<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 9
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment Number 9
GROUP VARIABLE ANNUITY ACCOUNT
------------------------------
(Exact Name of Registrant)
Minnesota Life Insurance Company
(formerly The Minnesota Mutual Life Insurance Company)
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(Name of Depositor)
400 Robert Street North, St. Paul, Minnesota 55101-2098
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(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 410 East
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 1, 2000, pursuant to paragraph (b) of Rule 485
---
60 days after filing pursuant to paragraph (a)(1) of Rule 485
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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: 1-800-362-3141
http://www.minnesotamutual.com
This Prospectus describes a group deferred, 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 the:
- Advantus Series Fund, Inc.
- All portfolios (Maturing Government Bond portfolios available
only to contracts issued prior to May 1, 2000);
and the "Underlying Funds":
- Long-Term Corporate Portfolio of Vanguard Fixed Income Securities
Fund, Inc.
- Vanguard/Wellington Fund, Inc.
- Scudder International Fund, a series of Scudder International Fund, Inc.
- Janus Twenty Fund, a series of the Janus Investment Fund
- Fidelity Contrafund-Registered Trademark- (available only to contracts
issued prior to May 1, 1998)
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
1-800-362-3141, or by writing to us at our office at 400 Robert Street North,
St. Paul, Minnesota 55101-2098. The table of contents 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. AND/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 1, 2000
<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
CONDENSED FINANCIAL INFORMATION AND FINANCIAL STATEMENTS 9
GENERAL DESCRIPTIONS 10
Minnesota Life Insurance Company 10
Group Variable Annuity Account 10
The Funds 10
Additions, Deletions or Substitutions 12
CONTRACT CHARGES 13
Sales Charges 13
Mortality and Expense Risk Charges 13
Contract Administrative Charge 14
Premium Taxes 14
Contract Fee 15
Portfolio Charges 15
DESCRIPTION OF THE CONTRACTS 15
ANNUITY PERIOD 20
DEATH BENEFIT 25
CREDITING ACCUMULATION UNITS 25
WITHDRAWALS AND SURRENDER 29
DISTRIBUTION 30
VOTING RIGHTS 30
FEDERAL TAX STATUS 31
PERFORMANCE DATA 37
REGISTRATION STATEMENT 37
STATEMENT OF ADDITIONAL INFORMATION 37
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(S) OR UNDERLYING FUND(S): 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. Currently these include the Funds and/or
Portfolios shown on the cover page of this Prospectus. Certain groups or
contractholders may restrict which of the funds are available.
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
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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 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.
YOU, YOUR: a Participant under the Contract.
PAGE 2
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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 Contract, except
where fixed aspects are specifically mentioned. The fixed portion of the
Contract is 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
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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 (available only to
contracts purchased before May 1, 2000)
Value Stock Portfolio
Small Company Value Portfolio
Global Bond Portfolio
Index 400 Mid-Cap Portfolio
Macro-Cap Value Portfolio
Micro-Cap Growth Portfolio
Real Estate Securities Portfolio
The 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 current prospectus for each Fund or Portfolio.
PAGE 4
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Some of these fund alternatives may be part of a series fund arrangement where
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 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.
We deduct a daily charge equal to an annual rate of 0.15% of the net asset value
of the Group Variable Annuity Account for our administrative costs. We reserve
the right to increase the charge to 0.40% 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 0.30% to 1.35% 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
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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.
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
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UNDERLYING FUND ANNUAL EXPENSES
(As a percentage of average net assets for the described underlying funds.)
<TABLE>
<CAPTION>
TOTAL ANNUAL
FUND OPERATING TOTAL ANNUAL
EXPENSES TOTAL FUND OPERATING
WITHOUT WAIVERS EXPENSES WITH
MANAGEMENT DISTRIBUTION OTHER WAIVERS OR AND WAIVERS OR
FEE (12B-1) FEES EXPENSES REDUCTIONS REDUCTIONS REDUCTIONS
----------- ------------ -------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
ADVANTUS SERIES FUND, INC. (1):
Growth Portfolio 0.45% 0.25% 0.03% 0.73% -- 0.73%
Bond Portfolio 0.30% 0.25% 0.06% 0.61% -- 0.61%
Money Market Portfolio 0.25% 0.25% 0.06% 0.56% -- 0.56%
Asset Allocation Portfolio 0.35% 0.25% 0.03% 0.63% -- 0.63%
Mortgage Securities Portfolio 0.30% 0.25% 0.06% 0.61% -- 0.61%
Index 500 Portfolio 0.12% 0.25% 0.05% 0.42% -- 0.42%
Capital Appreciation Portfolio 0.50% 0.25% 0.04% 0.79% -- 0.79%
International Stock
Portfolio (2) 0.59% 0.25% 0.19% 1.03% -- 1.03%
Small Company Growth Portfolio 0.65% 0.25% 0.05% 0.95% -- 0.95%
Maturing Government Bond 2002
Portfolio (2) 0.25% -- 0.83% 1.08% 0.68% 0.40%
Maturing Government Bond 2006
Portfolio (2) 0.25% -- 1.01% 1.26% 0.86% 0.40%
Maturing Government Bond 2010
Portfolio (2) 0.25% -- 1.18% 1.43% 1.03% 0.40%
Value Stock Portfolio 0.50% 0.25% 0.05% 0.80% -- 0.80%
Small Company Value
Portfolio (2) 0.70% 0.25% 0.81% 1.76% 0.66% 1.10%
Global Bond Portfolio (2) 0.60% 0.25% 0.34% 1.19% -- 1.19%
Index 400 Mid-Cap
Portfolio (2) 0.15% 0.25% 0.60% 1.00% 0.45% 0.55%
Macro-Cap Value Portfolio (2) 0.50% 0.25% 0.78% 1.53% 0.63% 0.90%
Micro-Cap Growth Portfolio (2) 0.95% 0.25% 0.47% 1.67% 0.32% 1.35%
Real Estate Securities
Portfolio (2) 0.60% 0.25% 1.30% 2.15% 1.15% 1.00%
VANGUARD FIXED INCOME SECURITIES
FUND, INC.--LONG-TERM CORPORATE
PORTFOLIO 0.27% -- 0.03% 0.30% -- 0.30%
VANGUARD/WELLINGTON FUND, INC. 0.27% -- 0.03% 0.30% -- 0.30%
FIDELITY CONTRAFUND 0.58% -- 0.09% 0.67% 0.02% 0.65%
SCUDDER INTERNATIONAL FUND 0.80% -- 0.41%(3) 1.21% -- 1.21%
JANUS TWENTY FUND 0.65%(4) -- 0.23% 0.88% -- 0.88%
</TABLE>
(1) The shareholders of the Advantus Series Fund, Inc. approved new management
fees for certain portfolios and a distribution (Rule 12b-1) fee, effective
May 1, 2000. The table shows the new management and distribution fees that will
be in effect May 1, 2000 and other expenses incurred in fiscal year 1999.
(2) Minnesota Life voluntarily waived certain expenses for these portfolios for
the period ended December 31, 1999. If these portfolios had been charged for
expenses, the ratio of expenses to average daily net assets would have been as
shown in the column "Total annual fund operating expenses without waivers or
reductions." It is Advantus Capital's intention to waive other fund expenses
during the current fiscal year which exceed, as a percentage of average daily
net assets, .15%; except for the International Stock and Global Bond portfolios
where other fund expenses must exceed 1.00%. Advantus Capital reserves the
option to reduce the level of other fund expenses which it will voluntarily
absorb.
(3) Includes costs of shareholder servicing, custody, accounting services, and
similar expenses, which may vary with fund size and other factors.
(4) "Management Fee" information has been restated to reflect a new fee schedule
effective January 31, 2000.
PAGE 7
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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 $64 $ 84 $104 $204 $18 $54 $ 94 $204
Bond Portfolio $63 $ 81 $ 98 $191 $16 $51 $ 88 $191
Money Market Portfolio $62 $ 79 $ 96 $186 $16 $49 $ 85 $186
Asset Allocation Portfolio $63 $ 81 $ 99 $193 $17 $51 $ 89 $193
Mortgage Securities Portfolio $63 $ 81 $ 98 $191 $16 $51 $ 88 $191
Index 500 Portfolio $61 $ 75 $ 88 $170 $14 $45 $ 78 $170
Capital Appreciation Portfolio $65 $ 86 $108 $211 $18 $56 $ 97 $211
International Stock Portfolio $67 $ 93 $120 $236 $21 $64 $109 $236
Small Company Growth Portfolio $66 $ 91 $116 $227 $20 $61 $105 $227
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 $212 $18 $57 $ 97 $212
Small Company Value Portfolio $68 $ 95 $123 $243 $21 $66 $113 $243
Global Bond Portfolio $68 $ 98 $128 $252 $22 $69 $117 $252
Index 400 Mid-Cap Portfolio $62 $ 79 $ 95 $185 $16 $49 $ 84 $185
Macro-Cap Value Portfolio $66 $ 89 $113 $222 $19 $60 $103 $222
Micro-Cap Growth Portfolio $70 $103 $136 $269 $24 $73 $126 $269
Real Estate Securities Portfolio $67 $ 92 $118 $233 $20 $63 $108 $233
VANGUARD FIXED INCOME SECURITIES
FUND, INC. - LONG-TERM CORPORATE
PORTFOLIO $60 $ 71 $ 82 $157 $13 $41 $ 71 $157
VANGUARD/WELLINGTON FUND, INC. $60 $ 71 $ 82 $157 $13 $41 $ 71 $157
FIDELITY CONTRAFUND $63 $ 82 $101 $198 $17 $53 $ 91 $198
SCUDDER INTERNATIONAL FUND $69 $ 98 $129 $254 $22 $69 $118 $254
JANUS TWENTY FUND $65 $ 89 $112 $220 $19 $59 $102 $220
</TABLE>
This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown.
PAGE 8
<PAGE>
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.
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 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 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 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
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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 Credit Suisse Asset Management, LLC
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.
Small Company Growth Credit Suisse Asset Management, LLC
Small Company Value State Street Research & Management Company
</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.
Some of these Underlying Funds 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.
PAGE 11
<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.
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,
- changes in the investment management of any of the Portfolios of the
Fund, or
- differences in voting instructions between those given by policy owners
and those given by contract owners.
PAGE 12
<PAGE>
(SIDEBAR)
A deferred sales charge may apply.
The mortality and expense risk charge is .85% but we may increase it to 1.25%.
(END SIDEBAR)
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.
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
PAGE 13
<PAGE>
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.
(SIDEBAR)
The Administrative charge is .15% but we may increase it to .40%.
(END SIDEBAR)
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%.
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.
PAGE 14
<PAGE>
(SIDEBAR)
The contract is a group deferred variable annuity.
We issue the contract to you and you select the annuitant.
(END SIDEBAR)
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
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).
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.
PAGE 15
<PAGE>
(SIDEBAR)
You cannot pay more than your underlying plan allows.
(END SIDEBAR)
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 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.
PAGE 16
<PAGE>
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.
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, and 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 17
<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 18
<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 19
<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 20
<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 21
<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 Participant's
individual accumulation value when the annuity begins. In addition, a few states
impose a premium tax on the amount used to purchase an annuity benefit,
depending on the type of plan involved. These taxes currently range from 0.00%
to 3.50% and are deducted from the accumulation value applied to provide annuity
payments. We reserve the right to make such deductions from purchase payments as
they are received.
The amount of the first monthly payment depends on the annuity payment option
elected and the adjusted age of the annuitant and any joint annuitant. A formula
for determining the adjusted age is contained in the Contract.
The Contract contains tables indicating the dollar amount of the first fixed
monthly payment under each annuity payment option for each $1,000 of value
applied (after deduction of any premium taxes not previously deducted). A $200
fee may be deducted from the Participant's General Account accumulation value
before applying the rates found in the table.
The dollar amount of the first monthly variable annuity payment is determined by
applying the accumulation value (minus any premium tax deduction) to a rate per
$1,000 which is based on the Progressive Annuity table with an age setback of
six years and an interest rate of 4.50% compounded annually. The amount of
PAGE 22
<PAGE>
the first payment depends upon the annuity payment option selected and the
adjusted age(s) of the annuitant and any joint annuitant. A number of annuity
units is then determined by dividing this dollar amount by the then current
annuity unit value. Thereafter, the number of annuity units remains unchanged
during the period of annuity payments, except for transfers and in the case of
certain joint annuity payment options which provide for a reduction in payment
after the death of the annuitant. This determination is made separately for each
sub-account of the Variable Annuity Account. The number of annuity units is
based upon the accumulation value in each sub-account as of the date annuity
payments are to begin.
The dollar amount determined for each sub-account will then be aggregated for
purposes of making payments.
The 4.50% interest rate assumed in the variable annuity determination would
produce level annuity payments if the net investment factor remained constant at
4.50% per year. Subsequent variable annuity payments will decrease, remain the
same or increase depending upon whether the actual net investment factor is less
than, equal to, or greater than 4.50%.
Annuity payments are always made as of the first day of a month. The contract
requires that we receive notice of election to begin annuity payments at least
thirty days prior to the annuity commencement date. We currently waive this
notice requirement, but reserve the right to enforce it in the future.
Money will be transferred to the General Account for the purpose of electing
fixed annuity payments, or to the appropriate variable sub-accounts for variable
annuity payments. The transfer will occur on the valuation date on or next
following the date on which the request is received. The account value used to
determine the fixed annuity payment will be the value as of the last valuation
date of the month preceding the annuity commencement date. The account value
used to determine the initial variable annuity payment will be the value as of
the first valuation date following the fourteenth day of the month prior to the
annuity commencement date.
If the request for a fixed or variable annuity payment is not received at least
three valuation days prior to the date used to determine the account value as
described above, the annuity commencement date will be changed to the first of
the month following the requested annuity commencement date.
If, when annuity payments are elected, we are using annuity rates for Contracts
of this class which result in larger annuity payments, we will use those rates
instead.
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.
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<PAGE>
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.
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
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.
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.
(SIDEBAR)
You may change Portfolios in the annuity period, subject to some restrictions.
(END SIDEBAR)
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<PAGE>
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.
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.
(SIDEBAR)
If you die prior to commencement of annuity payments, there is a death benefit.
Initial purchase payments are credited within 2 business days of our receipt of
a complete application.
(END SIDEBAR)
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.
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
PAGE 25
<PAGE>
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
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.
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
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<PAGE>
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.
(SIDEBAR)
Systematic transfers and telephone transfers are available.
(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. For
more information on your Contract, please contact us. You may also be able to
contact us or your representative via Internet e-mail through our web site.
Please remember that e-mail is not a valid substitute for a written request that
requires your signature.
The underlying funds may restrict the amounts or frequency of transfers to or
from a sub-account of the separate account in order to protect fund
shareholders.
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.
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<PAGE>
(SIDEBAR)
Your contract's accumulation value varies with the performance of the Portfolios
you select and is not guaranteed.
(END SIDEBAR)
Withdrawals for this purpose (other than those relating to the timing of
payments), are subject to the same limitations and restrictions as described in
the heading "Transfer of Values" immediately above and the same dollar
limitations on such transfers similarly apply.
VALUE OF THE CONTRACT
The value of the Contract at any time prior to the commencement of annuity
payments can be determined by multiplying the total number of accumulation units
credited to the Contract by the current value of an accumulation unit in each
sub-account of the Group Variable Annuity Account and adding to this amount the
sum of General Account values. There is no assurance that such value will equal
or exceed the purchase payments made, except with respect to amounts allocated
to the General Account. The Contract Owner and, where applicable, each
Participant will be advised periodically of:
- the number of accumulation units credited to the Contract or to the
Participant's individual account
- the current value of each accumulation unit, and the total value of the
Contract or the individual account.
ACCUMULATION UNIT VALUE
The value of an accumulation unit in each sub-account of the Group Variable
Annuity Account was set at $1.000000 on the first valuation date of the Group
Variable Annuity Account. The value of an accumulation unit on any subsequent
valuation date is determined by multiplying the value of an accumulation unit on
the immediately preceding valuation date by the net investment factor (described
below) for the valuation period just ended. The value of an accumulation unit as
of any date other than a valuation date is equal to its value on the next
succeeding valuation date.
NET INVESTMENT FACTOR
The net investment factor is an index used to measure the investment performance
of a sub-account from one valuation period to the next. For any sub-account, the
net investment factor for a valuation period is the gross investment rate for
such sub-account for the valuation period, less a deduction for the mortality
risk, expense risk and administrative charge at the current rate of 1.00% per
annum.
The gross investment rate is equal to:
- 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
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<PAGE>
- 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.
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 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.
(SIDEBAR)
You may cancel your contract under certain circumstances and subject to possible
tax consequences.
(END SIDEBAR)
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.
Contract Owners or plan administrators of the Contract Owner's underlying plan
may also submit signed written withdrawal or surrender requests to us by
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<PAGE>
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 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
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<PAGE>
to determine the number of shares for which voting instructions may be provided
by the Participant or annuitant. In either case, instructions for voting
fractional shares will be recognized. We shall notify Participants or annuitants
who are entitled to provide such voting instructions and will provide them with
proxy materials and forms necessary for providing voting instructions.
During the accumulation period of each Certificate, the Participant holds the
voting interest in each Certificate. The number of votes will be determined by
dividing the accumulation value of the Contract as to the accumulation value of
each Participant attributable to each sub-account by the net asset value per
share of the underlying Series Fund shares held by that sub-account.
During the annuity period of each Certificate, the annuitant holds the voting
interest in each Certificate. The number of votes will be determined by dividing
the reserve for each annuitant allocated to each sub-account by the net asset
value per share of the underlying Series Fund shares held by that sub-account.
After an annuity begins, the votes attributable to any particular annuitant will
decrease as the reserves decrease. In determining any voting interest,
fractional shares will be recognized.
We shall notify each Participant or annuitant of a Series Fund shareholders'
meeting if the shares held for the Participant may be voted at such meeting. We
will also send proxy materials and a form of instruction so that you can
instruct us with respect to voting.
(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
PAGE 31
<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.
(END SIDEBAR)
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.
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 withdrawal amounts 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.
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<PAGE>
(SIDEBAR)
A penalty tax may apply to distributions prior to age 59 1/2.
Transfers, assignments and certain designations of annuitants can have tax
consequences.
(END SIDEBAR)
The Code imposes a 10% penalty tax on the taxable portion of certain
distributions from annuity contracts. This additional tax does not apply where
the taxpayer is
- 59 1/2 or older,
- where payment is made on account of the taxpayer's disability, 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.
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
PAGE 33
<PAGE>
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.
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.
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.
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<PAGE>
(SIDEBAR)
Congress may change the tax laws and reduce or eliminate any tax advantages of
the contract.
(END SIDEBAR)
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
- 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.
PAGE 35
<PAGE>
(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
- 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 tax adviser should be
consulted.
PAGE 36
<PAGE>
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 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.
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 37
<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, 1999. 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, 1999, 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 YEAR ENDED 1994 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Advantus Growth Sub-Account:
Unit value at beginning of period.... $1.90 $1.42 $1.08 $1.00 -- --
Unit value at end of period.......... $2.36 $1.90 $1.42 $1.08 -- --
Number of units outstanding at end of
period.............................. 1,117,352 804,249 351,033 136,198 -- --
Advantus Money Market Sub-Account:
Unit value at beginning of period.... $1.19 $1.14 $1.10 $1.06 $1.01 $1.00
Unit value at end of period.......... $1.23 $1.19 $1.14 $1.10 $1.06 $1.01
Number of units outstanding at end of
period.............................. 510,720 5,337,083 2,345,197 1,676,436 812,075 318,636
Advantus Asset Allocation Sub-Account:
Unit value at beginning of period.... $1.53 $1.25 $1.06 $1.00 -- --
Unit value at end of period.......... $1.75 $1.53 $1.25 $1.06 -- --
Number of unit outstanding at end of
period.............................. 870,925 $732,995 368,919 69,684 -- --
Advantus Index 500 Sub-Account:
Unit value at beginning of period.... $2.65 $2.09 $1.60 $1.33 $0.98 $1.00
Unit value at end of period.......... $3.16 $2.65 $2.09 $1.60 $1.33 $0.98
Number of units outstanding at end of
period.............................. 1,805,942 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.... $1.52 $1.41 $1.24 $1.23 $0.99 $1.00
Unit value at end of period.......... $1.41 $1.52 $1.41 $1.24 $1.23 $0.99
Number of units outstanding at end of
period.............................. 397,545 5,471,112 3,145,416 2,199,884 1,202,743 275,796
Vanguard Wellington Sub-Account:
Unit value at beginning of period.... $2.00 $1.80 $1.48 $1.28 $0.98 $1.00
Unit value at end of period.......... $2.06 $2.00 $1.80 $1.48 $1.28 $0.98
Number of units outstanding at end of
period.............................. 1,777,914 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.... $2.54 $1.95 $1.60 $1.32 $0.98 $1.00
Unit value at end of period.......... $3.14 $2.54 $1.95 $1.60 $1.32 $0.98
Number of units outstanding at end of
period.............................. 2,160,239 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.... $1.48 $1.26 $1.18 $1.04 $0.93 $1.00
Unit value at end of period.......... $2.32 $1.48 $1.26 $1.18 $1.04 $0.93
Number of units outstanding at end of
period.............................. 561,855 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.... $3.59 $2.09 $1.63 $1.29 $0.96 $1.00
Unit value at end of period.......... $5.86 $3.59 $2.09 $1.63 $1.29 $0.96
Number of units outstanding at end of
period.............................. 2,871,981 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 1, 2000
This Statement of Additional Information is not a prospectus. Much of the
information contained in this Statement of Additional Information expands
upon subjects discussed in the Prospectus. Therefore, this Statement should
be read in conjunction with the 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>
Anthony L. Andersen Retired since November 1999, prior thereto
Chair-Board of Directors, H. B. Fuller Company,
St. Paul, Minnesota, (Adhesive Products) since
June 1995, prior thereto for more than five years
President and Chief Executive Officer, H. B.
Fuller Company
Leslie S. Biller Vice Chairman and Chief Operating Officer, Wells
Fargo & Company, San Francisco, California
(Banking)
John F. Grundhofer President, Chairman and Chief Executive Officer,
U.S. Bancorp, Minneapolis, Minnesota (Banking)
Robert E. Hunstad Executive Vice President, Minnesota Life
Insurance Company
Dennis E. Prohofsky Senior Vice President, General Counsel and
Secretary, Minnesota Life Insurance Company
Robert L. Senkler Chairman of the Board, President and Chief
Executive Officer, Minnesota Life Insurance
Company, since August 1995; prior thereto for more
than five years Vice President and Actuary,
Minnesota Life Insurance Company
Michael E. Shannon Retired since December 1999, prior thereto for
more than five years Chairman, Chief Financial
and Administrative Officer, Ecolab, Inc.,
St. Paul, Minnesota (Develops and Markets
Cleaning and Sanitizing Products)
William N. Westhoff Senior Vice President and Treasurer, Minnesota
Life Insurance Company since April 1998, prior
thereto from August 1994 to October 1997,
Senior Vice President, Global Investments,
American Express Financial Corporation,
Minneapolis, Minnesota
Frederick T. Weyerhaeuser Retired since April 1998, prior thereto Chairman
and Treasurer, Clearwater Investment Trust since
May 1996, prior thereto for more than five years,
Chairman, Clearwater Management Company, St. Paul,
Minnesota (Financial Management)
</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
James E. Johnson Senior Vice President
Gregory S. Strong Senior Vice President and Chief
Financial Officer
Terrence M. Sullivan Senior Vice President
Randy F. Wallake Senior Vice President
</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.
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 1999, 1998, 1997, respectively were $1,094,256, $1,861,317
and $1,523,665, 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, 1999 were 4.21% and
4.29%, 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,
1999 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 12/31/99 Inception
---------------- ---------
<S> <C> <C> <C>
Growth Sub-Account (136.04%) 136.04% 01/31/96
Asset Allocation Sub-Account (74.69%) 74.69% 01/31/96
Index 500 Sub-Account (216.02%) 216.02% 09/01/94
Vanguard Long-Term Corporate
Sub-Account (40.72%) 40.72% 09/01/94
Vanguard Wellington Sub-Account (106.47%) 106.47% 09/01/94
Fidelity Contrafund Sub-Account (214.25%) 214.25% 09/01/94
Scudder International Sub-Account (132.43%) 132.43% 09/01/94
Janus Twenty Sub-Account (486.50%) 486.50% 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. For the period January 1, 1999 through
December 31, 1999, Minnesota Life voluntarily absorbed the following: Maturing
Government Bond 2002 0.68%; Maturing Government Bond 2006 0.86%; Maturing
Government Bond 2010 1.03%; Small Company Value 0.66%; Index 400 Mid-Cap 0.45%;
Macro Cap Value 0.63%; Micro Cap Growth 0.32%; Real Estate Securities 1.15%.
Advantus Capital Management, Inc. ("Advantus Capital") intends to waive other
fund expenses during the current fiscal year which exceed, as a percentage of
average daily net assets, .15%, except for International Stock Portfolio and
Global Bond Portfolio where it must exceed 1.00%. There is no specified or
minimum period of time during which Advantus Capital has agreed to continue its
voluntary absorption of these expenses, and Advantus Capital may in its
discretion cease its absorption of expenses at any time. Should Advantus
Capital cease absorbing expenses the effect would be to increase substantially
Fund expenses and thereby reduce investment return.
6
<PAGE>
The average annual rates of return for the Sub-Accounts, in connection with
the contract described in the Prospectus, for the specified periods ended
December 31, 1999 are shown in the tables below. The figures in parentheses
show what the average annual rates of return would have been had Minnesota
Life 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, 1999 under the
Group Variable Annuity Account.
<TABLE>
<CAPTION>
Group Deferred Variable Annuity
Year Ended Five Years Ten Years From Inception Date of
12/31/99 Ended 12/31/99 Ended 12/31/99 to 12/31/99 Inception
-------- -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth Sub-Account (18.69%) 18.69% (N/A) N/A (N/A) N/A (23.87%) 23.87% 01/31/96
Asset Allocation
Sub-Account (8.82%) 8.82% (N/A) N/A (N/A) N/A (14.72%) 14.72% 01/31/96
Index 500 Sub-Account (13.63%) 13.63% (26.17%) 26.17% (N/A) N/A (23.90%) 23.90% 09/01/94
Vanguard Long-Term
Corporate Sub-Account (-11.77%) -11.77% (7.11%) 7.11% (N/A) N/A (6.47%) 6.47% 09/01/94
Vanguard Wellington
Sub-Account (-1.30%) -1.30% (15.92%) 15.92% (N/A) N/A (14.41%) 14.41% 09/01/94
Fidelity Contrafund
Sub-Account (18.14%) 18.14% (25.97%) 25.97% (N/A) N/A (23.77%) 23.77% 09/01/94
Scudder International
Sub-Account (49.38%) 49.38% (19.75%) 19.75% (N/A) N/A (16.97%) 16.97% 09/01/94
Janus Twenty
Sub-Account (55.59%) 55.59% (43.34%) 43.34% (N/A) N/A (39.12%) 39.12% 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, 1999, 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,
1999 under The Group Variable Annuity Account.
<TABLE>
<CAPTION>
Year Ended Five Years Ten Years
12/31/99 Ended 12/31/99 Ended 12/31/99
-------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Growth Sub-Account (24.42%) 24.42% (25.41%) 25.41% (15.81%) 15.81%
Asset Allocation Sub-Account (14.03%) 14.03% (17.63%) 17.63% (12.30%) 12.30%
Index 500 Sub-Account (19.08%) 19.08% (26.40%) 26.40% (16.17%) 16.17%
Vanguard Long-Term Corporate Sub-Account (-7.66%) -7.66% (7.30%) 7.30% (7.53%) 7.53%
Vanguard Wellington Sub-Account (3.37%) 3.37% (16.13%) 16.13% (11.41%) 11.41%
Fidelity Contrafund Sub-Account (23.83%) 23.83% (26.20%) 26.20% (21.16%) 21.16%
Scudder International Sub-Account (56.71%) 56.71% (19.98%) 19.98% (11.99%) 11.99%
Janus Twenty Sub-Account (63.25%) 63.25% (43.61%) 43.61% (25.62%) 25.62%
</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 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 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), as of December 31, 1999 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 note (6) to the
financial statements. These financial statements and the financial highlights
are the responsibility of the Account's management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investments owned at December 31, 1999 were confirmed to us by the
respective Sub-Account mutual fund 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, 1999 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 LLP
Minneapolis, Minnesota
February 4, 2000
<PAGE>
GROUP VARIABLE ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<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 Growth Portfolio, 790,854 shares
at net asset value of $3.33 per share (cost $1,980,222)............ $ 2,635,728 - - -
Advantus Money Market Portfolio, 628,115 shares
at net asset value of $1.00 per share (cost $628,115).............. - 628,115 - -
Advantus Asset Allocation Portfolio, 637,268 shares
at net asset value of $2.39 per share (cost $1,308,111) ........... - - 1,520,815 -
Advantus Index 500 Portfolio, 1,249,535 shares
at net asset value of $4.56 per share (cost $4,342,854) ........... - - - 5,702,661
Vanguard Long-Term Corporate Portfolio, 68,962 shares
at net asset value of $8.11 per share (cost $613,519) ............. - - - -
Vanguard/Wellington Fund, Inc., 131,264 shares
at net asset value of $27.96 per share (cost $3,718,471) .......... - - - -
Fidelity Contrafund, 113,047 shares at net asset
value of $60.02 per share (cost $5,462,627) ....................... - - - -
Scudder International Fund, 18,452 shares at net
asset value of $70.74 per share (cost $939,455) ................... - - - -
Janus Twenty Fund, 201,713 shares at net asset
value of $83.43 per share (cost $10,474,592)....................... - - - -
------------ ------------ --------------- ------------
2,635,728 628,115 1,520,815 5,702,661
Receivable for investments sold ....................................... 104 25 60 225
Receivable from Minnesota Life for contract purchase payments ......... 1,894 118 346 15,427
------------ ------------ --------------- ------------
Total assets ..................................................... 2,637,726 628,258 1,521,221 5,718,313
------------ ------------ --------------- ------------
LIABILITIES
-----------
Payable for investments purchased ..................................... 1,894 118 346 15,427
Payable to Minnesota Life for contract terminations and
mortality and expense charges........................................ 104 25 60 225
------------ ------------ --------------- ------------
Total liabilities.................................................... 1,998 143 406 15,652
------------ ------------ --------------- ------------
NET ASSETS APPLICABLE TO CONTRACT OWNERS .............................. $ 2,635,728 628,115 1,520,815 5,702,661
------------ ------------ --------------- ------------
------------ ------------ --------------- ------------
ACCUMULATION UNITS OUTSTANDING ........................................ 1,117,352 510,720 870,925 1,805,942
------------ ------------ --------------- ------------
------------ ------------ --------------- ------------
NET ASSET VALUE PER ACCUMULATION UNIT ................................. $ 2.36 1.23 1.75 3.16
------------ ------------ --------------- ------------
------------ ------------ --------------- ------------
<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 Growth Portfolio, 790,854 shares
at net asset value of $3.33 per share (cost $1,980,222)............ - - - -
Advantus Money Market Portfolio, 628,115 shares
at net asset value of $1.00 per share (cost $628,115).............. - - - -
Advantus Asset Allocation Portfolio, 637,268 shares
at net asset value of $2.39 per share (cost $1,308,111) ........... - - - -
Advantus Index 500 Portfolio, 1,249,535 shares
at net asset value of $4.56 per share (cost $4,342,854) ........... - - - -
Vanguard Long-Term Corporate Portfolio, 68,962 shares
at net asset value of $8.11 per share (cost $613,519) ............. 559,284 - - -
Vanguard/Wellington Fund, Inc., 131,264 shares
at net asset value of $27.96 per share (cost $3,718,471) .......... - 3,670,129 - -
Fidelity Contrafund, 113,047 shares at net asset
value of $60.02 per share (cost $5,462,627) ....................... - - 6,785,089 -
Scudder International Fund, 18,452 shares at net
asset value of $70.74 per share (cost $939,455) ................... - - - 1,305,329
Janus Twenty Fund, 201,713 shares at net asset
value of $83.43 per share (cost $10,474,592)....................... - - - -
------------ ------------ --------------- ------------
559,284 3,670,129 6,785,089 1,305,329
Receivable for investments sold ....................................... 6,629 - - -
Receivable from Minnesota Life for contract purchase payments ......... 3,459 2,236 15,342 12,904
------------ ------------ --------------- ------------
Total assets ..................................................... 569,372 3,672,365 6,800,431 1,318,233
------------ ------------ --------------- ------------
LIABILITIES
-----------
Payable for investments purchased ..................................... 3,459 2,236 15,342 12,904
------------ ------------ --------------- ------------
Payable to Minnesota Life for contract terminations and
mortality and expense charges........................................ 6,629 - - -
------------ ------------ --------------- ------------
Total liabilities.................................................... 10,088 2,236 15,342 12,904
------------ ------------ --------------- ------------
NET ASSETS APPLICABLE TO CONTRACT OWNERS .............................. 559,284 3,670,129 6,785,089 1,305,329
------------ ------------ --------------- ------------
------------ ------------ --------------- ------------
ACCUMULATION UNITS OUTSTANDING ........................................ 397,545 1,777,914 2,160,239 561,855
------------ ------------ --------------- ------------
------------ ------------ --------------- ------------
NET ASSET VALUE PER ACCUMULATION UNIT ................................. 1.41 2.06 3.14 2.32
------------ ------------ --------------- ------------
------------ ------------ --------------- ------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------
JANUS
ASSETS TWENTY
------ ------------
<S> <C>
Investments in shares of underlying mutual funds:
Advantus Growth Portfolio, 790,854 shares
at net asset value of $3.33 per share (cost $1,980,222)............ -
Advantus Money Market Portfolio, 628,115 shares
at net asset value of $1.00 per share (cost $628,115).............. -
Advantus Asset Allocation Portfolio, 637,268 shares
at net asset value of $2.39 per share (cost $1,308,111) ........... -
Advantus Index 500 Portfolio, 1,249,535 shares
at net asset value of $4.56 per share (cost $4,342,854) ........... -
Vanguard Long-Term Corporate Portfolio, 68,962 shares
at net asset value of $8.11 per share (cost $613,519) ............. -
Vanguard/Wellington Fund, Inc., 131,264 shares
at net asset value of $27.96 per share (cost $3,718,471) .......... -
Fidelity Contrafund, 113,047 shares at net asset
value of $60.02 per share (cost $5,462,627) ....................... -
Scudder International Fund, 18,452 shares at net
asset value of $70.74 per share (cost $939,455) ................... -
Janus Twenty Fund, 201,713 shares at net asset
value of $83.43 per share (cost $10,474,592)....................... 16,828,883
------------
16,828,883
Receivable for investments sold ....................................... -
Receivable from Minnesota Life for contract purchase payments ......... 20,883
------------
Total assets ..................................................... 16,849,766
------------
LIABILITIES
-----------
Payable for investments purchased ..................................... 20,883
Payable to Minnesota Life for contract terminations and
mortality and expense charges........................................ -
------------
Total liabilities.................................................... 20,883
------------
NET ASSETS APPLICABLE TO CONTRACT OWNERS .............................. 16,828,883
------------
------------
ACCUMULATION UNITS OUTSTANDING ........................................ 2,871,981
------------
------------
NET ASSET VALUE PER ACCUMULATION UNIT ................................. 5.86
------------
------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
GROUP VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------
ADVANTUS ADVANTUS ADVANTUS
ADVANTUS MONEY ASSET INDEX
GROWTH MARKET ALLOCATION 500
------------ ------------ --------------- -------------
<S> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying
mutual fund (note 4) ............................................. $ 8,174 171,669 54,794 405,689
Mortality and expense risk charges (note 3) ......................... (16,766) (32,953) (10,750) (206,450)
Administrative charges (note 3) ..................................... (2,959) (5,815) (1,897) (36,432)
------------ ------------ --------------- ------------
Investment income (loss) - net ................................... (11,551) 132,901 42,147 162,807
------------ ------------ --------------- ------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying
mutual fund (note 4) ............................................. 46,472 - 58,164 582,419
------------ ------------ --------------- ------------
Realized gains (losses) on sales of investments:
Proceeds from sales .............................................. 262,886 22,100,772 286,321 53,485,315
Cost of investments sold ......................................... (225,333) (22,100,772) (261,019) (42,209,215)
------------ ------------ --------------- ------------
37,553 - 25,302 11,276,100
------------ ------------ --------------- ------------
Net realized gains (losses) on investments ....................... 84,025 - 83,466 11,858,519
------------ ------------ --------------- ------------
Net change in unrealized appreciation or depreciation
of investments ................................................... 419,307 - 59,796 (6,862,932)
------------ ------------ --------------- ------------
Net gains (losses) on investments ................................ 503,332 - 143,262 4,995,587
------------ ------------ --------------- ------------
Net increase in net assets resulting from operations .................. $ 491,781 132,901 185,409 5,158,394
------------ ------------ --------------- ------------
------------ ------------ --------------- ------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------
VANGUARD
LONG-TERM VANGUARD FIDELITY SCUDDER
CORPORATE WELLINGTON CONTRAFUND INTERNATIONAL
------------ ------------ --------------- -------------
<S> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying
mutual fund (note 4) ............................................. 299,094 910,913 26,710 2,270
Mortality and expense risk charges (note 3) ......................... (43,928) (224,147) (394,334) (53,884)
Administrative charges (note 3) ..................................... (7,752) (39,555) (69,588) (9,509)
------------ ------------ --------------- -------------
Investment income (loss) - net ................................... 247,414 647,211 (437,212) (61,123)
------------ ------------ --------------- -------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying
mutual fund (note 4) ............................................. 55,720 182,904 1,682,274 680,002
------------ ------------ --------------- -------------
Realized gains (losses) on sales of investments:
Proceeds from sales .............................................. 9,026,271 51,838,742 92,024,322 13,311,212
Cost of investments sold ......................................... (9,599,336) (47,183,143) (65,543,959) (12,578,519)
------------ ------------ --------------- -------------
(573,065) 4,655,599 26,480,363 732,693
------------ ------------ --------------- -------------
Net realized gains (losses) on investments ....................... (517,345) 4,838,503 28,162,637 1,412,695
------------ ------------ --------------- -------------
Net change in unrealized appreciation or depreciation
of investments ................................................... (247,084) (2,192,965) (17,769,067) 195,050
------------ ------------ --------------- -------------
Net gains (losses) on investments ................................ (764,429) 2,645,538 10,393,570 1,607,745
------------ ------------ --------------- -------------
Net increase in net assets resulting from operations .................. (517,015) 3,292,749 9,956,358 1,546,622
------------ ------------ --------------- -------------
------------ ------------ --------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------
JANUS
TWENTY
------------
<S> <C>
Investment income (loss):
Investment income distributions from underlying
mutual fund (note 4) ............................................. 35,628
Mortality and expense risk charges (note 3) ......................... (330,191)
Administrative charges (note 3) ..................................... (58,269)
------------
Investment income (loss) - net ................................... (352,832)
------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying
mutual fund (note 4) ............................................. 769,602
------------
Realized gains (losses) on sales of investments:
Proceeds from sales .............................................. 77,458,956
Cost of investments sold ......................................... (58,356,500)
------------
19,102,456
------------
Net realized gains (losses) on investments ....................... 19,872,058
------------
Net change in unrealized appreciation or depreciation
of investments ................................................... (7,122,979)
------------
Net gains (losses) on investments ................................ 12,749,079
------------
Net increase in net assets resulting from operations .................. 12,396,247
------------
------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
GROUP VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------
ADVANTUS ADVANTUS ADVANTUS
ADVANTUS MONEY ASSET INDEX
GROWTH MARKET ALLOCATION 500
------------ ------------ --------------- -------------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net ...................................... $ (11,551) 132,901 42,147 162,807
Net realized gains (loss) on investments ............................ 84,025 - 83,466 11,858,519
Net change in unrealized appreciation or depreciation
of investments ................................................... 419,307 - 59,796 (6,862,932)
------------ ------------ --------------- -------------
Net increase in net assets resulting from operations .................. 491,781 132,901 185,409 5,158,394
------------ ------------ --------------- -------------
Contract transactions (notes 3, 4 and 5):
Contract purchase payments ......................................... 862,025 16,225,355 486,728 17,515,775
Contract terminations, withdrawals and charges ..................... (243,162) (22,062,003) (273,674) (53,242,433)
------------ ------------ --------------- -------------
Increase (decrease) in net assets from contract transactions .......... 618,863 (5,836,648) 213,054 (35,726,658)
------------ ------------ --------------- -------------
Increase (decrease) in net assets ..................................... 1,110,644 (5,703,747) 398,463 (30,568,264)
Net assets at the beginning of year.................................... 1,525,084 6,331,862 1,122,352 36,270,925
------------ ------------ --------------- -------------
Net assets at the end of year ......................................... $ 2,635,728 628,115 1,520,815 5,702,661
------------ ------------ --------------- -------------
------------ ------------ --------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------
VANGUARD
LONG-TERM VANGUARD FIDELITY SCUDDER
CORPORATE WELLINGTON CONTRAFUND INTERNATIONAL
------------ ------------ --------------- -------------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net ...................................... 247,414 647,211 (437,212) (61,123)
Net realized gains (loss) on investments ............................ (517,345) 4,838,503 28,162,637 1,412,695
Net change in unrealized appreciation or depreciation
of investments ................................................... (247,084) (2,192,965) (17,769,067) 195,050
------------ ------------ --------------- -------------
Net increase in net assets resulting from operations .................. (517,015) 3,292,749 9,956,358 1,546,622
------------ ------------ --------------- -------------
Contract transactions (notes 3, 4 and 5):
Contract purchase payments ......................................... 2,514,731 9,314,607 12,321,083 3,066,304
Contract terminations, withdrawals and charges ..................... (9,773,584) (55,689,813) (96,862,406) (14,177,720)
------------ ------------ --------------- -------------
Increase (decrease) in net assets from contract transactions .......... (7,258,853) (46,375,206) (84,541,323) (11,111,416)
------------ ------------ --------------- -------------
Increase (decrease) in net assets ..................................... (7,775,868) (43,082,457) (74,584,965) (9,564,794)
Net assets at the beginning of year.................................... 8,335,152 46,752,586 81,370,054 10,870,123
------------ ------------ --------------- -------------
Net assets at the end of year ......................................... 559,284 3,670,129 6,785,089 1,305,329
------------ ------------ --------------- -------------
------------ ------------ --------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------
JANUS
TWENTY
------------
<S> <C>
Operations:
Investment income (loss) - net ...................................... (352,832)
Net realized gains (loss) on investments ............................ 19,872,058
Net change in unrealized appreciation or depreciation
of investments ................................................... (7,122,979)
------------
Net increase in net assets resulting from operations .................. 12,396,247
------------
Contract transactions (notes 3, 4 and 5):
Contract purchase payments ......................................... 48,713,819
Contract terminations, withdrawals and charges ..................... (86,963,855)
------------
Increase (decrease) in net assets from contract transactions .......... (38,250,036)
------------
Increase (decrease) in net assets ..................................... (25,853,789)
Net assets at the beginning of year.................................... 42,682,672
------------
Net assets at the end of year ......................................... 16,828,883
------------
------------
</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
ADVANTUS MONEY ASSET INDEX
GROWTH MARKET ALLOCATION 500
------------ ------------ --------------- -------------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net ..................................... $ (2,966) 154,646 7,184 (61,709)
Net realized gains on investments ............................... 107,777 - 40,683 1,006,015
Net change in unrealized appreciation or depreciation
of investments ............................................... 201,649 - 118,609 5,219,971
------------ ------------ --------------- -------------
Net increase in net assets resulting from operations .................. 306,460 154,646 166,476 6,164,277
------------ ------------ --------------- -------------
Contract transactions (notes 3, 4 and 5):
Contract purchase payments .......................................... 878,837 18,448,138 549,224 18,799,129
Contract terminations, withdrawals and charges ...................... (159,082) (14,947,920) (54,792) (4,908,252)
------------ ------------ --------------- -------------
Increase in net assets from contract transactions ...................... 719,755 3,500,218 494,432 13,890,877
------------ ------------ --------------- -------------
Increase in net assets ................................................. 1,026,215 3,654,864 660,908 20,055,154
Net assets at the beginning of year..................................... 498,869 2,676,998 461,444 16,215,771
------------ ------------ --------------- -------------
Net assets at the end of year .......................................... $ 1,525,084 6,331,862 1,122,352 36,270,925
------------ ------------ --------------- -------------
------------ ------------ --------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------
VANGUARD
LONG-TERM VANGUARD FIDELITY SCUDDER
CORPORATE WELLINGTON CONTRAFUND INTERNATIONAL
------------ ------------ --------------- -------------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss) - net ..................................... 330,632 1,106,012 (247,497) (92,956)
Net realized gains on investments ............................... 125,356 3,624,031 6,275,787 1,192,164
Net change in unrealized appreciation or depreciation
of investments ............................................... 23,373 (900,997) 11,849,737 290,104
------------ ------------ --------------- -------------
Net increase in net assets resulting from operations .................. 479,361 3,829,046 17,878,027 1,389,312
------------ ------------ --------------- -------------
Contract transactions (notes 3, 4 and 5):
Contract purchase payments .......................................... 4,718,265 18,131,198 20,791,565 4,302,549
Contract terminations, withdrawals and charges ...................... (1,263,996) (4,312,024) (8,779,778) (2,351,465)
------------ ------------ --------------- -------------
Increase in net assets from contract transactions ...................... 3,454,269 13,819,174 12,011,787 1,951,084
------------ ------------ --------------- -------------
Increase in net assets ................................................. 3,933,630 17,648,220 29,889,814 3,340,396
Net assets at the beginning of year..................................... 4,401,522 29,104,366 51,480,240 7,529,727
------------ ------------ --------------- -------------
Net assets at the end of year .......................................... 8,335,152 46,752,586 81,370,054 10,870,123
------------ ------------ --------------- -------------
------------ ------------ --------------- -------------
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------
JANUS
TWENTY
------------
<S> <C>
Operations:
Investment income (loss) - net ..................................... (136,095)
Net realized gains on investments ............................... 794,099
Net change in unrealized appreciation or depreciation
of investments ............................................... 13,536,319
------------
Net increase in net assets resulting from operations .................. 14,194,323
------------
Contract transactions (notes 3, 4 and 5):
Contract purchase payments .......................................... 25,131,570
Contract terminations, withdrawals and charges ...................... (9,545,869)
------------
Increase in net assets from contract transactions ...................... 15,585,701
------------
Increase in net assets ................................................. 29,780,024
Net assets at the beginning of year..................................... 12,902,648
------------
Net assets at the end of year .......................................... 42,682,672
------------
------------
</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) was established on June
14, 1993 as a segregated asset account of Minnesota Life Insurance
Company (Minnesota Life) under Minnesota law and is registered as a unit
investment trust under the Investment Company Act of 1940 (as amended).
The Account 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
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,
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 Growth, Maturing
Government Bond 2002, Maturing Government Bond 2006, Maturing Government
Bond 2010, Value Stock, Small Company Value, Global Bond, Index 400
Mid-Cap, Macro-Cap Value, Micro-Cap Growth and Real Estate Securities
Portfolios of the Advantus Series Fund, Inc., 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 (except Global Bond Portfolio which is
non-diversified), open-end management investment company. As of December
31, 1999, 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 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 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 period ended December
31, 1999:
<TABLE>
<S> <C>
Growth Portfolio of Advantus Series Fund, Inc. ....................................... $ 916,670
Money Market Portfolio of Advantus Series Fund, Inc. ................................. 16,397,025
Asset Allocation Portfolio of Advantus Series Fund, Inc. ............................. 599,686
Index 500 Portfolio of Advantus Series Fund, Inc. .................................... 18,503,883
Long-Term Corporate Portfolio of Vanguard Fixed Income Securities Fund, Inc. ......... 2,070,552
Vanguard/Wellington Fund, Inc. ....................................................... 6,293,651
Fidelity Contrafund .................................................................. 8,728,061
Scudder International Fund ........................................................... 2,818,675
Janus Twenty Fund .................................................................... 39,625,690
</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, 1999 and 1998 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, 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,
withdrawal payments and charges ................................... (97,713) (12,800,383) (40,169) (2,100,275)
------------ ------------ --------------- -------------
Units outstanding at
December 31, 1998 ................................................... 804,249 5,337,082 732,995 13,683,936
Contract purchase payments ......................................... 434,411 13,563,730 314,477 6,223,705
Deductions for contract terminations,
withdrawal payments and charges ................................... (121,308) (18,390,092) (176,547) (18,101,699)
------------ ------------ --------------- -------------
Units outstanding at
December 31, 1999 ................................................... 1,117,352 510,720 870,925 1,805,942
------------ ------------ --------------- -------------
------------ ------------ --------------- -------------
<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, 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,
withdrawal payments and charges .................... (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
Contract purchase payments .......................... 1,694,126 4,549,922 4,598,492 1,969,744 11,747,111
Deductions for contract terminations,
withdrawal payments and charges .................... (6,767,693) (26,182,891) (34,519,202) (8,740,230) (20,767,787)
------------ ------------ --------------- ------------- ------------
Units outstanding at
December 31, 1999 .................................... 397,545 1,777,914 2,160,239 561,855 2,871,981
------------ ------------ --------------- ------------- ------------
------------ ------------ --------------- ------------- ------------
</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, 1999,
1998, 1997, 1996 and 1995 and years ended December 31, 1999, 1998, 1997 and
1996 for Advantus Growth and Advantus Asset Allocation):
<TABLE>
ADVANTUS GROWTH
------------------------------------------------------
1999 1998 1997 1996
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Unit value, beginning of period ......... $ 1.90 1.42 1.08 1.00
-------- --------- -------- --------
Income (loss) from investment operations:
Net investment income (loss) .......... (.01) - (.01) -
Net gains or losses on securities
(both realized and unrealized) ....... .47 .48 .35 .08
-------- --------- -------- --------
Total from investment
operations. ...................... .46 .48 .34 .08
-------- --------- -------- --------
Unit value, end of period ............... $ 2.36 1.90 1.42 1.08
-------- --------- -------- --------
-------- --------- -------- --------
<CAPTION>
ADVANTUS MONEY MARKET
------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ......... $ 1.19 1.14 1.10 1.06 1.01
-------- --------- -------- ----------- ---------
Income (loss) from investment operations:
Net investment income (loss) .......... .04 .05 .04 .04 .04
Net gains or losses on securities
(both realized and unrealized) ....... - - - - .01
-------- --------- -------- ----------- ---------
Total from investment
operations ....................... .04 .05 .04 .04 .05
-------- --------- -------- ----------- ---------
Unit value, end of period ............... $ 1.23 1.19 1.14 1.10 1.06
-------- --------- -------- ----------- ---------
-------- --------- -------- ----------- ---------
</TABLE>
<PAGE>
5
GROUP VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
<TABLE>
<CAPTION>
ADVANTUS ASSET ALLOCATION
-------------------------------------------------------
1999 1998 1997 1996
---------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Unit value, beginning of period ......... $ 1.53 1.25 1.06 1.00
---------- ------------- ---------- ----------
Income (loss) from investment operations:
Net investment income (loss) .......... .06 .01 .01 (.01)
Net gains or losses on securities
(both realized and unrealized) ....... .16 .27 .18 .07
---------- ------------- ---------- ----------
Total from investment
operations ....................... .22 .28 .19 .06
---------- ------------- ---------- ----------
Unit value, end of period ............... $ 1.75 1.53 1.25 1.06
---------- ------------- ---------- ----------
---------- ------------- ---------- ----------
<CAPTION>
ADVANTUS INDEX 500
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ......... $ 2.65 2.09 1.60 1.33 .98
---------- ----------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income (loss) .......... .02 (.01) (.01) - -
Net gains or losses on securities
(both realized and unrealized) ....... .49 .57 .50 .27 .35
---------- ----------- ---------- ---------- ----------
Total from investment
operations ...................... .51 .56 .49 .27 .35
---------- ----------- ---------- ---------- ----------
Unit value, end of period ............... $ 3.16 2.65 2.09 1.60 1.33
---------- ----------- ---------- ---------- ----------
---------- ----------- ---------- ---------- ----------
</TABLE>
<PAGE>
6
GROUP VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
<TABLE>
<CAPTION>
VANGUARD LONG-TERM CORPORATE
--------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ......... $ 1.52 1.41 1.24 1.23 .99
--------- --------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income (loss) .......... .08 .09 .08 .07 .06
Net gains or losses on securities
(both realized and unrealized) .... (.19) .02 .09 (.06) .18
--------- --------- ---------- ---------- ----------
Total from investment
operations ................... $ (.11) .11 .17 .01 .24
--------- --------- ---------- ---------- ----------
Unit value, end of period ............... $ 1.41 1.52 1.41 1.24 1.23
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
<CAPTION>
VANGUARD WELLINGTON
------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ......... $ 2.00 1.80 1.48 1.28 .98
--------- ----------- ---------- ----------- ---------
Income (loss) from investment operations:
Net investment income (loss) .......... .05 .05 .05 .05 .05
Net gains or losses on securities
(both realized and unrealized) ... .01 .15 .27 .15 .25
--------- ----------- ---------- ----------- ---------
Total from investment
operations .................. .06 .20 .32 .20 .30
--------- ----------- ---------- ----------- ---------
Unit value, end of period ............... $ 2.06 2.00 1.80 1.48 1.28
--------- ----------- ---------- ----------- ---------
--------- ----------- ---------- ----------- ---------
</TABLE>
<PAGE>
7
GROUP VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
<TABLE>
<CAPTION>
FIDELITY CONTRAFUND
----------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ......... $ 2.54 1.95 1.60 1.32 .98
---------- ---------- --------- -------- ---------
Income (loss) from investment operations:
Net investment income (loss) .......... (.03) (.01) - - (.01)
Net gains or losses on securities
(both realized and unrealized) ..... .63 .60 .35 .28 .35
---------- ---------- --------- -------- ---------
Total from investment
operations ...................... .60 .59 .35 .28 .34
---------- ---------- --------- -------- ---------
Unit value, end of period ............... $ 3.14 2.54 1.95 1.60 1.32
---------- ---------- --------- -------- ---------
---------- ---------- --------- -------- ---------
<CAPTION>
SCUDDER INTERNATIONAL
----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ......... $ 1.48 1.26 1.18 1.04 .93
----------- ------------ ----------- ------------ ----------
Income (loss) from investment operations:
Net investment income (loss) .......... (.01) (.01) (.01) .03 -
Net gains or losses on securities
(both realized and unrealized) ..... .86 .23 .09 .11 .11
----------- ------------ ----------- ------------ ----------
Total from investment
operations ..................... .84 .22 .08 .14 .11
----------- ------------ ----------- ------------ ----------
Unit value, end of period ............... $ 2.32 1.48 1.26 1.18 1.04
----------- ------------ ----------- ------------ ----------
----------- ------------ ----------- ------------ ----------
</TABLE>
<PAGE>
8
GROUP VARIABLE ANNUITY ACCOUNT
(6) FINANCIAL HIGHLIGHTS - CONTINUED
<TABLE>
<CAPTION>
JANUS TWENTY
--------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period ......... $ 3.59 2.09 1.63 1.29 .96
---------- ----------- ---------- ----------- ---------
Income (loss) from investment operations:
Net investment income (loss) ............ (.04) (.02) .10 .20 .13
Net gains or losses on securities
(both realized and unrealized) ......... 2.31 1.52 .36 .14 .20
---------- ----------- ---------- ----------- ---------
Total from investment
operations ......................... 2.27 1.50 .46 .34 .33
---------- ----------- ---------- ----------- ---------
Unit value, end of period ............... $ 5.86 3.59 2.09 1.63 1.29
---------- ----------- ---------- ----------- ---------
---------- ----------- ---------- ----------- ---------
</TABLE>
<PAGE>
Independent Auditors' Report
The Board of Directors
Minnesota Life Insurance Company:
We have audited the accompanying consolidated balance sheets of the
Minnesota Life Insurance Company and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of operations and comprehensive
income, changes in stockholder's equity and cash flows for each of the years in
the three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Minnesota Life Insurance Company and subsidiaries as of December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1999 in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplementary
information included in the accompanying schedules is presented for purpose of
additional analysis and is not a required part of the basic consolidated
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic consolidated financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic consolidated financial statements taken as a whole.
Minneapolis, Minnesota
February 11, 2000
ML-1
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Balance Sheets
December 31, 1999 and 1998
Assets
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(In thousands)
<S> <C> <C>
Fixed maturity securities:
Available-for-sale, at fair value (amortized cost
$4,868,584 and $4,667,688) $ 4,803,568 $ 4,914,012
Held-to-maturity, at amortized cost (fair value
$968,852 and $1,161,784) 974,814 1,086,548
Equity securities, at fair value (cost $587,014 and
$579,546) 770,269 749,800
Mortgage loans, net 696,672 681,219
Real estate, net 36,793 38,530
Finance receivables, net 134,812 163,411
Policy loans 237,335 226,409
Short-term investments 93,993 136,435
Private equities 284,797 160,958
Other invested assets 53,919 100,667
----------- -----------
Total investments 8,086,972 8,257,989
Cash 116,803 175,660
Deferred policy acquisition costs 713,217 564,382
Accrued investment income 93,385 86,974
Premiums receivable, net 94,171 62,609
Property and equipment, net 59,223 67,448
Reinsurance recoverables 194,940 176,683
Other assets 64,256 61,183
Separate account assets 8,931,456 6,994,752
----------- -----------
Total assets $18,354,423 $16,447,680
=========== ===========
Liabilities and Stockholder's Equity
Liabilities:
Policy and contract account balances $ 4,234,183 $ 4,242,802
Future policy and contract benefits 1,826,953 1,758,375
Pending policy and contract claims 90,762 70,564
Other policyholders funds 451,056 438,595
Policyholders dividends payable 51,749 53,957
Stockholder dividend payable -- 24,700
Unearned premiums and fees 208,013 180,191
Federal income tax liability:
Current 68,320 53,039
Deferred 125,094 173,907
Other liabilities 442,369 514,468
Notes payable 218,000 267,000
Separate account liabilities 8,882,060 6,947,806
----------- -----------
Total liabilities 16,598,559 14,725,404
----------- -----------
Stockholder's equity:
Common stock, $1 par value, 5,000,000 shares autho-
rized, issued and outstanding 5,000 5,000
Additional paid in capital 3,000 --
Retained earnings 1,629,787 1,513,661
Accumulated other comprehensive income 118,077 203,615
----------- -----------
Total stockholder's equity 1,755,864 1,722,276
----------- -----------
Total liabilities and stockholder's equity $18,354,423 $16,447,680
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
ML-2
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Revenues:
Premiums $ 697,799 $ 577,693 $ 615,253
Policy and contract fees 331,110 300,361 272,037
Net investment income 540,056 531,081 553,773
Net realized investment gains 79,615 114,652 114,367
Finance charge income 31,969 35,880 43,650
Other income 81,135 73,498 71,707
---------- ---------- ----------
Total revenues 1,761,684 1,633,165 1,670,787
---------- ---------- ----------
Benefits and expenses:
Policyholders benefits 667,207 519,926 515,873
Interest credited to policies and con-
tracts 282,627 290,870 298,033
General operating expenses 358,387 360,916 369,961
Commissions 110,645 110,211 114,404
Administrative and sponsorship fees 79,787 80,183 81,750
Dividends to policyholders 18,928 25,159 26,776
Interest on notes payable 24,282 22,360 24,192
Amortization of deferred policy acqui-
sition costs 123,455 148,098 128,176
Capitalization of policy acquisition
costs (152,602) (166,140) (155,054)
---------- ---------- ----------
Total benefits and expenses 1,512,716 1,391,583 1,404,111
---------- ---------- ----------
Income from operations before taxes 248,968 241,582 266,676
Federal income tax expense (benefit):
Current 75,172 93,584 84,612
Deferred (1,439) (15,351) (7,832)
---------- ---------- ----------
Total federal income tax expense 73,733 78,233 76,780
---------- ---------- ----------
Net income $ 175,235 $ 163,349 $ 189,896
========== ========== ==========
Other comprehensive income (loss), after
tax:
Foreign currency translation adjust-
ments $ -- $ (947) $ 947
Unrealized gains (losses) on securities (85,538) 47,889 47,414
---------- ---------- ----------
Other comprehensive income (loss), net
of tax (85,538) 46,942 48,361
---------- ---------- ----------
Comprehensive income $ 89,697 $ 210,291 $ 238,257
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
ML-3
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Common stock:
Beginning balance $ 5,000 $ -- $ --
Issued during the year -- 5,000 --
---------- ---------- ----------
Total common stock $ 5,000 $ 5,000 $ --
========== ========== ==========
Additional paid in capital:
Beginning balance $ -- $ -- $ --
Contribution 3,000 -- --
---------- ---------- ----------
Total additional paid in capital $ 3,000 $ -- $ --
========== ========== ==========
Retained earnings:
Beginning balance $1,513,661 $1,380,012 $1,190,116
Net income 175,235 163,349 189,896
Retained earnings transfer for common
stock issued -- (5,000) --
Dividends to stockholder (59,109) (24,700) --
---------- ---------- ----------
Total retained earnings $1,629,787 $1,513,661 $1,380,012
========== ========== ==========
Accumulated other comprehensive income:
Beginning balance $ 203,615 $ 156,673 $ 108,312
Change in unrealized appreciation of
investments (85,538) 47,889 47,414
Change in unrealized gain on foreign
currency translation -- (947) 947
---------- ---------- ----------
Total accumulated other comprehensive
income $ 118,077 $ 203,615 $ 156,673
========== ========== ==========
Total stockholder's equity $1,755,864 $1,722,276 $1,536,685
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
ML-4
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 175,235 $ 163,349 $ 189,896
Adjustments to reconcile net income to
net cash
provided by operating activities:
Interest credited to annuity and in-
surance contracts 282,627 290,870 298,033
Fees deducted from policy and con-
tract balances (217,941) (212,901) (214,803)
Change in future policy benefits 68,578 56,716 76,358
Change in other policyholders lia-
bilities 29,426 11,965 7,597
Amortization of deferred policy ac-
quisition costs 123,455 148,098 128,176
Capitalization of policy acquisition
costs (152,602) (166,140) (155,054)
Change in premiums receivable (31,562) 5,421 (9,280)
Change in federal income tax liabil-
ities 14,598 (7,455) 36,049
Net realized investment gains (79,615) (114,652) (114,367)
Other, net (27,314) 30,524 (44,527)
----------- ----------- -----------
Net cash provided by operating ac-
tivities 184,885 205,795 198,078
----------- ----------- -----------
Cash Flows from Investing Activities
Proceeds from sales of:
Fixed maturity securities, avail-
able-for-sale 1,856,757 1,835,955 1,099,114
Equity securities 705,050 621,125 601,936
Real estate 7,341 7,800 9,279
Private equities 28,128 20,025 19,817
Other invested assets 5,731 822 7,060
Proceeds from maturities and repay-
ments of:
Fixed maturity securities, avail-
able-for-sale 345,677 414,726 403,829
Fixed maturity securities, held-to-
maturity 122,704 148,848 139,394
Mortgage loans 116,785 126,066 109,246
Purchases of:
Fixed maturity securities, avail-
able-for-sale (2,432,049) (2,384,720) (1,498,048)
Fixed maturity securities, held-to-
maturity (8,446) (99,989) (82,835)
Equity securities (613,596) (610,553) (585,349)
Mortgage loans (130,013) (141,008) (157,247)
Real estate (1,016) (5,612) (3,908)
Private equities (79,584) (64,811) (48,778)
Other invested assets (11,435) (10,871) (7,210)
Finance receivable originations or
purchases (74,989) (77,141) (115,248)
Finance receivable principal payments 88,697 109,277 133,762
Other, net (91,346) 104,519 (88,626)
----------- ----------- -----------
Net cash used for investing activi-
ties (165,604) (5,542) (63,812)
----------- ----------- -----------
Cash Flows from Financing Activities
Deposits credited to annuity and in-
surance contracts 448,012 952,622 928,696
Withdrawals from annuity and insurance
contracts (478,775) (1,053,844) (1,013,588)
Proceeds from issuance of debt 50,000 40,000 --
Payments on debt (49,000) (31,000) (21,000)
Dividends paid to stockholder (83,809) -- --
Other, net (7,008) (4,467) (3,355)
----------- ----------- -----------
Net cash used for financing activi-
ties (120,580) (96,689) (109,247)
----------- ----------- -----------
Net increase (decrease) in cash and
short-term investments (101,299) 103,564 25,019
Cash and short-term investments, be-
ginning of year 312,095 208,531 183,512
----------- ----------- -----------
Cash and short-term investments, end
of year $ 210,796 $ 312,095 $ 208,531
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
ML-5
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
(1) Nature of Operations
Description of Business
Minnesota Life Insurance Company, both directly and through its subsidiaries
(collectively, the Company), provides a diversified array of insurance and
financial products and services designed principally to protect and enhance the
long-term financial well-being of individuals and families.
The Company's strategy is to be successful in carefully selected niche
markets, primarily in the United States, while focusing on the retention of
existing business and the maintenance of profitability. To achieve this
objective, the Company has divided its businesses into five strategic business
units, which focus on various markets: Individual Insurance, Financial
Services, Group Insurance, Pension and Asset Management. Revenues in 1999 for
these business units were $703,473,000, $263,418,000, $388,792,000,
$164,774,000, and $66,594,000, respectively. Additional revenues of
$174,633,000 were reported by the Company's subsidiaries and corporate product
line.
The Company serves over six million people through more than 4,000
associates located at its St. Paul, Minnesota headquarters and in sales offices
nationwide.
Conversion to a Mutual Holding Company Structure
Consent was given from the Minnesota Department of Commerce (Department of
Commerce) allowing The Minnesota Mutual Life Insurance Company to implement a
conversion to a mutual holding company. The Minnesota Mutual Life Insurance
Company enacted this privilege effective October 1, 1998. The conversion
created Minnesota Mutual Companies, Inc., a mutual holding company, Securian
Holding Company, and Securian Financial Group, Inc., which are intermediate
stock holding companies. The Minnesota Mutual Life Insurance Company was
converted into a stock life insurance company and renamed Minnesota Life
Insurance Company. Minnesota Mutual Companies, Inc. will at all times, in
accordance with the conversion plan and as required by the Mutual Insurance
Holding Company Act, directly or indirectly control Minnesota Life Insurance
Company through the ownership of at least a majority of the voting power of the
voting shares of the capital stock of Minnesota Life Insurance Company. Annuity
contract and life insurance policyholders of Minnesota Life Insurance Company
have certain membership interests consisting primarily of the right to vote on
certain matters involving Minnesota Mutual Companies, Inc. and the right to
receive distributions of surplus in the event of demutualization, dissolution
or liquidation of Minnesota Mutual Companies, Inc.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP). The
consolidated financial statements include the accounts of the Minnesota Life
Insurance Company and its subsidiaries. All material intercompany transactions
and balances have been eliminated.
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates and assumptions that affect reported
assets and liabilities, including reporting or disclosure of contingent assets
and liabilities as of the balance sheet date and the reported amounts of
revenues and expenses during the reporting period. Future events, including
changes in mortality, morbidity, interest rates and asset valuations, could
cause actual results to differ from the estimates used in the consolidated
financial statements.
Insurance Revenues and Expenses
Premiums on traditional life products, which include individual whole life and
term insurance and immediate annuities, are credited to revenue when due. For
accident and health and group life products, premiums are credited to revenue
over the contract period as earned. Benefits and expenses are recognized in
relation to premiums over the contract period via a provision for future policy
benefits and the amortization of deferred policy acquisition costs.
ML-6
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
Nontraditional life products include individual adjustable and variable life
insurance and group universal and variable life insurance. Revenue from
nontraditional life products and deferred annuities is comprised of policy and
contract fees charged for the cost of insurance, policy administration and
surrenders. Expenses include both the portion of claims not covered by and
interest credited to the related policy and contract account balances. Policy
acquisition costs are amortized relative to estimated gross profits or margins.
Deferred Policy Acquisition Costs
The costs of acquiring new and renewal business, which vary with and are
primarily related to the production of new and renewal business, are generally
deferred to the extent recoverable from future premiums or expected gross
profits. Deferrable costs include commissions, underwriting expenses and
certain other selling and issue costs.
For traditional life, accident and health and group life products, deferred
policy acquisition costs are amortized over the premium paying period in
proportion to the ratio of annual premium revenues to ultimate anticipated
premium revenues. The ultimate premium revenues are estimated based upon the
same assumptions used to calculate the future policy benefits.
For nontraditional life products and deferred annuities, deferred policy
acquisition costs are amortized over the estimated lives of the contracts in
relation to the present value of estimated gross profits from surrender charges
and investment, mortality and expense margins.
Deferred policy acquisition costs amortized were $123,455,000, $148,098,000
and $128,176,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
Software Capitalization
The Accounting Standards Executive Committee issued Statement of Position 98-1,
Accounting for Costs of Computer Software for Internal Use, effective for
fiscal years beginning after December 15, 1998. The Company has adopted the
capitalization of software cost beginning in 1999. At December 1999, the
Company had unamortized cost of $7,459,000 and amortized software expense of
$1,643,000. Costs are amortized over a three-year period.
Finance Charge Income and Receivables
Finance charge income represents fees and interest charged on consumer loans.
The Company uses the interest (actuarial) method of accounting for finance
charges and interest on finance receivables. Accrual of finance charges and
interest on the smaller balance homogeneous finance receivables is suspended
when a loan is contractually delinquent for more than 60 days and is
subsequently recognized when received. Accrual is resumed when the loan is
contractually less than 60 days past due. Finance charges and interest is
suspended when a loan is considered by management to be impaired. Loan
impairment is measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or as a practical expedient,
at the observable market price of the loan or the fair value of the collateral
if the loan is collateral dependent. When a loan is identified as impaired,
interest previously accrued in the current year is reversed. Interest payments
received on impaired loans are generally applied to principal unless the
remaining principal balance has been determined to be fully collectible. An
allowance for uncollectible amounts is maintained by direct charges to
operations at an amount which management believes, based upon historical losses
and economic conditions, is adequate to absorb probable losses on existing
receivables that may become uncollectible. The reported receivables are net of
this allowance.
Valuation of Investments
Fixed maturity securities (bonds) which the Company has the positive intent and
ability to hold to maturity are classified as held-to-maturity and are carried
at amortized cost, net of write-downs for other than temporary declines in
value. Premiums and discounts are amortized or accreted over the estimated
lives of the securities based on the interest yield method. Fixed maturity
securities, which may be sold prior to maturity, are classified as available-
for-sale and are carried at fair value.
ML-7
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
Equity securities (common stocks and preferred stocks) are carried at fair
value. Equity securities also include initial contributions to affiliated
registered investment funds that are managed by a subsidiary of the Company.
These contributions are carried at the market value of the underlying net
assets of the funds.
Mortgage loans are carried at amortized cost less an allowance for
uncollectible amounts. Premiums and discounts are amortized or accreted over
the terms of the mortgage loans based on the interest yield method. A mortgage
loan is considered impaired if it is probable that contractual amounts due will
not be collected. Impaired mortgage loans are valued at the fair value of the
underlying collateral. Interest income on impaired mortgage loans is recorded
on an accrual basis. However, when the likelihood of collection is doubtful,
interest income is recognized when received.
On January 1, 1999, the Company converted to the equity method of accounting
for its private equity investments. Prior to 1999 the Company accounted for
these investments using the cost method. The change to this method of
accounting was not material to prior year amounts. Private equity investments
are now carried at our equity in the estimated fair value of the underlying
investments of these limited partnerships. In-kind distributions are recorded
as a return of capital for the cost basis of the stock received. Changes in
fair value are recorded directly in stockholder's equity.
Fair values of fixed maturity securities, equity securities and private
equities are based on quoted market prices, where available. If quoted market
prices are not available, fair values are estimated using values obtained from
independent pricing services which specialize in matrix pricing and modeling
techniques for estimating fair values. Fair values of mortgage loans are based
upon discounted cash flows, quoted market prices and matrix pricing.
Real estate is carried at cost less accumulated depreciation and an
allowance for estimated losses. Accumulated depreciation on real estate at
December 31, 1999 and 1998, was $7,101,000 and $6,713,000, respectively.
Policy loans are carried at the unpaid principal balance.
Derivative Financial Instruments
The Company entered into equity swaps in 1996 as part of an overall risk
management strategy. The swaps were used to hedge exposure to market risk on
$400,000,000 of the Company's common stock portfolio. The swaps were based upon
certain stock indices. If, at the time of settlement for a particular swap, the
designated stock index had fallen below a specified level, the counterparty
would pay the Company an amount based upon the decline in the index and the
stock portfolio value protected by the swap. If, at the time of settlement, the
designated stock index had risen, the Company would pay the counterparty an
amount based upon the increase in the index and 25% of the stock portfolio
value protected by the swap. The equity swaps were settled with the
counterparties in August 1997. The swaps were carried at fair value, which were
based upon dealer quotes. Changes in fair value were recorded directly in
stockholder's equity. Upon settlement of the swaps, gains or losses were
recognized in income, and the Company realized a loss of approximately
$31,000,000 in 1997, upon settlement of these equity swaps.
The Company began investing in international bonds denominated in foreign
currencies in 1997. Unrealized gains or losses are recorded on foreign
denominated securities due to the fluctuation in foreign currency exchange
rates and/or related payables and receivables and interest on foreign
securities. The Company uses forward foreign exchange currency contracts as
part of its risk management strategy for international investments. The forward
foreign exchange currency contracts are used to reduce market risks from
changes in foreign exchange rates. These forward foreign exchange currency
contracts are agreements to purchase a specified amount of one currency in
exchange for a specified amount of another currency at a future point in time
at a foreign exchange currency rate agreed upon on the contract open date. No
cash is exchanged at the outset of the contract and no payments are made by
either party until the contract close date. On the contract
ML-8
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
close date the contracted amount of the purchased currency is received from the
counterparty and the contracted amount of the sold currency is sent to the
counterparty. Realized and unrealized gains and losses on these forward foreign
exchange contracts are recorded in income as incurred. Notional amounts for the
years ended December 31, 1999 and 1998, were $98,606,000 and $115,194,000,
respectively.
Capital Gains and Losses
Realized and unrealized capital gains and losses are determined on the specific
identification method. Write-downs of held-to-maturity securities and the
provision for credit losses on mortgage loans and real estate are recorded as
realized losses.
Changes in the fair value of fixed maturity securities available-for-sale,
equity securities and private equity investments in limited partnerships are
recorded as a separate component of stockholder's equity, net of taxes and
related adjustments to deferred policy acquisition costs and unearned policy
and contract fees.
Property and Equipment
Property and equipment are carried at cost, net of accumulated depreciation of
$113,441,000 and $101,692,000 at December 31, 1999 and 1998, respectively.
Buildings are depreciated over 40 years and equipment is generally depreciated
over 5 to 10 years. Depreciation expenses for the years ended December 31,
1999, 1998 and 1997, were $11,749,000, $10,765,000 and $8,965,000,
respectively.
Separate Accounts
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the exclusive benefit of pension, variable
annuity and variable life insurance policyholders and contractholders. Assets
consist principally of marketable securities and both assets and liabilities
are reported at fair value, based upon the market value of the investments held
in the segregated funds. The Company receives administrative and investment
advisory fees for services rendered on behalf of these accounts.
The Company periodically invests money in its separate accounts. The market
value of such investments, included with separate account assets, amounted to
$49,396,000 and $46,946,000 at December 31, 1999 and 1998, respectively.
Policyholders Liabilities
Policy and contract account balances represent the net accumulation of funds
associated with nontraditional life products and deferred annuities. Additions
to the account balances include premiums, deposits and interest credited by the
Company. Decreases in the account balances include surrenders, withdrawals,
benefit payments, and charges assessed for the cost of insurance, policy
administration and surrenders.
Future policy and contract benefits are comprised of reserves for
traditional life, group life, and accident and health products. The reserves
were calculated using the net level premium method based upon assumptions
regarding investment yield, mortality, morbidity, and withdrawal rates
determined at the date of issue, commensurate with the Company's experience.
Provision has been made in certain cases for adverse deviations from these
assumptions.
Other policyholders funds are comprised of dividend accumulations, premium
deposit funds and supplementary contracts without life contingencies.
Participating Business
Dividends on participating policies and other discretionary payments are
declared by the Board of Directors based upon actuarial determinations, which
take into consideration current mortality, interest earnings, expense factors
and federal income taxes. Dividends are recognized as expenses consistent with
the recognition of premiums. At December 31, 1999 and 1998, the total
participating business in force was $50,305,164,000 and $55,683,649,000,
respectively.
ML-9
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
Income Taxes
Current income taxes are charged to operations based upon amounts estimated to
be payable as a result of taxable operations for the current year. Deferred
income tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between financial statement
carrying amounts and income tax bases of assets and liabilities.
Reinsurance Recoverables
Insurance liabilities are reported before the effects of ceded reinsurance.
Reinsurance recoverables represent amounts due from reinsurers for paid and
unpaid benefits, expense reimbursements, prepaid premiums and future policy
benefits.
Reclassifications
Certain 1998 and 1997 consolidated financial statement balances have been
reclassified to conform to the 1999 presentation.
(3) Investments
Net investment income for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities $428,286 $445,220 $457,391
Equity securities 29,282 12,183 16,182
Mortgage loans 54,596 54,785 55,929
Real estate 11 (236) (407)
Policy loans 16,016 15,502 15,231
Short-term investments 5,829 6,147 6,995
Private equities 4,114 1,908 2,081
Other invested assets 6,278 1,918 1,790
-------- -------- --------
Gross investment income 544,412 537,427 555,192
Investment expenses (4,356) (6,346) (1,419)
-------- -------- --------
Total $540,056 $531,081 $553,773
======== ======== ========
Net realized investment gains (losses) for the years ended December 31 were
as follows:
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities $(31,404) $ 43,244 $ 3,711
Equity securities 91,591 47,526 92,765
Mortgage loans 1,344 3,399 2,011
Real estate 4,806 7,809 1,598
Private equities 13,983 6,336 8,431
Other invested assets (705) 6,338 5,851
-------- -------- --------
Total $ 79,615 $114,652 $114,367
======== ======== ========
</TABLE>
ML-10
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3) Investments (continued)
Gross realized gains (losses) on the sales of fixed maturity securities and
equity securities for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities, available-for-sale:
Gross realized gains $ 28,619 $ 56,428 $ 18,804
Gross realized losses (60,023) (13,184) (15,093)
Equity securities:
Gross realized gains 143,180 107,342 120,437
Gross realized losses (51,589) (59,816) (27,672)
Private equities:
Gross realized gains 14,558 13,563 10,515
Gross realized losses (575) (7,227) (2,084)
</TABLE>
Net unrealized gains (losses) included in stockholder's equity at December
31 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Gross unrealized gains $ 361,895 $ 487,479
Gross unrealized losses (184,268) (73,440)
Adjustment to deferred acquisition costs (414) (119,542)
Adjustment to unearned policy and contract fees (473) 15,912
Deferred federal income taxes (58,663) (106,794)
--------- ---------
Net unrealized gains $ 118,077 $ 203,615
========= =========
</TABLE>
ML-11
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3) Investments (continued)
The amortized cost and fair value of investments in marketable securities by
type of investment were as follows:
<TABLE>
<CAPTION>
Gross Unrealized
-----------------
Amortized Fair
Cost Gains Losses Value
---------- -------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
December 31, 1999
Available-for-sale:
United States government and gov-
ernment
agencies and authorities $ 151,864 $ 32 $ 8,299 $ 143,597
Foreign governments 122,505 678 7,913 115,270
Corporate securities 3,088,999 108,203 117,543 3,079,659
International bond securities 28,979 -- 2,633 26,346
Mortgage-backed securities 1,476,237 4,867 42,408 1,438,696
---------- -------- -------- ----------
Total fixed maturities 4,868,584 113,780 178,796 4,803,568
Equity securities-unaffiliated 463,089 142,583 2,745 602,927
Equity securities-affiliated mu-
tual funds 123,925 44,014 597 167,342
---------- -------- -------- ----------
Total equity securities 587,014 186,597 3,342 770,269
---------- -------- -------- ----------
Total available-for-sale 5,455,598 300,377 182,138 5,573,837
Held-to maturity:
Corporate securities 848,689 15,965 21,492 843,162
Mortgage-backed securities 126,125 2,584 3,019 125,690
---------- -------- -------- ----------
Total held-to-maturity 974,814 18,549 24,511 968,852
---------- -------- -------- ----------
Total $6,430,412 $318,926 $206,649 $6,542,689
========== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Gross Unrealized
----------------
Amortized Fair
Cost Gains Losses Value
---------- -------- ------- ----------
(In thousands)
<S> <C> <C> <C> <C>
December 31, 1998
Available-for-sale:
United States government and gov-
ernment
agencies and authorities $ 195,650 $ 17,389 $ 201 $ 212,838
Foreign governments 784 -- 311 473
Corporate securities 2,357,861 204,277 30,648 2,531,490
International bond securities 188,448 22,636 1,298 209,786
Mortgage-backed securities 1,924,945 52,580 18,100 1,959,425
---------- -------- ------- ----------
Total fixed maturities 4,667,688 296,882 50,558 4,914,012
Equity securities-unaffiliated 463,777 157,585 15,057 606,305
Equity securities-affiliated mu-
tual funds 115,769 27,726 -- 143,495
---------- -------- ------- ----------
Total equity securities 579,546 185,311 15,057 749,800
---------- -------- ------- ----------
Total available-for-sale 5,247,234 482,193 65,615 5,663,812
Held-to maturity:
Corporate securities 894,064 67,496 235 961,325
Mortgage-backed securities 192,484 9,030 1,055 200,459
---------- -------- ------- ----------
Total held-to-maturity 1,086,548 76,526 1,290 1,161,784
---------- -------- ------- ----------
Total $6,333,782 $558,719 $66,905 $6,825,596
========== ======== ======= ==========
</TABLE>
ML-12
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3) Investments (continued)
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1999, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
--------------------- ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- --------- --------
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 39,213 $ 39,542 $ 5,628 $ 5,589
Due after one year through five years 1,065,644 1,125,653 175,672 176,672
Due after five years through ten
years 1,305,697 1,271,316 376,752 375,480
Due after ten years 981,793 928,361 290,637 285,421
---------- ---------- -------- --------
3,392,347 3,364,872 848,689 843,162
Mortgage-backed securities 1,476,237 1,438,696 126,125 125,690
---------- ---------- -------- --------
Total $4,868,584 $4,803,568 $974,814 $968,852
========== ========== ======== ========
</TABLE>
At December 31, 1999 and 1998, fixed maturity securities and short-term
investments with a carrying value of $13,945,000 and $6,361,000, respectively,
were on deposit with various regulatory authorities as required by law.
Allowances for credit losses on investments are reflected on the
consolidated balance sheets as a reduction of the related assets and were as
follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Mortgage loans $ 1,500 $ 1,500
Investment real estate -- 841
------- -------
Total $ 1,500 $ 2,341
======= =======
</TABLE>
At December 31, 1999, no mortgage loans were considered impaired. At
December 31, 1998, the recorded investment in mortgage loans that were
considered to be impaired was $8,798, before the allowance for credit losses.
These impaired loans, due to adequate fair market value of underlying
collateral, do not have an allowance for credit losses.
A general allowance for credit losses was established for potential
impairments in the remainder of the mortgage loan portfolio. The general
allowance was $1,500,000 at December 31, 1999 and 1998.
Changes in the allowance for credit losses on mortgage loans were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $1,500 $1,500 $1,895
Provision for credit losses -- -- --
Charge-offs -- -- (395)
------ ------ ------
Balance at end of year $1,500 $1,500 $1,500
====== ====== ======
Below is a summary of interest income on impaired mortgage loans.
<CAPTION>
1999 1998 1997
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Average impaired mortgage loans $ 4 $ 14 $3,268
Interest income on impaired mortgage loans--contractual 4 18 556
Interest income on impaired mortgage loans--collected 4 17 554
</TABLE>
ML-13
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(4) Notes Receivable
In connection with the Company's construction of an additional home office
facility in St. Paul, Minnesota, the Company entered into a loan contingency
agreement with the Housing and Redevelopment Authority of the City of St. Paul,
Minnesota (HRA) in November 1997. A maximum of $15 million in funds is
available under this loan for condemnation and demolition of the Company's
proposed building site. The note bears interest at a rate of 8.625%, with
principal payments commencing February 2004 and a maturity date of August 2025.
Interest payments are accrued and are payable February and August of each year
commencing February 2001. All principal and interest payments are due only to
the extent of available tax increments. As of December 31, 1999 and 1998, HRA
has drawn $13,574,000 and $9,669,000 on this loan contingency agreement and
accrued interest of $1,795,000 and $673,000, respectively.
(5) Net Finance Receivables
Finance receivables as of December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Direct installment loans $127,379 $147,425
Retail installment notes 9,199 12,209
Retail revolving credit 3,457 17,170
Accrued interest 2,505 2,683
-------- --------
Gross receivables 142,540 179,487
Allowance for uncollectible amounts (7,728) (16,076)
-------- --------
Finance receivables, net $134,812 $163,411
======== ========
</TABLE>
The direct installment loans, at December 31, 1999 and 1998, consisted of
$83,376,000 and $81,066,000, respectively, of discount basis loans (net of
unearned finance charges) and $44,003,000 and $66,359,000, respectively, of
interest-bearing loans and generally have a maximum term of 84 months; the
retail installment notes are principally discount basis, arise from the sale of
household appliances, furniture, and sundry services, and generally have a
maximum term of 48 months. Direct installment loans included approximately $29
million and $44 million of real estate secured loans at December 31, 1999 and
1998, respectively. Revolving credit loans included approximately $3 million
and $16 million of real estate secured loans at December 31, 1999 and 1998,
respectively. Contractual maturities of the finance receivables by year, as
required by the industry audit guide for finance companies, were not readily
available at December 31, 1999 and 1998, but experience has shown that such
information is not significant in that a substantial portion of receivables
will be renewed, converted, or paid in full prior to maturity.
During the years ended December 31, 1999 and 1998, principal cash
collections of direct installment loans were $57,665,000 and $75,011,000,
respectively, and the percentages of these cash collections to average net
balances were 43% and 47%, respectively. Retail installment notes' principal
cash collections to average net balances were $12,180,000 and $15,990,000,
respectively, and the percentages of these cash collections to average net
balances were 121% and 101%, respectively.
ML-14
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(5) Net Finance Receivables (continued)
The ratio for the allowance for losses to net outstanding receivables
balances at December 31, 1999 and 1998 was 5.4% and 9.0%, respectively. Changes
in the allowance for losses for the periods ended December 31, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 16,076 $ 20,545 $ 7,497
Provision for credit losses 5,434 10,712 28,206
Allowance applicable to bulk purchase 125 -- --
Charge-offs (16,712) (18,440) (17,869)
Recoveries 2,805 3,259 2,711
-------- -------- --------
Balance at end of year $ 7,728 $ 16,076 $ 20,545
======== ======== ========
</TABLE>
At December 31, 1999, the recorded investment in certain direct installment
loans and direct revolving credit loans were considered to be impaired. The
balances of such loans at December 31, 1999 and the related allowance for
credit losses were as follows:
<TABLE>
<CAPTION>
Installment Revolving
Loans Credit Total
----------- --------- ------
(In thousands)
<S> <C> <C> <C>
Balances at December 31, 1999 $5,539 692 $6,231
Related allowance for credit losses $1,478 330 $1,808
</TABLE>
All loans deemed to be impaired are placed on a non-accrual status. No
accrued or unpaid interest was recognized on impaired loans during 1999. The
average quarterly balance of impaired loans during the year ended December 31,
1999 and 1998, was $5,758,000 and $6,354,000 for installment basis loans and
$6,214,000 and $12,471,000 for revolving credit loans, respectively.
There were no material commitments to lend additional funds to customers
whose loans were classified as impaired at December 31, 1999.
(6) Income Taxes
Income tax expense varies from the amount computed by applying the federal
income tax rate of 35% to income from operations before taxes. The significant
components of this difference were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Computed tax expense $87,139 $84,553 $93,337
Difference between computed and actual tax ex-
pense:
Dividends received deduction (3,127) (1,730) (5,573)
Special tax on mutual life insurance companies (9,568) (3,455) 3,341
Sale of subsidiary -- -- (4,408)
Foundation gain (538) -- (4,042)
Tax credits (4,500) (4,416) (3,600)
Expense adjustments and other 4,327 3,281 (2,275)
------- ------- -------
Total tax expense $73,733 $78,233 $76,780
======= ======= =======
</TABLE>
ML-15
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(6) Income Taxes (continued)
The tax effects of temporary differences that give rise to the Company's net
deferred federal tax liability were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Policyholders liabilities $ 17,461 $ 16,999
Pension and post retirement benefits 30,151 27,003
Tax deferred policy acquisition costs 91,976 82,940
Net realized capital losses 6,709 8,221
Other 16,612 18,487
-------- --------
Gross deferred tax assets 162,909 153,650
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs $198,501 $155,655
Real estate and property and equipment depreciation 14,642 10,275
Basis difference on investments 8,092 10,798
Net unrealized capital gains 59,411 143,354
Other 7,357 7,475
-------- --------
Gross deferred tax liabilities 288,003 327,557
-------- --------
Net deferred tax liability $125,094 $173,907
======== ========
</TABLE>
A valuation allowance for deferred tax assets was not considered necessary
as of December 31, 1999 and 1998 because the Company believes that it is more
likely than not that the deferred tax assets will be realized through future
reversals of existing taxable temporary differences and future taxable income.
Income taxes paid for the years ended December 31, 1999, 1998 and 1997, were
$59,905,000, $91,259,000 and $71,108,000, respectively.
The Company's tax returns for 1995, 1996, and 1997 are under examination by
the Internal Revenue Service. The Company believes additional taxes, if any,
assessed as a result of these examinations, will not have a material effect on
its financial position.
ML-16
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(7) Liability for Unpaid Accident and Health Claims, Reserve for Losses, and
Claim and Loss Adjustment Expenses
Activity in the liability for unpaid accident and health claims, reserve for
losses and claim and loss adjustment expenses is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Balance at January 1 $435,079 $409,249 $416,910
Less: reinsurance recoverable 108,918 104,741 102,161
-------- -------- --------
Net balance at January 1 326,161 304,508 314,749
-------- -------- --------
Incurred related to:
Current year 92,421 92,793 121,153
Prior years 19,435 14,644 7,809
-------- -------- --------
Total incurred 111,856 107,437 128,962
-------- -------- --------
Paid related to:
Current year 25,084 27,660 51,275
Prior years 63,827 58,124 57,475
-------- -------- --------
Total paid 88,911 85,784 108,750
-------- -------- --------
Decrease in liabilities due to sale of subsidiary -- -- 30,453
-------- -------- --------
Net balance at December 31 349,106 326,161 304,508
Plus: reinsurance recoverable 121,395 108,918 104,741
-------- -------- --------
Balance at December 31 $470,501 $435,079 $409,249
======== ======== ========
</TABLE>
The liability for unpaid accident and health claims, reserve for losses and
claim and loss adjustment expenses is included in future policy and contract
benefits and pending policy and contract claims on the consolidated balance
sheets.
As a result of changes in estimates of claims incurred in prior years, the
accident and health claims, reserve for losses and claim and loss adjustment
expenses incurred increased by $19,435,000, $14,644,000 and $7,809,000 in 1999,
1998 and 1997, respectively which includes the amortization of discount on
individual accident and health claim reserves of $13,918,000, $14,256,000,
$11,522,000 in 1999, 1998 and 1997, respectively. The remaining changes in
amounts are the result of normal reserve development inherent in the
uncertainty of establishing the liability for unpaid accident and health
claims, reserve for losses and claim and loss adjustment expenses.
(8) Employee Benefit Plans
Pension Plans and Post Retirement Plans Other than Pensions
The Company has noncontributory defined benefit retirement plans covering
substantially all employees and certain agents. Benefits are based upon years
of participation and the employee's average monthly compensation or the agent's
adjusted annual compensation. Plan assets are comprised of mostly stocks and
bonds, which are held in the general and separate accounts of the Company and
administered under group annuity contracts issued by the Company. The Company's
funding policy is to contribute annually the minimum amount required by
applicable regulations. The Company also has an unfunded noncontributory
defined benefit retirement plan, which provides certain employees with benefits
in excess of limits for qualified retirement plans.
The Company also has unfunded postretirement plans that provide certain
health care and life insurance benefits to substantially all retired employees
and agents. Eligibility is determined by age at retirement and years of service
after age 30. Health care premiums are shared with retirees, and other cost-
sharing features include deductibles and co-payments.
ML-17
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(8) Employee Benefit Plans (continued)
The change in the benefit obligation and plan assets for the Company's plans
as of December 31 was calculated as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of
year $181,439 $151,509 $ 31,236 $ 24,467
Service cost 8,272 8,402 1,419 1,375
Interest cost 13,132 10,436 2,340 1,713
Amendments 4,385 6 -- --
Actuarial gain (4,143) 16,298 (33) 4,542
Benefits paid (6,060) (5,212) (1,242) (861)
-------- -------- -------- --------
Benefit obligation at end of year $197,025 $181,439 $ 33,720 $ 31,236
======== ======== ======== ========
Change in plan assets:
Fair value of plan assets at the
beginning of the year $146,710 $133,505 $ -- $ --
Actual return on plan assets 12,948 13,068 -- --
Employer contribution 6,096 5,349 1,242 861
Benefits paid (6,060) (5,212) (1,242) (861)
-------- -------- -------- --------
Fair value of plan assets at the
end of year $159,694 $146,710 $ -- $ --
======== ======== ======== ========
Funded status $(37,330) $(34,729) $(33,720) $(31,236)
Unrecognized net actuarial loss
(gain) 6,812 12,283 (6,089) (6,251)
Unrecognized prior service cost
(benefit) 8,723 5,293 (2,472) (2,986)
-------- -------- -------- --------
Net amount recognized $(21,795) $(17,153) $(42,281) $(40,473)
======== ======== ======== ========
Amounts recognized in the balance
sheet statement consist of:
Accrued benefit cost $(27,980) $(23,242) $(42,395) $(40,473)
Intangible asset 6,185 6,089 114 --
-------- -------- -------- --------
Net amount recognized $(21,795) $(17,153) $(42,281) $(40,473)
======== ======== ======== ========
Weighted average assumptions as of
December 31
Discount rate 7.50% 7.00% 7.50% 7.00%
Expected return on plan assets 8.27% 8.27% -- --
Rate of compensation increase 5.32% 5.32% -- --
</TABLE>
ML-18
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(8) Employee Benefit Plans (continued)
For measurement purposes, an 8.5 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2000. The rate was
assumed to decrease gradually to 5.5 percent for 2005 and remain at that level
thereafter.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
--------------------------- ----------------------
1999 1998 1997 1999 1998 1997
-------- -------- ------- ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost
Service cost $ 8,272 $ 8,402 $ 6,847 $1,419 $1,375 $1,047
Interest cost 13,132 10,436 9,956 2,340 1,713 1,872
Expected return on plan
assets (12,080) (10,978) (9,859) -- -- --
Amortization of prior
service cost (benefits) 954 578 578 (513) (513) (510)
Recognized net actuarial
loss (gain) 459 190 77 (195) (559) (480)
-------- -------- ------- ------ ------ ------
Net periodic benefit
cost $ 10,737 $ 8,628 $ 7,599 $3,051 $2,016 $1,929
======== ======== ======= ====== ====== ======
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $45,610,000, $36,376,000 and $18,500,000,
respectively, as of December 31, 1999, and $39,470,000, $31,546,000 and
$17,334,000, respectively, as of December 31, 1998.
The assumptions presented herein are based on pertinent information
available to management as of December 31, 1999 and 1998. Actual results could
differ from those estimates and assumptions. For example, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the postretirement benefit obligation as of December 31, 1999 by
$6,164,000 and the estimated eligibility cost and interest cost components of
net periodic benefit costs for 1999 by $831,000. Decreasing the assumed health
care cost trend rates by one percentage point in each year would decrease the
postretirement benefit obligation as of December 31, 1999 by $4,879,000 and the
estimated eligibility cost and interest cost components of net periodic
postretirement benefit costs for 1999 by $637,000.
Profit Sharing Plans
The Company also has profit sharing plans covering substantially all employees
and agents. The Company's contribution rate to the employee plan is determined
annually by the directors of the Company and is applied to each participant's
prior year earnings. The Company's contribution to the agent plan is made as a
certain percentage, based upon years of service, applied to each agent's total
annual compensation. The Company recognized contributions to the plans during
1999, 1998 and 1997 of $6,003,000, $7,145,000 and $7,173,000, respectively.
Participants may elect to receive a portion of their contributions in cash.
(9) Sale of Subsidiary
On October 1, 1997, the Company sold Minnesota Fire and Casualty Company (MFC),
a wholly owned subsidiary, to Harleysville Group, Inc. The Company received net
cash proceeds of approximately $33.5 million from the sale, and realized a gain
of approximately $14.5 million. HomePlus Insurance Company (HomePlus), a
previously wholly owned subsidiary of MFC, was excluded from the sale of
assets. In accordance with the agreement, prior to September 30, 1997, MFC made
a distribution of private placement bonds to the Company with an amortized cost
of approximately $4.3 million and transferred all issued and outstanding shares
of HomePlus to the Company. The carrying value of the transferred shares was
approximately $5.8 million. Under an administrative services agreement with
MFC, the Company has retained MFC to provide financial and other services for
HomePlus.
ML-19
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(10) Reinsurance
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance companies. To the extent that a reinsurer is
unable to meet its obligation under the reinsurance agreement, the Company
remains liable. The Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk to minimize its exposure to
significant losses from reinsurer insolvencies. Allowances are established for
amounts deemed to be uncollectible.
Reinsurance is accounted for over the lives of the underlying reinsured
policies using assumptions consistent with those used to account for the
underlying policies.
The effect of reinsurance on premiums for the years ended December 31 was as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Direct premiums $662,775 $553,408 $595,686
Reinsurance assumed 102,154 91,548 78,097
Reinsurance ceded (67,130) (67,263) (58,530)
-------- -------- --------
Net premiums $697,799 $577,693 $615,253
======== ======== ========
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $71,922,000,
$64,174,000 and $58,072,000 during 1999, 1998 and 1997, respectively.
On January 1, 1999, the Company entered into an agreement to sell its
assumed individual life reinsurance business representing $1,982,509,000 of in
force to RGA Reinsurance Company. The Company received cash of $1,284,000 from
the sale and recognized miscellaneous income of approximately $4,139,000,
representing the gain on the sale.
On October 1, 1999, the Company entered into an assumption reinsurance
agreement with Fort Dearborn Life Insurance Company. The agreement transfers
401(k) accounts with associated fixed and variable assets of approximately
$260,000,000.
(11) Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments has been
determined using available market information as of December 31, 1999 and 1998.
Although management is not aware of any factors that would significantly affect
the estimated fair value, such amounts have not been comprehensively revalued
since those dates. Therefore, estimates of fair value subsequent to the
valuation dates may differ significantly from the amounts presented herein.
Considerable judgement is required to interpret market data to develop the
estimates of fair value. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
Please refer to Note 2 for additional fair value disclosures concerning
fixed maturity securities, equity securities, mortgages, private equities and
derivatives. The carrying amounts for policy loans, cash, short-term
investments and finance receivables approximate the assets' fair values.
The interest rates on the finance receivables outstanding as of December 31,
1999 and 1998, are consistent with the rates at which loans would currently be
made to borrowers of similar credit quality and for the same maturity; as such,
the carrying value of the finance receivables outstanding as of December 31,
1999 and 1998, approximate the fair value for those respective dates.
The fair values of deferred annuities, annuity certain contracts and other
fund deposits, which have guaranteed interest rates and surrender charges are
estimated to be the amount payable on demand as of December 31, 1999 and 1998
as those investment contracts have no defined maturity and are similar to a
deposit liability. The amount payable on demand equates to the account balance
less applicable surrender charges. Contracts without guaranteed interest rates
and surrender charges have fair values equal to their accumulation values plus
applicable market value adjustments.
ML-20
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(11) Fair Value of Financial Instruments (continued)
The fair values of guaranteed investment contracts and supplementary
contracts without life contingencies are calculated using discounted cash
flows, based on interest rates currently offered for similar products with
maturities consistent with those remaining for the contracts being valued.
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate the fair value of notes payable.
The carrying amounts and fair values of the Company's financial instruments,
which were classified as assets as of December 31, were as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities:
Available-for-sale $4,803,568 $4,803,568 $4,914,012 $4,914,012
Held-to-maturity 974,814 968,852 1,086,548 1,161,784
Equity securities 770,269 770,269 749,800 749,800
Mortgage loans:
Commercial 625,196 605,112 579,890 603,173
Residential 71,476 73,293 101,329 104,315
Policy loans 237,335 237,335 226,409 226,409
Short-term investments 93,993 93,993 136,435 136,435
Cash 116,803 116,803 175,660 175,660
Finance receivables, net 134,812 134,812 163,411 163,411
Private equities 284,797 284,797 160,958 164,332
Foreign currency exchange con-
tract 655 655 1,594 1,594
---------- ---------- ---------- ----------
Total financial assets $8,113,718 $8,089,489 $8,296,046 $8,400,925
========== ========== ========== ==========
</TABLE>
The carrying amounts and fair values of the Company's financial instruments,
which were classified as liabilities as of December 31, were as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Deferred annuities $1,822,302 $1,810,820 $2,085,408 $2,075,738
Annuity certain contracts 39,513 39,421 57,528 60,766
Other fund deposits 945,575 936,590 722,321 731,122
Guaranteed investment contracts 116 116 862 862
Supplementary contracts without
life contingencies 43,050 43,126 44,696 44,251
Notes payable 218,000 221,233 267,000 272,834
---------- ---------- ---------- ----------
Total financial liabilities $3,068,556 $3,051,306 $3,177,815 $3,185,573
========== ========== ========== ==========
</TABLE>
(12) Notes Payable
In September 1995, the Company issued surplus notes with a face value of
$125,000,000, at 8.25%, due in 2025. The surplus notes are subordinate to all
current and future policyholders interests, including claims, and indebtedness
of the Company. All payments of interest and principal on the notes are subject
to the approval of the Department of Commerce. The approved accrued interest
was $3,008,000 as of December 31, 1999 and 1998. The issuance costs of
$1,421,000 are deferred and amortized over 30 years on straight-line basis.
ML-21
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(12) Notes Payable (continued)
Notes payable as of December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Corporate-surplus notes, 8.25%, 2025 $125,000 $125,000
Consumer finance subsidiary-senior, 6.53%-8.77%, through
2003 93,000 142,000
-------- --------
Total notes payable $218,000 $267,000
======== ========
</TABLE>
At December 31, 1999, the aggregate minimum annual notes payable maturities
for the next four years were as follows: 2000, $33,000,000; 2001, $26,000,000;
2002, $22,000,000; 2003, $12,000,000; thereafter $125,000,000.
Long-term borrowing agreements involving the consumer finance subsidiary
include provisions with respect to borrowing limitations, payment of cash
dividends on or purchases of common stock, and maintenance of liquid net worth
of $41,354,000. The consumer finance subsidiary was in compliance with all such
provisions at December 31, 1999.
The Company maintains a line of credit, which is drawn down periodically
throughout the year. As of December 1999 and 1998, the outstanding balance of
this line of credit was $90,000,000 and $40,000,000, respectively.
Interest paid on debt for the years ended December 31, 1999, 1998 and 1997,
was $24,120,000, $25,008,000 and $18,197,000, respectively.
(13) Other Comprehensive Income
Comprehensive income is defined as any change in stockholder's equity
originating from non-owner transactions. The Company had identified those
changes as being comprised of net income, unrealized appreciation
(depreciation) on securities, and unrealized foreign currency translation
adjustments.
The components of comprehensive income (loss), other than net income are
illustrated below:
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- --------
(In thousands)
<S> <C> <C> <C>
Other comprehensive income (loss), before tax:
Foreign currency translation adjustment $ -- $ -- $ 1,457
Less: reclassification adjustment for gains
included in net income -- (1,457) --
---------- -------- --------
-- (1,457) 1,457
Unrealized gains (loss) on securities (59,499) 162,214 171,654
Less: reclassification adjustment for gains
included in net income (74,170) (90,770) (96,476)
---------- -------- --------
(133,669) 71,444 75,178
Income tax expense related to items of other
comprehensive income 48,131 (23,045) (28,274)
---------- -------- --------
Other comprehensive income (loss), net of tax $ (85,538) $ 46,942 $ 48,361
========== ======== ========
</TABLE>
(14) Stock Dividends
During 1999, the Company declared and paid dividends to Securian Financial
Group, Inc. totaling $59,109,000. These dividends were in the form of cash,
common stock and the affiliated stock of Capitol City Property Management and
HomePlus Insurance Agency, Inc. On December 14, 1998, the Company declared and
accrued a dividend to Securian Financial Group, Inc. in the amount of
$24,700,000, which was paid in 1999.
ML-22
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(14) Stock Dividends (continued)
Dividend payments by Minnesota Life Insurance Company to its parent cannot
exceed the greater of 10% of statutory capital and surplus as of the preceding
year-end or the statutory net gain from operations for the current calendar
year, without prior approval from the Department of Commerce. Based on this
limitation and 1998 statutory results, Minnesota Life Insurance Company could
have paid $168,076,000 in dividends in 1999 without prior approval.
(15) Commitments and Contingencies
The Company is involved in various pending or threatened legal proceedings
arising out of the normal course of business. In the opinion of management, the
ultimate resolution of such litigation will not have a material adverse effect
on operations or the financial position of the Company.
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance companies. To the extent that a reinsurer is
unable to meet its obligations under the reinsurance agreement, the Company
remains liable. The Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk to minimize its exposure to
significant losses from reinsurer insolvencies. Allowances are established for
amounts deemed uncollectible.
The Company has issued certain participating group annuity and group life
insurance contracts jointly with another life insurance company. The joint
contract issuer has liabilities related to these contracts of $183,200,000 as
of December 31, 1999. To the extent the joint contract issuer is unable to meet
its obligation under the agreement, the Company remains liable.
The Company has long-term commitments to fund private equities and real
estate investments totaling $147,652,000 as of December 31, 1999. The Company
estimates that $60,000,000 of these commitments will be invested in 2000, with
the remaining $87,652,000 invested over the next four years.
As of December 31, 1999, the Company had committed to purchase bonds and
mortgage loans totaling $54,130,000 but had not completed the purchase
transactions.
The Company has a long-term lease agreement for rental space in downtown St.
Paul and other locations. Minimum rental commitments under such leases are as
follows: 2000, $2,400,000; 2001, $2,227,000; 2002, $2,092,000; 2003,
$2,108,000; 2004, $1,261,000; 2005, $22,000.
At December 31, 1999, the Company had guaranteed the payment of $76,600,000
in policyholders dividends and discretionary amounts payable in 2000. The
Company has pledged bonds, valued at $79,333,000 to secure this guarantee.
The Company is contingently liable under state regulatory requirements for
possible assessments pertaining to future insolvencies and impairments of
unaffiliated insurance companies. The Company records a liability for future
guaranty fund assessments based upon known insolvencies, according to data
received from the National Organization of Life and Health Insurance Guaranty
Association. At December 31, 1999 and 1998 the liability was ($352,000) and
$1,105,000, respectively. An asset is recorded for the amount of guaranty fund
assessments paid, which can be recovered through future premium tax credits.
This asset was $5,485,000 and $7,282,000 for the periods ending December 31,
1999 and 1998, respectively. These assets are being amortized over a five-year
period.
At December 1999, the Company has guaranteed the payment of approximately
$125,000,000 of senior notes issued by Capitol City Properties Management,
Inc., an affiliated company through the expiration date of the notes June 1,
2021 or by mutual agreement of the parties. These notes were issued in
conjunction with the financing of the Company's additional home office space.
ML-23
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(16) Statutory Financial Data
The Company also prepares financial statements according to statutory
accounting practices prescribed or permitted by the Department of Commerce for
purposes of filing with the Department of Commerce, the National Association of
Insurance Commissioners and states in which the Company is licensed to do
business. Statutory accounting practices focus primarily on solvency and
surplus adequacy. The significant differences that exist between statutory and
GAAP accounting, and their effects are illustrated below:
<TABLE>
<CAPTION>
Year ended December
----------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
Statutory capital and surplus $1,089,474 $ 947,885
Adjustments:
Deferred policy acquisition costs 712,532 564,382
Net unrealized investment gains (losses) (49,572) 279,885
Statutory asset valuation reserve 310,626 239,455
Statutory interest maintenance reserve 30,984 49,915
Premiums and fees deferred or receivable (69,618) (73,312)
Change in reserve basis 115,718 113,648
Separate accounts (64,860) (56,816)
Unearned policy and contract fees (144,157) (118,459)
Surplus notes (125,000) (125,000)
Net deferred income taxes (125,094) (173,907)
Non-admitted assets 36,205 39,525
Policyholders dividends 62,268 60,648
Other (23,642) (25,573)
---------- ----------
Stockholder's equity as reported in the accompanying
consolidated financial statements $1,755,864 $1,722,276
========== ==========
</TABLE>
<TABLE>
<CAPTION>
As of December 31
--------------------------------
1999 1998 1997
-------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Statutory net income $167,957 $ 104,609 $ 167,078
Adjustments:
Deferred policy acquisition costs 29,164 18,042 26,878
Statutory interest maintenance reserve (18,931) 25,746 (538)
Premiums and fees deferred or receivable 3,686 708 2,175
Change in reserve basis 2,555 3,011 9,699
Separate accounts (8,044) (5,644) (6,272)
Unearned policy and contract fees (8,696) (7,896) (12,825)
Net deferred income taxes 1,439 15,351 7,832
Policyholders dividends 1,620 1,194 2,708
Other 4,485 8,228 (6,839)
-------- ---------- ----------
Net income as reported in the accompanying
consolidated financial statements $175,235 $ 163,349 $ 189,896
======== ========== ==========
</TABLE>
ML-24
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule I
Summary of Investments--Other than Investments in Related Parties
December 31, 1999
<TABLE>
<CAPTION>
As Shown
on the
Market consolidated
Type of investment Cost(3) Value balance sheet(1)
- ------------------ ---------- ---------- ----------------
(In thousands)
<S> <C> <C> <C>
Bonds:
United States government and
government agencies and authorities $ 151,864 $ 143,597 $ 143,597
Foreign governments 122,505 115,270 115,270
Public utilities 287,970 276,558 276,558
Mortgage-backed securities 1,602,362 1,564,386 1,564,386
All other corporate bonds 3,678,697 3,672,609 3,678,571
---------- ---------- ----------
Total bonds 5,843,398 5,772,420 5,778,382
---------- ---------- ----------
Equity securities:
Common stocks:
Public utilities 7,475 9,072 9,072
Banks, trusts and insurance compa-
nies 25,959 25,399 25,399
Industrial, miscellaneous and all
other 525,152 708,848 708,848
Nonredeemable preferred stocks 28,428 26,950 26,950
---------- ---------- ----------
Total equity securities 587,014 770,269 770,269
---------- ---------- ----------
Mortgage loans on real estate 696,672 XXXXXX 696,672
Real estate (2) 36,793 XXXXXX 36,793
Policy loans 237,335 XXXXXX 237,335
Other long-term investments 473,528 XXXXXX 473,528
Short-term investments 93,993 XXXXXX 93,993
---------- ---------- ----------
Total 1,538,321 -- 1,538,321
---------- ---------- ----------
Total investments $7,968,733 $6,542,689 $8,086,972
========== ========== ==========
</TABLE>
- -------
(1) Amortized cost for bonds classified as held-to-maturity and fair value for
common stocks and bonds classified as available-for-sale
(2) The carrying value of real estate acquired in satisfaction of indebtedness
is $ -0-
(3) Original cost for equity securities and original cost reduced by
repayments and adjusted for amortization of premiums or accrual of
discounts for bonds and other investments
See independent auditors' report.
ML-25
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule III
Supplementary Insurance Information
(In thousands)
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------
Future policy
Deferred benefits Other policy
policy losses, claims claims and
acquisition and settlement Unearned benefits
Segment costs expenses(1) premiums(2) payable
- ------- ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
1999:
Life insurance $535,709 $2,388,867 $172,430 $73,670
Accident and
health insur-
ance 80,371 552,833 35,558 16,858
Annuity 97,137 3,118,995 25 234
Property and li-
ability insur-
ance -- 441
-------- ---------- -------- -------
$713,217 $6,061,136 $208,013 $90,762
======== ========== ======== =======
1998:
Life insurance $421,057 $2,303,580 $146,042 $51,798
Accident and
health insur-
ance 74,606 510,969 33,568 18,342
Annuity 68,719 3,186,148 25 424
Property and li-
ability insur-
ance -- 480 556 --
-------- ---------- -------- -------
$564,382 $6,001,177 $180,191 $70,564
======== ========== ======== =======
1997:
Life insurance $434,012 $2,229,396 $166,704 $42,627
Accident and
health insur-
ance 70,593 466,109 34,250 17,153
Annuity 71,425 3,266,965 -- 4,576
Property and li-
ability insur-
ance -- 280 1,116 --
-------- ---------- -------- -------
$576,030 $5,962,750 $202,070 $64,356
======== ========== ======== =======
<CAPTION>
For the years ended December 31,
-----------------------------------------------------------------------
Amortization
Benefits, of deferred
Net claims, losses policy Other
Premium investment and settlement acquisition operating Premiums
Segment revenue(3) income expenses costs expenses written(4)
- ------- ----------- ---------- -------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1999:
Life insurance $ 762,745 $258,483 $645,695 $ 88,731 $391,454
Accident and
health insur-
ance 170,988 37,922 108,283 11,779 101,021
Annuity 95,190 243,160 214,461 22,945 79,883
Property and li-
ability insur-
ance (14) 491 323 743 (570)
----------- ---------- -------------- ------------ --------- ----------
$1,028,909 $540,056 $968,762 $123,455 $573,101 $ (570)
=========== ========== ============== ============ ========= ==========
1998:
Life insurance $ 615,856 $246,303 $502,767 $114,589 $342,080
Accident and
health insur-
ance 167,544 35,822 105,336 12,261 93,876
Annuity 93,992 247,970 225,004 21,248 136,527
Property and li-
ability insur-
ance 662 986 2,848 -- 1,187 103
----------- ---------- -------------- ------------ --------- ----------
$ 878,054 $531,081 $835,955 $148,098 $573,670 $ 103
=========== ========== ============== ============ ========= ==========
1997:
Life insurance $ 576,468 $247,267 $476,747 $102,473 $345,938
Accident and
health insur-
ance 205,869 40,343 87,424 9,451 101,960
Annuity 64,637 261,768 242,738 16,252 129,263
Property and li-
ability insur-
ance 40,316 4,395 33,773 -- 13,146 43,376
----------- ---------- -------------- ------------ --------- ----------
$ 887,290 $553,773 $840,682 $128,176 $590,307 $43,376
=========== ========== ============== ============ ========= ==========
</TABLE>
- ------
(1) Includes policy and contract account balances
(2) Includes unearned policy and contract fees
(3) Includes policy and contract fees
(4) Applies only to property and liability insurance
See independent auditors' report.
ML-26
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule IV
Reinsurance
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
amount companies companies amount net
------------ ----------- ----------- ------------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
1999:
Life insurance in force $175,297,217 $21,279,606 $37,337,340 $191,354,951 19.5%
============ =========== =========== ============
Premiums:
Life insurance $ 455,857 $ 30,557 $ 83,681 $ 508,981 16.4%
Accident and health
insurance 183,765 18,776 1,281 166,270 0.8%
Annuity 22,562 -- -- 22,562 --
Property and liability
insurance 591 17,797 17,192 (14) n/a
------------ ----------- ----------- ------------
Total premiums $ 662,775 $ 67,130 $ 102,154 $ 697,799 14.6%
============ =========== =========== ============
1998:
Life insurance in force $158,229,143 $18,656,917 $28,559,482 $168,131,708 17.0%
============ =========== =========== ============
Premiums:
Life insurance $ 338,909 $ 30,532 $ 71,198 $ 379,575 18.8%
Accident and health
insurance 180,081 17,894 1,432 163,619 0.9%
Annuity 33,837 -- -- 33,837 --
Property and liability
insurance 581 18,837 18,918 662 2857.7%
------------ ----------- ----------- ------------
Total premiums $ 553,408 $ 67,263 $ 91,548 $ 577,693 15.8%
============ =========== =========== ============
1997:
Life insurance in force $122,120,394 $14,813,351 $25,566,734 $132,873,777 19.2%
============ =========== =========== ============
Premiums:
Life insurance $ 340,984 $ 30,547 $ 63,815 $ 374,252 17.1%
Accident and health
insurance 175,647 16,332 1,310 160,625 0.8%
Annuity 40,060 -- -- 40,060 --
Property and liability
insurance 38,995 11,651 12,972 40,316 32.2%
------------ ----------- ----------- ------------
Total premiums $ 595,686 $ 58,530 $ 78,097 $ 615,253 12.7%
============ =========== =========== ============
</TABLE>
See independent auditors' report.
ML-27
<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>
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, 1999, 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, 1999.
5. Statements of Changes in Net Assets - Group Variable Annuity Account,
year ended December 31, 1999.
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, 1999
and 1998.
2. Consolidated Balance Sheets - Minnesota Life Insurance Company
and subsidiaries, for the fiscal year ended December 31, 1999
and 1998.
3. Consolidated Statements of Operations and Comprehensive Income -
Minnesota Life Insurance Company and subsidiaries, for the
fiscal years ended December 31, 1999, 1998 and 1997.
4. Consolidated Statements of Changes in Stockholder's Equity -
Minnesota Life Insurance Company and subsidiaries, for the
fiscal years ended December 31, 1999, 1998 and 1997.
5. Consolidated Statements of Cash Flows - Minnesota Life Insurance
Company and subsidiaries, for the fiscal years ended December
31, 1999, 1998 and 1997.
6. Notes to Consolidated Financial Statements - Minnesota Life
Insurance Company and subsidiaries, for the fiscal years ended
December 31, 1999 and 1998.
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, 1999.
8. Schedule III - Supplementary Insurance Information - Minnesota
Life Insurance Company and subsidiaries, for the fiscal years
ended December 31, 1999 and 1998.
9. Schedule IV - Reinsurance - Minnesota Life Insurance Company and
subsidiaries, for the fiscal years ended December 31, 1999, 1998
and 1997.
<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 previously filed as this exhibit to
Registrant's Form N-4, File Number 33-79534, Post-Effective
Amendment Number 8, is hereby incorporated by reference.
(c) The specimen copy of the Annuitization Endorsement, form number
MHC-94-9312 previously filed as this exhibit to Registrant's Form
N-4, File Number 33-79534, Post-Effective Amendment Number 8, is
hereby incorporated by reference.
(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 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>
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 Director and Executive None
Minnesota Life Insurance Vice President
Company
400 Robert Street North
St. Paul, MN 55101
<PAGE>
James E. Johnson Senior Vice President None
Minnesota Life Insurance
Company
400 Robert Street North
St. Paul, MN 55101
Dennis E. Prohofsky Director, Senior Vice None
Minnesota Life Insurance President, General
Company Counsel and Secretary
400 Robert Street North
St. Paul, MN 55101
<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 Director, Senior Vice None
Minnesota Life Insurance President 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)
Capitol City Property Management, Inc.
Wholly-owned subsidiary of Securian Financial Group, Inc.
Minnesota Life Insurance Company
HomePlus Insurance Agency, Inc.
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.
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
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
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:
MIMLIC Life Insurance Company (Arizona)
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 Cornerstone 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.
Advantus Money Market Fund, Inc.
Advantus Index 500 Fund, Inc.
Unless indicated otherwise parenthetically, each of the above corporations is a
Minnesota corporation.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 10, 2000, the number of Contract Participants for
this Registration Statement were as follows:
Number of Record
Title of Class Holders
Group Variable Annuity Contracts 2,275
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 eleven
other organized mutual funds (Advantus Spectrum 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.
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices Offices
Business Address with Underwriter with Registrant
- ------------------ ---------------- ---------------
<S> <C> <C>
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
400 Robert Street North and Director
St. Paul, Minnesota 55101
<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
Loyall E. Wilson Vice President and None
Ascend Financial Services, Inc. Chief Compliance
400 Robert Street North Officer
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
</TABLE>
(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 $1,094,256
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,
Group Variable Annuity Account 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 24th
day of April, 2000.
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 24th day of April, 2000.
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 24, 2000
Robert L. Senkler Chief Executive Officer
*
- ------------------------ Director
Anthony L. Andersen
- ------------------------ Director
Leslie S. Biller
*
- ------------------------ Director
John F. Grundhofer
*
- ------------------------ Director
Robert E. Hunstad
*
- ------------------------ Director
Dennis E. Prohofsky
- ------------------------ Director
Michael E. Shannon
*
- ------------------------ Director
William N. Westhoff
*
- ------------------------ Director
Frederick T. Weyerhaeuser
- ------------------------ Senior Vice President April 24, 2000
Gregory S. Strong (chief financial officer)
- ------------------------ Senior Vice President April 24, 2000
Gregory S. Strong (chief accounting officer)
- ------------------------ Senior Vice President and April 24, 2000
William N. Westhoff Treasurer (treasurer)
- ------------------------ Director and Attorney-in-Fact April 24, 2000
Dennis E. Prohofsky
* Pursuant to power of attorney dated December 13, 1999, a copy of which is
filed herewith.
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
9. Opinion and Consent of Donald F. Gruber, Esq.
10. (a) Consent of KPMG LLP
(b) Minnesota Life Insurance Company Power of Attorney to Sign
Registration Statement
<PAGE>
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101-2098
651.565.3500 Tel
MINNESOTA LIFE
A MINNESOTA MUTUAL COMPANY
April 24, 2000
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 9 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,
/s/ Donald F. Gruber
Donald F. Gruber
Assistant General Counsel
<PAGE>
KPMG
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
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 reports included herein and to the
reference to our Firm under the heading "AUDITORS" in Part B of the
Registration Statement.
/s/ KPMG LLP
KPMG LLP
Minneapolis, Minnesota
April 24, 2000
<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, and
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, and
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 their names
and on our 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Robert L. Senkler Chairman of the Board, December 13, 1999
- --------------------------------------- President and Chief
Robert L. Senkler Executive Officer
/s/Anthony L. Andersen Director December 13, 1999
- ---------------------------------------
Anthony L. Andersen
Director
- ---------------------------------------
Leslie S. Biller
/s/John F. Grundhofer Director December 13, 1999
- ---------------------------------------
John F. Grundhofer
/s/Robert E. Hunstad Director December 13, 1999
- ---------------------------------------
Robert E. Hunstad
/s/Dennis E. Prohofsky Director December 13, 1999
- ---------------------------------------
Dennis E. Prohofsky
<PAGE>
Director
- ---------------------------------------
Michael E. Shannon
/s/William N. Westhoff Director December 13, 1999
- ---------------------------------------
William N. Westhoff
/s/Frederick T. Weyerhaeuser Director December 13, 1999
- ---------------------------------------
Frederick T. Weyerhaeuser
</TABLE>
