69 509 663 751
June 01, 2006...................... 7 71 446 663 800
June 01, 2008...................... 9 73 391 663 851
June 01, 2010...................... 11 75 342 663 906
June 01, 2012...................... 13 77 300 663 964
June 01, 2014...................... 15 79 263 663 1,026
June 01, 2016...................... 17 81 230 663 1,092
June 01, 2018...................... 19 83 202 663 1,163
June 01, 2020...................... 21 85 177 663 1,237
June 01, 2022...................... 23 87 155 663 1,317
June 01, 2024...................... 25 89 136 663 1,402
June 01, 2026...................... 27 91 119 663 1,492
June 01, 2028...................... 29 93 104 663 1,588
June 01, 2030...................... 31 95 91 663 1,690
June 01, 2032...................... 33 97 80 663 1,799
June 01, 2035...................... 36 100 65 663 1,976
</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 $762.10.
Net rate of return reflects expenses totaling 2.19%, which consist of the 1.25%
Variable Annuity Account mortality and expense risk charge and 0.94% for the
fund management fee, other fund expenses, and distribution expenses (this is an
average with the actual varying from 0.42% to 1.81%).
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 the current prospectuses for the Variable
Annuity Account and each of the underlying funds. The prospectuses should be
read carefully and retained for future reference.
THE INVESTMENT RETURNS SHOWN ARE HYPOTHETICAL AND ARE NOT A REPRESENTATION OF
FUTURE RESULTS.
THIS IS AN ILLUSTRATION ONLY AND NOT A CONTRACT.
PREPARED BY MINNESOTA LIFE INSURANCE COMPANY
PAGE B-2
<PAGE>
APPENDIX C - TYPES OF QUALIFIED PLANS
PUBLIC SCHOOL SYSTEMS AND CERTAIN TAX EXEMPT ORGANIZATIONS
Under Code Section 403(b), payments made by public school systems and certain
tax exempt organizations to purchase annuity contracts for their employees are
excludable from the gross income of the employee, subject to certain
limitations. However, these payments may be subject to FICA (Social Security)
taxes.
Code Section 403(b)(11) restricts the distribution under Code Section 403(b)
annuity contracts of: (1) elective contributions made in years beginning after
December 31, 1988; (2) earnings on those contributions; and (3) earnings in such
years on amounts held as of the last year beginning before January 1, 1989.
Distribution of those amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. In addition, income attributable to elective contributions may not be
distributed in the case of hardship.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to an
Individual Retirement Annuity, hereinafter referred to as an "IRA". Also,
distributions from certain other types of qualified plans may be "rolled over"
on a tax-deferred basis into an IRA. The sale of a Contract for use with an IRA
may be subject to special disclosure requirements of the Internal Revenue
Service. Purchasers of a Contract for use with IRAs will be provided with
supplemental information required by the Internal Revenue Services or other
appropriate agency. Such purchasers will have the right to revoke their purchase
within 7 days of the earlier of the establishment of the IRA or their purchase.
A Qualified Contract issued in connection with an IRA will be amended as
necessary to conform to the requirements of the Code. Purchasers should seek
competent advice as to the suitability of the Contract for use with IRAs.
Earnings in an IRA are not taxed until distribution. IRA contributions are
limited each year to the lesser of $2,000 or 100% of the Owner's adjusted gross
income and may be deductible in whole or in part depending on the individual's
income. The limit on the amount contributed to an IRA does not apply to
distributions from certain other types of qualified plans that are "rolled over"
on a tax-deferred basis into an IRA. Amounts in the IRA (other than
nondeductible contributions) are taxed when distributed from the IRA.
Distributions prior to age 59 1/2 (unless certain exceptions apply) are subject
to a 10% penalty tax.
SIMPLIFIED EMPLOYEE PENSION (SEP) IRAS
Employers may establish Simplified Employee Pension (SEP) IRAs under Code
section 408(k) to provide IRA contributions on behalf of their employees. In
addition to all of the general Code rules governing IRAs, such plans are subject
to certain Code requirements regarding participation and amounts of
contributions.
PAGE C-1
<PAGE>
SIMPLE IRAS
Beginning January 1, 1997, certain small employers may establish Simple IRAs as
provided by Section 408(p) of the Code, under which employees may elect to defer
up to $6,000 (as increased for cost of living adjustments) as a percentage of
compensation. The sponsoring employer is required to make a matching
contribution on behalf of contributing employees. Distributions from a Simple
IRA are subject to the same restrictions that apply to IRA distributions and are
taxed as ordinary income. Subject to certain exceptions, premature distributions
prior to age 59 1/2 are subject to a 10% penalty tax, which is increased to 25%
if the distribution occurs within the first two years after the commencement of
the employee's participation in the plan.
ROTH IRAS
Effective January 1, 1998, section 408A of the Code permits certain eligible
individuals to contribute to a Roth IRA. Contributions to a Roth IRA, which are
subject to certain limitations, are not deductible and must be made in cash or
as a rollover or transfer from another Roth IRA or other IRA. A rollover from or
conversion of an IRA to a Roth IRA may be subject to tax and a contingent
deferred sales charge. Other special rules may apply. Qualified distributions
from a Roth IRA, as defined by the Code, generally are excluded from gross
income. Qualified distributions include those distributions made more than five
years after the taxable year of the first contribution to the Roth IRA, but only
if: (1) the annuity owner has reached age 59 1/2; (2) the distribution paid to a
beneficiary after the owner's death; (3) the annuity owner becomes disabled; or
(4) the distribution will be used for a first time home purchase and does not
exceed $10,000. Non-qualified distributions are includable in gross income only
to the extent they exceed contributions made to the Roth IRA. The taxable
portion of a non-qualified distribution may be subject to a 10% penalty tax.
In addition, state laws may not completely follow the federal tax treatment of
Roth IRAs. You should consult your tax adviser for further information regarding
Roth IRAs.
CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS
Code Section 401(a) permits employers to establish various types of retirement
plans for employees, and permits self-employed individuals to establish
retirement plans for themselves and their employees. These retirement plans may
permit the purchase of the contracts to accumulate retirement savings under the
plans. Adverse tax or other legal consequences to the plan, to the participant
or to both may result if this annuity is assigned or transferred to any
individual as a means to provide benefit payments, unless the plan complies with
all legal requirements applicable to such benefits prior to transfer of the
annuity.
PAGE C-2
<PAGE>
DEFERRED COMPENSATION PLANS
Code Section 457 provides for certain deferred compensation plans. These plans
may be offered with respect to service for state governments, local governments,
political subdivisions, agencies, instrumentalities and certain affiliates of
such entities, and tax exempt organizations. The plans may permit participants
to specify the form of investment for their deferred compensation account. With
respect to non-governmental Section 457 plans, investments are owned by the
sponsoring employer and are subject to the claims of the general creditors of
the employer and depending on the terms of the particular plan, the employer may
be entitled to draw on deferred amounts for purposes unrelated to its Section
457 plan obligations. In general, all amounts received under a Section 457 plan
are taxable and are subject to federal income tax withholding as wages.
PAGE C-3
<PAGE>
Variable Annuity Account
("Variable Annuity Account"), a Separate Account of
Minnesota Life Insurance Company
("Minnesota Life")
400 Robert Street North
St. Paul, Minnesota 55101-2098
Telephone: (651) 665-3500
Statement of Additional Information
The date of this document and the Prospectus is: May 1, 2000
This Statement of Additional Information is not a prospectus. Much of the
information contained in this Statement of Additional Information expands
upon subjects discussed in the Prospectus. Therefore, this Statement should
be read in conjunction with the Fund's current Prospectus, bearing the same
date, which may be obtained by calling Minnesota Life Insurance Company at
(651) 665-3500; or writing to Minnesota Life at 400 Robert Street North, St.
Paul, Minnesota 55101-2098.
Directors and Principal Management Officers of Minnesota Life
Distribution of Contracts
Performance Data
Auditors
Registration Statement
Financial Statements
1
<PAGE>
DIRECTORS AND PRINCIPAL MANAGEMENT OFFICERS OF MINNESOTA LIFE
Directors Principal Occupation
Anthony L. Andersen Retired since November 1999, prior thereto
Chair-Board of Directors, H. B. Fuller Company,
St. Paul, Minnesota (Adhesive Products), since
June 1995, prior thereto for more than five years
President and Chief Executive Officer, H. B.
Fuller Company
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
Dennis E. Prohofsky Senior Vice President, General
Counsel and Secretary, Minnesota
Life Insurance Company
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 Retired since December 1999, prior thereto for
more than five years Chairman, Chief Financial
and Administrative Officer, Ecolab, Inc.,
St. Paul, Minnesota (Develops and Markets Cleaning
and Sanitizing Products)
William N. Westhoff Senior Vice President and Treasurer,
Minnesota Life Insurance Company since
April 1998, prior thereto from August 1994 to
October 1997, Senior Vice President, Global
Investments, American Express Financial
Corporation, Minneapolis, Minnesota
Frederick T. Weyerhaeuser Retired since April 1998, prior thereto
Chairman and Treasurer, Clearwater Investment
Trust, since May 1996, prior thereto for more
than five years, Chairman, Clearwater Management
Company, St. Paul, Minnesota (Financial
Management)
2
<PAGE>
Principal Officers (other than Directors)
Name Position
John F. Bruder Senior Vice President
Keith M. Campbell Senior Vice President
James E. Johnson Senior Vice President
Gregory S. Strong Senior Vice President and Chief Financial
Officer
Terrence M. Sullivan Senior Vice President
Randy F. Wallake Senior Vice President
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.
DISTRIBUTION OF CONTRACTS
The contracts will be sold in a continuous offering by our life insurance
agents who are also registered representatives of Ascend Financial Services,
Inc. ("Ascend Financial") or other broker-dealers who have entered into
selling agreements with Ascend Financial. Ascend Financial acts as principal
underwriter of the contracts. Ascend Financial is a wholly-owned subsidiary
of Advantus Capital Management, Inc., which in turn is a wholly-owned
subsidiary of Minnesota Life. Minnesota Life is also the sole owner of the
shares of Advantus Capital Management Inc., a registered investment adviser
and the investment adviser to the Advantus Series Fund, Inc. Ascend Financial
is registered as a broker-dealer under the Securities Exchange Act of 1934
and is a member of the National Association of Securities Dealers, Inc. and
Amounts paid by Minnesota Life to the underwriter for 1999, 1998, and 1997
were $16,104,617 $15,989,724, and $15,067,613, respectively, for payments to
associated dealers on the sale of the contracts, which include other
contracts issued through the Variable Annuity Account. Agents of Minnesota
Life who are also registered representatives of Ascend Financial are
compensated directly by Minnesota Life.
3
<PAGE>
PERFORMANCE DATA
CURRENT YIELD FIGURES FOR MONEY MARKET SUB-ACCOUNT
Current annualized yield quotations for the Money Market Sub-Account are based
on the Sub-Account's net investment income for a seven-day or other specified
period and exclude any realized or unrealized gains or losses on sub-account
securities. Current annualized yield is computed by determining the net change
(exclusive of realized gains and losses from the sale of securities and
unrealized appreciation and depreciation) in the value of a hypothetical account
having a balance of one accumulation unit at the beginning of the specified
period, dividing such net change in account value by the value of the account at
the beginning of the period, and annualizing this quotient on a 365-day basis.
The Variable Annuity Account may also quote the effective yield of the Money
Market Sub-Account for a seven-day or other specified period for which the
current annualized yield is computed by expressing the unannualized return on a
compounded, annualized basis. The yield and effective yield of the Money Market
Sub-Account for the seven-day period ended December 31, 1999 were 3.96% and
4.04%, respectively. Yield figures quoted by the Money Market Sub-Account
will not reflect the deduction of any applicable deferred sales charges (the
deferred sales charges, as a percentage of the accumulation value withdrawn,
begin as of the contract date at 9% for the flexible payment contract and at
6% for the single payment contract, and decrease uniformly each month for 120
months).
TOTAL RETURN FIGURES FOR ALL SUB-ACCOUNTS
Cumulative total return quotations for Sub-Accounts represent the total return
for the period since the Sub-Account became available pursuant to the Variable
Annuity Account's registration statement. Cumulative total return is equal to
the percentage change between the net asset value of a hypothetical $1,000
investment at the beginning of the period and the net asset value of that same
investment at the end of the period. Such quotations of cumulative total return
will not reflect the deduction of any applicable deferred sales charges.
The cumulative total return figures published by the Variable Annuity Account
relating to the contracts described in the Prospectus will reflect Minnesota
Life's voluntary absorption of certain Fund expenses described below. The
cumulative total returns for the Sub-Accounts for the specified periods ended
December 31, 1999 are shown in the table below. The figures in parentheses show
what the cumulative total returns would have been had Minnesota Life not
absorbed Fund expenses as described.
4
<PAGE>
<TABLE>
<CAPTION>
Date of
From Inception Inception
to 12/31/99 of Sub-Account
--------------- --------------
<S> <C> <C> <C>
Growth Sub-Account (526.84%) 533.40% 12/3/85
Bond Sub-Account (134.28%) 135.52% 12/3/85
Money Market Sub-Account (70.38%) 73.44% 12/3/85
Asset Allocation Sub-Account (338.01%) 339.09% 12/3/85
Mortgage Securities Sub-Account (129.14%) 129.58% 6/1/87
Index 500 Sub-Account (470.27%) 472.21% 6/1/87
Capital Appreciation Sub-Account (470.35%) 477.37% 6/1/87
International Stock Sub-Account (141.12%) 141.19% 5/1/92
Small Company Growth Sub-Account (155.97%) 155.97% 5/3/93
Maturing Government Bond
2002 Sub-Account (38.67%) 40.62% 5/2/94
Maturing Government Bond
2006 Sub-Account (44.49%) 47.42% 5/2/94
Maturing Government Bond
2010 Sub-Account (45.33%) 50.95% 5/2/94
Value Stock Sub-Account (111.40%) 111.75% 5/2/94
Small Company Value Sub-Account (-10.22%) -10.10% 10/1/97
Global Bond Sub-Account (4.22%) 4.22% 10/1/97
Index 400 Mid-Cap Sub-Account (31.33%) 31.63% 10/1/97
Macro-Cap Value Sub-Account (23.84%) 24.38% 10/15/97
Micro-Cap Growth Sub-Account (136.64%) 138.16% 10/1/97
Real Estate Securities Sub-Account (-19.29%) -18.95% 5/1/98
Templeton Developing Markets
Securities Class 2 Sub-Account (-18.08%) -18.08% 10/1/97
Fidelity VIP II ContraFund Service Class 2
Sub-Account (n/a) n/a 2/1/00
Fidelity VIP III Mid Cap Service Class 2
Sub-Account (n/a) n/a 2/1/00
Fidelity VIP Equity-Income Service Class 2
Sub-Account (n/a) n/a 2/1/00
Janus Aspen Capital Appreciation
Service Shares Sub-Account (n/a) n/a 2/1/00
Janus Aspen International Growth
Service Shares Sub-Account (n/a) n/a 2/1/00
Franklin Small Cap Class 2 Sub-Account (n/a) n/a 8/1/00
Templeton Asset Strategy Class 2
Sub-Account (n/a) n/a 8/1/00
Warburg Pincus Global Post-Venture
Capital Sub-Account (n/a) n/a 8/1/00
</TABLE>
Cumulative total return quotations for Sub-Accounts will be accompanied by
average annual total return figures for a one-year period, five-year period
and ten-year period or for the period since the Sub-Account became available
pursuant to the Variable Annuity Account's registration statement if less
than ten years. Average annual total return figures are the average annual
compounded rates of return required for an initial investment of $1,000 to
equal the surrender value of that same investment at the end of the period.
The surrender value will reflect the deduction of the deferred sales charge
applicable to the contract (flexible premium/single premium) and to the
length of the period advertised. The average annual total return figures
published by the Variable Annuity Account will reflect Minnesota Life's
voluntary absorption of certain Fund expenses.
5
<PAGE>
For the period subsequent to March 9, 1987, Minnesota Life is voluntarily
absorbing the fees and expenses that exceed .65% of the average daily net
assets of the Growth, Bond, Money Market, Asset Allocation and Mortgage
Securities Portfolios of the Fund, .55% of the average daily net assets of
the Index 500 Portfolios of the Fund, .90% of the average daily net assets of
the Capital Appreciation and Small Company Portfolios of the Funds and
expenses that exceed 1.00% of the average daily net assets of the
International Stock Portfolios of the Fund exclusive of the advisory fee. For
the period subsequent to May 2, 1994, Minnesota Life has voluntarily agreed
to absorb fees and expenses that exceed .90% of the average daily net assets
of the Value Stock Portfolios, fees and expenses that exceed .40% of the
average daily net assets of the Maturing Government Bond Portfolios maturing
in 2006 and 2010 and fees and expenses that exceed .20% of the average daily
net assets of the Maturing Government Bond Portfolios maturing in 1998 and
2002. Subsequent to May 1, 1998, Minnesota Life has voluntarily absorbed
fees and expenses that exceed .40% of the average daily net assets of the
Maturing Government Bond Portfolios maturing in 1998 and 2002.
For the period subsequent to October 1, 1997, Minnesota Life has voluntarily
agreed to absorb fees and expenses that exceed .55% of the average daily net
assets of the Index 400 Mid-Cap Portfolio, .90% of the average daily net
assets of the Small Company Value Portfolio, 1.25% of the average daily net
assets of the Micro-Cap Growth Portfolio, .85% of the average daily net
assets of the Macro-Cap Value Portfolio and expenses that exceed 1.00% of the
average daily net assets of the Global Bond Portfolio of the Fund exclusive
of the advisory fee. For the period subsequent to May 1, 1998, Minnesota Life
has voluntarily agreed to absorb fees and expenses that exceed 90% of the
average daily net assets of the Real Estate Securities Portfolio. For the
period January 1, 1999 through December 31, 1999 Minnesota Life voluntarily
absorbed the following: Maturing Government Bond 2002 0.68%; Maturing
Government Bond 2006 0.86%; Maturing Government Bond 2010 1.03%; Small
Company Value 0.66%; Index 400 Mid Cap 0.45%; Macro Cap Value 0.63%; Micro
Cap Growth 0.32%; Real Estate Securities 1.15%. Advantus Capital Management,
Inc. ("Advantus Capital") intends to waive other fund expenses during the
current fiscal year which exceed, as a percentage of average daily net
assets, .15%, except for International Stock Portfolio and Global Bond
Portfolio where it must exceed 1.00%. There is no specified or minimum period
of time during which Advantus Capital has agreed to continue its voluntary
absorption of these expenses, and Advantus Capital may in its discretion
cease its absorption of expenses at any time. Should Advantus Capital cease
absorbing expenses the effect would be to increase substantially Fund
expenses and thereby reduce investment return.
6
<PAGE>
The average annual rates of return for the Sub-Accounts, in connection with both
the flexible premium and single premium contracts described in the Prospectus,
for the specified periods ended December 31, 1999 are shown in the tables below.
The figures in parentheses show what the average annual rates of return would
have been had Minnesota Life not absorbed Fund expenses as described above.
<TABLE>
<CAPTION>
Flexible Premium Contract
-------------------------
Date of
Year Ended Five Years Ten Years From Inception Inception
12/31/99 Ended 12/31/99 Ended 12/31/99 to 12/31/99 of Sub-Account
-------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Sub-Account (14.86%) 14.86% (24.25%) 24.25% (15.73%) 15.73% (n/a) n/a 12/3/85
Bond Sub-Account (-10.91%) -10.91% (4.65%) 4.65% (5.66%) 5.68% (n/a) n/a 12/3/85
Money Market Sub-Account (-4.16%) -4.16% (2.88%) 2.88% (3.34%) 3.49% (n/a) n/a 12/3/85
Asset Allocation Sub-Account (5.34%) 5.34% (16.51%) 16.51% (12.20%) 12.20% (n/a) n/a 12/3/85
Mortgage Securities Sub-Account (-6.63%) -6.63% (5.84%) 5.84% (6.37%) 6.38% (n/a) n/a 6/1/87
Index 500 Sub-Account (9.97%) 9.97% (25.03%) 25.03% (16.09%) 16.10% (n/a) n/a 6/1/87
Capital Appreciation
Sub-Account (11.09%) 11.09% (21.54%) 21.54% (15.64%) 15.66% (n/a) n/a 6/1/87
International Stock Sub-Account (11.02%) 11.02% (12.30%) 12.30% (n/a) n/a (11.86%) 11.87% 5/1/92
Small Company Growth
Sub-Account (32.98%) 32.98% (14.99%) 14.99% (n/a) n/a (14.64%) 14.64% 5/3/93
Maturing Government Bond
2002 Sub-Account (-9.39%) -8.87% (5.51%) 6.29% (n/a) n/a (4.72%) 5.52% 5/2/94
7
<PAGE>
<CAPTION>
Flexible Premium Contract
-------------------------
Date of
Year Ended Five Years Ten Years From Inception Inception
12/31/99 Ended 12/31/99 Ended 12/31/99 to 12/31/99 of Sub-Account
-------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maturing Government Bond
2006 Sub-Account (-16.35%) -15.52% (6.37%) 7.34% (n/a) n/a (5.38%) 6.41% 5/2/94
Maturing Government Bond
2010 Sub-Account (-19.81%) -18.90% (6.22%) 7.95% (n/a) n/a (5.02%) 6.86% 5/2/94
Value Stock Sub-Account (-8.18%) -8.18% (4.17%) 4.18% (n/a) n/a (13.18%) 13.23% 5/2/94
Small Company Value
Sub-Account (-11.75%) -11.21% (n/a) n/a (n/a) n/a (-7.74%) -7.34% 10/1/97
Global Bond Sub-Account (-15.52%) -15.52% (n/a) n/a (n/a) n/a (-1.04%) -1.04% 10/1/97
Index 400 Mid-Cap Sub-Account (5.72%) 6.06% (n/a) n/a (n/a) n/a (9.37%) 9.69% 10/1/97
Macro-Cap Value Sub-Account (-2.41%) -1.92% (n/a) n/a (n/a) n/a (6.39%) 7.12% 10/15/97
Micro-Cap Growth
Sub-Account (126.28%) 126.60% (n/a) n/a (n/a) n/a (41.61%) 42.51% 10/1/97
Real Estate Securities
Sub-Account (-13.37%) -11.96% (n/a) n/a (n/a) n/a (-16.95%) -16.04% 5/1/98
Templeton Developing
Markets Securities Class 2
Sub-Account (39.92%) 39.92% (n/a) n/a (n/a) n/a (-11.20%) -11.20% 10/1/97
Fidelity VIP II ContraFund
Service Class 2
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a 2/1/00
Fidelity VIP III Mid Cap
Service Class 2
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a 2/1/00
8
<PAGE>
<CAPTION>
Flexible Premium Contract
-------------------------
Date of
Year Ended Five Years Ten Years From Inception Inception
12/31/99 Ended 12/31/99 Ended 12/31/99 to 12/31/99 of Sub-Account
-------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fidelity VIP II Equity-Income
Service Class 2
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a 2/1/00
Janus Aspen Capital Appreciation
Service Shares
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a 2/1/00
Janus Aspen International Growth
Service Shares
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a 2/1/00
Franklin Small Cap Class 2
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a 8/1/00
Templeton Asset Strategy
Class 2 Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a 8/1/00
Warburg Pincus Global
Post-Venture Capital
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a 8/1/00
9
<PAGE>
<CAPTION>
Single Premium Contract
- -----------------------
Date of
Year Ended Five Years Ten Years From Inception Inception
12/31/99 Ended 12/31/99 Ended 12/31/99 to 12/31/99 of Sub-Account
-------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Sub-Account (17.94%) 17.94% (24.60%) 24.60% (15.73%) 15.73% (n/a) n/a 12/3/85
Bond Sub-Account (-8.58%) -8.58% (4.94%) 4.94% (5.66%) 5.68% (n/a) n/a 12/3/85
Money Market Sub-Account (-1.64%) -1.64% (3.17%) 3.17% (3.34%) 3.49% (n/a) n/a 12/3/85
Asset Allocation
Sub-Account (8.14%) 8.14% (16.84%) 16.84% (12.20%) 12.20% (n/a) n/a 12/3/85
Mortgage Securities
Sub-Account (-4.18%) -4.18% (6.14%) 6.14% (6.37%) 6.38% (n/a) n/a 6/1/87
Index 500 Sub-Account (12.91%) 12.91% (25.38%) 25.38% (16.09%) 16.10% (n/a) n/a 6/1/87
Capital Appreciation
Sub-Account (14.06%) 14.06% (21.89%) 21.89% (15.64%) 15.66% (n/a) n/a 6/1/87
International Stock
Sub-Account (13.99%) 13.99% (12.62%) 12.62% (n/a) n/a (11.96%) 11.97% 5/1/92
Small Company Growth
Sub-Account (36.60%) 36.60% (15.33%) 15.33% (n/a) n/a (14.81%) 14.81% 5/3/93
Maturing Government Bond
2002 Sub-Account (-7.01%) -6.49% (5.81%) 6.59% (n/a) n/a (4.95%) 5.75% 5/2/94
Maturing Government Bond
2006 Sub-Account (-14.16%) -13.33% (6.67%) 7.64% (n/a) n/a (5.61%) 6.64% 5/2/94
10
<PAGE>
<CAPTION>
Single Premium Contract
- -----------------------
Date of
Year Ended Five Years Ten Years From Inception Inception
12/31/99 Ended 12/31/99 Ended 12/31/99 to 12/31/99 of Sub-Account
-------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maturing Government Bond
2010 Sub-Account (-17.72%) -16.81% (6.52%) 8.25% (n/a) n/a (5.25%) 7.09% 5/2/94
Value Stock Sub-Account (-5.78%) -5.78% (14.49%) 14.50% (n/a) n/a (13.42%) 13.47% 5/2/94
Small Company Value
Sub-Account (-9.44%) -8.90% (n/a) n/a (n/a) n/a (-6.82%) -6.42% 10/1/97
Global Bond Sub-Account (-13.33%) -13.33% (n/a) n/a (n/a) n/a (.06%) .06% 10/1/97
Index 400 Mid-Cap
Sub-Account (8.54%) 8.88% (n/a) n/a (n/a) n/a (10.48%) 10.80% 10/1/97
Macro-Cap Value
Sub-Account (.18%) .67% (n/a) n/a (n/a) n/a (7.48%) 8.21% 10/15/97
Micro-Cap Growth
Sub-Account (132.64%) 132.96% (n/a) n/a (n/a) n/a (43.13%) 44.03% 10/1/97
Real Estate Securities
Sub-Account (-10.96%) -9.67% (n/a) n/a (n/a) n/a (-15.73%) -14.82% 5/1/98
Templeton Developing
Markets Securities Class 2
Sub-Account (43.74%) 43.74% (n/a) n/a (n/a) n/a (-10.28%) -10.28% 10/1/97
Fidelity VIP II ContraFund
Service Class 2
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a 2/1/00
Fidelity VIP III Mid Cap
Service Class 2
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a 2/1/00
11
<PAGE>
<CAPTION>
Single Premium Contract
- -----------------------
Date of
Year Ended Five Years Ten Years From Inception Inception
12/31/99 Ended 12/31/99 Ended 12/31/99 to 12/31/99 of Sub-Account
-------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fidelity VIP II Equity-Income
Service Class 2
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a 2/1/00
Janus Aspen Capital Appreciation
Service Shares
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a 2/1/00
Janus Aspen International Growth
Service Shares
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a 2/1/00
Franklin Small Cap Class 2
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a 8/1/00
Templeton Asset Strategy
Class 2 Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a 8/1/00
Warburg Pincus Global
Post-Venture Capital
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a 8/1/00
</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, 1999 are shown in the
table below. Inasmuch as no deferred sales charges are reflected in these
figures,
12
<PAGE>
they are the same for both the flexible premium and the single premium
contracts. The figures in parentheses show what the average annual rates of
return, without the application of applicable deferred sales charges, would have
been had Minnesota Life not absorbed Fund expenses as described above.
The sub-account inception dates for the Fidelity and Janus funds are 2/1/2000.
Performance stated before the inception date is based on the historical
performance of a different class of shares, and applying the charges of the
separate account to that class of shares. Performance shown would have been
lower had the new class of shares fee structure been in place.
<TABLE>
<CAPTION>
Date of
Year Ended Five Years Ten Years From Inception Inception
12/31/99 Ended 12/31/99 Ended 12/31/99 to 12/31/99 of Sub-Account
-------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Sub-Account (24.11%) 24.11% (25.30%) 25.30% (15.73%) 15.73% (n/a) n/a 12/3/85
Bond Sub-Account (-3.94%) -3.94% (5.51%) 5.51% (5.66%) 5.68% (n/a) n/a 12/3/85
Money Market Sub-Account (3.41%) 3.41% (3.73%) 3.73% (3.34%) 3.49% (n/a) n/a 12/3/85
Asset Allocation
Sub-Account (13.74%) 13.74% (17.49%) 17.49% (12.20%) 12.20% (n/a) n/a 12/3/85
Mortgage Securities
Sub-Account (.72%) .72% (6.72%) 6.72% (6.37%) 6.38% (n/a) n/a 6/1/87
Index 500 Sub-Account (18.78%) 18.78% (26.08%) 26.08% (16.09%) 16.10% (n/a) n/a 6/1/87
Capital Appreciation
Sub-Account (20.00%) 20.00% (22.57%) 22.57% (15.64%) 15.66% (n/a) n/a 6/1/87
International Stock
Sub-Account (19.92%) 19.92% (13.25%) 13.25% (n/a) n/a (12.15%) 12.16% 5/1/92
Small Company Growth
Sub-Account (43.82%) 43.82% (15.98%) 15.98% (n/a) n/a (15.14%) 15.14% 5/3/93
13
<PAGE>
<CAPTION>
Date of
Year Ended Five Years Ten Years From Inception Inception
12/31/99 Ended 12/31/99 Ended 12/31/99 to 12/31/99 of Sub-Account
-------- -------------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maturing Government Bond
2002 Sub-Account (-2.24%) -1.72% (6.40%) 7.18% (n/a) n/a (5.40%) 6.20% 5/2/94
Maturing Government Bond
2006 Sub-Account (-9.79%) -8.96% (7.25%) 8.22% (n/a) n/a (6.06%) 7.09% 5/2/94
Maturing Government Bond
2010 Sub-Account (-13.55%) -12.64% (7.10%) 8.83% (n/a) n/a (5.69%) 7.53% 5/2/94
Value Stock Sub-Account (-.97%) -.97% (15.12%) 15.13% (n/a) n/a (13.91%) 13.96% 5/2/94
Small Company Value
Sub-Account (-4.81%) -4.27% (n/a) n/a (n/a) n/a (-5.02%) -4.62% 10/1/97
Global Bond Sub-Account (-8.95%) -8.95% (n/a) n/a (n/a) n/a (1.85%) 1.85% 10/1/97
Index 400 Mid-Cap
Sub-Account (14.19%) 14.53% (n/a) n/a (n/a) n/a (12.66%) 12.98% 10/1/97
Macro-Cap Value
Sub-Account (5.35%) 5.84% (n/a) n/a (n/a) n/a (9.63%) 10.36% 10/15/97
Micro-Cap Growth
Sub Account (145.37%) 145.69% (n/a) n/a (n/a) n/a (46.11%) 47.01% 10/1/97
Real Estate Securities
Sub-Account (-6.37%) -5.08% (n/a) n/a (n/a) n/a (-13.34%) -12.43% 5/1/98
Templeton Developing
Markets Securities Class 2
Sub-Account (51.37%) 51.37% (n/a) n/a (n/a) n/a (-8.47%) -8.47% 10/1/97
14
<PAGE>
<CAPTION>
Date of
Year Ended Five Years Ten Years From Inception Inception
12/31/99 Ended 12/31/99 Ended 12/31/99 to 12/31/99 of Sub-Account
-------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fidelity VIP II ContraFund
Service Class 2
Sub-Account (22.61%) 22.61% (n/a) n/a (n/a) n/a (26.13%) 26.13% 2/1/00
Fidelity VIP III Mid Cap
Service Class 2
Sub-Account (45.99%) (45.99%) (n/a) n/a (n/a) n/a (49.70%) 49.70% 2/1/00
Fidelity VIP Equity-Income
Service Class 2
Sub-Account (4.94%) 4.94% (17.10%) 17.10% (13.05%) 13.05% (12.36%) 12.36% 2/1/00
Janus Aspen Capital Appreciation
Service Shares
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a 2/1/00
Janus Aspen International
Growth Service Shares
Sub-Account (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a 2/1/00
Franklin Small Cap Class 2
Sub-Account (92.85%) 92.85% (n/a) n/a (n/a) n/a (26.66%) (26.66%) 8/1/00
Templeton Asset Strategy
Class 2 Sub-Account (21.02%) 21.02% (15.47%) 15.47% (11.61%) 11.61% (11.40%) 11.40% 8/1/00
Warburg Pincus Global
Post-Venture Capital
Sub-Account (60.93%) 60.93% (n/a) n/a (n/a) n/a (20.83%) 20.83% 8/1/00
</TABLE>
15
<PAGE>
PREDICTABILITY OF RETURN
ANTICIPATED VALUE AT MATURITY. The maturity values of zero-coupon bonds are
specified at the time the bonds are issued, and this feature, combined with the
ability to calculate yield to maturity, has made these instruments popular
investment vehicles for investors seeking reliable investments to meet long-term
financial goals.
Each Maturing Government Bond Portfolio of the Fund consists primarily of zero-
coupon bonds but is actively managed to accommodate contract owner activity and
to take advantage of perceived market opportunities. Because of this active
management approach, there is no guarantee that a certain price per share of a
Maturing Government Bond Portfolio, or a certain price per unit of the
corresponding Sub-Account, will be attained by the time a Portfolio is
liquidated. Instead, the Fund attempts to track the price behavior of a
directly held zero-coupon bond by:
(1) Maintaining a weighted average maturity within each Maturing
Government Bond Portfolio's target maturity year;
(2) Investing at least 90% of assets in securities that mature within one
year of that Portfolio's target maturity year;
(3) Investing a substantial portion of assets in Treasury STRIPS (the most
liquid Treasury zero);
(4) Under normal conditions, maintaining a nominal cash balance;
(5) Executing portfolio transactions necessary to accommodate net contract
owner purchases or redemptions on a daily basis; and
(6) Whenever feasible, contacting several U.S. government securities
dealers for each intended transaction in an effort to obtain the best
price on each transaction.
These measures enable the Company to calculate an anticipated value at maturity
(AVM) for each unit of a Maturing Government Bond Sub-Account, calculated as of
the date of purchase of such unit, that approximates the price per unit that
such unit will achieve by the weighted average maturity date of the underlying
Portfolio. The AVM calculation for each Maturing Government Bond Sub-Account is
as follows:
AVM = P(1 + AGR/2) to the power of 2T
where P = the Sub-Account's current price per unit; T = the Sub-Account's
weighted average term to maturity in years; and AGR = the anticipated growth
rate.
This calculation assumes an expense ratio and a portfolio composition for the
underlying Maturing Government Bond Portfolio that remain constant for the life
of such Portfolio. Because the Portfolio's expenses and composition do not
remain constant, however, the Company may
16
<PAGE>
calculate AVM for each Maturing Government Bond Sub-Account on any day on which
the underlying Maturing Government Bond Portfolio is valued. Such an AVM is
applicable only to units purchased on that date.
In addition to the measures described above, which the adviser believes are
adequate to assure close correspondence between the price behavior of each
Portfolio and the price behavior of directly held zero-coupon bonds with
comparable maturities, the Fund expects that each Portfolio will invest at least
90% of its net assets in zero-coupon bonds until it is within four years of its
target maturity year and at least 80% of its net assets in zero-coupon
securities within two to four years of its target maturity year. This
expectation may be altered if the market supply of zero-coupon securities
diminishes unexpectedly.
ANTICIPATED GROWTH RATE. The Company calculates an anticipated growth rate
(AGR) for each Maturing Government Bond Sub-Account on each day on which the
underlying Portfolio is valued. AGR is a calculation of the anticipated
annualized rate of growth for a Sub-Account unit, calculated from the date of
purchase of such unit to the Sub-Account's target maturity date. As is the case
with calculations of AVM, the AGR calculation assumes that each underlying
Maturing Government Bond Portfolio expense ratio and portfolio composition will
remain constant. Each Maturing Government Bond Sub-Account AGR changes from day
to day (i.e., a particular AGR calculation is applicable only to units purchased
on that date), due primarily to changes in interest rates and, to a lesser
extent, to changes in portfolio composition and other factors that affect the
value of the underlying Portfolio.
The Company expects that a contract owner who holds specific units until the
underlying Portfolio's weighted average maturity date will realize an investment
return and maturity value on those units that do not differ substantially from
the AGR and AVM calculated on the day such units were purchased. The AGR and
AVM calculated with respect to units purchased any other date, however, may be
materially different.
AUDITORS
The consolidated financial statements of Minnesota Life and the Variable
Annuity Account included herein have been audited by KPMG 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 LLP and upon the authority of
said firm as experts in accounting and auditing.
REGISTRATION STATEMENT
We have filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933, as amended, with respect to the
contracts offered hereby. This Prospectus does not contain all the information
set forth in the registration statement and amendments thereto and the exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning the Variable Annuity Account, Minnesota Life, and the
contracts. Statements contained in this Prospectus as to the contents of
contracts and other legal instruments are summaries, and reference is made to
such instruments as filed.
17
<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 Growth, 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), as of December 31, 1999 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, 1999 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 Growth, 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, 1999 and the results
of their operations, changes in their net assets and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
KPMG LLP
Minneapolis, Minnesota
February 4, 2000
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------
MONEY ASSET
ASSETS GROWTH BOND MARKET ALLOCATION
------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
Growth Portfolio, 102,150,015 shares at net asset
value of $3.33 per share (cost $229,222,924).............. $340,441,608 - - -
Bond Portfolio, 104,450,367 shares at net asset
value of $1.18 per share (cost $130,246,982).............. - 123,212,040 - -
Money Market Portfolio, 77,746,588 shares at
net asset value of $1.00 per share (cost $77,746,588)..... - - 77,746,588 -
Asset Allocation Portfolio, 238,232,702 shares at
net asset value of $2.39 per share (cost $435,126,522).... - - - 568,532,959
Mortgage Securities Portfolio, 84,279,775 shares at
net asset value of $1.17 per share (cost $98,514,345).... - - - -
Index 500 Portfolio, 93,620,590 shares at net asset
value of $4.56 per share (cost $272,052,018).............. - - - -
Capital Appreciation Portfolio, 80,817,036 shares at
net asset value of $3.70 per share (cost $192,682,114).... - - - -
------------ ----------- ----------- -----------
340,441,608 123,212,040 77,746,588 568,532,959
Receivable for investments sold................................... 399,903 78,433 141,970 786,111
Receivable from Minnesota Life for contract purchase payments..... 143,866 39,055 1,191,214 237,463
------------ ----------- ----------- -----------
Total assets............................................ 340,985,377 123,329,528 79,079,772 569,556,533
------------ ----------- ----------- -----------
LIABILITIES
-----------
Payable for investments purchased................................. 143,866 39,055 1,191,214 237,463
Payable to Minnesota Life for contract terminations
and mortality and expense charges.............................. 399,903 78,433 141,970 786,111
------------ ----------- ----------- -----------
Total liabilities......................................... 543,769 117,488 1,333,184 1,023,574
------------ ----------- ----------- -----------
Net assets applicable to annuity contract owners.......... $ 340,441,608 123,212,040 77,746,588 568,532,959
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
CONTRACT OWNERS' EQUITY
-----------------------
Contracts in accumulation period
(MultiOption Flex/Single/Select)............................... $ 325,822,734 115,403,799 72,023,538 547,968,676
Contracts in accumulation period
(MultiOption Classic/Achiever)................................. 1,877,652 763,788 3,410,308 3,652,657
Contracts in accumulation period (MegAnnuity)..................... 9,386,598 5,481,670 2,191,566 8,864,610
Contracts in annuity payment period
(MultiOption Flex/Single/Select) (note 2)...................... 3,209,966 1,533,406 121,176 7,480,265
Contracts in annuity payment period (Megannuity) (note 2)......... 144,658 29,377 - 566,751
Contracts in annuity payment period
(Adjustable Income Annuity) (note 2)........................... - - - -
------------ ----------- ----------- -----------
Total contract owners' equity............................. $ 340,441,608 123,212,040 77,746,588 568,532,959
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/SELECT)... 49,216,657 48,459,470 41,200,616 121,522,399
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER)..... 1,608,959 765,852 3,372,875 3,296,125
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
ACCUMULATION UNITS OUTSTANDING (MEGANNUITY)....................... 1,773,719 2,238,400 1,175,791 2,078,286
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT
(MULTIOPTION FLEX/SINGLE/SELECT)............................... $ 6.62 2.38 1.75 4.51
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT
(MULTIOPTION CLASSIC/ACHIEVER)................................. $ 1.17 1.00 1.01 1.10
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY)................ $ 5.29 2.45 1.86 4.27
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------
MORTGAGE INDEX CAPITAL
ASSETS SECURITIES 500 APPRECIATION
------ ------------ ----------- ----------------
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
Growth Portfolio, 102,150,015 shares at net asset
value of $3.33 per share (cost $229,222,924).............. $ - - -
Bond Portfolio, 104,450,367 shares at net asset
value of $1.18 per share (cost $130,246,982).............. - - -
Money Market Portfolio, 77,746,588 shares at
net asset value of $1.00 per share (cost $77,746,588)..... - - -
Asset Allocation Portfolio, 238,232,702 shares at
net asset value of $2.39 per share (cost $435,126,522).... - - -
Mortgage Securities Portfolio, 84,279,775 shares at
net asset value of $1.17 per share (cost $98,514,345).... 98,489,717 - -
Index 500 Portfolio, 93,620,590 shares at net asset
value of $4.56 per share (cost $272,052,018).............. - 427,268,242 -
Capital Appreciation Portfolio, 80,817,036 shares at
net asset value of $3.70 per share (cost $192,682,114).... - - 299,365,075
------------ ----------- -----------
98,489,717 427,268,242 299,365,075
Receivable for investments sold................................... 109,009 876,116 376,169
Receivable from Minnesota Life for contract purchase payments..... 40,560 266,956 49,060
------------ ----------- -----------
Total assets............................................ 98,639,286 428,411,314 299,790,304
------------ ----------- -----------
LIABILITIES
-----------
Payable for investments purchased................................. 40,560 266,956 49,060
Payable to Minnesota Life for contract terminations
and mortality and expense charges.............................. 109,009 876,116 376,169
------------ ----------- -----------
Total liabilities......................................... 149,569 1,143,072 425,229
------------ ----------- -----------
Net assets applicable to annuity contract owners.......... $ 98,489,717 427,268,242 299,365,075
------------ ----------- -----------
------------ ----------- -----------
CONTRACT OWNERS' EQUITY
-----------------------
Contracts in accumulation period
(MultiOption Flex/Single/Select)............................... 94,095,555 370,000,382 286,307,412
Contracts in accumulation period
(MultiOption Classic/Achiever)................................. 993,688 2,216,824 766,231
Contracts in accumulation period (MegAnnuity)..................... 2,282,486 16,762,759 9,218,987
Contracts in annuity payment period
(MultiOption Flex/Single/Select) (note 2)...................... 1,117,988 4,077,098 2,995,002
Contracts in annuity payment period (Megannuity) (note 2)......... - 98,282 77,443
Contracts in annuity payment period
(Adjustable Income Annuity) (note 2)........................... - 34,112,897 -
------------ ----------- -----------
Total contract owners' equity............................. $ 98,489,717 427,268,242 299,365,075
------------ ----------- -----------
------------ ----------- -----------
ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/SELECT)... 40,937,593 64,735,863 49,725,886
------------ ----------- -----------
------------ ----------- -----------
ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER)..... 989,073 2,038,959 602,909
------------ ----------- -----------
------------ ----------- -----------
ACCUMULATION UNITS OUTSTANDING (MEGANNUITY)....................... 878,899 2,938,591 1,598,318
------------ ----------- -----------
------------ ----------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT
(MULTIOPTION FLEX/SINGLE/SELECT)............................... $ 2.30 5.72 5.76
------------ ----------- -----------
------------ ----------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT
(MULTIOPTION CLASSIC/ACHIEVER)................................. $ 1.00 1.09 1.27
------------ ----------- -----------
------------ ----------- -----------
NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY)................ $ 2.60 5.70 5.77
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------
MATURING
SMALL GOVERNMENT
INTERNATIONAL COMPANY BOND
ASSETS STOCK GROWTH 2002
------ ------------- ------------- -------------
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
International Stock Portfolio, 116,701,083 shares
at net asset value of $1.94 per share (cost $178,245,174) .................... $ 226,335,709 - -
Small Company Growth Portfolio, 67,810,567 shares
at net asset value of $2.44 per share (cost $103,494,241) .................... - 165,416,235 -
Maturing Government Bond 2002 Portfolio, 9,631,089 shares
at net asset value of $1.05 per share (cost $10,461,247) ..................... - - 10,159,332
Maturing Government Bond 2006 Portfolio, 5,760,595 shares
at net asset value of $1.09 per share (cost $6,684,659) ...................... - - -
Maturing Government Bond 2010 Portfolio, 4,147,470 shares
at net asset value of $1.19 per share (cost $5,199,093) ...................... - - -
Value Stock Portfolio, 78,347,675 shares
at net asset value of $1.71 per share (cost $128,368,598) .................... - - -
------------- ------------- -------------
226,335,709 165,416,235 10,159,332
Receivable for investments sold ................................................. 348,091 178,483 9,616
Receivable from Minnesota Life for contract purchase payments ................... 73,117 63,634 337
------------- ------------- -------------
Total assets ............................................................ 226,756,917 165,658,352 10,169,285
------------- ------------- -------------
LIABILITIES
-----------
Payable for investments purchased ............................................... 73,117 63,634 337
Payable to Minnesota Life for contract terminations and mortality and
expense charges ............................................................... 348,091 178,483 9,616
------------- ------------- -------------
Total liabilities ....................................................... 421,208 242,117 9,953
------------- ------------- -------------
Net assets applicable to annuity contract owners ........................ $ 226,335,709 165,416,235 10,159,332
------------- ------------- -------------
------------- ------------- -------------
CONTRACT OWNERS' EQUITY
-----------------------
Contracts in accumulation period (MultiOption Flex/Single/Select)................ $ 217,231,990 158,030,561 6,995,326
Contracts in accumulation period (MultiOption Classic/Achiever).................. 951,414 706,670 21,599
Contracts in accumulation period (MegAnnuity).................................... 5,319,278 4,255,549 3,121,612
Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2).... 2,613,036 2,401,934 20,795
Contracts in annuity payment period (Megannuity) (note 2) ....................... 219,991 21,521 -
Contracts in annuity payment period (Adjustable Income Annuity) (note 2)......... - - -
------------- ------------- -------------
Total contract owners' equity ........................................... $ 226,335,709 165,416,235 10,159,332
------------- ------------- -------------
------------- ------------- -------------
ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/ SELECT) ................ 89,983,922 61,721,924 5,090,494
------------- ------------- -------------
------------- ------------- -------------
ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER).................... 888,642 503,561 21,585
------------- ------------- -------------
------------- ------------- -------------
ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) ..................................... 2,062,152 1,577,615 2,134,169
------------- ------------- -------------
------------- ------------- -------------
NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION FLEX/SINGLE/SELECT) ......... $ 2.41 2.56 1.37
------------- ------------- -------------
------------- ------------- -------------
NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION CLASSIC/ACHIEVER) ............ $ 1.07 1.40 1.00
------------- ------------- -------------
------------- ------------- -------------
NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY) .............................. $ 2.58 2.70 1.46
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------
MATURING MATURING
GOVERNMENT GOVERNMENT
BOND BOND VALUE
ASSETS 2006 2010 STOCK
------ ------------- ------------- -------------
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
International Stock Portfolio, 116,701,083 shares
at net asset value of $1.94 per share (cost $178,245,174) .................... $ - - -
Small Company Growth Portfolio, 67,810,567 shares
at net asset value of $2.44 per share (cost $103,494,241) .................... - - -
Maturing Government Bond 2002 Portfolio, 9,631,089 shares
at net asset value of $1.05 per share (cost $10,461,247) ..................... - - -
Maturing Government Bond 2006 Portfolio, 5,760,595 shares
at net asset value of $1.09 per share (cost $6,684,659) ...................... 6,259,261 - -
Maturing Government Bond 2010 Portfolio, 4,147,470 shares
at net asset value of $1.19 per share (cost $5,199,093) ...................... - 4,937,876 -
Value Stock Portfolio, 78,347,675 shares
at net asset value of $1.71 per share (cost $128,368,598) .................... - - 134,172,501
------------- ------------- -------------
6,259,261 4,937,876 134,172,501
Receivable for investments sold ................................................. 865 11,578 89,622
Receivable from Minnesota Life for contract purchase payments ................... 576 778 17,914
------------- ------------- -------------
Total assets ............................................................ 6,260,702 4,950,232 134,280,037
------------- ------------- -------------
LIABILITIES
-----------
Payable for investments purchased ............................................... 576 778 17,914
Payable to Minnesota Life for contract terminations and mortality and
expense charges ............................................................... 865 11,578 89,622
------------- ------------- -------------
Total liabilities ....................................................... 1,441 12,356 107,536
------------- ------------- -------------
Net assets applicable to annuity contract owners ........................ $ 6,259,261 4,937,876 134,172,501
------------- ------------- -------------
------------- ------------- -------------
CONTRACT OWNERS' EQUITY
-----------------------
Contracts in accumulation period (MultiOption Flex/Single/Select)................ $ 5,398,626 4,470,674 129,587,702
Contracts in accumulation period (MultiOption Classic/Achiever).................. 102,031 4,174 395,554
Contracts in accumulation period (MegAnnuity).................................... 409,215 165,944 2,338,693
Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2).... 317,498 297,084 1,831,894
Contracts in annuity payment period (Megannuity) (note 2) ....................... 31,891 - 18,658
Contracts in annuity payment period (Adjustable Income Annuity) (note 2)......... - - -
------------- ------------- -------------
Total contract owners' equity ........................................... $ 6,259,261 4,937,876 134,172,501
------------- ------------- -------------
------------- ------------- -------------
ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/ SELECT) ................ 3,776,193 3,079,844 61,230,340
------------- ------------- -------------
------------- ------------- -------------
ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER).................... 102,972 4,254 392,479
------------- ------------- -------------
------------- ------------- -------------
ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) ..................................... 268,923 107,403 1,038,209
------------- ------------- -------------
------------- ------------- -------------
NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION FLEX/SINGLE/SELECT) ......... $ 1.43 1.45 2.12
------------- ------------- -------------
------------- ------------- -------------
NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION CLASSIC/ACHIEVER) ............ $ 0.99 0.98 1.01
------------- ------------- -------------
------------- ------------- -------------
NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY) .............................. $ 1.52 1.55 2.25
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------
SMALL
COMPANY GLOBAL INDEX 400 MACRO-CAP
ASSETS VALUE BOND MID-CAP VALUE
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
Small Company Value Portfolio, 11,145,500 shares at net asset value
of $0.91 per share (cost $10,726,773) ................................... $10,118,516 - - -
Global Bond Portfolio, 32,945,742 shares at net
asset value of $0.94 per share (cost $33,094,826) ....................... - 30,804,192 - -
Index 400 Mid-Cap Portfolio, 13,987,034 shares at net asset value
of $1.18 per share (cost $14,919,527) ................................... - - 16,554,178 -
Macro-Cap Value Portfolio, 15,999,202 shares at net asset value
of $1.16 per share (cost $17,641,949) ................................... - - - 18,612,415
Micro-Cap Growth Portfolio, 12,600,217 shares at net asset value
of $2.51 per share (cost $15,567,827) ................................... - - - -
Real Estate Securities Portfolio, 6,833,331 shares at net asset value
of $0.76 per share (cost $6,404,040) .................................... - - - -
Investment in shares of Templeton Variable Products Series Fund:
Templeton Developing Markets Fund - Class 2, 1,176,200 shares at net
asset value of $7.74 per share (cost $7,445,789) ........................ - - - -
------------ ---------- ----------- ----------
10,118,516 30,804,192 16,554,178 18,612,415
Receivable for investments sold ............................................. 10,038 3,572 16,860 17,967
Receivable from Minnesota Life for contract purchase payments ............... 7,777 1,344 40,728 9,599
------------ ---------- ----------- ----------
Total assets ............................................................ 10,136,331 30,809,108 16,611,766 18,639,981
------------ ---------- ----------- ----------
LIABILITIES
Payable for investments purchased ........................................... 7,777 1,344 40,728 9,599
Payable to Minnesota Life for contract terminations and mortality and
expense charges ......................................................... 10,038 3,572 16,860 17,967
------------ ---------- ----------- ----------
Total liabilities ....................................................... 17,815 4,916 57,588 27,566
------------ ---------- ----------- ----------
Net assets applicable to annuity contract owners ........................ $10,118,516 30,804,192 16,554,178 18,612,415
------------ ---------- ----------- ----------
------------ ---------- ----------- ----------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period (MultiOption Flex/Single/Select) ........... $ 9,447,260 30,179,184 15,547,411 17,756,379
Contracts in accumulation period (MultiOption Classic/Achiever) ............. 178,103 339,555 434,727 245,153
Contracts in accumulation period (MegAnnuity) ............................... 194,564 133,395 367,506 436,026
Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2) 297,105 150,552 202,864 171,751
Contracts in annuity payment period (Megannuity) (note 2) ................... 1,484 1,506 1,670 3,106
Contracts in annuity payment period (Adjustable Income Annuity) (note 2) .... - - - -
------------ ---------- ----------- ----------
Total contract owners' equity ........................................... $10,118,516 30,804,192 16,554,178 18,612,415
------------ ---------- ----------- ----------
------------ ---------- ----------- ----------
ACCUMULATION UNITS OUTSTANDING (MultiOption Flex/Single/Select)............. 10,422,707 28,982,189 11,781,426 14,276,707
------------ ---------- ----------- ----------
------------ ---------- ----------- ----------
ACCUMULATION UNITS OUTSTANDING (MultiOption Classic/Achiever)................ 179,266 342,453 398,475 236,331
------------ ---------- ----------- ----------
------------ ---------- ----------- ----------
ACCUMULATION UNITS OUTSTANDING (MegAnnuity) ................................. 213,346 125,858 275,066 339,537
------------ ---------- ----------- ----------
------------ ---------- ----------- ----------
NET ASSET VALUE PER ACCUMULATION UNIT (MultiOption Flex/Single/Select) ...... $ 0.91 1.04 1.32 1.24
------------ ---------- ----------- ----------
------------ ---------- ----------- ----------
NET ASSET VALUE PER ACCUMULATION UNIT (MultiOption Classic/Achiever) ........ $ 0.99 0.99 1.09 1.04
------------ ---------- ----------- ----------
------------ ---------- ----------- ----------
NET ASSET VALUE PER ACCUMULATION UNIT (MegAnnuity) .......................... $ 0.91 1.06 1.34 1.28
------------ ---------- ----------- ----------
------------ ---------- ----------- ----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------
REAL TEMPLETON
MICRO-CAP ESTATE DEVELOPING
ASSETS GROWTH SECURITIES MARKETS
----------- ---------- ------------
<S> <C> <C> <C>
Investments in shares of Advantus Series Fund, Inc.:
Small Company Value Portfolio, 11,145,500 shares at net asset value
of $0.91 per share (cost $10,726,773) ................................... - - -
Global Bond Portfolio, 32,945,742 shares at net
asset value of $0.94 per share (cost $33,094,826) ....................... - - -
Index 400 Mid-Cap Portfolio, 13,987,034 shares at net asset value
of $1.18 per share (cost $14,919,527) ................................... - - -
Macro-Cap Value Portfolio, 15,999,202 shares at net asset value
of $1.16 per share (cost $17,641,949) ................................... - - -
Micro-Cap Growth Portfolio, 12,600,217 shares at net asset value
of $2.51 per share (cost $15,567,827) ................................... 31,610,551 - -
Real Estate Securities Portfolio, 6,833,331 shares at net asset value
of $0.76 per share (cost $6,404,040) .................................... - 5,167,629 -
Investment in shares of Templeton Variable Products Series Fund:
Templeton Developing Markets Fund - Class 2, 1,176,200 shares at net
asset value of $7.74 per share (cost $7,445,789) ........................ - - 9,103,791
----------- ---------- ------------
31,610,551 5,167,629 9,103,791
Receivable for investments sold ............................................. 44,713 6,540 -
Receivable from Minnesota Life for contract purchase payments ............... 104,409 292 -
----------- ---------- ------------
Total assets ............................................................ 31,759,673 5,174,461 9,103,791
----------- ---------- ------------
LIABILITIES
Payable for investments purchased ........................................... 104,409 292 -
Payable to Minnesota Life for contract terminations and mortality and
expense charges ......................................................... 44,713 6,540 -
----------- ---------- ------------
Total liabilities ....................................................... 149,122 6,832 -
----------- ---------- ------------
Net assets applicable to annuity contract owners ........................ 31,610,551 5,167,629 9,103,791
----------- ---------- ------------
----------- ---------- ------------
CONTRACT OWNERS' EQUITY
Contracts in accumulation period (MultiOption Flex/Single/Select) ........... 30,144,820 5,087,178 8,042,400
Contracts in accumulation period (MultiOption Classic/Achiever) ............. 758,885 17,160 321,969
Contracts in accumulation period (MegAnnuity) ............................... 536,497 53,124 324,262
Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2) 167,322 10,167 414,256
Contracts in annuity payment period (Megannuity) (note 2) ................... 3,027 - 904
Contracts in annuity payment period (Adjustable Income Annuity) (note 2) .... - - -
----------- ---------- ------------
Total contract owners' equity ........................................... 31,610,551 5,167,629 9,103,791
----------- ---------- ------------
----------- ---------- ------------
ACCUMULATION UNITS OUTSTANDING (MultiOption Flex/Single/Select) ............. 11,992,142 6,242,074 9,817,346
----------- ---------- ------------
----------- ---------- ------------
ACCUMULATION UNITS OUTSTANDING (MultiOption Classic/Achiever)................ 420,716 17,691 268,232
----------- ---------- ------------
----------- ---------- ------------
ACCUMULATION UNITS OUTSTANDING (MegAnnuity) ................................. 227,183 64,837 384,533
----------- ---------- ------------
----------- ---------- ------------
NET ASSET VALUE PER ACCUMULATION UNIT (MultiOption Flex/Single/Select) ...... 2.51 0.81 0.82
----------- ---------- ------------
----------- ---------- ------------
NET ASSET VALUE PER ACCUMULATION UNIT (MultiOption Classic/Achiever) ........ 1.80 0.97 1.20
----------- ---------- ------------
----------- ---------- ------------
NET ASSET VALUE PER ACCUMULATION UNIT (MegAnnuity) .......................... 2.36 0.82 0.84
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------
MONEY ASSET
GROWTH BOND MARKET ALLOCATION
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) .. $ 1,216,273 6,950,288 2,832,683 21,955,364
Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) (3,458,004) (1,552,717) (726,283) (6,247,042)
Mortality and expense charges (MultiOption Classic/Achiever) (note 3) . (1,432) (750) (2,332) (3,681)
Administrative Charges (MegAnnuity) (note 3) .......................... (11,518) (8,161) (4,544) (12,415)
Mortality and expense charges (Adjustable Income Annuity) (note 3) .... - - - -
Administrative Charges (Adjustable Income Annuity) (note 3) ........... - - - -
------------- ------------ ------------- ------------
Investment income (loss) - net ...................................... (2,254,681) 5,388,660 2,099,524 15,692,226
------------- ------------ ------------- ------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ...... 7,321,816 2,796,242 - 25,221,531
------------- ------------ ------------- ------------
Realized gains on sales of investments:
Proceeds from sales ................................................. 48,016,016 31,329,399 116,588,946 82,786,777
Cost of investments sold ............................................ (37,318,496) (32,499,749) (116,588,946) (67,047,883)
------------- ------------ ------------- ------------
10,697,520 (1,170,350) - 15,738,894
------------- ------------ ------------- ------------
Net realized gains on investments ................................... 18,019,336 1,625,892 - 40,960,425
------------- ------------ ------------- ------------
Net change in unrealized appreciation or depreciation
of investments .................................................... 50,293,092 (12,138,764) - 12,248,124
------------- ------------ ------------- ------------
Net gains (losses) on investments ................................... 68,312,428 (10,512,872) - 53,208,549
------------- ------------ ------------- ------------
Net increase (decrease) in net assets resulting from operations ......... $ 66,057,747 (5,124,212) 2,099,524 68,900,775
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
MORTGAGE INDEX CAPITAL
SECURITIES 500 APPRECIATION
------------ ----------- -------------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) .. 5,888,726 6,261,969 -
Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) (1,219,304) (4,150,957) (3,091,406)
Mortality and expense charges (MultiOption Classic/Achiever) (note 3) . (1,155) (2,136) (763)
Administrative Charges (MegAnnuity) (note 3) .......................... (2,851) (23,085) (12,095)
Mortality and expense charges (Adjustable Income Annuity) (note 3) .... - (184,538) -
Administrative Charges (Adjustable Income Annuity) (note 3) ........... - (34,602) -
------------ ----------- -------------
Investment income (loss) - net ...................................... 4,665,416 1,866,651 (3,104,264)
------------ ----------- -------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ...... - 4,842,801 35,390,810
------------ ----------- -------------
Realized gains on sales of investments:
Proceeds from sales ................................................. 26,190,893 76,250,729 54,508,699
Cost of investments sold ............................................ (26,137,445) (48,867,723) (41,509,406)
------------ ----------- -------------
53,448 27,383,006 12,999,293
------------ ----------- -------------
Net realized gains on investments ................................... 53,448 32,225,807 48,390,103
------------ ----------- -------------
Net change in unrealized appreciation or depreciation
of investments .................................................... (3,945,102) 31,274,622 4,294,708
------------ ----------- -------------
Net gains (losses) on investments ................................... (3,891,654) 63,500,429 52,684,811
------------ ----------- -------------
Net increase (decrease) in net assets resulting from operations ......... 773,762 65,367,080 49,580,547
------------ ----------- -------------
------------ ----------- -------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------
MATURING
SMALL GOVERNMENT
INTERNATIONAL COMPANY BOND
STOCK GROWTH 2002
-------------- ------------ ------------
<S> <S> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) .. $ 5,304,166 - 421,025
Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) (2,551,540) (1,492,414) (87,077)
Mortality and expense charges (MultiOption Classic/Achiever) (note 3) . (855) (533) (15)
Administrative Charges (MegAnnuity) (note 3) .......................... (7,970) (4,553) (1,380)
Mortality and expense charges (Adjustable Income Annuity) (note 3) .... - - -
Administrative Charges (Adjustable Income Annuity) (note 3) ........... - - -
-------------- ------------ ------------
Investment income (loss) - net ...................................... 2,743,801 (1,497,500) 332,553
-------------- ------------ ------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ...... 10,304,189 - -
-------------- ------------ ------------
Realized gains on sales of investments:
Proceeds from sales ................................................. 48,332,606 33,118,273 1,740,616
Cost of investments sold ............................................ (41,708,533) (29,374,223) (1,722,269)
-------------- ------------ ------------
6,624,073 3,744,050 18,347
-------------- ------------ ------------
Net realized gains on investments ................................... 16,928,262 3,744,050 18,347
-------------- ------------ ------------
Net change in unrealized appreciation or depreciation
of investments .................................................... 18,877,885 47,912,509 (462,548)
-------------- ------------ ------------
Net gains (losses) on investments ................................... 35,806,147 51,656,559 (444,201)
-------------- ------------ ------------
Net increase (decrease) in net assets resulting from operations ......... $ 38,549,948 50,159,059 (111,648)
-------------- ------------ ------------
-------------- ------------ ------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------
MATURING MATURING
GOVERNMENT GOVERNMENT
BOND BOND VALUE
2006 2010 STOCK
-------------- ----------- ------------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) .. 374,252 230,926 4,050,401
Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) (76,319) (64,889) (1,759,082)
Mortality and expense charges (MultiOption Classic/Achiever) (note 3) . (101) (4) (423)
Administrative Charges (MegAnnuity) (note 3) .......................... (630) (266) (3,756)
Mortality and expense charges (Adjustable Income Annuity) (note 3) .... - - -
Administrative Charges (Adjustable Income Annuity) (note 3) ........... - - -
-------------- ----------- ------------
Investment income (loss) - net ...................................... 297,202 165,767 2,287,140
-------------- ----------- ------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ...... - 10,510 -
-------------- ----------- ------------
Realized gains on sales of investments:
Proceeds from sales ................................................. 1,789,392 2,075,487 40,309,094
Cost of investments sold ............................................ (1,741,443) (2,069,631) (37,674,442)
-------------- ----------- ------------
47,949 5,856 2,634,652
-------------- ----------- ------------
Net realized gains on investments ................................... 47,949 16,366 2,634,652
-------------- ----------- ------------
Net change in unrealized appreciation or depreciation
of investments .................................................... (960,318) (913,774) (6,443,650)
-------------- ----------- ------------
Net gains (losses) on investments ................................... (912,369) (897,408) (3,808,998)
-------------- ----------- ------------
Net increase (decrease) in net assets resulting from operations ......... (615,167) (731,641) (1,521,858)
-------------- ----------- ------------
-------------- ----------- ------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------
SMALL
COMPANY GLOBAL INDEX 400 MACRO-CAP
VALUE BOND MID-CAP VALUE
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) .. $ 121,512 878,074 66,856 81,181
Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) (106,880) (382,244) (146,109) (171,858)
Mortality and expense charges (MultiOption Classic/Achiever) (note 3) . (191) (313) (606) (169)
Administrative Charges (MegAnnuity) (note 3) .......................... (444) (129) (480) (374)
Mortality and expense charges (Adjustable Income Annuity) (note 3) .... - - - -
Administrative Charges (Adjustable Income Annuity) (note 3) ........... - - - -
------------ ------------ ------------ -----------
Investment income (loss) - net ...................................... 13,997 495,388 (80,339) (91,220)
------------ ------------ ------------ -----------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ...... - 138,813 1,270,620 696,871
------------ ------------ ------------ -----------
Realized gains (losses) on sales of investments:
Proceeds from sales ................................................. 1,803,354 3,371,458 2,139,232 2,273,590
Cost of investments sold ............................................ (1,964,941) (3,507,115) (2,011,906) (2,115,511)
------------ ------------ ------------ -----------
(161,587) (135,657) 127,326 158,079
------------ ------------ ------------ -----------
Net realized gains (losses) on investments .......................... (161,587) 3,156 1,397,946 854,950
------------ ------------ ------------ -----------
Net change in unrealized appreciation or depreciation of investments (145,818) (3,362,094) 631,352 78,827
------------ ------------ ------------ -----------
Net gains (losses) on investments ................................... (307,405) (3,358,938) 2,029,298 933,777
------------ ------------ ------------ -----------
Net increase (decrease) in net assets resulting from operations .......... $ (293,408) (2,863,550) 1,948,959 842,557
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------
REAL TEMPLETON
MICRO-CAP ESTATE DEVELOPING
GROWTH SECURITIES MARKETS
------------- ---------- -------------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund (note 4) .. - 278,798 41,274
Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) (158,745) (63,555) (61,821)
Mortality and expense charges (MultiOption Classic/Achiever) (note 3) . (692) (15) (335)
Administrative Charges (MegAnnuity) (note 3) .......................... (250) (46) (1,191)
Mortality and expense charges (Adjustable Income Annuity) (note 3) .... - - -
Administrative Charges (Adjustable Income Annuity) (note 3) ........... - - -
------------- ---------- -------------
Investment income (loss) - net ...................................... (159,687) 215,182 (22,073)
------------- ---------- -------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund (note 4) ...... - - -
------------- ---------- -------------
Realized gains (losses) on sales of investments:
Proceeds from sales ................................................. 1,869,456 650,164 27,924,792
Cost of investments sold ............................................ (1,413,012) (767,886) (27,952,683)
------------- ---------- -------------
456,444 (117,722) (27,891)
------------- ---------- -------------
Net realized gains (losses) on investments .......................... 456,444 (117,722) (27,891)
------------- ---------- -------------
Net change in unrealized appreciation or depreciation of investments 15,639,140 (383,438) 2,207,898
------------- ---------- -------------
Net gains (losses) on investments ................................... 16,095,584 (501,160) 2,180,007
------------- ---------- -------------
Net increase (decrease) in net assets resulting from operations .......... 15,935,897 (285,978) 2,157,934
------------- ---------- -------------
------------- ---------- -------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------
MONEY ASSET
GROWTH BOND MARKET ALLOCATION
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net .............................. $ (2,254,681) 5,388,660 2,099,524 15,692,226
Net realized gains on investments ........................... 18,019,336 1,625,892 - 40,960,425
Net change in unrealized appreciation or depreciation
of investments .......................................... 50,293,092 (12,138,764) - 12,248,124
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations 66,057,747 (5,124,212) 2,099,524 68,900,775
------------- ------------- ------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
MultiOption Flex/Single/Select .......................... 50,375,114 21,764,953 97,482,632 79,896,349
MultiOption Classic/Achiever ............................ 1,770,529 770,380 4,028,348 4,517,172
MegAnnuity .............................................. 2,451,486 1,595,769 40,082,783 1,775,775
Adjustable Income Annuity ............................... - - - -
Contract terminations, withdrawal payments and charges:
MultiOption Flex/Single/Select .......................... (42,408,777) (28,146,686) (74,569,730) (73,367,680)
MultiOption Classic/Achiever ............................ (746) (680) (625,007) (1,042,065)
MegAnnuity .............................................. (1,778,180) (1,417,081) (40,635,718) (1,428,107)
Adjustable Income Annuity ............................... - - - -
Actuarial adjustments for mortality experience on annuities
in payment period:
MultiOption Flex/Single/Select .......................... (7,146) 3,752 (3,307) 15,031
MultiOption Classic/Achiever ............................ - - - -
MegAnnuity .............................................. 48 56 - 134
Adjustable Income Annuity ............................... - - - -
Annuity benefit payments:
MultiOption Flex/Single/Select .......................... (342,750) (205,229) (22,024) (671,498)
MultiOption Classic/Achiever ............................ - - - -
MegAnnuity .............................................. (7,511) (1,898) - (29,455)
Adjustable Income Annuity ............................... - - - -
------------- ------------- ------------- -------------
Increase (decrease) in net assets from contract transactions .. 10,052,067 (5,636,664) 25,737,977 9,665,656
------------- ------------- ------------- -------------
Increase (decrease) in net assets ............................. 76,109,814 (10,760,876) 27,837,501 78,566,431
Net assets at the beginning of year ........................... 264,331,794 133,972,916 49,909,087 489,966,528
------------- ------------- ------------- -------------
Net assets at the end of year ................................. $ 340,441,608 123,212,040 77,746,588 568,532,959
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------
MORTGAGE INDEX CAPITAL
SECURITIES 500 APPRECIATION
------------- ------------- -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net .............................. 4,665,416 1,866,651 (3,104,264)
Net realized gains on investments ........................... 53,448 32,225,807 48,390,103
Net change in unrealized appreciation or depreciation
of investments .......................................... (3,945,102) 31,274,622 4,294,708
------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations 773,762 65,367,080 49,580,547
------------- ------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
MultiOption Flex/Single/Select .......................... 23,575,223 88,025,964 29,786,676
MultiOption Classic/Achiever ............................ 996,373 2,125,515 693,669
MegAnnuity .............................................. 703,369 5,724,390 1,390,385
Adjustable Income Annuity ............................... - 16,412,426 -
Contract terminations, withdrawal payments and charges:
MultiOption Flex/Single/Select .......................... (24,617,363) (63,918,267) (48,734,480)
MultiOption Classic/Achiever ............................ (210) (859) (92)
MegAnnuity .............................................. (204,506) (4,957,879) (2,322,797)
Adjustable Income Annuity ............................... - (1,040,198) -
Actuarial adjustments for mortality experience on annuities
in payment period:
MultiOption Flex/Single/Select .......................... 3,502 (2,381) (13,552)
MultiOption Classic/Achiever ............................ - - -
MegAnnuity .............................................. - 279 22
Adjustable Income Annuity ............................... - 30,526 -
Annuity benefit payments:
MultiOption Flex/Single/Select .......................... (149,006) (428,960) (330,639)
MultiOption Classic/Achiever ............................ - - -
MegAnnuity .............................................. - (5,714) (2,897)
Adjustable Income Annuity ............................... - (1,531,959) -
------------- ------------- -------------
Increase (decrease) in net assets from contract transactions .. 307,382 40,432,883 (19,533,705)
------------- ------------- -------------
Increase (decrease) in net assets ............................. 1,081,144 105,799,963 30,046,842
Net assets at the beginning of year ........................... 97,408,573 321,468,279 269,318,233
------------- ------------- -------------
Net assets at the end of year ................................. 98,489,717 427,268,242 299,365,075
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------
MATURING
SMALL GOVERNMENT
INTERNATIONAL COMPANY BOND
STOCK GROWTH 2002
--------------- --------------- -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ............................................ $ 2,743,801 (1,497,500) 332,553
Net realized gains on investments ......................................... 16,928,262 3,744,050 18,347
Net change in unrealized appreciation or depreciation
of investments ....................................................... 18,877,885 47,912,509 (462,548)
--------------- --------------- -------------
Net increase (decrease) in net assets resulting from operations ................ 38,549,948 50,159,059 (111,648)
--------------- --------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
MultiOption Flex/Single/Select ....................................... 22,772,482 16,000,752 2,421,924
MultiOption Classic/Achiever ......................................... 900,786 627,050 21,644
MegAnnuity ........................................................... 992,032 994,221 2,626,630
Adjustable Income Annuity ............................................ - - -
Contract terminations, withdrawal payments and charges:
MultiOption Flex/Single/Select ....................................... (43,506,808) (30,229,689) (1,644,661)
MultiOption Classic/Achiever ......................................... (103) (64) (2)
MegAnnuity ........................................................... (1,948,801) (1,165,442) (4,962)
Adjustable Income Annuity ............................................ - - -
Actuarial adjustments for mortality experience on annuities in payment
period:
MultiOption Flex/Single/Select ....................................... (16,316) (9,224) 33
MultiOption Classic/Achiever ......................................... - - -
MegAnnuity ........................................................... 68 (3) -
Adjustable Income Annuity ............................................ - - -
Annuity benefit payments:
MultiOption Flex/Single/Select ....................................... (288,178) (214,932) (2,553)
MultiOption Classic/Achiever ......................................... - - -
MegAnnuity ........................................................... (12,104) (1,418) -
Adjustable Income Annuity ............................................ - - -
--------------- --------------- -------------
Increase (decrease) in net assets from contract transactions ................... (21,106,942) (13,998,749) 3,418,053
--------------- --------------- -------------
Increase (decrease) in net assets .............................................. 17,443,006 36,160,310 3,306,405
Net assets at the beginning of year ............................................ 208,892,703 129,255,925 6,852,927
--------------- --------------- -------------
Net assets at the end of year .................................................. $ 226,335,709 165,416,235 10,159,332
--------------- --------------- -------------
--------------- --------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------
MATURING MATURING
GOVERNMENT GOVERNMENT
BOND BOND VALUE
2006 2010 STOCK
-------------- -------------- --------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ............................................ 297,202 165,767 2,287,140
Net realized gains on investments ......................................... 47,949 16,366 2,634,652
Net change in unrealized appreciation or depreciation
of investments ....................................................... (960,318) (913,774) (6,443,650)
-------------- -------------- --------------
Net increase (decrease) in net assets resulting from operations ................ (615,167) (731,641) (1,521,858)
-------------- -------------- --------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
MultiOption Flex/Single/Select ....................................... 1,526,636 2,030,474 18,700,154
MultiOption Classic/Achiever ......................................... 103,443 4,215 393,048
MegAnnuity ........................................................... 88,210 230 649,546
Adjustable Income Annuity ............................................ - - -
Contract terminations, withdrawal payments and charges:
MultiOption Flex/Single/Select ....................................... (1,675,064) (1,957,748) (37,110,285)
MultiOption Classic/Achiever ......................................... (12) - (51)
MegAnnuity ........................................................... (4,530) (23,905) (1,172,623)
Adjustable Income Annuity ............................................ - - -
Actuarial adjustments for mortality experience on annuities in payment
period:
MultiOption Flex/Single/Select ....................................... 1,110 1,057 (570)
MultiOption Classic/Achiever ......................................... - - -
MegAnnuity ........................................................... 168 57 (133)
Adjustable Income Annuity ............................................ - - -
Annuity benefit payments:
MultiOption Flex/Single/Select ....................................... (30,605) (29,386) (260,590)
MultiOption Classic/Achiever ......................................... - - -
MegAnnuity ........................................................... (3,409) (403) (1,581)
Adjustable Income Annuity ............................................ - - -
-------------- -------------- --------------
Increase (decrease) in net assets from contract transactions ................... 5,947 24,591 (18,803,085)
-------------- -------------- --------------
Increase (decrease) in net assets .............................................. (609,220) (707,050) (20,324,943)
Net assets at the beginning of year ............................................ 6,868,481 5,644,926 154,497,444
-------------- -------------- --------------
Net assets at the end of year .................................................. 6,259,261 4,937,876 134,172,501
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1999
<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 ............................ $ 13,997 495,388 (80,339) (91,220)
Net realized gains (losses) on investments ................ (161,587) 3,156 1,397,946 854,950
Net change in unrealized appreciation or depreciation
of investments ........................................ (145,818) (3,362,094) 631,352 78,827
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations . (293,408) (2,863,550) 1,948,959 842,557
------------- ------------- ------------- -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
MultiOption Flex/Single/Select ........................ 3,951,669 5,402,475 6,644,292 9,106,528
MultiOption Classic/Achiever .......................... 172,769 339,782 398,478 237,806
MegAnnuity ............................................ 132,181 91,001 195,712 316,809
Adjustable Income Annuity ............................. - - - -
Contract terminations, withdrawal payments and charges:
MultiOption Flex/Single/Select ........................ (1,399,857) (2,969,821) (1,850,467) (2,069,201)
MultiOption Classic/Achiever .......................... (331) (37) (73) (20)
MegAnnuity ............................................ (264,558) (1,089) (126,401) (13,417)
Adjustable Income Annuity ............................. - - - -
Actuarial adjustments for mortality experience on annuities
in payment period:
MultiOption Flex/Single/Select ........................ 1,175 138 188 372
MultiOption Classic/Achiever .......................... - - - -
MegAnnuity ............................................ - 1 (2) 1
Adjustable Income Annuity ............................. - - - -
Annuity benefit payments:
MultiOption Flex/Single/Select ........................ (32,243) (17,940) (15,257) (18,875)
MultiOption Classic/Achiever .......................... - - - -
MegAnnuity ............................................ (24) (25) (25) (48)
Adjustable Income Annuity ............................. - - - -
------------- ------------- ------------- -------------
Increase in net assets from contract transactions ............... 2,560,781 2,844,485 5,246,445 7,559,955
------------- ------------- ------------- -------------
Increase (decrease) in net assets ............................... 2,267,373 (19,065) 7,195,404 8,402,512
Net assets at the beginning of year ............................. 7,851,143 30,823,257 9,358,774 10,209,903
------------- ------------- ------------- -------------
Net assets at the end of year ................................... $ 10,118,516 30,804,192 16,554,178 18,612,415
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
REAL TEMPLETON
MICRO-CAP ESTATE DEVELOPING
GROWTH SECURITIES MARKETS
------------- ------------ -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ............................ (159,687) 215,182 (22,073)
Net realized gains (losses) on investments ................ 456,444 (117,722) (27,891)
Net change in unrealized appreciation or depreciation
of investments ........................................ 15,639,140 (383,438) 2,207,898
------------- ------------ -------------
Net increase (decrease) in net assets resulting from operations . 15,935,897 (285,978) 2,157,934
------------- ------------ -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
MultiOption Flex/Single/Select ........................ 9,266,982 898,091 4,760,534
MultiOption Classic/Achiever .......................... 626,486 16,835 290,558
MegAnnuity ............................................ 249,289 49,362 27,247,119
Adjustable Income Annuity ............................. - - -
Contract terminations, withdrawal payments and charges:
MultiOption Flex/Single/Select ........................ (1,687,229) (582,994) (1,303,383)
MultiOption Classic/Achiever .......................... (83) (2) (206)
MegAnnuity ............................................ (3,824) (2,110) (26,984,731)
Adjustable Income Annuity ............................. - - -
Actuarial adjustments for mortality experience on
annuities in payment period:
MultiOption Flex/Single/Select ........................ 145 - 1,015
MultiOption Classic/Achiever .......................... - - -
MegAnnuity ............................................ (1) - (760)
Adjustable Income Annuity ............................. - - -
Annuity benefit payments:
MultiOption Flex/Single/Select ........................ (18,746) (1,442) (81,211)
MultiOption Classic/Achiever .......................... - - -
MegAnnuity ............................................ (32) - (13)
Adjustable Income Annuity ............................. - - -
------------- ------------ -------------
Increase in net assets from contract transactions ............... 8,432,987 377,740 3,928,922
------------- ------------ -------------
Increase (decrease) in net assets ............................... 24,368,884 91,762 6,086,856
Net assets at the beginning of year ............................. 7,241,667 5,075,867 3,016,935
------------- ------------ -------------
Net assets at the end of year ................................... 31,610,551 5,167,629 9,103,791
------------- ------------ -------------
------------- ------------ -------------
</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
------------------------------------------------------------------
MONEY ASSET
GROWTH BOND MARKET ALLOCATION
--------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net ...................... $ (757,899) 5,096,987 1,421,466 5,708,809
Net realized gains on investments ................... 35,969,150 2,143,010 - 41,108,373
Net change in unrealized appreciation or depreciation
of investments ................................... 28,752,083 (1,508,399) - 41,516,841
--------------- ------------- ------------- ----------------
Net increase in net assets resulting from operations ..... 63,963,334 5,731,598 1,421,466 88,334,023
--------------- ------------- ------------- ----------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
Personal Retirement Plans ........................ 51,637,934 41,441,722 72,457,091 70,303,040
MegAnnuity ....................................... 2,288,260 2,374,930 3,391,144 1,777,956
Adjustable Income Annuity ........................ - - - -
Contract terminations and withdrawal payments:
Personal Retirement Plans ........................ (36,450,685) (21,212,178) (58,811,259) (65,726,252)
MegAnnuity ....................................... (1,455,740) (866,165) (1,931,680) (1,155,438)
Adjustable Income Annuity ........................ - - - -
Actuarial adjustments for mortality experience on
annuities in payment period:
Personal Retirement Plans ........................ 1,950 (43,058) 27 (4,603)
MegAnnuity ....................................... 18 51 - 62
Adjustable Income Annuity ........................ - - - -
Annuity benefit payments:
Personal Retirement Plans ........................ (201,089) (140,143) (6,516) (441,066)
MegAnnuity ....................................... (4,132) (1,922) - (26,300)
Adjustable Income Annuity ........................ - - - -
--------------- ------------- ------------- ----------------
Increase in net assets from contract transactions ........ 15,816,516 21,553,237 15,098,807 4,727,399
--------------- ------------- ------------- ----------------
Increase in net assets ................................... 79,779,850 27,284,835 16,520,273 93,061,422
Net assets at the beginning of year ...................... 184,551,944 106,688,081 33,388,814 396,905,106
--------------- ------------- ------------- ----------------
Net assets at the end of year ............................ $ 264,331,794 133,972,916 49,909,087 489,966,528
--------------- ------------- ------------- ----------------
--------------- ------------- ------------- ----------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------
MORTGAGE INDEX CAPITAL
SECURITIES 500 APPRECIATION
----------------- ------------- ---------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ...................... 3,497,879 (971,183) (2,785,999)
Net realized gains on investments ................... 653,974 19,013,210 23,604,148
Net change in unrealized appreciation or depreciation
of investments ................................... 233,763 45,447,205 39,001,666
----------------- ------------- ---------------
Net increase in net assets resulting from operations ..... 4,385,616 63,489,232 59,819,815
----------------- ------------- ---------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
Personal Retirement Plans ........................ 33,557,094 67,949,692 37,672,274
MegAnnuity ....................................... 969,771 3,417,868 1,306,737
Adjustable Income Annuity ........................ - 6,647,680 -
Contract terminations and withdrawal payments:
Personal Retirement Plans ........................ (17,949,781) (42,752,201) (34,786,814)
MegAnnuity ....................................... (479,285) (3,364,285) (1,158,543)
Adjustable Income Annuity ........................ - (655,211) -
Actuarial adjustments for mortality experience on
annuities in payment period:
Personal Retirement Plans ........................ (12,738) (13,196) (1,165)
MegAnnuity ....................................... - 161 16
Adjustable Income Annuity ........................ - 81,585 -
Annuity benefit payments:
Personal Retirement Plans ........................ (85,620) (231,073) (212,803)
MegAnnuity ....................................... - (2,538) (2,573)
Adjustable Income Annuity ........................ - (794,250) -
----------------- ------------- ---------------
Increase in net assets from contract transactions ........ 15,999,441 30,284,232 2,817,129
----------------- ------------- ---------------
Increase in net assets ................................... 20,385,057 93,773,464 62,636,944
Net assets at the beginning of year ...................... 77,023,516 227,694,815 206,681,289
----------------- ------------- ---------------
Net assets at the end of year ............................ 97,408,573 321,468,279 269,318,233
----------------- ------------- ---------------
----------------- ------------- ---------------
</TABLE>
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
SMALL GOVERNMENT GOVERNMENT
INTERNATIONAL COMPANY BOND BOND
STOCK GROWTH 2002 2006
-------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net ........................... $ 3,125,103 (1,526,143) 266,243 258,869
Net realized gains on investments ........................ 12,699,612 1,655,860 104,469 156,665
Net change in unrealized appreciation or depreciation
of investments ........................................ (5,845,206) (882,409) 31,481 218,033
-------------- ------------- ------------ -------------
Net increase (decrease) in net assets resulting from operations 9,979,509 (752,692) 402,193 633,567
-------------- ------------- ------------ -------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
Personal Retirement Plans ............................. 36,659,650 28,012,351 2,697,576 3,409,399
MegAnnuity ............................................ 1,096,968 1,086,917 104,356 206,525
Adjustable Income Annuity ............................. - - - -
Contract terminations and withdrawal payments:
Personal Retirement Plans ............................. (42,040,850) (24,558,706) (536,207) (1,258,332)
MegAnnuity ............................................ (2,122,613) (689,332) (8,740) (11,210)
Adjustable Income Annuity ............................. - - - -
Actuarial adjustments for mortality experience on
annuities in payment period:
Personal Retirement Plans ............................. (2,076) (34,522) 11,619 14,151
MegAnnuity ............................................ 362 124 - 1,019
Adjustable Income Annuity ............................. - - - -
Annuity benefit payments:
Personal Retirement Plans ............................. (220,772) (170,663) (3,389) (23,275)
MegAnnuity ............................................ (13,429) (1,198) - (2,341)
Adjustable Income Annuity ............................. - - - -
-------------- ------------- ------------ -------------
Increase (decrease) in net assets from contract transactions . (6,642,760) 3,644,971 2,265,215 2,335,936
-------------- ------------- ------------ -------------
Increase (decrease) in net assets ............................. 3,336,749 2,892,279 2,667,408 2,969,503
Net assets at the beginning of year ........................... 205,555,954 126,363,646 4,185,519 3,898,978
-------------- ------------- ------------ -------------
Net assets at the end of year ................................. $ 208,892,703 129,255,925 6,852,927 6,868,481
-------------- ------------- ------------ -------------
-------------- ------------- ------------ -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------
MATURING
GOVERNMENT
BOND VALUE
2010 STOCK
-------------- --------------
<S> <C> <C>
Operations:
Investment income (loss) - net ........................... 116,829 (1,889,523)
Net realized gains on investments ........................ 183,887 2,176,444
Net change in unrealized appreciation or depreciation
of investments ........................................ 233,938 (307,967)
-------------- --------------
Net increase (decrease) in net assets resulting from operations 534,654 (21,046)
-------------- --------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
Personal Retirement Plans ............................. 3,456,312 43,797,257
MegAnnuity ............................................ 25,510 1,341,893
Adjustable Income Annuity ............................. - -
Contract terminations and withdrawal payments:
Personal Retirement Plans ............................. (1,503,240) (38,307,284)
MegAnnuity ............................................ (64,298) (1,811,450)
Adjustable Income Annuity ............................. - -
Actuarial adjustments for mortality experience on
annuities in payment period:
Personal Retirement Plans ............................. 3,086 3,280
MegAnnuity ............................................ 389 539
Adjustable Income Annuity ............................. - -
Annuity benefit payments:
Personal Retirement Plans ............................. 20,121 (198,093)
MegAnnuity ............................................ (2,697) (3,411)
Adjustable Income Annuity ............................. - -
-------------- --------------
Increase (decrease) in net assets from contract transactions . 1,935,183 4,822,731
-------------- --------------
Increase (decrease) in net assets ............................. 2,469,837 4,801,685
Net assets at the beginning of year ........................... 3,175,089 149,695,759
-------------- --------------
Net assets at the end of year ................................. 5,644,926 154,497,444
-------------- --------------
-------------- --------------
</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
-----------------------------------------------------------
SMALL
COMPANY GLOBAL INDEX 400 MACRO-CAP
VALUE BOND MID-CAP VALUE
--------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net ................................... $ 29,395 1,405,064 (19,463) (59,096)
Net realized gains (losses) on investments ....................... 76,974 865,463 287,711 483,800
Net change in unrealized appreciation or depreciation
of investments ................................................ (617,083) 1,473,702 955,141 1,007,945
--------------- ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations ....... (510,714) 3,744,229 1,223,389 1,432,649
--------------- ------------ ------------ ------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
Personal Retirement Plans ...................................... 6,475,581 4,876,523 5,538,756 6,338,736
MegAnnuity ..................................................... 136,060 44,459 210,696 63,746
Adjustable Income Annuity ...................................... - - - -
Contract terminations and withdrawal payments:
Personal Retirement Plans ...................................... (3,395,717) (2,838,384) (2,645,937) (2,540,858)
MegAnnuity ..................................................... (5,912) (16,675) (17,473) (3,721)
Adjustable Income Annuity ...................................... - - - -
Actuarial adjustments for mortality experience on annuities
in payment period:
Personal Retirement Plans ...................................... (2,310) (880) (576) (869)
MegAnnuity ..................................................... - - - -
Adjustable Income Annuity ...................................... - - - -
Annuity benefit payments:
Personal Retirement Plans ...................................... (23,150) (4,734) (1,971) (3,204)
MegAnnuity ..................................................... - - - -
Adjustable Income Annuity ...................................... - - - -
--------------- ------------ ------------ ------------
Increase in net assets from contract transactions ..................... 3,184,552 2,060,309 3,083,495 3,853,830
--------------- ------------ ------------ ------------
Increase in net assets ................................................ 2,673,838 5,804,538 4,306,884 5,286,479
Net assets at the beginning of year ................................... 5,177,305 25,018,719 5,051,890 4,923,424
--------------- ------------ ------------ ------------
Net assets at the end of year ........................................ $ 7,851,143 30,823,257 9,358,774 10,209,903
--------------- ------------ ------------ ------------
--------------- ------------ ------------ ------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
REAL TEMPLETON
MICRO-CAP ESTATE DEVELOPING
GROWTH SECURITIES (a) MARKETS
------------- -------------- ------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ................................... (65,522) 155,184 (6,121)
Net realized gains (losses) on investments ....................... (94,680) (21,658) (41,787)
Net change in unrealized appreciation or depreciation
of investments ................................................ 953,763 (852,973) (444,051)
------------- -------------- ------------
Net increase (decrease) in net assets resulting from operations ...... 793,561 (719,447) (491,959)
------------- -------------- ------------
Contract transactions (notes 2, 3, 4 and 5):
Contract purchase payments:
Personal Retirement Plans ...................................... 3,203,379 5,877,266 3,575,326
MegAnnuity ..................................................... 105,113 10,489 70,613
Adjustable Income Annuity ...................................... - - -
Contract terminations and withdrawal payments:
Personal Retirement Plans ...................................... (1,387,271) (91,132) (650,918)
MegAnnuity ..................................................... (57,134) (1,184) (3,025)
Adjustable Income Annuity ...................................... - - -
Actuarial adjustments for mortality experience on annuities
in payment period:
Personal Retirement Plans ...................................... (805) - (5,630)
MegAnnuity ..................................................... - - -
Adjustable Income Annuity ...................................... - - -
Annuity benefit payments:
Personal Retirement Plans ...................................... (6,101) (125) (15,524)
MegAnnuity ..................................................... - - -
Adjustable Income Annuity ...................................... - - -
------------- -------------- ------------
Increase in net assets from contract transactions ..................... 1,857,181 5,795,314 2,970,842
------------- -------------- ------------
Increase in net assets ................................................ 2,650,742 5,075,867 2,478,883
Net assets at the beginning of year ................................... 4,590,925 - 538,052
------------- -------------- ------------
Net assets at the end of year ........................................ 7,241,667 5,075,867 3,016,935
------------- -------------- ------------
------------- -------------- ------------
</TABLE>
(a) Period from April 24, 1998, commencement of operations, to
December 31, 1998.
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), was established on
September 10, 1984 as a segregated asset account of Minnesota Life
Insurance Company (Minnesota Life), under Minnesota law and is
registered as a unit investment trust under the Investment Company Act
of 1940 (as amended). The Account currently offers six types of
contracts each consisting of twenty segregated sub-accounts to which
contract owners may allocate their purchase payments. The Account
charges a mortality and expense risk charge, which varies based on the
group-sponsored insurance program under which the contract is issued.
The differentiating features of the contracts are described in
notes 2 and 3 below.
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 (except
Global Bond Portfolio which is non-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 Growth, 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 are invested in shares of the Growth, Bond, Money
Market, Asset Allocation, Mortgage Securities, Index 500, Capital
Appreciation, International Stock, Small Company Growth, 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 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.
Ascend Financial Services, Inc. acts as the underwriter for the Account.
Advantus Capital Management, Inc. acts as the investment adviser for the
Advantus Series Fund, Inc. Ascend Financial Services, Inc. is a
wholly-owned subsidiary of Advantus Capital Management, Inc. and Advantus
Capital Management, Inc. is a wholly-owned subsidiary of Minnesota Life.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements.
Actual results could differ from those estimates.
INVESTMENTS IN UNDERLYING FUNDS
Investments in shares of the Underlying Funds are stated at market value,
which is the net asset value per share as determined daily by each of the
Underlying Funds. Investment transactions are accounted for on the date
the shares are purchased or sold. The cost of investments sold is
determined on the average cost method. All dividend distributions
received from the Underlying Funds are reinvested in additional shares of
the Underlying Funds and are recorded by the segregated sub-accounts on
the ex-dividend date.
<PAGE>
2
VARIABLE ANNUITY ACCOUNT
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FEDERAL INCOME TAXES
The Account is treated as part of Minnesota Life for federal income tax
purposes. Under current interpretations of existing federal income tax
law, no income taxes are payable on investment income or capital gain
distributions received by the Account from the Underlying Funds.
CONTRACTS IN ANNUITY PAYMENT PERIOD
MULTIOPTION FLEX/SINGLE/SELECT AND MULTIOPTION CLASSIC/ACHIEVER:
Annuity reserves are computed for currently payable contracts according
to the mortality and assumed interest rate assumptions used to purchase
the annuity income. Charges to annuity reserves for mortality and risk
expense are reimbursed to Minnesota Life if the reserves required are
less than originally estimated. If additional reserves are required,
Minnesota Life reimburses the Account.
MEGANNUITY:
Annuity reserves are computed for currently payable contracts according
to the Progressive Annuity Mortality Table, using an assumed interest
rate of 3.5 percent. Charges to annuity reserves for mortality and risk
expense are reimbursed to Minnesota Life if the reserves required are
less than originally estimated. If additional reserves are required,
Minnesota Life reimburses the Account.
ADJUSTABLE INCOME ANNUITY:
Annuity reserves are computed for currently payable contracts according
to the Individual Annuity 1983 Table A, using an assumed interest rate of
4.5 percent. Charges to annuity reserves for mortality and risk expense
are reimbursed to Minnesota Life if the reserves required are less than
originally estimated. If additional reserves are required, Minnesota Life
reimburses the Account.
(3) CONTRACT CHARGES
MULTIOPTION FLEX/SINGLE/SELECT:
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, 1999 and 1998
amounted to $4,481,055 and $3,304,803, respectively.
MULTIOPTION CLASSIC/ACHIEVER:
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
Classic or Multi-Option Achiever contract owner during the first seven
years or first ten years, respectively, if a contract's accumulation
value is reduced by a withdrawal or surrender. There were no sales
charges deducted from redemption proceeds for the year ended December 31,
1999.
<PAGE>
3
VARIABLE ANNUITY ACCOUNT
(3) CONTRACT CHARGES - CONTINUED
MEGANNUITY:
The administrative charge paid to Minnesota Life is equal, on an annual
basis, to .15 percent of the average daily net assets of the Account.
Under certain conditions, the charge may be increased to not more than
.35 percent of the average daily net assets of the Account.
Premium taxes may be deducted from purchase payments or at the
commencement of annuity payments. Currently such taxes range from 0 to
3.5 percent depending on the applicable state law. No premium taxes were
deducted from purchase payments for the years ended December 31, 1999 and
1998.
ADJUSTABLE INCOME ANNUITY:
The mortality and expense risk charge paid to Minnesota Life is computed
daily and is equal, on an annual basis, to .80 percent of the average
daily net assets of the Account. Under certain conditions, the charge may
be increased to not more than 1.40 percent of the average daily net
assets of the Account.
The administrative charge paid to Minnesota Life is computed daily and is
equal, on an annual basis, to .15 percent of the average daily net assets
of the Account. Under certain conditions, the administrative charge may
be increased to not more than .40 percent of the average daily net assets
of the Account.
Contract purchase payments for Adjustable Income Annuity are reflected
net of the following charges paid to Minnesota Life:
A sales charge ranging from 3.75 to 4.50 percent, depending upon
the total amount of purchase payments, is deducted from each
contract purchase payment. Total sales charges deducted from
contract purchase payments for the years ended December 31, 1999
and 1998 amounted to $9,925 and $111,222, respectively.
A risk charge in the amount of 1.25 percent is deducted from each
contract purchase payment. Under certain conditions, the risk
charge may be as high as 2.00 percent. Total risk charges deducted
from contract purchase payments for the years ended December 31,
1999 and 1998 amounted to $119,048 and $30,895, respectively.
A premium tax charge of up to 3.50 percent is deducted from each
contract purchase payment. Total premium tax charges deducted from
contract purchase payments for the years ended December 31, 1999
and 1998 amounted to $3,773 and $121, respectively.
<PAGE>
4
VARIABLE ANNUITY ACCOUNT
(4) INVESTMENT TRANSACTIONS
The Account's purchases of Underlying Funds shares, including
reinvestment of dividend distributions, were as follows during the year
ended December 31, 1999:
<TABLE>
<CAPTION>
1999
---------------
<S> <C>
Growth Portfolio .................................$ 63,135,218
Bond Portfolio ................................... 33,877,637
Money Market Portfolio ........................... 144,426,447
Asset Allocation Portfolio ....................... 133,366,190
Mortgage Securities Portfolio .................... 31,163,691
Index 500 Portfolio .............................. 123,393,064
Capital Appreciation Portfolio ................... 67,261,540
International Stock Portfolio .................... 40,273,654
Small Company Growth Portfolio ................... 17,622,024
Maturing Government Bond 1998 Portfolio .......... -
Maturing Government Bond 2002 Portfolio .......... 5,491,222
Maturing Government Bond 2006 Portfolio .......... 2,092,541
Maturing Government Bond 2010 Portfolio .......... 2,276,355
Value Stock Portfolio ............................ 23,793,149
Small Company Value Portfolio..................... 4,378,296
Global Bond Portfolio............................. 6,850,146
Index 400 Mid-Cap Portfolio ...................... 8,575,958
Macro-Cap Value Portfolio ........................ 10,439,196
Micro-Cap Growth Portfolio ....................... 10,142,756
Real Estate Securities Portfolio ................. 1,243,086
Templeton Developing Markets Fund ................ 31,831,641
</TABLE>
<PAGE>
5
VARIABLE ANNUITY ACCOUNT
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MULTIOPTION FLEX/SINGLE/SELECT
Transactions in units for each segregated sub-account for the years
ended December 31, 1999 and 1998 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, 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, withdrawal
payments and charges ................ (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
Contract purchase
payments ............................ 9,013,901 8,746,000 56,607,809 19,260,225 10,151,505
Deductions for contract
terminations, withdrawal
payments and charges ................. (7,603,095) (11,627,689) (43,366,868) (18,111,054) (10,721,250)
------------ ------------ ------------ ------------ ------------
Units outstanding at
December 31, 1999 ......................... 49,216,657 48,459,470 41,200,616 121,522,399 40,937,593
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------
SMALL
INDEX CAPITAL INTERNATIONAL COMPANY
500 APPRECIATION STOCK GROWTH
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Units outstanding at
December 31, 1997 ......................... 54,579,265 53,582,481 103,600,602 68,590,765
Contract purchase
payments ............................ 15,789,448 8,967,037 17,507,237 15,655,645
Deductions for contract
terminations, withdrawal
payments and charges ................ (10,100,150) (8,655,037) (21,151,100) (14,456,560)
------------ ------------ ------------- ------------
Units outstanding at
December 31, 1998 ......................... 60,268,563 53,894,481 99,956,739 69,789,850
Contract purchase
payments ............................ 16,766,526 6,273,116 10,351,698 8,682,270
Deductions for contract
terminations, withdrawal
payments and charges ................ (12,299,226) (10,441,711) (20,324,515) (16,750,196)
------------ ------------ ------------- ------------
Units outstanding at
December 31, 1999 ......................... 64,735,863 49,725,886 89,983,922 61,721,924
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
</TABLE>
<PAGE>
6
VARIABLE ANNUITY ACCOUNT
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MULTIOPTION FLEX/SINGLE/SELECT
- 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, 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, withdrawal
payments and charges ........ (377,892) (833,184) (919,654) (18,520,135) (3,175,808)
----------- ------------ ---------- ------------- ------------
Units outstanding
December 31, 1998 ............... 4,526,963 3,881,227 3,046,112 69,982,001 7,555,601
Contract purchase
payments ................... 1,794,875 1,057,788 1,311,371 8,642,347 4,423,543
Deductions for contract
terminations, withdrawal
payments and charges ....... (1,231,344) (1,162,822) (1,277,639) (17,394,008) (1,556,437)
----------- ------------ ---------- ------------- ------------
Units outstanding at
December 31, 1999 ............... 5,090,494 3,776,193 3,079,844 61,230,340 10,422,707
========== ============ ========== ============= ============
<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, 1997 ............... 25,083,345 5,020,041 5,003,390 5,019,479 - 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, withdrawal
payments and charges ....... (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
Contract purchase
payments ................... 4,935,728 5,548,904 7,490,929 6,292,561 1,053,185 6,838,408
Deductions for contract
terminations, withdrawal
payments and charges ....... (2,794,846) (1,546,758) (1,700,092) (1,223,071) (698,502) (1,929,494)
-------------- ------------- ------------- ------------- -------------- --------------
Units outstanding at
December 31, 1999 ................ 28,982,189 11,781,426 14,276,707 11,992,142 6,242,074 9,817,346
============== ============= ============= ============= ============== ==============
</TABLE>
<PAGE>
7
VARIABLE ANNUITY ACCOUNT
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MULTIOPTION
CLASSIC/ACHIEVER
Transactions in units for each segregated sub-account for the year ended
December 31, 1999 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, 1998................... - - - - -
Contract purchase
payments........................ 1,609,477 766,440 3,993,816 4,265,438 989,144
Deductions for contract
terminations, withdrawal
payments and charges............ (518) (588) (620,941) (969,313) (71)
---------- ---------- ------------ ------------ --------------
Units outstanding at
December 31, 1999................... 1,608,959 765,852 3,372,875 3,296,125 989,073
========== ========== =========== =========== =============
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------
SMALL MATURING
INDEX CAPITAL INTERNATIONAL COMPANY GOVERNMENT
500 APPRECIATION STOCK GROWTH BOND 2002
--------- --------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1998................... - - - -
Contract purchase
payments........................ 2,039,531 602,909 888,642 503,561 21,585
Deductions for contract
terminations, withdrawal
payments and charges............ (572) - - - -
-------- -------------- ------------ ----------- ------------
Units outstanding at
December 31, 1999.................. 2,038,959 602,909 888,642 503,561 21,585
========= ============== ============ =========== ============
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------
MATURING MATURING SMALL
GOVERNMENT GOVERNMENT VALUE COMPANY GLOBAL
BOND 2006 BOND 2010 STOCK VALUE BOND
-------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1998................... - - - - -
Contract purchase
payments........................ 102,972 4,254 392,479 179,591 342,453
Deductions for contract
terminations, withdrawal
payments and charges............ - - - (325) -
------------ ---------- --------- ----------- --------
Units outstanding at
December 31, 1999................... 102,972 4,254 392,479 179,266 342,453
============ ========== ========= ========== ========
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------
REAL TEMPLETON
INDEX 400 MACRO-CAP MICRO-CAP ESTATE DEVELOPING
MID-CAP VALUE GROWTH SECURITIES MARKETS
----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1998.................... - - - - -
Contract purchase
payments........................ 398,475 236,331 420,716 17,691 268,416
Deductions for contract
terminations, withdrawal
payments and charges........... - - - - (184)
----------- ------------ ---------- ------------ ----------
Units outstanding at
December 31, 1999................... 398,475 236,331 420,716 17,691 268,232
=========== ============ ========== ============ ===========
</TABLE>
<PAGE>
8
VARIABLE ANNUITY ACCOUNT
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS -
MEGANNUITY
Transactions in units for each segregated sub-account for the years
ended December 31, 1999 and 1998 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, 1997............... 1,394,064 1,545,276 625,617 1,806,441 484,707
Contract purchase
payments................... 657,711 972,566 1,947,732 546,207 395,612
Deductions for contract
terminations, withdrawal
payments and charges...... (423,308) (354,976) (1,109,635) (365,486) (194,240)
---------- ----------- ------------- ------------- ----------
Units outstanding at
December 31, 1998............. 1,628,467 2,162,866 1,463,714 1,987,162 686,079
Contract purchase
payments.................. 545,679 646,495 22,001,268 465,525 272,542
Deductions for contract
terminations, withdrawal
payments and charges....... (400,427) (570,961) (22,289,191) (374,401) (79,722)
---------- ----------- ------------- ------------- ----------
Units outstanding at
December 31, 1999.............. 1,773,719 2,238,400 1,175,791 2,078,286 878,899
=========== ============ ============= ============= ==========
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------
SMALL
INDEX CAPITAL INTERNATIONAL COMPANY
500 APPRECIATION STOCK GROWTH
--------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
Units outstanding at
December 31, 1997............. 2,786,221 1,768,498 2,966,962 1,504,543
Contract purchase
payments.................. 822,830 321,369 497,133 588,895
Deductions for contract
terminations, withdrawal
payments and charges....... (828,745) (289,215) (999,182) (411,648)
--------- ------------ ------------ ---------
Units outstanding at
December 31, 1998............. 2,780,306 1,800,652 2,464,913 1,681,790
Contract purchase
payments................... 1,111,383 301,006 431,585 483,647
Deductions for contract
terminations, withdrawal
payments and charges....... (953,098) (503,340) (834,346) (587,822)
--------- ------------ ------------ ---------
Units outstanding at
December 31, 1999............... 2,938,591 1,598,318 2,062,152 1,577,615
=========== ============ ============= =============
</TABLE>
<PAGE>
9
VARIABLE ANNUITY ACCOUNT
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MEGANNUITY - 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, 1997................. 272,962 117,035 109,462 1,500,040 215,169
Contract purchase
payments...................... 72,286 112,281 14,766 590,073 152,448
Deductions for contract
terminations, withdrawal
payments and charges.......... (6,111) (6,280) (16,825) (829,771) (6,269)
----------- ---------- ----------- --------- ---------
Units outstanding at
December 31, 1998.................. 339,137 223,036 107,403 1,260,342 361,348
Contract purchase
payments....................... 1,798,442 48,690 - 281,549 143,713
Deductions for contract
terminations, withdrawal
payments and charges........... (3,410) (2,803) - (503,682) (291,715)
----------- ---------- ----------- --------- ---------
Units outstanding at
December 31, 1999.................. 2,134,169 268,923 107,403 1,038,209 213,346
=========== ========== =========== ========= =========
<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, 1997.................. 15,173 9,788 39,998 18,000 - 33,388
Contract purchase
payments....................... 42,386 225,451 60,652 119,408 13,452 104,594
Deductions for contract
terminations, withdrawal
payments and charges........... (14,916) (17,626) (3,069) (65,814) (1,428) (5,765)
--------- ---------- ----------- --------- ---------- ------------
Units outstanding at
December 31, 1998.................. 42,643 217,613 97,581 71,594 12,024 132,217
Contract purchase
payments....................... 84,240 164,052 252,625 157,939 55,427 33,973,859
Deductions for contract
terminations, withdrawal
payments and charges............ (1,025) (106,599) (10,669) (2,350) (2,614) (33,721,543)
--------- ---------- ----------- --------- ---------- ------------
Units outstanding at
December 31, 1999................... 125,858 275,066 339,537 227,183 64,837 384,533
========= ========== ============ ========= ========== ============
</TABLE>
<PAGE>
10
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT
-----------------------------------------------------
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,
-----------------------------------------------------------
1999 1998 1997 1996 1995
------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year ................................ $ 5.34 4.01 3.04 2.63 2.14
-------- -------- -------- ------- -------
Income (loss) from investment operations:
Net investment income (loss) ............................... (.05) (.02) (.02) (.01) (.01)
Net gains or losses on securities
(both realized and unrealized)............................ 1.33 1.35 .99 .42 .50
-------- -------- -------- ------- -------
Total from investment operations......................... 1.28 1.33 .97 .41 .49
-------- -------- -------- ------- -------
Unit value, end of year........................................ $ 6.62 5.34 4.01 3.04 2.63
-------- ------- -------- ------- -------
-------- ------- -------- ------- -------
</TABLE>
<PAGE>
11
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
BOND
----
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year................................ $ 2.48 2.37 2.19 2.15 1.82
-------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income ................................... .10 .10 .09 .08 .04
Net gains or losses on securities
(both realized and unrealized) ........................ (.20) .01 .09 (.04) .29
-------- ------- ------- ------- -------
Total from investment operations....................... (.10) .11 .18 .04 .33
-------- ------- ------- ------- -------
Unit value, end of year...................................... $ 2.38 2.48 2.37 2.19 2.15
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
<PAGE>
12
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
MONEY MARKET
------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year ................................. $ 1.69 1.63 1.57 1.52 1.46
-------- ------- ------- ------- -------
Income from investment operations:
Net investment income ...................................... .06 .06 .06 .05 .06
-------- ------- ------- ------- -------
Total from investment operations........................ .06 .06 .06 .05 .06
-------- ------- ------- ------- -------
Unit value, end of year ....................................... $ 1.75 1.69 1.63 1.57 1.52
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
<PAGE>
13
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
ASSET ALLOCATION
----------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year.................................. $ 3.96 3.25 2.76 2.49 2.01
-------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income...................................... .13 .05 .04 .04 .04
Net gains or losses on securities
(both realized and unrealized).......................... .42 .66 .45 .23 .44
-------- ------- ------- ------- -------
Total from investment operations........................ .55 .71 .49 .27 .48
-------- ------- ------- ------- -------
Unit value, end of year........................................ $ 4.51 3.96 3.25 2.76 2.49
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
<PAGE>
14
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
MORTGAGE SECURITIES
-------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year................................... $ 2.28 2.17 2.01 1.93 1.66
-------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income....................................... .11 .09 .10 .10 .10
Net gains or losses on securities
(both realized and unrealized)........................... (.09) .02 .06 (.02) .17
-------- ------- ------- ------- -------
Total from investment operations......................... .02 .11 .16 .08 .27
-------- ------- ------- ------- -------
Unit value, end of year ........................................ $ 2.30 2.28 2.17 2.01 1.93
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
<PAGE>
15
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
INDEX 500
---------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year.................................. $ 4.81 3.81 2.91 2.43 1.79
-------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)............................... .02 (.02) (.01) -- .01
Net gains or losses on securities
(both realized and unrealized).......................... .89 1.02 .91 .48 .63
-------- ------- ------- ------- -------
Total from investment operations........................ .91 1.00 .90 .48 .64
-------- ------- ------- ------- -------
Unit value, end of year........................................ $ 5.72 4.81 3.81 2.91 2.43
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
<PAGE>
16
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
CAPITAL APPRECIATION
--------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year................................... $ 4.79 3.71 2.93 2.52 2.08
-------- ------- ------- ------- -------
Income from investment operations:
Net investment loss......................................... (.06) (.05) (.04) (.03) (.03)
Net gains or losses on securities (both
realized and unrealized)................................. 1.03 1.13 .82 .44 .47
-------- ------- ------- ------- -------
Total from investment operations......................... .97 1.08 .78 .41 .44
-------- ------- ------- ------- -------
Unit value, end of year......................................... $ 5.76 4.79 3.71 2.93 2.52
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
<PAGE>
17
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
INTERNATIONAL STOCK
-------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year................................... $ 2.01 1.91 1.73 1.46 1.30
-------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)................................ .03 .03 .03 .02 (.02)
Net gains or losses on securities
(both realized and unrealized)........................... .37 .07 .15 .25 .18
-------- ------- ------- ------- -------
Total from investment operations........................ .40 .10 .18 .27 .16
-------- ------- ------- ------- -------
Unit value, end of year........................................ $ 2.41 2.01 1.91 1.73 1.46
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
<PAGE>
18
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
SMALL COMPANY GROWTH
--------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period................................ $ 1.78 1.78 1.67 1.59 1.22
-------- ------- ------- ------- -------
Income from investment operations:
Net investment loss......................................... (.02) (.02) (.02) (.02) (.02)
Net gains or losses on securities
(both realized and unrealized).......................... .80 .02 .13 .10 .39
-------- ------- ------- ------- -------
Total from investment operations........................ .78 - .11 .08 .37
-------- ------- ------- ------- -------
Unit value, end of period ..................................... $ 2.56 1.78 1.78 1.67 1.59
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
<PAGE>
19
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
MATURING GOVERNMENT BOND 2002
-----------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
---------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ................ $ 1.40 1.29 1.21 1.20 .97
---------- --------- -------- ---------- ----------
Income (loss) from investment operations:
Net investment income ...................... .04 .07 .05 .06 .06
Net gains or losses on securities
(both realized and unrealized) ............ (.07) .04 .03 (.05) .17
---------- --------- -------- ---------- ----------
Total from investment operations ........ (.03) .11 .08 .01 .23
---------- --------- -------- ---------- ----------
Unit value, end of period ...................... $ 1.37 1.40 1.29 1.21 1.20
---------- --------- -------- ---------- ----------
---------- --------- -------- ---------- ----------
</TABLE>
<PAGE>
20
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
MATURING GOVERNMENT BOND 2006
-----------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
---------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ................ $ 1.57 1.39 1.25 1.28 .96
---------- --------- -------- ---------- ----------
Income (loss) from investment operations:
Net investment income ....................... .07 .08 .05 .06 .06
Net gains or losses on securities
(both realized and unrealized) ............. (.21) .10 .09 (.09) .26
---------- --------- -------- ---------- ----------
Total from investment operations ......... (.14) .18 .14 (.03) .32
---------- --------- -------- ---------- ----------
Unit value, end of period ...................... $ 1.43 1.57 1.39 1.25 1.28
---------- --------- -------- ---------- ----------
---------- --------- -------- ---------- ----------
</TABLE>
<PAGE>
21
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
MATURING GOVERNMENT BOND 2010
-----------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
---------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ................ $ 1.66 1.47 1.27 1.33 .95
---------- --------- -------- ---------- ----------
Income (loss) from investment operations:
Net investment income (loss) .............. .05 .05 .04 (.02) .06
Net gains or losses on securities
(both realized and unrealized) ............ (.26) .14 .16 (.04) .32
---------- --------- -------- ---------- ----------
Total from investment operations ........ (.21) .19 .20 (.06) .38
---------- --------- -------- ---------- ----------
Unit value, end of period ...................... $ 1.45 1.66 1.47 1.27 1.33
---------- --------- -------- ---------- ----------
---------- --------- -------- ---------- ----------
</TABLE>
<PAGE>
22
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
VALUE STOCK
-----------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
---------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ................ $ 2.14 2.13 1.78 1.38 1.05
---------- --------- -------- ---------- ----------
Income from investment operations:
Net investment income (loss) ............... .03 (.03) - - -
Net gains or losses on securities
(both realized and unrealized) ............ (.05) .04 .35 .40 .33
---------- --------- -------- ---------- ----------
Total from investment operations ........ (.02) .01 .35 .40 .33
---------- --------- -------- ---------- ----------
Unit value, end of period ...................... $ 2.12 2.14 2.13 1.78 1.38
---------- --------- -------- ---------- ----------
---------- --------- -------- ---------- ----------
</TABLE>
<PAGE>
23
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
SMALL COMPANY VALUE
-------------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, OCTOBER 1, 1997*
--------------------------- TO DECEMBER
1999 1998 31, 1997
----------- ------------ ---------------
<S> <C> <C> <C>
Unit value, beginning of period .......................................... $ .95 1.03 1.00
----------- ------------ ---------------
Income from investment operations:
Net investment income (loss) ....................................... - - -
Net gains or losses on securities (both realized and unrealized) .... (.04) (.08) .03
----------- ------------ ---------------
Total from investment operations ................................. (.04) (.08) .03
----------- ------------ ---------------
Unit value, end of period ............................................... $ .91 .95 1.03
----------- ------------ ---------------
----------- ------------ ---------------
</TABLE>
* 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 - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
GLOBAL BOND
-----------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, OCTOBER 1, 1997*
--------------------------- TO DECEMBER
1999 1998 31, 1997
----------- ------------ ---------------
<S> <C> <C> <C>
Unit value, beginning of period ......................................... $ 1.14 1.00 1.00
----------- ------------ ---------------
Income from investment operations:
Net investment income (loss) ....................................... .02 .06 .01
Net gains or losses on securities (both realized and unrealized) .... (.12) .08 (.01)
----------- ------------ ---------------
Total from investment operations ................................. (.10) .14 -
----------- ------------ ---------------
Unit value, end of period ............................................... $ 1.04 1.14 1.00
----------- ------------ ---------------
----------- ------------ ---------------
</TABLE>
* Inception of the segregated sub-account was October 1, 1997, when the units
became effectively registered under the Securities Exchange Act of 1933.
<PAGE>
25
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
INDEX 400 MID-CAP
-----------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, OCTOBER 1, 1997*
--------------------------- TO DECEMBER
1999 1998 31, 1997
----------- ------------ ---------------
<S> <C> <C> <C>
Unit value, beginning of period ......................................... $ 1.16 1.00 1.00
----------- ------------ ---------------
Income from investment operations:
Net investment income (loss) ....................................... (.01) - -
Net gains or losses on securities (both realized and unrealized) .... .17 .16 -
----------- ------------ ---------------
Total from investment operations ................................. .16 .16 -
----------- ------------ ---------------
Unit value, end of period ............................................... $ 1.32 1.16 1.00
----------- ------------ ---------------
----------- ------------ ---------------
</TABLE>
* Inception of the segregated sub-account was October 1, 1997, when the units
became effectively registered under the Securities Exchange Act of 1933.
<PAGE>
26
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
MACRO-CAP VALUE
---------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, OCTOBER 15, 1997*
--------------------------- TO DECEMBER
1999 1998 31, 1997
----------- ------------ ---------------
<S> <C> <C> <C>
Unit value, beginning of period ......................................... $ 1.18 .98 1.00
----------- ------------ ---------------
Income (loss) from investment operations:
Net investment income ............................................... (.01) (.01) -
Net gains or losses on securities (both realized and unrealized) .... .07 .21 (.02)
----------- ------------ ---------------
Total from investment operations ................................ .06 .20 (.02)
----------- ------------ ---------------
Unit value, end of period ............................................... $ 1.24 1.18 .98
----------- ------------ ---------------
----------- ------------ ---------------
</TABLE>
* Inception of the segregated sub-account was October 15, 1997, when the units
became effectively registered under the Securities Exchange Act of 1933.
<PAGE>
27
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
MICRO-CAP GROWTH
----------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, OCTOBER 1, 1997*
--------------------------- TO DECEMBER
1999 1998 31, 1997
----------- ------------ ---------------
<S> <C> <C> <C>
Unit value, beginning of period ......................................... $ 1.02 .91 1.00
----------- ------------ ---------------
Income (loss) from investment operations:
Net investment loss ................................................. (.02) (.01) (.01)
Net gains or losses on securities (both realized and unrealized) .... 1.51 .12 (.08)
----------- ------------ ---------------
Total from investment operations ................................. 1.49 .11 (.09)
----------- ------------ ---------------
Unit value, end of period ............................................... $ 2.51 1.02 .91
----------- ------------ ---------------
----------- ------------ ---------------
</TABLE>
* Inception of the segregated sub-account was October 1, 1997, when the units
became effectively registered under the Securities Exchange Act of 1933.
<PAGE>
28
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
REAL ESTATE SECURITIES
----------------------
<TABLE>
<CAPTION>
YEAR PERIOD FROM
ENDED APRIL 24, 1998 *
DECEMBER 31, TO DECEMBER
1999 31, 1998
-------------- -----------------
<S> <C> <C>
Unit value, beginning of period ......................................... $ .86 1.00
-------------- -----------------
Income (loss) from investment operations:
Net investment income ............................................... .03 .03
Net gains or losses on securities (both realized and unrealized) .... (.08) (.17)
-------------- -----------------
Total from investment operations ................................. (.05) (.14)
-------------- -----------------
Unit value, end of period .............................................. $ .81 .86
-------------- -----------------
-------------- -----------------
</TABLE>
* Inception of the segregated sub-account was April 24, 1998, when the units
became effectively registered under the Securities Exchange Act of 1933.
<PAGE>
29
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
-----------------------------------------------------------------
TEMPLETON DEVELOPING MARKETS
----------------------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, OCTOBER 2, 1997*
--------------------------- TO DECEMBER
1999 1998 31, 1997
----------- ------------ ---------------
<S> <C> <C> <C>
Unit value, beginning of period ......................................... $ .54 .69 1.00
----------- ------------ ---------------
Income (loss) from investment operations:
Net investment income ............................................... - - -
Net gains or losses on securities (both realized and unrealized) .... .28 (.15) (.31)
----------- ------------ ---------------
Total from investment operations ................................ .28 (.15) (.31)
----------- ------------ ---------------
Unit value, end of period ............................................... $ .82 .54 .69
----------- ------------ ---------------
----------- ------------ ---------------
</TABLE>
* Inception of the segregated sub-account was October 2, 1997, when the units
became effectively registered under the Securities Exchange Act of 1933.
<PAGE>
30
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MULTIOPTION CLASSIC/ACHIEVER
---------------------------------------------------
The following tables for each segregated sub-account show certain data for an
accumulation unit outstanding during the periods from September 9, 1999,
commencement of the operations, to December 31, 1999:
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNT
--------------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION
-------- ------ ------- ------------ ------------ ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period ............ $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00
-------- ------ ------- ------------ ------------ ------- -------------
Income (loss) from investment operations:
Net investment income (loss) ............ - - .01 .07 - .02 (.01)
Net gains or losses on securities
(both realized and unrealized) ......... .17 - - .03 - .07 .28
-------- ------ ------- ------------ ------------ ------- -------------
Total from investment operations .... .17 - .01 .10 - .09 .27
-------- ------ ------- ------------ ------------ ------- -------------
Unit value, end of year .................... $ 1.17 1.00 1.01 1.10 1.00 1.09 1.27
-------- ------ ------- ------------ ------------ ------- -------------
-------- ------ ------- ------------ ------------ ------- -------------
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNT
---------------------------------------------------------------------------------
SMALL MATURING MATURING MATURING SMALL
INTERNATIONAL COMPANY GOVERNMENT GOVERNMENT GOVERNMENT VALUE COMPANY
STOCK GROWTH BOND 2002 BOND 2006 BOND 2010 STOCK VALUE
------------- ------- ---------- ---------- ---------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period ............ $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00
------------- ------- ---------- ---------- ---------- ----- -------
Income (loss) from investment operations:
Net investment income (loss) ........... - (.01) .23 .22 - .04 .03
Net gains or losses on securities
(both realized and unrealized) ........ .07 .41 (.23) (.23) (.02) (.03) (.04)
------------- ------- ---------- ---------- ---------- ----- -------
Total from investment operations ... .07 .40 - (.01) (.02) .01 (.01)
------------- ------- ---------- ---------- ---------- ----- -------
Unit value, end of year .................... $ 1.07 1.40 1.00 .99 .98 1.01 .99
------------- ------- ---------- ---------- ---------- ----- -------
------------- ------- ---------- ---------- ---------- ----- -------
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNT
------------------------------------------------------------------------
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>
Unit value, beginning of period ............ $ 1.00 1.00 1.00 1.00 1.00 1.00
------ ----------- ----------- ----------- ---------- ----------
Income (loss) from investment operations:
Net investment income (loss) ............ .07 .01 .02 (.01) .18 (.01)
Net gains or losses on securities
(both realized and unrealized) ......... (.08) .08 .02 .81 (.21) .21
------ ----------- ----------- ----------- ---------- ----------
Total from investment operations .... (.01) .09 .04 .80 (.03) .20
------ ----------- ----------- ----------- ---------- ----------
Unit value, end of year .................... $ .99 1.09 1.04 1.80 .97 1.20
------ ----------- ----------- ----------- ---------- ----------
------ ----------- ----------- ----------- ---------- ----------
</TABLE>
<PAGE>
31
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY
---------------------------------
The following tables for each segregated sub-account show certain data
for an accumulation unit outstanding during the periods indicated:
GROWTH
------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year ............. $ 4.22 3.14 2.35 2.01 1.62
-------- --------- ----------- ---------- ---------
Income from investment operations:
Net investment income ................. .01 .03 .02 .02 .01
Net gains on securities
(both realized and unrealized) ....... 1.06 1.05 .77 .32 .38
-------- --------- ----------- ---------- ---------
Total from investment operations ... 1.07 1.08 .79 .34 .39
-------- --------- ----------- ---------- ---------
Unit value, end of year ................... $ 5.29 4.22 3.14 2.35 2.01
-------- --------- ----------- ---------- ---------
-------- --------- ----------- ---------- ---------
</TABLE>
<PAGE>
32
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
---------------------------------------------
BOND
----
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year ............ $ 2.52 2.38 2.18 2.12 1.77
-------- --------- ----------- ---------- ---------
Income (loss) from investment operations:
Net investment income ................ .13 .13 .11 .11 .07
Net gains or losses on securities
(both realized and unrealized) ...... (.20) .01 .09 (.05) .28
-------- --------- ----------- ---------- ---------
Total from investment operations .. (.07) .14 .20 .06 .35
-------- --------- ----------- ---------- ---------
Unit value, end of year .................. $ 2.45 2.52 2.38 2.18 2.12
-------- --------- ----------- ---------- ---------
-------- --------- ----------- ---------- ---------
</TABLE>
<PAGE>
33
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
---------------------------------------------
MONEY MARKET
------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year ........... $ 1.78 1.70 1.62 1.55 1.47
-------- --------- ----------- ---------- ---------
Income from investment operations:
Net investment income ............... .08 .08 .08 .07 .08
-------- --------- ----------- ---------- ---------
Total from investment operations . .08 .08 .08 .07 .08
-------- --------- ----------- ---------- ---------
Unit value, end of year ................. $ 1.86 1.78 1.70 1.62 1.55
-------- --------- ----------- ---------- ---------
-------- --------- ----------- ---------- ---------
</TABLE>
<PAGE>
34
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
---------------------------------------------
ASSET ALLOCATION
----------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year ............ $ 3.71 3.00 2.53 2.25 1.80
-------- --------- ----------- ---------- ---------
Income (loss) from investment operations:
Net investment income ................. .17 .08 .08 .08 .06
Net gains or losses on securities
(both realized and unrealized) ...... .39 .63 .39 .20 .39
-------- --------- ----------- ---------- ---------
Total from investment operations .. .56 .71 .47 .28 .45
-------- --------- ----------- ---------- ---------
Unit value, end of year .................. $ 4.27 3.71 3.00 2.53 2.25
-------- --------- ----------- ---------- ---------
-------- --------- ----------- ---------- ---------
</TABLE>
<PAGE>
35
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
---------------------------------------------
MORTGAGE SECURITIES
-------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year ............... $ 2.55 2.40 2.20 2.09 1.78
------- ------ ------ ------ -------
Income from investment operations:
Net investment income ................... .14 .13 .14 .13 .12
Net gains or losses on securities
(both realized and unrealized) ....... (.09) .02 .06 (.02) .19
------- ------ ------ ------ -------
Total from investment operations ..... .05 .15 .20 .11 .31
------- ------ ------ ------ -------
Unit value, end of year ..................... $ 2.60 2.55 2.40 2.20 2.09
------- ------ ------ ------ -------
------- ------ ------ ------ -------
</TABLE>
<PAGE>
36
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
---------------------------------------------
INDEX 500
---------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year ............... $ 4.75 3.72 2.81 2.32 1.70
------- ------ ------ ------ -------
Income from investment operations:
Net investment income ................... .08 .03 .03 .03 .03
Net gains or losses on securities
(both realized and unrealized) ....... .87 1.00 .88 .46 .59
------- ------ ------ ------ -------
Total from investment operations ..... .95 1.03 .91 .49 .62
------- ------ ------ ------ -------
Unit value, end of year ..................... $ 5.70 4.75 3.72 2.81 2.32
------- ------ ------ ------ -------
------- ------ ------ ------ -------
</TABLE>
<PAGE>
37
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
---------------------------------------------
CAPITAL APPRECIATION
--------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year ............... $ 4.75 3.64 2.84 2.42 1.97
------- ------ ------ ------ -------
Income from investment operations:
Net investment income (loss) ............ (.01) (.01) (.01) - -
Net gains on securities
(both realized and unrealized) ....... 1.03 1.12 .81 .42 .45
------- ------ ------ ------ -------
Total from investment operations ..... 1.02 1.11 .80 .42 .45
------- ------ ------ ------ -------
Unit value, end of year ..................... $ 5.77 4.75 3.64 2.84 2.42
------- ------ ------ ------ -------
------- ------ ------ ------ -------
</TABLE>
<PAGE>
38
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
---------------------------------------------
INTERNATIONAL STOCK
-------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year ............... $ 2.13 2.00 1.79 1.50 1.31
------- ------ ------ ------ -------
Income from investment operations:
Net investment income (loss) ............ .06 .06 .05 .04 -
Net gains on securities
(both realized and unrealized) ....... .39 .07 .16 .25 .19
------- ------ ------ ------ -------
Total from investment operations ..... .45 .13 .21 .29 .19
------- ------ ------ ------ -------
Unit value, end of year ..................... $ 2.58 2.13 2.00 1.79 1.50
------- ------ ------ ------ -------
------- ------ ------ ------ -------
</TABLE>
<PAGE>
39
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
---------------------------------------------
SMALL COMPANY GROWTH
--------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ............. $ 1.86 1.84 1.71 1.60 1.22
------- ------ ------ ------ -------
Income from investment operations:
Net investment income ................... - - - - -
Net gains on securities
(both realized and unrealized) ....... .84 .02 .13 .11 .38
------- ------ ------ ------ -------
Total from investment operations ..... .84 .02 .13 .11 .38
------- ------ ------ ------ -------
Unit value, end of period.................... $ 2.70 1.86 1.84 1.71 1.60
------- ------ ------ ------ -------
------- ------ ------ ------ -------
</TABLE>
<PAGE>
40
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
---------------------------------------------
MATURING GOVERNMENT BOND 2002
-----------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ............. $ 1.47 1.35 1.24 1.22 .98
------- ------ ------ ------ -------
Income (loss) from investment operations:
Net investment income ................... .20 .08 .06 .15 .07
Net gains or losses on securities
(both realized and unrealized) ....... (.21) .04 .05 (.13) .17
------- ------ ------ ------ -------
Total from investment operations ..... (.01) .12 .11 .02 .24
------- ------ ------ ------ -------
Unit value, end of period.................... $ 1.46 1.47 1.35 1.24 1.22
------- ------ ------ ------ -------
------- ------ ------ ------ -------
</TABLE>
<PAGE>
41
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
---------------------------------------------
MATURING GOVERNMENT BOND 2006
-----------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period .............. $ 1.65 1.45 1.29 1.31 .97
------- ------ ------ ------ -------
Income (loss) from investment operations:
Net investment income .................... .10 .11 .06 .07 .07
Net gains or losses on securities
(both realized and unrealized) ........ (.23) .09 .10 (.09) .27
------- ------ ------ ------ -------
Total from investment operations ... (.13) .20 .16 (.02) .34
------- ------ ------ ------ -------
Unit value, end of period..................... $ 1.52 1.65 1.45 1.29 1.31
------- ------ ------ ------ -------
------- ------ ------ ------ -------
</TABLE>
<PAGE>
42
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
---------------------------------------------
MATURING GOVERNMENT BOND 2010
-----------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ............. $ 1.75 1.53 1.30 1.35 .96
------- ------ ------ ------ -------
Income (loss) from investment operations:
Net investment income ................... .07 .08 .08 - .05
Net gains or losses on securities
(both realized and unrealized) ......... (.27) .14 .15 (.05) .34
------- ------ ------ ------ -------
Total from investment operations .... (.20) .22 .23 (.05) .39
------- ------ ------ ------ -------
Unit value, end of period.................... $ 1.55 1.75 1.53 1.30 1.35
------- ------ ------ ------ -------
------- ------ ------ ------ -------
</TABLE>
<PAGE>
43
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
---------------------------------------------
VALUE STOCK
-----------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ............. $ 2.25 2.22 1.83 1.40 1.06
------- ------ ------ ------ -------
Income from investment operations:
Net investment income ................... .06 - .03 .02 .01
Net gains on securities (both
realized and unrealized) ............... (.06) .03 .36 .41 .33
------- ------ ------ ------ -------
Total from investment operations ..... - .03 .39 .43 .34
------- ------ ------ ------ -------
Unit value, end of period.................... $ 2.25 2.25 2.22 1.83 1.40
------- ------ ------ ------ -------
------- ------ ------ ------ -------
</TABLE>
<PAGE>
44
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
----------------------------------------------
SMALL COMPANY VALUE
-------------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, OCTOBER 1, 1997*
---------------------- TO DECEMBER
1999 1998 31, 1997
------- ------ ---------------
<S> <C> <C> <C>
Unit value, beginning of period ................... $ .94 1.01 1.00
------- ------ ---------------
Income from investment operations:
Net investment income ........................ .01 .02 -
Net gains or losses on securities
(both realized and unrealized) ............... (.04) (.09) .01
------- ------ ---------------
Total from investment operations ......... (.03) (.07) .01
------- ------ ---------------
Unit value, end of period.......................... $ .91 .94 1.01
------- ------ ---------------
------- ------ ---------------
</TABLE>
* Inception of the segregated sub-account was October 1, 1997, when the units
became effectively registered under the Securities Exchange Act of 1933.
<PAGE>
45
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
----------------------------------------------
GLOBAL BOND
-----------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, OCTOBER 1, 1997*
---------------------- TO DECEMBER
1999 1998 31, 1997
------- ------ ---------------
<S> <C> <C> <C>
Unit value, beginning of period ................... $ 1.15 .99 1.00
------- ------ ---------------
Income (loss) from investment operations:
Net investment income ........................ .04 .07 .01
Net gains or losses on securities
(both realized and unrealized) ............... (.13) .09 (.02)
------- ------ ---------------
Total from investment operations ........... (.09) .16 (.01)
------- ------ ---------------
Unit value, end of period.......................... $ 1.06 1.15 .99
------- ------ ---------------
------- ------ ---------------
</TABLE>
* Inception of the segregated sub-account was October 1, 1997, when the units
became effectively registered under the Securities Exchange Act of 1933.
<PAGE>
46
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
----------------------------------------------
INDEX 400 MID-CAP
-----------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, OCTOBER 1, 1997*
---------------------- TO DECEMBER
1999 1998 31, 1997
------- ------ ---------------
<S> <C> <C> <C>
Unit value, beginning of period .................... $ 1.15 .99 1.00
------- ------ ---------------
Income (loss) from investment operations:
Net investment income ......................... - .01 -
Net gains or losses on securities
(both realized and unrealized) ................ .19 .15 (.01)
------- ------ ---------------
Total from investment operations ........... .19 .16 (.01)
------- ------ ---------------
Unit value, end of period........................... $ 1.34 1.15 .99
------- ------ ---------------
------- ------ ---------------
</TABLE>
* Inception of the segregated sub-account was October 1, 1997, when the units
became effectively registered under the Securities Exchange Act of 1933.
<PAGE>
47
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
----------------------------------------------
MACRO-CAP VALUE
---------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, OCTOBER 1, 1997*
---------------------- TO DECEMBER
1999 1998 31, 1997
------- ------ ---------------
<S> <C> <C> <C>
Unit value, beginning of period ................... $ 1.20 .99 1.00
------- ------ ---------------
Income (loss) from investment operations:
Net investment income ......................... .01 .01 .01
Net gains or losses on securities
(both realized and unrealized) ............... .07 .20 (.02)
------- ------ ---------------
Total from investment operations .......... .08 .21 (.01)
------- ------ ---------------
Unit value, end of period.......................... $ 1.28 1.20 .99
------- ------ ---------------
------- ------ ---------------
</TABLE>
* Inception of the segregated sub-account was October 15, 1997, when the units
became effectively registered under the Securities Exchange Act of 1933.
<PAGE>
48
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
----------------------------------------------
MACRO-CAP GROWTH
----------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, OCTOBER 1, 1997*
---------------------- TO DECEMBER
1999 1998 31, 1997
------- ------ ---------------
<S> <C> <C> <C>
Unit value, beginning of period ................... $ .95 .84 1.00
------- ------ ---------------
Income (loss) from investment operations:
Net investment income ......................... - - -
Net gains or losses on securities
(both realized and unrealized) ............... 1.41 .11 (.16)
------- ------ ---------------
Total from investment operations .......... 1.41 .11 (.16)
------- ------ ---------------
Unit value, end of period.......................... $2.36 .95 .84
------- ------ ---------------
------- ------ ---------------
</TABLE>
* Inception of the segregated sub-account was October 1, 1997, when the units
became effectively registered under the Securities Exchange Act of 1933.
<PAGE>
49
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
----------------------------------------------
REAL ESTATES SECURITIES
-----------------------
<TABLE>
<CAPTION>
YEAR PERIOD FROM
ENDED APRIL 1, 1998*
DECEMBER 31, TO DECEMBER
1999 31, 1998
----------- -------------
<S> <C> <C>
Unit value, beginning of period ................... $ .85 1.00
----------- -------------
Income (loss) from investment operations:
Net investment income ......................... .08 .08
Net gains or losses on securities
(both realized and unrealized) ............... (.11) (.23)
----------- -------------
Total from investment operations ........... (.03) (.15)
----------- -------------
Unit value, end of period.......................... $ .82 .85
----------- -------------
----------- -------------
</TABLE>
* Inception of the segregated sub-account was April 1, 1998, when the units
became effectively registered under the Securities Exchange Act of 1933.
<PAGE>
50
VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED
----------------------------------------------
TEMPLETON DEVELOPING MARKETS
----------------------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, OCTOBER 1, 1997*
---------------------- TO DECEMBER
1999 1998 31, 1997
------- ------ ---------------
<S> <C> <C> <C>
Unit value, beginning of period ..................... $ .55 .70 1.00
------- ------ ---------------
Income (loss) from investment operations:
Net investment income .......................... - .01 -
Net gains or losses on securities
(both realized and unrealized) ................. .29 (.16) (.30)
------- ------ ---------------
Total from investment operations ............ .29 (.15) (.30)
------- ------ ---------------
Unit value, end of period............................ $ .84 .55 .70
------- ------ ---------------
------- ------ ---------------
</TABLE>
* 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, 1999 and
1998, 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, 1999. 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, 1999 and
1998, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1999 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 11, 2000
ML-1
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Balance Sheets
December 31, 1999 and 1998
Assets
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(In thousands)
<S> <C> <C>
Fixed maturity securities:
Available-for-sale, at fair value (amortized cost
$4,868,584 and $4,667,688) $ 4,803,568 $ 4,914,012
Held-to-maturity, at amortized cost (fair value
$968,852 and $1,161,784) 974,814 1,086,548
Equity securities, at fair value (cost $587,014 and
$579,546) 770,269 749,800
Mortgage loans, net 696,672 681,219
Real estate, net 36,793 38,530
Finance receivables, net 134,812 163,411
Policy loans 237,335 226,409
Short-term investments 93,993 136,435
Private equities 284,797 160,958
Other invested assets 53,919 100,667
----------- -----------
Total investments 8,086,972 8,257,989
Cash 116,803 175,660
Deferred policy acquisition costs 713,217 564,382
Accrued investment income 93,385 86,974
Premiums receivable, net 94,171 62,609
Property and equipment, net 59,223 67,448
Reinsurance recoverables 194,940 176,683
Other assets 64,256 61,183
Separate account assets 8,931,456 6,994,752
----------- -----------
Total assets $18,354,423 $16,447,680
=========== ===========
Liabilities and Stockholder's Equity
Liabilities:
Policy and contract account balances $ 4,234,183 $ 4,242,802
Future policy and contract benefits 1,826,953 1,758,375
Pending policy and contract claims 90,762 70,564
Other policyholders funds 451,056 438,595
Policyholders dividends payable 51,749 53,957
Stockholder dividend payable -- 24,700
Unearned premiums and fees 208,013 180,191
Federal income tax liability:
Current 68,320 53,039
Deferred 125,094 173,907
Other liabilities 442,369 514,468
Notes payable 218,000 267,000
Separate account liabilities 8,882,060 6,947,806
----------- -----------
Total liabilities 16,598,559 14,725,404
----------- -----------
Stockholder's equity:
Common stock, $1 par value, 5,000,000 shares autho-
rized, issued and outstanding 5,000 5,000
Additional paid in capital 3,000 --
Retained earnings 1,629,787 1,513,661
Accumulated other comprehensive income 118,077 203,615
----------- -----------
Total stockholder's equity 1,755,864 1,722,276
----------- -----------
Total liabilities and stockholder's equity $18,354,423 $16,447,680
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
ML-2
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Revenues:
Premiums $ 697,799 $ 577,693 $ 615,253
Policy and contract fees 331,110 300,361 272,037
Net investment income 540,056 531,081 553,773
Net realized investment gains 79,615 114,652 114,367
Finance charge income 31,969 35,880 43,650
Other income 81,135 73,498 71,707
---------- ---------- ----------
Total revenues 1,761,684 1,633,165 1,670,787
---------- ---------- ----------
Benefits and expenses:
Policyholders benefits 667,207 519,926 515,873
Interest credited to policies and con-
tracts 282,627 290,870 298,033
General operating expenses 358,387 360,916 369,961
Commissions 110,645 110,211 114,404
Administrative and sponsorship fees 79,787 80,183 81,750
Dividends to policyholders 18,928 25,159 26,776
Interest on notes payable 24,282 22,360 24,192
Amortization of deferred policy acqui-
sition costs 123,455 148,098 128,176
Capitalization of policy acquisition
costs (152,602) (166,140) (155,054)
---------- ---------- ----------
Total benefits and expenses 1,512,716 1,391,583 1,404,111
---------- ---------- ----------
Income from operations before taxes 248,968 241,582 266,676
Federal income tax expense (benefit):
Current 75,172 93,584 84,612
Deferred (1,439) (15,351) (7,832)
---------- ---------- ----------
Total federal income tax expense 73,733 78,233 76,780
---------- ---------- ----------
Net income $ 175,235 $ 163,349 $ 189,896
========== ========== ==========
Other comprehensive income (loss), after
tax:
Foreign currency translation adjust-
ments $ -- $ (947) $ 947
Unrealized gains (losses) on securities (85,538) 47,889 47,414
---------- ---------- ----------
Other comprehensive income (loss), net
of tax (85,538) 46,942 48,361
---------- ---------- ----------
Comprehensive income $ 89,697 $ 210,291 $ 238,257
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
ML-3
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Common stock:
Beginning balance $ 5,000 $ -- $ --
Issued during the year -- 5,000 --
---------- ---------- ----------
Total common stock $ 5,000 $ 5,000 $ --
========== ========== ==========
Additional paid in capital:
Beginning balance $ -- $ -- $ --
Contribution 3,000 -- --
---------- ---------- ----------
Total additional paid in capital $ 3,000 $ -- $ --
========== ========== ==========
Retained earnings:
Beginning balance $1,513,661 $1,380,012 $1,190,116
Net income 175,235 163,349 189,896
Retained earnings transfer for common
stock issued -- (5,000) --
Dividends to stockholder (59,109) (24,700) --
---------- ---------- ----------
Total retained earnings $1,629,787 $1,513,661 $1,380,012
========== ========== ==========
Accumulated other comprehensive income:
Beginning balance $ 203,615 $ 156,673 $ 108,312
Change in unrealized appreciation of
investments (85,538) 47,889 47,414
Change in unrealized gain on foreign
currency translation -- (947) 947
---------- ---------- ----------
Total accumulated other comprehensive
income $ 118,077 $ 203,615 $ 156,673
========== ========== ==========
Total stockholder's equity $1,755,864 $1,722,276 $1,536,685
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
ML-4
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 175,235 $ 163,349 $ 189,896
Adjustments to reconcile net income to
net cash
provided by operating activities:
Interest credited to annuity and in-
surance contracts 282,627 290,870 298,033
Fees deducted from policy and con-
tract balances (217,941) (212,901) (214,803)
Change in future policy benefits 68,578 56,716 76,358
Change in other policyholders lia-
bilities 29,426 11,965 7,597
Amortization of deferred policy ac-
quisition costs 123,455 148,098 128,176
Capitalization of policy acquisition
costs (152,602) (166,140) (155,054)
Change in premiums receivable (31,562) 5,421 (9,280)
Change in federal income tax liabil-
ities 14,598 (7,455) 36,049
Net realized investment gains (79,615) (114,652) (114,367)
Other, net (27,314) 30,524 (44,527)
----------- ----------- -----------
Net cash provided by operating ac-
tivities 184,885 205,795 198,078
----------- ----------- -----------
Cash Flows from Investing Activities
Proceeds from sales of:
Fixed maturity securities, avail-
able-for-sale 1,856,757 1,835,955 1,099,114
Equity securities 705,050 621,125 601,936
Real estate 7,341 7,800 9,279
Private equities 28,128 20,025 19,817
Other invested assets 5,731 822 7,060
Proceeds from maturities and repay-
ments of:
Fixed maturity securities, avail-
able-for-sale 345,677 414,726 403,829
Fixed maturity securities, held-to-
maturity 122,704 148,848 139,394
Mortgage loans 116,785 126,066 109,246
Purchases of:
Fixed maturity securities, avail-
able-for-sale (2,432,049) (2,384,720) (1,498,048)
Fixed maturity securities, held-to-
maturity (8,446) (99,989) (82,835)
Equity securities (613,596) (610,553) (585,349)
Mortgage loans (130,013) (141,008) (157,247)
Real estate (1,016) (5,612) (3,908)
Private equities (79,584) (64,811) (48,778)
Other invested assets (11,435) (10,871) (7,210)
Finance receivable originations or
purchases (74,989) (77,141) (115,248)
Finance receivable principal payments 88,697 109,277 133,762
Other, net (91,346) 104,519 (88,626)
----------- ----------- -----------
Net cash used for investing activi-
ties (165,604) (5,542) (63,812)
----------- ----------- -----------
Cash Flows from Financing Activities
Deposits credited to annuity and in-
surance contracts 448,012 952,622 928,696
Withdrawals from annuity and insurance
contracts (478,775) (1,053,844) (1,013,588)
Proceeds from issuance of debt 50,000 40,000 --
Payments on debt (49,000) (31,000) (21,000)
Dividends paid to stockholder (83,809) -- --
Other, net (7,008) (4,467) (3,355)
----------- ----------- -----------
Net cash used for financing activi-
ties (120,580) (96,689) (109,247)
----------- ----------- -----------
Net increase (decrease) in cash and
short-term investments (101,299) 103,564 25,019
Cash and short-term investments, be-
ginning of year 312,095 208,531 183,512
----------- ----------- -----------
Cash and short-term investments, end
of year $ 210,796 $ 312,095 $ 208,531
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
ML-5
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
(1) Nature of Operations
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 1999 for
these business units were $703,473,000, $263,418,000, $388,792,000,
$164,774,000, and $66,594,000, respectively. Additional revenues of
$174,633,000 were reported by the Company's subsidiaries and corporate product
line.
The Company serves over six million people through more than 4,000
associates located at its St. Paul, Minnesota headquarters and in sales offices
nationwide.
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.
(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). 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 consolidated
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.
ML-6
<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 both 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 $123,455,000, $148,098,000
and $128,176,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
Software Capitalization
The Accounting Standards Executive Committee issued Statement of Position 98-1,
Accounting for Costs of Computer Software for Internal Use, effective for
fiscal years beginning after December 15, 1998. The Company has adopted the
capitalization of software cost beginning in 1999. At December 1999, the
Company had unamortized cost of $7,459,000 and amortized software expense of
$1,643,000. Costs are amortized over a three-year period.
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.
ML-7
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
Equity securities (common stocks and preferred stocks) are carried at fair
value. Equity securities also include initial contributions to affiliated
registered investment funds that are managed by a subsidiary of the Company.
These contributions are carried at the market value of the underlying net
assets of the funds.
Mortgage loans are carried at amortized cost less an allowance for
uncollectible amounts. Premiums and discounts are amortized or accreted over
the terms of the mortgage loans based on the interest yield method. A mortgage
loan is considered impaired if it is probable that contractual amounts due will
not be collected. Impaired mortgage loans are valued at the fair value of the
underlying collateral. Interest income on impaired mortgage loans is recorded
on an accrual basis. However, when the likelihood of collection is doubtful,
interest income is recognized when received.
On January 1, 1999, the Company converted to the equity method of accounting
for its private equity investments. Prior to 1999 the Company accounted for
these investments using the cost method. The change to this method of
accounting was not material to prior year amounts. Private equity investments
are now carried at our equity in the estimated fair value of the underlying
investments of these limited partnerships. In-kind distributions are recorded
as a return of capital for the cost basis of the stock received. Changes in
fair value are recorded directly in stockholder's equity.
Fair values of fixed maturity securities, equity securities and private
equities are based on quoted market prices, where available. If quoted market
prices are not available, fair values are estimated using values obtained from
independent pricing services which specialize in matrix pricing and modeling
techniques for estimating fair values. Fair values of mortgage loans are based
upon discounted cash flows, quoted market prices and matrix pricing.
Real estate is carried at cost less accumulated depreciation and an
allowance for estimated losses. Accumulated depreciation on real estate at
December 31, 1999 and 1998, was $7,101,000 and $6,713,000, 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
ML-8
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
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. Notional amounts for the
years ended December 31, 1999 and 1998, were $98,606,000 and $115,194,000,
respectively.
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,
equity securities and private equity investments in limited partnerships 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
$113,441,000 and $101,692,000 at December 31, 1999 and 1998, 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,
1999, 1998 and 1997, were $11,749,000, $10,765,000 and $8,965,000,
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
$49,396,000 and $46,946,000 at December 31, 1999 and 1998, 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. At December 31, 1999 and 1998, the total
participating business in force was $50,305,164,000 and $55,683,649,000,
respectively.
ML-9
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
Income Taxes
Current income taxes are charged to operations based upon amounts estimated to
be payable as a result of taxable operations for the current year. Deferred
income tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between financial statement
carrying amounts and income tax bases of assets and liabilities.
Reinsurance Recoverables
Insurance liabilities are reported before the effects of ceded reinsurance.
Reinsurance recoverables represent amounts due from reinsurers for paid and
unpaid benefits, expense reimbursements, prepaid premiums and future policy
benefits.
Reclassifications
Certain 1998 and 1997 consolidated financial statement balances have been
reclassified to conform to the 1999 presentation.
(3) Investments
Net investment income for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities $428,286 $445,220 $457,391
Equity securities 29,282 12,183 16,182
Mortgage loans 54,596 54,785 55,929
Real estate 11 (236) (407)
Policy loans 16,016 15,502 15,231
Short-term investments 5,829 6,147 6,995
Private equities 4,114 1,908 2,081
Other invested assets 6,278 1,918 1,790
-------- -------- --------
Gross investment income 544,412 537,427 555,192
Investment expenses (4,356) (6,346) (1,419)
-------- -------- --------
Total $540,056 $531,081 $553,773
======== ======== ========
Net realized investment gains (losses) for the years ended December 31 were
as follows:
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities $(31,404) $ 43,244 $ 3,711
Equity securities 91,591 47,526 92,765
Mortgage loans 1,344 3,399 2,011
Real estate 4,806 7,809 1,598
Private equities 13,983 6,336 8,431
Other invested assets (705) 6,338 5,851
-------- -------- --------
Total $ 79,615 $114,652 $114,367
======== ======== ========
</TABLE>
ML-10
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3) Investments (continued)
Gross realized gains (losses) on the sales of fixed maturity securities and
equity securities for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities, available-for-sale:
Gross realized gains $ 28,619 $ 56,428 $ 18,804
Gross realized losses (60,023) (13,184) (15,093)
Equity securities:
Gross realized gains 143,180 107,342 120,437
Gross realized losses (51,589) (59,816) (27,672)
Private equities:
Gross realized gains 14,558 13,563 10,515
Gross realized losses (575) (7,227) (2,084)
</TABLE>
Net unrealized gains (losses) included in stockholder's equity at December
31 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Gross unrealized gains $ 361,895 $ 487,479
Gross unrealized losses (184,268) (73,440)
Adjustment to deferred acquisition costs (414) (119,542)
Adjustment to unearned policy and contract fees (473) 15,912
Deferred federal income taxes (58,663) (106,794)
--------- ---------
Net unrealized gains $ 118,077 $ 203,615
========= =========
</TABLE>
ML-11
<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, 1999
Available-for-sale:
United States government and gov-
ernment
agencies and authorities $ 151,864 $ 32 $ 8,299 $ 143,597
Foreign governments 122,505 678 7,913 115,270
Corporate securities 3,088,999 108,203 117,543 3,079,659
International bond securities 28,979 -- 2,633 26,346
Mortgage-backed securities 1,476,237 4,867 42,408 1,438,696
---------- -------- -------- ----------
Total fixed maturities 4,868,584 113,780 178,796 4,803,568
Equity securities-unaffiliated 463,089 142,583 2,745 602,927
Equity securities-affiliated mu-
tual funds 123,925 44,014 597 167,342
---------- -------- -------- ----------
Total equity securities 587,014 186,597 3,342 770,269
---------- -------- -------- ----------
Total available-for-sale 5,455,598 300,377 182,138 5,573,837
Held-to maturity:
Corporate securities 848,689 15,965 21,492 843,162
Mortgage-backed securities 126,125 2,584 3,019 125,690
---------- -------- -------- ----------
Total held-to-maturity 974,814 18,549 24,511 968,852
---------- -------- -------- ----------
Total $6,430,412 $318,926 $206,649 $6,542,689
========== ======== ======== ==========
</TABLE>
<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 gov-
ernment
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 mu-
tual 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
========== ======== ======= ==========
</TABLE>
ML-12
<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, 1999, 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 $ 39,213 $ 39,542 $ 5,628 $ 5,589
Due after one year through five years 1,065,644 1,125,653 175,672 176,672
Due after five years through ten
years 1,305,697 1,271,316 376,752 375,480
Due after ten years 981,793 928,361 290,637 285,421
---------- ---------- -------- --------
3,392,347 3,364,872 848,689 843,162
Mortgage-backed securities 1,476,237 1,438,696 126,125 125,690
---------- ---------- -------- --------
Total $4,868,584 $4,803,568 $974,814 $968,852
========== ========== ======== ========
</TABLE>
At December 31, 1999 and 1998, fixed maturity securities and short-term
investments with a carrying value of $13,945,000 and $6,361,000, 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>
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Mortgage loans $ 1,500 $ 1,500
Investment real estate -- 841
------- -------
Total $ 1,500 $ 2,341
======= =======
</TABLE>
At December 31, 1999, no mortgage loans were considered impaired. At
December 31, 1998, the recorded investment in mortgage loans that were
considered to be impaired was $8,798, before the 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, 1999 and 1998.
Changes in the allowance for credit losses on mortgage loans were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $1,500 $1,500 $1,895
Provision for credit losses -- -- --
Charge-offs -- -- (395)
------ ------ ------
Balance at end of year $1,500 $1,500 $1,500
====== ====== ======
Below is a summary of interest income on impaired mortgage loans.
<CAPTION>
1999 1998 1997
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Average impaired mortgage loans $ 4 $ 14 $3,268
Interest income on impaired mortgage loans--contractual 4 18 556
Interest income on impaired mortgage loans--collected 4 17 554
</TABLE>
ML-13
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(4) Notes Receivable
In connection with the Company's 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, 1999 and 1998, HRA
has drawn $13,574,000 and $9,669,000 on this loan contingency agreement and
accrued interest of $1,795,000 and $673,000, respectively.
(5) Net Finance Receivables
Finance receivables as of December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Direct installment loans $127,379 $147,425
Retail installment notes 9,199 12,209
Retail revolving credit 3,457 17,170
Accrued interest 2,505 2,683
-------- --------
Gross receivables 142,540 179,487
Allowance for uncollectible amounts (7,728) (16,076)
-------- --------
Finance receivables, net $134,812 $163,411
======== ========
</TABLE>
The direct installment loans, at December 31, 1999 and 1998, consisted of
$83,376,000 and $81,066,000, respectively, of discount basis loans (net of
unearned finance charges) and $44,003,000 and $66,359,000, respectively, of
interest-bearing loans and generally have a maximum term of 84 months; the
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 $29
million and $44 million of real estate secured loans at December 31, 1999 and
1998, respectively. Revolving credit loans included approximately $3 million
and $16 million of real estate secured loans at December 31, 1999 and 1998,
respectively. Contractual maturities of the finance receivables by year, as
required by the industry audit guide for finance companies, were not readily
available at December 31, 1999 and 1998, but experience has shown that such
information is not significant in that a substantial portion of receivables
will be renewed, converted, or paid in full prior to maturity.
During the years ended December 31, 1999 and 1998, principal cash
collections of direct installment loans were $57,665,000 and $75,011,000,
respectively, and the percentages of these cash collections to average net
balances were 43% and 47%, respectively. Retail installment notes' principal
cash collections to average net balances were $12,180,000 and $15,990,000,
respectively, and the percentages of these cash collections to average net
balances were 121% and 101%, respectively.
ML-14
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(5) Net Finance Receivables (continued)
The ratio for the allowance for losses to net outstanding receivables
balances at December 31, 1999 and 1998 was 5.4% and 9.0%, respectively. Changes
in the allowance for losses for the periods ended December 31, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 16,076 $ 20,545 $ 7,497
Provision for credit losses 5,434 10,712 28,206
Allowance applicable to bulk purchase 125 -- --
Charge-offs (16,712) (18,440) (17,869)
Recoveries 2,805 3,259 2,711
-------- -------- --------
Balance at end of year $ 7,728 $ 16,076 $ 20,545
======== ======== ========
</TABLE>
At December 31, 1999, 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, 1999 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, 1999 $5,539 692 $6,231
Related allowance for credit losses $1,478 330 $1,808
</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 1999. The
average quarterly balance of impaired loans during the year ended December 31,
1999 and 1998, was $5,758,000 and $6,354,000 for installment basis loans and
$6,214,000 and $12,471,000 for revolving credit loans, respectively.
There were no material commitments to lend additional funds to customers
whose loans were classified as impaired at December 31, 1999.
(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>
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Computed tax expense $87,139 $84,553 $93,337
Difference between computed and actual tax ex-
pense:
Dividends received deduction (3,127) (1,730) (5,573)
Special tax on mutual life insurance companies (9,568) (3,455) 3,341
Sale of subsidiary -- -- (4,408)
Foundation gain (538) -- (4,042)
Tax credits (4,500) (4,416) (3,600)
Expense adjustments and other 4,327 3,281 (2,275)
------- ------- -------
Total tax expense $73,733 $78,233 $76,780
======= ======= =======
</TABLE>
ML-15
<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>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Policyholders liabilities $ 17,461 $ 16,999
Pension and post retirement benefits 30,151 27,003
Tax deferred policy acquisition costs 91,976 82,940
Net realized capital losses 6,709 8,221
Other 16,612 18,487
-------- --------
Gross deferred tax assets 162,909 153,650
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs $198,501 $155,655
Real estate and property and equipment depreciation 14,642 10,275
Basis difference on investments 8,092 10,798
Net unrealized capital gains 59,411 143,354
Other 7,357 7,475
-------- --------
Gross deferred tax liabilities 288,003 327,557
-------- --------
Net deferred tax liability $125,094 $173,907
======== ========
</TABLE>
A valuation allowance for deferred tax assets was not considered necessary
as of December 31, 1999 and 1998 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, 1999, 1998 and 1997, were
$59,905,000, $91,259,000 and $71,108,000, respectively.
The Company's tax returns for 1995, 1996, and 1997 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.
ML-16
<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>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Balance at January 1 $435,079 $409,249 $416,910
Less: reinsurance recoverable 108,918 104,741 102,161
-------- -------- --------
Net balance at January 1 326,161 304,508 314,749
-------- -------- --------
Incurred related to:
Current year 92,421 92,793 121,153
Prior years 19,435 14,644 7,809
-------- -------- --------
Total incurred 111,856 107,437 128,962
-------- -------- --------
Paid related to:
Current year 25,084 27,660 51,275
Prior years 63,827 58,124 57,475
-------- -------- --------
Total paid 88,911 85,784 108,750
-------- -------- --------
Decrease in liabilities due to sale of subsidiary -- -- 30,453
-------- -------- --------
Net balance at December 31 349,106 326,161 304,508
Plus: reinsurance recoverable 121,395 108,918 104,741
-------- -------- --------
Balance at December 31 $470,501 $435,079 $409,249
======== ======== ========
</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 $19,435,000, $14,644,000 and $7,809,000 in 1999,
1998 and 1997, respectively which includes the amortization of discount on
individual accident and health claim reserves of $13,918,000, $14,256,000,
$11,522,000 in 1999, 1998 and 1997, respectively. The remaining changes in
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 postretirement plans that provide certain
health care and life insurance benefits to substantially all retired employees
and agents. Eligibility is determined by age at retirement and years of service
after age 30. Health care premiums are shared with retirees, and other cost-
sharing features include deductibles and co-payments.
ML-17
<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
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of
year $181,439 $151,509 $ 31,236 $ 24,467
Service cost 8,272 8,402 1,419 1,375
Interest cost 13,132 10,436 2,340 1,713
Amendments 4,385 6 -- --
Actuarial gain (4,143) 16,298 (33) 4,542
Benefits paid (6,060) (5,212) (1,242) (861)
-------- -------- -------- --------
Benefit obligation at end of year $197,025 $181,439 $ 33,720 $ 31,236
======== ======== ======== ========
Change in plan assets:
Fair value of plan assets at the
beginning of the year $146,710 $133,505 $ -- $ --
Actual return on plan assets 12,948 13,068 -- --
Employer contribution 6,096 5,349 1,242 861
Benefits paid (6,060) (5,212) (1,242) (861)
-------- -------- -------- --------
Fair value of plan assets at the
end of year $159,694 $146,710 $ -- $ --
======== ======== ======== ========
Funded status $(37,330) $(34,729) $(33,720) $(31,236)
Unrecognized net actuarial loss
(gain) 6,812 12,283 (6,089) (6,251)
Unrecognized prior service cost
(benefit) 8,723 5,293 (2,472) (2,986)
-------- -------- -------- --------
Net amount recognized $(21,795) $(17,153) $(42,281) $(40,473)
======== ======== ======== ========
Amounts recognized in the balance
sheet statement consist of:
Accrued benefit cost $(27,980) $(23,242) $(42,395) $(40,473)
Intangible asset 6,185 6,089 114 --
-------- -------- -------- --------
Net amount recognized $(21,795) $(17,153) $(42,281) $(40,473)
======== ======== ======== ========
Weighted average assumptions as of
December 31
Discount rate 7.50% 7.00% 7.50% 7.00%
Expected return on plan assets 8.27% 8.27% -- --
Rate of compensation increase 5.32% 5.32% -- --
</TABLE>
ML-18
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(8) Employee Benefit Plans (continued)
For measurement purposes, an 8.5 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2000. The rate was
assumed to decrease gradually to 5.5 percent for 2005 and remain at that level
thereafter.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
--------------------------- ----------------------
1999 1998 1997 1999 1998 1997
-------- -------- ------- ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost
Service cost $ 8,272 $ 8,402 $ 6,847 $1,419 $1,375 $1,047
Interest cost 13,132 10,436 9,956 2,340 1,713 1,872
Expected return on plan
assets (12,080) (10,978) (9,859) -- -- --
Amortization of prior
service cost (benefits) 954 578 578 (513) (513) (510)
Recognized net actuarial
loss (gain) 459 190 77 (195) (559) (480)
-------- -------- ------- ------ ------ ------
Net periodic benefit
cost $ 10,737 $ 8,628 $ 7,599 $3,051 $2,016 $1,929
======== ======== ======= ====== ====== ======
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $45,610,000, $36,376,000 and $18,500,000,
respectively, as of December 31, 1999, and $39,470,000, $31,546,000 and
$17,334,000, respectively, as of December 31, 1998.
The assumptions presented herein are based on pertinent information
available to management as of December 31, 1999 and 1998. Actual results could
differ from those estimates and assumptions. For example, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the postretirement benefit obligation as of December 31, 1999 by
$6,164,000 and the estimated eligibility cost and interest cost components of
net periodic benefit costs for 1999 by $831,000. Decreasing the assumed health
care cost trend rates by one percentage point in each year would decrease the
postretirement benefit obligation as of December 31, 1999 by $4,879,000 and the
estimated eligibility cost and interest cost components of net periodic
postretirement benefit costs for 1999 by $637,000.
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
1999, 1998 and 1997 of $6,003,000, $7,145,000 and $7,173,000, 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.
ML-19
<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 lives 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>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Direct premiums $662,775 $553,408 $595,686
Reinsurance assumed 102,154 91,548 78,097
Reinsurance ceded (67,130) (67,263) (58,530)
-------- -------- --------
Net premiums $697,799 $577,693 $615,253
======== ======== ========
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $71,922,000,
$64,174,000 and $58,072,000 during 1999, 1998 and 1997, respectively.
On January 1, 1999, the Company entered into an agreement to sell its
assumed individual life reinsurance business representing $1,982,509,000 of in
force to RGA Reinsurance Company. The Company received cash of $1,284,000 from
the sale and recognized miscellaneous income of approximately $4,139,000,
representing the gain on the sale.
On October 1, 1999, the Company entered into an assumption reinsurance
agreement with Fort Dearborn Life Insurance Company. The agreement transfers
401(k) accounts with associated fixed and variable assets of approximately
$260,000,000.
(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, 1999 and 1998.
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, private equities 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,
1999 and 1998, 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,
1999 and 1998, 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, 1999 and 1998
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.
ML-20
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(11) Fair Value of Financial Instruments (continued)
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.
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>
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities:
Available-for-sale $4,803,568 $4,803,568 $4,914,012 $4,914,012
Held-to-maturity 974,814 968,852 1,086,548 1,161,784
Equity securities 770,269 770,269 749,800 749,800
Mortgage loans:
Commercial 625,196 605,112 579,890 603,173
Residential 71,476 73,293 101,329 104,315
Policy loans 237,335 237,335 226,409 226,409
Short-term investments 93,993 93,993 136,435 136,435
Cash 116,803 116,803 175,660 175,660
Finance receivables, net 134,812 134,812 163,411 163,411
Private equities 284,797 284,797 160,958 164,332
Foreign currency exchange con-
tract 655 655 1,594 1,594
---------- ---------- ---------- ----------
Total financial assets $8,113,718 $8,089,489 $8,296,046 $8,400,925
========== ========== ========== ==========
</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>
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Deferred annuities $1,822,302 $1,810,820 $2,085,408 $2,075,738
Annuity certain contracts 39,513 39,421 57,528 60,766
Other fund deposits 945,575 936,590 722,321 731,122
Guaranteed investment contracts 116 116 862 862
Supplementary contracts without
life contingencies 43,050 43,126 44,696 44,251
Notes payable 218,000 221,233 267,000 272,834
---------- ---------- ---------- ----------
Total financial liabilities $3,068,556 $3,051,306 $3,177,815 $3,185,573
========== ========== ========== ==========
</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, 1999 and 1998. The issuance costs of
$1,421,000 are deferred and amortized over 30 years on straight-line basis.
ML-21
<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>
1999 1998
-------- --------
(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 93,000 142,000
-------- --------
Total notes payable $218,000 $267,000
======== ========
</TABLE>
At December 31, 1999, the aggregate minimum annual notes payable maturities
for the next four years were as follows: 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 $41,354,000. The consumer finance subsidiary was in compliance with all such
provisions at December 31, 1999.
The Company maintains a line of credit, which is drawn down periodically
throughout the year. As of December 1999 and 1998, the outstanding balance of
this line of credit was $90,000,000 and $40,000,000, respectively.
Interest paid on debt for the years ended December 31, 1999, 1998 and 1997,
was $24,120,000, $25,008,000 and $18,197,000, respectively.
(13) Other 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 (loss), other than net income are
illustrated below:
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- --------
(In thousands)
<S> <C> <C> <C>
Other comprehensive income (loss), before tax:
Foreign currency translation adjustment $ -- $ -- $ 1,457
Less: reclassification adjustment for gains
included in net income -- (1,457) --
---------- -------- --------
-- (1,457) 1,457
Unrealized gains (loss) on securities (59,499) 162,214 171,654
Less: reclassification adjustment for gains
included in net income (74,170) (90,770) (96,476)
---------- -------- --------
(133,669) 71,444 75,178
Income tax expense related to items of other
comprehensive income 48,131 (23,045) (28,274)
---------- -------- --------
Other comprehensive income (loss), net of tax $ (85,538) $ 46,942 $ 48,361
========== ======== ========
</TABLE>
(14) Stock Dividends
During 1999, the Company declared and paid dividends to Securian Financial
Group, Inc. totaling $59,109,000. These dividends were in the form of cash,
common stock and the affiliated stock of Capitol City Property Management and
HomePlus Insurance Agency, Inc. On December 14, 1998, the Company declared and
accrued a dividend to Securian Financial Group, Inc. in the amount of
$24,700,000, which was paid in 1999.
ML-22
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(14) Stock Dividends (continued)
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 1998 statutory results, Minnesota Life Insurance Company could
have paid $168,076,000 in dividends in 1999 without prior approval.
(15) 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 $183,200,000 as
of December 31, 1999. 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 private equities and real
estate investments totaling $147,652,000 as of December 31, 1999. The Company
estimates that $60,000,000 of these commitments will be invested in 2000, with
the remaining $87,652,000 invested over the next four years.
As of December 31, 1999, the Company had committed to purchase bonds and
mortgage loans totaling $54,130,000 but had not completed the purchase
transactions.
The Company has a long-term lease agreement for rental space in downtown St.
Paul and other locations. Minimum rental commitments under such leases are as
follows: 2000, $2,400,000; 2001, $2,227,000; 2002, $2,092,000; 2003,
$2,108,000; 2004, $1,261,000; 2005, $22,000.
At December 31, 1999, the Company had guaranteed the payment of $76,600,000
in policyholders dividends and discretionary amounts payable in 2000. The
Company has pledged bonds, valued at $79,333,000 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. At December 31, 1999 and 1998 the liability was ($352,000) and
$1,105,000, respectively. An asset is recorded for the amount of guaranty fund
assessments paid, which can be recovered through future premium tax credits.
This asset was $5,485,000 and $7,282,000 for the periods ending December 31,
1999 and 1998, respectively. These assets are being amortized over a five-year
period.
At December 1999, the Company has guaranteed the payment of approximately
$125,000,000 of senior notes issued by Capitol City Properties Management,
Inc., an affiliated company through the expiration date of the notes June 1,
2021 or by mutual agreement of the parties. These notes were issued in
conjunction with the financing of the Company's additional home office space.
ML-23
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(16) 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
----------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
Statutory capital and surplus $1,089,474 $ 947,885
Adjustments:
Deferred policy acquisition costs 712,532 564,382
Net unrealized investment gains (losses) (49,572) 279,885
Statutory asset valuation reserve 310,626 239,455
Statutory interest maintenance reserve 30,984 49,915
Premiums and fees deferred or receivable (69,618) (73,312)
Change in reserve basis 115,718 113,648
Separate accounts (64,860) (56,816)
Unearned policy and contract fees (144,157) (118,459)
Surplus notes (125,000) (125,000)
Net deferred income taxes (125,094) (173,907)
Non-admitted assets 36,205 39,525
Policyholders dividends 62,268 60,648
Other (23,642) (25,573)
---------- ----------
Stockholder's equity as reported in the accompanying
consolidated financial statements $1,755,864 $1,722,276
========== ==========
</TABLE>
<TABLE>
<CAPTION>
As of December 31
--------------------------------
1999 1998 1997
-------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Statutory net income $167,957 $ 104,609 $ 167,078
Adjustments:
Deferred policy acquisition costs 29,164 18,042 26,878
Statutory interest maintenance reserve (18,931) 25,746 (538)
Premiums and fees deferred or receivable 3,686 708 2,175
Change in reserve basis 2,555 3,011 9,699
Separate accounts (8,044) (5,644) (6,272)
Unearned policy and contract fees (8,696) (7,896) (12,825)
Net deferred income taxes 1,439 15,351 7,832
Policyholders dividends 1,620 1,194 2,708
Other 4,485 8,228 (6,839)
-------- ---------- ----------
Net income as reported in the accompanying
consolidated financial statements $175,235 $ 163,349 $ 189,896
======== ========== ==========
</TABLE>
ML-24
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule I
Summary of Investments--Other than Investments in Related Parties
December 31, 1999
<TABLE>
<CAPTION>
As Shown
on the
Market consolidated
Type of investment Cost(3) Value balance sheet(1)
- ------------------ ---------- ---------- ----------------
(In thousands)
<S> <C> <C> <C>
Bonds:
United States government and
government agencies and authorities $ 151,864 $ 143,597 $ 143,597
Foreign governments 122,505 115,270 115,270
Public utilities 287,970 276,558 276,558
Mortgage-backed securities 1,602,362 1,564,386 1,564,386
All other corporate bonds 3,678,697 3,672,609 3,678,571
---------- ---------- ----------
Total bonds 5,843,398 5,772,420 5,778,382
---------- ---------- ----------
Equity securities:
Common stocks:
Public utilities 7,475 9,072 9,072
Banks, trusts and insurance compa-
nies 25,959 25,399 25,399
Industrial, miscellaneous and all
other 525,152 708,848 708,848
Nonredeemable preferred stocks 28,428 26,950 26,950
---------- ---------- ----------
Total equity securities 587,014 770,269 770,269
---------- ---------- ----------
Mortgage loans on real estate 696,672 XXXXXX 696,672
Real estate (2) 36,793 XXXXXX 36,793
Policy loans 237,335 XXXXXX 237,335
Other long-term investments 473,528 XXXXXX 473,528
Short-term investments 93,993 XXXXXX 93,993
---------- ---------- ----------
Total 1,538,321 -- 1,538,321
---------- ---------- ----------
Total investments $7,968,733 $6,542,689 $8,086,972
========== ========== ==========
</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.
ML-25
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule III
Supplementary Insurance Information
(In thousands)
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------
Future policy
Deferred benefits Other policy
policy losses, claims claims and
acquisition and settlement Unearned benefits
Segment costs expenses(1) premiums(2) payable
- ------- ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
1999:
Life insurance $535,709 $2,388,867 $172,430 $73,670
Accident and
health insur-
ance 80,371 552,833 35,558 16,858
Annuity 97,137 3,118,995 25 234
Property and li-
ability insur-
ance -- 441
-------- ---------- -------- -------
$713,217 $6,061,136 $208,013 $90,762
======== ========== ======== =======
1998:
Life insurance $421,057 $2,303,580 $146,042 $51,798
Accident and
health insur-
ance 74,606 510,969 33,568 18,342
Annuity 68,719 3,186,148 25 424
Property and li-
ability insur-
ance -- 480 556 --
-------- ---------- -------- -------
$564,382 $6,001,177 $180,191 $70,564
======== ========== ======== =======
1997:
Life insurance $434,012 $2,229,396 $166,704 $42,627
Accident and
health insur-
ance 70,593 466,109 34,250 17,153
Annuity 71,425 3,266,965 -- 4,576
Property and li-
ability insur-
ance -- 280 1,116 --
-------- ---------- -------- -------
$576,030 $5,962,750 $202,070 $64,356
======== ========== ======== =======
<CAPTION>
For the years ended December 31,
-----------------------------------------------------------------------
Amortization
Benefits, of deferred
Net claims, losses policy Other
Premium investment and settlement acquisition operating Premiums
Segment revenue(3) income expenses costs expenses written(4)
- ------- ----------- ---------- -------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1999:
Life insurance $ 762,745 $258,483 $645,695 $ 88,731 $391,454
Accident and
health insur-
ance 170,988 37,922 108,283 11,779 101,021
Annuity 95,190 243,160 214,461 22,945 79,883
Property and li-
ability insur-
ance (14) 491 323 743 (570)
----------- ---------- -------------- ------------ --------- ----------
$1,028,909 $540,056 $968,762 $123,455 $573,101 $ (570)
=========== ========== ============== ============ ========= ==========
1998:
Life insurance $ 615,856 $246,303 $502,767 $114,589 $342,080
Accident and
health insur-
ance 167,544 35,822 105,336 12,261 93,876
Annuity 93,992 247,970 225,004 21,248 136,527
Property and li-
ability insur-
ance 662 986 2,848 -- 1,187 103
----------- ---------- -------------- ------------ --------- ----------
$ 878,054 $531,081 $835,955 $148,098 $573,670 $ 103
=========== ========== ============== ============ ========= ==========
1997:
Life insurance $ 576,468 $247,267 $476,747 $102,473 $345,938
Accident and
health insur-
ance 205,869 40,343 87,424 9,451 101,960
Annuity 64,637 261,768 242,738 16,252 129,263
Property and li-
ability insur-
ance 40,316 4,395 33,773 -- 13,146 43,376
----------- ---------- -------------- ------------ --------- ----------
$ 887,290 $553,773 $840,682 $128,176 $590,307 $43,376
=========== ========== ============== ============ ========= ==========
</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.
ML-26
<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
Gross other from other Net assumed to
amount companies companies amount net
------------ ----------- ----------- ------------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
1999:
Life insurance in force $175,297,217 $21,279,606 $37,337,340 $191,354,951 19.5%
============ =========== =========== ============
Premiums:
Life insurance $ 455,857 $ 30,557 $ 83,681 $ 508,981 16.4%
Accident and health
insurance 183,765 18,776 1,281 166,270 0.8%
Annuity 22,562 -- -- 22,562 --
Property and liability
insurance 591 17,797 17,192 (14) n/a
------------ ----------- ----------- ------------
Total premiums $ 662,775 $ 67,130 $ 102,154 $ 697,799 14.6%
============ =========== =========== ============
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 liability
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 liability
insurance 38,995 11,651 12,972 40,316 32.2%
------------ ----------- ----------- ------------
Total premiums $ 595,686 $ 58,530 $ 78,097 $ 615,253 12.7%
============ =========== =========== ============
</TABLE>
See independent auditors' report.
ML-27
