<PAGE>
File Number 33-79534
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment Number
Post-Effective Amendment Number 8
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment Number 8
GROUP VARIABLE ANNUITY ACCOUNT
------------------------------
(Exact Name of Registrant)
Minnesota Life Insurance Company
(formerly The Minnesota Mutual Life Insurance Company)
----------------------------------------------------
(Name of Depositor)
400 Robert Street North, St. Paul, Minnesota 55101-2098
-------------------------------------------------------
(Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, Including Area Code: (651) 665-3500
Dennis E. Prohofsky Copy to:
Senior Vice President, J. Sumner Jones, Esq.
General Counsel and Secretary Jones & Blouch L.L.P.
Minnesota Life 1025 Thomas Jefferson Street, N.W.
Insurance Company Suite 405 West
400 Robert Street North Washington, D.C. 20007
St. Paul, Minnesota 55101-2098
(Name and Address of Agent for Service)
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (check appropriate box)
immediately upon filing pursuant to paragraph (b) of Rule 485
---
X on May 3, 1999, pursuant to paragraph (b) of Rule 485
---
60 days after filing pursuant to paragraph (a)(1) of Rule 485
---
on (date) pursuant to paragraph (a)(1) of Rule 485
---
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
TITLE OF SECURITIES BEING REGISTERED
Group Variable Annuity Contracts
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
GROUP VARIABLE ANNUITY ACCOUNT
CROSS REFERENCE SHEET TO PROSPECTUS
Form N-4
Item
Number Caption in prospectus
- -------- ---------------------
1. Cover Page
2. Definitions
3. Synopsis
4. Condensed Financial Information - Appendix
5. General Descriptions
6. Contract Deductions
7. Description of the Contracts
8. Annuity Period
9. Death Benefit
10. Crediting Accumulation Units
11. Withdrawals and Surrender
12. Federal Tax Status
13. Not Applicable
14. Table of Contents of the Statement of Additional Information
<PAGE>
GROUP VARIABLE ANNUITY PROSPECTUS
MINNESOTA LIFE INSURANCE COMPANY
("MINNESOTA LIFE")
400 Robert Street North
St. Paul, Minnesota 55101-2098
Telephone: (651) 665-3500
http://www.minnesotamutual.com
This Prospectus describes an individual, flexible payment, variable annuity
contract ("the contract") offered by Minnesota Life Insurance Company. The
contract may be used in connection with certain retirement programs including
deferred compensation plans of state and local governments as provided in
Sections 457 and 403 of the Internal Revenue Code ("Code").
Your contract values are invested in our Group Variable Annuity Account. The
Group Variable Annuity Account invests in shares of Advantus Series Fund, Inc.
("Series Fund") and other registered investment companies or portfolios of such
companies, ("Underlying Funds"). The Underlying include: the Long-Term Corporate
Portfolio of Vanguard Fixed Income Securities Fund, Inc.; the
Vanguard/Wellington Fund, Inc.; the Scudder International Fund, a series of
Scudder International Fund, Inc.; and the Janus Twenty Fund, a series of the
Janus Investment Fund. For contracts purchased prior to May 1, 1998, the
Fidelity Contrafund is also available. Your contract's accumulation value and
the amount of each variable annuity payment will vary in accordance with the
performance of the Fund investment portfolio(s) ("Portfolio(s)") you select. You
bear the entire investment risk for any amounts you allocate to those
Portfolios.
This Prospectus includes the information you should know before purchasing a
contract. You should read it and keep it for future reference. A Statement of
Additional Information, bearing the same date, which contains further contract
information, has been filed with the Securities and Exchange Commission ("SEC")
and is incorporated by reference into this Prospectus. A copy of the Statement
of Additional Information may be obtained without charge by calling (651)
665-3500, or by writing to us at our office at 400 Robert Street North, St.
Paul, Minnesota 55101-2098. The table of contents may be found at the end of
this Prospectus.
THIS PROSPECTUS IS NOT VALID UNLESS ATTACHED TO A CURRENT PROSPECTUS OF THE
ADVANTUS SERIES FUND, INC. OR ACCOMPANIED BY THE UNDERLYING FUNDS PROSPECTUSES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
The date of this Prospectus and of the Statement of Additional Information is:
May 3, 1999
F. 47496 Rev.5-1999
<PAGE>
THIS PROSPECTUS IS NOT AN OFFERING IN ANY JURISDICTION IN WHICH
THE OFFERING WOULD BE UNLAWFUL. WE HAVE NOT AUTHORIZED ANY
DEALER, SALESMAN OR OTHER PERSON TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THE PROSPECTUS AND, IF GIVEN OR MADE,
YOU SHOULD NOT RELY ON THEM.
TABLE OF CONTENTS
DEFINITIONS 1
SYNOPSIS 3
EXPENSE TABLE 6
FINANCIAL STATEMENTS 8
GENERAL DESCRIPTIONS 10
CONTRACT CHARGES 14
Sales Charges 14
Mortality and Expense Risk Charges 15
Contract Administrative Charge 15
Premium Taxes 16
Contract Fee 16
Portfolio Charges 16
DESCRIPTION OF THE CONTRACTS 16
ANNUITY PERIOD 21
DEATH BENEFIT 25
CREDITING ACCUMULATION UNITS 26
WITHDRAWALS AND SURRENDER 29
DISTRIBUTION 30
VOTING RIGHTS 31
FEDERAL TAX STATUS 32
PERFORMANCE DATA 37
YEAR 2000 COMPUTER PROBLEM 38
REGISTRATION STATEMENT 38
STATEMENT OF ADDITIONAL INFORMATION 38
APPENDIX A -- CONDENSED FINANCIAL INFORMATION A-1
APPENDIX B -- TYPES OF QUALIFIED PLANS B-1
<PAGE>
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
tax-advantaged plan or any other suitable group owner.
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 Advantus 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 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 plan of state and local governments and other tax-exempt
organizations, or a plan sponsored by any other suitable group owner, under
which benefits are to be provided by the Group Variable Annuity Contracts
described herein.
PURCHASE PAYMENTS: amounts paid to us under a Contract.
PAGE 1
<PAGE>
SERIES FUND: the Advantus 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 OR VALUATION DAYS: 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: Minnesota Life Insurance Company, (formerly "The Minnesota Mutual
Life Insurance Company").
YOU, YOUR: a Participant under the Contract.
PAGE 2
<PAGE>
THIS SYNOPSIS CONTAINS A BRIEF SUMMARY OF SOME OF THE IMPORTANT FEATURES OF THE
VARIABLE ANNUITY CONTRACTS DESCRIBED IN THIS PROSPECTUS.
WHAT IS AN ANNUITY?
An annuity is a series of payments by an insurance company to an "annuitant".
These payments may be made for the life of the annuitant; 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 of a guaranteed amount during the
payment period is a fixed annuity. An annuity with payments which vary 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 which provide
for monthly annuity payments. These payments may begin immediately or at a
future date you specify. We allocate your purchase payments to the General
Account or the Group Variable Annuity Account. 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 as you
direct in one or more Underlying Fund Portfolios. There is no guarantee of
investment return or even against investment loss on values allocated to the
Group Variable Annuity Account.
This Prospectus describes only the variable aspects of the Contracts, except
where fixed aspects are specifically mentioned. The fixed portion of the
Contracts are more fully described in the Contract.
WHAT TYPES OF VARIABLE ANNUITY CONTRACTS ARE AVAILABLE?
This Prospectus offers only a group deferred variable annuity contract (herein
"Contract"). It is designed to be used in tax-advantaged plans of state and
local governments and other tax-exempt organizations. The 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?
The Contract Owner will submit an application to us for any employee who desires
coverage under the Contract. The employee must:
- be eligible to participate in the underlying retirement program; and
- complete an application.
Such person is then covered by the Contract. This person is known as a
"Participant". Your employer or the Contract Owner should be consulted for
additional information regarding the plan.
PAGE 3
<PAGE>
HOW IS THE AMOUNT OF PURCHASE PAYMENTS DETERMINED?
The Contract Owner will report to us the amount of purchase payments by or on
behalf of each Participant. The Contract does not require minimum amounts or
number of purchase payments. In the case of deferred compensation programs, the
Contract Owner will make purchase payments by or on behalf of a Participant,
pursuant to the terms of the deferred compensation plan.
WHAT INVESTMENT OPTIONS ARE AVAILABLE FOR THE GROUP VARIABLE ANNUITY ACCOUNT?
Any purchase payments you allocate to the Group Variable Annuity Account are
invested exclusively in shares of one or more portfolios of the Series Fund or
the Underlying Funds. We reserve the right to add, combine or remove other
eligible Funds and Portfolios.
The available Portfolios of the Series Fund are:
Growth Portfolio
Bond Portfolio
Money Market Portfolio
Asset Allocation Portfolio
Mortgage Securities Portfolio
Index 500 Portfolio
Capital Appreciation Portfolio
International Stock Portfolio
Small Company Growth Portfolio
Maturing Government Bond Portfolios
Value Stock Portfolio
Small Company Value Portfolio
Global Bond Portfolio
Index 400 Mid-Cap Portfolio
Macro-Cap Value Portfolio
Micro-Cap Growth Portfolio
Real Estate Securities Portfolio
The Group Variable Annuity Account also invests in shares of the following
Underlying Funds:
Long-Term Corporate Portfolio of Vanguard Fixed Income Fund, Inc.
Vanguard/Wellington Fund, Inc.
Scudder International Fund, a series of Scudder International Fund, Inc.
Janus Twenty Fund, a series of Janus Investment Fund
Fidelity Contrafund (available only to Contracts purchased before May 1,
1998)
There is no assurance that any Portfolios or Fund will meet its objectives.
Detailed information about the investment objectives and policies of the Fund or
Portfolios can be found in the contract prospectus for each Fund or Portfolio.
Some of these fund alternatives may be part of a series fund arrangement where
PAGE 4
<PAGE>
not all of the existing fund's investment options are available to this
Contract. You should carefully read each Fund or Portfolio prospectus before
purchasing in the Contract.
CAN YOU CHANGE THE PORTFOLIO SELECTED?
Yes, if the Contract Owner and the underlying plan permit it. You may change
your allocation of future purchase payments by giving us written notice or a
telephone call notifying us of the change. Before annuity payments begin, you
may transfer all or a part of your accumulation value 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 the General
Account. Once fixed annuity payments begin, no annuity reserves may be
transferred out of the General Account. Currently there are no charges for
transfers among Portfolios, however we reserve the right to impose such charges
in the future.
WHAT CHARGES ARE ASSOCIATED WITH THE CONTRACTS?
We deduct a daily charge equal to an annual rate of 0.85% of the net asset value
of the Group Variable Annuity Account for our mortality and expense risk
guarantees. We reserve the right to increase the charge to 1.25% on an annual
basis.
A deferred sales charge of up to 6.0% of the accumulation value withdrawn or
surrendered may apply if you make partial withdrawals or surrender your
participation in the Contract within six years since your initial contract
participation.
Deductions for any applicable premium taxes may also be made depending on
applicable law.
There is a one time contract fee of $200 if you elect a fixed annuity.
The Portfolios and Underlying Funds pay investment advisory and other expenses.
Total expenses of the Portfolios range from 0.31% to 1.25% of average daily net
assets of the Portfolios on an annual basis.
We reserve the right to make a charge of up to $25 for transfers occurring more
frequently than once a month. Currently we do not impose such a charge.
PAGE 5
<PAGE>
The Expense Tables that follow provide detailed cost and expense information.
EXPENSE TABLE
The tables shown below 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. 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%. 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 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.
PARTICIPANT TRANSACTION EXPENSES
<TABLE>
<S> <C>
Deferred Sales Load (as a percentage of 6.0% decreasing uniformly by .0833%
amount surrendered) for each of the first 72 months from
the contract date
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<TABLE>
<S> <C>
Mortality and Expense Risk Charges 0.85%
Contract Administrative Charge 0.15%
----
Total Separate Account Annual Expenses 1.00%
----
----
</TABLE>
PAGE 6
<PAGE>
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(As a percentage of average net assets for the described underlying mutual
funds.)
<TABLE>
<CAPTION>
TOTAL FUND ANNUAL
MANAGEMENT & OTHER EXPENSES EXPENSES (AFTER
INVESTMENT ADMINISTRATIVE (AFTER EXPENSE EXPENSE
MANAGEMENT FEES EXPENSES REIMBURSEMENTS) REIMBURSEMENTS)
----------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Advantus Series Fund, Inc.:
Growth Portfolio 0.50% -- 0.03% 0.53%
Bond Portfolio 0.50% -- 0.05% 0.55%
Money Market Portfolio 0.50% -- 0.08% 0.58%
Asset Allocation Portfolio 0.50% -- 0.03% 0.53%
Mortgage Securities Portfolio 0.50% -- 0.07% 0.57%
Index 500 Portfolio 0.40% -- 0.04% 0.44%
Capital Appreciation Portfolio 0.75% -- 0.03% 0.78%
International Stock Portfolio 0.70% -- 0.24% 0.94%
Small Company Growth Portfolio 0.75% -- 0.04% 0.79%
Maturing Government Bond 2002 Portfolio (1) 0.25% -- 0.15% 0.40%
Maturing Government Bond 2006 Portfolio (1) 0.25% -- 0.15% 0.40%
Maturing Government Bond 2010 Portfolio (1) 0.25% -- 0.15% 0.40%
Value Stock Portfolio 0.75% -- 0.04% 0.79%
Small Company Value Portfolio (1) 0.75% -- 0.15% 0.90%
Global Bond Portfolio 0.60% -- 0.53% 1.13%
Index 400 Mid-Cap Portfolio (1) 0.40% -- 0.15% 0.55%
Macro-Cap Value Portfolio (1) 0.70% -- 0.15% 0.85%
Micro-Cap Growth Portfolio (1) 1.10% -- 0.15% 1.25%
Real Estate Securities Portfolio (1) 0.75% -- 0.15% 0.90%
Vanguard Fixed Income Securities Fund, Inc.--
Long-Term Corporate Portfolio 0.03% 0.26% 0.03% 0.32%
Vanguard/Wellington Fund, Inc. 0.03% 0.25% 0.03% 0.31%
Fidelity Contrafund 0.45% -- 0.20% 0.65%
Scudder International Fund 0.81% -- 0.37% 1.18%
Janus Twenty Fund 0.65% -- 0.26% 0.91%
</TABLE>
(1) Minnesota Life voluntarily absorbed certain expenses of the Maturing
Government Bond 2002, Maturing Government Bond 2006, Maturing Government Bond
2010, Small Company Value, Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap Growth,
and Real Estate Securities Portfolios for the period ended December 31, 1998. If
these Portfolios had been charged for expenses, the ratio of expenses to average
daily net assets would have been 1.07%, 1.12%, 1.33%, 1.83%, 1.36%, 2.53%,
2.10%, and 1.90%, respectively. For these portfolios, it is Minnesota Life's
intention to waive other fund expenses during the current fiscal year which
exceed, as a percentage of average daily net assets, .15%. Minnesota Life also
reserves the option to reduce the level of other expenses which it will
voluntarily absorb.
PAGE 7
<PAGE>
CONTRACT OWNER EXPENSE EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
IF YOU SURRENDERED YOUR
CONTRACT AT THE END OF THE IF YOU ANNUITIZE AT THE END
APPLICABLE TIME PERIOD OF THE APPLICABLE TIME PERIOD
----------------------------------------- -----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advantus Series Fund, Inc.:
Growth Portfolio $ 62 $ 78 $ 94 $182 $ 16 $ 48 $ 83 $182
Bond Portfolio $ 62 $ 79 $ 95 $185 $ 16 $ 49 $ 84 $185
Money Market Portfolio $ 63 $ 80 $ 97 $188 $ 16 $ 50 $ 86 $188
Asset Allocation Portfolio $ 62 $ 78 $ 94 $182 $ 16 $ 48 $ 83 $182
Mortgage Securities Portfolio $ 63 $ 79 $ 96 $187 $ 16 $ 50 $ 86 $187
Index 500 Portfolio $ 61 $ 76 $ 89 $172 $ 15 $ 46 $ 79 $172
Capital Appreciation Portfolio $ 65 $ 86 $107 $209 $ 18 $ 56 $ 96 $209
International Stock Portfolio $ 66 $ 90 $115 $226 $ 20 $ 61 $105 $226
Small Company Growth Portfolio $ 65 $ 86 $108 $211 $ 18 $ 56 $ 97 $211
Maturing Government Bond 2002
Portfolio $ 61 $ 74 $ 87 $168 $ 14 $ 44 $ 77 $168
Maturing Government Bond 2006
Portfolio $ 61 $ 74 $ 87 $168 $ 14 $ 44 $ 77 $168
Maturing Government Bond 2010
Portfolio $ 61 $ 74 $ 87 $168 $ 14 $ 44 $ 77 $168
Value Stock Portfolio $ 65 $ 86 $108 $211 $ 18 $ 56 $ 97 $211
Small Company Value $ 66 $ 89 $113 $222 $ 19 $ 60 $103 $222
Global Bond $ 68 $ 96 $125 $246 $ 22 $ 67 $114 $246
Index 400 Mid-Cap $ 62 $ 79 $ 95 $185 $ 16 $ 49 $ 84 $185
Macro-Cap Value $ 65 $ 88 $111 $217 $ 19 $ 58 $100 $217
Micro-Cap Growth $ 69 $100 $131 $258 $ 23 $ 70 $120 $258
Real Estate Securities $ 66 $ 89 $113 $222 $ 19 $ 60 $103 $222
Vanguard Fixed Income Securities
Fund, Inc. - Long-Term Corporate
Portfolio $ 60 $ 72 $ 83 $159 $ 13 $ 42 $ 72 $159
Vanguard/Wellington Fund, Inc. $ 60 $ 72 $ 83 $158 $ 13 $ 42 $ 72 $158
Fidelity Contrafund $ 63 $ 82 $100 $195 $ 17 $ 52 $ 90 $195
Scudder International Fund $ 68 $ 98 $127 $251 $ 22 $ 68 $117 $251
Janus Twenty Fund $ 66 $ 90 $114 $223 $ 19 $ 60 $103 $223
</TABLE>
This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown.
CONDENSED FINANCIAL INFORMATION AND FINANCIAL
STATEMENTS
Condensed Financial Information for each of the sub-accounts may be found in the
Appendix. The financial statements of the Group Variable Annuity Account and
Minnesota Life Insurance Company's consolidated financial statements are
included in the Statement of Additional Information.
PAGE 8
<PAGE>
CAN YOU MAKE PARTIAL WITHDRAWALS FROM THE CONTRACT?
Yes. You may make withdrawals of the accumulation value of your interest in the
contract before an annuity begins and if the plan allows it. Your requests for
partial withdrawals must be in writing.
Partial withdrawals are generally subject to the deferred sales charge. In
addition, a penalty tax on the amount of the taxable distribution may be
assessed upon withdrawals from the variable annuity contract in certain
circumstances, including distributions made prior to the owner's attainment of
age 59 1/2.
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:
- the amount of the Participant's accumulation value payable at death; or
- 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
plan.
WHAT ANNUITY OPTIONS ARE AVAILABLE?
The annuity options available 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.
Each annuity options may be elected as either a variable annuity or fixed
annuity or a combination of the two. Other annuity options may be available from
us on request.
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 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 and Underlying Funds held for their Certificates where
shareholder approval is required by law in the affairs of the Funds.
PAGE 9
<PAGE>
(SIDEBAR)
We are a life insurance company.
The Group Variable Annuity Account is one of our separate accounts.
Each of the 24 sub-accounts of the Group Variable Annuity Account invests in a
different Fund Portfolio.
(END SIDEBAR)
GENERAL DESCRIPTIONS
A. MINNESOTA LIFE INSURANCE COMPANY
We are Minnesota Life Insurance Company ("Minnesota Life"), a life insurance
company organized under the laws of Minnesota. Minnesota Life was formerly known
as The Minnesota Mutual Life Insurance Company ("Minnesota Mutual"), a mutual
life insurance company organized in 1880 under the laws of Minnesota. On October
1, 1998, a plan of reorganization created a mutual insurance holding company
named Minnesota Mutual Companies, Inc. Minnesota Mutual reorganized as a stock
insurance company subsidiary of the new holding company and took the new name
Minnesota Life. Our home office is at 400 Robert Street North, St. Paul,
Minnesota 55101-2098, telephone: (651) 665-3500. We are licensed to do a life
insurance business in all states of the United States (except New York where we
are an authorized reinsurer), the District of Columbia, Canada, Puerto Rico and
Guam.
B. GROUP VARIABLE ANNUITY ACCOUNT
On June 14, 1993, the Minnesota Mutual Group Variable Annuity Account was
established in accordance with Minnesota Insurance Law. Effective October 1,
1998 the name of the separate account was changed to the "Group Variable Annuity
Account." 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 assets of the Group Variable Annuity Account are not chargeable with
liabilities arising out of any other business which we may conduct. 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. All obligations under the Contracts are general
corporate obligations of Minnesota Life.
The Group Variable Annuity Account currently has 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 or an underlying Fund.
Additional sub-accounts may be added at our discretion.
C. THE FUNDS
The Advantus Series Fund, Inc. ("Series Fund") is a mutual fund advised by
Advantus Capital Management, Inc. ("Advantus Capital"). The Series Fund issues
its shares only to us and our separate accounts. It may be offered to separate
accounts of insurance companies affiliated with us in the future. Advantus
Capital is a wholly-owned subsidiary of Minnesota Life.
PAGE 10
<PAGE>
Advantus Capital has retained investment sub-advisers to manage the investment
of certain Portfolios of the Series Fund. Those sub-advisers are:
<TABLE>
<CAPTION>
SERIES FUND PORTFOLIO SUB-ADVISER
- ------------------------ ----------------------------------------------------------
<S> <C>
Capital Appreciation Winslow Capital Management, Inc.
International Stock Templeton Investment Counsel, Inc.
Macro-Cap Value J.P. Morgan Investment Management, Inc.
Micro-Cap Growth Wall Street Associates
Global Bond Julius Baer Investment Management, Inc.
</TABLE>
The Group Variable Annuity Account also invests in shares in the following
Underlying Funds and portfolios of Underlying Funds:
<TABLE>
<CAPTION>
FUND/PORTFOLIO TYPE INVESTMENT ADVISER
- ------------------------- -------------------- ---------------------
<S> <C> <C>
Long-Term Corporate corporate and Wellington Management
Portfolio of Vanguard government bond Group
Fixed Income fund
Securities Fund, Inc.
Vanguard/Wellington balanced equity fund Wellington Management
Fund, Inc. Company
Scudder International international stock Scudder, Stevens &
Fund, a series of fund Clark, Inc.
Scudder International
Fund, Inc.
Janus Twenty Fund, a growth equity fund Janus Capital
series of the Janus Corporation
Investment Fund
Fidelity Contrafund* growth equity fund Fidelity Management &
Research Company, a
subsidiary of FMR
Corporation
</TABLE>
*Note: Fidelity Contrafund is available only to those contracts purchased prior
to May 1, 1998.
The prospectus for the Series Fund is attached to this prospectus. Participants
considering sub-account investments in an Underlying Fund or Portfolio should
request a current prospectus for the Fund from the Contract Owner or Fund before
investing in the contract. You should carefully read those prospectuses before
investing.
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
PAGE 11
<PAGE>
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. This Fund is available only to Contracts purchased
prior to May 1, 1998.
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 long-
term growth of capital. This nondiversified Fund seeks to invest in
companies that the portfolio manager believes offer rapid growth potential.
Under normal circumstances, this Fund will concentrate its investments in a
core position of 20 to 30 common stocks. 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. 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.
PAGE 12
<PAGE>
(SIDEBAR)
We may change the Portfolios offered under the contract.
(END SIDEBAR)
D. ADDITIONS, DELETIONS OR SUBSTITUTIONS
We retain the right, subject to any applicable law, to make substitutions with
respect to the investments of the sub-accounts of the Group 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.
Investment in all Series Fund or Underlying Fund options may not be available,
and may be restricted by the Contract Owner. For example, the Contracts held by
the Church of the Nazarene Tax-Sheltered Annuity Plan make available the
Underlying Fund options and the Money Market, Growth, Asset Allocation, and
Index 500 Portfolios of the Series Fund. The Contract held by the Minnesota
State Deferred Compensation Plan makes available the Underlying Fund options and
the Money Market and Index 500 Portfolios of the Series Fund. The Minnesota
State Colleges and University 403(b) Program makes available all of the
Portfolios of the Series Fund.
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. New sub-accounts may be established
when, in our sole discretion, marketing, tax, investment or other conditions
warrant. The addition of any investment option may be made available to existing
Contract owners on whatever basis we determine.
We also reserve the right, when permitted by law, to de-register the 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.
Shares of the Funds are also sold to some of our other separate accounts, which
are used to receive and invest purchase payments paid under our variable life
policies. It is conceivable that in the future it may be disadvantageous for
variable life insurance separate accounts and variable annuity separate accounts
to invest in a Portfolio simultaneously. Although neither we nor the Fund
currently foresee any such disadvantages either to variable life insurance
policy owners or to variable annuity contract owners, the Funds' Boards of
Directors intend to monitor events in order to identify any material conflicts
between policy owners and contract owners and to determine what action, if any,
should be take in response thereto. Possible actions could include the sale of
Fund shares by one or more of the separate accounts, which could have adverse
consequences. Material conflicts could result from, for example:
- changes in state insurance laws,
- changes in federal income tax laws,
PAGE 13
<PAGE>
(SIDEBAR)
A deferred sales charge may apply.
(END SIDEBAR)
- changes in the investment management of any of the Portfolios of the
Fund, or
- differences in voting instructions between those given by policy owners
and those given by contract owners.
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. It is made in the six year period following your
Participation date. 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.
<TABLE>
<CAPTION>
END OF
PARTICIPATION YEAR DEFERRED SALES CHARGE
- ------------------ ---------------------
<S> <C>
Participation Date 6%
1 5%
2 4%
3 3%
4 2%
5 1%
6 0%
</TABLE>
We may waive the sales charge on:
- amounts withdrawn because of an excess contribution to a tax qualified
plan (for example an IRA or a tax sheltered annuity);
- 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 and where the Contract is
sold in anticipation of reduced expenses.
PAGE 14
<PAGE>
(SIDEBAR)
The mortality and expense risk charge is .85% but we may increase it to 1.25%.
The Administrative charge is .15% but we may increase it to .40%.
(END SIDEBAR)
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.
Our expense risk is the risk that charges 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.
If these deductions prove to be insufficient to cover the actual cost of our
expenses then we will absorb the resulting losses. Conversely, if these
deductions prove to be more than sufficient after the establishment of any
contingency reserves deemed prudent or required by law, any excess will be
profit to us. Some or all of such profit may be used to cover any distribution
costs not recovered through the deferred sales charge.
C. CONTRACT ADMINISTRATIVE CHARGE
We perform all administrative services relative to the Contract. These services
may include the 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%.
PAGE 15
<PAGE>
(SIDEBAR)
The contract is a group deferred variable annuity.
We issue the contract to you and you select the annuitant.
(END SIDEBAR)
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
If you 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.
F. PORTFOLIO CHARGES
Each of the Series Fund and Underlying Fund options pays investment advisory and
other expenses. These charges are detailed in their respective prospectuses.
DESCRIPTION OF THE CONTRACTS
The following material is intended to provide a general description of the terms
of the Contracts.
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. The
contracts are to be used in connection with tax-advantaged plans of state and
local governments and other tax-exempt organizations. The type of plans for
which the Contract is suitable are described in Sections 457 and 403 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. 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.
2. Issuance of Contracts
The Contracts are issued to sponsors of eligible plans upon their application.
In a typical plan, the sponsor or eligible governmental unit is the owner of the
PAGE 16
<PAGE>
Contract and will designate individuals eligible to participate in the Contract
as a Participant. The Contract and all interests under it are usually subject to
the general interests of creditors of the owner of the Contract (usually the
employer).
(SIDEBAR)
You cannot pay more than your underlying plan allows.
(END SIDEBAR)
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:
- the mortality table specified in the Contract, which reflects the age of
the annuitant;
- the type of annuity payment option selected; and
- 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.
Therefore, 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. To the maximum extent
permitted by law, 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 plan. All purchase payments are payable at our
Home Office which is located at: 400 Robert Street North, St. Paul, Minnesota
55101-2098.
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
PAGE 17
<PAGE>
only such 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.
Under some contracts, the Contract Owner may at any time 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.
Some Contracts 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 or Section 403 plan. We may also terminate the Contract 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:
- withdrawn to provide plan benefits,
- applied to provide annuity payments or
- 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, decreased by any applicable deferred sales charge, will be transferred
within seven days after the Contract termination. Minnesota Life 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, decreased by any applicable
deferred sales charge, as may be either in a lump sum or in installments over a
five year period as the Contract Owner may elect. 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.
PAGE 18
<PAGE>
(SIDEBAR)
We normally pay lump sum payments within 7 days, but may delay payments in
certain circumstances.
The contract is non-participating.
(END SIDEBAR)
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. Payment may be subject to postponement for:
- any period during which the New York Stock Exchange is closed other than
customary weekend and holiday closings, or during which trading on the
New York Stock Exchange is restricted, as determined by the Securities
and Exchange Commission;
- 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
- such other periods as the Commission may by order permit for the
protection of the Contract Owners.
9. Participation
The Contract is a non-participating Contract. Contracts issued prior to October
1, 1998, were participating. The amounts, if any, that will be distributable
under participating contracts in the future shall be determined by us and
credited to the Contract on such a basis as we may determine. We do not
anticipate any dividends and do not anticipate making dividend payments to
Contract Owners under this Contract.
10. Contract Loans
A Participant under a Contract which satisfies the requirements of Code Section
403 as a tax-sheltered annuity (a "TSA Contract") and under a plan which
provides for loans may take a loan from us with the Contract as security for the
loan, to the extent that such loans are permitted by applicable state law. The
maximum loan available is the lesser of (a) $50,000 and (b) is the greater of
(i) one-half of the Participant's Accumulation Value less any applicable
deferred sales charge or (ii) the Participant's Accumulation Value up to the
amount of $10,000, less the amount of interest that would be charged during the
first quarter that the loan would be outstanding and less any applicable
deferred sales charge. In no event shall a loan exceed one half of the value of
the general account accumulation value. A loan taken from, or secured by, a TSA
Contract may have federal income tax consequences. The maximum loan amount is
determined as of the date we receive a Participant's request for a loan. This
minimum loan amount is $1,000.
Upon receiving a written request for a loan, we will send the Participant a loan
application and agreement for his or her signature. We will charge interest in
arrears. Restrictions other than the maximum loan amount which apply to loans
are:
- Only one loan may be outstanding at any time;
PAGE 19
<PAGE>
- A period of at least three months is required between the repayment of a
loan and the application for a new loan;
- If there is an outstanding loan on the Contract, then any withdrawals
will be limited to Accumulation Value, less the outstanding loan
principal, less any interest due and less any applicable deferred sales
charge;
- A loan is not available if annuity payments have begun; and
- The TSA loan account portion of a Participant's interest in the Contract
may not be transferred to the Group Variable Annuity Account when a loan
is outstanding, provided, however, that a single transfer from the TSA
loan account will be allowed each calendar year in an amount no more than
the TSA loan account value less the outstanding loan principal, less the
outstanding interest, and less any applicable deferred sales charge.
Two times the loan amount requested, plus the first quarter's interest, plus any
applicable deferred sales charge, will be transferred from the portion of the
Participant's Accumulation Value allocated to the Group Variable Annuity Account
to the General Account on the date the loan application is approved. Unless the
Participant directs us otherwise, amounts will be transferred from sub-accounts
of the Group Variable Annuity Account in the same proportion that the
Participant's allocations to each sub-account bears to his or her total
allocations to the Group Variable Annuity Account prior to the loan.
11. Loan Interest and TSA Loan Account Interest
The interest rate charged on a loan is variable and will be set on the first day
of each calendar quarter. It will apply to the outstanding loan principal in
that calendar quarter. The loan interest rate will not exceed the greater of the
"published monthly average" for the calendar month ending two months before the
beginning of the calendar quarter or the "interest rate in effect on the
Contract" plus 1%. The "published monthly average" means the Moody's Composite
Average of Yields on Bonds as published by the Moody's Investors Service. The
"interest rate in effect on the Contract" is the interest rate credited on
portions of Accumulation Value allocated to the General Account, including
amounts held in the TSA loan account.
The interest rate credited to allocations of Accumulation Value to the General
Account will also be credited to the TSA loan account. This will have the effect
of reducing the effective interest rate to be paid on the loan to the difference
between the interest rate paid on the loan and that credited on the TSA loan
account. A loan will have a permanent effect on the Participant's Accumulation
Value. The effect could be either positive or negative, depending upon whether
the investment results of the sub-accounts are greater or lesser than the
interest rate credited on the TSA loan account.
PAGE 20
<PAGE>
12. Loan Repayment
Repayment must be made in substantially equal payments over a period of five
years or less. Early repayment may be made without penalty at any time. When the
loan is repaid, then the TSA loan account terminates, and the amounts remain in
the General Account. A Participant may reallocate these amounts among the
General Account and the sub-accounts of the Separate Account by exercising his
or her Contract's transfer rights.
If a Participant withdraws all of his or her Accumulation Value while a loan is
outstanding, then the loan is due at the time of the withdrawal. If the loan is
not repaid prior to the complete withdrawal, the payment on withdrawal will be
the Participant's Accumulation Value, less the outstanding loan principal, less
any interest due, and less any applicable deferred sales charges. Such a
withdrawal may result in income taxation, tax penalties and disqualification of
the Participant's interest in the Contract as a tax-sheltered annuity.
Failure to meet the requirements of the loan agreement will result in its
termination. Loan amounts will then be treated as distributions under the
Contract. Treatment of a loan as a distribution will result in taxable income
under applicable tax rules. This may result in income taxation, tax penalties,
and disqualification of the Participant's interest in the Contract as a
tax-sheltered annuity. If there is a distribution, the Participant's
Accumulation Value will be reduced by the amount of the outstanding loan
principal, reduced by any interest due, and reduced by any applicable deferred
sales charge on that amount.
(SIDEBAR)
Each of the annuity options is available on a fixed, variable or combination
fixed and variable basis.
(END SIDEBAR)
ANNUITY PERIOD
1. Electing the Retirement Date and Form of Annuity
The Contracts provide for four annuity payment options. Any one of them 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. We
may make other annuity options available upon request.
The Contract permits an annuity payment to begin on the first day of any month.
If you fail to elect an annuity option 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. This is 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 the first
PAGE 21
<PAGE>
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.
Except for Option 4 once annuity payments have commenced, the annuitant cannot
surrender his or her annuity benefit and receive a single sum settlement. In the
event that an election is made 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.
The mortality and expense risks charges continue to be deducted throughout the
annuity period. This applies under each of the available variable annuity
payment options, including Option 4, under which there is no mortality risk to
Minnesota Life.
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. 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 unless they elect
to receive a commuted settlement amount.
PAGE 22
<PAGE>
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
- .996338, and
- 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.
(SIDEBAR)
The amount of your first annuity payment depends on the age of the annuitant and
the annuity option you select.
(END SIDEBAR)
4. Determination of Amount of First Monthly Annuity Payment
The first monthly annuity payment is determined by applying the value of the
Participant's individual accumulation value at retirement. In addition, many
states impose a premium tax on the amount used to purchase an annuity benefit,
depending on the type of plan. These taxes currently range from 0 to 3.5%, and
are deducted from the accumulation value applied to provide annuity payments. We
reserve the right to make such deductions from purchase payments as they are
received.
The amount of the first monthly payment depends on the annuity payment option
elected, 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 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.
PAGE 23
<PAGE>
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
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 will be aggregated for purposes of making the monthly variable
annuity payment to the Participant.
(SIDEBAR)
You may change Portfolios in the annuity period, subject to some restrictions.
(END SIDEBAR)
6. Transfer of Annuity Reserves
Annuity reserves are the measure of assets attributable to the Contracts and
held during the annuity period. 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.
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
PAGE 24
<PAGE>
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. The restrictions which apply to annuity
sub-account 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.
(SIDEBAR)
If you die prior to commencement of annuity payments, there is a death benefit
that is guaranteed not to be less than your purchase payments.
(END SIDEBAR)
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.
DEATH BENEFIT
Death benefits, if any, payable under Contracts shall be determined by 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:
- 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
- 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 plan.
PAGE 25
<PAGE>
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, we will pay to the
beneficiary any death benefit provided by the annuity option selected. 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, or annuitant if annuity payments have commenced,
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 or annuitant's written request to change the
beneficiary will not be effective until it is recorded in our home office
records. After it has been recorded, it will take effect as of the date the
Participant or annuitant signed the request. 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.
(SIDEBAR)
Initial purchase payments are credited within 2 business days of our receipt of
a complete application.
(END SIDEBAR)
CREDITING ACCUMULATION UNITS
During the accumulation period 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. 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.
We 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
PAGE 26
<PAGE>
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, currently 3:00 p.m. Central time, on each day, except:
- 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;
- days on which no such Series Fund's shares or Underlying Fund's shares
are tendered for redemption and no order to purchase or sell such Fund's
shares is received by such Fund and
- customary national business holidays on which the New York Stock Exchange
is closed for trading.
Accordingly, the value of accumulation units so determined will be applicable to
all purchase payments we receive at our home office on that day prior to the
close of business of the Exchange. The value of accumulation units applicable to
purchase payments received after to the close of business of the Exchange will
be the value determined on the next valuation date.
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.
(SIDEBAR)
Systematic transfers and telephone transfers are available.
(END SIDEBAR)
The Contracts permit us to limit the frequency and amount of transfers from the
General Account to the sub-accounts of the Group Variable Annuity Account. The
Contracts provide that 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. We currently
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. If a
transfer cannot be completed it will be made on the next available transfer
date.
A Participant or persons authorized by Participants may also 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 for written transfer requests. During periods of
marked economic or market changes, Participants may experience difficulty in
implementing a telephone transfer due to a heavy volume of telephone calls.
PAGE 27
<PAGE>
(SIDEBAR)
Your contract's accumulation value varies with the performance of the Portfolios
you select and is not guaranteed.
(END SIDEBAR)
Participants should then 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.
We will employ reasonable procedures to satisfy ourselves that instructions
received from Participants are genuine. We require Participants to identify
themselves 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
purchase payments or the transfer of contract values to the General Account of
Minnesota Life, and thereby to its general assets, are not registered under the
Securities Act of 1933. Minnesota Life is not registered as an investment
company under the Investment Company Act of 1940. Accordingly, Minnesota Life is
not subject to the provisions of those acts that would apply if registration
under such acts were required.
PORTABILITY
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 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
PAGE 28
<PAGE>
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:
- 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
- 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
- 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.
(SIDEBAR)
You may cancel your contract under certain circumstances and subject to possible
tax consequences.
(END SIDEBAR)
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.
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 plan other than those provided for in this
Contract; or;
- allowing other withdrawals as allowed in the plan and mutually agreed
upon by us 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
PAGE 29
<PAGE>
made on behalf of the Participant, the charge 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. The provisions of
the applicable qualified trust, qualified plan or state deferred compensation
plan may provide further limitations on withdrawals.
You may request a withdrawal in writing from us. The withdrawal date will be the
valuation date coincident with or next following the receipt of the request by
us at our 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. We will also waive the
applicable dollar amount limitation on withdrawals where a withdrawal is due to
an excess contribution.
The Participant cannot surrender his or her annuity benefit and receive a single
sum settlement once annuity payments have commenced.
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: (651) 665-7942. 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 our premium tax liability. In such event, we will pay in
addition to the cash value paid in connection with the surrender or withdrawal,
the lesser of (1) the amount by which our premium tax liability is reduced, or
(2) the amount previously deducted from purchase payments for premium taxes. No
representation can be made that upon surrender or withdrawal any such payment
will be made.
DISTRIBUTION
The Contracts will be sold by Minnesota Life, life insurance agents who are also
registered representatives of Ascend Financial Services, Inc. ("Ascend
Financial"). Ascend Financial is the principal underwriter of the contract, and
may pay up to 6.0% of the amount of purchase payments to broker-dealers who sell
the contracts. In addition, either we or Ascend Financial will pay credits which
allow registered representatives who are responsible for sales of variable
annuity
PAGE 30
<PAGE>
contracts to attend conventions and other meetings that we or our affiliates
sponsor, for the purpose of promoting the sale of the insurance and/or
investment products that we or our affiliates offer. Such credits may cover the
registered representatives' transportation, hotel accommodations, meals,
registration fees and the like. We may also pay those registered representatives
amounts based upon their productions and the persistency of life insurance and
annuity business they placed with us.
(SIDEBAR)
You can instruct us how to vote Fund shares.
(END SIDEBAR)
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 will vote the
Series Fund Portfolio shares held in the Group Variable Annuity Account, 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 applicable laws 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.
PAGE 31
<PAGE>
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.
(SIDEBAR)
We are not offering tax advice. You should consult your own tax adviser.
(END SIDEBAR)
FEDERAL TAX STATUS
INTRODUCTION
The discussion contained herein is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax adviser. No attempt
is made to consider any applicable state or other tax laws. In addition, this
discussion is based on our understanding of federal income tax laws as they are
currently interpreted. No representation is made regarding the likelihood of
continuation of current income tax laws or the current interpretations of the
Internal Revenue Service. The Contract may be purchased on a non-tax qualified
basis ("Non-Qualified Contract") or purchased and used in connection with
certain retirement arrangements entitled to special income tax treatment under
section 401(a), 403(b), 408(k) or 457 of the Code ("Qualified Contracts"). The
ultimate effect of federal income taxes on the amounts held under a Contract, on
Annuity Payments, and on the economic benefit to the Contract Owner, the
Annuitant, or the Beneficiary may depend on the tax status of the individual
concerned.
We are 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. The Group Variable Annuity
Account is not taxed as a "regulated investment company" under the Internal
Revenue Code (the "Code") and it does not anticipate any change in that tax
status. However, if changes in the federal tax laws or interpretations thereof
result in Minnesota Life being taxed on income or gains attributable to the
Group Variable Annuity Account, we may impose a charge against the Group
Variable Annuity Account (with respect to some or all Contracts) in order to set
aside provisions to pay such taxes.
PAGE 32
<PAGE>
(SIDEBAR)
Taxes on gains under the contract are normally deferred until there is a
distribution of contract values.
Ordinary income tax rates apply to amounts distributed in excess of purchase
payments. Gains are assumed to be distributed before return of purchase
payments.
A penalty tax may apply to distributions prior to age 59 1/2.
(END SIDEBAR)
TAXATION OF ANNUITY CONTRACTS IN GENERAL
Section 72 of the Code governs taxation of nonqualified annuities in general and
some aspects of tax qualified programs. No taxes are generally imposed on
increases in the value of a contract until distribution occurs, either in the
form of a payment in a single sum or as annuity payments under the annuity
option elected.
As a general rule, deferred annuity contracts held by a corporation, trust or
other similar entity, as opposed to a natural person, are not treated as annuity
contracts for federal tax purposes. The investment income on such contracts is
taxed as ordinary income that is received or accrued by the owner of the
contract during the taxable year.
For payments made in the event of a full surrender of an annuity, the taxable
portion is generally the amount in excess of the cost basis (i.e., purchase
payments) of the contract. Amounts withdrawn upon a partial surrender from the
variable annuity contracts not part of a qualified program are treated first as
taxable income to the extent of the excess of the contract value over the
purchase payments made under the contract. All taxable amounts received under an
annuity contract are subject to tax at ordinary rather than capital gain tax
rates.
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.
The Code imposes a 10% penalty tax on the taxable portion of certain
distributions from annuity contracts. This additional tax does not apply where
the taxpayer is
- 59 1/2 or older,
- where payment is made on account of the taxpayer's disability, or
- where payment is made by reason of death of the owner, and in certain
other circumstances.
The Code also provides an exception to the penalty tax for distributions, in
periodic payments, of substantially equal installments, be made for the life (or
life expectancy) of the taxpayer or the joint lives (or joint life expectancies)
of the taxpayer and beneficiary.
PAGE 33
<PAGE>
(SIDEBAR)
Transfers, assignments and certain designations of annuitants can have tax
consequences.
(END SIDEBAR)
For some types of qualified plans, other tax penalties may apply to certain
distributions.
A transfer of ownership of a contract, a pledge of any interest in a contract as
security for a loan, the designation of an annuitant or other payee who is not
also the Contract Owner, or the assignment of the contract may result in certain
income or gift tax consequences to the Contract Owner that are beyond the scope
of this discussion. A Contract Owner who is contemplating any such transfer,
pledge, designation or assignment should consult a competent tax adviser with
respect to the potential tax effects of that transaction.
For purposes of determining a Contract Owner's gross income, the Code provides
that all nonqualified deferred annuity contracts issued by the same company (or
its affiliates) to the same Contract Owner during any calendar year shall be
treated as one annuity contract. Additional rules may be promulgated under this
provision to prevent avoidance of its effect through serial contracts or
otherwise. For further information on these rules, see your tax adviser.
DIVERSIFICATION REQUIREMENTS
Section 817(h) of the Code authorizes the Treasury to set standards, by
regulation or otherwise for the investments of the Group Variable Annuity
Account to be "adequately diversified" in order for the Contract to be treated
as an annuity contract 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 ours,
we do not have control over the Series Fund or its investments. Nonetheless, we
believe 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.
Prior to the enactment of Section 817(h), the IRS published several rulings
under which owners of certain variable annuity contracts were treated as owners,
for federal income tax purposes, of the assets held in a separate account used
to support their contracts. In those circumstances, income and gains from the
separate account assets would be includable in the variable annuity contract
owner's gross income. However, the continued effectiveness of the pre-Section
817(h) published rulings is somewhat uncertain. In connection with its issuance
of proposed regulations under Section 817(h) in 1986, the Treasury Department
announced that those regulations did not "provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the contract owner), rather than the
insurance company to be treated as the owner of the assets in the account".
While the Treasury's 1986 announcement stated that guidance would be issued on
the "extent to which the policyholders may direct their investments to
particular sub-accounts without being treated as owners of the underlying
assets", no such guidance has been forthcoming.
PAGE 34
<PAGE>
The ownership rights of a Participant under the Contract are similar to, 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. Minnesota Life does not believe that the
ownership rights of a contract owner under the Contract would result in any
contract owner being treated as the owner of the assets of the Group Variable
Annuity Account. However, Minnesota Life does not know what standards would be
applied if the Treasury Department should proceed to issue regulations or
rulings on this issue.
Minnesota Life therefore reserves the right to modify the Contract as necessary
to attempt to prevent a contract owner from being considered the owner of a pro-
rata share of the assets of the 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:
- if distributed in a lump sum, they are taxed in the same manner as a full
surrender of the Contract, as described above, or
- if distributed under an annuity option, they are taxed in the same manner
as annuity payments, as described above.
(SIDEBAR)
Congress may change the tax laws and reduce or eliminate any tax advantages of
the contract.
(END SIDEBAR)
POSSIBLE CHANGES IN TAXATION
Although the likelihood of there being any change is uncertain, there is always
the possibility that the tax treatment of the Contracts could change by
legislation or other means. Moreover, it is also possible that any change could
be retroactive (that is, effective prior to the date of the change). You should
consult a tax adviser with respect to legislative developments and their effect
on the Contract.
TAX QUALIFIED PROGRAMS
The annuity is designed for use with several types of retirement plans that
qualify for special tax treatment. The tax rules applicable to Participants and
beneficiaries in retirement plans vary according to the type of plan and the
terms and conditions of the plan. Special favorable tax treatment may be
available for certain types of contributions and distributions. Adverse tax
consequences may result from:
- contributions in excess of specified limits;
- distributions prior to age 59 1/2 (subject to certain exceptions);
- distributions that do not conform to specified minimum distribution
rules;
- aggregate distributions in excess of a specified annual amount; and
PAGE 35
<PAGE>
- in other specified circumstances.
We make no attempt to provide more than general information about use of
annuities with the various types of retirement plans. The rights of any person
to benefits under annuity contracts purchased in connection with these plans may
be subject to the terms and conditions of the plans themselves, regardless of
the terms and conditions of the annuity issued in connection with such a plan.
Some retirement plans are subject to transfer restrictions, distribution and
other requirements that are not incorporated into the annuity or other annuity
administration procedures. Owners, Participants and beneficiaries are
responsible for determining that contributions, distributions and other
transactions with respect to the annuities comply with applicable law. If you
intend to purchase a contract for use with any retirement plan you should
consult your legal counsel and tax adviser regarding the suitability of the
contract. 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.
For qualified plans under Section 401(a), 403(b), and 457, the Code requires
that distributions generally must commence no later than the later of April 1 of
the calendar year following the calendar year in which the Owner (or plan
participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined by the Code), distributions generally must begin no later than April 1
of the calendar year following the calendar year in which the Owner (or plan
participant) reaches age 70 1/2.
(SIDEBAR)
Distributions are subject to income tax withholding requirements unless you take
steps to prevent it.
(END SIDEBAR)
WITHHOLDING
In general, distributions from annuities are subject to federal income tax
withholding unless the recipient elects not to have tax withheld. Different
rules may apply to payments delivered outside the United States. Some states
have enacted similar rules.
Recent changes to the Code allow the rollover of most distributions from tax-
qualified plans and Section 403(b) annuities directly to other tax-qualified
plans that will accept such distributions and to individual retirement accounts
and individual retirement annuities. Distributions which may not be rolled over
are those which are:
- one of a series of substantially equal annual (or more frequent) payments
made(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;
- a required minimum distribution; or
PAGE 36
<PAGE>
- 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.
LOANS
Generally, interest paid on any loan under an annuity Contract which is owned by
an individual is not deductible. A Participant should consult a competent tax
adviser before deducting any loan interest.
SEE YOUR OWN TAX ADVISER
The foregoing description of the federal income tax consequences under these
Contracts is not exhaustive. Special rules are provided with respect to
situations not discussed herein. 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.
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 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
PAGE 37
<PAGE>
Contracts offered by this Prospectus and charges of the Series Fund or
Underlying Funds. More detailed information on the computations is set forth in
the Statement of Additional Information.
YEAR 2000 COMPUTER PROBLEM
The services we provided to the Separate Account and its contract owners depend
on the smooth functioning of its computer systems. Many computer software
systems in use today cannot distinguish the year 2000 from the year 1900 because
of the way that dates are encoded, stored and calculated. That failure could
have a negative impact on our ability to provide services to contract owners. We
have been actively working on necessary changes to our computer systems to deal
with the year 2000. Although there can be no assurance of complete success, we
believe that we will be able to resolve these issues on a timely basis and that
there will be no material adverse impact on our ability to provide services to
the Separate Account.
In addition, our operations could be impacted by our service providers' or
suppliers' year 2000 efforts. We have undertaken an initiative to assess the
efforts of organizations where there is a significant business relationship.
There is no assurance however, that we will not be affected by year 2000
problems of other organizations.
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 information,
including financial statements, is available from us at your request. The Table
of Contents for that Statement of Additional Information is as follows:
Group Variable Annuity Account
Directors and Principal Management Officers of Minnesota Life
Distribution of Contracts
Annuity Payments
Auditors
Financial Statements
Appendix A -- Calculation of Unit Values
PAGE 38
<PAGE>
APPENDIX A -- CONDENSED FINANCIAL INFORMATION
The financial statements the Group Variable Annuity Account and Minnesota Life
Insurance Company may be found in the Statement of Additional Information. The
table below gives per unit information about the financial history of each
sub-account from the inception of each to December 31, 1998. This information
should be read in conjunction with the financial statements and related notes of
Group Variable Annuity Account included in the Statement of Additional
Information. As of December 31, 1998, no contract owners have elected to
allocate payments to the Advantus Bond, Advantus Mortgage Securities, Advantus
Capital Appreciation, Advantus International Stock, Advantus Small Company
Growth, Advantus Maturing Government Bond 2002, Advantus Maturing Government
Bond 2006, Advantus Maturing Government Bond 2010, Advantus Value Stock,
Advantus Small Company Value, Advantus Global Bond, Advantus Index 400 Mid-Cap,
Advantus Macro-Cap Value, Advantus Micro-Cap Growth and Advantus Real Estate
Securities sub-accounts. Accordingly, no condensed financial information is
presented for these sub-accounts.
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 2,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1994 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Advantus Growth Sub-Account:
Unit value at beginning of period............... $1.42 $1.08 $1.00 -- --
Unit value at end of period..................... $1.90 $1.42 $1.08 -- --
Number of units outstanding at end of period.... 804,249 351,033 136,198 -- --
Advantus Money Market Sub-Account:
Unit value at beginning of period............... $1.14 $1.10 $1.06 $1.01 $1.00
Unit value at end of period..................... $1.19 $1.14 $1.10 $1.06 $1.01
Number of units outstanding at end of period.... 5,337,083 2,345,197 1,676,436 812,075 318,636
Advantus Asset Allocation Sub-Account:
Unit value at beginning of period............... $1.25 $1.06 $1.00 -- --
Unit value at end of period..................... $1.53 $1.25 $1.06 -- --
Number of unit outstanding at end of period..... $732,995 368,919 69,684 -- --
Advantus Index 500 Sub-Account:
Unit value at beginning of period............... $2.09 $1.60 $1.33 $0.98 $1.00
Unit value at end of period..................... $2.65 $2.09 $1.60 $1.33 $0.98
Number of units outstanding at end of period.... 13,683,936 7,737,757 3,811,296 1,252,482 261,150
Vanguard Long-Term Corporate Sub-Account:
Unit value at beginning of period............... $1.41 $1.24 $1.23 $0.99 $1.00
Unit value at end of period..................... $1.52 $1.41 $1.24 $1.23 $0.99
Number of units outstanding at end of period.... 5,471,112 3,145,416 2,199,884 1,202,743 275,796
Vanguard Wellington Sub-Account
Unit value at beginning of period............... $1.80 $1.48 $1.28 $0.98 $1.00
Unit value at end of period..................... $2.00 $1.80 $1.48 $1.28 $0.98
Number of units outstanding at end of period.... 23,410,883 16,168,553 9,571,917 4,097,086 1,363,274
Fidelity Contrafund Sub-Account:
Unit value at beginning of period............... $1.95 $1.60 $1.32 $0.98 $1.00
Unit value at end of period..................... $2.54 $1.95 $1.60 $1.32 $0.98
Number of units outstanding at end of period.... 32,080,949 26,429,507 18,638,007 11,232,337 4,870,232
Scudder International Sub-Account:
Unit value at beginning of period............... $1.26 $1.18 $1.04 $0.93 $1.00
Unit value at end of period..................... $1.48 $1.26 $1.18 $1.04 $0.93
Number of units outstanding at end of period.... 7,332,341 5,979,571 4,774,006 3,011,428 1,807,445
Janus Twenty Sub-Account:
Unit value at beginning of period............... $2.09 $1.63 $1.29 $0.96 $1.00
Unit value at end of period..................... $3.59 $2.09 $1.63 $1.29 $0.96
Number of units outstanding at end of period.... 11,892,657 6,171,080 2,891,975 990,111 444,821
</TABLE>
PAGE A-1
<PAGE>
APPENDIX B -- TYPES OF QUALIFIED PLANS
SIMPLIFIED EMPLOYEE PENSION (SEP) IRAS
Employers may establish Simplified Employee Pension (SEP) IRAs under Code
Section 408(k) to provide IRA contributions on behalf of their employees. In
addition to all of the general Code rules governing IRAs, such plans are subject
to certain Code requirements regarding participation and amounts of
contributions.
CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS
Code Section 401(a) permits employers to establish various types of retirement
plans for employees, and permits self-employed individuals to establish
retirement plans for themselves and their employees. These retirement plans may
permit the purchase of the contracts to accumulate retirement savings under the
plans. Adverse tax or other legal consequences to the plan, to the participant
or to both may result if this annuity is assigned or transferred to any
individual as a means to provide benefit payments, unless the plan complies with
all legal requirements applicable to such benefits prior to transfer of the
annuity.
DEFERRED COMPENSATION PLANS
Code Section 457 provides for certain deferred compensation plans. These plans
may be offered with respect to service for state governments, local governments,
political subdivisions, agencies, instrumentalities and certain affiliates of
such entities, and tax-exempt organizations. The plans may permit participants
to specify the form of investment for their deferred compensation account.
With respect to non-governmental Section 457 plans, all investments are owned by
the sponsoring employer and are subject to the claims of the general creditors
of the employer and, depending on the terms of the particular plan, the employer
may be entitled to draw on deferred amounts for purposes unrelated to its
Section 457 plan obligations. In general, all amounts received under a Section
457 plan are taxable and are subject to federal income tax withholding as wages.
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 $8,000 or 33 1/3% of includable compensation (taxable
earnings). This amount shall be adjusted for cost-of-living in accordance with
Section 457(e)(15) of the Code. 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 income pursuant to that program, plan or pension
reduce the amount of compensation which may be deferred under a Section 457
deferred compensation plan.
PAGE B-1
<PAGE>
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 -- 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.
PUBLIC SCHOOL SYSTEMS AND CERTAIN TAX EXEMPT ORGANIZATIONS
Under Code Section 403(b), payments made by public school systems and certain
tax exempt organizations to purchase annuity contracts for their employees are
excludable from the gross income of the employee, subject to certain
limitations. However, these payments may be subject to FICA (Social Security)
taxes.
Code Section 403(b)(11) restricts the distribution under Code Section 403(b)
annuity contracts of: (1) elective contributions made in years beginning after
December 31, 1988; (2) earnings on those contributions; and (3) earnings in such
years on amounts held as of the last year beginning before January 1, 1989.
Distribution of those amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. In addition, income attributable to elective contributions may not be
distributed in the case of hardship.
PAGE B-2
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT
OF ADDITIONAL INFORMATION
<PAGE>
GROUP VARIABLE ANNUITY ACCOUNT
CROSS REFERENCE SHEET TO STATEMENT OF ADDITIONAL INFORMATION
Form N-4
Item Number Caption in Statement of Additional Information
15. Cover Page
16. Table of Contents
17. Group Variable Annuity Account
18. Not Applicable
19. Not Applicable
20. Distribution of Contracts
21. Performance Data
22. Annuity Payments
23. Financial Statements
<PAGE>
GROUP VARIABLE ANNUITY ACCOUNT
Statement of Additional Information
The date of this document and the Prospectus is: May 3, 1999
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
Life at (651) 665-3500 or writing the Group Variable Annuity Account at
Minnesota Mutual Center, 400 Robert Street North, St. Paul, Minnesota
55101-2098.
TABLE OF CONTENTS
Separate Account
Directors and Principal Management Officers of Minnesota Life
Distribution of Contracts
Performance Data
Annuity Payments
Auditors
Financial Statements
Appendix A - Calculation of Unit Values
1
<PAGE>
GROUP VARIABLE ANNUITY ACCOUNT
The Group Variable Annuity Account is a separate account of Minnesota Life
Insurance Company ("Minnesota Life"). The Group Variable Account is
registered as a unit investment trust.
<TABLE>
<CAPTION>
DIRECTORS AND PRINCIPAL MANAGEMENT OFFICERS OF MINNESOTA LIFE
Directors Principal Occupation
--------- --------------------
<S> <C>
Giulio Agostini Senior Vice President, Finance and Administrative
Services, 3M, St. Paul, Minnesota
Anthony L. Andersen Chair-Board of Directors, H. B. Fuller Company,
St. Paul, Minnesota, since June 1995, prior
thereto for more than five years President and
Chief Executive Officer, H. B. Fuller Company
(Adhesive Products)
Leslie S. Biller Vice Chairman and Chief Operating Officer, Wells
Fargo & Company, San Francisco, California
(Banking)
John F. Grundhofer President, Chairman and Chief Executive Officer,
U.S. Bancorp, Minneapolis, Minnesota (Banking)
David S. Kidwell, Ph.D. Dean and Professor of Finance, The Curtis L.
Carlson School of Management, University of
Minnesota, Minneapolis, Minnesota
Reatha C. King, Ph.D. President and Executive Director, General Mills
Foundation, Minneapolis, Minnesota
Thomas E. Rohricht Of Counsel, Doherty, Rumble & Butler Professional
Association, St. Paul, Minnesota (Attorneys)
Robert L. Senkler Chairman of the Board, President and Chief
Executive Officer, Minnesota Life Insurance
Company, since August 1995; prior thereto for more
than five years Vice President and Actuary,
Minnesota Life Insurance Company
Michael E. Shannon Chairman, Chief Financial and Administrative
Officer, Ecolab, Inc., St. Paul, Minnesota
(Develops and Markets Cleaning and Sanitizing
Products)
Frederick T. Weyerhaeuser Retired since April 1998, prior thereto Chairman
and Treasurer, Clearwater Investment Trust since
May 1996, prior thereto for more than five years,
Chairman, Clearwater Management Company, St. Paul,
Minnesota (Financial Management)
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Principal Officers (other than Directors)
Name Position
<S> <C>
John F. Bruder Senior Vice President
Keith M. Campbell Senior Vice President
Robert E. Hunstad Executive Vice President
James E. Johnson Senior Vice President and Actuary
Dennis E. Prohofsky Senior Vice President, General
Counsel and Secretary
Gregory S. Strong Senior Vice President and Chief
Financial Officer
Terrence M. Sullivan Senior Vice President
Randy F. Wallake Senior Vice President
William N. Westhoff Senior Vice President and Treasurer
</TABLE>
All Directors who are not also officers of Minnesota Life have had the principal
occupation (or employers) shown for at least five years. All officers of
Minnesota Life have been employed by Minnesota Life for at least five years with
the exception of Mr. Westhoff. Mr. Westhoff has been employed by Minnesota Life
since April 1998. Prior thereto, Mr. Westhoff was employed by American Express
Financial Corporation, Minneapolis, Minnesota, from August 1994 to October 1997
as Senior Vice President, Global Investments and from November 1989 to July 1994
as Senior Vice President, Fixed Income Management. Amounts paid by Minnesota
Life to the underwriter for 1998, 1997, and 1996 respectively, were
$1,861,317.26, $1,523,665.79 and $1,365,712.11 respectively and for payments
to associated dealers on the sale of contracts, which include other contracts
issued through the Group Variable Annuity Account.
DISTRIBUTION OF CONTRACTS
The Contracts will be continuously sold by Minnesota Life, life insurance
agents who are also registered representatives of Ascend Financial Services,
Inc. or other broker-dealers who have entered into selling agreements with
Ascend Financial. Ascend Financial acts as the principal underwriter of the
contracts. Ascend Financial Services, Inc. is a wholly-owned subsidiary of
Advantus Capital Management, Inc. which in turn is a wholly-owned subsidiary
of Minnesota Life. Ascend Financial is registered as a broker-dealer under
the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. Amounts paid by Minnesota Life to the
underwriter for 1998, 1997, and 1996 respectively were $1,861,317.26,
$1,523,665.79 and $1,365,712.11 respectively and for payments to associated
dealers on the sale of contracts, which include other contracts issued
through the Group Variable Annuity Account.
3
<PAGE>
PERFORMANCE DATA
CURRENT YIELD FIGURES FOR MONEY MARKET SUB-ACCOUNT
Current annualized yield quotations for the Money Market Sub-Account are based
on the Sub-Account's net investment income for a seven-day or other specified
period and exclude any realized or unrealized gains or losses on sub-account
securities. Current annualized yield is computed by determining the net change
(exclusive of realized gains and losses from the sale of securities and
unrealized appreciation and depreciation) in the value of a hypothetical account
having a balance of one accumulation unit at the beginning of the specified
period, dividing such net change in account value by the value of the account at
the beginning of the period, and annualizing this quotient on a 365-day basis.
The Group Variable Annuity Account may also quote the effective yield of the
Money Market Sub-Account for a seven-day or other specified period for which the
current annualized yield is computed by expressing the unannualized return on a
compounded, annualized basis. The yield and effective yield of the Money Market
Sub-Account for the seven-day period ended December 31, 1998 were 3.35% and
3.41%, respectively. Such figures reflect the voluntary absorption of certain
expenses of Advantus Series Fund, Inc. (the "Fund") by Minnesota Life
described below under "Total Return Figures for All Sub-Accounts." Yield
figures quoted by the Money Market Sub-Account will not reflect the deduction of
any applicable deferred sales charges (the deferred sales charge, as a
percentage of the accumulation value withdrawn, begin as of the contract date
at 6%).
TOTAL RETURN FIGURES FOR ALL SUB-ACCOUNTS
Cumulative total return quotations for Sub-Accounts represent the total return
for the period since the Sub-Account became available pursuant to the Group
Variable Annuity Account's registration statement. Cumulative total return is
equal to the percentage change between the net asset value of a hypothetical
$1,000 investment at the beginning of the period and the net asset value of that
same investment at the end of the period. Such quotations of cumulative total
return will not reflect the deduction of any applicable deferred sales charge.
The cumulative total return figures published by the Group Variable Annuity
Account relating to the contract described in the Prospectus will reflect
Minnesota Life or the Underlying Fund's management voluntary absorption
of certain Series Fund or Underlying Fund expenses described below.
Cumulative total return quotations for Sub-Accounts will be accompanied by
average annual total return figures for a one year period, five year period,
ten year period or since the inception of the Group Variable Annuity
Contract. Average annual total return figures are the average annual
compounded rates of return required for an initial investment of $1,000 to
equal the surrender value of that same investment at the end of the period.
The surrender value will reflect the deduction of the deferred sales charge
applicable to the contract payments and to the length of the period the
payments remain in the contract. The average annual total return figures
published by the Group Variable Annuity Account will reflect Minnesota
Mutual's or the Underlying Fund's management voluntary absorption of certain
Series Fund or Underlying Fund expenses. Prior to January 1, 1986, the
Series Fund incurred no expenses. Total return is quoted for only those
Sub-Accounts that had purchase payments allocated to them as of December 31,
1998 under The Group Variable
4
<PAGE>
Annuity Account. The figures in parenthesis show what the cumulative rates
of return would have been had Minnesota Life or the Underlying Fund's
management not absorbed Fund expenses as described below.
<TABLE>
<CAPTION>
From Inception Date of
to 12/31/98 Inception
---------------- ---------
<S> <C> <C> <C>
Growth Sub-Account (89.69%) 89.69% 01/31/96
Asset Allocation Sub-Account (53.17%) 53.17% 01/31/96
Index 500 Sub-Account (165.41%) 165.41% 09/01/94
Vanguard Long-Term Corporate
Sub-Account (52.38%) 52.38% 09/01/94
Vanguard Wellington Sub-Account (99.78%) 99.78% 09/01/94
Fidelity Contrafund Sub-Account (153.75%) 153.75% 09/01/94
Scudder International Sub-Account (48.29%) 48.29% 09/01/94
Janus Twenty Sub-Account (256.30%) 256.30% 09/01/94
</TABLE>
Cumulative total return quotations for Sub-Accounts will be accompanied by
average annual total return figures for a one-year period, five-year period and
ten-year period or for the period since the Sub-Account became available
pursuant to the Group Variable Annuity Account's registration statement if less
than ten years. Average annual total return figures are the average annual
compounded rates of return required for an initial investment of $1,000 to equal
the surrender value of that same investment at the end of the period. The
surrender value will reflect the deduction of the deferred sales charge
applicable to the contract payments and to the length of the period the payments
remain in the contract. The average annual total return figures published by
the Group Variable Annuity Account will reflect Minnesota Life voluntary
absorption of certain Fund expenses. Prior to January 1, 1986, the Fund
incurred no expenses. During 1986 and from January 1 to March 8, 1987 Minnesota
Life voluntarily absorbed all fees and expenses of any Fund portfolio that
exceeded .75% of the average daily net assets of such Fund portfolio. For the
period subsequent to March 9, 1987, Minnesota Life is voluntarily absorbing
the fees and expenses that exceed .65% of the average daily net assets of the
Growth, Bond, Money Market, Asset Allocation and Mortgage Securities Portfolios
of the Fund, .55% of the average daily net assets of the Index 500 Portfolio of
the Fund, .90% of the average daily net assets of the Capital Appreciation and
Small Company Growth Portfolios of the Fund and expenses that exceed 1.00% of
the average daily net assets of the International Stock Portfolio of the Fund
exclusive of the advisory fee. And, for the period subsequent to May 2, 1994,
Minnesota Life has voluntarily absorbed fees and expenses that exceed .90% of
the average daily net assets of the Value Stock Portfolio and fees and expenses
that exceed .40% of the average daily net assets of the Maturing Government Bond
Portfolios. It should be noted that for the Maturing Government Bond Portfolio
maturing in 2002, Minnesota Life voluntarily absorbed fees and
5
<PAGE>
expenses that exceeded .20% of average daily net assets of this Portfolio
through April 30, 1998. For the period subsequent to April 30, 1998,
Minnesota Life has voluntarily absorbed fees and expenses that exceed .40% of
the average daily net assets of the Maturing Government Bond Portfolio
maturing in 2002. For the period subsequent to October 1, 1997, Minnesota
Life has voluntarily agreed to absorb fees and expenses that exceed .55% of
the average daily net assets of the Index 400 Mid-Cap Portfolio, .90% of the
average daily net assets of the Small Company Value and Real Estate
Securities Portfolios, .85% of the average daily net assets of the Macro-Cap
Value Portfolio and expenses that exceed 1.00% of the average daily net
assets of the Global Bond Portfolio of the Fund exclusive of the advisory
fee. There is no specified or minimum period of time during which Minnesota
Life has agreed to continue its voluntary absorption of these expenses, and
Minnesota Life may in its discretion cease its absorption of expenses at any
time. Should Minnesota Life cease absorbing expenses the effect would be to
increase substantially Fund expenses and thereby reduce investment return.
6
<PAGE>
The average annual rates of return for the Sub-Accounts, in connection with
the contract described in the Prospectus, for the specified periods ended
December 31, 1998 are shown in the tables below. The figures in parentheses
show what the average annual rates of return would have been had Minnesota
Life or the Underlying Fund's management not absorbed Series Fund or
Underlying Fund expenses as described above. These figures assume that the
contracts described herein were issued at the inception of the Group Variable
Annuity Contract. Total return is quoted for only those Sub-Accounts that
had purchase payments allocated to them as of December 31, 1998 under the
Group Variable Annuity Account.
<TABLE>
<CAPTION>
Group Deferred Variable Annuity
Year Ended Five Years Ten Years From Inception Date of
12/31/98 Ended 12/31/98 Ended 12/31/98 to 12/31/98 Inception
-------- -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth Sub-Account (26.69%) 26.69% (N/A) N/A (N/A) N/A (23.22%) 23.22% 01/31/96
Asset Allocation
Sub-Account (16.30%) 16.30% (N/A) N/A (N/A) N/A (14.52%) 14.52% 01/31/96
Index 500 Sub-Account (20.38%) 20.38% (N/A) N/A (N/A) N/A (24.76%) 24.76% 09/01/94
Vanguard Long-Term
Corporate Sub-Account (3.43%) 3.43% (N/A) N/A (N/A) N/A (9.77%) 9.77% 09/01/94
Vanguard Wellington
Sub-Account (5.40%) 5.40% (N/A) N/A (N/A) N/A (16.85%) 16.85% 09/01/94
Fidelity Contrafund
Sub-Account (23.71%) 23.71% (N/A) N/A (N/A) N/A (23.47%) 23.47% 09/01/94
Scudder International
Sub-Account (11.84%) 11.84% (N/A) N/A (N/A) N/A (9.09%) 9.09% 09/01/94
Janus Twenty
Sub-Account (61.77%) 61.77% (N/A) N/A (N/A) N/A (33.52%) 33.52% 09/01/94
</TABLE>
7
<PAGE>
The average annual total return figures described above may be accompanied by
other average annual total return quotations which do not reflect the
deduction of any deferred sales charges. Such other average annual total
return figures will be calculated as described above, except that the initial
$1,000 investment will be equated to that same investment's net asset value,
rather than its surrender value, at the end of the period. In addition,
these figures assume that the contracts described herein were issued at the
inception of the corresponding Series Fund Portfolios or Underlying Fund.
Thus the total returns reflect simulated performance under the Sub-Account of
the contract assuming all purchase payments had been allocated to the
Underlying Fund or Series Fund Portfolio, reduced for applicable expenses.
The average annual rates of return, as thus calculated, for the Sub-Accounts
of the contracts described in the Prospectus for the specified periods ended
December 31, 1998, are shown in the table below. The figures in parentheses
show what the average annual rates of return, without the application of
applicable deferred sales charges, would have been had Minnesota Life or
the Underlying Fund's management not absorbed Series Fund or the Underlying
Fund expenses as described above. Total return is quoted for only those
Sub-Accounts that had purchase payments allocated to them as of December 31,
1998 under The Group Variable Annuity Account.
<TABLE>
<CAPTION>
Year Ended Five Years Ten Years
12/31/98 Ended 12/31/98 Ended 12/31/98
-------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Growth Sub-Account (33.36%) 33.36% (20.02%) 20.02% (15.84%) 15.84%
Asset Allocation Sub-Account (22.42%) 22.42% (14.05%) 14.05% (12.77%) 12.77%
Index 500 Sub-Account (26.72%) 26.72% (21.92%) 21.92% (17.13%) 17.13%
Vanguard Long-Term Corporate Sub-Account (8.87%) 8.87% (7.59%) 7.59% (9.82%) 9.82%
Vanguard Wellington Sub-Account (10.94%) 10.94% (15.03%) 15.03% (13.13%) 13.13%
Fidelity Contrafund Sub-Account (30.22%) 30.22% (20.38%) 20.38% (22.81%) 22.81%
Scudder International Sub-Account (17.73%) 17.73% (8.78%) 8.78% (9.56%) 9.56%
Janus Twenty Sub-Account (71.67%) 71.67% (28.29%) 28.29% (24.51%) 24.51%
</TABLE>
8
<PAGE>
PREDICTABILITY OF RETURN
ANTICIPATED VALUE AT MATURITY. The maturity values of zero-coupon bonds are
specified at the time the bonds are issued, and this feature, combined with the
ability to calculate yield to maturity, has made these instruments popular
investment vehicles for investors seeking reliable investments to meet long-term
financial goals.
Each Maturing Government Bond Portfolio of the Fund consists primarily of
zero-coupon bonds but is actively managed to accommodate contract owner activity
and to take advantage of perceived market opportunities. Because of this active
management approach, there is no guarantee that a certain price per share of a
Maturing Government Bond Portfolio, or a certain price per unit of the
corresponding Sub-Account, will be attained by the time a Portfolio is
liquidated. Instead, the Fund attempts to track the price behavior of a
directly held zero-coupon bond by:
(1) Maintaining a weighted average maturity within each Maturing
Government Bond Portfolio's target maturity year;
(2) Investing at least 90% of assets in securities that mature within one
year of that Portfolio's target maturity year;
(3) Investing a substantial portion of assets in Treasury STRIPS (the most
liquid Treasury zero);
(4) Under normal conditions, maintaining a nominal cash balance;
(5) Executing portfolio transactions necessary to accommodate net contract
owner purchases or redemptions on a daily basis; and
(6) Whenever feasible, contacting several U.S. government securities
dealers for each intended transaction in an effort to obtain the best
price on each transaction.
These measures enable Minnesota Life to calculate an anticipated value at
maturity (AVM) for each unit of a Maturing Government Bond Sub-Account,
calculated as of the date of purchase of such unit, that approximates the price
per unit that such unit will achieve by the weighted average maturity date of
the underlying Portfolio. The AVM calculation for each Maturing Government Bond
Sub-Account is as follows:
2T
AVM = P(1 + AGR/2)
where P = the Sub-Account's current price per unit; T = the Sub-Account's
weighted average term to maturity in years; and AGR = the anticipated growth
rate.
This calculation assumes an expense ratio and a portfolio composition for the
underlying Maturing Government Bond Portfolio that remain constant for the life
of such Portfolio. Because the Portfolio's expenses and composition do not
remain constant, however, Minnesota Life
9
<PAGE>
may calculate AVM for each Maturing Government Bond Sub-Account on any day on
which the underlying Maturing Government Bond Portfolio is valued. Such an AVM
is applicable only to units purchased on that date.
In addition to the measures described above, which the adviser believes are
adequate to assure close correspondence between the price behavior of each
Portfolio and the price behavior of directly held zero-coupon bonds with
comparable maturities, the Fund expects that each Portfolio will invest at least
90% of its net assets in zero-coupon bonds until it is within four years of its
target maturity year and at least 80% of its net assets in zero-coupon
securities within two to four years of its target maturity year. This
expectation may be altered if the market supply of zero-coupon securities
diminishes unexpectedly.
ANTICIPATED GROWTH RATE. Minnesota Life calculates an anticipated growth rate
(AGR) for each Maturing Government Bond Sub-Account on each day on which the
underlying Portfolio is valued. AGR is a calculation of the anticipated
annualized rate of growth for a Sub-Account unit, calculated from the date of
purchase of such unit to the Sub-Account's target maturity date. As is the case
with calculations of AVM, the AGR calculation assumes that each underlying
Maturing Government Bond Portfolio expense ratio and portfolio composition will
remain constant. Each Maturing Government Bond Sub-Account AGR changes from day
to day (i.e., a particular AGR calculation is applicable only to units purchased
on that date), due primarily to changes in interest rates and, to a lesser
extent, to changes in portfolio composition and other factors that affect the
value of the underlying Portfolio.
Minnesota Life expects that a contract owner who holds specific units until
the underlying Portfolio's weighted average maturity date will realize an
investment return and maturity value on those units that do not differ
substantially from the AGR and AVM calculated on the day such units were
purchased. The AGR and AVM calculated with respect to units purchased on any
other date, however, may be materially different.
10
<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
Consolidated Financial Statements of Minnesota 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.
11
<PAGE>
Independent Auditors' Report
The Board of Directors
Minnesota Life Insurance Company
We have audited the accompanying consolidated balance sheets of the Minnesota
Life Insurance Company and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations and comprehensive income,
changes in stockholder's equity and cash flows for each of the years in the
three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Minnesota Life Insurance Company and subsidiaries as of December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplementary
information included in the accompanying schedules is presented for purpose of
additional analysis and is not a required part of the basic consolidated
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic consolidated financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic consolidated financial statements taken as a whole.
Minneapolis, Minnesota
February 8, 1999
66
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Balance Sheets
December 31, 1998 and 1997
Assets
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(In thousands)
<S> <C> <C>
Fixed maturity securities:
Available-for-sale, at fair value (amortized cost
$4,667,688 and $4,518,807) $ 4,914,012 $ 4,719,801
Held-to-maturity, at amortized cost (fair value
$1,161,784 and $1,158,227) 1,086,548 1,088,312
Equity securities, at fair value (cost $579,546 and
$537,441) 749,800 686,638
Mortgage loans, net 681,219 661,337
Real estate, net 38,530 39,964
Policy loans 226,409 213,488
Short-term investments 136,435 112,352
Other invested assets 261,625 216,838
----------- -----------
Total investments 8,094,578 7,738,730
Cash 175,660 96,179
Finance receivables, net 163,411 211,794
Deferred policy acquisition costs 564,382 576,030
Accrued investment income 86,974 83,439
Premiums receivable, net 62,609 68,030
Property and equipment, net 67,448 58,123
Reinsurance recoverables 162,553 150,126
Other assets 61,183 52,852
Separate account assets 6,994,752 5,366,810
----------- -----------
Total assets $16,433,550 $14,402,113
=========== ===========
Liabilities and Stockholder's Equity
Liabilities:
Policy and contract account balances $ 4,242,802 $ 4,275,221
Future policy and contract benefits 1,744,245 1,687,529
Pending policy and contract claims 70,564 64,356
Other policyholders' funds 438,595 416,752
Policyholders' dividends payable 53,957 55,321
Stockholder dividend payable 24,700 --
Unearned premiums and fees 180,191 202,070
Federal income tax liability:
Current 53,039 45,300
Deferred 173,907 166,057
Other liabilities 514,468 334,305
Notes payable 267,000 298,000
Separate account liabilities 6,947,806 5,320,517
----------- -----------
Total liabilities 14,711,274 12,865,428
----------- -----------
Stockholder's equity:
Common stock, $1 par value, 5,000,000 shares
authorized, issued and outstanding 5,000 --
Retained earnings 1,513,661 1,380,012
Accumulated other comprehensive income 203,615 156,673
----------- -----------
Total stockholder's equity 1,722,276 1,536,685
----------- -----------
Total liabilities and stockholder's equity $16,433,550 $14,402,113
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
67
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
Years ended December 31, 1998, 1997, and 1996
Statements of Operations
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Revenues:
Premiums $ 577,693 $ 615,253 $ 612,359
Policy and contract fees 300,361 272,037 245,966
Net investment income 531,081 553,773 530,987
Net realized investment gains 114,652 114,367 55,574
Finance charge income 35,880 43,650 46,932
Other income 73,498 71,707 51,630
---------- ---------- ----------
Total revenues 1,633,165 1,670,787 1,543,448
---------- ---------- ----------
Benefits and expenses:
Policyholders' benefits 519,926 515,873 541,520
Interest credited to policies and con-
tracts 290,870 298,033 288,967
General operating expenses 360,916 369,961 302,618
Commissions 110,211 114,404 103,370
Administrative and sponsorship fees 80,183 81,750 79,360
Dividends to policyholders 25,159 26,776 24,804
Interest on notes payable 22,360 24,192 22,798
Increase in deferred policy acquisition
costs (18,042) (26,878) (19,284)
---------- ---------- ----------
Total benefits and expenses 1,391,583 1,404,111 1,344,153
---------- ---------- ----------
Income from operations before taxes 241,582 266,676 199,295
Federal income tax expense (benefit):
Current 93,584 84,612 68,033
Deferred (15,351) (7,832) 744
---------- ---------- ----------
Total federal income tax expense 78,233 76,780 68,777
---------- ---------- ----------
Net income $ 163,349 $ 189,896 $ 130,518
========== ========== ==========
Other comprehensive income, after tax:
Foreign currency translation adjust-
ments $ (947) $ 947 $ --
Unrealized gains (losses) on securities 47,889 47,414 (44,940)
---------- ---------- ----------
Other comprehensive income, net of tax 46,942 48,361 (44,940)
---------- ---------- ----------
Comprehensive income $ 210,291 $ 238,257 $ 85,578
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
68
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Common stock:
Issued during the year $ 5,000 $ -- $ --
---------- ---------- ----------
Total common stock $ 5,000 $ -- $ --
========== ========== ==========
Retained earnings:
Beginning balance $1,380,012 $1,190,116 $1,059,598
Net income 163,349 189,896 130,518
Retained earnings transfer for common
stock issued (5,000) -- --
Dividends to stockholder (24,700) -- --
---------- ---------- ----------
Total retained earnings $1,513,661 $1,380,012 $1,190,116
========== ========== ==========
Accumulated other comprehensive income:
Beginning balance $ 156,673 $ 108,312 $ 153,252
Change in unrealized appreciation (de-
preciation) of investments 47,889 47,414 (44,940)
Change in unrealized gain on foreign
currency translation (947) 947 --
---------- ---------- ----------
Total accumulated other comprehensive
income $ 203,615 $ 156,673 $ 108,312
========== ========== ==========
Total stockholder's equity $1,722,276 $1,536,685 $1,298,428
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
69
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 163,349 $ 189,896 $ 130,518
Adjustments to reconcile net income to
net cash provided by operating activi-
ties:
Interest credited to annuity and in-
surance contracts 265,841 276,719 275,968
Fees deducted from policy and con-
tract balances (212,901) (214,803) (206,780)
Change in future policy benefits 56,716 76,358 84,389
Change in other policyholders' lia-
bilities (20,802) 7,597 16,099
Change in deferred policy acquisition
costs (18,042) (26,878) (19,284)
Change in premiums due and other re-
ceivables 5,421 (9,280) (26,142)
Change in federal income tax liabili-
ties 15,589 36,049 (38,113)
Net realized investment gains (114,652) (114,367) (55,574)
Other, net 32,380 (23,213) 56,045
----------- ----------- -----------
Net cash provided by operating ac-
tivities 172,899 198,078 217,126
----------- ----------- -----------
Cash Flows from Investing Activities
Proceeds from sales of:
Fixed maturity securities, available-
for-sale 1,835,726 1,099,114 877,682
Equity securities 523,617 601,936 352,901
Mortgage loans -- -- 15,567
Real estate 7,800 9,279 11,678
Other invested assets 21,682 26,877 12,280
Proceeds from maturities and repayments
of:
Fixed maturity securities, available-
for-sale 414,726 403,829 329,550
Fixed maturity securities, held-to-
maturity 148,848 139,394 114,222
Mortgage loans 126,066 109,246 94,703
Purchases of:
Fixed maturity securities, available-
for-sale (2,384,720) (1,498,048) (1,228,048)
Fixed maturity securities, held-to-
maturity (99,530) (82,835) (60,612)
Equity securities (516,907) (585,349) (446,599)
Mortgage loans (141,008) (157,247) (108,691)
Real estate (5,612) (3,908) (3,786)
Other invested assets (75,682) (55,988) (29,271)
Finance receivable originations or pur-
chases (77,141) (115,248) (175,876)
Finance receivable principal payments 109,277 133,762 142,723
Other, net 141,768 (88,626) (40,062)
----------- ----------- -----------
Net cash provided by (used for) in-
vesting activities 28,910 (63,812) (141,639)
----------- ----------- -----------
Cash Flows from Financing Activities
Deposits credited to annuity and insur-
ance contracts 952,622 928,696 657,405
Withdrawals from annuity and insurance
contracts (1,053,844) (1,013,588) (702,681)
Proceeds from issuance of debt 40,000 -- 60,000
Payments on debt (31,000) (21,000) (21,000)
Other, net (6,023) (3,355) (6,898)
----------- ----------- -----------
Net cash used for financing activi-
ties (98,245) (109,247) (13,174)
----------- ----------- -----------
Net increase in cash and short-term in-
vestments 103,564 25,019 62,313
Cash and short-term investments, begin-
ning of year 208,531 183,512 121,199
----------- ----------- -----------
Cash and short-term investments, end of
year $ 312,095 $ 208,531 $ 183,512
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
70
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
(1) Nature of Operations
Conversion to a Mutual Holding Company Structure
Consent was given from the Minnesota Department of Commerce (Department of
Commerce) allowing The Minnesota Mutual Life Insurance Company to implement a
conversion to a mutual holding company. The Minnesota Mutual Life Insurance
Company enacted this privilege effective October 1, 1998. The conversion
created Minnesota Mutual Companies, Inc., a mutual holding company, Securian
Holding Company and Securian Financial Group, Inc., which are intermediate
stock holding companies. The Minnesota Mutual Life Insurance Company was
converted into a stock life insurance company and renamed Minnesota Life
Insurance Company. Minnesota Mutual Companies, Inc. will at all times, in
accordance with the conversion plan and as required by the Mutual Insurance
Holding Company Act, directly or indirectly control Minnesota Life Insurance
Company through the ownership of at least a majority of the voting power of the
voting shares of the capital stock of Minnesota Life Insurance Company. Annuity
contract and life insurance policyholders of Minnesota Life Insurance Company
have certain membership interests consisting primarily of the right to vote on
certain matters involving Minnesota Mutual Companies, Inc. and the right to
receive distributions of surplus in the event of demutualization, dissolution
or liquidation of Minnesota Mutual Companies, Inc.
Description of Business
Minnesota Life Insurance Company, both directly and through its subsidiaries
(collectively, the Company), provides a diversified array of insurance and
financial products and services designed principally to protect and enhance the
long-term financial well-being of individuals and families.
The Company's strategy is to be successful in carefully selected niche
markets, primarily in the United States, while focusing on the retention of
existing business and the maintenance of profitability. To achieve this
objective, the Company has divided its businesses into five strategic business
units which focus on various markets: Individual Insurance, Financial Services,
Group Insurance, Pension and Asset Management. Revenues in 1998 for these
business units were $862,240,000, $273,511,000, $258,928,000, $102,061,000 and
$20,723,000, respectively. Additional revenues of $115,702,000 were reported by
the Company's subsidiaries.
The Company serves over six million people through more than 4,000 associates
located at its St. Paul, Minnesota headquarters and in 75 general agencies and
45 regional offices throughout the United States.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP), which vary in
certain respects from accounting practices prescribed or permitted by state
insurance regulatory authorities. The consolidated financial statements include
the accounts of the Minnesota Life Insurance Company and its subsidiaries. All
material intercompany transactions and balances have been eliminated.
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates and assumptions that affect reported
assets and liabilities, including reporting or disclosure of contingent assets
and liabilities as of the balance sheet date and the reported amounts of
revenues and expenses during the reporting period. Future events, including
changes in mortality, morbidity, interest rates and asset valuations, could
cause actual results to differ from the estimates used in the financial
statements.
Insurance Revenues and Expenses
Premiums on traditional life products, which include individual whole life and
term insurance and immediate annuities, are credited to revenue when due. For
accident and health and group life products, premiums are credited to revenue
over the contract period as earned. Benefits and expenses are recognized in
relation to premiums over the contract period via a provision for future policy
benefits and the amortization of deferred policy acquisition costs.
71
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
Nontraditional life products include individual adjustable and variable life
insurance and group universal and variable life insurance. Revenue from
nontraditional life products and deferred annuities is comprised of policy and
contract fees charged for the cost of insurance, policy administration and
surrenders. Expenses include the portion of claims not covered by and interest
credited to the related policy and contract account balances. Policy
acquisition costs are amortized relative to estimated gross profits or margins.
Deferred Policy Acquisition Costs
The costs of acquiring new and renewal business, which vary with and are
primarily related to the production of new and renewal business, are generally
deferred to the extent recoverable from future premiums or expected gross
profits. Deferrable costs include commissions, underwriting expenses and
certain other selling and issue costs.
For traditional life, accident and health and group life products, deferred
policy acquisition costs are amortized over the premium paying period in
proportion to the ratio of annual premium revenues to ultimate anticipated
premium revenues. The ultimate premium revenues are estimated based upon the
same assumptions used to calculate the future policy benefits.
For nontraditional life products and deferred annuities, deferred policy
acquisition costs are amortized over the estimated lives of the contracts in
relation to the present value of estimated gross profits from surrender charges
and investment, mortality and expense margins.
Deferred policy acquisition costs amortized were $148,098,000, $128,176,000
and $125,978,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Finance Charge Income and Receivables
Finance charge income represents fees and interest charged on consumer loans.
The Company uses the interest (actuarial) method of accounting for finance
charges and interest on finance receivables. Accrual of finance charges and
interest on the smaller balance homogeneous finance receivables is suspended
when a loan is contractually delinquent for more than 60 days and is
subsequently recognized when received. Accrual is resumed when the loan is
contractually less than 60 days past due. Finance charges and interest is
suspended when a loan is considered by management to be impaired. Loan
impairment is measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or as a practical expedient,
at the observable market price of the loan or the fair value of the collateral
if the loan is collateral dependent. When a loan is identified as impaired,
interest previously accrued in the current year is reversed. Interest payments
received on impaired loans are generally applied to principal unless the
remaining principal balance has been determined to be fully collectible. An
allowance for uncollectible amounts is maintained by direct charges to
operations at an amount which management believes, based upon historical losses
and economic conditions, is adequate to absorb probable losses on existing
receivables that may become uncollectible. The reported receivables are net of
this allowance.
Valuation of Investments
Fixed maturity securities (bonds) which the Company has the positive intent and
ability to hold to maturity are classified as held-to-maturity and are carried
at amortized cost, net of write-downs for other than temporary declines in
value. Premiums and discounts are amortized or accreted over the estimated
lives of the securities based on the interest yield method. Fixed maturity
securities, which may be sold prior to maturity, are classified as available-
for-sale and are carried at fair value.
Equity securities (common stocks and preferred stocks) are carried at fair
value. Equity securities also include initial contributions to affiliated
registered investment funds that are managed by a subsidiary of the Company.
These contributions are carried at the market value of the underlying net
assets of the funds.
Mortgage loans are carried at amortized cost less an allowance for
uncollectible amounts. Premiums and discounts are amortized or accreted over
the terms of the mortgage loans based on the interest yield method. A
72
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
mortgage loan is considered impaired if it is probable that contractual amounts
due will not be collected. Impaired mortgage loans are valued at the fair value
of the underlying collateral. Interest income on impaired mortgage loans is
recorded on an accrual basis. However, when the likelihood of collection is
doubtful, interest income is recognized when received.
Fair values of fixed maturity securities and equity securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are estimated using values obtained from independent
pricing services which specialize in matrix pricing and modeling techniques for
estimating fair values. Fair values of mortgage loans are based upon discounted
cash flows, quoted market prices and matrix pricing.
Venture capital limited partnerships are carried at cost, net of write-downs
for other than temporary declines in value and allowances for temporary
declines in value. Cash distributions are recorded as a return of capital
and/or income as appropriate. In-kind distributions are recorded as a return of
capital for the cost basis of the stock received.
Real estate is carried at cost less accumulated depreciation and an allowance
for estimated losses. Accumulated depreciation on real estate at December 31,
1998 and 1997, was $6,713,000 and $6,269,000, respectively.
Policy loans are carried at the unpaid principal balance.
Derivative Financial Instruments
The Company entered into equity swaps in 1996 as part of an overall risk
management strategy. The swaps were used to hedge exposure to market risk on
$400,000,000 of the Company's common stock portfolio. The swaps were based upon
certain stock indices. If, at the time of settlement for a particular swap, the
designated stock index had fallen below a specified level, the counterparty
would pay the Company an amount based upon the decline in the index and the
stock portfolio value protected by the swap. If, at the time of settlement, the
designated stock index had risen, the Company would pay the counterparty an
amount based upon the increase in the index and 25% of the stock portfolio
value protected by the swap. The equity swaps were settled with the
counterparties in August 1997. The swaps were carried at fair value, which were
based upon dealer quotes. Changes in fair value were recorded directly in
stockholder's equity. Upon settlement of the swaps, gains or losses were
recognized in income, and the Company realized a loss of approximately
$31,000,000 in 1997, upon settlement of these equity swaps.
The Company began investing in international bonds denominated in foreign
currencies in 1997. Unrealized gains or losses are recorded on foreign
denominated securities due to the fluctuation in foreign currency exchange
rates and/or related payables and receivables and interest on foreign
securities. The Company uses forward foreign exchange currency contracts as
part of its risk management strategy for international investments. The forward
foreign exchange currency contracts are used to reduce market risks from
changes in foreign exchange rates. These forward foreign exchange currency
contracts are agreements to purchase a specified amount of one currency in
exchange for a specified amount of another currency at a future point in time
at a foreign exchange currency rate agreed upon on the contract open date. No
cash is exchanged at the outset of the contract and no payments are made by
either party until the contract close date. On the contract close date the
contracted amount of the purchased currency is received from the counterparty
and the contracted amount of the sold currency is sent to the counterparty.
Realized and unrealized gains and losses on these forward foreign exchange
contracts are recorded in income as incurred. In addition, these contracts are
generally short-term in nature and there is no material exposure to the Company
at December 31, 1998. Notional amounts for the years ended December 31, 1998
and 1997, were $115,194,000 and $80,997,000, respectively.
73
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
Capital Gains and Losses
Realized and unrealized capital gains and losses are determined on the specific
identification method. Write-downs of held-to-maturity securities and the
provision for credit losses on mortgage loans and real estate are recorded as
realized losses.
Changes in the fair value of fixed maturity securities available-for-sale and
equity securities are recorded as a separate component of stockholder's equity,
net of taxes and related adjustments to deferred policy acquisition costs and
unearned policy and contract fees.
Property and Equipment
Property and equipment are carried at cost, net of accumulated depreciation of
$101,692,000 and $90,926,000 at December 31, 1998 and 1997, respectively.
Buildings are depreciated over 40 years and equipment is generally depreciated
over 5 to 10 years. Depreciation expenses for the years ended December 31,
1998, 1997 and 1996, were $10,765,000, $8,965,000 and $6,454,000, respectively.
Separate Accounts
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the exclusive benefit of pension, variable
annuity and variable life insurance policyholders and contractholders. Assets
consist principally of marketable securities and both assets and liabilities
are reported at fair value, based upon the market value of the investments held
in the segregated funds. The Company receives administrative and investment
advisory fees for services rendered on behalf of these accounts.
The Company periodically invests money in its separate accounts. The market
value of such investments, included with separate account assets, amounted to
$46,945,000 and $46,293,000 at December 31, 1998 and 1997, respectively.
Policyholders' Liabilities
Policy and contract account balances represent the net accumulation of funds
associated with nontraditional life products and deferred annuities. Additions
to the account balances include premiums, deposits and interest credited by the
Company. Decreases in the account balances include surrenders, withdrawals,
benefit payments, and charges assessed for the cost of insurance, policy
administration and surrenders.
Future policy and contract benefits are comprised of reserves for traditional
life, group life, and accident and health products. The reserves were
calculated using the net level premium method based upon assumptions regarding
investment yield, mortality, morbidity, and withdrawal rates determined at the
date of issue, commensurate with the Company's experience. Provision has been
made in certain cases for adverse deviations from these assumptions.
Other policyholders' funds are comprised of dividend accumulations, premium
deposit funds and supplementary contracts without life contingencies.
Participating Business
Dividends on participating policies and other discretionary payments are
declared by the Board of Directors based upon actuarial determinations, which
take into consideration current mortality, interest earnings, expense factors
and federal income taxes. Dividends are recognized as expenses consistent with
the recognition of premiums.
Income Taxes
Current income taxes are charged to operations based upon amounts estimated to
be payable as a result of taxable operations for the current year. Deferred
income tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between financial statement
carrying amounts and income tax bases of assets and liabilities.
74
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Account Policies (continued)
Reinsurance Recoverables
Insurance liabilities are reported before the effects of ceded reinsurance.
Reinsurance recoverables represent amounts due from reinsurers for paid and
unpaid benefits, expense reimbursements, prepaid premiums and future policy
benefits.
Reclassifications
Certain 1997 and 1996 consolidated financial statement balances have been
reclassified to conform to the 1998 presentation.
(3) Investments
Net investment income for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities $445,220 $457,391 $433,985
Equity securities 12,183 16,182 14,275
Mortgage loans 54,785 55,929 63,865
Real estate (236) (407) (475)
Policy loans 15,502 15,231 13,828
Short-term investments 6,147 6,995 6,535
Other invested assets 3,826 3,871 4,901
-------- -------- --------
Gross investment income 537,427 555,192 536,914
Investment expenses (6,346) (1,419) (5,927)
-------- -------- --------
Total $531,081 $553,773 $530,987
======== ======== ========
Net realized investment gains (losses) for the years ended December 31 were
as follows:
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities $ 43,244 $ 3,711 $ (6,536)
Equity securities 47,526 92,765 57,770
Mortgage loans 3,399 2,011 (721)
Real estate 7,809 1,598 7,088
Other invested assets 12,674 14,282 (2,027)
-------- -------- --------
Total $114,652 $114,367 $ 55,574
======== ======== ========
Gross realized gains (losses) on the sales of fixed maturity securities and
equity securities for the years ended December 31 were as follows:
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities, available-for-sale:
Gross realized gains $ 56,428 $ 18,804 $ 19,750
Gross realized losses (13,184) (15,093) (26,286)
Equity securities:
Gross realized gains 107,342 120,437 79,982
Gross realized losses (59,816) (27,672) (22,212)
</TABLE>
75
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3)Investments (continued)
Net unrealized gains (losses) included in stockholder's equity at December 31
were as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
Gross unrealized gains $ 487,479 $ 472,671
Gross unrealized losses (73,440) (118,863)
Adjustment to deferred acquisition costs (119,542) (100,299)
Adjustment to unearned policy and contract fees 15,912 (13,087)
Deferred federal income taxes (106,794) (83,749)
--------- ---------
Net unrealized gains $ 203,615 $ 156,673
========= =========
</TABLE>
76
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3)Investments (continued)
The amortized cost and fair value of investments in marketable securities by
type of investment were as follows:
<TABLE>
<CAPTION>
Gross Unrealized
-----------------
Amortized Fair
Cost Gains Losses Value
---------- -------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
December 31, 1998
Available-for-sale:
United States government and
government agencies and
authorities $ 195,650 $ 17,389 $ 201 $ 212,838
Foreign governments 784 -- 311 473
Corporate securities 2,357,861 204,277 30,648 2,531,490
International bond securities 188,448 22,636 1,298 209,786
Mortgage-backed securities 1,924,945 52,580 18,100 1,959,425
---------- -------- -------- ----------
Total fixed maturities 4,667,688 296,882 50,558 4,914,012
Equity securities-unaffiliated 463,777 157,585 15,057 606,305
Equity securities-affiliated
mutual funds 115,769 27,726 -- 143,495
---------- -------- -------- ----------
Total equity securities 579,546 185,311 15,057 749,800
---------- -------- -------- ----------
Total available-for-sale 5,247,234 482,193 65,615 5,663,812
Held-to maturity:
Corporate securities 894,064 67,496 235 961,325
Mortgage-backed securities 192,484 9,030 1,055 200,459
---------- -------- -------- ----------
Total held-to-maturity 1,086,548 76,526 1,290 1,161,784
---------- -------- -------- ----------
Total $6,333,782 $558,719 $ 66,905 $6,825,596
========== ======== ======== ==========
<CAPTION>
Gross Unrealized
-----------------
Amortized Fair
Cost Gains Losses Value
---------- -------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
December 31, 1997
Available-for-sale:
United States government and
government agencies and authori-
ties $ 239,613 $ 18,627 $ -- $ 258,240
Foreign governments 1,044 -- 29 1,015
Corporate securities 2,273,474 216,056 70,484 2,419,046
International bond securities 150,157 2,565 23,530 129,192
Mortgage-backed securities 1,854,519 66,934 9,145 1,912,308
---------- -------- -------- ----------
Total fixed maturities 4,518,807 304,182 103,188 4,719,801
Equity securities-unaffiliated 421,672 134,558 14,575 541,655
Equity securities-affiliated mu-
tual funds 115,769 29,214 -- 144,983
---------- -------- -------- ----------
Total equity securities 537,441 163,772 14,575 686,638
---------- -------- -------- ----------
Total available-for-sale 5,056,248 467,954 117,763 5,406,439
Held-to maturity:
Corporate securities 893,407 59,850 752 952,505
Mortgage-backed securities 194,905 10,817 -- 205,722
---------- -------- -------- ----------
Total held-to-maturity 1,088,312 70,667 752 1,158,227
---------- -------- -------- ----------
Total $6,144,560 $538,621 $118,515 $6,564,666
========== ======== ======== ==========
</TABLE>
77
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3) Investments (continued)
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1998, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
--------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 38,375 $ 35,299 $ 11,109 $ 11,346
Due after one year through five
years 529,019 616,064 128,658 133,657
Due after five years through ten
years 1,251,763 1,316,512 373,294 403,159
Due after ten years 923,586 986,712 381,003 413,163
---------- ---------- ---------- ----------
2,742,743 2,954,587 894,064 961,325
Mortgage-backed securities 1,924,945 1,959,425 192,484 200,459
---------- ---------- ---------- ----------
Total $4,667,688 $4,914,012 $1,086,548 $1,161,784
========== ========== ========== ==========
</TABLE>
At December 31, 1998 and 1997, fixed maturity securities and short-term
investments with a carrying value of $6,361,000 and $8,000,000, respectively,
were on deposit with various regulatory authorities as required by law.
Allowances for credit losses on investments are reflected on the consolidated
balance sheets as a reduction of the related assets and were as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Mortgage loans $ 1,500 $ 1,500
Investment real estate 841 2,248
------- -------
Total $ 2,341 $ 3,748
======= =======
</TABLE>
At December 31, 1998, the recorded investment in mortgage loans that were
considered to be impaired was $8,798 before allowance for credit losses. These
impaired loans, due to adequate fair market value of underlying collateral, do
not have an allowance for credit losses.
At December 31, 1997, the recorded investment in mortgage loans that were
considered to be impaired was $18,400 before allowance for credit losses. These
impaired loans, due to adequate fair market value of underlying collateral, do
not have an allowance for credit losses.
A general allowance for credit losses was established for potential
impairments in the remainder of the mortgage loan portfolio. The general
allowance was $1,500,000 at December 31, 1998 and 1997.
Changes in the allowance for credit losses on mortgage loans were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $1,500 $1,895 $1,711
Provision for credit losses -- -- 381
Charge-offs -- (395) (197)
------ ------ ------
Balance at end of year $1,500 $1,500 $1,895
====== ====== ======
</TABLE>
78
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3) Investments (continued)
Below is a summary of interest income on impaired mortgage loans.
<TABLE>
<CAPTION>
1998 1997 1996
---- ------ ------
(In thousands)
<S> <C> <C> <C>
Average impaired mortgage loans $14 $3,268 $9,375
Interest income on impaired mortgage loans--contractual 18 556 1,796
Interest income on impaired mortgage loans--collected 17 554 1,742
</TABLE>
(4) Notes Receivable
In connection with the Company's planned construction of an additional home
office facility in St. Paul, Minnesota, the Company entered into a loan
contingency agreement with the Housing and Redevelopment Authority of the City
of St. Paul, Minnesota (HRA) in November 1997. A maximum of $15 million in
funds is available under this loan for condemnation and demolition of the
Company's proposed building site. The note bears interest at a rate of 8.625%,
with principal payments commencing February 2004 and a maturity date of August
2025. Interest payments are accrued and are payable February and August of each
year commencing February 2001. All principal and interest payments are due only
to the extent of available tax increments. As of December 31, 1998, HRA has
drawn $9,669,128 on this loan contingency agreement and accrued interest of
$673,435.
(5) Net Finance Receivables
Finance receivables as of December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Direct installment loans $147,425 $183,424
Retail installment notes 12,209 20,373
Retail revolving credit 17,170 25,426
Accrued interest 2,683 3,116
-------- --------
Gross receivables 179,487 232,339
Allowance for uncollectible amounts (16,076) (20,545)
-------- --------
Finance receivables, net $163,411 $211,794
======== ========
</TABLE>
Direct installment loans at December 31, 1998, consisted of $81,066,000 of
discount basis loans (net of unearned finance charges) and $66,359,000 of
interest-bearing loans. Direct installment loans at December 31, 1997,
consisted of $83,836,000 of discount basis loans (net of unearned finance
charges) and $99,588,000 of interest-bearing loans. Direct installment loans
generally have a maximum term of 84 months. Retail installment notes are
principally discount basis, arise from the sale of household appliances,
furniture, and sundry services, and generally have a maximum term of 48 months.
Direct installment loans included approximately $44,000,000 and $65,000,000 of
real estate secured loans at December 31, 1998 and 1997, respectively.
Revolving credit loans included approximately $16,000,000 and $24,000,000 of
real estate secured loans at December 31, 1998 and 1997, respectively.
Experience has shown that a substantial portion of finance receivables will be
renewed, converted or paid in full prior to maturity.
Principal cash collections of direct installment loans amounted to
$75,011,000, $90,940,000 and $92,438,000 and the percentage of these cash
collections to the average net balances were 47%, 47% and 48% for the years
ended December 31, 1998, 1997 and 1996, respectively.
79
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(5) Net Finance Receivables (continued)
Changes in the allowance for uncollectible amounts for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $20,545 $ 7,497 $ 6,377
Provision for credit losses 10,712 28,206 10,086
Charge-offs (18,440) (17,869) (11,036)
Recoveries 3,259 2,711 2,070
------- ------- -------
Balance at end of year $16,076 $20,545 $ 7,497
======= ======= =======
</TABLE>
At December 31, 1998, the recorded investment in certain direct installment
loans and direct revolving credit loans were considered to be impaired. The
balances of such loans at December 31, 1998 and the related allowance for
credit losses were as follows:
<TABLE>
<CAPTION>
Installment Revolving
Loans Credit Total
----------- --------- -------
(In thousands)
<S> <C> <C> <C>
Balances at December 31, 1998 $7,546 11,190 $18,736
Related allowance for credit losses $3,033 5,486 $ 8,519
</TABLE>
All loans deemed to be impaired are placed on a non-accrual status. No
accrued or unpaid interest was recognized on impaired loans during 1998. The
average quarterly balances of impaired loans during the year ended December 31,
1998 and 1997, was $6,354,000 and $7,397,000, respectively, for installment
basis loans and $12,471,000 and $12,793,000, respectively for revolving credit
direct loans.
There were no material commitments to lend additional funds to customers
whose loans were classified as non-accrual at December 31, 1998.
(6) Income Taxes
Income tax expense varies from the amount computed by applying the federal
income tax rate of 35% to income from operations before taxes. The significant
components of this difference were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Computed tax expense $84,553 $93,337 $69,753
Difference between computed and actual tax ex-
pense:
Dividends received deduction (1,730) (5,573) (2,534)
Special tax on mutual life insurance companies (3,455) 3,341 2,760
Sale of subsidiary -- (4,408) --
Foundation gain -- (4,042) (1,260)
Tax credits (4,416) (3,600) (3,475)
Expense adjustments and other 3,281 (2,275) 3,533
------- ------- -------
Total tax expense $78,233 $76,780 $68,777
======= ======= =======
</TABLE>
80
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(6) Income Taxes (continued)
The tax effects of temporary differences that give rise to the Company's net
deferred federal tax liability were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Policyholders' liabilities $ 16,999 $ 14,374
Pension and post retirement benefits 27,003 23,434
Tax deferred policy acquisition costs 82,940 73,134
Net realized capital losses 8,221 9,609
Other 18,487 20,524
-------- --------
Gross deferred tax assets 153,650 141,075
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs 155,655 152,337
Real estate and property and equipment depreciation 10,275 11,165
Basis difference on investments 10,798 11,061
Net unrealized capital gains 143,354 122,876
Other 7,475 9,693
-------- --------
Gross deferred tax liabilities 327,557 307,132
-------- --------
Net deferred tax liability $173,907 $166,057
======== ========
</TABLE>
A valuation allowance for deferred tax assets was not considered necessary as
of December 31, 1998 and 1997, because the Company believes that it is more
likely than not that the deferred tax assets will be realized through future
reversals of existing taxable temporary differences and future taxable income.
Income taxes paid for the years ended December 31, 1998, 1997 and 1996, were
$91,259,000, $71,108,000 and $79,026,000, respectively.
The Company's tax returns for 1997, 1996 and 1995 are under examination by
the Internal Revenue Service. The Company believes additional taxes, if any,
assessed as a result of these examinations, will not have a material effect on
its financial position.
81
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(7) Liability for Unpaid Accident and Health Claims, Reserve for Losses, and
Claim and Loss Adjustment Expenses
Activity in the liability for unpaid accident and health claims, reserve for
losses and claim and loss adjustment expenses is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Balance at January 1 $409,249 $416,910 $377,302
Less: reinsurance recoverable 104,741 102,161 80,333
-------- -------- --------
Net balance at January 1 304,508 314,749 296,969
-------- -------- --------
Incurred related to:
Current year 92,793 121,153 134,727
Prior years 14,644 7,809 4,821
-------- -------- --------
Total incurred 107,437 128,962 139,548
-------- -------- --------
Paid related to:
Current year 27,660 51,275 51,695
Prior years 58,124 57,475 70,073
-------- -------- --------
Total paid 85,784 108,750 121,768
-------- -------- --------
Decrease in liabilities due to sale of subsidiary -- 30,453 --
-------- -------- --------
Net balance at December 31 326,161 304,508 314,749
Plus: reinsurance recoverable 108,918 104,741 102,161
-------- -------- --------
Balance at December 31 $435,079 $409,249 $416,910
======== ======== ========
</TABLE>
The liability for unpaid accident and health claims, reserve for losses and
claim and loss adjustment expenses is included in future policy and contract
benefits and pending policy and contract claims on the consolidated balance
sheets.
As a result of changes in estimates of claims incurred in prior years, the
accident and health claims, reserve for losses and claim and loss adjustment
expenses incurred increased by $14,644,000, $7,809,000 and $4,821,000 in 1998,
1997 and 1996, respectively. These amounts are the result of normal reserve
development inherent in the uncertainty of establishing the liability for
unpaid accident and health claims, reserve for losses and claim and loss
adjustment expenses.
(8) Employee Benefit Plans
Pension Plans and Post Retirement Plans Other than Pensions
The Company has noncontributory defined benefit retirement plans covering
substantially all employees and certain agents. Benefits are based upon years
of participation and the employee's average monthly compensation or the agent's
adjusted annual compensation. Plan assets are comprised of mostly stocks and
bonds, which are held in the general and separate accounts of the Company and
administered under group annuity contracts issued by the Company. The Company's
funding policy is to contribute annually the minimum amount required by
applicable regulations. The Company also has an unfunded noncontributory
defined benefit retirement plan, which provides certain employees with benefits
in excess of limits for qualified retirement plans.
The Company also has unfunded post retirement plans that provide certain
health care and life insurance benefits to substantially all retired employees
and agents. Eligibility is determined by age at retirement and years of service
after age 30. Health care premiums are shared with retirees, and other cost-
sharing features include deductibles and co-payments.
82
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(8) Employee Benefit Plans (continued)
The change in the benefit obligation and plan assets for the Company's plans
as of December 31 was calculated as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of
year $151,509 $134,959 $ 24,467 $ 24,836
Service cost 8,402 6,847 1,375 1,047
Interest cost 10,436 9,956 1,713 1,872
Amendments 6 -- -- (99)
Actuarial gain 16,298 3,816 4,542 (1,930)
Benefits paid (5,212) (4,069) (861) (1,259)
-------- -------- -------- --------
Benefit obligation at end of year $181,439 $151,509 $ 31,236 $ 24,467
======== ======== ======== ========
Change in plan assets:
Fair value of plan assets at the
beginning of the year $133,505 $118,963 $ -- $ --
Actual return on plan assets 13,068 13,670 -- --
Employer contribution 5,349 4,940 861 1,259
Benefits paid (5,212) (4,069) (861) (1,259)
-------- -------- -------- --------
Fair value of plan assets at the
end of year $146,710 $133,504 $ -- $ --
======== ======== ======== ========
Funded status $(34,729) $(18,005) $(31,236) $(24,467)
Unrecognized net actuarial loss
(gain) 12,283 (1,735) (6,251) (11,353)
Unrecognized prior service cost
(benefit) 5,293 5,865 (2,986) (3,499)
-------- -------- -------- --------
Net amount recognized $(17,153) $(13,875) $(40,473) $(39,319)
======== ======== ======== ========
Amounts recognized in the balance
sheet statement consist of:
Accrued benefit cost $(23,242) $(18,059) $(40,473) $(39,319)
Intangible asset 6,089 4,184 -- --
-------- -------- -------- --------
Net amount recognized $(17,153) $(13,875) $(40,473) $(39,319)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Pension Other
Benefits Benefits
----------- -----------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Weighted average assumptions as of December 31
Discount rate 7.00% 7.48% 7.00% 7.50%
Expected return on plan assets 8.27% 8.32% -- --
Rate of compensation increase 5.32% 5.29% -- --
</TABLE>
83
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(8) Employee Benefit Plans (continued)
For measurement purposes, an 8 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 5.5 percent for 2003 and remain at that level
thereafter.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------- ----------------------
1998 1997 1996 1998 1997 1996
------- ------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost
Service cost $ 8,402 $6,847 $6,315 $1,375 $1,047 $1,041
Interest cost 10,436 9,956 8,852 1,713 1,872 2,074
Expected return on plan as-
sets (10,978) (9,859) (8,751) -- -- --
Amortization of prior serv-
ice cost (benefits) 578 578 578 (513) (510) (501)
Recognized net actuarial
loss (gain) 190 77 10 (559) (480) (177)
------- ------ ------ ------ ------ ------
Net periodic benefit cost $ 8,628 $7,599 $7,004 $2,016 $1,929 $2,437
======= ====== ====== ====== ====== ======
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
vale of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $39,470,000, $31,546,000 and $17,334,000 as of
December 31, 1998, respectively, and $32,622,000, $24,894,000 and $16,703,000
respectively, as of December 31, 1997.
The assumptions presented herein are based on pertinent information available
to management as of December 31, 1998 and 1997. Actual results could differ
from those estimates and assumptions. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would
increase the post retirement benefit obligation as of December 31, 1998 by
$5,875,000 and the estimated eligibility cost and interest cost components of
net periodic benefit costs for 1998 by $788,000. Decreasing the assumed health
care cost trend rates by one percentage point in each year would decrease the
post retirement benefit obligation as of December 31, 1998 by $4,618,000 and
the estimated eligibility cost and interest cost components of net periodic
post retirement benefit costs for 1998 by $598,000.
Profit Sharing Plans
The Company also has profit sharing plans covering substantially all employees
and agents. The Company's contribution rate to the employee plan is determined
annually by the directors of the Company and is applied to each participant's
prior year earnings. The Company's contribution to the agent plan is made as a
certain percentage, based upon years of service, applied to each agent's total
annual compensation. The Company recognized contributions to the plans during
1998, 1997 and 1996 of $8,395,000, $7,173,000 and $6,092,000, respectively.
Participants may elect to receive a portion of their contributions in cash.
(9) Sale of Subsidiary
On October 1, 1997, the Company sold Minnesota Fire and Casualty Company (MFC),
a wholly owned subsidiary, to Harleysville Group, Inc. The Company received net
cash proceeds of approximately $33.5 million from the sale, and realized a gain
of approximately $14.5 million. HomePlus Insurance Company (HomePlus), a
previously wholly owned subsidiary of MFC, was excluded from the sale of
assets. In accordance with the agreement, prior to September 30, 1997, MFC made
a distribution of private placement bonds to the Company with an amortized cost
of approximately $4.3 million and transferred all issued and outstanding shares
of HomePlus to the Company. The carrying value of the transferred shares was
approximately $5.8 million. Under an administrative services agreement with
MFC, the Company has retained MFC to provide financial and other services for
HomePlus.
84
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(10) Reinsurance
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance companies. To the extent that a reinsurer is
unable to meet its obligation under the reinsurance agreement, the Company
remains liable. The Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk to minimize its exposure to
significant losses from reinsurer insolvencies. Allowances are established for
amounts deemed to be uncollectible.
Reinsurance is accounted for over the life of the underlying reinsured
policies using assumptions consistent with those used to account for the
underlying policies.
The effect of reinsurance on premiums for the years ended December 31 was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Direct premiums $553,408 $595,686 $615,098
Reinsurance assumed 91,548 78,097 64,489
Reinsurance ceded (67,263) (58,530) (67,228)
-------- -------- --------
Net premiums $577,693 $615,253 $612,359
======== ======== ========
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $54,174,000,
$58,072,000 and $72,330,000 during 1998, 1997 and 1996, respectively.
(11) Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments has been
determined using available market information as of December 31, 1998 and 1997.
Although management is not aware of any factors that would significantly affect
the estimated fair value, such amounts have not been comprehensively revalued
since those dates. Therefore, estimates of fair value subsequent to the
valuation dates may differ significantly from the amounts presented herein.
Considerable judgement is required to interpret market data to develop the
estimates of fair value. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
Please refer to Note 2 for additional fair value disclosures concerning fixed
maturity securities, equity securities, mortgages and derivatives. The carrying
amounts for policy loans, cash, short-term investments and finance receivables
approximate the assets' fair values.
The interest rates on the finance receivables outstanding as of December 31,
1998 and 1997, are consistent with the rates at which loans would currently be
made to borrowers of similar credit quality and for the same maturity; as such,
the carrying value of the finance receivables outstanding as of December 31,
1998 and 1997, approximate the fair value for those respective dates.
The fair values of deferred annuities, annuity certain contracts and other
fund deposits, which have guaranteed interest rates and surrender charges are
estimated to be the amount payable on demand as of December 31, 1998 and 1997
as those investment contracts have no defined maturity and are similar to a
deposit liability. The amount payable on demand equates to the account balance
less applicable surrender charges. Contracts without guaranteed interest rates
and surrender charges have fair values equal to their accumulation values plus
applicable market value adjustments. The fair values of guaranteed investment
contracts and supplementary contracts without life contingencies are calculated
using discounted cash flows, based on interest rates currently offered for
similar products with maturities consistent with those remaining for the
contracts being valued.
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate the fair value of notes payable.
85
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(11) Fair Value of Financial Instruments (continued)
The carrying amounts and fair values of the Company's financial instruments,
which were classified as assets as of December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities:
Available-for-sale $4,914,012 $4,914,012 $4,719,801 $4,719,801
Held-to-maturity 1,086,548 1,161,784 1,088,312 1,158,227
Equity securities 749,800 749,800 686,638 686,638
Mortgage loans:
Commercial 579,890 603,173 506,860 527,994
Residential 101,329 104,315 154,477 158,334
Policy loans 226,409 226,409 213,488 213,488
Short-term investments 136,435 136,435 112,352 112,352
Cash 175,660 175,660 96,179 96,179
Finance receivables, net 163,411 163,411 211,794 211,794
Venture capital 160,958 164,332 115,856 122,742
Foreign currency exchange con-
tract 1,594 1,594 1,457 1,457
---------- ---------- ---------- ----------
Total financial assets $8,296,046 $8,400,925 $7,907,214 $8,009,006
========== ========== ========== ==========
</TABLE>
The carrying amounts and fair values of the Company's financial instruments,
which were classified as liabilities as of December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Deferred annuities $2,085,408 $2,075,738 $2,131,806 $2,112,301
Annuity certain contracts 57,528 60,766 55,431 57,017
Other fund deposits 722,321 731,122 754,960 753,905
Guaranteed investment contracts 862 862 8,188 8,187
Supplementary contracts without
life contingencies 44,696 44,251 46,700 45,223
Notes payable 267,000 272,834 298,000 302,000
---------- ---------- ---------- ----------
Total financial liabilities $3,177,815 $3,185,573 $3,295,085 $3,278,633
========== ========== ========== ==========
</TABLE>
(12) Notes Payable
In September 1995, the Company issued surplus notes with a face value of
$125,000,000, at 8.25%, due in 2025. The surplus notes are subordinate to all
current and future policyholders' interests, including claims, and indebtedness
of the Company. All payments of interest and principal on the notes are subject
to the approval of the Department of Commerce. The approved accrued interest
was $3,008,000 as of December 31, 1998 and 1997. The issuance costs of
$1,421,000 are deferred and amortized over 30 years on straight-line basis.
86
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(12) Notes Payable (continued)
Notes payable as of December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Corporate-surplus notes, 8.25%, 2025 $125,000 $125,000
Consumer finance subsidiary-senior, 6.53%-8.77%, through
2003 142,000 173,000
-------- --------
Total notes payable $267,000 $298,000
======== ========
</TABLE>
At December 31, 1998, the aggregate minimum annual notes payable maturities
for the next five years were as follows: 1999, $49,000,000; 2000, $33,000,000;
2001, $26,000,000; 2002, $22,000,000; 2003, $12,000,000; thereafter
$125,000,000.
Long-term borrowing agreements involving the consumer finance subsidiary
include provisions with respect to borrowing limitations, payment of cash
dividends on or purchases of common stock, and maintenance of liquid net worth
of $44,070,000. The consumer finance subsidiary was in compliance with all such
provisions at December 31, 1998.
Interest paid on debt for the years ended December 31, 1998, 1997 and 1996,
was $25,008,000, $18,197,000 and $21,849,000, respectively.
(13) Other Comprehensive Income
Effective December 31, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." Comprehensive income is defined as any
change in stockholder's equity originating from non-owner transactions. The
Company had identified those changes as being comprised of net income,
unrealized appreciation (depreciation) on securities, and unrealized foreign
currency translation adjustments. The components of comprehensive income, other
than net income are illustrated below:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- --------
(In thousands)
<S> <C> <C> <C>
Other comprehensive income, before tax:
Foreign currency translation adjustment $ -- $ 1,457 $ --
Less: reclassification adjustment for gains in-
cluded in net income (1,457) -- --
------- ------- --------
(1,457) 1,457 --
Unrealized gains (loss) on securities 162,214 171,654 (18,746)
Less: reclassification adjustment for gains in-
cluded in net income (90,770) (96,476) (51,234)
------- ------- --------
71,444 75,178 (69,980)
Income tax expense related to items of other com-
prehensive income (23,045) (28,274) 25,040
------- ------- --------
Other comprehensive income, net of tax $46,942 $48,361 $(44,940)
======= ======= ========
</TABLE>
(14) Stock Dividends
On December 14, 1998, the Company declared and accrued a dividend to Securian
Financial Group, Inc. in the amount of $24,700,000 to be paid in 1999.
Dividend payments by Minnesota Life Insurance Company to its parent cannot
exceed the greater of 10% of statutory capital and surplus as of the preceding
year end or the statutory net gain from operations for the current calendar
year, without prior approval from the Department of Commerce. Based on this
limitation and 1997 statutory results, Minnesota Life Insurance Company could
have paid $87,069,000 in dividends in 1998 without prior approval.
87
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(15) Year 2000 (Unaudited)
The Company's business units utilize products and systems in the normal course
of business. Some of the Company's products and systems will have been replaced
or modified in order to process dates including the year 2000 and beyond.
The Company began preparing for the new millennium in the early 1980s by
designing systems with the year 2000 in mind. The Company began a comprehensive
Year 2000 project in 1995 to prepare all components of its business to function
properly before, during and after the year 2000.
The Company's goal is to have all computer systems and data prepared for the
year 2000. While the Company has taken extensive steps to renovate, upgrade and
replace applications, it is impossible to guarantee there will be no problems
associated with the year 2000 date change. The Company is currently developing
contingency and continuity plans to help minimize any impact of problems that
do arise.
(16) Commitments and Contingencies
The Company is involved in various pending or threatened legal proceedings
arising out of the normal course of business. In the opinion of management, the
ultimate resolution of such litigation will not have a material adverse effect
on operations or the financial position of the Company.
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance companies. To the extent that a reinsurer is
unable to meet its obligations under the reinsurance agreement, the Company
remains liable. The Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk to minimize its exposure to
significant losses from reinsurer insolvencies. Allowances are established for
amounts deemed uncollectible.
The Company has issued certain participating group annuity and group life
insurance contracts jointly with another life insurance company. The joint
contract issuer has liabilities related to these contracts of $41,010,000 as of
December 31, 1998. To the extent the joint contract issuer is unable to meet
its obligation under the agreement, the Company remains liable.
The Company has long-term commitments to fund venture capital and real estate
investments totaling $165,191,000 as of December 31, 1998. The Company
estimates that $60,000,000 of these commitments will be invested in 1999, with
the remaining $105,191,000 invested over the next four years.
As of December 31, 1998, the Company had committed to purchase bonds and
mortgage loans totaling $198,907,000 but had not completed the purchase
transactions.
At December 31, 1998, the Company had guaranteed the payment of $75,100,000
in policyholders' dividends and discretionary amounts payable in 1999. The
Company has pledged bonds, valued at $76,596,000 to secure this guarantee.
The Company is contingently liable under state regulatory requirements for
possible assessments pertaining to future insolvencies and impairments of
unaffiliated insurance companies. The Company records a liability for future
guaranty fund assessments based upon known insolvencies, according to data
received from the National Organization of Life and Health Insurance Guaranty
Association. An asset is recorded for the amount of guaranty fund assessments
paid, which can be recovered through future premium tax credits.
88
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(17) Statutory Financial Data
The Company also prepares financial statements according to statutory
accounting practices prescribed or permitted by the Department of Commerce for
purposes of filing with the Department of Commerce, the National Association of
Insurance Commissioners and states in which the Company is licensed to do
business. Statutory accounting practices focus primarily on solvency and
surplus adequacy. The significant differences that exist between statutory and
GAAP accounting, and their effects are illustrated below:
<TABLE>
<CAPTION>
Year ended December
----------------------
1998 1997
---------- ----------
(In thousands)
<S> <C> <C>
Statutory capital and surplus $ 947,885 $ 870,688
Adjustments:
Deferred policy acquisition costs 564,382 576,030
Net unrealized investment gains 281,226 213,026
Statutory asset valuation reserve 239,455 242,100
Statutory interest maintenance reserve 49,915 24,169
Premiums and fees deferred or receivable (73,312) (74,025)
Change in reserve basis 117,806 101,415
Separate accounts (56,816) (51,172)
Unearned policy and contract fees (134,373) (126,477)
Surplus notes (125,000) (125,000)
Net deferred income taxes (173,907) (166,057)
Non-admitted assets 36,764 32,611
Policyholders' dividends 60,648 60,036
Other (12,397) (40,659)
---------- ----------
Stockholder's equity as reported in the accompanying
consolidated financial statements $1,722,276 $1,536,685
========== ==========
</TABLE>
<TABLE>
<CAPTION>
As of December 31
----------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Statutory net income $104,609 $167,078 $115,797
Adjustments:
Deferred policy acquisition costs 18,042 26,878 19,284
Statutory interest maintenance reserve 25,746 (538) (8,192)
Premiums and fees deferred or receivable 708 2,175 1,587
Change in reserve basis 3,011 9,699 20,114
Separate accounts (5,644) (6,272) (6,304)
Unearned policy and contract fees (7,896) (12,825) (2,530)
Net deferred income taxes 15,351 7,832 (744)
Policyholders' dividends 1,194 2,708 502
Other 8,228 (6,839) (8,996)
-------- -------- --------
Net income as reported in the accompanying
consolidated financial statements $163,349 $189,896 $130,518
======== ======== ========
</TABLE>
89
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule I
Summary of Investments--Other than Investments in Related Parties
December 31, 1998
<TABLE>
<CAPTION>
As Shown
Market on the balance
Type of investment Cost(3) Value sheet(1)
- ------------------ ---------- ---------- --------------
(In thousands)
<S> <C> <C> <C>
Bonds:
United States government and government
agencies and authorities $ 195,650 $ 212,838 $ 212,838
Foreign governments 784 473 473
Public utilities 343,230 368,246 357,795
Mortgage-backed securities 2,117,429 2,159,884 2,151,909
All other corporate bonds 3,097,143 3,334,355 3,277,545
---------- ---------- ----------
Total bonds 5,754,236 6,075,796 6,000,560
---------- ---------- ----------
Equity securities:
Common stocks:
Public utilities 14,403 18,472 18,472
Banks, trusts and insurance companies 42,538 43,615 43,615
Industrial, miscellaneous and all
other 495,635 659,177 659,177
Nonredeemable preferred stocks 26,970 28,536 28,536
---------- ---------- ----------
Total equity securities 579,546 749,800 749,800
---------- ---------- ----------
Mortgage loans on real estate 681,219 XXXXXX 681,219
Real estate (2) 38,530 XXXXXX 38,530
Policy loans 226,409 XXXXXX 226,409
Other long-term investments 261,625 XXXXXX 261,625
Short-term investments 136,435 XXXXXX 136,435
---------- ---------- ----------
Total 1,344,218 -- 1,344,218
---------- ---------- ----------
Total investments $7,678,000 $6,825,596 $8,094,578
========== ========== ==========
</TABLE>
- -------
(1) Amortized cost for bonds classified as held-to-maturity and fair value for
common stocks and bonds classified as available-for-sale.
(2) The carrying value of real estate acquired in satisfaction of indebtedness
is $-0-.
(3) Original cost for equity securities and original cost reduced by repayments
and adjusted for amortization of premiums or accrual of discounts for bonds
and other investments
See independent auditors' report.
90
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule III
Supplementary Insurance Information
(In thousands)
<TABLE>
<CAPTION>
As of December 31 For the years ended December 31
--------------------------------------------------- -----------------------------------------------------------
Future policy Amortization
Deferred benefits Other policy Benefits, of deferred
policy losses, claims claims and Net claims, losses policy Other
acquisition and settlement Unearned benefits Premium investment and settlement acquisition operating
Segment costs expenses(1) premiums(2) payable revenue(3) income expenses costs expenses
- ------- ----------- -------------- ----------- ------------ ---------- ---------- -------------- ------------ ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998:
Life insurance $421,057 $2,303,580 $146,042 $51,798 $615,856 $246,303 $502,767 $114,589 $342,080
Accident and
health insurance 74,606 496,839 33,568 18,342 167,544 35,822 105,336 12,261 93,876
Annuity 68,719 3,186,148 25 424 93,992 247,970 225,004 21,248 136,527
Property and li-
ability insur-
ance -- 480 556 -- 662 986 2,848 -- 1,187
-------- ---------- -------- ------- -------- -------- -------- -------- --------
$564,382 $5,987,047 $180,191 $70,564 $878,054 $531,081 $835,955 $148,098 $573,670
======== ========== ======== ======= ======== ======== ======== ======== ========
1997:
Life insurance $434,012 $2,229,396 $166,704 $42,627 $576,468 $247,267 $476,747 $102,473 $345,938
Accident and
health insurance 70,593 466,109 34,250 17,153 205,869 40,343 87,424 9,451 101,960
Annuity 71,425 3,266,965 -- 4,576 64,637 261,768 242,738 16,252 129,263
Property and li-
ability insur-
ance -- 280 1,116 -- 40,316 4,395 33,773 -- 13,146
-------- ---------- -------- ------- -------- -------- -------- -------- --------
$576,030 $5,962,750 $202,070 $64,356 $887,290 $553,773 $840,682 $128,176 $590,307
======== ========== ======== ======= ======== ======== ======== ======== ========
1996:
Life insurance $456,461 $2,123,148 $149,152 $51,772 $568,874 $223,762 $478,228 $ 97,386 $290,525
Accident and
health insurance 62,407 437,118 33,770 18,774 160,097 34,202 96,743 14,017 87,222
Annuity 70,649 3,360,614 -- 31 79,245 267,473 243,387 14,575 111,366
Property and li-
ability insur-
ance -- 27,855 24,189 -- 50,109 5,550 36,933 -- 19,033
-------- ---------- -------- ------- -------- -------- -------- -------- --------
$589,517 $5,948,735 $207,111 $70,577 $858,325 $530,987 $855,291 $125,978 $508,146
======== ========== ======== ======= ======== ======== ======== ======== ========
<CAPTION>
Premiums
Segment written(4)
- ------- ----------
<S> <C>
1998:
Life insurance
Accident and
health insurance
Annuity
Property and li-
ability insur-
ance 103
----------
$ 103
==========
1997:
Life insurance
Accident and
health insurance
Annuity
Property and li-
ability insur-
ance 43,376
----------
$43,376
==========
1996:
Life insurance
Accident and
health insurance
Annuity
Property and li-
ability insur-
ance 50,515
----------
$50,515
==========
</TABLE>
- -----
(1) Includes policy and contract account balances
(2) Includes unearned policy and contract fees
(3) Includes policy and contract fees
(4) Applies only to property and liability insurance
See independent auditors' report.
91
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule IV
Reinsurance
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
other from other Net assumed to
Gross amount companies companies amount net
------------ ----------- ----------- ------------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
1998:
Life insurance in
force $158,229,143 $18,656,917 $28,559,482 $168,131,708 17.0%
============ =========== =========== ============
Premiums:
Life insurance $ 338,909 $ 30,532 $ 71,198 $ 379,575 18.8%
Accident and health
insurance 180,081 17,894 1,432 163,619 0.9%
Annuity 33,837 -- -- 33,837 --
Property and liabil-
ity insurance 581 18,837 18,918 662 2857.7%
------------ ----------- ----------- ------------
Total premiums $ 553,408 $ 67,263 $ 91,548 $ 577,693 15.8%
============ =========== =========== ============
1997:
Life insurance in
force $122,120,394 $14,813,351 $25,566,734 $132,873,777 19.2%
============ =========== =========== ============
Premiums:
Life insurance $ 340,984 $ 30,547 $ 63,815 $ 374,252 17.1%
Accident and health
insurance 175,647 16,332 1,310 160,625 0.8%
Annuity 40,060 -- -- 40,060 --
Property and liabil-
ity insurance 38,995 11,651 12,972 40,316 32.2%
------------ ----------- ----------- ------------
Total premiums $ 595,686 $ 58,530 $ 78,097 $ 615,253 12.7%
============ =========== =========== ============
1996:
Life insurance in
force $116,445,975 $15,164,764 $22,957,287 $124,238,498 18.5%
============ =========== =========== ============
Premiums:
Life insurance $ 347,056 $ 45,988 $ 63,044 $ 364,112 17.3%
Accident and health
insurance 174,219 15,511 1,389 160,097 0.9%
Annuity 38,041 -- -- 38,041 --
Property and liabil-
ity insurance 55,782 5,729 56 50,109 0.1%
------------ ----------- ----------- ------------
Total premiums $ 615,098 $ 67,228 $ 64,489 $ 612,359 10.5%
============ =========== =========== ============
</TABLE>
See independent auditors' report.
92
<PAGE>
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 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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees of Minnesota Life Insurance Company
and Contract Owners of Group Variable Annuity Account:
We have audited the accompanying statements of assets and liabilities of the
Advantus Growth, Advantus Money Market, Advantus Asset Allocation, Advantus
Index 500, Vanguard Long-Term Corporate, Vanguard Wellington, Fidelity
Contrafund, Scudder International and Janus Twenty Segregated Sub-Accounts of
Group Variable Annuity Account (the Account), formerly Minnesota Mutual Group
Variable Annuity Account, as of December 31, 1998 and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended and the financial highlights
for the periods presented in footnote (6). These financial statements and the
financial highlights are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statements.
Investments owned at December 31, 1998 were confirmed to us by the respective
Sub-Account mutual fund group, or, for Advantus Series Fund, Inc., verified by
examination of the underlying portfolios. An audit also includes assessing the
accounting principles used and significant estimates made by management as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Advantus Growth, Advantus
Money Market, Advantus Asset Allocation, Advantus Index 500, Vanguard Long-Term
Corporate, Vanguard Wellington, Fidelity Contrafund, Scudder International and
Janus Twenty Segregated Sub-Accounts of Group Variable Annuity Account at
December 31, 1998 and the results of their operations, changes in their net
assets and the financial highlights for the periods stated in the first
paragraph above, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 19, 1999
<PAGE>
GROUP VARIABLE ANNUITY ACCOUNT
Statements of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------
ADVANTUS ADVANTUS ADVANTUS
ADVANTUS MONEY ASSET INDEX
ASSETS GROWTH MARKET ALLOCATION 500
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Investments in shares of underlying mutual funds:
Advantus Series Fund, Inc. - Growth Portfolio, 557,027 shares
at net asset value of $2.74 per share (cost $1,288,885) ............. $1,525,084 -- -- --
Advantus Series Fund, Inc. - Money Market Portfolio, 6,331,862
shares at net asset value of $1.00 per share (cost $6,331,862) ...... -- 6,331,862 -- --
Advantus Series Fund, Inc. - Asset Allocation Portfolio, 492,507
shares at net asset value of $2.28 per share (cost $969,444) ........ -- -- 1,122,352 --
Advantus Series Fund, Inc. - Index 500 Portfolio, 9,276,627 shares
at net asset value of $3.91 per share (cost $28,048,186) ............ -- -- -- 36,270,925
Vanguard Long-Term Corporate Portfolio, 897,218 shares
at net asset value of $9.29 per share (cost $8,142,302) ............. -- -- -- --
Vanguard/Wellington Fund, Inc., 1,592,933 shares at net asset
value of $29.35 per share (cost $44,607,963) ........................ -- -- -- --
Fidelity Contrafund, 1,432,824 shares at net asset
value of $56.79 per share (cost $62,278,525) ........................ -- -- -- --
Scudder International Fund, 223,206 shares at net asset value of
$48.70 per share (cost $10,699,299) ................................. -- -- -- --
Janus Twenty Fund, 800,801 shares at net asset
value of $53.30 per share (cost $29,205,402) ........................ -- -- -- --
---------- --------- ---------- ----------
1,525,084 6,331,862 1,122,352 36,270,925
Receivable for investments sold ............................................. 8,800 228,035 2,871 443,950
Receivable from Minnesota Life for contract purchase payments ............... 60 310,809 44 82,049
---------- --------- ---------- ----------
Total assets ........................................................ 1,533,944 6,870,706 1,125,267 36,796,924
---------- --------- ---------- ----------
LIABILITIES
Payable for investments purchased ........................................... 60 310,809 44 82,049
Payable to Minnesota Life for contract terminations and
mortality and expense charges .......................................... 8,800 228,035 2,871 443,950
---------- --------- ---------- ----------
Total liabilities ................................................... 8,860 538,844 2,915 525,999
---------- --------- ---------- ----------
NET ASSETS APPLICABLE TO CONTRACT OWNERS .................................... $1,525,084 6,331,862 1,122,352 36,270,925
---------- --------- ---------- ----------
---------- --------- ---------- ----------
ACCUMULATION UNITS OUTSTANDING .............................................. 804,249 5,337,083 732,995 13,683,936
---------- --------- ---------- ----------
---------- --------- ---------- ----------
NET ASSET VALUE PER ACCUMULATION UNIT ....................................... $ 1.90 1.19 1.53 2.65
---------- --------- ---------- ----------
---------- --------- ---------- ----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------
VANGUARD
LONG-TERM VANGUARD FIDELITY SCUDDER
ASSETS CORPORATE WELLINGTON CONTRAFUND INTERNATIONAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Investments in shares of underlying mutual funds:
Advantus Series Fund, Inc. - Growth Portfolio, 557,027 shares
at net asset value of $2.74 per share (cost $1,288,885) ............. -- -- -- --
Advantus Series Fund, Inc. - Money Market Portfolio, 6,331,862
shares at net asset value of $1.00 per share (cost $6,331,862) ...... -- -- -- --
Advantus Series Fund, Inc. - Asset Allocation Portfolio, 492,507
shares at net asset value of $2.28 per share (cost $969,444) ........ -- -- -- --
Advantus Series Fund, Inc. - Index 500 Portfolio, 9,276,627 shares
at net asset value of $3.91 per share (cost $28,048,186) ............ -- -- -- --
Vanguard Long-Term Corporate Portfolio, 897,218 shares
at net asset value of $9.29 per share (cost $8,142,302) ............. 8,335,152 -- -- --
Vanguard/Wellington Fund, Inc., 1,592,933 shares at net asset
value of $29.35 per share (cost $44,607,963) ........................ -- 46,752,586 -- --
Fidelity Contrafund, 1,432,824 shares at net asset
value of $56.79 per share (cost $62,278,525) ........................ -- -- 81,370,054 --
Scudder International Fund, 223,206 shares at net asset value of
$48.70 per share (cost $10,699,299) ................................. -- -- -- 10,870,123
Janus Twenty Fund, 800,801 shares at net asset
value of $53.30 per share (cost $29,205,402) ........................ -- -- -- --
---------- ---------- ---------- ----------
8,335,152 46,752,586 81,370,054 10,870,123
Receivable for investments sold ............................................. 28,978 234,446 207,315 39,584
Receivable from Minnesota Life for contract purchase payments ............... 29,021 107,739 81,941 739
---------- ---------- ---------- ----------
Total assets ........................................................ 8,393,151 47,094,771 81,659,310 10,910,446
---------- ---------- ---------- ----------
LIABILITIES
Payable for investments purchased ........................................... 29,021 107,739 81,941 739
Payable to Minnesota Life for contract terminations and
mortality and expense charges .......................................... 28,978 234,446 207,315 39,584
---------- ---------- ---------- ----------
Total liabilities ................................................... 57,999 342,185 289,256 40,323
---------- ---------- ---------- ----------
NET ASSETS APPLICABLE TO CONTRACT OWNERS .................................... 8,335,152 46,752,586 81,370,054 10,870,123
---------- --------- ---------- ----------
---------- --------- ---------- ----------
ACCUMULATION UNITS OUTSTANDING .............................................. 5,471,112 23,410,883 32,080,949 7,332,341
---------- --------- ---------- ----------
---------- --------- ---------- ----------
NET ASSET VALUE PER ACCUMULATION UNIT ....................................... 1.52 2.00 2.54 1.48
---------- --------- ---------- ----------
---------- --------- ---------- ----------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------
JANUS
ASSETS TWENTY
----------
<S> <C>
Investments in shares of underlying mutual funds:
Advantus Series Fund, Inc. - Growth Portfolio, 557,027 shares
at net asset value of $2.74 per share (cost $1,288,885) ............. --
Advantus Series Fund, Inc. - Money Market Portfolio, 6,331,862
shares at net asset value of $1.00 per share (cost $6,331,862) ...... --
Advantus Series Fund, Inc. - Asset Allocation Portfolio, 492,507
shares at net asset value of $2.28 per share (cost $969,444) ........ --
Advantus Series Fund, Inc. - Index 500 Portfolio, 9,276,627 shares
at net asset value of $3.91 per share (cost $28,048,186) ............ --
Vanguard Long-Term Corporate Portfolio, 897,218 shares
at net asset value of $9.29 per share (cost $8,142,302) ............. --
Vanguard/Wellington Fund, Inc., 1,592,933 shares at net asset
value of $29.35 per share (cost $44,607,963) ........................ --
Fidelity Contrafund, 1,432,824 shares at net asset
value of $56.79 per share (cost $62,278,525) ........................ --
Scudder International Fund, 223,206 shares at net asset value of
$48.70 per share (cost $10,699,299) ................................. --
Janus Twenty Fund, 800,801 shares at net asset
value of $53.30 per share (cost $29,205,402) ........................ 42,682,672
----------
42,682,672
Receivable for investments sold ............................................. 486,206
Receivable from Minnesota Life for contract purchase payments ............... 157,320
----------
Total assets ........................................................ 43,326,198
----------
LIABILITIES
Payable for investments purchased ........................................... 157,320
Payable to Minnesota Life for contract terminations and
mortality and expense charges .......................................... 486,206
----------
Total liabilities ................................................... 643,526
----------
----------
NET ASSETS APPLICABLE TO CONTRACT OWNERS .................................... 42,682,672
----------
----------
ACCUMULATION UNITS OUTSTANDING .............................................. 11,892,657
----------
----------
NET ASSET VALUE PER ACCUMULATION UNIT ....................................... 3.59
----------
----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
GROUP VARIABLE ANNUITY ACCOUNT
Statements of Operations
Year Ended December 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------
ADVANTUS ADVANTUS
ADVANTUS MONEY ASSET
GROWTH MARKET ALLOCATION
------------- ------------- --------------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying
mutual fund (note 4) ............................................. $ 6,429 195,432 14,011
Mortality and expense risk charges (note 3) ......................... (7,986) (34,668) (5,803)
Administrative charges (note 3) ..................................... (1,409) (6,118) (1,024)
------------- ------------- --------------
Investment income (loss) - net ................................... (2,966) 154,646 7,184
------------- ------------- --------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying
mutual fund (note 4) ............................................. 102,256 - 35,605
------------- ------------- --------------
Realized gains on sales of investments:
Proceeds from sales .............................................. 168,478 14,988,707 61,619
Cost of investments sold ......................................... (162,957) (14,988,707) (56,541)
------------- ------------- --------------
5,521 - 5,078
------------- ------------- --------------
Net realized gains on investments ................................ 107,777 - 40,683
------------- ------------- --------------
Net change in unrealized appreciation or depreciation
of investments ................................................... 201,649 - 118,609
------------- ------------- --------------
Net gains on investments ......................................... 309,426 - 159,292
------------- ------------- --------------
Net increase in net assets resulting from operations ..................... $ 306,460 154,646 166,476
------------- ------------- --------------
------------- ------------- --------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------
ADVANTUS VANGUARD
INDEX LONG-TERM VANGUARD
500 CORPORATE WELLINGTON
------------- ------------- --------------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying
mutual fund (note 4) ............................................. $ 200,282 400,841 1,493,992
Mortality and expense risk charges (note 3) ......................... (222,692) (59,678) (329,783)
Administrative charges (note 3) ..................................... (39,299) (10,531) (58,197)
-------------- ------------- -------------
Investment income (loss) - net ................................... (61,709) 330,632 1,106,012
-------------- ------------- -------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying
mutual fund (note 4) ............................................. 125,540 109,772 3,502,323
-------------- ------------- -------------
Realized gains on sales of investments:
Proceeds from sales .............................................. 5,170,243 533,896 1,061,776
Cost of investments sold ......................................... (4,289,768) (518,312) (940,068)
-------------- ------------- -------------
880,475 15,584 121,708
-------------- ------------- -------------
Net realized gains on investments ................................ 1,006,015 125,356 3,624,031
-------------- ------------- -------------
Net change in unrealized appreciation or depreciation
of investments ................................................... 5,219,971 23,373 (900,997)
-------------- ------------- -------------
Net gains on investments ......................................... 6,225,986 148,729 2,723,034
-------------- ------------- -------------
Net increase in net assets resulting from operations ..................... $ 6,164,277 479,361 3,829,046
-------------- ------------- -------------
-------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------
FIDELITY SCUDDER JANUS
CONTRA-FUND INTERNATIONAL TWENTY
------------- ------------- -----------------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying
mutual fund (note 4) ............................................. $ 397,998 - 108,860
Mortality and expense risk charges (note 3) ......................... (548,671) (79,013) (208,212)
Administrative charges (note 3) ..................................... (96,824) (13,943) (36,743)
-------------- -------------- -------------
Investment income (loss) - net ................................... (247,497) (92,956) (136,095)
-------------- -------------- -------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying
mutual fund (note 4) ............................................. 5,585,770 1,107,356 235,238
-------------- -------------- -------------
Realized gains on sales of investments:
Proceeds from sales .............................................. 3,348,698 1,373,959 3,334,287
Cost of investments sold ......................................... (2,658,681) (1,289,151) (2,775,426)
-------------- -------------- -------------
690,017 84,808 558,861
-------------- -------------- -------------
Net realized gains on investments ................................ 6,275,787 1,192,164 794,099
-------------- -------------- -------------
Net change in unrealized appreciation or depreciation
of investments ................................................... 11,849,737 290,104 13,536,319
-------------- -------------- -------------
Net gains on investments ......................................... 18,125,524 1,482,268 14,330,418
-------------- -------------- -------------
Net increase in net assets resulting from operations ..................... $ 17,878,027 1,389,312 14,194,323
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
GROUP VARIABLE ANNUITY ACCOUNT
Statements of Changes in Net Assets
Year Ended December 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------
ADVANTUS ADVANTUS
ADVANTUS MONEY ASSET
GROWTH MARKET ALLOCATION
------------- ------------- --------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ...................................... $ (2,966) 154,646 7,184
Net realized gains on investments ................................... 107,777 - 40,683
Net change in unrealized appreciation or depreciation
of investments ................................................... 201,649 - 118,609
------------- ------------- --------------
Net increase in net assets resulting from operations .................... 306,460 154,646 166,476
------------- ------------- --------------
Contract transactions (notes 3, 4 and 5):
Contract purchase payments .......................................... 878,837 18,448,138 549,224
Contract terminations, withdrawals and charges ...................... (159,082) (14,947,920) (54,792)
------------- ------------- --------------
Increase in net assets from contract transactions ........................ 719,755 3,500,218 494,432
------------- ------------- --------------
Increase in net assets ................................................... 1,026,215 3,654,864 660,908
Net assets at the beginning of year ...................................... 498,869 2,676,998 461,444
------------- ------------- --------------
Net assets at the end of year ............................................ $ 1,525,084 6,331,862 1,122,352
------------- ------------- --------------
------------- ------------- --------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------
ADVANTUS VANGUARD
INDEX LONG-TERM VANGUARD
500 CORPORATE WELLINGTON
-------------- ------------- -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ...................................... (61,709) 330,632 1,106,012
Net realized gains on investments ................................... 1,006,015 125,356 3,624,031
Net change in unrealized appreciation or depreciation
of investments ................................................... 5,219,971 23,373 (900,997)
-------------- ------------- -------------
Net increase in net assets resulting from operations .................... 6,164,277 479,361 3,829,046
-------------- ------------- -------------
Contract transactions (notes 3, 4 and 5):
Contract purchase payments .......................................... 18,799,129 4,718,265 18,131,198
Contract terminations, withdrawals and charges ...................... (4,908,252) (1,263,996) (4,312,024)
-------------- ------------- -------------
Increase in net assets from contract transactions ........................ 13,890,877 3,454,269 13,819,174
-------------- ------------- -------------
Increase in net assets ................................................... 20,055,154 3,933,630 17,648,220
Net assets at the beginning of year ...................................... 16,215,771 4,401,522 29,104,366
-------------- ------------- -------------
Net assets at the end of year ............................................ 36,270,925 8,335,152 46,752,586
-------------- ------------- -------------
-------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------
FIDELITY SCUDDER JANUS
CONTRAFUND INTERNATIONAL TWENTY
-------------- -------------- -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ...................................... (247,497) (92,956) (136,095)
Net realized gains on investments ................................... 6,275,787 1,192,164 794,099
Net change in unrealized appreciation or depreciation
of investments ................................................... 11,849,737 290,104 13,536,319
-------------- -------------- -------------
Net increase in net assets resulting from operations .................... 17,878,027 1,389,312 14,194,323
-------------- -------------- -------------
Contract transactions (notes 3, 4 and 5):
Contract purchase payments .......................................... 20,791,565 4,302,549 25,131,570
Contract terminations, withdrawals and charges ...................... (8,779,778) (2,351,465) (9,545,869)
-------------- -------------- -------------
Increase in net assets from contract transactions ........................ 12,011,787 1,951,084 15,585,701
-------------- -------------- -------------
Increase in net assets ................................................... 29,889,814 3,340,396 29,780,024
Net assets at the beginning of year ...................................... 51,480,240 7,529,727 12,902,648
-------------- -------------- -------------
Net assets at the end of year ............................................ 81,370,054 10,870,123 42,682,672
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
GROUP VARIABLE ANNUITY ACCOUNT
Statements of Changes in Net Assets
Year Ended December 31, 1997
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------
ADVANTUS ADVANTUS
ADVANTUS MONEY ASSET
GROWTH MARKET ALLOCATION
------------- ------------- --------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ...................................... $ (971) 93,390 2,778
Net realized gains on investments ................................... 66,288 - 12,519
Net change in unrealized appreciation or depreciation
of investments ................................................... 30,734 - 31,840
------------- ------------- --------------
Net increase in net assets resulting from operations .................... 96,051 93,390 47,137
------------- ------------- --------------
Contract transactions (notes 3, 4 and 5):
Contract purchase payments .......................................... 269,788 7,211,487 358,496
Contract terminations, withdrawals and charges ...................... (13,504) (6,466,325) (18,186)
------------- ------------- --------------
Increase in net assets from contract transactions ........................ 256,284 745,162 340,310
------------- ------------- --------------
Increase in net assets ................................................... 352,335 838,552 387,447
Net assets at the beginning of year ...................................... 146,534 1,838,446 73,997
------------- ------------- --------------
Net assets at the end of year ............................................ $ 498,869 2,676,998 461,444
------------- ------------- --------------
------------- ------------- --------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------
ADVANTUS VANGUARD
INDEX LONG-TERM VANGUARD
500 CORPORATE WELLINGTON
-------------- ------------- -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ...................................... (12,217) 198,800 694,374
Net realized gains on investments ................................... 417,827 46,625 1,487,532
Net change in unrealized appreciation or depreciation
of investments ................................................... 2,238,256 193,386 1,986,809
-------------- ------------- -------------
Net increase in net assets resulting from operations .................... 2,643,866 438,811 4,168,715
-------------- ------------- -------------
Contract transactions (notes 3, 4 and 5):
Contract purchase payments .......................................... 9,287,000 2,153,993 12,508,116
Contract terminations, withdrawals and charges ...................... (1,803,007) (923,357) (1,694,344)
-------------- ------------- -------------
Increase in net assets from contract transactions ........................ 7,483,993 1,230,636 10,813,772
-------------- ------------- -------------
Increase in net assets ................................................... 10,127,859 1,669,447 14,982,487
Net assets at the beginning of year ...................................... 6,087,912 2,732,075 14,121,879
-------------- ------------- -------------
Net assets at the end of year ............................................ 16,215,771 4,401,522 29,104,366
-------------- ------------- -------------
-------------- ------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------
FIDELITY SCUDDER JANUS
CONTRAFUND INTERNATIONAL TWENTY
------------- -------------- -------------
<S> <C> <C> <C>
Operations:
Investment income (loss) - net ...................................... (61,928) (32,977) 467,255
Net realized gains on investments ................................... 4,634,515 932,908 1,195,775
Net change in unrealized appreciation or depreciation
of investments ................................................... 3,372,088 (499,292) 199,816
------------- -------------- -------------
Net increase in net assets resulting from operations .................... 7,944,675 400,639 1,862,846
------------- -------------- -------------
Contract transactions (notes 3, 4 and 5):
Contract purchase payments .......................................... 17,971,991 3,449,836 8,858,797
Contract terminations, withdrawals and charges ...................... (4,248,421) (1,944,093) (2,527,943)
------------- -------------- -------------
Increase in net assets from contract transactions ........................ 13,723,570 1,505,743 6,330,854
------------- -------------- -------------
Increase in net assets ................................................... 21,668,245 1,906,382 8,193,700
Net assets at the beginning of year ...................................... 29,811,995 5,623,345 4,708,948
------------- -------------- -------------
Net assets at the end of year ............................................ 51,480,240 7,529,727 12,902,648
------------- -------------- -------------
------------- -------------- -------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
GROUP VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND BASIS OF PRESENTATION
The Group Variable Annuity Account (the Account), formerly known as
Minnesota Mutual Group Variable Annuity Account, was established on June
14, 1993 as a segregated asset account of Minnesota Life Insurance Company
(Minnesota Life), formerly known as The Minnesota Mutual Life Insurance
Company, under Minnesota law and is registered as a unit investment trust
under the Investment Company Act of 1940 (as amended). The Account
commenced operations September 2, 1994. The Account currently has
twenty-four 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 Life. Contract owners allocate their variable annuity
purchase payments to one or more of the twenty-four segregated
sub-accounts. Such payments are then invested in shares of Advantus Series
Fund, Inc. or in shares of other registered investment companies or
portfolios (Underlying Funds). Payments allocated to the Advantus Growth,
Advantus Bond, Advantus Money Market, Advantus Asset Allocation, Advantus
Mortgage Securities, Advantus Index 500, Advantus Capital Appreciation,
Advantus International Stock, Advantus Small Company, Advantus Maturing
Government Bond 2002, Advantus Maturing Government Bond 2006, Advantus
Maturing Government Bond 2010, Advantus Value Stock, Advantus Small Company
Value, Advantus Global Bond (formerly known as Advantus International
Bond), Advantus Index 400 Mid-Cap, Advantus Macro-Cap Value, Advantus
Micro-Cap Growth, Advantus Real Estate Securities, Vanguard Long-Term
Corporate, Vanguard Wellington, Fidelity Contrafund, Scudder International
and Janus Twenty segregated sub-accounts are invested in shares of the
Growth, Bond, Money Market, Asset Allocation, Mortgage Securities, Index
500, Capital Appreciation, International Stock, Small Company, Maturing
Government Bond 2002, Maturing Government Bond 2006, Maturing Government
Bond 2010, Value Stock, Small Company Value, Global Bond (formerly known as
International Bond), Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap Growth
and Real Estate Securities Portfolios of the Advantus Series Fund, Inc.,
Long-Term Corporate Portfolio of the Vanguard Fixed Income Securities Fund,
Inc., Vanguard/Wellington Fund, Inc., Fidelity Contrafund, Scudder
International Fund and Janus Twenty Fund, respectively. Each of the
Underlying Funds is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company. As of
December 31, 1998, no contract owners have elected to allocate payments to
the Advantus Bond, Advantus Mortgage Securities, Advantus Capital
Appreciation, Advantus International Stock, Advantus Small Company,
Advantus Maturing Government Bond 2002, Advantus Maturing Government Bond
2006, Advantus Maturing Government Bond 2010, Advantus Value Stock,
Advantus Small Company Value, Advantus Global Bond, Advantus Index 400
Mid-Cap, Advantus Macro-Cap Value, Advantus Micro-Cap Growth and Advantus
Real Estate Securities segregated sub-accounts.
Ascend Financial Services, Inc. acts as the underwriter for the Account.
Advantus Capital Management, Inc., a wholly owned subsidiary of Minnesota
Life, acts as the investment adviser for the Advantus Series Fund, Inc.
Ascend Financial Services, Inc. is a wholly owned subsidiary of Advantus
Capital Management, Inc.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements.
Actual results could differ from those estimates.
<PAGE>
2
GROUP VARIABLE ANNUITY ACCOUNT
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INVESTMENTS IN UNDERLYING FUNDS
Investments in shares of the Underlying Funds are stated at market value
which is the net asset value per share as determined daily by each of the
Underlying Funds. Investment transactions are accounted for on the date
the shares are purchased or sold. The cost of investments sold is
determined on the average cost method. All dividend distributions received
from the Underlying Funds are reinvested in additional shares of the
Underlying Funds and are recorded by the segregated sub-accounts on the
ex-dividend date.
FEDERAL INCOME TAXES
The Account is treated as part of Minnesota Life for federal income tax
purposes. Under current interpretations of existing federal income tax
law, no income taxes are payable on investment income or capital gain
distributions received by the Account from the Underlying Funds.
(3) MORTALITY AND EXPENSE RISK AND ADMINISTRATIVE CHARGES
The mortality and expense risk charge paid to Minnesota Life is computed
daily and is equal, on an annual basis, to .85 percent of the average daily
net assets of the Account. Under certain conditions, the mortality and
expense risk charge may be increased to 1.25 percent of the average daily
net assets of the Account.
The contract administrative charge paid to Minnesota Life is computed daily
and is equal, on an annual basis, to .15 percent of the average daily net
assets of the Account. Under certain conditions, the contract
administrative charge may be increased to not more than .40 percent 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 Life.
(4) INVESTMENT TRANSACTIONS
The Account's purchases of Underlying Fund shares, including reinvestment
of dividend distributions, were as follows for the year ended December 31,
1998:
<TABLE>
<S> <C>
Growth Portfolio of the Advantus Series Fund, Inc. . . . . . . . . . . . . $ 987,522
Money Market Portfolio of the Advantus Series Fund, Inc. . . . . . . . . . 18,643,570
Asset Allocation Portfolio of the Advantus Series Fund, Inc. . . . . . . . 598,840
Index 500 Portfolio of the Advantus Series Fund, Inc. . . . . . . . . . . . 19,124,951
Long-Term Corporate Portfolio of the Vanguard Fixed Income
Securities Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,428,569
Vanguard/Wellington Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . 19,489,285
Fidelity Contrafund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,698,758
Scudder International Fund . . . . . . . . . . . . . . . . . . . . . . . . 4,339,443
Janus Twenty Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,019,131
</TABLE>
<PAGE>
3
GROUP VARIABLE ANNUITY ACCOUNT
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS
Transactions in units for each segregated sub-account for the years ended
December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------------
ADVANTUS ADVANTUS ADVANTUS
ADVANTUS MONEY ASSET INDEX
GROWTH MARKET ALLOCATION 500
----------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Units outstanding at
December 31, 1996 ....................... 136,198 1,676,436 69,684 3,811,296
Contract purchase payments ............ 224,928 6,433,808 314,845 4,916,196
Deductions for contract terminations
and withdrawal payments ............. (10,093) (5,765,047) (15,610) (989,735)
----------------- ----------------- --------------- ----------------
Units outstanding at
December 31, 1997 ....................... 351,033 2,345,197 368,919 7,737,757
Contract purchase payments ............ 550,929 15,792,269 404,245 8,046,454
Deductions for contract terminations
and withdrawal payments ............. (97,713) (12,800,383) (40,169) (2,100,275)
----------------- ----------------- --------------- ----------------
Units outstanding at
December 31, 1998........................ 804,249 5,337,083 732,995 13,683,936
----------------- ----------------- --------------- ----------------
----------------- ----------------- --------------- ----------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------------------
VANGUARD
LONG-TERM VANGUARD FIDELITY SCUDDER JANUS
CORPORATE WELLINGTON CONTRAFUND INTERNATIONAL TWENTY
-------------- ----------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1996 .................... 2,199,884 9,571,917 18,638,007 4,774,006 2,891,975
Contract purchase payments ......... 1,653,580 7,626,554 10,165,734 2,747,637 4,576,276
Deductions for contract terminations
and withdrawal payments .......... (708,048) (1,029,918) (2,374,234) (1,542,072) (1,297,171)
-------------- ----------------- ----------------- --------------- ----------------
Units outstanding at
December 31, 1997 ................... 3,145,416 16,168,553 26,429,507 5,979,571 6,171,080
Contract purchase payments ........ 3,186,446 9,493,089 9,715,870 3,069,249 9,188,959
Deductions for contract terminations
and withdrawal payments ......... (860,750) (2,250,759) (4,064,428) (1,716,479) (3,467,382)
-------------- ----------------- ----------------- --------------- ----------------
Units outstanding at
December 31, 1998 ................... 5,471,112 23,410,883 32,080,949 7,332,341 11,892,657
-------------- ----------------- ----------------- --------------- ----------------
-------------- ----------------- ----------------- --------------- ----------------
</TABLE>
<PAGE>
4
GROUP VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS
The following tables for each segregated sub-account show certain data
for an accumulation unit outstanding during the years ended December 31,
1998, 1997, 1996 and 1995 and the period from September 2, 1994,
commencement of operations, to December 31, 1994 (years ended December
31, 1998, 1997 and 1996 for Advantus Growth and Advantus Asset
Allocation):
<TABLE>
<CAPTION>
ADVANTUS GROWTH ADVANTUS MONEY MARKET
--------------------------------- ---------------------------------------------------
1998 1997 1996 1998 1997 1996 1995 1994
--------- ---------- --------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period...... $ 1.42 1.08 1.00 1.14 1.10 1.06 1.01 1.00
--------- ---------- --------- --------- --------- --------- ---------- ----------
Income from investment operations:
Net investment income (loss)....... - (.01) - .05 .04 .04 .04 .01
Net gains or losses on securities
(both realized and unrealized)... .48 .35 .08 - - - .01 -
--------- ---------- --------- --------- --------- --------- ---------- ----------
Total from investment
operations..................... .48 .34 .08 .05 .04 .04 .05 .01
--------- ---------- --------- --------- --------- --------- ---------- ----------
Unit value, end of period............. $ 1.90 1.42 1.08 1.19 1.14 1.10 1.06 1.01
--------- ---------- --------- --------- --------- --------- ---------- ----------
--------- ---------- --------- --------- --------- --------- ---------- ----------
<CAPTION>
ADVANTUS
ASSET ALLOCATION ADVANTUS INDEX 500
--------------------------------- ---------------------------------------------------
1998 1997 1996 1998 1997 1996 1995 1994
--------- ---------- --------- ------------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period....... $ 1.25 1.06 1.00 2.09 1.60 1.33 .98 1.00
--------- ---------- --------- --------- --------- --------- ---------- ----------
Income (loss) from investment
operations:
Net investment income (loss)......... .01 .01 (.01) (.01) (.01) - - -
Net gains or losses on securities
(both realized and unrealized)..... .27 .18 .07 .57 .50 .27 .35 (.02)
--------- ---------- --------- --------- --------- --------- ---------- ----------
Total from investment
operations....................... .28 .19 .06 .56 .49 .27 .35 (.02)
--------- ---------- --------- --------- --------- --------- ---------- ----------
Unit value, end of period............. $ 1.53 1.25 1.06 2.65 2.09 1.60 1.33 .98
--------- ---------- --------- --------- --------- --------- ---------- ----------
--------- ---------- --------- --------- --------- --------- ---------- ----------
</TABLE>
<PAGE>
5
GROUP VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
<TABLE>
<CAPTION>
VANGUARD LONG-TERM CORPORATE
----------------------------------------------------
1998 1997 1996 1995 1994
---------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period .............. $ 1.41 1.24 1.23 .99 1.00
---------- -------- --------- -------- ---------
Income (loss) from investment operations:
Net investment income ..................... .08 .08 .07 .06 .02
Net gains or losses on securities
(both realized and unrealized) .......... .02 .09 (.06) .18 (.03)
---------- -------- --------- -------- ---------
Total from investment
operations ............................ .11 .17 .01 .24 (.01)
---------- -------- --------- -------- ---------
Unit value, end of period .................... $ 1.52 1.41 1.24 1.23 .99
---------- -------- --------- -------- ---------
---------- -------- --------- -------- ---------
<CAPTION>
FIDELITY CONTRAFUND
----------------------------------------------------
1998 1997 1996 1995 1994
---------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period .............. $ 1.95 1.60 1.32 .98 1.00
---------- -------- --------- -------- ---------
Income (loss) from investment operations:
Net investment income (loss) .............. (.01) - - (.01) -
Net gains or losses on securities
(both realized and unrealized) .......... .60 .35 .28 .35 (.02)
---------- -------- --------- -------- ---------
Total from investment
operations ............................ .59 .35 .28 .34 (.02)
---------- -------- --------- -------- ---------
Unit value, end of period .................... $ 2.54 1.95 1.60 1.32 .98
---------- -------- --------- -------- ---------
---------- -------- --------- -------- ---------
<CAPTION>
VANGUARD WELLINGTON
---------------------------------------------------
1998 1997 1996 1995 1994
--------- -------- -------- -------- --------
Unit value, beginning of period .............. 1.80 1.48 1.28 .98 1.00
--------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income ..................... .05 .05 .05 .05 .02
Net gains or losses on securities
(both realized and unrealized) .......... .15 .27 .15 .25 (.04)
--------- -------- -------- -------- --------
Total from investment
operations ............................ .20 .32 .20 .30 (.02)
--------- -------- -------- -------- --------
Unit value, end of period .................... 2.00 1.80 1.48 1.28 .98
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
<CAPTION>
SCUDDER INTERNATIONAL
---------------------------------------------------
1998 1997 1996 1995 1994
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period .............. 1.26 1.18 1.04 .93 1.00
--------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income (loss) .............. (.01) (.01) .03 - (.01)
Net gains or losses on securities
(both realized and unrealized) .......... .23 .09 .11 .11 (.06)
--------- -------- -------- -------- --------
Total from investment
operations ............................ .22 .08 .14 .11 (.07)
--------- -------- -------- -------- --------
Unit value, end of period .................... 1.48 1.26 1.18 1.04 .93
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
</TABLE>
<PAGE>
6
MINNESOTA MUTUAL GROUP VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
<TABLE>
<CAPTION>
JANUS TWENTY
----------------------------------------------------
1998 1997 1996 1995 1994
--------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period.................. $ 2.09 1.63 1.29 .96 1.00
--------- -------- --------- --------- --------
Income (loss) from investment operations:
Net investment income (loss).................. (.02) .10 .20 .13 -
Net gains or losses on securities
(both realized and unrealized).............. 1.52 .36 .14 .20 (.04)
--------- -------- --------- --------- --------
Total from investment
operations................................ 1.50 .46 .34 .33 (.04)
--------- -------- --------- --------- --------
Unit value, end of period........................ $ 3.59 2.09 1.63 1.29 .96
--------- -------- --------- --------- --------
--------- -------- --------- --------- --------
</TABLE>
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
Group Variable Annuity Account
Cross Reference Sheet to Other Information
Form N-4
Item
Number
- ------
24. Financial Statements and Exhibits
25. Directors and Officers of the Depositor
26. Persons Controlled by or Under Common Control with
the Depositor or Registrant
27. Number of Contract Owners
28. Indemnification
29. Principal Underwriters
30. Location of Accounts and Records
31. Management Services
32. Undertakings
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Audited Financial Statements of Group Variable Annuity Account for the
period ended December 31, 1998, are included in Part B of this filing
and consist of the following:
1. Independent Auditors' Report - The Board of Trustees of Minnesota
Life Insurance Company and Contract Owners of Group Variable
Annuity Account.
2. Statements of Assets and Liabilities - Group Variable Annuity
Account.
3. Statements of Operations - Group Variable Annuity Account.
4. Statements of Changes in Net Assets - Group Variable Annuity Account,
year ended December 31, 1998.
5. Statements of Changes in Net Assets - Group Variable Annuity Account,
year ended December 31, 1997.
6. Notes to Financial Statements - Group Variable Annuity Account.
(b) Audited Consolidated Financial Statements and Supplementary Schedules of
the Depositor, Minnesota Life Insurance Company and subsidiaries, are
included in Part B of this filing and consist of the following:
1. Independent Auditors' Report - Minnesota Life Insurance Company
and subsidiaries, for the fiscal year ended December 31, 1998
and 1997.
2. Consolidated Balance Sheets - Minnesota Life Insurance Company
and subsidiaries, for the fiscal year ended December 31, 1998
and 1997.
3. Consolidated Statements of Operations and Comprehensive Income -
Minnesota Life Insurance Company and subsidiaries, for the
fiscal years ended December 31, 1998, 1997 and 1996.
4. Consolidated Statements of Changes in Stockholder's Equity -
Minnesota Life Insurance Company and subsidiaries, for the
fiscal years ended December 31, 1998, 1997 and 1996.
5. Consolidated Statements of Cash Flows - Minnesota Life Insurance
Company and subsidiaries, for the fiscal years ended December
31, 1998, 1997 and 1996.
6. Notes to Consolidated Financial Statements - Minnesota Life
Insurance Company and subsidiaries, for the fiscal years ended
December 31, 1998 and 1997.
7. Schedule I - Summary of Investments-Other than Investments in
Related Parties - Minnesota Life Insurance Company and
subsidiaries, for the fiscal year ended December 31, 1998.
8. Schedule III - Supplementary Insurance Information - Minnesota
Life Insurance Company and subsidiaries, for the fiscal years
ended December 31, 1998 and 1997.
9. Schedule IV - Reinsurance - Minnesota Life Insurance Company and
subsidiaries, for the fiscal years ended December 31, 1998, 1997
and 1996.
<PAGE>
(c) Exhibits
1. The Resolution of The Minnesota Mutual Life Insurance Company's Board
of Trustees establishing Minnesota Mutual Group Variable Annuity Account
previously filed as this exhibit to Registrant's Form N-4, File Number
33-79534, Post-Effective Amendment Number 5, is hereby incorporated by
reference.
2. Not applicable.
3. (a) Form of Distribution Agreement previously filed as this exhibit to
Registrant's Form N-4, File Number 33-79534, Post-Effective
Amendment Number 5, is hereby incorporated by reference.
(b) Form of Broker-Dealer Sales Agreement previously filed as this
exhibit to Registrant's Form N-4, File Number 33-79534,
Post-Effective Amendment Number 5, is hereby incorporated by
reference.
4. (a) The specimen copy of the Group Deferred Variable Annuity
Contract, form number 94-9310 Rev. 2-96 previously filed as this
exhibit to Registrant's Form N-4, File Number 33-79534, Post-
Effective Amendment Number 4, is hereby incorporated by
reference.
(b) The specimen copy of the Participant's Certificate of Insurance,
form number MHC-94-9311.
(c) The specimen copy of the Annuitization Endorsement, form number
MHC-94-9312.
(d) The specimen copy of the Group Deferred Variable Annuity
Contract, form number 95-9330 Rev. 2-96 previously filed as this
exhibit to Registrant's Form N-4, File Number 33-79534, Post-
Effective Amendment Number 4, is hereby incorporated by
reference.
(e) The specimen copy of the Group Deferred Variable Annuity
Certificate, form number 95-9331 Rev. 2-96 previously filed as
this exhibit to Registrant's Form N-4, File Number 33-79534,
Post-Effective Amendment Number 4, is hereby incorporated by
reference.
(f) The specimen copy of the Group Deferred Variable Annuity
Contract, form number 95-9332 Rev. 2-96 previously filed as this
exhibit to Registrant's Form N-4, File Number 33-79534, Post-
Effective Amendment Number 4, is hereby incorporated by
reference.
(g) The specimen copy of the Group Deferred Variable Annuity
Certificate, form number 95-9333 Rev. 2-96 previously filed as
this exhibit to Registrant's Form N-4, File Number 33-79534,
Post-Effective Amendment Number 4, is hereby incorporated by
reference.
(h) The specimen copy of the Group Deferred Variable Annuity
Certificate, form number 95-9338 previously filed as this
exhibit to Registrant's Form N-4, File Number 33-79534,
Post-Effective Amendment Number 5, is hereby incorporated
by reference.
(i) TSA Limited Benefit Group Variable Annuity Certificate, form
number 97-9421 previously filed as this exhibit to Registrant's
Form N-4, File Number 33-79534, Post-Effective Amendment Number 6,
is hereby incorporated by reference.
5. (a) Application, form number F. 18210 Rev. 12-81,
Contract Owner Application previously filed as this
exhibit to Registrant's Form N-4, File Number 33-79534,
Post-Effective Amendment Number 5, is hereby incorporated
by reference.
(b) Application, form number MSRS 240 Rev. 9-94,
Participant Application previously filed as this
exhibit to Registrant's Form N-4, File Number 33-79534,
Post-Effective Amendment Number 5, is hereby incorporated
by reference.
(c) Annuity Application, form number 95-9325 previously filed as this
exhibit to Registrant's Form N-4, File Number 33-79534,
Post-Effective Amendment Number 5, is hereby incorporated
by reference.
(d) Group TSA Variable Annuity Application, form number
95-9329 previously filed as this exhibit to Registrant's Form N-4,
File Number 33-79534, Post-Effective Amendment Number 5, is hereby
incorporated by reference.
(e) Annuity Application, form number 97-9422 12-1997 previously
filed as this exhibit to Registrant's Form N-4, File Number
33-79534, Post-Effective Amendment Number 6, is hereby
incorporated by reference.
6. (a) The Restated Certificate of Incorporation previously filed as this
exhibit to Registrant's Form N-4, File Number 33-79534, Post-
Effective Amendment Number 7, is hereby incorporated by
reference.
(b) The By-Laws of Minnesota Life Insurance Company previously filed
as this exhibit to Registrant's Form N-4, File Number 33-79534,
Post-Effective Amendment Number 7, is hereby incorporated by
reference.
7. Not applicable.
<PAGE>
8. Deferred Compensation Business Plan Agreement previously filed as this
exhibit to Registrant's Form N-4, File Number 33-79534,
Post-Effective Amendment Number 5, is hereby incorporated by reference.
9. Opinion and Consent of Donald F. Gruber, Esq.
10. (a) Consent of KPMG Peat Marwick LLP.
(b) Minnesota Life Insurance Company Power of Attorney to Sign
Registration Statement.
11. Not applicable.
12. Not applicable.
13. Schedule for Computation of Performance Quotations.
(a) Money Market Segregated Sub-Account Performance Calculations
previously filed as this exhibit to Registrant's Form N-4, File
Number 33-79534, Post-Effective Amendment Number 5, is hereby
incorporated by reference.
(b) Index 500 Segregated Sub-Account Performance Calculations
previously filed as this exhibit to Registrant's Form N-4, File
Number 33-79534, Post-Effective Amendment Number 5, is hereby
incorporated by reference.
(c) Long-Term Corporate Segregated Sub-Account Performance
Calculations previously filed as this exhibit to Registrant's
Form N-4, File Number 33-79534, Post-Effective Amendment Number 5,
is hereby incorporated by reference.
(d) Vanguard/Wellington Segregated Sub-Account Performance
Calculations previously filed as this exhibit to Registrant's
Form N-4, File Number 33-79534, Post-Effective Amendment Number 5,
is hereby incorporated by reference.
(e) Fidelity Contrafund Segregated Sub-Account Performance Calculations
previously filed as this exhibit to Registrant's Form N-4, File
Number 33-79534, Post-Effective Amendment Number 5, is hereby
incorporated by reference.
(f) Scudder International Segregated Sub-Account Performance
Calculations previously filed as this exhibit to Registrant's
Form N-4, File Number 33-79534, Post-Effective Amendment Number 5,
is hereby incorporated by reference.
(g) Janus Twenty Segregated Sub-Account Performance Calculations
previously filed as this exhibit to Registrant's Form N-4, File
Number 33-79534, Post-Effective Amendment Number 5, is hereby
incorporated by reference.
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Insurance Company with Registrant
<S> <C> <C>
Giulio Agostini Director None
3M
3M Center -
Executive 220-14W-08
St. Paul, MN 55144-1000
Anthony L. Andersen Director None
H. B. Fuller Company
2424 Territorial Road
St. Paul, MN 55114
Leslie S. Biller Director None
Wells Fargo & Company
MAC 0101-121
420 Montgomery Street
San Francisco, CA 94104
John F. Bruder Senior Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
Keith M. Campbell Senior Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
John F. Grundhofer Director None
U.S. Bancorp
601 2nd Avenue South
Suite 2900
Minneapolis, MN 55402-4302
Robert E. Hunstad Executive Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
<PAGE>
James E. Johnson Senior Vice President None
Minnesota Life Insurance and Actuary
Company
400 Robert Street North
St. Paul, MN 55101
David S. Kidwell, Ph.D. Director None
The Curtis L. Carlson
School of Management
University of Minnesota
321 19th Avenue South
Minneapolis, MN 55455
Reatha C. King, Ph.D. Director None
General Mills Foundation
P. O. Box 1113
Minneapolis, MN 55440
Dennis E. Prohofsky Senior Vice President, None
Minnesota Life Insurance General Counsel and
Company Secretary
400 Robert Street North
St. Paul, MN 55101
Thomas E. Rohricht Director None
Doherty, Rumble & Butler
Professional Association
2800 Minnesota World Trade
Center
30 East Seventh Street
St. Paul, MN 55101-4999
<PAGE>
Robert L. Senkler Chairman, President and None
Minnesota Life Insurance Chief Executive Officer
Company
400 Robert Street North
St. Paul, MN 55101
Michael E. Shannon Director None
Ecolab, Inc.
370 Wabasha Street
Ecolab Center
St. Paul, MN 55102
Gregory S. Strong Senior Vice President None
Minnesota Life Insurance and Chief Financial
Company Officer
400 Robert Street North
St. Paul, MN 55101
Terrence M. Sullivan Senior Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
Randy F. Wallake Senior Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
William N. Westhoff Senior Vice President None
Minnesota Life Insurance and Treasurer
Company
400 Robert Street North
St. Paul, MN 55101
Frederick T. Weyerhaeuser Director None
Clearwater Investment Trust
332 Minnesota Street
Suite W-2090
St. Paul, MN 55101-1308
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE
DEPOSITOR OR REGISTRANT
Wholly-owned subsidiary of Minnesota Mutual Companies, Inc.:
Securian Holding Company (Delaware)
Wholly-owned subsidiary of Securian Holding Company:
Securian Financial Group, Inc. (Delaware)
Wholly-owned subsidiary of Securian Financial Group, Inc.
Minnesota Life Insurance Company
Wholly-owned subsidiaries of Minnesota Life Insurance Company:
Advantus Capital Management, Inc.
HomePlus Insurance Company
Northstar Life Insurance Company (New York)
The Ministers Life Insurance Company
MIMLIC Life Insurance Company (Arizona)
Robert Street Energy, Inc.
Capitol City Property Management, Inc.
Personal Finance Company (Delaware)
Enterprise Holding Corporation
Wholly-owned subsidiary of Advantus Capital Management, Inc.:
Ascend Financial Services, Inc.
Wholly-owned subsidiaries of Ascend Financial Services, Inc.:
MIMLIC Insurance Agency of Massachusetts, Inc. (Massachusetts)
MIMLIC Insurance Agency of Texas, Inc. (Texas)
Ascend Insurance Agency of Nevada, Inc. (Nevada)
Ascend Insurance Agency of Oklahoma, Inc. (Oklahoma)
Wholly-owned subsidiaries of Enterprise Holding Corporation:
Financial Ink Corporation
Oakleaf Service Corporation
Concepts in Marketing Research Corporation
Concepts in Marketing Services Corporation
Lafayette Litho, Inc.
DataPlan Securities, Inc. (Ohio)
MIMLIC Imperial Corporation
MIMLIC Funding, Inc.
MCM Funding 1997-1, Inc.
MCM Funding 1998-1, Inc.
MIMLIC Venture Corporation
HomePlus Insurance Agency, Inc.
Ministers Life Resources, Inc.
Wedgewood Valley Golf, Inc.
Wholly-owned subsidiary of HomePlus Insurance Agency, Inc.:
HomePlus Insurance Agency of Texas, Inc. (Texas)
Majority-owned subsidiary of Ascend Financial Services, Inc.:
MIMLIC Insurance Agency of Ohio, Inc. (Ohio)
Open-end registered investment company offering shares solely to separate
accounts of Minnesota Life Insurance Company:
Advantus Series Fund, Inc.
Fifty percent-owned subsidiary of MIMLIC Imperial Corporation:
C.R.I. Securities, Inc.
Majority-owned subsidiaries of Minnesota Life Insurance Company:
Advantus Enterprise Fund, Inc.
Advantus International Balanced Fund, Inc.
Advantus Venture Fund, Inc.
Advantus Real Estate Securities Fund, Inc.
Less than majority owned, but greater than 25% owned, subsidiaries of
Minnesota Life Insurance Company:
Advantus Money Market Fund, Inc.
MIMLIC Cash Fund, Inc.
Advantus Cornerstone Fund, Inc.
Advantus Index 500 Fund, Inc.
Less than 25% owned subsidiaries of Minnesota Life Insurance Company:
Advantus Horizon Fund, Inc.
Advantus Spectrum Fund, Inc.
Advantus Mortgage Securities Fund, Inc.
Advantus Bond Fund, Inc.
Unless indicated otherwise parenthetically, each of the above corporations is a
Minnesota corporation.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 25, 1999, the number of Contract Participants for
this Registration Statement were as follows:
Number of Record
Title of Class Holders
Group Variable Annuity Contracts 37,107
ITEM 28. INDEMNIFICATION
The State of Minnesota has an indemnification statute, found at Minnesota
Statutes 300.083, as amended, effective January 1, 1984, which requires
indemnification of individuals only under the circumstances described by the
statute. Expenses incurred in the defense of any action, including attorneys'
fees, may be advanced to the individual after written request by the board of
directors upon receiving an undertaking from the individual to repay any
amount advanced unless it is ultimately determined that he or she is entitled
to be indemnified by the corporation as authorized by the statute and after a
determination that the facts then known to those making the determination
would not preclude indemnification.
Indemnification is required for persons made a part to a proceeding by reason
of their official capacity so long as they acted in good faith, received no
improper personal benefit and have not been indemnified by another
organization. In the case of a criminal proceeding, they must also have had
no reasonable cause to believe the conduct was unlawful. In respect to other
acts arising out of official capacity: (1) where the person is acting
directly for the corporation there must be a reasonable belief by the person
that his or her conduct was in the best interests of the corporation or; (2)
where the person is serving another organization or plan at the request of
the corporation, the person must have reasonably believed that his or her
conduct was not opposed to the best interests of the corporation. In the case
of persons not directors, officers or policy-making employees, determination
of eligibility for indemnification may be made by a board-
<PAGE>
appointed committee of which a director is a member. For other employees,
directors and officers, the determination of eligibility is made by the Board
or a committee of the Board, special legal counsel, the shareholder of the
corporation or pursuant to a judicial proceeding.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of
Minnesota Life Insurance Company and Group Variable Annuity Account pursuant
to the foregoing provisions, or otherwise, Minnesota Life Insurance Company
and Group Variable Annuity Account have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by Minnesota Life Insurance Company and Group Variable Annuity
Account of expenses incurred or paid by a director, officer or controlling
person of Minnesota Life Insurance Company and Group Variable Annuity Account
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer of controlling person in connection with the
securities being registered, Minnesota Life Insurance Company and Group
Variable Annuity Account will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) The principal underwriter is Ascend Financial Services, Inc. Ascend
Financial Services, Inc. also is the principal underwriter for twelve
other organized mutual funds Advantus Spectrum Fund, Inc., MIMLIC Cash
Fund, Inc., Advantus Bond Fund, Inc., Advantus Horizon Fund, Inc.,
Advantus Money Market Fund, Inc., Advantus Mortgage Securities Fund, Inc.,
Advantus Cornerstone Fund, Inc., Advantus Enterprise Fund, Inc., Advantus
International Balanced Fund, Inc., Advantus Venture Fund, Inc., Advantus
Index 500 Fund, Inc., Advantus Real Estate Securities Fund, Inc., and for
four additional separate accounts of Minnesota Life Insurance Company, all
which offer contracts on a variable basis.
(b) Directors and officers of the Underwriter.
Positions and Positions and
Name and Principal Offices Offices
Business Address with Underwriter with Registrant
- ------------------ ---------------- ---------------
Robert E. Hunstad Director None
Minnesota Life
Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101
George I. Connolly President, Chief None
Ascend Financial Services, Inc. Executive Officer, Chief
400 Robert Street North Compliance Officer and
St. Paul, Minnesota 55101 Director
<PAGE>
Margaret Milosevich Vice President, Chief Assistant
Ascend Financial Services, Inc. Operations Officer, Secretary
400 Robert Street North Treasurer and Secretary
St. Paul, Minnesota 55101
Dennis E. Prohofsky Director None
Minnesota Life
Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101
Thomas L. Clark Assistant Treasurer Assistant
Ascend Financial Services, Inc. and Assistant Secretary Secretary
400 Robert Street North
St. Paul, Minnesota 55101
(c) All commission and other compensation received by each principal
underwriter, directly or indirectly, from the Registrant during the
Registrant's last fiscal year:
<TABLE>
<CAPTION>
Name of Net Underwriting Compensation on
Principal Discounts and Redemption or Brokerage Other
Underwriter Commissions Annuitization Commissions Compensation
- ----------- ---------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Ascend Financial $1,861,317
Services, Inc.
</TABLE>
*Note: This figure does not include compensation paid to registered
representatives of Ascend Financial Services, Inc. who are also licensed
sales representatives of Minnesota Life. These registered representatives
are paid directly by Minnesota Life on behalf of Ascend Financial
Services, Inc.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules promulgated thereunder are in the
physical possession of Minnesota Life Insurance Company, St. Paul, Minnesota
55101-2098.
ITEM 31. MANAGEMENT SERVICES
None.
<PAGE>
ITEM 32. UNDERTAKINGS
(a) The Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as payments under the Contracts may be
accepted.
(b) The Registrant hereby undertakes to include as part of any application to
purchase a contract offered by the prospectus a space that an applicant can
check to request a Statement of Additional Information.
(c) The Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available
under this form promptly upon written or oral request.
(d) The Company hereby represents that it is relying upon and complies with the
provisions of Paragraph (1) through (4) of the SEC Staff's No-Action Letter
dated November 22, 1988 with respect to language concerning withdrawal
restrictions applicable to plans established pursuant to Section 403(b) of
the Internal Revenue Code. See American Counsel of Life Insurance; SEC
No-Action Letter, [1959 Transfer Binder] Fed. Sec. L. Rep. (CCH) para.
78,904 at 78,533 (November 22, 1988).
(e) Minnesota Life Insurance Company hereby represents that, as to the variable
annuity policies which are the subject of this Registration Statement, File
No. 33-79534, the fees and charges deducted under the contract, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred and the risks assumed by Minnesota Life Insurance
Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the Registrant
certifies that it meets the requirements of Securities Act Rule 485(b) for
effectiveness of this Amendment to the Registration Statement and has duly
caused this amendment to the Registration Statement to be signed on its behalf
by the Undersigned, thereunto duly authorized, in the City of Saint Paul, and
State of Minnesota, on the 30th day of April, 1998.
GROUP VARIABLE ANNUITY ACCOUNT
(Registrant)
By: MINNESOTA LIFE INSURANCE COMPANY
(Depositor)
By
-----------------------------------
Robert L. Senkler
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Depositor,
Minnesota Life Insurance Company, has duly caused this Post-Effective Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Saint Paul, and State of Minnesota, on
the 30th day of April, 1999.
MINNESOTA LIFE INSURANCE COMPANY
By
---------------------------------------
Robert L. Senkler
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in their capacities
with the Depositor and on the date indicated.
Signature Title Date
- ------------------------ Chairman, President and April 30, 1999
Robert L. Senkler Chief Executive Officer
*
- ------------------------ Director
Giulio Agostini
*
- ------------------------ Director
Anthony L. Andersen
*
- ------------------------ Director
Leslie S. Biller
*
- ------------------------ Director
John F. Grundhofer
*
- ------------------------ Director
David S. Kidwell, Ph.D.
*
- ------------------------ Director
Reatha C. King, Ph.D.
*
- ------------------------ Director
Thomas E. Rohricht
*
- ------------------------ Director
Michael E. Shannon
- ------------------------ Director
Frederick T. Weyerhaeuser
- ------------------------ Senior Vice President April 30, 1999
Gregory S. Strong (chief financial officer)
- ------------------------ Senior Vice President April 30, 1999
Gregory S. Strong (chief accounting officer)
- ------------------------ Attorney-in-Fact April 30, 1999
Dennis E. Prohofsky
* Pursuant to power of attorney dated April 12, 1999, a copy of which is filed
herewith.
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
4. (b) The specimen copy of the Participant's Certificate of
Insurance, form number MHC-94-9311
(c) The specimen copy of the Annuitization Endorsement, form
number MHC-94-9312
9. Opinion and Consent of Donald F. Gruber, Esq.
10. (a) Consent of KPMG Peat Marwick LLP
(b) Minnesota Life Insurance Company Power of Attorney to Sign
Registration Statement
<PAGE>
CONTRACT OWNER: THE MINNESOTA STATE BOARD OF INVESTMENT
We have issued a group annuity contract to the Contract Owner. This
certificate is evidence of your coverage under the group annuity contract.
You became a participant under that contract when we first received purchase
payments on your behalf.
In this certificate, we will summarize the principal provisions of the group
annuity contract. This certificate is not an insurance contract. It does
not amend, extend or change the coverage under the group annuity contract.
All rights and benefits are determined solely by that contract and its terms.
You may examine the group annuity contract at a place designated by the
Contract Owner.
Secretary President
Registrar
GROUP DEFERRED VARIABLE ANNUITY CERTIFICATE
ALLOCATED
PROVISION FOR FIXED AND VARIABLE ANNUITY PAYMENTS
ALL PAYMENTS AND VALUES PROVIDED BY THIS CERTIFICATE, WHEN
BASED ON THE INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT,
ARE VARIABLE AND NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT
MHC-94-9311 Minnesota Life 1
<PAGE>
DEFINITIONS
When we use the following words, this is what we mean:
THE PARTICIPANT, YOU, YOUR
The person named as the proposed participant in the
application for participation.
WE, OUR, US
Minnesota Life Insurance Company.
ANNUITANT
The person who may receive lifetime benefits under this certificate. Joint
annuitants will be considered a single entity.
BENEFICIARY
The person, persons or entity designated to receive death benefits payable
under this certificate.
PARTICIPATION YEAR
A period of one year starting on the first day of the month in which we first
receive purchase payments on your behalf, or on an anniversary of that date.
PURCHASE PAYMENTS
Amounts paid to us for credit to your participant account, as consideration
for the benefits provided by the group annuity contract.
DEFERRED COMPENSATION
A program of retirement savings as described in Section 457 of the Internal
Revenue Code or other provision of the code providing for similar tax
treatment.
PLAN
A 457 deferred compensation plan established by the Contract Owner and funded
by the contract under which this certificate is issued. No obligation under
the plan is assumed by us, nor shall the plan or any amendment thereto be
construed to amend or modify the contract in any way except with our express
written consent.
FUND
The mutual fund or separate investment portfolio within a series mutual fund
which is designated as an eligible investment for the separate account.
VALUATION DATE
Any date on which a fund is valued.
VALUATION PERIOD
The period between successive valuation dates measured from the time of one
determination to the next.
ACCUMULATION VALUE
The sum of your values in the general account and/or separate account. In
the general account, this is the general account accumulation value. In the
separate account, this is the separate account accumulation value. The
separate account portion is composed of your interest in one or more
sub-accounts of the separate account. Your interest in the sub-accounts
shall be valued separately. The total of those values will be the separate
account accumulation value.
MHC-94-9311 Minnesota Life 2
<PAGE>
WITHDRAWAL VALUE
The value of your participant account which is available for withdrawal.
This value equals the accumulation value, subject to the deferred sales
charge during the first six participation years. However, if withdrawals
during the first calendar year are equal to or less than 10% of the purchase
payments made during the first year of participation and, if in subsequent
calendar years they are equal to or less than 10% of the accumulation value
at the end of the previous calendar year, the charge will not apply. If
withdrawals in any calendar year exceed that amount, the deferred sales
charge will apply to the excess.
GENERAL ACCOUNT
All assets of Minnesota Life other than those in the separate accounts
established by Minnesota Life.
SEPARATE ACCOUNT
A separate investment account titled Group Variable Annuity Account. This
separate account was established by us for this class of contract under
Minnesota law. The separate account is composed of several sub-accounts.
The assets of the separate account are ours. Those assets are not subject to
claims arising out of any other business of ours.
WRITTEN REQUEST
A request in writing signed by you. We may also require that this
certificate be sent in with your written request.
ANNUITY PAYMENTS
Payments made at regular intervals to you or to any other payee. Annuity
payments will be due and payable only on the first day of a calendar month.
FIXED ANNUITY
An annuity payable from the general account, with equal payments which remain
fixed during the payment period.
VARIABLE ANNUITY
An annuity payable from the separate account with payments which increase or
decrease in amount to reflect the investment experience of the separate
account and its sub-accounts.
AGE
Age of a person at nearest birthday.
PURCHASE PAYMENTS
- ---------------------------------------
WHERE DO YOU MAKE PURCHASE PAYMENTS?
All purchase payments must be made to us, by the Contract Owner, at our home
office.
HOW OFTEN DO YOU MAKE PURCHASE PAYMENTS?
You may make purchase payments as agreed upon between you and the Contract
Owner.
MAY YOU STOP MAKING PURCHASE PAYMENTS?
Yes. You may stop making purchase payments at anytime. You may begin again
at anytime before annuity payments start unless you have taken a lump sum
benefit payment of your entire account.
WHAT DEDUCTIONS ARE MADE FROM PURCHASE PAYMENTS?
MHC-94-9311 Minnesota Life 3
<PAGE>
There are usually no deductions made from the purchase payments. However, we
do reserve the right to make a deduction from purchase payments for state
premium taxes, where applicable.
HOW ARE PURCHASE PAYMENTS ALLOCATED?
They are allocated either to the general account or to the separate account
and its sub-accounts. Initially, you indicate your allocation in the
application. Later, you may change your allocation for future purchase
payments by giving us written notice. Applications received without
allocation instructions will be treated as incomplete.
WHAT SEPARATE ACCOUNT OPTIONS ARE AVAILABLE?
The separate account is divided into several sub-accounts. Purchase payments
may be applied to one or more of the sub-accounts. We reserve the right to
add, combine or remove any sub-accounts of the separate account.
WHAT ARE THE INVESTMENTS OF THE SEPARATE ACCOUNT?
For each sub-account, there is a fund for the investment of that
sub-account's assets. Purchase payments are invested in the funds at their
net asset value. The net asset value per share for each fund is determined
by adding the current value of securities and all other assets held by such
fund, subtracting liabilities, and dividing the remainder by the number of
shares outstanding.
If investment in a fund should no longer be possible or if we determine it
becomes inappropriate for contracts of this class, we may substitute another
fund. Substitution may be with respect to existing accumulation values,
future purchase payments and future annuity payments.
MAY WE MAKE CHANGES TO THE SEPARATE ACCOUNT?
Yes. We reserve the right to transfer assets of the separate account to
another separate account. The transfer will be of assets associated with
this class of contracts, as determined by us. If this type of transfer is
made, the term "separate account", as used in this contract, shall then mean
the separate account to which the assets were transferred.
We reserve the right, when permitted by law, to:
(a) de-register the separate account under the Investment
Company Act of 1940;
(b) restrict or eliminate voting rights of contract owners or
other persons who have voting rights as to the separate account; and
(c) combine the separate account with one or more other
separate accounts.
CONTRACT CHARGES
- ---------------------------------------
ARE THERE CHARGES UNDER THIS CONTRACT?
Yes. There may be a deferred sales charge. Also, there are certain charges
which are made directly to the separate account.
WHAT IS THE DEFERRED SALES CHARGE?
The deferred sales charge is the charge made on withdrawals, including
contract termination, during your first six participation years. The amount
withdrawn plus any deferred sales
MHC-94-9311 Minnesota Life 4
<PAGE>
charge is deducted from the accumulation value. In the separate account,
accumulation units will be cancelled of a value equal to the charge and the
withdrawal.
WHAT IS THE AMOUNT OF THE DEFERRED SALES CHARGE?
The charge is indicated in the table shown below. These percentages decrease
uniformly by .083% for each of the first 72 months of participation.
End of
Participation Year Charge
------------------ ------
(Participation Date) 6.0%
1 5.0%
2 4.0%
3 3.0%
4 2.0%
5 1.0%
6 0%
In no event will the amount of deferred sales charge exceed 9% of the total
purchase payments made on your behalf.
WHAT CHARGES ARE ASSOCIATED WITH THE SEPARATE ACCOUNT?
There are three charges associated with the separate account. They are the
mortality risk charge, the expense risk charge and the administrative charge.
These charges are deducted on each valuation date from the assets of the
separate account. On an annual basis, they may be as much as 1.65% of the
net asset value of the separate account.
WHAT IS THE MORTALITY RISK CHARGE?
This is a charge to compensate us for the mortality guarantees we make under
the contract. Actual mortality results incurred by us shall not adversely
affect any payments or values under this contract. On an annual basis, it
shall not exceed .60% of the net asset value of the separate account.
WHAT IS THE EXPENSE RISK CHARGE?
This charge compensates us for the guarantee that the deductions provided in
this contract will be sufficient to cover our actual expenses. Actual
expense results incurred by us shall not adversely affect any payments or
values under this contract. On an annual basis, it shall not exceed .65% of
the net asset value of the separate account.
WHAT IS THE ADMINISTRATIVE CHARGE?
The administrative charge is to compensate us for the administrative expenses
incurred by us. On an annual basis, it shall not exceed .40% of the net
asset value of the separate account.
VALUATION
- ---------------------------------------
HOW IS YOUR ACCUMULATION VALUE DETERMINED?
Your accumulation value is determined separately for the general account and
the separate account. The separate account value will include all
sub-accounts of the separate account.
For the general account, it is the sum of purchase payments allocated to the
general account on your behalf plus interest and transfers into the general
account, less any transfers out of the general account, the deferred sales
charge and any previous withdrawals.
For each sub-account of the separate account, it is equal to the number of
accumulation units
MHC-94-9311 Minnesota Life 5
<PAGE>
held on your behalf multiplied by the accumulation u What is an accumulation
unit and how is its value determined?
An accumulation unit is a measure of your interest in each sub-account of the
separate account. The number of accumulation units credited with respect to
each purchase payment is determined by dividing the portion of the purchase
payment allocated to each sub-account by the then current accumulation unit
value for that sub-account. This determination is made as of the valuation
date coincident with or next following the date on which we receive your
purchase payment at our home office. Once determined, the number of
accumulation units will not be affected by changes in the accumulation unit
value. However, the total number of accumulation units will be affected by
future contract transactions. In addition, the units of each sub-account
will be increased by subsequent purchase payments and transfers to that
sub-account. The units of each sub-account will be decreased by transfers or
withdrawals from that sub-account and any applicable deferred sales charge.
The accumulation unit value will increase or decrease on each valuation date.
The amount of any increase or decrease will depend on the net investment
experience of the sub-account of the separate account. The value of an
accumulation unit for each sub-account was originally set at $1.00 on the
first valuation date. For any subsequent valuation date, its value is equal
to its value on the preceding valuation date multiplied by the net investment
factor for that sub-account for the valuation period ending on the subsequent
valuation date.
WHAT IS THE NET INVESTMENT FACTOR FOR EACH SUB-ACCOUNT?
The net investment factor for a valuation period is the gross investment rate
for such valuation period, less a deduction for the charges associated with
the separate account at a rate of no more than 1.65% per annum.
The gross investment rate is equal to:
(a) the net asset value per share of a fund share held in
the sub-account of the separate account determined at
the end of the current valuation period; plus
(b) the per-share amount of any dividend or capital gain
distributions by the fund if the "ex-dividend" date
occurs during the current valuation period; divided by
(c) the net asset value per share of that fund share held
in the sub-account determined at the end of the
preceding valuation period.
HOW IS THE ANNUITY UNIT VALUE DETERMINED?
The value of an annuity unit for a sub-account is determined monthly as of
the first day of the month. The value is equal to the annuity unit value for
that sub-account as of the first day of the preceding month multiplied by the
product of (a) .996338; and (b) the sub-account investment factor. This
investment factor is the accumulation unit value for that sub-account on the
valuation date next following the fourteenth day of the preceding month
divided by the accumulation unit value for that sub-account on the valuation
date next following the fourteenth day of the second preceding month. For
any date other than the first of a month, the annuity unit value is that
value on the first day of the next month.
WHAT INTEREST IS CREDITED ON THE GENERAL ACCOUNT?
MHC-94-9311 Minnesota Life 6
<PAGE>
Interest is credited on the general account accumulation value. Interest is
credited at a rate of at least 3% per year, compounded annually. As
conditions permit, we will credit additional amounts of interest to the
general account accumulation values.
WITHDRAWAL BENEFITS
- ---------------------------------------
MAY I WITHDRAW FUNDS FROM MY ACCOUNT?
Yes. However, withdrawals may be made only for the purpose of providing
benefit payments in accordance with the provisions of the plan and contract;
or such other circumstances as may be agreed to by us and the contract owner.
All withdrawals will be on a first in, first out (FIFO) basis.
MAY I WITHDRAW FUNDS FROM MY ACCOUNT FOR TRANSFER TO OTHER
OPTIONS AVAILABLE IN THE PLAN?
Yes. From the general account, such withdrawals, combined with any transfers
to the sub-accounts of the separate account, are limited to the greater of
$1,000 or 10% of your general account accumulation value in each calendar
year. Amounts withdrawn from the sub-accounts of the separate account are not
limited. Such withdrawals may be taken once per year or in 12 monthly
installments.
WHAT AMOUNT IS AVAILABLE FOR WITHDRAWAL?
The amount available for withdrawal shall be the accumulation value less any
applicable deferred sales charge. If withdrawals during the first calendar
year of participation year are equal to or less than 10% of the total
purchase payments made on your behalf, the charge shall not apply. In
subsequent calendar years, there will be no charge for withdrawals equal to
or less than 10% of your prior calendar year end accumulation value. If
withdrawals in any calendar year exceed 10% of that accumulation value, the
deferred sales charge will apply to the excess.
TRANSFER PROVISIONS
- ---------------------------------------
WHAT IS A TRANSFER?
A transfer is a reallocation of funds within this contract. It may be between
the general account and the separate account or among the sub-accounts of the
separate account.
MAY YOU MAKE TRANSFERS OF AMOUNTS UNDER THE CONTRACT?
Yes. Transfers may be made by your written request. For transfers from the
sub-accounts of the separate account we will make the transfer on the basis
of the sub-account accumulation unit value on the valuation date coincident
with or next following the day we receive the request at our home office.
DO ANY RESTRICTIONS APPLY?
Yes. In any calendar year, transfers of general account accumulation values,
together with any withdrawals for transfer to other plan options, are limited
to the greater of $1000 or 10% of your general account accumulation value at
the time of transfer. Transfers from the general account may be made once
each calendar year or in 12 monthly installments.
Transfers from the sub-accounts of the separate account are not limited as to
amount or frequency.
MHC-94-9311 Minnesota Life 7
<PAGE>
All transfers shall be on a first in, first out (FIFO) basis.
AMOUNT PAYABLE AT DEATH
- ---------------------------------------
WHAT AMOUNT IS PAYABLE AT DEATH?
If you die before annuity payments have started, the death benefit shall be
equal to the greater of: (1) the accumulation value, determined as of the
valuation date coincident with or next following the day due proof of death
is received by us; or (2) the total of purchase payments received by us on
your behalf, less any prior withdrawals.
If the annuitant dies after annuity payments have started, we will pay
whatever amount may be called for by the terms of the annuity payment option
selected. The remaining interest in the contract must be distributed at
least as rapidly as under the option in effect at the annuitant's death.
TO WHOM WILL WE PAY THOSE BENEFITS?
When we receive due proof of death, satisfactory to us, we will pay the
amount payable at death under this contract to the beneficiary or
beneficiaries.
HOW WILL THE AMOUNT PAYABLE AT DEATH BE PAID?
We will pay that amount in a single sum unless another form of settlement has
been requested and agreed to by us. All payments by us are payable at our
home office. Proof of any claim under this contract must be submitted in
writing to us at our home office.
WHEN WILL WE PAY DEATH BENEFITS?
We will pay death benefits in a single sum to the designated beneficiary,
unless the beneficiary has elected an annuity payment option. Payment will
be made within seven days after we receive due proof of death of the
participant.
WHAT HAPPENS IF ONE OR ALL OF THE BENEFICIARIES DIE BEFORE YOU?
If a beneficiary dies before you, that beneficiary's interest in the
participant account ends with that beneficiary's death. Only those
beneficiaries who survive you will be eligible to share in the accumulation
value. If no beneficiary survives you, we will pay the accumulation value to
the executors or administrators of your estate.
CAN YOU CHANGE THE BENEFICIARY?
Yes. You can file a written request with us to change the beneficiary.
Your written request will not be effective until it is recorded in our home
office records. After it has been recorded, it will take effect as of the
date you signed the request. However, if you die 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.
ANNUITY PROVISIONS
- ---------------------------------------
WHEN DO ANNUITY PAYMENTS BEGIN?
You must notify us or the contract owner in writing that annuity payments are
to be made, when these payments are to begin, and what annuity form and
option has been selected. We must receive this notice at least 30 days in
advance of the date annuity payments are to
MHC-94-9311 Minnesota Life 8
<PAGE>
begin. Annuity payments are made on the first day of the month. Once
annuity payments commence, you may not change the annuity payment option or
cancel future annuity payments to receive a lump sum.
WHAT VALUE IS AVAILABLE TO BE APPLIED TO PROVIDE ANNUITY PAYMENTS?
When an annuity is to begin, we use your accumulation value to provide an
annuity under the options selected. We require that each monthly annuity
payment be at least $20. If the first monthly annuity payment would be less
than $20, we reserve the right to pay you the accumulation value in a lump
sum in lieu of all other rights under this contract. The requirement that the
first monthly payment be at least $20 shall be imposed separately for the
portion payable as a fixed annuity and for the portion payable as a variable
annuity under each of the sub-accounts of the separate account.
MAY WE REQUIRE INFORMATION BEFORE MAKING ANNUITY PAYMENTS?
Yes. We reserve the right to require proof satisfactory to us of the age of
the annuitant and of any joint annuitant before payments begin.
IF YOU MAKE NO ELECTION, WHEN DOES THE ANNUITY BEGIN?
If you do not elect another date, annuity payments will begin on April 1st of
the calendar year following the calendar year in which you attain age 70 1/2.
IF YOU FAIL TO ELECT AN ANNUITY OPTION, IS THERE AN OPTION
UNDER WHICH ANNUITY PAYMENTS WILL BE MADE?
Yes. If you do not elect an annuity payment option, we will make monthly
payments on the basis of a life annuity with period certain of 120 months.
IF YOU FAIL TO ELECT AN ANNUITY FORM, IS THERE A FORM UNDER
WHICH ANNUITY PAYMENTS WILL BE MADE?
Yes. If you do not elect an annuity payment form, general account
accumulation values will be applied to provide a fixed annuity and separate
account accumulation units will be applied to provide a variable annuity.
WHAT ANNUITY PAYMENT OPTIONS ARE AVAILABLE?
Both fixed and variable annuity payments are available under the following
options:
Option 1 - Life Annuity - annuity payments payable monthly for the lifetime
of the annuitant, ending with the last payment due prior to the annuitant's
death.
Option 2 - Life Annuity with a Period Certain - annuity payments payable
monthly for the lifetime of the annuitant; provided, if the annuitant dies
before payments have been made for the entire period certain, those remaining
certain payments will be made to the beneficiary.
The period certain may be for 120 months; 180 months; or for 240 months.
Option 3 - Joint and Last Survivor Annuity - annuity payments payable monthly
for the joint lifetimes of the annuitant and a designated joint annuitant.
The payments end with the last payment due before the survivor's death.
Option 4 - Fixed Period Annuity - annuity payments payable monthly for a
fixed period of
MHC-94-9311 Minnesota Life 9
<PAGE>
from five to twenty years. If the annuitant dies before all payments for the
fixed period are received, payments will continue for the remainder of the
fixed period to the beneficiary.
ARE OTHER ANNUITY PAYMENT OPTIONS AVAILABLE?
Yes. Other options may be available. They will be as agreed upon between
you and us.
MAY THE BENEFICIARY RECEIVE A LUMP SUM PAYMENT INSTEAD OF
THE REMAINING ANNUITY PAYMENTS?
Yes. The beneficiary may elect to have the present value of the remaining
payments paid in a lump sum. This right exists under Options 2 and 4.
The lump sum payment will be the commuted value of the remaining payments.
It will be based on the then current dollar amount of one payment, using the
same interest rate which served as a basis for the annuity.
HOW IS THE AMOUNT OF A FIXED ANNUITY PAYMENT DETERMINED?
We have included tables of guaranteed annuity rates in the group annuity
contract. Those rates are guaranteed for your use as long as you are a
participant.
HOW IS THE AMOUNT OF A VARIABLE ANNUITY PAYMENT DETERMINED?
The method for determining the first and subsequent variable annuity payments
is described in the group annuity contract. We guarantee that the mortality
assumptions and method of determining payments will be guaranteed for as long
as you are a participant.
WILL THESE RATES ALWAYS BE USED?
No. If, when you elect your annuity option, we are using annuity rates for
this class of contract which are more favorable than the guaranteed rates, we
will use the more favorable rates.
ARE TRANSFERS PERMITTED DURING THE ANNUITY PERIOD?
Yes. Amounts held as annuity reserves for a variable annuity may be
transferred among the sub-accounts during the annuity period. Amounts held
as annuity reserves for a variable annuity may also be transferred to provide
a fixed annuity under the general account. Transfers must be made by written
request and received by us at least 30 days in advance of the due date of the
annuity payment subject to the request. The annuitant and joint annuitant,
if any, must make such an election. Transfers of annuity reserves from any
sub-account must be at least equal to: 1) $5,000; or 2) the entire amount of
reserve remaining in that sub-account. In addition, annuity payments must
have been in effect for at least 12 months before a change may be made. Such
transfers are allowed only once every 12 months. Once fixed annuity payments
begin, reserves may not be transferred back to provide a variable annuity.
MUST AN ANNUITY PAYMENT OPTION BE ELECTED?
No. You may elect a lump sum payment of accumulation value, decreased by any
applicable deferred sales charge, in lieu of the application of accumulation
value to provide annuity payments. We must receive your written request at
least 30 days prior to the annuity commencement date. After such lump sum
settlement has been made, you shall have no further rights under this
contract.
MHC-94-9311 Minnesota Life 10
<PAGE>
TERMINATION PROVISIONS
- ---------------------------------------
WHO CAN TERMINATE THE CONTRACT?
The group annuity contract may be terminated by us or by the contract owner.
We may terminate the contract only if the contract no longer qualifies under
Section 457 of the Internal Revenue Code or if we need to amend the contract
and the contract owner does not consent to such amendment.
WHAT HAPPENS IF THE CONTRACT TERMINATES?
Suspension of purchase payments or termination of the contract will have no
effect on you if annuity payments have begun. Otherwise, your accumulation
values will continue to be maintained under the contract until: (a) withdrawn
to provide benefits; (b) applied to provide annuity payments; or (c)
transferred to the contract owner in accordance with the provisions of the
group annuity contract.
GENERAL PROVISIONS
- ---------------------------------------
CAN THE CONTRACT BE MODIFIED?
Yes. It may be modified by written agreement between us and the contract
owner. No such modification shall adversely affect your rights unless the
modification is made to comply with a law or government regulation. No
change or waiver of any of the provisions of the contract will be valid
unless made in writing by us and signed by our president, a vice president,
our secretary or an assistant secretary. No agent or other person has the
authority to change or waive any provision of the contract.
HOW WILL YOU KNOW THE VALUE OF YOUR PARTICIPANT ACCOUNT?
At least annually, you will receive a report. This report will summarize
transactions for the period covered by the report. It will show the current
accumulation value and the current separate account accumulation unit values.
The report will be as of a date within two months of its mailing.
WHAT IF A PERSON'S AGE IS MISSTATED?
If a person's age has been misstated, the amount payable under the contract
as an annuity will be that amount which would have been paid based upon the
person's correct age. In the case of an overpayment, we may either deduct the
required amount from that person's future annuity payments; or, require the
person to pay us in cash; or both may be done until we are repaid. In the
case of an underpayment, we will pay the required amount with the next
payment.
CAN YOU ASSIGN YOUR PARTICIPANT ACCOUNT?
No. Your 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. To the maximum extent
permitted by law, your accumulation value and any benefits payable under the
contract shall be exempt from the claims of your creditors.
MAY YOU BE ASKED TO PROVIDE US WITH ADDITIONAL INFORMATION?
MHC-94-9311 Minnesota Life 11
<PAGE>
Yes. You must provide any other information we need to administer the
contract and your participant account. If you cannot do so, we may ask the
person concerned for that information. We shall not be liable for any
payment based upon information given to us in error or not given to us.
MHC-94-9311 Minnesota Life 12
<PAGE>
Minnesota Life ANNUITIZATION ENDORSEMENT
Minnesota Life Insurance Company certifies that the Annuitant named in the
schedule below is entitled to the Annuity Payments described in this
schedule. Payments are to commence on the Annuity Commencement Date.
ANNUITY PAYMENT SCHEDULE
Contractholder ____________________________________
Group Contract Number ____________________________________
Annuitant ____________________________________
Annuitant's Social Security Number ____________________________________
Annuitant's Date of Birth ____________________________________
Annuity Commencement Date ____________________________________
Joint Annuitant ____________________________________
Joint Annuitant's Date of Birth ____________________________________
Annuitant's Beneficiary ____________________________________
Amount Applied to Purchase Fixed Annuity ____________________________________
Fixed Annuity Payment ____________________________________
Frequency ____________________________________
Amount Applied to Purchase Variable Annuity ____________________________________
Number of Variable Annuity Units ____________________________________
____________________________________
____________________________________
____________________________________
Initial Variable Annuity Payment ____________________________________
____________________________________
____________________________________
____________________________________
Form of Retirement Income ____________________________________
Secretary Registrar President
MHC-94-9312 Minnesota Life Insurance Company
<PAGE>
GENERAL
Misstatement of Age. In the event the age or any other fact affecting an
annuitant's coverage has been misstated, the amount of any Retirement Income
payable under the Group Contract with respect to such annuitant shall be
adjusted to such amount as would have been paid had the true facts been stated.
Assignment. No assignment of any benefits under the Group Contract shall be
valid and such benefits shall be exempt from the claims to the maximum extent
permitted by law.
Evidence of Survival. When a payment under the Group Contract is contingent
upon the survival of any person, evidence of such person's survival must be
furnished either by personal endorsement of check drawn for said payment or
otherwise to the satisfaction of Minnesota Life.
This endorsement summarizes the provisions of the Group Contract pertaining to
the Retirement Income shown in the schedule. It does not constitute a contract,
and in the event of any conflict between the Group Contract and this
endorsement, the terms of the Group Contract shall prevail. The Group Contract
may be examined by annuitants at an accessible place designated by the
Contractholder.
<PAGE>
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101-2098
651.665.3500 Tel
MINNESOTA LIFE
A MINNESOTA MUTUAL COMPANY
April 30, 1999
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101-2098
Gentlepersons:
In my capacity as counsel for the Minnesota Life Insurance Company (the
"Company"), I have reviewed certain legal matters relating to the Company's
Separate Account entitled Group Variable Annuity Account (the "Account") in
connection with Post-Effective Amendment Number 8 to its Registration Statement
on Form N-4. This Post-Effective Amendment is to be filed by the Company and
the Account with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, with respect to certain variable annuity contracts
(Securities and Exchange Commission File Number 33-79534).
Based upon that review, I am of the following opinion:
1. The Account is a separate account of the Company duly created and
validly existing pursuant to the laws of the State of Minnesota; and
2. The issuance and sale of the variable annuity contracts funded by the
Account have been duly authorized by the Company and such contracts,
when issued in accordance with and as described in the current
Prospectus contained in the Registration Statement, and upon
compliance with applicable local and federal laws, will be legal and
binding obligations of the Company in accordance with their terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
Donald F. Gruber
Assistant General Counsel
<PAGE>
(KPMG Peat Marwick LLP Letterhead)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Minnesota Life Insurance Company and
Contract Owners of Group Variable Annuity Account:
We consent to the use of our report included herein and to the references to our
Firm under the headings "AUDITORS" for Part B of the Registration Statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 30, 1999
<PAGE>
Minnesota Life Insurance Company
Power of Attorney
To Sign Registration Statements
WHEREAS, Minnesota Life Insurance Company ("Minnesota Life") has
established certain separate accounts to fund certain variable annuity and
variable life insurance contracts, and
WHEREAS, Variable Fund D ("Fund D") is a separate account of Minnesota Life
registered as a unit investment trust under the Investment Company Act of 1940
offering variable annuity contracts registered under the Securities Act of 1933,
and
WHEREAS, Variable Annuity Account ("Variable Annuity Account") is a
separate account of Minnesota Life registered as a unit investment trust under
the Investment Company Act of 1940 offering variable annuity contracts
registered under the Securities Act of 1933, and
WHEREAS, Minnesota Life Variable Life Account ("Variable Life Account") is
a separate account of Minnesota Life registered as a unit investment trust under
the Investment Company Act of 1940 offering variable adjustable life insurance
policies registered under the Securities Act of 1933,
WHEREAS, Group Variable Annuity Account ("Group Variable Annuity Account")
is a separate account of Minnesota Life which has been established for the
purpose of issuing group annuity contracts on a variable basis and which is to
be registered as a unit investment trust under the Investment Company Act of
1940 offering group variable annuity contracts and certificates to be registered
under the Securities Act of 1933;
WHEREAS, Minnesota Life Variable Universal Life Account ("Variable
Universal Life Account") is a separate account of Minnesota Life which has been
established for the purpose of issuing group and individual variable universal
life insurance policies on a variable basis and which is to be registered as a
unit investment trust under the Investment Company Act of 1940 offering group
and individual variable universal life insurance policies to be registered under
the Securities Act of 1933;
NOW THEREFORE, We, the undersigned Directors and Officers of Minnesota
Life, do hereby appoint Dennis E. Prohofsky and Garold M. Felland, and each of
them individually, as attorney in fact for the purpose of signing in their names
and on their behalf as Directors of Minnesota Life and filing with the
Securities and Exchange Commission Registration Statements, or any amendment
thereto, for the purpose of: a) registering contracts and policies of Fund D,
the Variable Annuity Account, the Variable Life Account, the Group Variable
Annuity Account and the Variable Universal Life Account for sale by those
entities and Minnesota Life under the Securities Act of 1933; and b) registering
Fund D, the Variable Annuity Account, the Variable Life Account, the Group
Variable Annuity Account and the Variable Universal Life Account as unit
investment trusts under the Investment Company Act of 1940.
SIGNATURE TITLE DATE
/s/Robert L. Senkler Chairman of the Board, April 12, 1999
- ------------------------------ President and Chief
Robert L. Senkler Executive Officer
/s/Giulio Agostini Director April 12, 1999
- ------------------------------
Giulio Agostini
/s/Anthony L. Andersen Director April 12, 1999
- ------------------------------
Anthony L. Andersen
/s/Leslie S. Biller Director April 12, 1999
- ------------------------------
Leslie S. Biller
/s/John F. Grundhofer Director April 12, 1999
- ------------------------------
John F. Grundhofer
/s/David S. Kidwell, Ph.D. Director April 12, 1999
- ------------------------------
David S. Kidwell, Ph.D.
/s/Reatha C. King, Ph.D. Director April 12, 1999
- ------------------------------
Reatha C. King, Ph.D.
/s/Thomas E. Rohricht Director April 12, 1999
- ------------------------------
Thomas E. Rohricht
/s/Michael E. Shannon Director April 12, 1999
- ------------------------------
Michael E. Shannon
Director
- ------------------------------
Frederick T. Weyerhaeuser
