<PAGE>
FILED PURSUANT TO RULE 497
FILE NUMBER 033-79534
GROUP VARIABLE ANNUITY PROSPECTUS
MINNESOTA MUTUAL
GROUP VARIABLE ANNUITY PROSPECTUS
The group deferred variable annuity contracts (hereinafter "Contracts"), which
are more fully described in this Prospectus, are designed to provide benefits
under certain retirement programs or plans which qualify for special federal
income tax treatment. The Contracts are specifically designed for deferred
compensation plans of state and local governments and other tax-exempt
organizations as provided in Section 457 of the Internal Revenue Code
(hereinafter "Code"). The contract may also be used in other situations where a
group annuity contract is desired but where the benefit structure does not
require a contract which is recognized as an "annuity" for federal income tax
purposes.
The owner of a Contract or a Participant under a Contract may elect to have
contract values accumulated on a completely variable basis, on a completely
fixed basis (as part of Minnesota Mutual's General Account and in which the
safety of principal and interest are guaranteed) or on a combination fixed and
variable basis. To the extent that contract values are accumulated on a variable
basis, they will be a part of the Group Variable Annuity Account. The Group
Variable Annuity Account invests its assets in shares of the Money Market and
Index 500 Portfolios of MIMLIC Series Fund, Inc. (the "Series Fund") or in
shares of other registered investment companies or portfolios of such companies
(hereinafter "Underlying Funds"). The Underlying Funds which are available under
the Contract include the Long-Term Corporate Portfolio of Vanguard Fixed Income
Securities Fund, Inc.; the Vanguard/Wellington Fund, Inc.; the Fidelity
Contrafund; the Scudder International Fund, a series of Scudder International
Fund, Inc.; and the Janus Twenty Fund, a series of the Janus Investment Fund.
The variable accumulation value of the Contract and the amount of each variable
annuity payment will vary in accordance with the performance of the Portfolio or
Portfolios of the Series Fund or such other Underlying Funds selected by the
Contract Owner or Participant. The Contract Owner or Participant bears the
entire investment risk for any amounts allocated to the Group Variable Annuity
Account. The Contract and all interests under it are subject to the general
interests of creditors of the owner of the Contract (usually the employer).
The amount of annuity payments may also be variable based upon the experience
of the Group Variable Annuity Account or the payments may be fixed. They may
also be a combination of both.
This Prospectus sets forth information that a prospective investor should know
before investing in the Group Variable Annuity Account, and it should be read
and kept for future reference. A Statement of Additional Information, bearing
the same date, which contains further Contract and Group Variable Annuity
Account information, has been filed with the Securities and Exchange Commission
and is incorporated by reference into this Prospectus. A copy of the Statement
of Additional Information may be obtained without charge by calling (612)
298-3500, or by writing the Group Variable Annuity Account at its principal
office at Minnesota Mutual Life Center, 400 Robert Street North, St. Paul,
Minnesota 55101-2098. A Table of Contents for the Statement of Additional
Information appears in this Prospectus on page 27.
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.
[LOGO]
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
400 ROBERT STREET NORTH
ST. PAUL, MINNESOTA 55101-2098
TELEPHONE: (612) 298-3500
The date of this document and the Statement of Additional Information is: May 1,
1995
F.47496 Rev. 5-95
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Definitions....................................................................... 3
Synopsis.......................................................................... 4
Expense Table..................................................................... 5
Condensed Financial Information................................................... 9
Financial Statements.............................................................. 9
Performance Data.................................................................. 9
General Descriptions.............................................................. 10
Contract Charges.................................................................. 13
Sales Charges................................................................. 13
Mortality and Expense Risk Charges............................................ 13
Contract Administrative Charge................................................ 13
Premium Taxes................................................................. 14
Contract Fee.................................................................. 14
Underlying Fund Expenses.......................................................... 14
Description of the Contracts...................................................... 15
Voting Rights..................................................................... 17
Annuity Period.................................................................... 17
Death Benefit..................................................................... 20
Crediting Accumulation Units...................................................... 20
Withdrawals and Surrender......................................................... 22
Distribution...................................................................... 23
Federal Tax Status................................................................ 23
Legal Proceedings................................................................. 27
Registration Statement............................................................ 27
Statement of Additional Information............................................... 27
</TABLE>
2
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DEFINITIONS
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 the values under a Contract in the General
Account and in the Group Variable Annuity Account. Accumulation values may also
be determined with respect to each Participant's interest in 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.
CERTIFICATE: a Participant's evidence of Contract rights and privileges or of
the amount and terms of annuity payments.
CODE: the Internal Revenue Code of 1986, as amended.
CONTRACT OWNER: the owner of the Contract, which could be a state, a local
government or other tax-exempt employer eligible to contract for a Section 457
plan.
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: the mutual fund or separate investment portfolio within a series mutual
fund which has been designated as an eligible investment for the Group Variable
Annuity Account, which shall be in addition to the MIMLIC Series Fund, Inc. and
its Portfolios.
GENERAL ACCOUNT: all of our assets other than those in the Group Variable
Annuity Account or in other separate accounts established by us.
GROUP VARIABLE ANNUITY ACCOUNT: a separate investment account called the
Minnesota Mutual Group Variable Annuity Account, where the investment experience
of its assets is kept separate from our other assets. This Group Variable
Annuity Account has several sub-accounts.
PARTICIPANT: a person for whom an interest is maintained under a group variable
annuity Contract, prior to the time that annuity payments begin.
PLAN: a tax-qualified deferred compensation plan of state and local governments
and other tax-exempt organizations under which benefits are to be provided by
the group variable annuity Contracts described herein.
PURCHASE PAYMENTS: amounts paid to us under a Contract.
SERIES FUND: the MIMLIC Series Fund, Inc., a mutual fund of the series type
which is an investment alternative for the Group Variable Annuity Account.
UNDERLYING FUND: one of a number of named mutual funds which are investment
alternatives for the Group Variable Annuity Account.
UNDERLYING FUND PORTFOLIO: a securities portfolio of an Underlying Fund where it
is a mutual fund of the series type.
VALUATION DATE: each date on which a Fund Portfolio is valued.
VARIABLE ANNUITY: an annuity providing for payments varying in amount in
accordance with the investment experience of the Group Variable Annuity Account.
WE, US, OUR: The Minnesota Mutual Life Insurance Company.
YOU, YOUR: a Participant under the Contract.
3
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QUESTIONS AND ANSWERS ABOUT THE VARIABLE ANNUITY CONTRACTS
THIS SYNOPSIS CONTAINS A BRIEF SUMMARY OF SOME OF THE IMPORTANT FEATURES OF THE
VARIABLE ANNUITY CONTRACTS DESCRIBED IN THIS PROSPECTUS. YOU MAY FIND IT HELPFUL
TO RE-READ THIS SUMMARY AFTER READING THE PROSPECTUS, WHICH SHOULD BE RETAINED
FOR FUTURE REFERENCE. A GLOSSARY OF SPECIAL TERMS USED IN THIS PROSPECTUS MAY BE
FOUND UNDER THE HEADING "DEFINITIONS" IN THIS PROSPECTUS ON PAGE 3.
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 or accumulation 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 combination fixed and variable annuity contracts issued by us
which provide for monthly annuity payments. These payments may begin immediately
or at a future date elected by you. Purchase payments received by us under a
Contract are allocated either to our General Account or Group Variable Annuity
Account, as specified by you. Purchase payments and other values allocated to
the General Account will be guaranteed and will accumulate at a rate of interest
guaranteed to be no less than 3%. Purchase payments and other values allocated
to the Group Variable Annuity Account are invested according to your
instructions in one or more Underlying Fund Portfolios and there is no guarantee
of investment return or even against investment loss on such allocations.
This Prospectus describes only the variable aspects of the Contracts, except
where fixed aspects are specifically mentioned. Please look to the language of
the Contracts for a description of the fixed portion of the Contracts. For more
information on the Contracts, see the heading "Description of the Contracts" in
this Prospectus.
WHAT TYPES OF VARIABLE ANNUITY CONTRACTS ARE AVAILABLE?
This Prospectus offers only one type of Contract, a group deferred variable
annuity contract (herein "Contract"), designed primarily to be used in deferred
compensation plans of state and local governments and other tax-exempt
organizations. These governments or organizations are the owners of the
Contracts. The Contract and all interests under it are subject to the general
interests of creditors of the owner of the Contract (usually the employer).
HOW DOES A PERSON OBTAIN COVERAGE UNDER THE CONTRACT?
After purchasing a Contract, the Contract Owner will submit an application to us
for any employee who desires coverage under the Contract, is eligible to
participate in the underlying retirement program and who completes an
application. Such a person is then covered by the Contract and its terms, herein
a "Participant". A person's employer or the Contract Owner should be consulted
for additional information regarding the plan.
HOW IS THE AMOUNT OF PURCHASE PAYMENTS DETERMINED?
As a general matter, the Contract Owner, normally an employer, will report to us
the amount of purchase payments by or on behalf of each Participant. There are
no minimum amounts or number of purchase payments that are required under the
Contract. For deferred compensation programs, the employer or Contract Owner
will make purchase payments by or on behalf of a Participant pursuant to the
provisions of the underlying deferred compensation plan.
WHAT INVESTMENT OPTIONS ARE AVAILABLE FOR THE GROUP VARIABLE ANNUITY ACCOUNT?
Currently purchase payments may be allocated to one or more of the seven
sub-accounts of the Group Variable Annuity Account that invest respectively in
the following Series Fund or Underlying Fund Portfolios:
Money Market Portfolio of MIMLIC Series Fund, Inc.,
Index 500 Portfolio of MIMLIC Series Fund, Inc.,
Long-Term Corporate Portfolio of Vanguard Fixed Income Securities Fund,
Inc.,
Vanguard/Wellington Fund, Inc.,
Fidelity Contrafund,
4
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Scudder International Fund, a series of Scudder International Fund, Inc.,
and
Janus Twenty Fund, a series of the Janus Investment Fund
There is no assurance that any Series Fund Portfolio or Underlying Fund will
meet its objectives.
Additional information concerning the investment objectives and policies of
the Series Fund Portfolios can be found in the current prospectus for the MIMLIC
Series Fund, Inc., which is attached to this Prospectus. The Series Fund has a
number of Portfolios not available under the Contracts. The Contracts offer
additional Underlying Fund alternatives for investment by the sub-accounts of
the Group Variable Annuity Account which are in addition to those options
available in the Series Fund. Additional information concerning the investment
objectives and policies of these choices, including expenses, are contained in
the prospectuses for each such option. Some of these fund alternatives may also
be part of a series fund arrangement where not all of an existing fund's
investment options are available to the Contract.
CAN YOU CHANGE THE PORTFOLIO SELECTED?
Yes, provided that the Contract Owner and the underlying plan permit it. A
Participant may change the allocation of future purchase payments by giving us
written notice or a telephone call notifying us of the change. Before annuity
payments begin, a Participant may transfer all or a part of the accumulation
value from one Portfolio to another or among the Portfolios. After variable
annuity payments begin, transfers of annuity reserves may be made among the
sub-accounts of the Group Variable Annuity Account and from those sub-accounts
to the General Account. However, once fixed annuity payments begin, no annuity
reserves may be transferred out of the General Account.
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EXPENSE TABLE
WHAT CHARGES ARE ASSOCIATED WITH THE CONTRACTS?
The following Contract expense information is intended to illustrate the
expenses of the Contract as applied to the Contract and Participant interests
thereunder. All expenses are rounded to the nearest dollar. The information
contained in the tables must be considered with the narrative information which
immediately follows them.
PARTICIPANT TRANSACTION EXPENSES
<TABLE>
<S> <C>
Deferred Sales Load (as a percentage of amount
surrendered).............................................. 6.0%
decreasing uniformly
by .0833% for each of
the first 72 months
from the contract
date
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charges.......................... 0.85%**
Contract Administrative Charge.............................. 0.15%**
-----
Total Separate Account Annual Expenses.................. 1.00%
-----
-----
**Separate account annual expenses may be increased. See
narrative information following these tables.
SERIES FUND AND UNDERLYING FUNDS ANNUAL EXPENSES
(as a percentage of average net assets for the described
Series Fund and Underlying Funds)
MIMLIC SERIES FUND, INC.--MONEY MARKET PORTFOLIO
Investment Advisory Fees................................ 0.50%
Other Expenses (after expense reimbursement)............ 0.15%
-----
Total MIMLIC Series Fund, Inc.--Money Market
Portfolio Annual Expenses......................... 0.65%
-----
-----
</TABLE>
5
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<TABLE>
<S> <C>
EXAMPLE--for Contracts using the MIMLIC Series Fund, Inc.--
Money Market Portfolio:
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
If you surrender your Certificate at the end of the
applicable time period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets.... $63 $82 $100 $195
If you annuitize at the end of the applicable time period
or if you do not surrender your Certificate:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets.... $17 $52 $90 $195
</TABLE>
<TABLE>
<S> <C>
MIMLIC SERIES FUND, INC.--INDEX 500 PORTFOLIO
Investment Advisory Fees................................. 0.40%
Other Expenses........................................... 0.10%
-----
Total MIMLIC Series Fund, Inc.--Index 500 Portfolio
Annual
Expenses........................................... 0.50%
-----
-----
EXAMPLE--for Contracts using the MIMLIC Series Fund, Inc.--
Index 500 Portfolio:
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
If you surrender your Certificate at the end of the
applicable time period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets.... $ 62 $77 $93 $ 179
If you annuitize at the end of the applicable time period
or if you do not surrender your Certificate:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets.... $15 $47 $82 $179
</TABLE>
<TABLE>
<S> <C>
VANGUARD FIXED INCOME SECURITIES FUND, INC.--LONG-TERM
CORPORATE PORTFOLIO
Investment Advisory Fees................................. 0.04%
Management Expenses...................................... 0.22%
Other Expenses........................................... 0.04%
-----
Total Vanguard Fixed Income Securities Fund,
Inc.--Long-
Term Corporate Portfolio Annual Expenses........... 0.30%
-----
-----
EXAMPLE--for Contracts using the Vanguard Fixed Income
Securities Fund, Inc.--Long-Term Corporate Portfolio:
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
If you surrender your Certificate at the end of the
applicable time period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets.... $60 $71 $82 $157
If you annuitize at the end of the applicable time period
or if you do not surrender your Certificate:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets.... $13 $41 $71 $157
</TABLE>
6
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<TABLE>
<S> <C>
VANGUARD/WELLINGTON FUND, INC.
Investment Advisory Fees................................. 0.06%
Management and Administrative Expenses................... 0.26%
Other Expenses........................................... 0.03%
-----
Total Vanguard/Wellington Fund, Inc. Annual
Expenses........................................... 0.35%
-----
-----
EXAMPLE--for Contracts using the Vanguard/Wellington Fund,
Inc.:
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
If you surrender your Certificate at the end of the
applicable time period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets.... $60 $73 $85 $162
If you annuitize at the end of the applicable time period
or if you do not surrender your Certificate:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets.... $14 $43 $74 $162
</TABLE>
<TABLE>
<S> <C>
FIDELITY CONTRAFUND
Investment Advisory Fees................................. 0.70%
Other Expenses (after expense reimbursement)............. 0.30%
-----
Fidelity Contrafund Annual Expenses.................. 1.00%
-----
-----
EXAMPLE--for Contracts using the Fidelity Contrafund:
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
If you surrender your Certificate at the end of the
applicable time period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets.... $67 $92 $118 $233
If you annuitize at the end of the applicable time period
or if you do not surrender your Certificate:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets.... $20 $63 $108 $233
</TABLE>
<TABLE>
<S> <C>
SCUDDER INTERNATIONAL FUND
Investment Advisory Fees................................. 0.85%
Other Expenses........................................... 0.36%
-----
Scudder International Fund Annual Expenses........... 1.21%
-----
-----
EXAMPLE--for Contracts using the Scudder International Fund:
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
If you surrender your Certificate at the end of the
applicable time period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets.... $69 $98 $129 $254
If you annuitize at the end of the applicable time period
or if you do not surrender your Certificate:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets.... $22 $69 $118 $254
</TABLE>
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<TABLE>
<S> <C>
JANUS TWENTY FUND
Investment Advisory Fees................................. 0.67%
Other Expenses........................................... 0.35%
-----
Janus Twenty Fund Annual Expenses.................... 1.02%
-----
-----
EXAMPLE--for Contracts using the Janus Twenty Fund:
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
If you surrender your Certificate at the end of the
applicable time period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets.... $67 $93 $119 $235
If you annuitize at the end of the applicable time period
or if you do not surrender your Certificate:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets.... $21 $63 $109 $235
</TABLE>
The tables shown above are to assist a Contract Owner or Participant in
understanding the costs and expenses that a Participant's interest in the
Contract will bear directly or indirectly. For more information on Contract
costs and expenses, see the Prospectus heading "Contract Charges" and the
information immediately following. We reserve the right to increase the
mortality and expense risk charge to 1.25%. We also reserve the right to
increase the administrative charge to .40% if, and to the extent that, the costs
of administering the Contracts exceed .15%. However, no such increases are
anticipated. The table does not reflect deductions for any applicable premium
taxes which may be made from each purchase payment depending upon the applicable
law. Surrender amounts in years shown reflect the Participant's ability to
withdraw an amount equal to ten percent of the accumulation value at the end of
the previous calendar year without the imposition of the deferred sales charge.
The tables show the expenses of the Series Fund and Underlying Funds after
expense reimbursement, if any. Had the Money Market Portfolio paid all fees and
expenses for the year ending December 31, 1994, the ratio of expenses to average
daily net assets would have been .72%. A portion of brokerage commissions that
Fidelity Contrafund paid was used to reduce fund expenses. Without this
reduction, the total Fidelity Contrafund annual expenses would have been 1.03%.
The examples contained in these tables should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown.
IS THERE A GUARANTEED DEATH BENEFIT?
Yes. The Contract has a guaranteed death benefit if a Participant dies before
annuity payments have started. The death benefit shall be equal to the greater
of: (1) the amount of the Participant's accumulation value payable at death; or
(2) the amount of the total purchase payments paid to us by or on behalf of a
Participant, less all prior Participant Contract withdrawals or transfers. A
transfer for this purpose is the application of an amount from this Contract to
another investment alternative available in the Contract Owner's underlying
deferred compensation plan.
WHAT ANNUITY OPTIONS ARE AVAILABLE?
The Contracts specify several annuity options. Each annuity option may be
elected on either a variable annuity or fixed annuity basis or a combination of
the two. Other annuity options may be available from us on request. The
specified annuity options are a life annuity; a life annuity with a period
certain of either 120 months, 180 months or 240 months; a joint and last
survivor annuity and a period certain annuity.
WHAT IF A CONTRACT PARTICIPANT DIES?
If a Participant dies before payments begin, we will pay the Participant's
guaranteed death benefit of the Contract as a death benefit to the named
beneficiary. If the annuitant dies after annuity payments have begun, we will
pay whatever death benefit may be called for by the terms of the annuity option
selected.
WHAT VOTING RIGHTS DO YOU HAVE?
Participants and annuitants will be able to direct us as to how to vote shares
of the Series Fund held for their Certificates.
8
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CONDENSED FINANCIAL INFORMATION
THE FINANCIAL STATEMENTS OF THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND
MINNESOTA MUTUAL GROUP VARIABLE ANNUITY ACCOUNT 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 period from September 2,
1994, commencement of operations, to December 31, 1994. This information should
be read in conjunction with the financial statements and related notes of
Minnesota Mutual Group Variable Annuity Account included in the Statement of
Additional Information.
<TABLE>
<S> <C>
MIMLIC Money Market Sub-Account:
Unit value at beginning of period......................................... $1.000
Unit value at end of period............................................... $1.011
Number of units outstanding at end of period.............................. 318,636
Vanguard Long-Term Corporate Sub-Account:
Unit value at beginning of period......................................... $1.000
Unit value at end of period............................................... $0.989
Number of units outstanding at end of period.............................. 275,796
Vanguard Wellington Sub-Account:
Unit value at beginning of period......................................... $1.000
Unit value at end of period............................................... $0.977
Number of units outstanding at end of period.............................. 1,363,274
MIMLIC Index 500 Sub-Account:
Unit value at beginning of period......................................... $1.000
Unit value at end of period............................................... $0.979
Number of units outstanding at end of period.............................. 261,150
Fidelity Contrafund Sub-Account:
Unit value at beginning of period......................................... $1.000
Unit value at end of period............................................... $0.981
Number of units outstanding at end of period.............................. 4,870,232
Scudder International Sub-Account:
Unit value at beginning of period......................................... $1.000
Unit value at end of period............................................... $0.934
Number of units outstanding at end of period.............................. 1,807,445
Janus Twenty Sub-Account:
Unit value at beginning of period......................................... $1.000
Unit value at end of period............................................... $0.959
Number of units outstanding at end of period.............................. 444,821
</TABLE>
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FINANCIAL STATEMENTS
The financial statements of Minnesota Mutual Group Variable Annuity Account and
The Minnesota Mutual Life Insurance Company's financial statements are included
in the Statement of Additional Information.
- ------------------------------------------------------------------------
PERFORMANCE DATA
From time to time the Group Variable Annuity Account may publish advertisements
containing performance data relating to its sub-accounts. In the case of the
Money Market sub-account, the Group 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 Group 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
Group Variable Annuity Account are
9
<PAGE>
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 Group Variable Annuity Account will
reflect charges made pursuant to the terms of the Contracts offered by this
Prospectus and charges of the Series Fund or Underlying Funds. The various
performance figures used in Group Variable Annuity Account advertisements
relating to the contracts described in this Prospectus are summarized below.
More detailed information on the computations is set forth in the Statement of
Additional Information.
MONEY MARKET SUB-ACCOUNT YIELD. Yield quotations for the Money Market
sub-account are based on the income generated by an investment in the
sub-account over a specified period, usually seven days. The figures are
"annualized," that is, the amount of income generated by the investment during
the period is assumed to be generated over a 52-week period and is shown as a
percentage of the investment. Effective yield quotations are calculated
similarly, but when annualized the income earned by an investment in the sub-
account is assumed to be reinvested. Effective yield quotations will be slightly
higher than yield quotations because of the compounding effect of this assumed
reinvestment. Yield and effective yield figures quoted by the sub-account will
not reflect the deduction of any applicable deferred sales charges.
TOTAL RETURN FIGURES. Cumulative total return figures may also be quoted for
all sub-accounts. Cumulative total return is based on a hypothetical $1,000
investment in the sub-account at the beginning of the advertised period, and is
equal to the percentage change between the $1,000 net asset value of that
investment at the beginning of the period and the net asset value of that
investment at the end of the period. Cumulative total return figures quoted by
the sub-account will not reflect the deduction of any applicable deferred sales
charges.
All cumulative total return figures published for sub-accounts will be
accompanied by average annual total return figures for a one-year period,
five-year period and for the period since the sub-account became available
pursuant to the Group Variable Annuity Account's registration statement. Average
annual total return figures will show for the specified period the average
annual rate of return required for an initial investment of $1,000 to equal the
surrender value of that investment at the end of the period. The surrender value
will reflect the deduction of the deferred sales charge applicable to the
contract and to the length of the period advertised. Such average annual total
return figures may also be accompanied by average annual total return figures,
for the same or other periods, which do not reflect the deduction of any
applicable deferred sales charges.
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GENERAL DESCRIPTIONS
A. THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
The Minnesota Mutual Life Insurance Company is a mutual life insurance company
organized in 1880 under the laws of Minnesota. Its home office is at 400 Robert
Street North, St. Paul, Minnesota 55101-2098 (612 298-3500). It is licensed to
do a life insurance business in all states of the United States (except New
York, where it is an authorized reinsurer), the District of Columbia, Canada,
and Puerto Rico.
B. MINNESOTA MUTUAL GROUP VARIABLE ANNUITY ACCOUNT
On June 14, 1993, the Board of Trustees of Minnesota Mutual established the
Minnesota Mutual Group Variable Annuity Account (the "Group Variable Annuity
Account") in accordance with Minnesota Insurance Law. The Group Variable Annuity
Account is registered as a unit investment trust under the Investment Company
Act of 1940, as amended (the "1940 Act") and meets the definition of a "separate
account" under the federal securities laws.
The Minnesota law under which the Group Variable Annuity Account was
established provides that the assets of the Group Variable Annuity Account shall
not be chargeable with liabilities arising out of any other business which
Minnesota Mutual may conduct, but shall be held and applied exclusively for the
benefit of the holders of those variable annuity Contracts for which the
separate account was established. The investment performance of the Group
Variable Annuity Account is entirely independent of both the investment
performance of our General Account and of any other separate accounts which we
may have established or may later establish. All obligations under the Contracts
are general corporate obligations of Minnesota Mutual.
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The Group Variable Annuity Account currently has seven sub-accounts to which
Contract Owners and Participants may allocate purchase payments. Each
sub-account invests in shares of a corresponding Portfolio of the Fund.
Additional sub-accounts may be added at our discretion.
C. MIMLIC SERIES FUND, INC.
The Group Variable Annuity Account may invest in MIMLIC Series Fund, Inc. (the
"Series Fund"), a mutual fund of the series type. The Series Fund is registered
with the Securities and Exchange Commission as a diversified, open-end
management investment company, but such registration does not signify that the
Commission supervises the management, or the investment practices or policies,
of the Series Fund. The Series Fund issues its shares, continually and without
sales charge, only to our separate accounts. Shares are sold and redeemed at net
asset value. In the case of a newly issued Contract or interest under it,
purchases of shares of the Portfolios of the Series Fund in connection with the
first purchase payment will be based on the values next determined after
issuance of the Contract by us. Redemptions of shares of the Portfolios of the
Series Fund are made at the net asset value next determined following the day we
receive a request for transfer, partial withdrawal or surrender at our home
office. In the case of outstanding Contracts, purchases of shares of the
Portfolio of the Series Fund for the Group Variable Annuity Account are made at
the net asset value of such shares next determined after receipt by us of
Contract purchase payments.
The Series Fund's investment adviser is MIMLIC Asset Management Company
("MIMLIC Management"). It acts as an investment adviser to the Series Fund
pursuant to an advisory agreement. MIMLIC Management is a subsidiary of
Minnesota Mutual.
Shares of the Portfolios of the Series Fund are also sold to other Minnesota
Mutual separate accounts, which are used to receive and invest premiums paid
under variable life policies and variable annuity contracts. 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 Series
Fund simultaneously. Although Minnesota Mutual does not currently foresee any
such disadvantages either to variable life insurance policy owners or to
variable annuity contract owners, the Series Fund's Board of Directors intends
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. Such action could include the sale of Series Fund
shares by one or more of the separate accounts, which could have adverse
consequences. Material conflicts could result from, for example, (1) changes in
state insurance law, (2) changes in Federal income tax laws, (3) changes in the
investment management of any of the Portfolios of the Series Fund, or (4)
differences in voting instructions between those given by policy owners and
those given by contract owners.
The investment objectives and certain policies of the Portfolios of the Series
Fund available in the Contract are as follows:
The Money Market Portfolio seeks maximum current income to the extent
consistent with liquidity and the stability of capital. The Money Market
Portfolio will invest in money market instruments and other debt securities
with maturities not exceeding one year. The return produced by these
securities will reflect fluctuation in short-term interest rates.
The Index 500 Portfolio seeks investment results that correspond generally
to the price and yield performance of the common stocks included in the
Standard & Poor's Corporation 500 Composite Stock Price Index (the "Index").
It is designed to provide an economical and convenient means of maintaining
a broad position in the equity market as part of an overall investment
strategy. All common stocks, including those in the Index, involve greater
risk than debt securities. The fact that a stock has been included in the
Index affords no assurance against declines in the price or yield
performance of that stock.
A prospectus for the Series Fund is attached to this Prospectus and
prospectuses for the other Underlying Funds are distributed with this Prospectus
or are available upon request. A person should carefully read this Prospectus
and the prospectus for any Underlying Fund Portfolio to which payments are to be
allocated before investing in the Contracts.
D. UNDERLYING FUNDS
In addition to the investment made by the Group Variable Annuity Account in
shares of the Series Fund, the Contracts also provide for sub-
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accounts of the Group Variable Annuity Account which invest in shares of other
registered investment companies. These Underlying Fund options may not be
available in all Contracts issued by us and Participants should consult with
their employer and plan sponsor to determine the availability of these options
under the Contract available to them. As of the date of this Prospectus,
sub-accounts have been established which allow for investment in shares of the
following:
Long-Term Corporate Portfolio of Vanguard Fixed Income Securities Fund,
Inc., (a corporate and government bond fund); Vanguard/Wellington Fund,
Inc., a balanced equity fund; Fidelity Contrafund, a growth equity fund;
Scudder International Fund, an international stock fund; and Janus Twenty
Fund, a growth equity fund.
The investment objectives and certain policies of the Underlying Funds
available under the Contract are as follows:
The Vanguard Long-Term Corporate Portfolio, part of the Vanguard Fixed
Income Securities Fund, Inc., seeks to provide investors with a high level
of income consistent with the maintenance of principal and liquidity. This
Portfolio invests in a diversified portfolio of investment grade corporate
and government bonds. This Portfolio is exposed to substantial interest rate
risk because of the length of its average maturity and it may exhibit high
to very high price fluctuations due to changing interest rates. The
possibility that corporate bonds held by the Portfolio will be repaid prior
to maturity is an additional risk associated with this Portfolio.
The Vanguard/Wellington Fund, Inc. seeks to provide conservation of
principal, a reasonable income return, and profits without undue risk. This
Fund invests in a diversified portfolio of common stocks and bonds, with
common stocks expected to represent 60% to 70% of the Fund's total assets.
Fidelity Contrafund seeks long-term growth by investing in stocks. This Fund
invests in companies that are currently "out of favor" with the public but
show potential for capital appreciation. The Fund invests in both well-known
and lesser-known companies believed to be undervalued due to overly
pessimistic appraisals by the market. The Fund invests primarily in common
stock and convertible securities, with a bias toward medium- and smaller-
capitalization companies.
The Scudder International Fund, a series of Scudder International Fund,
Inc., seeks long-term growth of capital primarily through a diversified
portfolio of marketable foreign equity securities. It generally invests in
equity securities of established companies that are listed on foreign
exchanges which the Adviser believes have favorable characteristics, but may
also invest up to 20% of its total assets in debt securities of foreign
governments, supranational organizations and private issuers. The Fund seeks
to diversify investments among several countries and to have represented in
the portfolio, in substantial proportions, business activities in not less
than three different countries. The Fund does not intend to concentrate
investments in any particular industry. Foreign investing involves exposure
to special risks, including economic or political instability and currency
fluctuation.
The Janus Twenty Fund, a series of the Janus Investment Fund, seeks growth
of capital in a manner consistent with the preservation of capital. This
nondiversified Fund seeks to invest in companies that the portfolio manager
believes offer rapid growth potential. Under normal circumstances, this
account will concentrate its holdings--owning stock in as few as 20 to 30
companies. The risk of loss may be greater than would exist with a more
diversified account.
Some of these shares are available not only to insurance company separate
accounts, but may also be available to the public generally, which may have a
bearing on the question of whether the Contracts may be considered annuity
contracts for tax purposes. For more information, please see the heading
"Federal Tax Status" in this Prospectus on page 23. Persons considering
sub-account investments in these Funds should obtain a current prospectus for
those Funds from the Funds or the Contract Owners before investing in those
sub-accounts.
E. 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 Group
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Variable Annuity Account. If investment in a fund should no longer be possible
or if we determine it becomes inappropriate for Contracts of this class, we may
substitute another fund for a sub-account. Substitution may be with respect to
existing accumulation values, future purchase payments and future annuity
payments.
We may also establish additional sub-accounts in the Group Variable Annuity
Account and we reserve the right to add, combine or remove any sub-accounts of
the Group Variable Annuity Account. Each additional sub-account will purchase
shares in a new portfolio or mutual fund. Such sub-accounts may be established
when, in our sole discretion, marketing, tax, investment or other conditions
warrant such action. Similar considerations will be used by us should there be a
determination to eliminate one or more of the sub-accounts of the Group Variable
Annuity Account. The basis of offering additional investment options to existing
Contract Owners is subject to our discretion.
We also reserve the right, when permitted by law, to de-register the Group
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 Group
Variable Annuity Account with one or more of our other separate accounts.
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CONTRACT CHARGES
A. SALES CHARGES
No sales charge is deducted from the purchase payments for these Contracts.
However, when a Participant's accumulation value is reduced by a withdrawal or
surrender, a deferred sales charge may be deducted for expenses relating to the
sale of the Contracts.
The deferred sales charge is deducted from the Participant's remaining
accumulation value except in the case of a surrender, where it reduces the
amount distributed. We will
deduct the deferred sales charge proportionally from the Participant's fixed and
variable accumulation value.
The amount of the deferred sales charge, expressed as a percentage of the
Participant's accumulation value withdrawn, is shown in the following table.
Percentages are shown as of the Participant's date of initial Contract
participation and the end of each of the first six years of participation. The
percentages decrease uniformly each month for 72 months from the initial date.
In no event will the sum of the deferred sales charges exceed 9% of the purchase
payments made by or on behalf of that Participant under a Contract.
<TABLE>
<CAPTION>
END OF DEFERRED
PARTICIPATION YEAR SALES CHARGE
- ------------------------------------- -----------------
<S> <C>
Participation Date 6%
1 5%
2 4%
3 3%
4 2%
5 1%
6 0%
</TABLE>
These sales charges may be waived in certain circumstances where sales expenses
are not paid at the time of sale to registered representatives and
broker-dealers responsible for the sales of the Contracts on the basis of
purchase payments made under the Contract and where the Contract is sold in
anticipation of reduced expenses.
B. MORTALITY AND EXPENSE RISK CHARGES
We assume the mortality risk under the Contracts by our obligation to continue
to make monthly annuity payments, determined in accordance with the annuity rate
tables and other provisions contained in the Contract, to each annuitant
regardless of how long that annuitant lives or all annuitants as a group live.
This assures an annuitant that neither the annuitant's own longevity nor an
improvement in life expectancy generally will have an adverse effect on the
monthly annuity payments received under the Contract. In addition, we assume
mortality risk in the formulation of death benefit provided by the Contract. See
the heading "Death Benefit" herein.
We assume an expense risk by assuming the risk that deductions provided for in
the Contracts for the sales and administrative expenses will be adequate to
cover the expenses incurred.
For assuming these risks, we currently make a deduction from the Group
Variable Annuity Account at the annual rate of .40% for the mortality risk and
.45% for the expense risk. We reserve the right to increase the charge for the
assumption of mortality risks to not more than .60% and the expense risks to not
more than .65%. If this charge is increased to this maximum amount, then the
total of the mortality risk charge and expense risk charge would be 1.25% on an
annual basis.
C. CONTRACT ADMINISTRATIVE CHARGE
We perform all administrative services relative to the Contract. These services
may include the
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review of the applications for compliance with our issue criteria, the
preparation and issue of contracts and certificates, the receipt of purchase
payments, forwarding them to the Series Fund or other fund managers for
investment, the preparation and mailing of periodic reports and the performance
of other services.
As consideration for providing these services we currently make a deduction
from the Group Variable Annuity Account at the annual rate of .15% for contract
administration. We reserve the right to increase this administrative charge to
not more than .40%.
The administrative charge is designed to cover the administrative expenses
incurred by us under the Contract. We do not expect to recover from the charge
any amount in excess of our accumulated expenses associated with the
administration of the Contract.
D. PREMIUM TAXES
Deduction for any applicable state premium taxes may be made from each purchase
payment or at the commencement of annuity payments. There are currently no
premium taxes which are applicable to the Contracts, but we reserve the right to
make such a deduction should they become applicable to this Contract in the
future.
E. CONTRACT FEE
For Participants who elect a fixed annuity, there is a charge of $200 which is
taken as a contract fee whenever fixed annuity payments are elected and
purchased at rates guaranteed by the Contract. This fee will also be deducted
when amounts are transferred for additional fixed annuity income once fixed
annuity payments have begun.
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UNDERLYING FUND EXPENSES
MIMLIC Management, one of our subsidiaries, acts as the investment adviser to
the Series Fund and deducts from the net asset value of each Portfolio of the
Series Fund a fee for its services which are provided under an investment
advisory agreement. The investment advisory agreements provide that the fee
shall be computed at the annual rate of .50% for the Money Market Portfolio and
.40% for the Index 500 Portfolio.
The Underlying Funds available to the sub-accounts of the Group Variable
Annuity Account will also have advisory fees and expenses associated with the
management of the assets in those alternatives according to the agreement that
each has with its investment adviser. The adviser for each and a brief summary
of the advisory arrangement for each is as follows:
The Vanguard Fixed Income Securities Fund, Inc. has the Wellington
Management Company as the investment adviser for the Long-Term Corporate
Portfolio. It pays the adviser a fee at the end of each fiscal quarter,
calculated by applying a rate, based on the following percentages, to the
Fund's average month-end assets for the quarter: for the first $2.5 billion,
at a rate of .125%; for the next $2.5 billion, at a rate of .100%; for the
next $2.5 billion, at a rate of .075% and over $7.5 billion, at a rate of
.050%. The advisory fee is apportioned among the three Portfolios of the
Fund according to a formula and pursuant to that allocation formula, the fee
to the Long-Term Corporate Portfolio is reduced by 50% from that applicable
to the Fund.
The Vanguard/Wellington Fund, Inc. has as its adviser the Wellington
Management Company. It pays the adviser a fee at the end of each fiscal
quarter, calculated by applying a rate, based on the following percentages,
to the Fund's average month-end assets for the quarter: For the first $500
million, at a rate of .125%; for the next $500 million, at a rate of .100%;
for the next $1 billion, at a rate of .075%; for the next $1 billion, at a
rate of .050%; over $3 billion, at a rate of .040%.
The Fidelity Contrafund has as its adviser Fidelity Management & Research
Company ("FMR"), a subsidiary of FMR, Corp. The management fee paid to FMR
is determined by taking a basic fee and then applying a performance
adjustment which, in turn, depends on how well the Fund has performed
relative to the S&P 500. The basic fee is calculated by adding an aggregated
fund fee rate to an individual fund fee rate and multiplying that amount by
the Fund's average net assets. The aggregated fund fee rate cannot rise
above .52% and it drops as total assets under management increases. As of
December, 1994, the basic fee rate was .62%. After applying the performance
adjustment, the total management fee for fiscal 1994 was .70%. The maximum
annualized
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performance adjustment rate is plus or minus .20%.
The Scudder International Fund has as its adviser Scudder, Stevens & Clark,
Inc. For the fiscal year ended March 31, 1994, the adviser received an
investment management fee of 0.85% of the Fund's average daily nets assets
on an annual basis. The fee is graduated so that increases in the Fund's net
assets may result in a lower fee and decreases in the Fund's net assets may
result in a higher fee.
The Janus Twenty Fund has as its adviser Janus Capital Corporation. The
advisory fee paid to the adviser for the fiscal period ended on October 31,
1994 amounted to .67%.
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DESCRIPTION OF THE CONTRACTS
The following material is intended to provide a general description of the terms
of the Contracts. In the event that there are questions concerning the Contracts
which are not discussed or should you desire additional information, then
inquires may be addressed to us at: Minnesota Mutual Life Center, 400 Robert
Street North, St. Paul, Minnesota 55101-2098. Our phone number is: (612)
298-3500.
1. TYPE OF CONTRACT OFFERED
Group Deferred Variable Annuity Contract
The Contract is a group deferred variable annuity contract which is offered
to employers and plan sponsors which are eligible to purchase group
contracts which are to be used in connection with deferred compensation
plans of state and local governments and other tax-exempt organizations. The
type of deferred compensation plans for which the Contract is suitable are
described in Section 457 of the Internal Revenue Code. The Contract provides
rights and options to individuals who participate under such plans; the
Contracts may not be purchased directly by individuals.
2. ISSUANCE OF CONTRACTS
The Contracts are issued by us to sponsors of eligible deferred compensation
plans upon their application. In a typical plan, the sponsor or eligible
governmental unit is the owner of the Contract and will designate individuals
eligible to participate in the Contract as a Participant. The Contract and all
interests under it are subject to the general interests of creditors of the
owner of the Contract (usually the employer).
3. MODIFICATION OF CONTRACTS
The Contract may be modified at any time by written agreement between us and the
owner of the Contract. However, no such modification will adversely affect the
rights of a Participant under the Contract unless the modification is made to
comply with a law or government regulation.
4. 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 Group Variable Annuity Account and its sub-accounts. The amount of the
variable annuity payments will not be affected by adverse mortality experience
or by an increase in an expense in excess of the expense deduction provided for
in the Contract. The annuitant electing to receive all or a part of his or her
payments as a variable annuity 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 Group Variable Annuity Account, and thus the annuity
payments will vary with the investment experience of the assets of the
applicable Group Variable Annuity Account.
5. ASSIGNMENT
A Participant's accumulation value 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, that value and benefits payable under the Contract shall be
exempt from the claims of creditors. The assets of the plan are, however,
subject to the claims of the general creditors of the Contract Owner (usually
the employer).
6. LIMITATIONS ON PURCHASE PAYMENTS
The amount of purchase payments to be paid by the Contract Owner by or on behalf
of a Participant shall be determined by the Contract Owner in accordance with
the provisions of the underlying deferred compensation plan. All purchase
payments are payable at our Home Office which is located at: 400 Robert Street
North, St. Paul, Minnesota 55101-2098.
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7. SUSPENSION AND TERMINATION OF PURCHASE PAYMENTS
A Contract Owner may suspend making purchase payments by giving 60 days' written
notice to us. The suspension may be with respect to all Participants or only as
to such class or classes of Participants as may be specified by the Contract
Owner. Purchase payments may be resumed as to those suspended Participants by
written notice to us.
At any time, the Contract Owner may terminate the Contract should we fail to
perform under the Contract and not cure any found deficiency or should our
activities be classified as misfeasance, malfeasance or fraud. The Contract may
also be terminated should we have a material change in our financial condition
as measured by the standard insurance company rating agencies.
We may terminate the Contract at any date by written notice to the Contract
Owner in the event that the Contract is no longer part of a qualified Section
457 deferred compensation plan or if we determine that a Contract amendment is
necessary and the Contract Owner does not assent to such an amendment.
After termination of the Contract, we will accept no further purchase
payments. Termination will have no effect on Participants as to whom annuity
payments have begun. As to Participants with a current accumulation value, those
values will continue to be maintained under the Contract until: (a) withdrawn to
provide plan benefits, (b) applied to provide annuity payments or (c)
transferred to the Contract Owner. So long as Participant Accumulation Values
are maintained under the Contract, the withdrawal and transfer provisions
continue to apply to those values on the same basis as prior to Contract
termination.
If amounts are to be transferred to the Contract Owner on termination of the
Contract, those accumulation values attributable to the Group Variable Annuity
Account will be transferred within seven days after the Contract termination.
However, Minnesota Mutual reserves the right to defer payment for any period
during which the New York Stock Exchange is closed for trading or when the
Securities and Exchange Commission has determined that a state of emergency
exists which may make such determination and payment impractical.
General Account values payable to the Contract Owner on termination are
subject to current valuation procedures and payment of the General Account
accumulation value or market value to the Contract Owner, as may be either in a
lump sum or in installments over a five year period as the Contract Owner may
elect. However, in any event we guarantee that on the termination of the
Contract, Participant General Account market values will not be less than the
sum of all allocations made to the General Account by or on behalf of each
Participant, accumulated at 3% per annum, less any Participant withdrawal, any
applicable deferred sales charge and less any transfers of General Account
accumulation values to the Group Variable Annuity Account.
8. CONTRACT SETTLEMENT
Whenever any payment of an amount under the Contract attributable to the Group
Variable Annuity Account 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 Group Variable Annuity Account or to fairly
determine the value of the assets of the Group Variable Annuity Account;
or
(c) such other periods as the Commission may by order permit for the
protection of the Contract Owners.
9. PARTICIPATION IN DIVISIBLE SURPLUS
The Contract is a participating Contract. The portion, if any, of our divisible
surplus accruing on this Contract shall be determined annually by us and shall
be credited to the Contract on such a basis as we may determine. We do not
anticipate any divisible surplus and do not anticipate making dividend payments
to Contract Owners under the Contract.
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VOTING RIGHTS
We will vote in our discretion shares of Underlying Funds other than Portfolios
of the Series Fund held in the Group Variable Annuity Account. We also will vote
the Series Fund Portfolio shares held in the Group Variable Annuity Account, but
will do so in accordance with instructions received from Participants with
values allocated to sub-accounts investing in shares of those Series Fund
Portfolios. We will vote all shares of a Series Fund Portfolio held by the Group
Variable Annuity Account for which no voting instructions are received from
Participants in the same proportion as shares held by the Group Variable Annuity
Account for which such instructions have been received. If, however, the 1940
Act or any regulation thereunder should change so that we may be allowed to vote
such shares in our own right, then we may elect to do so.
Voting instructions for votes of Series Fund Portfolio shares are to be
provided during the accumulation period by Participants with values allocated to
sub-accounts investing in those Portfolios and during the annuity period by
annuitants with annuity reserves allocated to those sub-accounts. In each case,
the value of the amounts so allocated on behalf of a Participant or annuitant
will be divided by net asset value per share of the applicable Series Fund
Portfolio shares to determine the number of shares for which voting instructions
may be provided by the Participant or annuitant. In either case, instructions
for voting fractional shares will be recognized. We shall notify Participants or
annuitants who are entitled to provide such voting instructions and will provide
them with proxy materials and forms necessary for providing voting instructions.
During the accumulation period of each Certificate, the Participant holds the
voting interest in each Certificate. The number of votes will be determined by
dividing the accumulation value of the Contract as to the accumulation value of
each Participant attributable to each sub-account by the net asset value per
share of the underlying Series Fund shares held by that sub-account.
During the annuity period of each Certificate, the annuitant holds the voting
interest in each Certificate. The number of votes will be determined by dividing
the reserve for each annuitant allocated to each sub-account by the net asset
value per share of the underlying Series Fund shares held by that sub-account.
After an annuity begins, the votes attributable to any particular annuitant will
decrease as the reserves decrease. In determining any voting interest,
fractional shares will be recognized.
We shall notify each Participant or annuitant of a Series Fund shareholders'
meeting if the shares held for the Participant may be voted at such meeting. We
will also send proxy materials and a form of instruction so that you can
instruct us with respect to voting.
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ANNUITY PERIOD
1. ELECTING THE RETIREMENT DATE AND FORM OF ANNUITY
The Contracts provide for four annuity payment options, any one of which may be
elected if permitted by law. Each annuity payment option may be elected on
either a variable annuity or a fixed annuity basis, or a combination thereof.
Other annuity payment options may be available as agreed to between a
Participant and us and upon request to us.
If an election has not been made otherwise, and the plan does not specify to
the contrary, the Participant's retirement date shall be April 1 of the calendar
year next following the calendar year in which the Participant attains age
70 1/2. The annuity payment option shall be Option 2A, a life annuity with a
period certain of 120 months. Unless notified in writing by the Contract Owner
or Participant at least 30 days prior to the Annuity Commencement Date, a fixed
annuity will be provided by any General Account accumulation value and a
variable annuity will be provided by any Group Variable Annuity Account
accumulation value. The minimum first monthly annuity payment on either a
variable or fixed dollar basis is $20 imposed separately for the portion of the
annuity payments payable as a fixed annuity and the portion payable as a
variable annuity under each of the sub-accounts of the Group Variable Annuity
Account. If such first monthly payment would be less than $20, we may fulfill
our obligation by paying in a single sum the value of a Participant's interest
in the Contract which would otherwise have been applied to provide annuity
payments.
Once annuity payments have commenced, the annuitant cannot surrender his or
her annuity benefit and receive a single sum settlement in lieu thereof. In the
event that a beneficiary elects to receive the commuted value of the remaining
guaranteed payments in a lump sum, that value will be based on the then current
dollar amount of one payment and the same interest rate which served as a basis
for the annuity.
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The mortality and expense risks charges continue to be deducted throughout the
annuity period, even under each of the available variable annuity payment
options, including Option 4, under which there is no mortality risk to Minnesota
Mutual.
2. ANNUITY PAYMENT OPTIONS
OPTION 1--LIFE ANNUITY
This is an annuity payable monthly during the lifetime of the annuitant and
terminating with the last monthly payment preceding the death of the annuitant.
This option usually offers the largest monthly payments (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 or she died prior to the due date of the second annuity payment, two if he
or she died before the due date of the third annuity payment, etc.
OPTION 2--LIFE ANNUITY WITH A PERIOD CERTAIN OF 120 MONTHS (OPTION 2A), 180
MONTHS (OPTION 2B), OR 240 MONTHS
(OPTION 2C)
This is an annuity payable monthly during the lifetime of the annuitant, with
the guarantee that if the annuitant dies before payments have been made for the
period certain elected, payments will continue to the beneficiary during the
remainder of the period certain; or if the beneficiary so elects at any time
during the remainder of the period certain, the present value of the remaining
guaranteed number of payments, based on the then current dollar amount of one
such payment 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.
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 to the beneficiary during the remainder
of such period certain.
By written notice to us from the Contract Owner or a Participant at least 30
days prior to a Participant's Annuity Commencement Date, a lump sum settlement
of a Participant's accumulation value may be elected in lieu of the application
of that amount to an Annuity Payment Option. After the payment of such a lump
sum settlement to the Participant, the Participant shall have no further rights
under the Contract.
3. VALUE OF THE ANNUITY UNIT
The value of an annuity unit is determined monthly as of the first day of each
month. The value of the annuity unit on the first day of each month is
determined 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 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. (The factor of
.996338 is used to neutralize the assumed net investment rate, discussed in
Section 4 below, of 4.5% per annum built into the first payment calculation and
which is not applicable because the actual net investment rate is credited
instead.) The value of an annuity unit 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.
4. DETERMINATION OF AMOUNT OF FIRST MONTHLY ANNUITY PAYMENT
Under the Contract described in this Prospectus, the first monthly annuity
payment is determined by applying the value of the Participant's individual
accumulation value at retirement. State premium taxes, if applicable and not
previously deducted from purchase payments, may be deducted from the
Participant's accumulation value before the first payment is determined. These
taxes currently range from 0 to 3.5%, depending upon the state of issue and type
of plan involved.
The amount of the first monthly payment depends on the annuity payment option
elected, the form of annuity, and the adjusted age of the annuitant. A table
used to determine the adjusted age of the annuitant and joint annuitant is
contained in the Contract. For both fixed and variable annuity payments, the
adjusted age of the annuitant and joint annuitant, if any, is used to determine
the first payment.
For a fixed annuity, the Contract contains tables indicating the dollar amount
of the
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monthly payment under each annuity payment option for each $1,000 of value
applied. The tables are determined from the Progressive Annuity Table with
interest at the rate of 3% per annum, assuming births in the year 1900 and an
age setback of six years. A $200 fee may be deducted from the Participant's
General Account accumulation value before applying the rates found in the
tables.
The dollar amount of the first monthly variable annuity payment is determined
by applying the available value (after deduction of any applicable premium taxes
not previously deducted) to a rate which is based on the Progressive Annuity
Table with interest at the rate of 4.5% per annum, assuming births in the year
1900 and with an age setback of six years. A number of units is then determined
by dividing this dollar amount by the then current annuity unit value.
Thereafter, the number of annuity units remains unchanged during the period of
annuity payments. This determination is made separately for each sub-account of
the separate account. The number of annuity units is based upon the available
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 payment.
The 4.5% interest rate assumed in the annuity rate would produce level annuity
payments if the net investment rate remained constant at 4.5% per year.
Subsequent payments will be less than, equal to, or greater than the first
payment depending upon whether the actual net investment rate is less than,
equal to, or greater than 4.5%. A higher interest rate would mean a higher
initial payment, but a more slowly rising (or more rapidly falling) series of
subsequent payments. A lower assumption would have the opposite effect.
If, when annuity payments are elected, we are using annuity rates for
Contracts of this class which result in larger annuity payments, we will use
those rates instead of those guaranteed in the Contract.
5. AMOUNT OF SECOND AND SUBSEQUENT MONTHLY VARIABLE ANNUITY PAYMENTS
The dollar amount of the second and later variable annuity payments is equal to
the number of annuity units determined for each applicable sub-account of the
Group Variable Annuity Account multiplied by the annuity unit value for that
sub-account as of the due date of the payment. This amount may increase or
decrease from month to month.
The dollar amounts for variable annuity payments determined for each
applicable sub-account of the Group Variable Annuity Account will be aggregated
for purposes of making the monthly variable annuity payment to the Participant.
6. TRANSFER OF ANNUITY RESERVES
Amounts held as annuity reserves may be transferred among the variable annuity
sub-accounts during the annuity period. Annuity reserves may also be transferred
from a variable annuity to a fixed annuity during this time. The 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. In addition, 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. 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.
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.
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
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transfers will apply 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 method at the time of
transfer that we used to determine an initial fixed annuity payment.
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DEATH BENEFIT
Death benefits, if any, payable under Contracts shall be in such amount as is
determined by the provisions of the applicable qualified trust or plan. The
Contracts provide that in the event of the death of the Participant prior to the
commencement of annuity payments, the death proceeds payable to the named
beneficiary will be the greater of: a) the Participant's accumulation value
determined as of the valuation date coincident with or next following the date
due proof of death is received by us, or b) the total of the purchase payments
made by or on behalf of a Participant received by us less any prior Participant
withdrawals or transfers to another investment alternative available in the
Contract Owner's underlying deferred compensation plan. Death proceeds will be
paid in a single sum to the beneficiary designated by the Participant, unless an
annuity option is elected by the beneficiary. Payment will be made within seven
days after we receive due proof of death of the Participant. Except as noted
below, a Participant's entire interest in the Contract must be distributed
within five years of the Participant's death. If the annuitant dies after
annuity payments have begun, Minnesota Mutual will pay to the beneficiary any
death benefit provided by the annuity option selected. The person selected by
the Participant as the beneficiary of any remaining interest after the death of
the annuitant under the annuity option may be a person different from that
person designated as the beneficiary of the Participant's interest in the
Contract prior to the annuity commencement date.
The beneficiary will be the person or persons named in the Contract
application unless the Participant subsequently changes the beneficiary. In that
event, we will pay the amount payable at death to the beneficiary named in the
last change of beneficiary request. The Participant's written request to change
the beneficiary will not be effective until it is recorded in Minnesota Mutual's
home office records. After it has been recorded, it will take effect as of the
date the Participant signed the request. However, if the Participant or
annuitant dies before the request has been recorded, the request will not be
effective as to those death proceeds we have paid before the request was
recorded in our home office records.
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CREDITING ACCUMULATION UNITS
During the accumulation period--the period before the commencement of annuity
payments--the purchase payment (on receipt of a completed application or
subsequently) is credited to a Participant's accumulation value on the valuation
date coincident with or next following the date such purchase payment is
received. If the initial purchase payment is accompanied by an incomplete
application, the 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. Purchase payments will be credited to the Contract in the form of
accumulation units. The number of accumulation units credited with respect to
each purchase payment is determined by dividing the portion of the purchase
payment allocated to each sub-account by the then current accumulation unit
value for that sub-account. The total of these separate account accumulation
values in the sub-accounts will be the separate account accumulation value.
Interests in the sub-accounts will be valued separately.
The number of accumulation units so determined shall not be changed by any
subsequent change in the value of an accumulation unit, but the value of an
accumulation unit will vary from valuation date to valuation date to reflect the
investment experience of the Portfolios of the Series Fund and those other
Underlying Funds which may
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be held by the sub-accounts of the Group Variable Annuity Account.
Minnesota Mutual will determine the value of accumulation units on each day on
which the Portfolios of the Series Fund and such other Underlying Funds are
valued. The net asset value of the Series Fund and Underlying Fund shares are
computed once daily, as of the primary closing time for business on the New York
Stock Exchange (as of the date hereof 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 (i) days on which changes in the value of such Fund's securities
will not materially affect the current net asset value of such Fund's shares,
(ii) days during which no such Series Fund's shares are tendered for redemption
and no order to purchase or sell such Fund's shares is received by such Fund and
(iii) customary national business holidays on which the New York Stock Exchange
is closed for trading (as of the date hereof, New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day).
Accordingly, the value of accumulation units will be determined daily, and
such determinations will be applicable to all purchase payments received by
Minnesota Mutual at its home office on that day prior to the close of business
of the Exchange. The value of accumulation units applicable to purchase payments
received subsequent to the close of business of the Exchange on that day will be
the value determined as of the close of business on the next day the Exchange is
open for trading.
In addition to providing for the allocation of purchase payments to the
sub-accounts of the separate account, the Contracts also provide for allocation
of purchase payments to Minnesota Mutual's General Account for accumulation at a
guaranteed interest rate.
TRANSFER OF VALUES
Upon a Participant's written or telephone request, values under the Contract may
be transferred between the General Account and the Group Variable Annuity
Account or among the sub-accounts of the Group 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. Transfers
between the sub-accounts of the Group Variable Annuity Account are unlimited as
to amount and frequency.
The Contracts permit us to limit the frequency and amount of transfers from
the General Account to the separate accounts and the sub-accounts of the Group
Variable Annuity Account. The Contracts provide that such transfers from a
Participant's accumulation value in our General Account will be on a first-in,
first-out (FIFO) basis and they provide that Participants may transfer the
greater of $1,000 or 10% of their General Account accumulation value annually or
in 12 monthly installments. Currently, we limit such transfers during any
calendar year to the greater of $1,000 or an amount which is no more than 20% of
the General Account accumulation value at the time of the transfer.
Transfer arrangements may be established to begin on the 10th or 20th of any
month and if a transfer cannot be completed it will be made on the next
available transfer date.
Also, in addition to requests for transfer which are by written request, you
or persons authorized by you may effect transfers, or a change in the allocation
of future premiums, by means of a telephone call. Transfers and requests made
pursuant to such a call are subject to the same conditions and procedures as are
outlined above for written transfer requests. During periods of marked economic
or market changes, Contract Owners may experience difficulty in implementing a
telephone transfer due to a heavy volume of telephone calls. In such a
circumstance, Participants should consider submitting a written transfer request
while continuing to attempt a telephone transfer. We reserve the right to
restrict the frequency of--or otherwise modify, condition, terminate or impose
charges upon--telephone transfer privileges. For more information on telephone
transfers, contact Minnesota Mutual.
We will employ reasonable procedures to satisfy ourselves that instructions
received from Participants 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 Participants to identify themselves in those telephone conversations
through such information as we may deem to be reasonable. We record telephone
transfer and change of allocation instruction conversations and we provide
Participants with a written confirmation of the telephone transfer.
The interests of Contract Owners and Participants arising from the allocation
of
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purchase payments or the transfer of contract values to the General Account of
Minnesota Mutual, and thereby to its general assets, are not registered under
the Securities Act of 1933, and Minnesota Mutual is not registered as an
investment company under the Investment Company Act of 1940. Accordingly, such
interests and Minnesota Mutual are not subject to the provisions of those acts
that would apply if registration under such acts were required.
PORTABILITY
In addition to provisions which allow a transfer of Participant accumulation
values under the Contract between the General Account of Minnesota Mutual and
the Group Variable Annuity Account and transfers among the sub-accounts of the
Group Variable Annuity Account, withdrawals are also allowed from the
Participant accumulation values of the Contract to transfer amounts to other
investment alternatives offered by the Contract Owner in its underlying deferred
compensation plan.
Withdrawals for this purpose other than those relating to the timing of
payments, are subject to the same limitations and restrictions as described in
the heading "Transfer of Values" immediately above and the same dollar
limitations on such transfers similarly apply.
VALUE OF THE CONTRACT
The value of the Contract at any time prior to the commencement of annuity
payments can be determined by multiplying the total number of accumulation units
credited to the Contract by the current value of an accumulation unit in each
sub-account of the Group Variable Annuity Account and adding to this amount the
sum of General Account values. There is no assurance that such value will equal
or exceed the purchase payments made, except with respect to amounts allocated
to the General Account. The Contract Owner and, where applicable, each
Participant will be advised periodically of the number of accumulation units
credited to the Contract or to the Participant's individual account, the current
value of each accumulation unit, and the total value of the Contract or the
individual account.
ACCUMULATION UNIT VALUE
The value of an accumulation unit in each sub-account of the Group Variable
Annuity Account was set at $1.000000 on the first valuation date of the Group
Variable Annuity Account. The value of an accumulation unit on any subsequent
valuation date is determined by multiplying the value of an accumulation unit on
the immediately preceding valuation date by the net investment factor (described
below) for the valuation period just ended. The value of an accumulation unit as
of any date other than a valuation date is equal to its value on the next
succeeding valuation date.
NET INVESTMENT FACTOR
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
risk, expense risk and administrative charge at the current rate of 1.00% per
annum.
The gross investment rate is equal to: (1) the net asset value per share of a
Series Fund or Underlying Fund share held in a sub-account of the Group Variable
Annuity Account determined at the end of the current valuation period; plus (2)
the per share amount of any dividend or capital gain distribution by that Series
Fund or Underlying Fund if the "ex-dividend" date occurs during the current
valuation period; divided by (3) the net asset value per share of that Series
Fund or Underlying Fund share determined at the end of the preceding valuation
period. The gross investment rate may be positive or negative.
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WITHDRAWALS AND SURRENDER
Under certain circumstances a Participant may have the right to surrender his or
her interest in the Contract in whole or in part, subject to possible adverse
tax consequences. (See discussion under heading "Federal Tax Status" on pages
23-26.)
Withdrawals may be made only for the purpose of providing plan benefits,
making transfers to the Contract Owner, making transfers to plan investment
alternatives available in the Contract Owner's underlying deferred compensation
plan other than those provided for in this Contract, or allowing other
withdrawals as allowed in the plan and mutually agreed upon by Minnesota Mutual
and the Contract Owner. The amount available for withdrawal shall be the
Participant accumulation value less any applicable deferred sales charge. If
withdrawals during the first calendar year of participation are equal to or less
than 10% of the total purchase payments made on behalf of the Participant, the
charge
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will not apply. In subsequent calendar years there will be no charge for
withdrawals equal to or less than 10% of the prior calendar year Participant
accumulation value. If a Participant's withdrawals in any calendar year exceed
this amount, the deferred sales charge will apply to the excess.
Withdrawal amounts shall be deducted from the Participant's General Account
accumulation value on a first in, first out (FIFO) basis. Unless otherwise
instructed by the Participant or the Contract Owner, withdrawal amounts will be
made from a Participant's interest in the General Account and each sub-account
of the Group Variable Annuity Account in the same proportion that the value of
that Participant's interest in the General Account and any sub-account bears to
that Participant's total accumulation value.
Withdrawals are made upon written request from the Participant or Contract
Owner to Minnesota Mutual. The withdrawal date will be the valuation date
coincident with or next following the receipt of the request by Minnesota Mutual
at its home office.
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.
Once annuity payments have commenced for a Participant, the Participant cannot
surrender his or her annuity benefit and receive a single sum settlement in lieu
thereof. For a discussion of commutation rights of payees and beneficiaries
subsequent to the annuity commencement date, see heading "Annuity Payment
Options" on page 18.
Contract Owners or plan administrators of the Contract Owner's underlying plan
may also submit signed written withdrawal or surrender requests to us by
facsimile (FAX) transmission. Our FAX number is (612) 298-7942. Transfer
instructions or changes as to future allocations of purchase payments may be
communicated to us by the same means.
The surrender of a Certificate or a partial withdrawal thereunder may result
in a credit against Minnesota Mutual's premium tax liability. In such event,
Minnesota Mutual will pay in addition to the cash value paid in connection with
the surrender or withdrawal, the lesser of (1) the amount by which Minnesota
Mutual's premium tax liability is reduced, or (2) the amount previously deducted
from purchase payments for premium taxes. No representation can be made that
upon any such surrender or withdrawal any such payment will be made, since
applicable tax laws at the time of surrender or withdrawal would be
determinative.
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DISTRIBUTION
The Contracts will be sold by Minnesota Mutual life insurance agents who are
also registered representatives of MIMLIC Sales Corporation or other
broker-dealers who have entered into selling agreements with MIMLIC Sales
Corporation. MIMLIC Sales Corporation ("MIMLIC Sales") acts as the principal
underwriter of the Contracts. MIMLIC Sales is a wholly-owned subsidiary of
Minnesota Mutual which is also the sole owner of the shares of MIMLIC
Management, the investment adviser for the Series Fund. MIMLIC Sales 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.
Commissions to dealers, paid in connection with the sale of the Contracts, may
not exceed an amount which is equal to 6% of the purchase payments received for
the Contracts. Commissions on group cases may vary.
In addition, MIMLIC Sales or Minnesota Mutual will pay credits which allow
registered representatives (Agents) who are responsible for sales of the
Contracts to attend conventions and other meetings sponsored by Minnesota Mutual
or its affiliates for the purpose of promoting the sale of insurance and/or
investment products offered by Minnesota Mutual and its affiliates. Such credits
may cover the registered representatives' transportation, hotel accommodations,
meals, registration fees and the like. Minnesota Mutual may also pay registered
representatives additional amounts based upon their production and the
persistency of life insurance and annuity business placed with Minnesota Mutual.
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FEDERAL TAX STATUS
INTRODUCTION
The discussion contained herein is general in nature and is not intended as tax
advice for either Contract Owners or Participants. Each person concerned should
consult a competent tax adviser. No attempt is made to consider any
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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. No
representation is made regarding the likelihood of continuation of current
income tax laws or the current interpretations of the Internal Revenue Service.
Minnesota Mutual is taxed as a "life insurance company" under the Internal
Revenue Code. The operations of the Group 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 Group Variable
Annuity Account or on capital gains arising from its investment activities.
TAXATION OF ANNUITY CONTRACTS IN GENERAL
Section 72 of the Internal Revenue Code governs taxation of nonqualified
annuities in general and some aspects of tax qualified programs. No taxes are
imposed on increases in the value of an annuity contract until distribution
occurs, either as a withdrawal, a series of withdrawals 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 not part of a
qualified program, the taxable portion is generally the amount in excess of the
cost basis of the contract. Amounts withdrawn from the variable annuity
contracts are treated first as taxable income to the extent of the excess of the
contract value over the purchase payments made under the contract. Such taxable
portion is taxed at ordinary income tax rates. For some types of distributions
an excise tax penalty may also apply.
In the case of a withdrawal under an annuity that is part of a qualified
program, 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.
DIVERSIFICATION REQUIREMENTS
Section 817(h) of the Code authorizes the Treasury to set standards, by
regulation or otherwise for the investments of the Group Variable Annuity
Account to be "adequately diversified" in order for the Contract to be treated
as an annuity for Federal tax purposes. Group Variable Annuity Account, through
the Series Fund, intends to comply with the diversification requirements
prescribed in Regulations Section 1.817-5, which affect how the Series Fund's
assets may be invested. Although the investment adviser is an affiliate of
Minnesota Mutual, Minnesota Mutual does not have control over the Series Fund or
its investments. Nonetheless, Minnesota Mutual believes that each Portfolio of
the Series Fund in which the Group Variable Annuity Account owns shares will be
operated in compliance with the requirements prescribed by the Treasury.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances, income
and gains from the separate account assets would be includible in the variable
annuity contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The Treasury
Department has also announced, in connection with the issuance of regulations
concerning investment diversification, that those regulations "do 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." This announcement also states that guidance would
be issued by way of regulations or rulings on the "extent to
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which policyholders may direct their investments to particular subaccounts
without being treated as owners of the underlying assets." As of the date of
this Prospectus, no such guidance has been issued.
The ownership rights of a Participant 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, a Participant has the choice of one or more 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. These
differences could result in a Contract Owner and thus the Participant as being
treated as the owner of the assets of the Group Variable Annuity Account. In
addition, Minnesota Mutual does not know what standards will be set forth, if
any, in the regulations or rulings which the Treasury Department has stated it
expects to issue. Minnesota Mutual therefore reserves the right to modify the
Contract as necessary to attempt to prevent a Contract Owner or Participant from
being considered the owner of a pro rata share of the assets of the Group
Variable Annuity Account.
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.
TAX QUALIFIED PROGRAMS
The tax rules applicable to Participants and beneficiaries in tax-qualified
programs 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
purchase payments and distributions. Adverse tax consequences may result from
purchase payments in excess of specified limits; distributions prior to age
59 1/2 (subject to certain exceptions); distributions that do not conform to
specified minimum distribution rules; aggregate distributions in excess of a
specified annual amount; 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. Some retirement plans are
subject to distribution and other requirements that are not incorporated in the
annuity. Owners and Participants under retirement plans as well as annuitants
and beneficiaries are cautioned that the rights of any person to any benefits
under annuities 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. The contract
may also be used in other situations where a group annuity contract is desired
for funding but where the benefit structure does not require a contract which is
recognized as an "annuity" for federal income tax purposes. As with deferred
compensation plans, the availability of public funds within the contract may
present additional considerations as to whether that contract is qualified as an
annuity contract for tax purposes.
Purchasers of annuities for use with any retirement plan should consult their
legal counsel and tax adviser regarding the suitability of the Contract.
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 agencies, and tax-exempt organizations. The plans may permit Participants
to specify the form of investment for their deferred compensation account.
All assets of the plan are owned by the sponsoring employer and are subject to
the claims of the general creditors of the employer.
Any amount deferred under an eligible deferred compensation plan, and any
income attributable to the amounts so deferred, are currently excluded from the
Participant's income. Generally, the maximum amount of compensation that may be
deferred is the lesser of $7,500 or 33 1/3% of includable compensation (taxable
earnings). Different rules may apply for Participants covered by private
deferred compensation plans under this section and those Participants should
consult a competent tax adviser concerning the operation of such a plan. A
Participant who participates in a deferred compensation plan sponsored by an
employer and who also participates in a Section 403(b) retirement program,
Section 401(k) plan or a Simplified Employee Pension (SEP) amounts excludable
from gross
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income pursuant to that program, plan or pension reduce the amount of
compensation which may be deferred under a Section 457 deferred compensation
plan.
The diversification requirements of Section 817(h) of the Code, previously
described in this section, may present additional considerations for purchasers
or Participants of the Contracts. Code Section 817(h) applies to a variable
annuity contract other than a pension plan contract. Section 818 of the Code
defines pension plan contracts as contracts issued under a Section 401(a) plan,
Section 401(k) plan, Section 403(b) program, or a Section 457 retirement program
as maintained by the United States government, the government of any state or
political subdivision thereof, or by any agency or instrumentality of the
foregoing.
Notwithstanding this exemption, an existing Revenue Ruling, Revenue Ruling
81-225, may provide a legal theory that suggests that contracts which utilize a
public fund, that is to say a fund available not only to separate accounts of
insurance companies but to members of the public generally, may present
additional considerations as to whether that contract is qualified as an annuity
contract for tax purposes because of the existence of the availability of the
public funds in that contract. We believe that if the Service were to make such
a determination providing that result, that the existence of a Section 457
deferred compensation plan would, nevertheless, protect Participants in that
plan from current income taxation.
Additionally, should a contract make a public fund available to its
Participants, it is believed that additional contracts funded by the separate
account could participate in the separate account and, so long as they omitted
the use of non-public funds, that they could continue to obtain tax treatment as
an annuity under existing regulations and revenue rulings.
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: (1) one of a series of substantially equal annual (or more
frequent) payments made (a) over the life or life expectancy of the employee,
(b) the joint lives or joint expectancies of the employee and the employee's
designated beneficiary, or (c) for a specified period of ten years or more; (2)
a required minimum distribution; or (3) the non-taxable portion of a
distribution.
Any distribution eligible for rollover, which may include payment to an
employee, an employee's surviving spouse or an ex-spouse who is an alternate
payee, will be subject to federal tax withholding at a 20% rate unless the
distribution is made as a direct rollover to a tax-qualified plan or to an
individual retirement account or annuity. It may be noted that amounts received
by individuals which are eligible for rollover may still be placed in another
tax-qualified plan or individual retirement account or individual retirement
annuity if the transaction is completed within 60 days after the distribution
has been received. Such a taxpayer must replace withheld amounts with other
funds to avoid taxation on the amount previously withheld.
SEE YOUR OWN TAX ADVISER
It should be understood that the foregoing description of the federal income tax
consequences under these Contracts is not exhaustive and that special rules are
provided with respect to situations not discussed herein. 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 regulations adopted thereunder may also
alter the tax consequences of specific factual situations. Due to the complexity
of the applicable laws, tax advice may be needed by a person contemplating
becoming a Participant under the Contract or exercising elections under such a
Contract. For further information a qualified tax adviser should be consulted.
26
<PAGE>
LEGAL PROCEEDINGS
There are no pending legal proceedings in which the Group Variable Annuity
Account is a party. There are no material pending legal proceedings, other than
ordinary routine litigation incidental to their business, in which Minnesota
Mutual, MIMLIC Management or MIMLIC Sales is a party.
- ------------------------------------------------------------------------
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities and Exchange
Commission, 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 exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning the Group Variable Annuity Account and the Contracts.
Statements contained in this Prospectus as to the content of Contracts and other
legal instruments are summaries. For a complete statement of the terms thereof
reference is made to such instruments as filed.
- ------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information, which contains additional Contract and
Group Variable Annuity Account information, including financial statements, is
available from the offices of the Group Variable Annuity Account at your
request. The Table of Contents for that Statement of Additional Information is
as follows:
Group Variable Annuity Account
Trustees and Principal Management Officers of Minnesota Mutual
Other Contracts
Distribution of Contracts
Annuity Payments
Auditors
Financial Statements
Appendix A--Calculation of Unit Values
27
<PAGE>
MINNESOTA MUTUAL GROUP VARIABLE ANNUITY ACCOUNT
Statement of Additional Information
The date of this document and the Prospectus is: May 1, 1995
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 Group Variable Annuity Account's current Prospectus,
bearing the same date, which may be obtained by calling Minnesota Mutual at
(612) 298-3500, or writing the Group Variable Annuity Account at Minnesota
Mutual Life Center, 400 Robert Street North, St. Paul, Minnesota 55101-2098.
TABLE OF CONTENTS
Separate Account
Trustees and Principal Management Officers of Minnesota Mutual
Other Contracts
Distribution of Contracts
Annuity Payments
Auditors
Financial Statements
Appendix A - Calculation of Unit Values
1
<PAGE>
GROUP VARIABLE ANNUITY ACCOUNT
Minnesota Mutual Group Variable Annuity Account is a separate account of The
Minnesota Mutual Life Insurance Company ("Minnesota Mutual"). The Group
Variable Account is registered as a unit investment trust.
TRUSTEES AND PRINCIPAL MANAGEMENT OFFICERS OF MINNESOTA MUTUAL
TRUSTEES PRINCIPAL OCCUPATION
Anthony L. Andersen Chair-Board of Directors and Chief Executive
Officer, H. B. Fuller Company, St. Paul,
Minnesota (Adhesive Products)
Coleman Bloomfield Chairman of the Board, The Minnesota Mutual
Life Insurance Company
Harold V. Haverty Chairman, President and Chief Executive
Officer, Deluxe Corporation, Shoreview,
Minnesota (Check Printing)
John F. Grundhofer Chairman of the Board, President and Chief
Executive Officer, First Bank System, Inc.,
Minneapolis, Minnesota (Banking)
Lloyd P. Johnson Chairman of the Board, Norwest Corporation,
Minneapolis, Minnesota (Banking)
David S. Kidwell, Ph.D. Dean and Professor of Finance, The Curtis L.
Carlson School of Management, University of
Minnesota, since August 1991; prior thereto,
Dean of the School and Professor, University
of Connecticut, School of Business
Administration from 1988 to July 1991
Reatha C. King, Ph.D. President and Executive Director, General
Mills Foundation, Minneapolis, Minnesota
Thomas E. Rohricht Member, Doherty, Rumble & Butler Professional
Association, St. Paul, Minnesota (Attorneys)
Terry N. Saario, Ph.D. President, Northwest Area Foundation, St.
Paul, Minnesota (Private Regional Foundation)
Robert L. Senkler Chief Executive Officer and President, The
Minnesota Mutual Life Insurance Company since
July 1994; prior thereto for more than five
years Vice President and Actuary, The
Minnesota Mutual Life Insurance Company
2
<PAGE>
Frederick T. Weyerhaeuser Chairman, Clearwater Management Company, St.
Paul, Minnesota (Financial Management)
PRINCIPAL OFFICERS (OTHER THAN TRUSTEES)
NAME POSITION
John F. Bruder Senior Vice President
Keith M. Campbell Vice President
Paul H. Gooding Vice President and Treasurer
Robert E. Hunstad Executive Vice President
James E. Johnson Senior Vice President and Actuary
Joel W. Mahle Vice President
Dennis E. Prohofsky Vice President, General Counsel and
Secretary
Gregory S. Strong Vice President and Actuary
Terrence M. Sullivan Senior Vice President
Randy F. Wallake Senior Vice President
All Trustees who are not also officers of Minnesota Mutual have had the
principal occupation (or employers) shown for at least five years with the
exception of Dr. Kidwell, whose prior employment is as indicated above. All
officers of Minnesota Mutual have been employed by Minnesota Mutual for at least
five years.
DISTRIBUTION OF CONTRACTS
The Contracts will be continuously sold by Minnesota Mutual life insurance
agents who are also registered representatives of MIMLIC Sales Corporation or
other broker-dealers who have entered into selling agreements with MIMLIC Sales.
MIMLIC Sales acts as the principal underwriter of the contracts. MIMLIC Sales
Corporation is a wholly-owned subsidiary of Minnesota Mutual. MIMLIC Sales 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.
3
<PAGE>
ANNUITY PAYMENTS
Please see Appendix A to this Statement of Additional Information for an
illustration of the calculation of annuity unit values and of a variable annuity
payment, showing the method used for the calculation of both the initial and
subsequent payments.
AUDITORS
The financial statements of the Group Variable Annuity Account and The Minnesota
Mutual Life Insurance Company included in this Statement of Additional
Information have been audited by KPMG Peat Marwick LLP, 4200 Norwest Center, 90
South Seventh Street, Minneapolis, Minnesota 55402, independent auditors, as
indicated in their reports in this Statement of Additional Information, and are
included herein in reliance upon such reports and upon the authority of such
firm as experts in accounting and auditing.
4
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees of The Minnesota Mutual Life Insurance Company and
Contract Owners of Minnesota Mutual Group Variable Annuity Account:
We have audited the accompanying statements of assets and liabilities of the
MIMLIC Money Market, Vanguard Long-Term Corporate, Vanguard Wellington,
MIMLIC Index 500, Fidelity Contrafund, Scudder International and Janus Twenty
Segregated Sub-Accounts of Minnesota Mutual Group Variable Annuity Account as
of December 31, 1994 and the related statements of operations, changes in net
assets and the financial highlights for the period from September 2, 1994 to
December 31, 1994. 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 audit.
We conducted our audit 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, 1994 were confirmed to us by the
respective Sub-Account mutual fund group, or, for MIMLIC 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
MIMLIC Money Market, Vanguard Long-Term Corporate, Vanguard Wellington, MIMLIC
Index 500, Fidelity Contrafund, Scudder International and Janus Twenty
Segregated Sub-Accounts of Minnesota Mutual Group Variable Annuity Account as
of December 31, 1994 and the related statements of operations, changes in net
assets and financial highlights, for the period stated in the first paragraph,
in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 10, 1995
<PAGE>
<TABLE>
<CAPTION>
MINNESOTA MUTUAL GROUP VARIABLE ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------
MIMLIC VANGUARD MIMLIC
MONEY LONG-TERM VANGUARD INDEX FIDELITY SCUDDER JANUS
ASSETS MARKET CORPORATE WELLINGTON 500 CONTRAFUND INTERNATIONAL TWENTY
------ -------- ----------- ------------ -------- ------------ ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in shares of underlying mutual funds:
MIMLIC Series Fund - Money Market Portfolio,
322,182 shares at net asset value fo $1.00
per share (cost $322,182).................. $ 322,182 - - - - - -
Vanguard Long-Term Corporate Portfolio, 33,600
shares at net asset value of $8.05 per share
(cost $270,245) ............................ - 270,477 - - - - -
Vanguard Wellington, 68,226 shares at net asset
value of $19.39 per share
(cost $1,349,691) .......................... - - 1,322,905 - - - -
MIMLIC Series Fund - Index 500 Portfolio,
168,373 shares at net asset value of $1.52
per share (cost $255,853) ................. - - - 255,662 - - -
Fidelity Contrafund, 156,674 shares at net
asset value of $30.28 per share
(cost $4,794,127) ......................... - - - - 4,744,091 - -
Scudder International Fund, 38,098 shares at
net asset value of $40.37 per share
(cost $1,648,434) ......................... - - - - - 1,538,011 -
Janus Twenty Fund, 18,772 shares at net asset
value of $22.71 per share
(cost $436,012) ........................... - - - - - - 426,308
---------- ---------- ----------- --------- ---------- ---------- --------
322,182 270,477 1,322,905 255,662 4,744,091 1,538,011 426,308
Receivable for investments sold ................. 2,726 - - 10 - - -
Receivable from Minnesota Mutual for contract
purchase payments ............................... 142 2,391 9,578 634 34,039 151,112 708
Dividends receivable ............................ 46 - - - - - -
---------- ---------- ----------- --------- ---------- ---------- --------
Total assets ................................ 325,096 272,868 1,332,483 256,306 4,778,130 1,689,123 427,016
---------- ---------- ----------- --------- ---------- ---------- --------
LIABILITIES
-----------
Payable for investments purchased ............... 142 - - 634 - - -
Payable to Minnesota Mutual for contract
terminations and mortality and expense charges... 2,726 9 52 10 189 61 17
---------- ---------- ----------- --------- ---------- ---------- --------
Total liabilities............................ 2,868 9 52 644 189 61 17
---------- ---------- ----------- --------- ---------- ---------- --------
NET ASSETS APPLICABLE TO CONTRACT OWNERS ........ $ 322,228 272,859 1,332,431 255,662 4,777,941 1,689,062 426,999
---------- ---------- ----------- --------- ---------- ---------- --------
---------- ---------- ----------- --------- ---------- ---------- --------
ACCUMULATION UNITS OUTSTANDING .................. 318,636 275,796 1,363,274 261,150 4,870,232 1,807,445 444,821
---------- ---------- ----------- --------- ---------- ---------- --------
---------- ---------- ----------- --------- ---------- ---------- --------
NET ASSET VALUE PER ACCUMULATION UNIT ........... $ 1.011 0.989 0.977 0.979 0.981 0.934 0.959
---------- ---------- ----------- --------- ---------- ---------- --------
---------- ---------- ----------- --------- ---------- ---------- --------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MINNESOTA MUTUAL GROUP VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
PERIOD FROM SEPTEMBER 2, 1994 TO DECEMBER 31, 1994
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------
MIMLIC VANGUARD MIMLIC
MONEY LONG-TERM VANGUARD INDEX FIDELITY SCUDDER JANUS
MARKET CORPORATE WELLINGTON 500 CONTRAFUND INTERNATIONAL TWENTY
--------- ------------ ------------ -------- ------------ ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from
underlying mutual fund ..................... $ 2,705 3,091 18,519 - - - 1,256
Mortality and expense risk charges
(note 3) ................................... (470) (401) (1,878) (371) (7,042) (2,302) (570)
Administrative charges (note 3) ............ (83) (71) (331) (66) (1,243) (406) (101)
-------- ----------- ---------- ---------- ---------- ---------- -----------
Investment income (loss) - net ........... 2,152 2,619 16,310 (437) (8,285) (2,708) 585
-------- ----------- ---------- ---------- ---------- ---------- -----------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund ..................... - - 1,788 - - 45,570 -
-------- ----------- ---------- ---------- ---------- ---------- -----------
Realized gains (losses) on sales of
investments (note 4):
Proceeds from sales ...................... 307,515 9,824 44,450 40,178 102,643 167,538 55,081
Cost of investments sold ................. (307,515) (9,855) (45,423) (40,364) (105,907) (176,039) (55,900)
-------- ----------- ---------- ---------- ---------- ---------- -----------
- (31) (973) (186) (3,264) (8,501) (819)
-------- ----------- ---------- ---------- ---------- ---------- -----------
Net realized gains (losses) on
investments .............................. - (31) 815 (186) (3,264) 37,069 (819)
-------- ----------- ---------- ---------- ---------- ---------- -----------
Net change in unrealized appreciation
or depreciation of investments ............. - 232 (26,786) (191) (50,036) (110,423) (9,704)
-------- ----------- ---------- ---------- ---------- ---------- -----------
Net gains (losses) on investments ........ - 201 (25,971) (377) (53,300) (73,354) (10,523)
-------- ----------- ---------- ---------- ---------- ---------- -----------
Net increase (decrease) in net assets
resulting from operations .................. $ 2,152 2,820 (9,661) (814) (61,585) (76,062) (9,938)
-------- ----------- ---------- ---------- ---------- ---------- -----------
-------- ----------- ---------- ---------- ---------- ---------- -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
MINNESOTA MUTUAL GROUP VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
PERIOD FROM SEPTEMBER 2, 1994 TO DECEMBER 31, 1994
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------------
MIMLIC VANGUARD MIMLIC
MONEY LONG-TERM VANGUARD INDEX FIDELITY SCUDDER JANUS
MARKET CORPORATE WELLINGTON 500 CONTRAFUND INTERNATIONAL TWENTY
--------- ------------ ------------- --------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment income (loss) - net ............ $ 2,152 2,619 16,310 (437) (8,285) (2,708) 585
Net realized gains (losses) on
investments .............................. - (31) 815 (186) (3,264) 37,069 (819)
Net change in unrealized appreciation or
depreciation of investments .............. - 232 (26,786) (191) (50,036) (110,423) (9,704)
--------- ----------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets resulting
from operations ........................... 2,152 2,820 (9,661) (814) (61,585) (76,062) (9,938)
--------- ----------- ---------- ---------- ---------- ---------- ----------
Contract transactions (notes 3 and 5):
Contract purchase payments ................ 627,037 279,861 1,366,325 296,217 4,988,769 1,958,703 509,011
Contract terminations, withdrawals
and charges .............................. (306,962) (9,822) (24,234) (39,741) (149,243) (193,579) (72,074)
--------- ----------- ---------- ---------- ---------- ---------- ----------
Increase in net assets from contract
transactions ............................... 320,075 270,039 1,342,091 256,476 4,839,526 1,765,124 436,937
--------- ----------- ---------- ---------- ---------- ---------- ----------
Increase in net assets ...................... 322,228 272,859 1,332,431 255,662 4,777,941 1,689,062 426,999
Net assets at the beginning
of period .................................. - - - - - - -
--------- ----------- ---------- ---------- ---------- ---------- ----------
Net assets at the end of period ............. $ 322,228 272,859 1,332,431 255,662 4,777,941 1,689,062 426,999
--------- ----------- ---------- ---------- ---------- ---------- ----------
--------- ----------- ---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MINNESOTA MUTUAL GROUP VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND BASIS OF PRESENTATION
The Minnesota Mutual Group Variable Annuity Account (the Account) was
established on June 14, 1993 as a segregated asset account of The Minnesota
Mutual Life Insurance Company (Minnesota Mutual) under Minnesota law and is
registered as a unit investment trust under the Investment Company Act of
1940 (as amended). The Account commenced operations September 2, 1994.
The Account currently has seven segregated sub-accounts to which variable
annuity contract owners may allocate their purchase payments.
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 Mutual. Contract owners allocate their variable purchase
payments to one or more of the seven segregated sub-accounts. Payments
allocated to the MIMLIC Money Market, Vanguard Long-Term Corporate,
Vanguard Wellington, MIMLIC Index 500, Fidelity Contrafund, Scudder
International and Janus Twenty segregated sub-accounts are invested in
shares of the Money Market Portfolio of the MIMLIC Series Fund, Inc.,
Long-Term Corporate Portfolio of the Vanguard Fixed Income Securities Fund,
Inc., Vanguard/Wellington Fund, Inc., Index 500 Portfolio of the MIMLIC
Series Fund, Inc., Fidelity Contrafund, Scudder International Fund and
Janus Twenty Fund (Underlying Funds), respectively. Each of the Underlying
Funds is registered under the Investment Company Act of 1940 as
diversified, open-end management investment companies.
MIMLIC Sales Corporation acts as the underwriter for the Account. MIMLIC
Asset Management Company acts as the investment adviser for the MIMLIC
Series Fund, Inc. MIMLIC Sales Corporation and MIMLIC Asset Management
Company are wholly-owned subsidiaries of Minnesota Mutual.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS IN UNDERLYING MUTUAL 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.
FEDERAL INCOME TAXES
The Account is treated as part of Minnesota Mutual 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.
(3) MORTALITY AND RISK EXPENSE AND ADMINISTRATIVE CHARGES
The mortality and expense risk charge paid to Minnesota Mutual is computed
daily and is equal, on an annual basis, to .85% of the average daily net
assets of the Account. Under certain conditions, the mortality and expense
risk charge may be increased to 1.25% of the average daily net assets of
the Account.
<PAGE>
2
MINNESOTA MUTUAL GROUP VARIABLE ANNUITY ACCOUNT
(3) MORTALITY AND RISK EXPENSE AND ADMINISTRATIVE CHARGES - CONTINUED
The contract adminstrative charge paid to Minnesota Mutual is computed
daily and is equal, on an annual basis, to .15% of the average daily net
assets of the Account. Under certain conditions, the contract
administrative charge may be increased to not more than .40% of the average
daily net assets of the Account.
A contingent deferred sales charge may be imposed on a contract owner
during the first six years if a contract's accumulation value is reduced by
withdrawal or surrender. This sales charge is currently being waived by
Minnesota Mutual.
(4) INVESTMENT TRANSACTIONS
The Account's purchases of Underlying Fund shares, including reinvestment
of dividend distributions, were as follows during the period from September
2, 1994 to December 31, 1994:
Money Market Portfolio of the MIMLIC Series Fund, Inc.......... $ 629,697
Long-Term Corporate Portfolio of the Vanguard Fixed Income
Securities Fund, Inc......................................... 280,100
Vanguard/Wellington Fund, Inc. ................................. 1,395,114
Index 500 Portfolio of the MIMLIC Series Fund, Inc.............. 296,217
Fidelity Contrafund ............................................ 4,900,034
Scudder International Fund ..................................... 1,824,473
Janus Twenty Fund .............................................. 491,912
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS
Transactions in units for each segregated sub-accounts for the period from
September 2, 1994 to December 31, 1994 were as follows:
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------
MIMLIC VANGUARD
MONEY LONG-TERM VANGUARD MIMLIC
MARKET CORPORATE WELLINGTON INDEX 500
----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Units outstanding at
September 2, 1994 .......... - - - -
Contract purchase
payments .............. 623,855 285,876 1,388,151 301,640
Deductions for contract
terminations and
withdrawal payments ... (305,219) (10,080) (24,877) (40,490)
----------- ---------- ----------- ----------
Units outstanding at
December 31, 1994 .......... 318,636 275,796 1,363,274 261,150
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
<PAGE>
3
MINNESOTA MUTUAL GROUP VARIABLE ANNUITY ACCOUNT
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - CONTINUED
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------
FIDELITY SCUDDER JANUS
CONTRAFUND INTERNATIONAL TWENTY
---------- ------------- ------
<S> <C> <C> <C>
Units outstanding at
September 2, 1994 ......................... - - -
Contract purchase payments ............. 5,025,027 2,012,896 519,373
Deductions for contract terminations
and withdrawal payments .............. (154,795) (205,451) (74,552)
--------- ----------- ----------
Units outstanding at
December 31, 1994 ......................... 4,870,232 1,807,445 444,821
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
<PAGE>
4
MINNESOTA MUTUAL GROUP VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS
The following table for each segregated sub-account show certain data for
an accumulation unit outstanding during the period from September 2, 1994,
commencement of operations, to December 31, 1994:
<TABLE>
<CAPTION>
MIMLIC VANGUARD
MONEY LONG-TERM VANGUARD MIMLIC FIDELITY SCUDDER JANUS
MARKET CORPORATE WELLINGTON INDEX 500 CONTRAFUND INTERNATIONAL TWENTY
------ --------- ---------- --------- ---------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period . . . . . . $ 1.000 1.000 1.000 1.000 1.000 1.000 1.000
---------- --------- ---------- --------- ---------- ----------- -------
Income from investment operations:
Net investment income (loss) . . . . . . .011 .020 .022 (.003) (.003) (.003) .003
Net gains or losses on securities
(both realized and unrealized) . . . . - (.031) (.045) (.018) (.016) (.063) (.044)
---------- --------- ---------- --------- ---------- ----------- -------
Total from investment operations . . . .011 (.011) (.023) (.021) (.019) (.066) (.041)
---------- --------- ---------- --------- ---------- ----------- -------
Unit value, end of period . . . . . . . . . $ 1.011 .989 .977 .979 .981 .934 .959
---------- --------- ---------- --------- ---------- ----------- -------
---------- --------- ---------- --------- ---------- ----------- -------
</TABLE>
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report............................................. 1
Balance Sheets........................................................... 2
Statements of Operations and Policyowners'Surplus........................ 3
Statements of Cash Flows................................................. 4
Notes to Financial Statements............................................ 5
Financial Statement Schedules:
I. Summary of Investments--Other than Investments in Related Parties 17
V. Supplementary Insurance Information.............................. 18
VI. Reinsurance..................................................... 19
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
The Minnesota Mutual Life Insurance Company:
We have audited the accompanying balance sheets of The Minnesota Mutual Life
Insurance Company as of December 31, 1994 and 1993 and the related statements of
operations and policyowners' surplus and cash flows for each of the years in the
three-year period ended December 31, 1994. In connection with our audits of the
financial statements, we also have audited the financial statement schedules as
listed in the accompanying index. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules 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 financial statements referred to above present fairly, in
all material respects, the financial position of The Minnesota Mutual Life
Insurance Company as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1994, in conformity with generally accepted accounting
principles (notes 1 and 10). Also in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 9, 1995
1
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994
---------- ----------
ASSETS
<S> <C> <C>
Bonds $5,134,554 $4,985,026
Common stocks 209,958 211,792
Mortgage loans 598,186 542,356
Real estate, including Home Office property 76,346 80,655
Other invested assets 60,604 49,599
Policy loans 185,599 177,820
Investments in subsidiary companies 155,404 125,865
Cash and short-term securities 112,869 90,266
Premiums deferred and uncollected 125,422 186,978
Other assets 134,594 118,596
---------- ----------
Total assets, excluding separate
accounts 6,793,536 6,568,953
Separate account assets 1,750,680 1,235,157
---------- ----------
Total assets $8,544,216 $7,804,110
---------- ----------
---------- ----------
LIABILITIES AND POLICYOWNERS' SURPLUS
Liabilities:
Policy reserves:
Life insurance $1,981,469 $1,875,570
Annuities and other fund deposits 3,179,279 3,166,944
Accident and health 343,241 317,825
Policy claims in process of
settlement 53,670 98,351
Dividends payable to policyowners 100,287 94,224
Other policy liabilities 388,538 371,333
Asset valuation reserve 165,341 135,936
Interest maintenance reserve 19,922 24,349
Federal income taxes 35,050 15,644
Other liabilities 186,575 162,934
---------- ----------
Total liabilities, excluding separate accounts 6,453,372 6,263,110
Separate account liabilities 1,708,529 1,193,100
---------- ----------
Total liabilities 8,161,901 7,456,210
Policyowners' surplus 382,315 347,900
---------- ----------
Total liabilities and policyowners' surplus $8,544,216 $7,804,110
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND POLICYOWNERS' SURPLUS
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
---------- ----------- -----------
STATEMENTS OF OPERATIONS
<S> <C> <C> <C>
Revenues:
Premiums, annuity considerations and fund deposits $ 1,424,352 $ 1,289,954 $ 1,234,413
Net investment income 488,813 493,011 485,284
---------- ---------- ----------
Total revenues 1,913,165 1,782,965 1,719,697
---------- ---------- ----------
Benefits and expenses:
Policyowner benefits 1,259,685 1,131,638 968,539
Increase in policy reserves 94,116 122,280 243,014
General insurance expenses and taxes 279,022 268,041 249,943
Commissions 75,443 70,899 65,088
Federal income taxes 49,626 36,656 39,845
---------- ---------- ----------
Total benefits and expenses 1,757,892 1,629,514 1,566,429
---------- ---------- ----------
Gain from operations before net
realized capital gains (losses) and dividends 155,273 153,451 153,268
Realized capital gains (losses), net of tax 18,559 2,907 (23,311)
---------- ---------- ----------
Gain from operations before dividends 173,832 156,358 129,957
Dividends to policyowners 108,709 97,937 98,116
---------- ---------- ----------
Net income $ 65,123 $ 58,421 $ 31,841
---------- ---------- ----------
---------- ---------- ----------
STATEMENTS OF POLICYOWNERS' SURPLUS
Policyowners' surplus, beginning of year $ 347,900 $ 264,542 $ 219,488
Net income 65,123 58,421 31,841
Net change in unrealized capital gains and losses (317) 3,286 8,294
Change in policy reserve bases 1,463 -- (2,790)
Change in asset valuation reserve (29,405) (17,002) 2,217
Change in prior year federal income tax liability (512) 857 2,814
Guaranty fund certificate redemption (contribution) -- 19,171 (4,500)
Change in separate account surplus (3,764) 5,623 7,910
Business combination -- 16,684 --
Other, net 1,827 (3,682) (732)
---------- ---------- ----------
Policyowners' surplus, end of year $ 382,315 $ 347,900 $ 264,542
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
CASH PROVIDED:
- --------------
<S> <C> <C> <C>
From operations:
Revenues:
Premiums, annuity considerations and fund deposits $ 1,474,471 $1,252,183 $1,258,050
Net investment income 468,927 473,487 466,199
---------- ---------- ----------
Total receipts 1,943,398 1,725,670 1,724,249
---------- ---------- ----------
Benefits and expenses paid:
Policyowner benefits 1,301,060 1,069,090 957,013
Dividends to policyowners 103,634 97,697 93,087
Commissions and expenses 360,150 348,397 320,394
Federal income taxes 40,482 50,994 37,698
---------- ---------- ----------
Total payments 1,805,326 1,566,178 1,408,192
---------- ---------- ----------
Cash provided from operations 138,072 159,492 316,057
Proceeds from investments sold, matured or repaid:
Bonds 1,031,279 1,631,215 1,080,940
Common stocks 113,228 113,945 113,503
Mortgage loans 152,418 265,356 272,337
Real estate 17,571 10,100 46,142
Other invested assets 16,831 17,266 6,414
Separate account redemption 14,519 -- --
Business combination -- 24,628 --
Other sources, net 58,072 53,531 --
---------- ---------- ----------
Total cash provided 1,541,990 2,275,533 1,835,393
---------- ---------- ----------
CASH APPLIED:
Cost of investments acquired:
Bonds 1,146,117 1,966,653 1,678,256
Common stocks 132,301 123,185 94,724
Mortgage loans 203,803 109,559 69,587
Real estate 11,904 16,572 13,312
Other invested assets 12,732 9,800 8,079
Guaranty fund certificate contribution -- -- 4,500
Separate account investment 12,530 3,365 10,000
Other applications, net -- -- 6,051
---------- ---------- ----------
Total cash applied 1,519,387 2,229,134 1,884,509
---------- ---------- ----------
Net change in cash and short-term securities 22,603 46,399 (49,116)
Cash and short-term securities, beginning of year 90,266 43,867 92,983
---------- ---------- ----------
Cash and short-term securities, end of year $ 112,869 $ 90,266 $ 43,867
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of The Minnesota Mutual Life Insurance
Company (the Company) have been prepared in accordance with accounting
practices prescribed or permitted by the Commerce Department of the State of
Minnesota (Department of Commerce), which are currently considered generally
accepted accounting principles for mutual life insurance companies (note 10).
The significant accounting policies follow:
REVENUES AND EXPENSES
Premiums are credited to revenue over the premium paying period of the
policies. Annuity considerations and fund deposits are recognized as revenue
when received. Expenses, including acquisition costs related to acquiring new
business, are charged to operations as incurred. Investment income is
recognized as earned, net of related investment expenses.
VALUATION OF INVESTMENTS
Bonds and stocks are valued as prescribed by the National Association of
Insurance Commissioners (NAIC). Bonds are generally carried at cost, adjusted
for the amortization of premiums and discounts, and common stocks at market
value. Premiums and discounts are amortized over the estimated lives of the
bonds based on the interest yield method.
Mortgage loans are generally stated at the outstanding principal balances,
net of unamortized premiums and discounts. Premiums and discounts are
amortized over the terms of the related mortgage loans based on the interest
yield method.
Real estate, exclusive of properties acquired through foreclosure, is carried
at cost less accumulated depreciation of $35,707,000 and $34,723,000 at
December 31, 1994 and 1993, respectively. Depreciation is computed
principally on a straight-line basis. Properties acquired through foreclosure
are carried at the lower of cost or market.
In 1992, the Company transferred $31,770,000 of its investment in oil and gas
limited partnerships to Robert Street Energy, Incorporated (Robert Street), a
wholly-owned subsidiary. The carrying value of oil and gas investments is
reflected in investments in subsidiary companies. The oil and gas investments
are carried at the lower of cost or market value and accounted for on a
pooled investment basis. Cost represents the original cost of the investment
adjusted for depletion, and market value represents discounted values based
on estimates of the remaining oil and gas reserves at oil and gas prices as
of the valuation date. Depletion is computed on the unit-of-production
method.
As permitted by the Department of Commerce, changes in carrying values of oil
and gas investments, related to market value changes incurred prior to
January 1, 1992, the date of transfer to Robert Street, were reflected as
unrealized losses and charged to policyowners' surplus. The unrealized losses
incurred prior to January 1, 1992 were evaluated on a pooled basis to
determine if such losses are other than temporary. Realized losses of
$1,717,000, $9,257,000, and $8,362,000 were recognized in 1994, 1993, and
1992, respectively, based upon such valuation. Changes in unrealized losses
on oil and gas investments of $1,717,000, $4,757,000, and $8,362,000 were
credited to surplus in 1994, 1993, and 1992, respectively. As of December 31,
1994, Robert Street holds no oil and gas investments.
Policy loans are carried at the unpaid principal balance.
5
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
VALUATION OF INVESTMENTS (CONTINUED)
Investments in subsidiary companies are accounted for using the equity
method. The Company records its equity in the earnings of its subsidiaries as
investment income and its equity in other changes in its subsidiaries'
surplus as credits (charges) to policyowners' surplus. These investments
include $74,154,000 and $28,026,000 at December 31, 1994 and 1993,
respectively, in registered investment funds managed by a subsidiary of the
Company which are carried at the market value of the underlying net assets.
All significant subsidiaries are wholly-owned.
Short-term securities at December 31, 1994 and 1993 amounted to $103,203,000
and $64,947,000, respectively, and are included in the caption cash and
short-term securities.
The Asset Valuation Reserve (AVR) is a formula reserve for possible losses on
bonds, stocks, mortgage loans, real estate, and other invested assets.
Changes in the reserve are reflected as direct charges or credits to
policyowners' surplus and are included in the change in asset valuation
reserve line.
INTEREST MAINTENANCE RESERVE
The Company separates realized capital gains and losses, net of tax, on fixed
income investments between those due to changes in interest rates and those
due to changes in credit quality. The net capital gains and losses due to
interest rate changes are amortized into investment income over the original
remaining life of the related bond or mortgage sold. Realized capital gains
and losses that are due to credit deterioration are recognized immediately as
realized capital gains and losses, net of applicable taxes.
CAPITAL GAINS AND LOSSES
Unrealized capital gains and losses are accounted for as a direct increase or
decrease to policyowner's surplus. Realized capital gains and losses, net of
related taxes and amounts transferred to the Interest Maintenance Reserves
(IMR), if any, are reflected as a component of net income. Both unrealized
and realized capital gains and losses are determined using the specific
identification method.
NON-ADMITTED ASSETS
Certain assets, designated as "non-admitted assets" (principally furniture,
equipment and certain receivables), amounting to $26,123,000 and $32,352,000
at December 31, 1994 and 1993, respectively, have been charged to
policyowners' surplus.
SEPARATE ACCOUNT BUSINESS
Separate account business represents funds administered and invested by the
Company for the exclusive benefit of certain pension and variable life policy
and annuity contract holders. The Company receives administrative and
investment advisory fees for services rendered on behalf of these funds.
Separate account assets are carried at market value.
The Company periodically invests money in its separate accounts. The
appreciation or depreciation on the investment is reflected as a direct
charge or credit to policyowners' surplus. In 1994, the Company made a
contribution to its separate accounts in the amount of $12,530,000. The
Company also redeemed a portion of its investment in its separate accounts in
the amount of $14,518,730. A realized capital gain of $3,018,000 was
recognized as a result of this redemption.
6
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POLICY RESERVES
Policy reserves for life insurance and annuities are based on mortality and
interest assumptions without consideration for lapses and withdrawals.
Mortality assumptions for life insurance and annuities are based on various
mortality tables including American Experience, 1941 Commissioners Standard
Ordinary (CSO), 1958 CSO, 1980 CSO, Progressive Annuity and 1960
Commissioners Standard Group. Interest assumptions range from 2.0% to 6.0%
for ordinary policy reserves and from 2.25% to 12.0% for group policy and
annuity reserves. An unearned premium reserve is held for credit life
policies.
Approximately 16% of the ordinary life reserves are calculated on a net level
reserve basis and 84% on a modified reserve basis. The use of a modified
reserve basis partially offsets the effect of immediately expensing
acquisition costs by providing a policy reserve increase in the first policy
year which is less than the reserve increase in renewal years. Policy
reserves for group mortgage life are computed on a mid-terminal basis.
Policy reserves for individual deferred annuities are generally equal to the
total contract holders' account balance, less applicable surrender charges,
calculated according to the Commissioners Annuity Reserve Valuation Method.
Policy reserves for immediate annuities and supplementary contracts are equal
to the present value of future benefit payments based on the purchase
interest rate and the Progressive Annuity tables. Group annuity reserves are
equal to the account value plus expected interest strengthening.
Policy reserves for individual accident and health contracts include reserves
for active lives based on various morbidity tables including the 1964
Commissioners Disability Table (CDT) and the 1985 Commissioners Disability
Table A, modified for actual morbidity experience discounted at 7% interest.
Disabled reserves on individual policies are based on company morbidity
experience at interest rates varying from 5.15% to 7%. Group mortgage
disability reserves are equal to the present value of future benefits at 3%
interest and the 1964 CDT modified for Company experience. An unearned
premium reserve is held for credit disability policies.
The Company issues certain life and annuity products which are considered
financial instruments. The estimated fair value of these liabilities as of
the respective years ended December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------- ----------------------------
CARRYING CARRYING
(IN THOUSANDS) VALUE FAIR VALUE VALUE FAIR VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Deferred annuities $ 2,042,383 $ 2,042,060 $ 1,970,037 $ 1,978,374
Annuity certain contracts 41,934 41,828 38,431 41,940
Other fund deposits 798,509 791,732 736,467 765,875
Guaranteed investment contracts 68,568 69,353 204,663 212,308
Supplementary contracts without
life contingencies 43,205 42,433 42,587 44,301
------------- ------------- ------------- -------------
Total financial liabilities $ 2,994,599 $ 2,987,406 $ 2,992,185 $ 3,042,798
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
(CONTINUED)
7
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POLICY RESERVES (CONTINUED)
The fair value of deferred annuities, annuity certain contracts, and other
fund deposits, which have guaranteed interest rates and surrender charges,
were calculated using Commissioners' Annuity Reserve Valuation Method
calculation procedures and current market interest rates. Contracts without
guaranteed interest rates and surrender charges have fair values equal to
their accumulation values plus applicable market value adjustments. The fair
value of guaranteed investment contracts and supplementary contracts without
life contingencies were 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. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1994 and 1993. Although management
is not aware of any factors that would significantly affect the estimated
fair values, such amounts have not been comprehensively revalued since those
dates and therefore, estimates of fair value subsequent to the valuation
dates may differ significantly from the amounts presented herein.
PARTICIPATING BUSINESS
Substantially all of the Company's premium revenues are derived from
participating policies. Dividends and other discretionary payments are
declared by the Board of Trustees based upon actuarial determinations which
take into consideration current mortality, interest earnings and expense
factors, including federal income tax expense, attributable to the policies.
Dividends are generally recognized as expense consistent with the recognition
of premiums and contract considerations.
FEDERAL INCOME TAXES
Federal income taxes are based on income that is currently taxable. Deferred
federal income taxes are not provided for differences between financial
statement and taxable income.
RECLASSIFICATIONS
Certain 1993 financial statement balances have been reclassified to conform
with the 1994 presentation.
(2) ACCOUNTING CHANGES
CAPITAL GAINS AND LOSSES
Prior to 1993, the Company generally recorded credit deterioration by
reducing the carrying value of the related asset and recording a realized
capital loss. Beginning in 1993, the Company continues to reduce the carrying
value of its assets for credit deterioration but records a realized capital
loss only if the underlying asset has been converted to another asset of
lesser value. Otherwise, losses due to credit deterioration are included in
unrealized capital losses. The effect of the accounting change resulted in an
increase in income of $10,761,000 in 1993.
SEPARATE ACCOUNT BUSINESS
Effective January 1, 1992, the Company changed its basis for computing
statutory reserves for deferred variable annuities from full accumulation
value to cash value, net of surrender charges. The change resulted in an
increase in earnings of $6,577,000 for the year ended December 31, 1992.
(CONTINUED)
8
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) INVESTMENTS
Net investment income for the respective years ended December 31, is as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Bonds $ 412,873 $ 404,353 $ 382,890
Common stocks--unaffiliated 3,188 3,390 3,960
Common stocks--affiliated 8,526 9,562 8,674
Mortgage loans 49,882 63,881 78,837
Real estate, including Home Office property 11,337 11,554 11,938
Policy loans 11,800 10,866 10,021
Short-term securities 4,026 2,067 2,652
Other, net 1,717 2,868 2,237
----------- ----------- -----------
503,349 508,541 501,209
Amortization of interest maintenance reserve 3,741 3,458 1,728
Investment expenses (18,277) (18,988) (17,653)
----------- ----------- -----------
Total $ 488,813 $ 493,011 $ 485,284
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Changes in unrealized capital gains (losses) for the respective years ended
December 31, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Bonds $ 4,039 $ (3,753) $ 5,392
Common stocks--unaffiliated (5,465) 2,854 (1,840)
Common stocks--affiliated (997) (1,305) (2,387)
Mortgage loans (71) 1,361 (580)
Real estate 2,270 4,211 8,072
Other, net (93) (82) (363)
--------- --------- ---------
Total $ (317) $ 3,286 $ 8,294
--------- --------- ---------
--------- --------- ---------
</TABLE>
(CONTINUED)
9
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) INVESTMENTS (CONTINUED)
The cost and gross unrealized gains (losses) on unaffiliated common stocks
at December 31, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Cost $ 159,511 $ 155,881 $ 128,342
Gross unrealized gains 56,813 58,440 55,172
Gross unrealized losses (6,366) (2,529) (2,159)
----------- ----------- -----------
Admitted asset value $ 209,958 $ 211,792 $ 181,355
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Net realized capital gains (losses) for the respective years ended December
31 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993 1992
--------- --------- ----------
<S> <C> <C> <C>
Bonds $ (3,511) $ 31,234 $ (5,012)
Common stocks--unaffiliated 11,268 9,651 11,599
Mortgage loans (46) (741) 1,025
Real estate 2,041 (8,496) (13,420)
Other 15,872 7,837 (378)
--------- --------- ----------
25,624 39,485 (6,186)
Less: Amount transferred to the interest maintenance reserve, net of taxes (685) 20,336 9,199
Income tax expense 7,750 16,242 7,926
--------- --------- ----------
Total $ 18,559 $ 2,907 $ (23,311)
--------- --------- ----------
--------- --------- ----------
</TABLE>
Gross realized gains (losses) on sales of bonds for the respective years
ended December 31, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993 1992
---------- --------- ----------
<S> <C> <C> <C>
Gross realized gains $ 13,249 $ 38,443 $ 20,092
Gross realized losses (16,760) (7,209) (11,547)
</TABLE>
Proceeds from the sale of bonds amounted to $638,420,000, $1,058,684,000 and
$522,546,000 for the years ended December 31, 1994, 1993, and 1992,
respectively.
Bonds and mortgage loans held at December 31, 1994 and 1993 for which no
income was recorded for the previous twelve months totaled $88,000 and
$847,000, respectively.
At December 31, 1994, bonds with a carrying value of $2,497,000 were on
deposit with various regulatory authorities as required by law.
(CONTINUED)
10
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) INVESTMENTS (CONTINUED)
The estimated fair value of the Company's financial instruments has been
determined using available market information as of December 31, 1994 and
1993 and appropriate valuation methodologies. Considerable judgment, however,
is required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Company could realize in a current market exchange. The use
of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts. The admitted asset value
and estimated fair value for financial instruments as of December 31, are as
follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------- ----------------------------
ADMITTED FAIR ADMITTED FAIR
(IN THOUSANDS) ASSET VALUE VALUE ASSET VALUE VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Bonds $ 5,134,554 $ 4,919,495 $ 4,985,026 $ 5,358,573
Common stocks 209,958 209,958 211,792 211,792
Commercial mortgages 342,205 341,195 287,932 298,698
Residential mortgages 255,981 255,449 254,424 268,783
Policy loans 185,599 185,599 177,820 177,820
Cash and short-term securities 112,869 112,869 90,266 90,266
Other assets 157,138 157,109 137,841 137,841
------------- ------------- ------------- -------------
Total financial instruments $ 6,398,304 $ 6,181,674 $ 6,145,101 $ 6,543,773
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
Fair values for bonds and commercial and residential mortgages 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. The admitted asset value approximates fair value
for common stock, policy loans, cash and short-term securities, and other
assets.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1994 and 1993. Although management
is not aware of any factors that would significantly affect the estimated
fair value amounts, such amounts have not been comprehensively revalued for
purposes of the financial statements since the original valuation dates and
therefore, subsequent estimates of fair value may differ significantly from
the amounts presented herein.
(CONTINUED)
11
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) INVESTMENTS (CONTINUED)
The admitted asset value, gross unrealized appreciation and depreciation,
and estimated fair value of investments in bonds are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
IN THOUSANDS ADMITTED ------------------------------ FAIR
DECEMBER 31, 1994 ASSET VALUE APPRECIATION DEPRECIATION VALUE
- -------------------------------------------------------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Federal government $ 210,335 $ 19 $ 9,983 $ 200,371
State and local government 26,493 10 1,171 25,332
Foreign government 17,691 413 20 18,084
Corporate bonds 3,325,331 41,167 167,404 3,199,094
Mortgage-backed securities 1,554,704 11,110 89,200 1,476,614
------------- -------------- -------------- -------------
Total $ 5,134,554 $ 52,719 $ 267,778 $ 4,919,495
------------- -------------- -------------- -------------
------------- -------------- -------------- -------------
</TABLE>
<TABLE>
<CAPTION>
GROSS UNREALIZED
IN THOUSANDS ADMITTED ------------------------------- FAIR
DECEMBER 31, 1993 ASSET VALUE APPRECIATION DEPRECIATION VALUE
- -------------------------------------------------------------- ------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
Federal government $ 99,240 $ 569 $ 586 $ 99,223
State and local government 5,295 817 -- 6,112
Foreign government 2,721 126 94 2,753
Corporate bonds 3,246,373 289,746 4,606 3,531,513
Mortgage-backed securities 1,631,397 90,437 2,862 1,718,972
------------- -------------- ------- -------------
Total $ 4,985,026 $ 381,695 $ 8,148 $ 5,358,573
------------- -------------- ------- -------------
------------- -------------- ------- -------------
</TABLE>
The amortized cost and estimated fair value of bonds at December 31, 1994, 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>
ADMITTED FAIR
IN THOUSANDS ASSET VALUE VALUE
------------- -------------
<S> <C> <C>
Due in one year or less $ 81,762 $ 80,250
Due after one year through five years 802,900 793,430
Due after five years through ten years 1,433,303 1,363,187
Due after ten years 1,261,885 1,206,014
------------- -------------
3,579,850 3,442,881
Mortgage-backed securities 1,554,704 1,476,614
------------- -------------
Total $ 5,134,554 $ 4,919,495
------------- -------------
------------- -------------
</TABLE>
(CONTINUED)
12
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) FEDERAL INCOME TAXES
The federal income tax expense varies from amounts computed by applying the
federal income tax rates of 35% for 1994 and 1993, and 34% for 1992, to the
gain from operations after dividends to policyowners and before federal
income taxes and realized capital gains (losses). The reasons for this
difference, and the tax effects thereof, are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS 1994 1993 1992
- ------------ --------- --------- ---------
<S> <C> <C> <C>
Computed tax expense $ 33,666 $ 32,260 $ 32,299
Difference between statutory and tax basis:
Investment income (5,853) (7,204) (7,409)
Policy reserves (767) (2,079) (700)
Dividends to policyowners 593 (1,907) (77)
Acquisition expense 9,013 8,393 8,592
Other expenses 2,137 3,739 750
Special tax on mutual life insurance companies 15,466 3,396 4,667
Other, net (4,629) 58 1,723
--------- --------- ---------
Tax expense $ 49,626 $ 36,656 $ 39,845
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's tax returns for 1991 through 1992 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.
(5) ACCIDENT AND HEALTH CLAIM LIABILITY
Activity in the liability for unpaid claims and claim adjustment expenses are
summarized as follows:
<TABLE>
<CAPTION>
IN THOUSANDS 1994 1993 1992
- ------------ ----------- ----------- -----------
<S> <C> <C> <C>
Balance at January 1 $ 274,253 $ 246,777 $ 227,548
Less: reinsurance recoverable 38,418 29,622 21,227
----------- ----------- -----------
Net balance at January 1 235,835 217,155 206,321
----------- ----------- -----------
Incurred related to:
Current year 91,573 85,112 87,268
Prior years (308) 7,121 125
----------- ----------- -----------
Total incurred 91,265 92,233 87,393
----------- ----------- -----------
Paid related to:
Current year 23,019 22,002 24,380
Prior years 50,380 51,551 52,179
----------- ----------- -----------
Total paid 73,399 73,553 76,559
----------- ----------- -----------
Net Balance at December 31 253,701 235,835 217,155
Plus: reinsurance recoverable 47,651 38,418 29,622
----------- ----------- -----------
Balance at December 31 $ 301,352 $ 274,253 $ 246,777
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Incurred claims related to prior years are due to the difference between
actual and estimated claims incurred as of the prior year end.
(CONTINUED)
13
<PAGE>
(6) BUSINESS COMBINATION
On July 1, 1993, the Company entered into an "Agreement and Plan of
Reorganization" that combined all of the assets, liabilities, and surplus of
Ministers Life--A Mutual Life Insurance Company (Ministers Life) into the
Company. Ministers Life sold life and health insurance products to religious
professionals in the continental United States. The business combination
increased the Company's assets by $272,649,000, liabilities by $255,965,000 and
policyowners' surplus by $16,684,000.
(7) RELATED PARTY TRANSACTIONS
In 1993, the Company received 2,375,000 shares of common stock of the Minnesota
Fire and Casualty Company (the Casualty Company) in return for the surrender of
outstanding guaranty fund certificates totalling $21,800,000 which had
previously been charged to surplus. The surrender of the certificates and
concurrent issuance of stock were part of the Casualty Company's
"Demutualization and Stock Conversion Plan" (the Plan) approved by the
Department of Commerce. Pursuant to the Plan, the Casualty Company became a
subsidiary of the Company on December 31, 1993. The effect of the transaction
was an increase to investments in subsidiary companies and an increase to
policyowners' surplus as of December 31, 1993 of $19,171,000.
The Company has an agreement with two of its subsidiaries which requires the
Company to invest additional capital, as needed, for repayment of any debt
outstanding to the Company. As of December 31, 1994 and 1993, $41,050,000 of
subsidiary debt owed the Company was subject to this agreement.
(8) PENSION PLANS AND OTHER RETIREMENT PLANS
PENSION PLANS
The Company has self-insured, noncontributory, defined benefit retirement plans
covering substantially all employees. The Company's funding policy is to
contribute annually the maximum amount that may be deducted for federal income
tax purposes. The Company expenses amounts as contributed. The Company made a
contribution of $1,714,200 in 1994. No contributions were made in 1993 or 1992.
Information for these plans as of the beginning of the plan year is as follows:
<TABLE>
<CAPTION>
IN THOUSANDS 1994 1993 1992
- ------------ --------- --------- ---------
<S> <C> <C> <C>
Actuarial present value of accumulated benefits:
Vested $ 42,849 $ 36,281 $ 33,761
Nonvested 12,033 12,996 10,556
--------- --------- ---------
Total $ 54,882 $ 49,277 $ 44,317
--------- --------- ---------
--------- --------- ---------
Net assets available for benefits $ 85,651 $ 78,952 $ 74,735
--------- --------- ---------
--------- --------- ---------
</TABLE>
In determining the actuarial present value of accumulated benefits, a
weighted average assumed rate of return of 8.4% was used in 1994, 1993, and
1992.
(CONTINUED)
14
<PAGE>
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 Trustees 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
1994, 1993, and 1992 of $6,866,000, $6,753,000 and $4,630,000, respectively.
Participants may elect to receive a portion of their contributions in cash.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company also has postretirement plans that provide certain health care and
life insurance benefits ("postretirement benefits") to substantially all retired
employees and agents. These plans are unfunded.
In 1993, the Company changed its method of accounting for the costs of its
postretirement benefit plans to the accrual method, and elected to amortize its
transition obligation for retirees and fully eligible employees and agents over
20 years. The unamortized transition obligation was $13,000,000 and $15,085,000
at December 31, 1994 and 1993, respectively.
The net postretirement benefit cost for the years ended December 31, 1994
and 1993, was $3,202,000 and $3,832,000, respectively. This amount includes the
expected cost of such benefits for newly eligible employees, interest cost, and
amortization of the transition obligation. The Company made payments under the
plans of $526,000 and $555,000 in 1994 and 1993, respectively, as claims were
incurred.
At December 31, 1994 and 1993, the postretirement benefit obligation for
retirees and other fully eligible participants was $19,635,000 and $18,362,000,
respectively. The estimated cost of the benefit obligation for active employees
and agents who are not yet fully eligible was $13,065,000 and $12,270,000 for
1994 and 1993, respectively. The discount rate used in determining the
accumulated postretirement benefit obligation for 1994 and 1993 were 7.5% and
8.0%, respectively. The 1994 net health care cost trend rate was 11.5%, graded
to 5.5% over 12 years, and the 1993 rate was 12.5%, graded to 6% over 13 years.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, 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, 1994 by $2,182,000 and the estimated
eligibility cost and interest cost components of net periodic postretirement
benefit costs for 1994 by $337,000.
(9) COMMITMENTS AND CONTINGENCIES
The Company reinsures certain individual and group business. At December 31,
1994, policy reserves in the accompanying balance sheet are reflected net of
reinsurance ceded of $49,564,000. To the extent that an assuming reinsurer is
unable to meet its obligation under its agreement, the Company remains liable.
(CONTINUED)
15
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(9) COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has long-term commitments to fund venture capital and real
estate investments totaling $78,000,000 as of December 31, 1994. The Company
estimates that $18,000,000 of these commitments will be paid in 1995 with the
remaining $60,000,000 paid over the next five years.
At December 31, 1994, the Company had guaranteed the payment of $58,400,000
in policyowner dividends payable in 1995. The Company has pledged bonds, valued
at $62,809,000, to secure this guarantee.
The Company is contingently liable under state regulatory requirements for
possible assessment pertaining to future insolvencies and impairments of
unaffiliated companies.
(10) MUTUAL LIFE INSURANCE COMPANY ACCOUNTING POLICIES
In April 1993 the Financial Accounting Standards Board (FASB) issued
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises." In January 1995 the
FASB issued Statement of Financial Accounting Standards No. 120 (Statement),
"Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts" and, jointly with
the American Institute of Certified Public Accountants, issued a Statement of
Position (SOP), "Accounting for Certain Insurance Activities of Mutual Insurance
Enterprises." Under Interpretation No. 40, the Statement and SOP, mutual life
insurance companies that report their financial statements in conformity with
generally accepted accounting principles (GAAP) will be required to apply all
related authoritative accounting pronouncements.
Interpretation No. 40, the Statement and SOP apply to years beginning after
December 15, 1995. All of the guidance will require restatement of prior year
balances. Applying the provisions of Interpretation No. 40, the Statement and
SOP may result in policyholders' surplus and net income (loss) amounts differing
from the amounts reported under existing practices. Management has not yet
determined the impact of the adoption of GAAP.
Alternatively, the Company may continue to prepare its financial statements
in accordance with statutory accounting practices prescribed or permitted by the
Department of Commerce, which will no longer be considered generally accepted
accounting principles after December 31, 1995.
16
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
SCHEDULE I--
SUMMARY OF INVESTMENTS--OTHER THAN
INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNT AT WHICH
SHOWN IN THE
BALANCE
TYPE OF INVESTMENT COST(4) MARKET VALUE SHEET(1)(3)
------------- --------------- -------------------
<S> <C> <C> <C>
Bonds:
United States government and government agencies and authorities $ 210,335 $ 200,371 $ 210,335
States, municipalities and political subdivisions 26,493 25,332 26,493
Foreign governments 17,691 18,084 17,691
Public utilities 568,271 547,165 568,271
Mortgage-backed securities 1,554,704 1,476,614 1,554,704
All other corporate bonds 2,725,055 2,614,705 2,716,010
------------- --------------- -------------------
Total bonds 5,102,549 4,882,271 5,093,504
------------- --------------- -------------------
Equity securities:
Common stocks:
Public utilities 19,766 21,233 21,233
Banks, trusts and insurance companies 18,247 25,393 25,393
Industrial, miscellaneous and all other 121,499 163,332 163,332
------------- --------------- -------------------
Total equity securities 159,512 209,958 209,958
------------- --------------- -------------------
Mortgage loans on real estate 598,186 xxxxxx 598,186
Real estate (2) 76,346 xxxxxx 76,346
Policy loans 185,599 xxxxxx 185,599
Other long-term investments 60,604 xxxxxx 60,604
Short-term investments 92,363 xxxxxx 92,550
------------- -------------------
Total $ 1,013,098 xxxxxx $ 1,013,285
------------- -------------------
Total investments $ 6,275,159 xxxxxx $ 6,316,747
------------- -------------------
------------- -------------------
<FN>
- ---------
(1) Debt securities are carried at amortized cost or investment values
prescribed by the National Association of Insurance Commissioners.
(2) The carrying value of real estate acquired in satisfaction of indebtedness
is $4,192. Real estate includes property occupied by the Company.
(3) Differences between cost and amounts shown in the balance sheet for
investments, other than equity securities and bonds, represent non-admitted
investments.
(4) Original cost for equity securities and original cost reduced by repayments
and adjusted for amortization of premiums or accrual of discounts for
bonds.
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
SCHEDULE V--
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(1) EXPENSES(3) PREMIUMS(3) PAYABLE
- ----------------------------------- ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
1994:
Life insurance $1,981,469 $37,909
Accident and health insurance 343,241 15,754
Annuity considerations 3,179,279 7
----------- -------------- ----------- ------------
Total -- 5,503,989 -- 53,670
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
1993:
Life insurance $1,875,570 $83,365
Accident and health insurance 317,825 14,979
Annuity considerations 3,166,944 7
----------- -------------- ----------- ------------
Total -- $5,360,339 -- $98,351
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
1992:
Life insurance $1,686,676 $39,643
Accident and health insurance 292,703 13,971
Annuity considerations 3,011,272 3
----------- -------------- ----------- ------------
Total -- $4,990,651 -- $53,617
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
AMORTIZATION
PREMIUMS AND BENEFITS, OF DEFERRED
ANNUITY AND NET CLAIMS, LOSSES POLICY OTHER
OTHER FUND INVESTMENT AND SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT DEPOSITS INCOME EXPENSES COSTS(1) EXPENSES WRITTEN(2)
- ----------------------------------- ------------ ---------- -------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1994:
Life insurance $ 802,265 $196,877 $ 608,091 $230,327
Accident and health insurance 142,032 32,724 93,634 71,958
Annuity considerations 480,055 259,212 652,076 52,180
------------ ---------- -------------- ------------ --------- ----------
Total 1,424,352 488,813 1,353,801 -- 354,465 --
------------ ---------- -------------- ------------ --------- ----------
------------ ---------- -------------- ------------ --------- ----------
1993:
Life insurance $ 718,232 $193,724 $ 538,880 $220,861
Accident and health insurance 138,690 31,452 88,857 72,616
Annuity considerations 433,032 267,835 626,181 45,463
------------ ---------- -------------- ------------ --------- ----------
Total $1,289,954 $493,011 $1,253,918 -- $338,940 --
------------ ---------- -------------- ------------ --------- ----------
------------ ---------- -------------- ------------ --------- ----------
1992:
Life insurance $ 672,004 $209,325 $ 507,921 $204,283
Accident and health insurance 135,176 16,927 85,555 71,190
Annuity considerations 427,233 259,032 618,077 39,558
------------ ---------- -------------- ------------ --------- ----------
Total $1,234,413 $485,284 $1,211,553 -- $315,031 --
------------ ---------- -------------- ------------ --------- ----------
------------ ---------- -------------- ------------ --------- ----------
<FN>
- -------------
(1) Does not apply to financial statements of mutual life insurance companies
which are prepared on a statutory basis.
(2) Does not apply to life insurance.
(3) Unearned premiums and other deposit funds are included in future policy
benefits, losses, claims and settlement expenses.
</TABLE>
18
<PAGE>
- --------------------------------------------------------------------------------
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
SCHEDULE VI--
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER ASSUMED TO
AMOUNT COMPANIES COMPANIES NET AMOUNT NET
----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1994:
Life insurance in force $97,181,118 $13,314,267 $20,555,910 $104,422,761 19.7%
----------- ----------- ----------- ------------ ---
----------- ----------- ----------- ------------ ---
Premiums, annuity
considerations and fund
deposits:
Life insurance $ 792,087 $ 48,773 $ 58,951 $ 802,265 7.3%
Accident and health
insurance 150,876 10,145 1,301 142,032 0.9%
Annuity 480,055 -- -- 480,055 --
----------- ----------- ----------- ------------ ---
Total premiums*,
annuity
considerations
and fund
deposits $ 1,423,018 $ 58,918 $ 60,252 $ 1,424,352 4.2%
----------- ----------- ----------- ------------ ---
----------- ----------- ----------- ------------ ---
1993:
Life insurance in force $93,206,579 $11,674,202 $19,758,935 $101,291,312 19.5%
----------- ----------- ----------- ------------ ---
----------- ----------- ----------- ------------ ---
Premiums, annuity
considerations and fund
deposits:
Life insurance $ 704,172 $ 43,313 $ 57,373 $ 718,232 8.0%
Accident and health
insurance 147,229 9,699 1,160 138,690 0.8%
Annuity 433,032 -- -- 433,032 --
----------- ----------- ----------- ------------ ---
Total premiums*,
annuity
considerations
and fund
deposits $ 1,284,433 $ 53,012 $ 58,533 $ 1,289,954 4.5%
----------- ----------- ----------- ------------ ---
----------- ----------- ----------- ------------ ---
1992:
Life insurance in force $89,317,556 $8,962,842 $17,182,599 $ 97,537,313 17.6%
----------- ----------- ----------- ------------ ---
----------- ----------- ----------- ------------ ---
Premiums, annuity
considerations and fund
deposits:
Life insurance $ 661,835 $ 37,038 $ 47,207 $ 672,004 7.0%
Accident and health
insurance 143,432 9,424 1,168 135,176 0.9%
Annuity 427,233 -- -- 427,233 --
----------- ----------- ----------- ------------ ---
Total premiums*,
annuity
considerations
and fund
deposits $ 1,232,500 $ 46,462 $ 48,375 $ 1,234,413 3.9%
----------- ----------- ----------- ------------ ---
----------- ----------- ----------- ------------ ---
<FN>
- ------------
* There are no premiums related to either property and liability or title
insurance.
</TABLE>
19
<PAGE>
APPENDIX A
Calculation of Accumulation Unit Values
Calculation of the net investment factor and the accumulation unit value may be
illustrated by the following hypothetical example. Assume the accumulation unit
value of the Index 500 Sub-Account on the immediately preceding valuation period
was $1.000000. Assume the following about the Series Fund Index 500 Portfolio:
(a) the net asset value per share of the Index 500 Portfolio was $1.394438 at
the end of the current valuation period; (2) the Index 500 Portfolio declared a
per share dividend and capital gain distribution in the amount of $.037162
during the current valuation period; and (3) the net asset value per share of
the Index 500 Portfolio was $1.426879 at the end of the preceding valuation
period.
The gross investment rate for the valuation period would be equal to 1.003300
(1.394438 plus .037162 divided by 1.426879). The net investment rate for the
valuation period is determined by deducting the total Index 500 Sub-Account
expenses from the gross investment rate. Total Index 500 Sub-Account expenses
of .000040 is equal to .000034 for mortality and risk expense charge (the daily
equivalent of .85% assuming 252 valuation dates per year) plus .000006 for
contract administrative charge (the daily equivalent of .15% assuming 252
valuation dates per year). The net investment rate equals 1.003269 (1.003309
minus .000040).
The accumulation unit value at the end of the valuation period would be equal to
the value on the immediately preceding valuation date ($1.00000) multiplied by
the net investment factor for the current valuation period (1.003269), which
produces $1.003269.
Calculation of Annuity Unit Values and Variable Annuity Payment
The determination of the annuity unit value and the annuity payment may be
illustrated by the following hypothetical example. Assume that the contract has
been in force for more than six years so that no deferred sales charge will
apply and that there is no deduction for annuity premium taxes. Assume further
that at the date of his or her retirement, the annuitant has credited to his or
her account 30,000 accumulation units, and that the value of an accumulation
unit on the valuation date next following the fourteenth day of the preceding
month was $1.150000, producing a total value of $34,500. Assume also that the
annuitant elects an option for which the table in the contract indicates the
first monthly payment is $6.57 per $1,000 of value applied; the annuitant's
first monthly payment would thus be 34.500 multiplied by $6.57, or $226.67.
Assume that the annuity unit value on the due date of the first payment was
$1.100000. When this is divided into the first monthly payment, the number of
annuity units represented by that payment is determined to be 206.064. The
value of this same number of annuity units will be paid in each subsequent
month.
Assume further that the accumulation unit value on the valuation date next
following the fourteenth day of the succeeding month is $1.160000. This is
divided by the accumulation unit value on the preceding monthly valuation date
($1.150000) to produce a ratio of 1.008696. Multiplying this ratio by .996338
to neutralize the assumed investment rate of 4.5% per annum
5
<PAGE>
already taken into account in determining annuity units as described above,
produces a result of 1.005002. This is then multiplied by the preceding annuity
unit value ($1.100000) to produce a current annuity value of $1.105502.
The second monthly payment is then determined by multiplying the fixed number of
annuity units (206.064) by the current annuity unit value ($1.105502), which
produces a second monthly annuity payment of $227.80.
6
