<PAGE>
Dear Variable Annuity Owner:
The U.S. stock market provided yet another year of strong returns in 1998. Many
of the established international stock markets also provided very attractive
returns. International developing markets struggled, however, led by problems in
Asia that spread to other developing countries worldwide. The U.S. bond market
was relatively stable, and provided returns that reflected continued relatively
low interest rates. These results are reflected in the very attractive 1998
returns of the subaccounts of MEMBERS(R) Variable Annuity shown in the table
below:
Percent increase
in Unit Value from
Subaccount 12/31/97 through 12/31/98
- -------------------------------------------------------------------------------
Capital Appreciation Stock 19.25%
Growth and Income Stock 16.37%
Balanced 11.85%
Bond 4.75%
Money Market 3.63%
International Stock 14.27%
- -------------------------------------------------------------------------------
World Governments 6.47%
Emerging Growth 32.34%
High Income -1.09%
Developing Markets -22.14%
The CUNA Mutual Life Variable Annuity Account is divided into subaccounts that
each invest in an underlying mutual fund. The results shown above reflect the
deduction of the separate account level charges. As a result, returns at the
subaccount level shown above are slightly lower than at the mutual fund level.
This booklet contains the annual reports for the various components of
MEMBERS(R) Variable Annuity. The first section contains the following reports
for the CUNA Mutual Life Variable Annuity Account:
Statements of Assets and Liabilities ............................ page 2
Statements of Operations ........................................ page 4
Statements of Changes in Net Assets ............................. page 5
Notes to the Financial Statements ............................... page 7
Independent Auditors' Report .................................... page 13
The remaining sections of this booklet contain the annual reports for the mutual
funds:
(1) the Ultra Series Fund which includes the Capital Appreciation Stock Fund,
Growth and Income Stock Fund, Balanced Fund, Bond Fund, and Money Market
Fund;
(2) the International Stock Portfolio of the T. Rowe Price International
Series, Inc.;
(3) the MFS(R) World Government SeriesSM and the MFS(R) Emerging Growth
SeriesSM of the MFS(R) Variable Insurance TrustSM,
(4) the Oppenheimer High Income Fund of the Oppenheimer Variable Account Funds;
and
(5) the Templeton Developing Markets Fund of the Templeton Variable Products
Series Fund.
Thanks to the strong performance of the markets and more importantly your
continued confidence in MEMBERS(R) Variable Annuity, the net assets in the CUNA
Mutual Life Variable Annuity Account increased from $784 million on 12/31/97 to
over $1.2 billion on 12/31/98. We look forward to serving your long term asset
accumulation needs in the coming years. Thank you for giving us the opportunity
to do so.
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
Statements of Assets and Liabilities
December 31, 1998
Capital
Appreciation Growth and Money
Stock Income Stock Balanced Bond Market
Assets: Subaccount Subaccount Subaccount Subaccount Subaccount
Investments in Ultra Series Fund:
(note 2)
<S> <C> <C> <C> <C> <C>
Capital Appreciation Stock Fund,
9,258,593 shares at net asset
value of $22.19 per share
(cost $146,304,839) $205,418,385 $ -- $ -- $ -- $ --
Growth and Income Stock Fund,
14,073,353 shares at net asset
value of $30.56 per share
(cost $331,744,234) -- 430,068,433 -- -- --
Balanced Fund,
15,873,410 shares at net asset
value of $18.74 per share
(cost $257,278,953) -- -- 297,390,115 -- --
Bond Fund,
5,511,208 shares at net asset
value of $10.57 per share
(cost $58,128,183) -- -- -- 58,249,050 --
Money Market Fund,
26,751,190 shares at net asset
value of $1.00 per share
(cost $26,751,190) -- -- -- -- 26,751,190
---------- ---------- ---------- ---------- ----------
Total assets 205,418,385 430,068,433 297,390,115 58,249,050 26,751,190
---------- ---------- ---------- ---------- ----------
Liabilities:
Accrued adverse mortality and
expense charges 68,432 145,737 100,443 19,780 8,861
Other accrued expenses 8,212 17,489 12,053 2,374 1,063
---------- ---------- ---------- ---------- ----------
Total liabilities 76,644 163,226 112,496 22,154 9,924
---------- ---------- ---------- ---------- ----------
Net assets $205,341,741 $429,905,207 $297,277,619 $58,226,896 $26,741,266
========== ========== ========== ========== ==========
Contract owners' equity:
Contracts in accumulation period 205,299,594 429,644,902 297,167,271 58,226,896 26,731,870
Contracts in annuity payment period
(note 2) 42,147 260,305 110,348 -- 9,396
---------- ---------- ---------- ---------- ----------
Total contract owners' equity 205,341,741 429,905,207 297,277,619 58,226,896 26,741,266
========== ========== ========== ========== ==========
Total units outstanding
(note 5 and note 6) 8,586,442 18,555,957 17,694,943 4,554,265 2,280,739
========== ========== ========== ========== ==========
Net asset value per unit $23.91 $23.17 $16.80 $12.79 $11.72
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statements of Assets and Liabilities
December 31, 1998
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,
4,920,487 shares at net asset
value of $14.52 per share
(cost $60,938,563) $71,445,469 $ -- $ -- $ -- $ --
Investments in MFS(R) Variable
Insurance TrustSM:
World Governments Series,
1,216,850 shares at net asset
value of $10.88 per share
(cost $12,522,965) -- 13,239,325 -- -- --
Investments in MFS(R) Variable
Insurance TrustSM:
Emerging Growth Series,
3,806,507 shares at net asset
value of $21.47 per share
(cost $57,686,856) -- -- 81,725,702 -- --
Investments in Oppenheimer
Variable Account Funds:
High Income Series,
3,513,794 shares at net asset
value of $11.02 per share
(cost $39,801,809) -- -- -- 38,722,007 --
Investments in Templeton
Variable Products Series Fund:
Developing Markets Series,
878,001 shares at net asset value
of $5.12 per share
(cost $6,309,181) -- -- -- -- 4,495,366
---------- ---------- ---------- ---------- ---------
Total assets 71,445,469 13,239,325 81,725,702 38,722,007 4,495,366
---------- ---------- ---------- ---------- ---------
Liabilities
Accrued adverse mortality and
expense charges 24,302 4,502 27,542 13,135 1,530
Other accrued expenses 2,916 540 3,305 1,576 184
---------- ---------- ---------- ---------- ---------
Total liabilities 27,218 5,042 30,847 14,711 1,714
---------- ---------- ---------- ---------- ---------
Net assets $71,418,251 $13,234,283 $81,694,855 $38,707,296 $4,493,652
========== ========== ========== ========== =========
Contract owners' equity:
Contracts in accumulation period 71,389,663 13,232,093 81,655,398 38,690,570 4,493,652
Contracts in annuity payment period
(note 2) 28,588 2,190 39,457 16,726 --
---------- ---------- ---------- ---------- ----------
Total contract owners' equity 71,418,251 13,234,283 81,694,855 38,707,296 4,493,652
========== ========== ========== ========== ==========
Total units outstanding
(note 5 and note 6) 4,955,996 1,101,162 5,094,236 3,561,305 868,801
========== ========== ========== ========== =========
Net asset value per unit $14.41 $12.02 $16.04 $10.87 $5.17
========== ========== ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statements of Operations
December 31, 1998
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 $ 534,022 $4,267,631 $7,830,324 $2,871,080 $977,926
Adverse mortality and expense
charges (note 3) (2,103,928) (4,461,725) (2,977,460) (550,939) (244,695)
Administrative charges (252,471) (535,407) (357,295) (66,113) (29,363)
---------- ---------- ---------- --------- ---------
Net investment income (loss) (1,822,377) (729,501) 4,495,569 2,254,028 703,868
---------- ---------- ---------- --------- ---------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on security
transactions:
Capital gain distributions 4,782,640 15,760,094 11,953 39,826 --
Proceeds from sale of securities 2,472,043 4,446,207 2,611,234 835,255 29,235,141
Cost of securities sold (1,848,605) (3,459,730) (2,321,801) (817,103) (29,235,141)
---------- ---------- ---------- --------- ---------
Net realized gain (loss) on
security transactions 5,406,078 16,746,571 301,386 57,978 --
Net change in unrealized
appreciation or depreciation on
investments 26,215,883 36,859,343 22,339,305 (318,903) --
---------- ---------- ---------- --------- ---------
Net gain (loss) on investments 31,621,961 53,605,914 22,640,691 (260,925) --
---------- ---------- ---------- --------- ---------
Net increase (decrease) in net
assets resulting from operations $29,799,584 $52,876,413 $27,136,260 $1,993,103 $703,868
========== ========== ========== ========= =========
International World Emerging High Developing
Stock Governments Growth Income Markets
Investment income (loss): Subaccount Subaccount Subaccount Subaccount Subaccount
Dividend income $1,115,930 $166,263 $494,173 $895,494 $80,388
Adverse mortality and expense
charges (note 3) (802,274) (166,662) (763,113) (332,919) (46,606)
Administrative charges (96,273) (19,999) (91,574) (39,950) (5,593)
--------- -------- ---------- -------- --------
Net investment income (loss) 217,383 (20,398) (360,514) 522,625 28,189
--------- -------- ---------- -------- --------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on security
transactions:
Capital gain distributions -- -- -- -- --
Proceeds from sale of securities 1,939,904 2,644,181 1,117,896 518,681 426,874
Cost of securities sold (1,760,537) (2,618,073) (916,201) (551,048) (681,083)
--------- -------- ---------- -------- --------
Net realized gain (loss) on
security transactions 179,367 26,108 201,695 (32,367) (254,209)
Net change in unrealized
appreciation or depreciation on
investments 7,712,376 812,043 17,967,979 (1,183,574) (665,933)
--------- -------- ---------- -------- --------
Net gain (loss) on investments 7,891,743 838,151 18,169,674 (1,215,941) (920,142)
--------- -------- ---------- -------- --------
Net increase (decrease) in net
assets resulting from operations $8,109,126 $817,753 $17,809,160 ($693,316) ($891,953)
========= ======== ========== ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statements of Changes in Net Assets
Years Ended December 31, 1998 and 1997
CAPITAL APPRECIATION STOCK SUBACCOUNT GROWTH AND INCOME STOCK SUBACCOUNT
Operations: 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net investment income (loss) ($1,822,377) ($811,200) ($729,501) $15,195
Net realized gain (loss) on
security transactions 5,406,078 1,882,280 16,746,571 4,861,709
Net change in unrealized appreciation
or depreciation on investments 26,215,883 24,598,979 36,859,343 46,546,353
----------- ----------- ----------- -----------
Change in net assets from operations 29,799,584 25,670,059 52,876,413 51,423,257
----------- ----------- ----------- -----------
Capital unit transactions (note 5):
Proceeds from sales of units 144,718,325 107,669,256 259,442,954 197,965,607
Cost of units repurchased (104,156,130) (67,800,969) (164,894,635) (98,094,296)
Actuarial adjustments for mortality
experience on annuities in
payment period 934 -- 21,919 --
Annuity benefit payments (865) (168) (15,863) (7,512)
----------- ----------- ----------- -----------
Change in net assets from capital
unit transactions 40,562,264 39,868,119 94,554,375 99,863,799
----------- ----------- ----------- -----------
Increase (decrease) in net assets 70,361,848 65,538,178 147,430,788 151,287,056
Net assets:
Beginning of period 134,979,893 69,441,715 282,474,419 131,187,363
----------- ----------- ----------- -----------
End of period $205,341,741 $134,979,893 $429,905,207 $282,474,419
=========== =========== =========== ===========
BALANCED SUBACCOUNT BOND SUBACCOUNT
Operations: 1998 1997 1998 1997
Net investment income (loss) $4,495,569 $3,624,989 $2,254,028 $1,087,785
Net realized gain (loss) on
security transactions 301,386 2,410,519 57,978 19,072
Net change in unrealized appreciation
or depreciation on investments 22,339,305 14,073,060 (318,903) 524,467
----------- ----------- ---------- ----------
Change in net assets from operations 27,136,260 20,108,568 1,993,103 1,631,324
----------- ----------- ---------- ----------
Capital unit transactions (note 5):
Proceeds from sale of units 201,714,553 134,826,300 54,431,468 31,709,344
Cost of units repurchased (116,470,212) (71,445,220) (31,471,803) (19,493,816)
Actuarial adjustments for mortality
experience on annuities in
payment period 4,797 -- -- --
Annuity benefit payments (5,344) (1,535) -- --
----------- ----------- ---------- ----------
Change in net assets from capital
unit transactions 85,243,794 63,379,545 22,959,665 12,215,528
----------- ----------- ---------- ----------
Increase (decrease) in net assets 112,380,054 83,488,113 24,952,768 13,846,852
Net assets:
Beginning of period 184,897,565 101,409,452 33,274,128 19,427,276
----------- ----------- ---------- ----------
End of period $297,277,619 $184,897,565 $58,226,896 $33,274,128
=========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statements of Changes in Net Assets
Years Ended December 31, 1998 and 1997
MONEY MARKET SUBACCOUNT INTERNATIONAL STOCK SUBACCOUNT
<S> <C> <C> <C> <C>
Operations: 1998 1997 1998 1997
Net investment income (loss) $703,868 $749,001 $217,383 $575,230
Net realized gain (loss) on
security transactions -- -- 179,367 38,683
Net change in unrealized appreciation
or depreciation on investments -- -- 7,712,376 (469,465)
---------- ---------- ---------- ----------
Change in net assets from operations 703,868 749,001 8,109,126 144,448
---------- ---------- ---------- ----------
Capital unit transactions (note 5):
Proceeds from sales of units 94,301,939 92,196,341 69,558,237 64,648,440
Cost of units repurchased (85,815,933) (91,675,721) (61,390,267) (42,924,106)
Actuarial adjustments for mortality
experience on annuities in
payment period -- -- 362 --
Annuity benefit payments (376) -- (481) --
---------- ---------- ---------- ----------
Change in net assets from capital
unit transactions 8,485,630 520,620 8,167,851 21,724,334
---------- ---------- ---------- ----------
Increase (decrease) in net assets 9,189,498 1,269,621 16,276,977 21,868,782
Net assets:
Beginning of period 17,551,768 16,282,147 55,141,274 33,272,492
---------- ---------- ---------- ----------
End of period $26,741,266 $17,551,768 $71,418,251 $55,141,274
========== ========== ========== ==========
WORLD GOVERNMENTS SUBACCOUNT EMERGING GROWTH SUBACCOUNT
Operations: 1998 1997 1998 1997
Net investment income (loss) ($20,398) $124,518 ($360,514) $(441,903)
Net realized gain (loss) on
security transactions 26,108 (14,843) 201,695 22,348
Net change in unrealized appreciation
or depreciation on investments 812,043 (395,717) 17,967,979 5,960,197
---------- ---------- ---------- ----------
Change in net assets from operations 817,753 (286,042) 17,809,160 5,540,642
---------- ---------- ---------- ----------
Capital unit transactions (note 5):
Proceeds from sale of units 12,632,836 15,607,791 66,116,408 50,764,584
Cost of units repurchased (14,130,975) (13,378,076) (47,709,272) (27,459,730)
Actuarial adjustments for mortality
experience on annuities in
payment period 160 -- 1,367 --
Annuity benefit payments (31) -- (854) (187)
---------- ---------- ---------- ----------
Change in net assets from capital
unit transactions (1,498,010) 2,229,715 18,407,649 23,304,667
---------- ---------- ---------- ----------
Increase (decrease) in net assets (680,257) 1,943,673 36,216,809 28,845,309
Net assets:
Beginning of period 13,914,540 11,970,867 45,478,046 16,632,737
---------- ---------- ---------- ----------
End of period $13,234,283 $13,914,540 $81,694,855 $45,478,046
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statements of Changes in Net Assets
Years Ended December 31, 1998 and 1997
HIGH INCOME SUBACCOUNT DEVELOPING MARKETS SUBACCOUNT
<S> <C> <C> <C> <C>
Operations: 1998 1997* 1998 1997*
Net investment income (loss) $522,625 $342,331 $28,189 $(18,284)
Net realized gain (loss) on
security transactions (32,367) 52 (254,209) (20,944)
Net change in unrealized appreciation
or depreciation on investments (1,183,574) 103,771 (665,933) (1,147,882)
---------- --------- --------- ---------
Change in net assets from operations (693,316) 446,154 (891,953) (1,187,110)
---------- --------- --------- ---------
Capital unit transactions (note 5):
Proceeds from sales of units 40,076,476 14,947,080 4,921,625 4,966,376
Cost of units repurchased (14,247,012) (1,822,151) (2,583,701) (731,585)
Actuarial adjustments for mortality
experience on annuities in
payment period 596 -- -- --
Annuity benefit payments (532) -- -- --
---------- --------- --------- ---------
Change in net assets from capital
unit transactions 25,829,528 13,124,929 2,337,924 4,234,791
---------- --------- --------- ---------
Increase (decrease) in net assets 25,136,213 13,571,083 1,445,971 3,047,681
Net assets:
Beginning of period 13,571,083 -- 3,047,681 --
---------- --------- --------- ---------
End of period $38,707,296 $13,571,083 $4,493,652 $3,047,681
========== ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
*The data is for the period beginning May 1, 1997 (date of initial activity).
<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 (SEC). 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. (the Manager) 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 the Company and may result in
additional amounts being transferred into the variable annuity account by
the 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
The 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, 1998, was as follows:
Capital Appreciation Stock Fund............................ $46,045,816
Growth and Income Stock Fund............................... 114,141,120
Balanced Fund.............................................. 92,439,912
Bond Fund.................................................. 26,104,564
Money Market Fund.......................................... 38,431,318
International Stock Portfolio.............................. 10,341,816
World Governments Series................................... 1,128,138
Emerging Growth............................................ 19,187,355
High Income Fund........................................... 26,882,971
Developing Markets Fund.................................... 2,794,122
-----------
$377,497,132
===========
(5) Accumulation Unit Activity from Contract Transactions
Transactions in accumulation units of each subaccount of the Variable
Account for the years ended December 31, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
Capital
Appreciation Growth and Money
Stock Income Stock Balanced Bond Market
Subaccount Subaccount Subaccount Subaccount Subaccount
Units for contracts in accumulation period:
<S> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1996 4,495,720 8,541,383 7,783,833 1,686,539 1,492,704
Units sold 6,013,456 11,114,621 9,579,893 2,687,144 8,313,505
Units repurchased (3,776,703) (5,479,461) (5,056,104) (1,647,913) (8,254,380)
--------- --------- --------- --------- ---------
Units outstanding at December 31, 1997 6,732,473 14,176,543 12,307,622 2,725,770 1,551,829
Units sold 6,677,476 12,089,141 12,798,228 4,340,906 8,182,107
Units repurchased (4,825,290) (7,720,616) (7,416,771) (2,512,411) (7,453,252)
--------- --------- --------- --------- ---------
Units outstanding at December 31, 1998 8,584,659 18,545,068 17,689,079 4,554,265 2,280,684
========= ========= ========= ========= =========
Units for annuitized contracts:
Units outstanding at December 31, 1996 -- -- -- -- --
Units sold 257 9,730 3,497 -- --
Units repurchased (9) (391) (103) -- --
Units outstanding at December 31, 1997 248 9,339 3,394 -- --
--------- --------- --------- --------- ---------
Units sold 1,575 2,286 2,810 -- 88
Units repurchased (40) (736) (340) -- (33)
--------- --------- --------- --------- ---------
Units outstanding at December 31, 1998 1,783 10,889 5,864 -- 55
--------- --------- --------- --------- ---------
Total units outstanding December 31, 1998 8,586,442 18,555,957 17,694,943 4,554,265 2,280,739
========= ========= ========= ========= =========
<PAGE>
International World Emerging High Developing
Stock Governments Growth Income Markets
Subaccount Subaccount Subaccount Subaccount* Subaccount*
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
Accumulation units sold 5,085,363 1,096,047 4,843,927 3,628,184 896,126
Accumulation units repurchased (4,503,868) (1,227,198) (3,503,276) (1,303,313) (486,052)
--------- --------- --------- --------- -------
Accumulation units outstanding at
December 31, 1998 4,954,970 1,100,975 5,092,696 3,559,739 868,801
========= ========= ========= ========= =======
Units for annuitized contracts:
Units outstanding at December 31, 1996 -- -- -- -- --
Units sold -- -- 1,507 -- --
Units repurchased -- -- (16) -- --
--------- --------- --------- --------- ---------
Units outstanding at December 31, 1997 -- -- 1,491 -- --
--------- --------- --------- --------- ---------
Units sold 1,061 190 110 1,614 --
Units repurchased (35) (3) (61) (48) --
--------- --------- --------- --------- ---------
Units outstanding at December 31, 1998 1,026 187 1,540 1,566 --
--------- --------- --------- --------- ---------
Total units outstanding December 31, 1998 4,955,996 1,101,162 5,094,236 3,561,305 868,801
========= ========= ========= ========= =========
</TABLE>
*The data is for period beginning May 1, 1997 (date of initial activity).
(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: 1998 1997 1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of period $20.05 $15.45 $19.91 $15.36 $15.02 $13.03 $12.21 $11.52
End of period 23.91 20.05 23.17 19.91 16.80 15.02 12.79 12.21
Percentage increase in
unit value during period 19.25% 29.77% 16.37% 29.62% 11.85% 15.27% 4.75% 5.99%
Number of units outstanding
at end of period 8,586,442 6,732,473 18,555,957 14,176,543 17,694,943 12,307,622 4,554,265 2,725,770
Money Market International World Governments Emerging Growth
Subaccount Stock Subaccount Subaccount Subaccount
Accumulation unit value: 1998 1997 1998 1997 1998 1997 1998 1997
Beginning of period $11.31 $10.91 $12.61 $12.40 $11.29 $11.58 $12.12 $10.08
End of period 11.72 11.31 14.41 12.61 12.02 11.29 16.04 12.12
Percentage increase in
unit value during period 3.63% 3.67% 14.27% 1.69% 6.47% (2.50%) 32.34% 20.24%
Number of units outstanding
at end of period 2,280,739 1,551,829 4,955,996 4,373,475 1,101,162 1,232,126 5,094,236 3,752,045
<PAGE>
High Income Developing Markets
Subaccount Stock Subaccount
Accumulation unit value: 1998 1997* 1998 1997*
Beginning of period $10.99 $10.00 $6.64 $10.00
End of period 10.87 10.99 5.17 6.64
Percentage increase in
unit value during period (1.09%) 9.9% (22.14%) (33.6%)
Number of units outstanding
at end of period 3,561,305 1,234,868 868,801 458,727
</TABLE>
For the Money Market Subaccount, the "seven-day average yield" for the
seven days ended December 31, 1998, was 3.2% and the "effective yield" for
that period was 3.4%.
*1997 data is for the eight-month period ended December 31, 1997.
<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, 1998; 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 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, 1998, 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, 1998, 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 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 5, 1999
