Dear Variable Annuity Owner:
The stock market in the United States experienced its third straight year of
exceptional returns. The U. S. bond market was also strong. Turbulence in Asia
led to severe setbacks in the less developed international stock markets late in
the year, and this produced increased volatility in the domestic markets, but
did not significantly diminish their returns. Results in the subaccounts of the
MEMBERS(R) Variable Annuity reflect these divergent forces:
Percent increase
in Unit Value from
Subaccount 12/31/96 through 12/31/97
- -----------------------------------------------------------------------------
Capital Appreciation Stock 29.77%
Growth and Income Stock 29.62%
Balanced 15.27%
Bond 5.99%
Money Market 3.67%
International Stock 1.69%
World Governments -2.50%
Emerging Growth 20.24%
High Income 9.90%*
Developing Markets -33.60%*
- -----------------------------------------------------------------------------
*Returns shown for the High Income and Developing Markets Subaccounts are from
May 1, 1997, the date they were made available in MEMBERS(R) Variable Annuity.
This booklet is divided into several sections. Each section contains the annual
report for a component of the MEMBERS(R) Variable Annuity. The first section
contains the following reports for the CUNA Mutual Life Variable Annuity
Account:
Statement of Assets and Liabilities........................ page 2
Statement of Operations.................................... page 4
Statement of Changes in Net Assets......................... page 5
Notes to the Financial Statements.......................... page 7
Independent Auditors' Report............................... page 11
The CUNA Mutual Life Variable Annuity Account invests in mutual funds. The
results shown above reflect the deduction of the separate account level charges.
Returns at the subaccount level shown above are slightly lower than at the
mutual fund level as a result of these charges.
The remaining sections of this booklet cover the mutual funds and include
discussions of the funds' results and the managers' outlooks. The second section
contains the report for the Ultra Series Fund which includes the Capital
Appreciation Stock Fund, Growth and Income Stock Fund, Balanced Fund, Bond Fund,
and Money Market Fund. The third section is the report for the International
Stock Portfolio of the T. Rowe Price International Series, Inc., and the last
section has the financial information and results for the MFS(R) World
Government SeriesSM and the MFS(R) Emerging Growth SeriesSM of the MFS(R)
Variable Insurance TrustSM.
I am pleased to report that the net assets in the CUNA Mutual Life Variable
Annuity Account increased from $399 million on 12/31/96 to over $780 million on
12/31/97. This tremendous growth in assets in the MEMBERS(R) Variable Annuity is
evidence of the trust you place in us when you make our product a part of your
long term financial portfolio. We have seen an unprecedented string of three
consecutive years of double digit returns in the major U.S. market indices. We
encourage you to keep this in mind as you set your long-term return
expectations, but also to recognize that successful investing requires time in
the markets, not timing the markets.
Sincerely,
/s/ Michael B. Kitchen
Michael B. Kitchen
President and Chief Executive Officer
CUNA Mutual Life Insurance Company
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statement of Assets and Liabilities
December 31, 1997
Capital
Appreciation Growth and Money
Stock Income Stock Balanced Bond Market
Assets: Subaccount Subaccount Subaccount Subaccount Subaccount
<S> <C> <C> <C> <C> <C>
Investments in Ultra Series Fund:
(note 2)
Capital Appreciation Stock Fund,
7,161,810 shares at net asset
value of $18.85 per share
(cost $102,107,628) $135,005,291 $ -- $ -- $ -- $ --
Growth and Income Stock Fund,
10,385,443 shares at net asset
value of $27.20 per share
(cost $221,062,843) -- 282,527,699 -- -- --
Balanced Fund, 10,863,830 shares
at net asset value of $17.02
per share (cost $167,160,842) -- -- 184,932,699 -- --
Bond Fund, 3,156,281 shares at
net asset value of $10.54
per share (cost $32,840,723) -- -- -- 33,280,493 --
Money Market Fund, 17,555,013
shares at net asset value of
$1.00 per share
(cost $17,555,013) -- -- -- -- 17,555,013
----------- ----------- ----------- ---------- ----------
Total assets 135,005,291 282,527,699 184,932,699 33,280,493 17,555,013
----------- ----------- ----------- ---------- ----------
Liabilities:
Accrued adverse mortality and
expense charges 22,677 47,571 31,370 5,683 2,897
Other accrued expenses 2,721 5,709 3,764 682 348
----------- ----------- ----------- ---------- ----------
Total liabilities 25,398 53,280 35,134 6,365 3,245
----------- ----------- ----------- ---------- ----------
Net assets $134,979,893 $282,474,419 $184,897,565 $33,274,128 $17,551,768
=========== =========== =========== ========== ==========
Contract owners' equity:
Contracts in accumulation period
(note 6) 134,974,906 282,288,487 184,846,582 33,274,128 17,551,768
Contracts in annuity payment period
(note 2) 4,987 185,932 50,983 -- --
----------- ----------- ----------- ---------- ----------
Total contract owners' equity 134,979,893 282,474,419 184,897,565 33,274,128 17,551,768
=========== =========== =========== ========== ==========
Accumulation units outstanding
(note 5 and note 6) 6,732,473 14,176,543 12,307,622 2,725,770 1,551,829
=========== =========== =========== ========== ==========
Accumulation value per unit $20.05 $19.91 $15.02 $12.21 $11.31
=========== =========== =========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statement of Assets and Liabilities
December 31, 1997
International World Emerging High Developing
Stock Governments Growth Income Markets
Assets: Subaccount Subaccount Subaccount Subaccount Subaccount
<S> <C> <C> <C> <C> <C>
Investments in T. Rowe Price
International Fund, Inc.:
International Stock Portfolio,
4,329,028 shares at net asset
value of $12.74 per share
(cost $52,357,284) $55,151,814 $ -- $ -- $ -- $ --
Investments in MFS(R) Variable
Insurance TrustSM:
World Governments Series,
1,363,097 shares at net asset
value of $10.21 per share
(cost $14,012,900) -- 13,917,216 -- -- --
Investments in MFS(R) Variable
Insurance TrustSM:
Emerging Growth Series,
2,818,251 shares at net asset
value of $16.14 per share
(cost $39,415,702) -- -- 45,486,570 -- --
Investments in Oppenheimer
Variable Account Funds:
High Income Series,
1,178,269 shares at net asset
value of $11.52 per share
(cost $13,469,886) -- -- -- 13,573,657 --
Investments in Templeton
Variable Products Series Fund:
Developing Markets Series,
460,462 shares at net asset
value of $6.62 per share
(cost $4,196,143) -- -- -- -- 3,048,260
---------- ---------- ---------- ---------- ---------
Total assets 55,151,814 13,917,216 45,486,570 13,573,657 3,048,260
---------- ---------- ---------- ---------- ---------
Liabilities
Accrued adverse mortality and
expense charges 9,411 2,389 7,611 2,298 517
Other accrued expenses 1,129 287 913 276 62
---------- ---------- ---------- ---------- ---------
Total liabilities 10,540 2,676 8,524 2,574 579
---------- ---------- ---------- ---------- ---------
Net assets $55,141,274 $13,914,540 $45,478,046 $13,571,083 $3,047,681
========== ========== ========== ========== =========
Contract owners' equity:
Contracts in accumulation period
(note 6) 55,141,274 13,914,540 45,459,968 13,571,083 3,047,681
Contracts in annuity payment period
(note 2) -- -- 18,078 -- --
---------- ---------- ---------- ---------- ----------
Total contract owners' equity 51,141,274 13,914,540 45,478,046 13,571,083 3,047,681
========== ========== ========== ========== ==========
Accumulation units outstanding
(note 5 and note 6) 4,373,475 1,232,126 3,752,045 1,234,868 458,727
========== ========== ========== ========== =========
Accumulation value per unit $12.61 $11.29 $12.12 $10.99 $6.64
========== ========== ========== ========== =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statement of Operations
December 31, 1997
Capital
Appreciation Growth and Money
Stock Income Stock Balanced Bond Market
Investment income (loss): Subaccount Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Dividend income $611,841 $2,901,812 $5,645,042 $1,464,506 $1,038,769
Adverse mortality and expense
charges (note 3) (1,270,572) (2,577,337) (1,803,619) (336,358) (258,721)
Administrative charges (152,469) (309,280) (216,434) (40,363) (31,047)
---------- ---------- ---------- --------- ---------
Net investment income (loss) (811,200) 15,195 3,624,989 1,087,785 749,001
---------- ---------- ---------- --------- ---------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on security
transactions:
Capital gain distributions 1,686,012 4,628,636 2,287,057 3,960 --
Proceeds from sale of securities 926,992 1,081,423 1,113,855 1,136,080 35,313,724
Cost of securities sold (730,724) (848,350) (990,393) (1,120,968) (35,313,724)
---------- ---------- ---------- --------- ---------
Net realized gain (loss) on
security transactions 1,882,280 4,861,709 2,410,519 19,072 --
Net change in unrealized
appreciation or depreciation
on investments 24,598,979 46,546,353 14,073,060 524,467 --
---------- ---------- ---------- --------- ---------
Net gain (loss) on investments 26,481,259 51,408,062 16,483,579 543,539 --
---------- ---------- ---------- --------- ---------
Net increase (decrease) in net
assets resulting from operations $25,670,059 $51,423,257 $20,108,568 $1,631,324 $749,001
========== ========== ========== ========= =========
International World Emerging High Developing
Stock Governments Growth Income Markets
Investment income (loss): Subaccount Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ---------- ----------
Dividend income $1,228,093 $313,188 $ -- $403,093 $ --
Adverse mortality and expense
charges (note 3) (582,913) (168,455) (394,556) (54,252) (16,325)
Administrative charges (69,950) (20,215) (47,347) (6,510) (1,959)
--------- -------- --------- -------- ----------
Net investment income (loss) 575,230 124,518 (441,903) 342,331 (18,284)
--------- -------- --------- -------- ----------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on security
transactions:
Capital gain distributions -- -- -- -- --
Proceeds from sale of securities 218,498 1,442,089 144,769 4,220 142,968
Cost of securities sold (179,815) (1,456,932) (122,421) (4,168) (163,912)
--------- -------- --------- -------- ----------
Net realized gain (loss) on
security transactions 38,683 (14,843) 22,348 52 (20,944)
Net change in unrealized
appreciation or depreciation
on investments (469,465) (395,717) 5,960,197 103,771 (1,147,882)
--------- -------- --------- -------- ----------
Net gain (loss) on investments (430,782) (410,560) 5,937,849 103,823 (1,168,826)
--------- -------- --------- -------- ----------
Net increase (decrease) in net
assets resulting from operations $144,448 $(286,042) $5,540,642 $446,154 $(1,187,110)
========= ======== ========= ======== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statement of Changes in Net Assets
Years Ended December 31, 1997 and 1996
CAPITAL APPRECIATION STOCK SUBACCOUNT GROWTH AND INCOME STOCK SUBACCOUNT
Operations: 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net investment income (loss) $(811,200) $1,960,017 $15,195 $3,503,603
Net realized gain (loss) on
security transactions 1,882,280 184,419 4,861,709 31,195
Net change in unrealized appreciation
or depreciation on investments 24,598,979 6,603,942 46,546,353 13,287,638
----------- ---------- ----------- -----------
Change in net assets from operations 25,670,059 8,748,378 51,423,257 16,822,436
----------- ---------- ----------- -----------
Capital unit transactions (note 5):
Proceeds from sales of units 107,669,256 66,511,107 197,965,607 112,789,079
Cost of units repurchased (67,800,969) (31,925,414) (98,094,296) (34,256,064)
Annuity benefit payments (168) -- (7,512) --
----------- ---------- ----------- -----------
Change in net assets from capital
unit transactions 39,868,119 34,585,693 99,863,799 78,533,015
----------- ---------- ----------- -----------
Increase (decrease) in net assets 65,538,178 43,334,071 151,287,056 95,355,451
Net assets:
Beginning of period 69,441,715 26,107,644 131,187,363 35,831,912
----------- ---------- ----------- -----------
End of period $134,979,893 $69,441,715 $282,474,419 $131,187,363
=========== ========== =========== ===========
BALANCED SUBACCOUNT BOND SUBACCOUNT
Operations: 1997 1996 1997 1996
---- ---- ---- ----
Net investment income (loss) $3,624,989 $4,085,481 $1,087,785 $704,571
Net realized gain (loss) on
security transactions 2,410,519 13,414 19,072 (1,945)
Net change in unrealized appreciation
or depreciation on investments 14,073,060 2,775,771 524,467 (263,632)
----------- ----------- ---------- ----------
Change in net assets from operations 20,108,568 6,874,666 1,631,324 438,994
----------- ----------- ---------- ----------
Capital unit transactions (note 5):
Proceeds from sale of units 134,826,300 91,579,338 31,709,344 20,883,364
Cost of units repurchased (71,445,220) (29,216,779) (19,493,816) (8,218,653)
Annuity benefit payments (1,535) -- -- --
----------- ----------- ---------- ----------
Change in net assets from capital
unit transactions 63,379,545 62,362,559 12,215,528 12,664,711
----------- ----------- ---------- ----------
Increase (decrease) in net assets 83,488,113 69,237,225 13,846,852 13,103,705
Net assets:
Beginning of period 101,409,452 32,172,227 19,427,276 6,323,571
----------- ----------- ---------- ----------
End of period $184,897,565 $101,409,452 $33,274,128 $19,427,276
=========== =========== ========== ==========
MONEY MARKET SUBACCOUNT INTERNATIONAL STOCK SUBACCOUNT
Operations: 1997 1996 1997 1996
---- ---- ---- ----
Net investment income (loss) $749,001 $425,152 $575,230 $222,112
Net realized gain (loss) on
security transactions -- -- 38,683 1,124
Net change in unrealized appreciation
or depreciation on investments -- -- (469,465) 2,489,462
---------- ---------- ---------- ----------
Change in net assets from operations 749,001 425,152 144,448 2,712,698
---------- ---------- ---------- ----------
Capital unit transactions (note 5):
Proceeds from sales of units 92,196,341 71,914,632 64,648,440 37,340,833
Cost of units repurchased (91,675,721) (62,787,600) (42,924,106) (18,736,774)
Annuity benefit payments -- -- -- --
---------- ---------- ---------- ----------
Change in net assets from capital
unit transactions 520,620 9,127,032 21,724,334 18,604,059
---------- ---------- ---------- ----------
Increase (decrease) in net assets 1,269,621 9,552,184 21,868,782 21,316,757
Net assets:
Beginning of period 16,282,147 6,729,963 33,272,492 11,955,735
---------- ---------- ---------- ----------
End of period $17,551,768 $16,282,147 $55,141,274 $33,272,492
========== ========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statement of Changes in Net Assets
Years Ended December 31, 1997 and 1996
WORLD GOVERNMENTS SUBACCOUNT EMERGING GROWTH SUBACCOUNT
Operations: 1997 1996 1997 1996*
---- ---- ---- -----
<S> <C> <C> <C> <C>
Net investment income (loss) $124,518 $(125,656) $(441,903) $54,624
Net realized gain (loss) on
security transactions (14,843) (2,764) 22,348 --
Net change in unrealized appreciation
or depreciation on investments (395,717) 448,184 5,960,197 110,671
---------- ---------- ---------- ----------
Change in net assets from operations (286,042) 319,764 5,540,642 165,295
---------- ---------- ---------- ----------
Capital unit transactions (note 5):
Proceeds from sale of units 15,607,791 14,413,481 50,764,584 21,632,015
Cost of units repurchased (13,378,076) (8,476,180) (27,459,730) (5,164,573)
Annuity benefit payments -- -- (187) --
---------- ---------- ---------- ----------
Change in net assets from capital
unit transactions 2,229,715 5,937,301 23,304,667 16,467,442
---------- ---------- ---------- ----------
Increase (decrease) in net assets 1,943,673 6,257,065 28,845,309 16,632,737
Net assets:
Beginning of period 11,970,867 5,713,802 16,632,737 --
---------- ---------- ---------- ----------
End of period $13,914,540 $11,970,867 $45,478,046 $16,632,737
========== ========== ========== ==========
HIGH INCOME SUBACCOUNT DEVELOPING MARKETS SUBACCOUNT
Operations: 1997** 1997**
------ ------
Net investment income (loss) $342,331 $(18,284)
Net realized gain (loss) on
security transactions 52 (20,944)
Net change in unrealized appreciation
or depreciation on investments 103,771 (1,147,882)
---------- ---------
Change in net assets from operations 446,154 (1,187,110)
---------- ---------
Capital unit transactions (note 5):
Proceeds from sales of units 14,947,080 4,966,376
Cost of units repurchased (1,822,151) (731,585)
Annuity benefit payments -- --
---------- ---------
Change in net assets from capital
unit transactions 13,124,929 4,234,791
---------- ---------
Increase (decrease) in net assets 13,571,083 3,047,681
Net assets:
Beginning of period -- --
---------- ---------
End of period $13,571,083 $3,047,681
========== =========
See accompanying notes to financial statements.
<FN>
*The data is for the period beginning May 1, 1996 (date of initial activity).
**The data is for the period beginning May 1, 1997 (date of initial activity).
</FN>
</TABLE>
<PAGE>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Notes to Financial Statements
(1) Organization
The CUNA Mutual Life Variable Annuity Account (the Variable Account) is a
unit investment trust registered under the Investment Company Act of 1940
with the Securities and Exchange Commission. The Variable Account was
established as a separate investment account within CUNA Mutual Life
Insurance Company (the Company) to receive and invest net premiums paid
under variable annuity contracts (Contracts).
Although the assets in the Variable Account are the property of the
Company, the assets in the Variable Account attributable to the Contracts
are not chargeable with liabilities arising out of any other business which
the Company may conduct. The assets of the Variable Account are available
to cover the general liabilities of the Company only to the extent that the
Variable Account's assets exceed its liabilities arising under the
Contracts. The Company has the right to transfer to the general account any
assets of the Variable Account which are in excess of reserves and other
contract liabilities. All obligations arising under the Contracts are
general corporate obligations of the Company.
(2) Significant Accounting Policies
Investments
The Variable Account currently is divided into ten subaccounts but may, in
the future, include additional subaccounts. Each subaccount invests
exclusively in shares of a single underlying fund. (The term fund is used
to mean an investment portfolio sometimes called a fund, i.e., Ultra Series
Fund (Class Z shares), T. Rowe Price International Fund, Inc., MFS(R)
Variable Insurance TrustSM,* Oppenheimer Variable Account Funds, Templeton
Variable Products Series Fund, or any other open-end management investment
company or unit investment trust in which a subaccount invests.) The
income, gains and losses, realized or unrealized, from the assets allocated
to each subaccount are credited to or charged against that subaccount
without regard to income, gains or losses from any other subaccount.
The Variable Account invests in shares of Ultra Series Fund, T. Rowe Price
International Fund, Inc., MFS(R) Variable Insurance TrustSM,* Oppenheimer
Variable Account Funds, and Templeton Variable Products Series Fund. Each
is a management investment company of the series type with one or more
funds. Each is registered with the SEC as an open-end, management
investment company. Such registration does not involve supervision of the
management or investment practices or policies of the companies or their
funds by the SEC.
The Ultra Series Fund currently has five funds available as investment
options under the Contracts, The T. Rowe Price International Series, Inc.
has one fund available as an investment option under the Contracts, the MFS
Variable Insurance Trust has two funds available as investment options
under the Contracts, the Oppenheimer Variable Account Funds has one fund
available as an investment option under the Contracts and the Templeton
Variable Products Series Fund has one fund available as an investment
option under the Contracts. The Ultra Series Fund, MFS Variable Insurance
Trust, Oppenheimer Variable Account Funds and Templeton Variable Products
Series Fund also have other funds that are not available under the
Contracts. All five investment companies may, in the future, create
additional funds or classes that may or may not be available as investment
options under the Contracts. Each fund has its own investment objective and
the income, gains and losses for each fund are determined separately for
that fund or class.
CIMCO Inc. (CIMCO) serves as the Investment Adviser to the Ultra Series
Fund and manages its assets in accordance with general policies and
guidelines established by the board of trustees of the Ultra Series Fund.
The Company owns one half of CIMCO's outstanding stock and one half is
owned indirectly by CUNA Mutual Insurance Society.
Rowe Price-Fleming International, Inc. (RPFI) serves as the Investment
Adviser to the International Stock Portfolio and manages its assets in
accordance with general policies and guidelines established by the board of
directors of T. Rowe Price International Fund, Inc. RPFI was founded in
1979 as a joint venture between T. Rowe Price Associates, Inc. and Robert
Fleming Holdings Limited.
Massachusetts Financial Services Company (MFS) serves as the Investment
Adviser to the MFS World Governments Series and Emerging Growth Series and
manages its assets in accordance with general policies and guidelines
established by the board of trustees of MFS(R) Variable Insurance TrustSM.
MFS is a subsidiary of Sun Life Assurance Company of Canada (U.S.) which,
in turn, is a subsidiary of Sun Life Assurance Company of Canada.
OppenheimerFunds, Inc. serves as the investment adviser to the Oppenheimer
High Income Fund and manages its assets in accordance with general policies
and guideline established by the board of trustees of the Oppenheimer
Variable Account Funds. The Manager is owned by Oppenheimer Acquisition
Corp., a holding company that is owned in part by senior officers of the
Manager and controlled by Massachusetts Mutual Life Insurance Company.
<PAGE>
Templeton Asset Management Ltd. serves as the investment adviser to the
Templeton Developing Markets Fund: Class 2 and manages its assets and makes
its investments decisions. Templeton Asset Management Ltd. is a Singapore
corporation wholly owned by Franklin Resources, Inc., a publicly owned
company. Resources' principal shareholders are Charles B. Johnson and
Rupert H. Johnson, Jr.
The assets of each fund are held separate from the assets of the other
funds, and each fund is offered at a price equal to its respective net
asset value per share, without sales charge. Dividends and capital gain
distributions from each fund are reinvested in that fund. Investments in
shares of the funds are stated at market value which is the net asset value
per share as determined by the funds. Realized gains and losses from
security transactions are reported on an average cost basis.
Dividend income is recorded on the ex-dividend date.
Federal Income Taxes
Currently, no charge is made against the Variable Account for any federal,
state or local taxes (other than premium taxes) that the Company incurs or
that may be attributable to the Variable Account or the Contracts. The
Company may, however, make such a charge in the future from surrender
value, death benefits or annuity payments, as appropriate. Such taxes may
include taxes (levied by any government entity) which the Company
determines to have resulted from: (1) the establishment or maintenance of
the Variable Account, (2) receipt by the Company of purchase payments, (3)
issuance of the Contracts, or (4) the payment of annuity payments.
Annuity Reserves
Annuity reserves are computed for contracts in the payout stage according
to the 1983a Individual Annuitant Mortality Table. The assumed investment
return is 3.5% unless the annuitant elects otherwise, in which case the
rate may vary from 3.5% to 7%, as regulated by the laws of the respective
states. The mortality risk is fully borne by CUNA Mutual Life Insurance
Company and may result in additional amounts being transferred into the
variable annuity account by CUNA Mutual Life Insurance Company to cover
greater longevity of annuitants than expected. Conversely, if reserves
exceed amounts required, transfers may be made to the insurance company.
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 of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
(3) Fees and Charges
Organization Costs
CUNA Mutual Life Insurance Company absorbed all organization expenses of
the Variable Account.
Contract Charges
Surrender Charge (Contingent Deferred Sales Charge). No charge for sales
expenses is deducted from purchase payments at the time purchase payments
are paid. However, a surrender charge is deducted upon surrender or partial
withdrawal of purchase payments within 7 years of their being paid and, in
certain circumstances, upon payment of a death benefit or the election of
certain annuity payment options.
For purchase payments withdrawn or surrendered within one year of having
been paid, the charge is 7% of the amount of the payment withdrawn or
surrendered. For each purchase payment, the surrender charge decreases by
1% for each full year that has elapsed since the payment was made. No
surrender charge is assessed upon the withdrawal or surrender of the
contract value in excess of aggregate purchase payments or on purchase
payments made more than 7 years prior to the withdrawal or surrender.
Subject to certain restrictions for the first partial withdrawal (or
surrender) in each contract year, an amount equal to 10% of aggregate
purchase payments subject to a surrender charge (as of the time of
withdrawal or surrender) may be surrendered without a surrender charge. The
surrender charge also may be waived in certain circumstances as provided in
the Contracts.
Annual Contract Fee. On each contract anniversary (or upon surrender of the
Contract) prior to the annuity date, the Company deducts an annual contract
fee of $30 from the variable contract value. After the annuity date, the
Company deducts this fee from variable annuity payments. A pro-rated
portion of the fee is deducted upon annuitization of a Contract except on a
contract anniversary.
Transfer Fee. No charge is made for transfers, however, the Company
reserves the right to charge $10 for the 13th and each subsequent transfer
during a Contract year.
<PAGE>
Premium Taxes. If state or other premium taxes are applicable to a
Contract, they will be deducted either: (a) from purchase payments as they
are received, (b) from contract value upon surrender or partial withdrawal,
(c) upon application of adjusted contract value to an annuity payment
option, or (d) upon payment of a death benefit. The Company, however,
reserves the right to deduct premium taxes at the time it pays such taxes.
Variable Account Charges
Mortality and Expense Risk Charge. The Company deducts a daily mortality
and expense risk charge to compensate it for assuming certain mortality and
expense risks. The charge is deducted from the assets of the Variable
Account at an annual rate of 1.25% (approximately 0.85% for mortality risk
and 0.40% for expense risks).
Asset-Based Administration Charge. The Company deducts a daily
administration charge to compensate it for certain expenses it incurs in
administration of the Contract. The charge is deducted from the assets of
the Variable Account at an annual rate of 0.15%.
(4) Investment Transactions
The cost of shares purchased, including reinvestment of dividend
distributions, during the year ended December 31, 1997, was as follows:
Capital Appreciation Stock Fund...................... $ 41,681,980
Growth and Income Stock Fund......................... 105,617,046
Balanced Fund........................................ 70,421,088
Bond Fund............................................ 14,446,026
Money Market Fund.................................... 36,583,424
International Stock Portfolio........................ 22,522,285
World Governments Series............................. 3,796,726
Emerging Growth...................................... 23,012,930
High Income Fund..................................... 13,474,054
Developing Markets Fund.............................. 4,360,054
-----------
$335,915,613
===========
(5) Accumulation Unit Activity from Contract Transactions
Transactions in accumulation units of each subaccount of the Variable
Account for the years ended December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
Capital
Appreciation Growth and Money
Stock Income Stock Balanced Bond Market
Subaccount Subaccount Subaccount Subaccount Subaccount
<S> <C> <C> <C> <C> <C>
Accumulation units outstanding at December 31, 1995 2,024,589 2,807,876 2,698,049 556,749 637,911
Accumulation units sold 4,725,115 8,201,765 7,449,013 1,861,200 6,697,714
Accumulation units repurchased (2,253,984) (2,468,258) (2,363,229) (731,410) (5,842,921)
--------- --------- --------- --------- ---------
Accumulation units outstanding at December 31, 1996 4,495,720 8,541,383 7,783,833 1,686,539 1,492,704
Accumulation units sold 6,013,456 11,114,621 9,579,893 2,687,144 8,313,505
Accumulation units repurchased (3,776,703) (5,479,461) (5,056,104) (1,647,913) (8,254,380)
--------- --------- --------- --------- ---------
Accumulation units outstanding at December 31, 1997 6,732,473 14,176,543 12,307,622 2,725,770 1,551,829
========= ========== ========= ========= =========
International World Emerging High Developing
Stock Governments Growth Income Markets
Subaccount Subaccount Subaccount* Subaccount Subaccount
Accumulation units outstanding at December 31, 1995 1,090,681 505,990 -- -- --
Accumulation units sold 3,189,527 1,277,826 2,162,251 -- --
Accumulation units repurchased (1,596,931) (750,333) (511,624) -- --
--------- --------- --------- -------- -------
Accumulation units outstanding at December 31, 1996 2,683,277 1,033,483 1,650,627 -- --
Accumulation units sold 5,006,978 1,384,847 4,521,335 1,403,639 547,590
Accumulation units repurchased (3,316,780) (1,186,204) (2,419,917) (168,771) (88,863)
--------- --------- --------- -------- -------
Accumulation units outstanding at December 31, 1997 4,373,475 1,232,126 3,752,045 1,234,868 458,727
========= ========= ========= ======== =======
<FN>
*The data is for the period beginning May 1, 1996 (date of initial activity).
</FN>
</TABLE>
<PAGE>
(6) Condensed Financial Information
The table below gives per unit information about the financial history of
each subaccount for each period.
<TABLE>
<CAPTION>
Capital Appreciation Growth and Income Balanced Bond
Stock Subaccount Stock Subaccount Subaccount Subaccount
Accumulation unit value: 1997 1996* 1997 1996* 1997 1996* 1997 1996*
---- ----- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of period $15.45 $12.90 $15.36 $12.76 $13.03 $11.92 $11.52 $11.36
End of period 20.05 15.45 19.91 15.36 15.02 13.03 12.21 11.52
Percentage increase in accumulation
unit value during period 29.77% 19.77% 29.62% 20.38% 15.27% 9.31% 5.99% 1.41%
Number of accumulation units
outstanding at end of period 6,732,473 4,495,720 14,176,543 8,541,383 12,307,622 7,783,833 2,725,770 1,686,539
Money Market International World Governments Emerging Growth
Subaccount Stock Subaccount Subaccount Subaccount
Accumulation unit value: 1997 1996* 1997 1996* 1997 1996* 1997 1996**
---- ----- ---- ----- ---- ----- ---- ------
Beginning of period $10.91 $10.55 $12.40 $10.96 $11.58 $11.29 $10.08 $10.00
End of period 11.31 10.91 12.61 12.40 11.29 11.58 12.12 10.08
Percentage increase in accumulation
unit value during period 3.67% 3.41% 1.69% 13.14% (2.50%) 2.57% 20.24% 0.80%
Number of accumulation units
outstanding at end of period 1,551,829 1,492,704 4,373,475 2,683,277 1,232,126 1,033,483 3,752,045 1,650,627
High Income Developing Markets
Subaccount Stock Subaccount
Accumulation unit value: 1997*** 1997***
------- -------
Beginning of period $10.00 $10.00
End of period 10.99 6.64
Percentage increase in accumulation
unit value during period 9.9% (33.6%)
Number of accumulation units
outstanding at end of period 1,234,868 458,727
For the Money Market Subaccount, the "seven-day average yield" for the
seven days ended December 31, 1997, was 3.6% and the "effective yield" for
that period was 3.7%.
<FN>
* 1996 data is for the year ended December 31, 1996.
**1996 data is for the eight-month period ended December 31, 1996.
***1997 data is for the eight-month period ended December 31, 1997.
</FN>
</TABLE>
<PAGE>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CUNA Mutual Life Insurance Company and Contract Owners of CUNA Mutual Life
Variable Annuity Account:
We have audited the statements of assets and liabilities of the Capital
Appreciation Stock Subaccount, Growth and Income Stock Subaccount, Balanced
Subaccount, Bond Subaccount, Money Market Subaccount, International Stock
Subaccount, World Governments Subaccount, Emerging Growth Subaccount, High
Income Subaccount, and the Developing Markets Subaccount of the CUNA Mutual Life
Variable Annuity Account as of December 31, 1997; the related statements of
operations for the year then ended; changes in net assets and the condensed
financial information for each of the years in the two-year (one year and eight
months for Emerging Growth Subaccount and eight months for the High Income
Subaccount and the Developing Markets Subaccount) period then ended. These
financial statements and condensed financial information are the responsibility
of the Account's management. Our responsibility is to express an opinion on
these financial statements and condensed financial information 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 condensed
financial information 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, 1997, were verified
by audit of the statements of assets and liabilities of the underlying funds of
Ultra Series Fund and confirmation with MFS Variable Insurance Trust, T. Rowe
Price, OppenheimerFunds, Inc., and Templeton Asset Management Ltd. 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 and condensed financial information
referred to above present fairly, in all material respects, the financial
position of the Capital Appreciation Stock Subaccount, Growth and Income Stock
Subaccount, Balanced Subaccount, Bond Subaccount, Money Market Subaccount,
International Stock Subaccount, World Governments Subaccount, Emerging Growth
Subaccount, High Income Subaccount, and the Developing Markets Subaccount of the
CUNA Mutual Life Variable Annuity Account as of December 31, 1997, the results
of their operations for the year then ended; changes in their net assets and the
condensed financial information for each of the years in the two-year (one year
and eight months for Emerging Growth Subaccount and eight months for the High
Income Subaccount and the Developing Markets Subaccount) period then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Des Moines, Iowa
February 6, 1998
