-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vq7Z4x1vQ0FomF4jecRx54ly5ii4E8DI7lZa9UH2u0EMX53jUhW7Zn5I0qFhq1H0 i9iE+B/hzWAF8cCimeH48A== 0000912057-00-021510.txt : 20000504 0000912057-00-021510.hdr.sgml : 20000504 ACCESSION NUMBER: 0000912057-00-021510 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20000503 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARIABLE ANNUITY ACCOUNT CENTRAL INDEX KEY: 0000768609 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 410417830 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: SEC FILE NUMBER: 033-80788 FILM NUMBER: 618313 BUSINESS ADDRESS: STREET 1: 400 ROBERT ST NORTH CITY: ST PAUL STATE: MN ZIP: 55101-2098 BUSINESS PHONE: 6122234306 MAIL ADDRESS: STREET 1: 400 ROBERT STREET NORTH CITY: ST PAUL STATE: MN ZIP: 55101-2098 FORMER COMPANY: FORMER CONFORMED NAME: MINNESOTA MUTUAL VARIABLE ANNUITY ACCOUNT DATE OF NAME CHANGE: 19920703 497 1 497 MULTIOPTION SELECT VARIABLE ANNUITY CONTRACT 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 an individual, flexible payment, variable annuity contract ("the contract") offered by Minnesota Life Insurance Company. The contract may be used in connection with all types of personal retirement plans. You may invest your contract values in our Variable Annuity Account. The Variable Annuity Account invests in the following Fund portfolios: - - Advantus Series Fund, Inc. - All portfolios, except for the Maturing Government Bond portfolios, which are only available to contracts issued prior to May 1, 2000. - - Franklin Templeton Variable Insurance Products Trust - Templeton Developing Markets Securities Fund -- Class 2 Shares (previously Templeton Developing Markets Fund) - Templeton Asset Strategy Fund -- Class 2 Shares (available August 1, 2000) - Franklin Small Cap Fund -- Class 2 Shares (available August 1, 2000) - - Janus Aspen Series - Capital Appreciation Portfolio -- Service Shares - International Growth Portfolio -- Service Shares - - Fidelity Variable Insurance Products Funds - Mid Cap Portfolio -- Service Class 2 Shares - Contrafund-Registered Trademark- Portfolio -- Service Class 2 Shares - Equity-Income Portfolio -- Service Class 2 Shares - - Warburg Pincus Trust - Global Post-Venture Capital Portfolio (available August 1, 2000) 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 amounts you allocate to those Portfolios. The contract is designed for long-term investors. If you receive any volume credit amount, it may be more than offset by the sales charge if one is imposed upon surrender of the contract. 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, with the same date, contains further contract information. It 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 for the Statement of Additional Information may be found at the end of this Prospectus. A copy of the text of this Prospectus and the Statement of Additional Information may also be found at the SEC's web site: http://www.sec.gov, via its EDGAR database. THIS PROSPECTUS IS NOT VALID UNLESS ACCOMPANIED BY A CURRENT PROSPECTUS OF THE FUND PORTFOLIOS SHOWN ABOVE. 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 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 SPECIAL TERMS 1 QUESTIONS AND ANSWERS ABOUT THE VARIABLE ANNUITY CONTRACT 2 EXPENSE TABLE 4 GENERAL DESCRIPTIONS 9 Minnesota Life Insurance Company 9 Variable Annuity Account 9 The Funds 10 Additions, Deletions or Substitutions 11 CONTRACT CHARGES 12 Deferred Sales Charges 12 Mortality and Expense Risk Charges 13 Transaction and Contract Charges 14 VOTING RIGHTS 14 DESCRIPTION OF THE CONTRACT 14 General Provisions 14 Annuity Payments and Options 17 Death Benefits 22 Purchase Payments and Value of the Contract 23 Redemptions 27 FEDERAL TAX STATUS 28 PERFORMANCE DATA 34 STATEMENT OF ADDITIONAL INFORMATION 34 APPENDIX A -- CONDENSED FINANCIAL INFORMATION A-1 APPENDIX B -- ILLUSTRATION OF VARIABLE ANNUITY VALUES B-1 APPENDIX C -- TYPES OF QUALIFIED PLANS C-1 SPECIAL TERMS 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 your values under a contract in the Variable Annuity Account. ANNUITANT: the person who may receive lifetime benefits under 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. CODE: the Internal Revenue Code of 1986, as amended. CONTRACT OWNER: the owner of the contract, which could be the annuitant, his or her employer, or a trustee acting on behalf of the employer. 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 PORTFOLIO(S): the mutual funds whose separate investment portfolios we have designated as eligible investment for the Variable Annuity Account. Currently these include the funds or portfolios shown on the cover page of this prospectus. GENERAL ACCOUNT: all of our assets other than those in the Variable Annuity Account or in our other separate accounts. PLAN: a tax-qualified employer pension, profit-sharing, or annuity purchase plan under which benefits are to be provided by the contract. PURCHASE PAYMENTS: amounts you pay to us under your contract. VALUATION DATE or VALUATION DAYS: each date on which a Fund Portfolio is valued. VARIABLE ANNUITY ACCOUNT: a separate investment account called the Variable Annuity Account. The investment experience of its assets is separate from that of our other assets. VARIABLE ANNUITY: an annuity providing for payments varying in amount in accordance with the investment experience of the Fund. VOLUME CREDIT: an additional amount, other than a dividend, which we may credit to your contract. WE, OUR, US: Minnesota Life Insurance Company. YOU, YOUR: the Contract Owner. PAGE 1 QUESTIONS AND ANSWERS ABOUT THE VARIABLE ANNUITY CONTRACT 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; or for a specified period of time. An annuity with payments of a guaranteed amount is a fixed annuity. An annuity with payments which vary with the investment experience of a separate account is a variable annuity. WHAT TYPE OF CONTRACT IS OFFERED BY THIS PROSPECTUS? The contract is a variable annuity contract which provides for monthly annuity payments. These payments may begin immediately or at a future date you specify. We allocate your purchase payments under your contract to the Variable Annuity Account. The Variable Annuity Account invests in one or more Fund Portfolios. There are no interest or principal guarantees on your contract values. WHAT INVESTMENT OPTIONS ARE AVAILABLE? Any purchase payments you allocate to the Variable Annuity Account are invested exclusively in shares of one or more of the available Fund Portfolios. We reserve the right to add, combine or remove other eligible Funds and Portfolios. The available Portfolios of Advantus 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 (only available to contracts issued prior to 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 PAGE 2 The Variable Annuity Account also invests in: - - Franklin Templeton Variable Insurance Products Trust - Templeton Developing Markets Securities Fund -- Class 2 Shares (previously Templeton Developing Markets Fund) - Templeton Asset Strategy Fund -- Class 2 Shares (available August 1, 2000) - Franklin Small Cap Fund -- Class 2 Shares (available August 1, 2000) - - Janus Aspen Series - Capital Appreciation Portfolio -- Service Shares - International Growth Portfolio -- Service Shares - - Fidelity Variable Insurance Products Funds - Mid Cap Portfolio -- Service Class 2 Shares - Contrafund Portfolio -- Service Class 2 Shares - Equity-Income Portfolio -- Service Class 2 Shares - - Warburg Pincus Trust - Global Post-Venture Capital Portfolio (available August 1, 2000) There is no assurance that any Portfolio will meet its objectives. Detailed information about the investment objectives and policies of the Portfolios can be found in the current prospectus for each Fund, which are attached to this Prospectus. You should carefully read each Fund prospectus before purchasing in the contract. CAN YOU CHANGE THE PORTFOLIO(S) THAT YOU SELECT? Yes. You can 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 annuity payments begin, you may instruct us to transfer amounts held as annuity reserves among the variable annuity sub-accounts, subject to some restrictions. Annuity reserves may be transferred only from a variable annuity to a fixed annuity during the annuity period. Currently there are no charges for transfers among Portfolios, however we reserve the right to impose a charge in the future. WHAT CHARGES ARE ASSOCIATED WITH THE CONTRACT? We deduct a daily charge equal to an annual rate of 1.25% of the net asset value of the Variable Annuity Account for our mortality and expense risk guarantees. We reserve the right to increase the charge to 1.40% on an annual rate. A deferred sales charge of up to 7% of purchase payments may apply if you make partial withdrawals or surrender your contract within seven or fewer years after your last purchase payment. Deductions for any applicable premium taxes may also be made (currently such taxes range from 0.0% to 3.5%) depending upon applicable law. There is a one time contract fee of $200 if you elect a fixed annuity. PAGE 3 The Portfolios pay investment advisory and other expenses. Total expenses of the Portfolios range from .40% to 1.81% 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. We also reserve the right to assess a $100 fee to cover administrative costs if you exchange this contract for another of our contracts. Currently we do not impose such charges. EXPENSE TABLE The tables shown below are to assist you in understanding the costs and expenses that you will bear directly or indirectly. The table does not reflect deductions for any applicable premium taxes which may be made from each purchase payment depending upon the applicable law. The tables show the expenses of each Portfolio after expense reimbursement. The following contract expense information is intended to illustrate the expenses of the MultiOption Select variable annuity contract. All expenses shown are rounded to the nearest dollar. The information contained in the tables must be considered with the narrative information which immediately follows them in this heading. CONTRACT OWNER TRANSACTION EXPENSES The amount of the deferred sales charge percentage is as shown in the table below:
CONTRACT YEARS SINCE PAYMENT CHARGE - ---------------------------- ------ 0-1 7% 1-2 7% 2-3 6% 3-4 5% 4-5 4% 5-6 3% 6-7 2% 7 and thereafter 0%
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of average account value)
MAXIMUM CURRENT POSSIBLE CHARGE CHARGE ------ ------ Mortality and Expense Risk Fees 1.25% 1.40% -------- -------- Total Separate Account Annual Expenses 1.25% 1.40% ======== ========
Note: We reserve the right to increase the mortality and expense risk fees to not more than the amount shown above is "Maximum Possible Charge". PAGE 4 FUND ANNUAL EXPENSES (As a percentage of average net assets for the described Advantus Series Fund, Inc., the Franklin Templeton Variable Insurance Products Trust, Fidelity Variable Insurance Products Funds, Janus Aspen Series, and Warburg Pincus Trust.)
TOTAL ANNUAL TOTAL ANNUAL FUND OPERATING TOTAL FUND OPERATING EXPENSES WITHOUT WAIVERS EXPENSES WITH MANAGEMENT OTHER DISTRIBUTION WAIVERS OR AND WAIVERS OR FEE EXPENSES (12B-1) FEES REDUCTIONS REDUCTIONS REDUCTIONS ----------- -------- ------------ ---------------- ---------- -------------- ADVANTUS SERIES FUND, INC.: (1) Growth Portfolio 0.45% 0.03% 0.25% 0.73% -- 0.73% Bond Portfolio 0.30% 0.06% 0.25% 0.61% -- 0.61% Money Market Portfolio 0.25% 0.06% 0.25% 0.56% -- 0.56% Asset Allocation Portfolio 0.35% 0.03% 0.25% 0.63% -- 0.63% Mortgage Securities Portfolio 0.30% 0.06% 0.25% 0.61% -- 0.61% Index 500 Portfolio 0.12% 0.05% 0.25% 0.42% -- 0.42% Capital Appreciation Portfolio 0.50% 0.04% 0.25% 0.79% -- 0.79% International Stock Portfolio (2) 0.59% 0.19% 0.25% 1.03% -- 1.03% Small Company Growth Portfolio 0.65% 0.05% 0.25% 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% 0.05% 0.25% 0.80% -- 0.80% Small Company Value Portfolio (2) 0.70% 0.81% 0.25% 1.76% 0.66% 1.10% Global Bond Portfolio (2) 0.60% 0.34% 0.25% 1.19% -- 1.19% Index 400 Mid-Cap Portfolio (2) 0.15% 0.60% 0.25% 1.00% 0.45% 0.55% Macro-Cap Value Portfolio (2) 0.50% 0.78% 0.25% 1.53% 0.63% 0.90% Micro-Cap Growth Portfolio (2) 0.95% 0.47% 0.25% 1.67% 0.32% 1.35% Real Estate Securities Portfolio (2) 0.60% 1.30% 0.25% 2.15% 1.15% 1.00% FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST -- CLASS 2 SHARES: Templeton Developing Markets Securities Fund (7) 1.25% 0.31% 0.25% 1.81% -- 1.81% Templeton Asset Strategy Fund (7) 0.60% 0.18% 0.25% 1.03% -- 1.03% Franklin Small Cap Fund (3) 0.55% 0.27% 0.25% 1.07% -- 1.07% FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS -- SERVICE CLASS 2 SHARES: VIP Mid Cap Portfolio: (4) 0.57% 0.43% 0.25% 1.25% -- 1.25% VIP Contrafund Portfolio: (4) 0.58% 0.12% 0.25% 0.95% -- 0.95% VIP Equity-Income Portfolio: (4) 0.48% 0.10% 0.25% 0.83% -- 0.83% JANUS ASPEN SERIES -- SERVICE SHARES: Capital Appreciation Portfolio -- (5) 0.65% 0.04% 0.25% 0.94% -- 0.94% International Growth Portfolio -- (5) 0.65% 0.11% 0.25% 1.01% -- 1.01% WARBURG PINCUS TRUST Global Post-Venture Capital Portfolio (6) 1.25% 0.33% -- 1.58% 0.18% 1.40%
PAGE 5 (1) The shareholders of the fund 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) On 2/8/00, a merger and reorganization was approved that combined the assets of the fund with a similar fund of the Templeton Variable Products Series Fund, effective 5/1/00. On 2/8/00, fund shareholders approved new management fees, which apply to the combined fund effective 5/1/00. The table shows restated total expenses based on the new fees and assets of the fund as of 12/31/99, and not the assets of the combined fund. However, if the table reflected both the new fees and the combined assets, the fund's expenses after 5/1/00 would be estimated as: FRANKLIN SMALL CAP FUND -- CLASS 2 Management Fees 0.55%, Distribution and Service Fees 0.25%, Other Expenses 0.27%, and Total Fund Operating Expenses 1.07%. The fund's class 2 distribution plan or "Rule 12b-1 plan" is described in the fund's prospectus. (4) Service Class 2 shares became effective January 11, 2000 and therefore operating expenses are estimates for each fund for the fiscal year ended December 31, 2000. The estimates do not reflect the effect of any expense reimbursements or reduction during the period. (5) Expenses are based on the estimated expenses that the new Service Shares Class of each Portfolio expects to incur in its initial fiscal year. All expenses are shown without the effect of expense offset arrangements. (6) Fee waivers and expense reimbursements or credits reduced expenses of the portfolio in 1999, but may be reduced at any time. See the fund prospectus for more details. (7) On 2/8/00, shareholders approved a merger and reorganization that combined the assets of the fund with a similar fund of the Franklin Templeton Variable Insurance Products Trust ("VIP") effective 5/1/00. On 2/8/00, VIP fund shareholders approved new management fees, which apply to the combined fund effective 5/1/00. The table shows restated total expenses based on the new fees and the assets of the fund as of 12/31/99, and not the assets of the combined fund. However, if the table reflected both the new fees and the combined assets, the fund's expenses after 5/1/00 would be estimated as: TEMPLETON DEVELOPING MARKETS SECURITIES FUND -- CLASS 2 Management Fees 1.25%, Distribution and Service Fees 0.25%, Other Expenses 0.29%, and Total Fund Operating Expenses 1.79%. TEMPLETON ASSET STRATEGY FUND -- CLASS 2 Management Fees 0.60%, Distribution and Service Fees 0.25%, Other Expenses 0.14%, and Total Fund Operating Expenses 0.99%. The fund's Class 2 distribution plan or "Rule 12b-1 plan" is described in the fund's prospectus. PAGE 6 CONTRACT OWNER EXPENSE EXAMPLE -- CURRENT CHARGES 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.
IF YOU ANNUITIZE AT THE IF YOU SURRENDERED YOUR END OF THE APPLICABLE TIME CONTRACT AT THE END OF THE PERIOD OR YOU DO NOT APPLICABLE TIME PERIOD SURRENDER YOUR CONTRACT* ----------------------------------------- ----------------------------------------- 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS -------- -------- -------- -------- -------- -------- -------- -------- ADVANTUS SERIES FUND, INC.: Growth Portfolio $ 90 $122 $147 $231 $ 20 $ 62 $107 $231 Bond Portfolio $ 89 $118 $141 $218 $ 19 $ 58 $101 $218 Money Market Portfolio $ 88 $117 $138 $213 $ 18 $ 57 $ 98 $213 Asset Allocation Portfolio $ 89 $119 $142 $220 $ 19 $ 59 $102 $220 Mortgage Securities Portfolio $ 89 $118 $141 $218 $ 19 $ 58 $101 $218 Index 500 Portfolio $ 87 $113 $131 $198 $ 17 $ 53 $ 91 $198 Capital Appreciation Portfolio $ 91 $124 $150 $237 $ 21 $ 64 $110 $237 International Stock Portfolio $ 93 $131 $162 $262 $ 23 $ 71 $122 $262 Small Company Growth Portfolio $ 92 $129 $158 $253 $ 22 $ 69 $118 $253 Maturing Government Bond 2002 Portfolio $ 87 $112 $130 $195 $ 17 $ 52 $ 90 $195 Maturing Government Bond 2006 Portfolio $ 87 $112 $130 $195 $ 17 $ 52 $ 90 $195 Maturing Government Bond 2010 Portfolio $ 87 $112 $130 $195 $ 17 $ 52 $ 90 $195 Value Stock Portfolio $ 91 $124 $150 $238 $ 21 $ 64 $110 $238 Small Company Value Portfolio $ 94 $133 $166 $269 $ 24 $ 73 $126 $269 Global Bond Portfolio $ 95 $136 $170 $278 $ 25 $ 76 $130 $278 Index 400 Mid-Cap Portfolio $ 88 $117 $137 $212 $ 18 $ 57 $ 97 $212 Macro-Cap Value Portfolio $ 92 $127 $155 $248 $ 22 $ 67 $115 $248 Micro-Cap Growth Portfolio $ 96 $141 $178 $293 $ 26 $ 81 $138 $293 Real Estate Securities Portfolio $ 93 $130 $160 $258 $ 23 $ 70 $120 $258 FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST -- CLASS 2 SHARES: Templeton Developing Markets Securities Fund $101 $155 $201 $337 $ 31 $ 95 $161 $337 Templeton Asset Strategy Fund $ 93 $131 $162 $262 $ 23 $ 71 $122 $262 Franklin Small Cap Fund $ 94 $132 $164 $266 $ 24 $ 72 $124 $266 FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS -- SERVICE CLASS 2 SHARES: VIP Fund -- Mid Cap $ 95 $138 $173 $284 $ 25 $ 78 $133 $284 VIP Fund -- Contrafund $ 92 $129 $158 $253 $ 22 $ 69 $118 $253 VIP Fund -- Equity-Income $ 91 $125 $152 $241 $ 21 $ 65 $112 $241 JANUS ASPEN SERIES -- SERVICE SHARES: Capital Appreciation Portfolio $ 92 $129 $157 $252 $ 22 $ 69 $117 $252 International Growth Portfolio $ 93 $131 $161 $260 $ 23 $ 71 $121 $260 WARBURG PINCUS TRUST: Global Post-Venture Capital Portfolio $ 97 $142 $181 $298 $ 27 $ 82 $141 $298
*Annuitize for this purpose means the election of an Annuity Option under which benefits are expected to continue for at least 5 years. The examples contained in the table should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown. PAGE 7 CAN YOU MAKE PARTIAL WITHDRAWALS FROM THE CONTRACT? Yes. You may make withdrawals of the accumulation value of your contract before an annuity begins. 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. DO YOU HAVE A RIGHT TO CANCEL YOUR CONTRACT? Yes. You may cancel your contract any time within ten days of receiving it by returning it to us or your agent. In some states, the free look period may be longer than ten days. For example, California's free look period is thirty days. These rights are subject to change and may vary among the states. WHAT IF THE OWNER OR ANNUITANT DIES? If the contract owner dies before annuity payments begin, we will pay the death benefit to the beneficiary named in the contract application. In the case of joint owners, this amount would be payable at the death of the second owner. The death benefit payable to the beneficiary upon the death of the contract owner during the accumulation period is equal to the greater of: - the amount of the accumulation value payable at death; or - the total amount of your purchase, less all partial withdrawals. 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. If the owner of this contract is other than a natural person, such as a trust or other similar entity, we will pay a death benefit of the accumulation value to the named beneficiary on the death of the annuitant if death occurs prior to the commencement of annuity payments. 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 option 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 VOTING RIGHTS DO YOU HAVE? Contract owners and annuitants will be able to direct us as to how to vote shares of the Funds held for their contracts where shareholder approval is required by law in the affairs of the Funds. PAGE 8 (SIDEBAR) We are a life insurance company. The Variable Annuity Account is one of our separate accounts. Each of the sub-accounts of the 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. VARIABLE ANNUITY ACCOUNT We established the Variable Annuity Account on September 10, 1984, in accordance with Minnesota law. The separate account is registered as a "unit investment trust" with the SEC under the Investment Company Act of 1940, but that registration does not mean that the SEC supervises the management, or the investment practices or policies, of the Variable Annuity Account. The assets of the Variable Annuity Account are not chargeable with liabilities arising out of any other business we may conduct. The investment performance of the Variable Annuity Account is entirely independent of both the investment performance of our General Account and of any of our other separate accounts. All obligations under the contracts are our general corporate obligations. The Variable Annuity Account currently has sub-accounts to which you may allocate purchase payments. Each sub-account invests in shares of a corresponding Portfolio of the Funds. Additional sub-accounts may be added at our discretion. PAGE 9 C. THE FUNDS Below is a list of the Portfolios and their investment adviser or sub-adviser. Prospectuses for the Funds must accompany this Prospectus. You should carefully read these Prospectuses before investing in the contract.
INVESTMENT INVESTMENT FUND/PORTFOLIO ADVISER SUB-ADVISER -------------- ------- ----------- ADVANTUS SERIES FUND, INC.: - --------------------------------------------------------------------------------------------------------------------- Growth Portfolio Advantus Capital Management, Inc. Bond Portfolio Advantus Capital Management, Inc. Money Market Portfolio Advantus Capital Management, Inc. Asset Allocation Portfolio Advantus Capital Management, Inc. Mortgage Securities Portfolio Advantus Capital Management, Inc. Index 500 Portfolio Advantus Capital Management, Inc. Capital Appreciation Portfolio Advantus Capital Management, Inc. Credit Suisse Asset Management, LLC International Stock Portfolio Advantus Capital Management, Inc. Templeton Investment Counsel, Inc. Small Company Growth Portfolio Advantus Capital Management, Inc. Credit Suisse Asset Management, LLC Maturing Government Bond Portfolio - 2002, Advantus Capital Management, Inc. - 2006, - 2010 Value Stock Portfolio Advantus Capital Management, Inc. Small Company Value Portfolio Advantus Capital Management, Inc. State Street Research & Management Company Global Bond Portfolio Advantus Capital Management, Inc. Julius Baer Investment Management Inc. Index 400 Mid-Cap Portfolio Advantus Capital Management, Inc. Macro-Cap Value Portfolio Advantus Capital Management, Inc. J.P. Morgan Investment Management Inc. Micro-Cap Growth Portfolio Advantus Capital Management, Inc. Wall Street Associates Real Estate Securities Portfolio Advantus Capital Management, Inc. FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST: - --------------------------------------------------------------------------------------------------------------------- Templeton Dev. Mkt. Securities Fund - Templeton Asset Management Ltd. Class 2 Shares Templeton Asset Strategy Fund - Class 2 Shares Templeton Investment Counsel, Inc. Franklin Small Cap Fund - Class 2 Shares Franklin Advisers, Inc. JANUS ASPEN SERIES: - --------------------------------------------------------------------------------------------------------------------- Capital Appreciation Portfolio - Service Shares Janus Capital International Growth Portfolio - Service Shares Janus Capital FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS: - --------------------------------------------------------------------------------------------------------------------- Mid Cap Portfolio - Service Class 2 Shares Fidelity Management & Research Contrafund Portfolio - Service Class 2 Shares Fidelity Management & Research Equity-Income Portfolio - Service Class 2 Fidelity Management & Research Shares WARBURG PINCUS TRUST: - --------------------------------------------------------------------------------------------------------------------- Global Post-Venture Capital Portfolio Credit Suisse Asset Management, LLC
PAGE 10 (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 Variable Annuity Account. If investment in a fund should no longer be possible or if we determine it becomes inappropriate for contracts of this class, we may substitute another fund for a sub-account. Substitution may be with respect to existing accumulation values, future purchase payments and future annuity payments. We may also establish additional sub-accounts in the Variable Annuity Account and we reserve the right to add, combine or remove any sub-accounts of the Variable Annuity Account. Each additional sub-account will purchase shares in a different portfolio or mutual fund. New sub-accounts may be established when, in our sole discretion, marketing, tax, investment or other conditions warrant. We will use similar considerations in determining whether to eliminate one or more of the sub-accounts of the Variable Annuity Account. 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 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 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 Funds 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 taken 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 11 (SIDEBAR) A deferred sales charge may apply. (END SIDEBAR) CONTRACT CHARGES The contract has several types of charges, all of which are discussed below. A. DEFERRED SALES CHARGE No sales charge is deducted from a purchase payment made for this contract. However, when a contract's accumulation value is reduced by a withdrawal or a surrender, a deferred sales charge may be deducted for expenses relating to the sale of the contracts. There is no deferred sales charge on: - amounts applied to provide an annuity under the contract, - amounts returned pursuant to the contract's cancellation right, or - amounts paid in the event of the death of the owner. The deferred sales charge is the charge made on contract withdrawals or surrenders. It is made during the seven year period following the receipt of each purchase payment. The amount withdrawn plus any deferred sales charge is deducted from the accumulation value by canceling accumulation units. The applicable deferred sales charge percentage is as shown in the table below:
CONTRACT YEARS SINCE PAYMENT CHARGE - ---------------------------- ------ 0-1 7% 1-2 7% 2-3 6% 3-4 5% 4-5 4% 5-6 3% 6-7 2% 7 and thereafter 0%
The amount of the deferred sales charge is determined by: - calculating the number of years each purchase payment being withdrawn has been in the contract; - multiplying each purchase payment withdrawn by the appropriate sales charge percentage in the table; and - adding the deferred sales charge from all purchase payments so calculated. All purchase payments will be allocated to a withdrawal or a surrender for this purpose on a first-in, first-out basis. It applies only to withdrawal or surrender of purchase payments we received within seven years of the date of the withdrawal or surrender. However, you may withdraw without a deferred sales charge the excess, if any, of the accumulation value of the contract over the sum of all of the purchase payments made to the contract, reduced by the amount of previous purchase payment withdrawals. PAGE 12 (SIDEBAR) We pay broker-dealers to sell the contracts. The mortality and expense risk charge is 1.25%, but we may increase it to 1.40%. (END SIDEBAR) We will waive the sales charge on: - certain amounts of a contract's purchase payments withdrawn and applied to the purchase of our Adjustable Income Annuity contract, an immediate variable annuity contract (see the Adjustable Income Annuity prospectus for details); and - amounts withdrawn because of an excess contribution to a tax-qualified contract including (including for example IRAs and tax sheltered annuities). Ascend Financial Services, Inc. ("Ascend Financial"), the principal underwriter for the contracts, may pay up to 4.75% 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 production and the persistency of life insurance and annuity business they place with us. B. MORTALITY AND EXPENSE RISK CHARGE We assume mortality risks under the contract by our obligation to continue to make monthly annuity payments to each annuitant, in accordance with the annuity rate tables and other provisions in the contract, regardless of how long that annuitant lives or all annuitants as a group live. This assures an annuitant that neither the annuitant's own longevity nor an improvement in life expectancy generally will have an adverse effect on the monthly annuity payments received under the contract. Our expense risk is the risk that the charges under the contract will be inadequate to cover our expenses. For assuming these risks, we currently make a deduction from the Variable Annuity Account at the annual rate of 1.25%. We reserve the right to increase the charge to not more than 1.40% on an annual basis. If these deductions are insufficient to cover our actual costs, then we will absorb the resulting losses. Conversely, if the deductions are 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. PAGE 13 (SIDEBAR) You can instruct us how to vote Fund shares. The contract is a flexible payment variable annuity. (END SIDEBAR) C. TRANSACTION AND CONTRACT CHARGES There currently is no charge for any transfer. We reserve the right to charge up to $25, for the second and subsequent transfers in any calendar month. We also reserve the right to charge a $100 fee to cover administrative costs if you exchange the contract for another of our variable annuities. A one time $200 contract fee is imposed if you elect a fixed annuity. VOTING RIGHTS We will vote the Fund shares held in the Variable Annuity Account at shareholder meetings of the Funds. We will vote shares attributable to contracts in accordance with instructions received from contract owners with voting interests in each sub-account of the Variable Annuity Account. We will vote shares for which no instructions are received and shares not attributable to contracts in the same proportion as shares for which instructions have been received. The number of votes for which a contract owner may provide instructions will be calculated separately for each sub-account of the Variable Annuity Account. If applicable laws should change so that we were allowed to vote shares in our own right, then we may elect to do so. During the accumulation period, the contract owner holds the voting interest in the contract. The number of votes will be determined by dividing the accumulation value of the contract attributable to each sub-account by the net asset value per share of the Fund shares held by that sub-account. During the annuity period, the annuitant holds the voting interest in the contract. The number of votes will be determined by dividing the reserve for each contract allocated to each sub-account by the net asset value per share of the Fund shares held by that sub-account. After an annuity begins, the votes attributable to any particular contract will decrease as the reserves decrease. In determining any voting interest, fractional shares will be recognized. We shall notify each contract owner or annuitant of a Fund shareholders' meeting if the shares held for the contract owner's contract may be voted at the meeting. We will also send proxy materials and a form of instruction so that you can instruct us with respect to voting. DESCRIPTION OF THE CONTRACT A. GENERAL PROVISIONS 1. Flexible Payment Variable Annuity Contract The contract may be used in connection with all types of tax-qualified plans, state deferred compensation plans or individual retirement annuities or may also be PAGE 14 purchased by individuals not as a part of any plan. The contract provides for a variable annuity payment or a fixed annuity payment to begin at some future date. Purchase payments are flexible with respect to timing and amount. (SIDEBAR) We issue the contract to you and you select the annuitant. (END SIDEBAR) 2. Issuance of Contract The contract is issued to you, the contract owner named in the application. You may be the annuitant or may specify someone else to be the annuitant. 3. Modification of the Contract Your contract may be modified at any time by written agreement between you and us. However, no such modification will adversely affect the rights of an annuitant under the contract unless the modification is made to comply with a law or government regulation. You will have the right to accept or reject the modification. This right of acceptance or rejection is limited for contracts used as individual retirement annuities. 4. Assignment If the contract is sold in connection with a tax-qualified program (including employer sponsored employee pension benefit plans, tax-sheltered annuities and individual retirement annuities), then: - your or the annuitant's interest may not be assigned, sold, transferred, discounted or pledged as collateral for a loan or as security for the performance of an obligation or for any other purpose, and - to the maximum extent permitted by law, benefits payable under the contract shall be exempt from the claims of creditors. If the contract is not issued in connection with a tax-qualified program, any person's interest in the contract may be assigned during the lifetime of the annuitant. We will not be bound by any assignment until we have recorded written notice of it at our home office. We are not responsible for the validity of any assignment. An assignment will not apply to any payment or action we make before it was recorded. Any payments to an assignee will be paid in a single sum. Any claim made by an assignee will be subject to proof of the assignee's interest and the extent of the assignment. 5. Limitations on Purchase Payments You choose when to make purchase payments. There is no minimum purchase payment amount and there is no minimum amount which must be allocated to any sub-account of the Variable Annuity Account. In the Variable Annuity Account, your purchase payments are invested in the Funds according to your instructions. We will return your initial payment within five business days if: - your application fails to specify which Portfolios you desire, or is otherwise incomplete, and; PAGE 15 - you do not consent to our retention of your initial payment until the application is made complete. (SIDEBAR) You cannot pay more than $5 million unless we consent. We may cancel your contract if you stop making payments and have a small accumulation value. We normally pay lump sum payments within 7 days, but may delay payments in certain circumstances. The contract is non-participating. (END SIDEBAR) Total purchase payments under the contract may not exceed $5,000,000, except with our consent. The contract permits us to cancel your contract, and pay you its accumulation value if: - no purchase payments are made for a period of two or more full contract years and; - the total purchase payments made, less any withdrawals and associated charges are less than $2,000, and; - the accumulation value of the contract is less than $2,000. We will notify you, in advance, of our intent to exercise this right in our annual report to you about the status of your contract. We will cancel the contract ninety days after the contract anniversary unless we receive an additional purchase payment before the end of that ninety day period. Contracts issued in some states (for example, New Jersey) do not contain such a cancellation because the laws of those states do not permit it. There may be limits on the maximum contributions to retirement plans that qualify for special tax treatment. 6. Deferment of Payment We will pay any single sum payment within seven days after the date the payment is called for by the terms of the contract, unless the payment is postponed 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 SEC; - any period during which an emergency exists as determined by the SEC as a result of which it is not reasonably practical to dispose of securities in the Portfolio(s) or to fairly determine the value of the assets of the Portfolio(s); or - other periods the SEC by order permits for the protection of the contract owners. 7. Participation The contract is non-participating. Contracts issued before October 1, 1998 were participating. No assurance can be given as to the amounts if any, that will be distributable under participating contracts in the future. When we make any distribution, it may take the form of additional payments to annuitants or the crediting of additional accumulation units. We do not anticipate making dividend payments under this contract. PAGE 16 (SIDEBAR) Each of the annuity options is available on a fixed, variable or combination fixed and variable basis. You tell us when to begin making annuity payments to the annuitant, unless your retirement plan requires them to commence by a certain age. (END SIDEBAR) B. ANNUITY PAYMENTS AND OPTIONS 1. 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 you select, and - the investment performance of the Fund Portfolios you select. The amount of the variable annuity payments will not be affected by adverse mortality experience or by an increase in our expenses in excess of the expense deductions provided for in the contract. The annuitant will receive the value of a fixed number of annuity units each month. The value of those units (and thus the amounts of the monthly annuity payments) will, however, reflect investment gains and losses and investment income of the Portfolios. Thus, the annuity payments will vary with the investment experience of the assets of the Portfolios you select. 2. Electing the Retirement Date and Form of Annuity The contract provides for four annuity options. Any one of them may be elected if permitted by law. Each annuity option may be elected on either a variable annuity or a fixed annuity basis, or a combination of the two. We may make other annuity options available on request. While the contract requires that we must receive your notice of election to begin annuity payments at least 30 days prior to the annuity commencement date, we are currently waiving that requirement for variable annuity elections received at least two valuation days prior to the 15th of the month. We reserve the right to enforce the 30 day notice requirement at our option at any time in the future. The contract permits an annuity payment to begin on the first day of any month. Under the contract, if you do not make an election, annuity payments will begin on the later of: - the 85th birthday of the annuitant, or - five years after the date of issue of the contract. Currently, it is our practice to await your instructions before beginning to pay annuity payments. If you fail to elect an annuity option, a variable annuity will be provided and the annuity option will be Option 2A, a life annuity with a period of 120 months. The minimum first monthly annuity payment on either a variable or fixed dollar basis must be at least $20. If the first monthly annuity payment would be less than $20, we may fulfill our obligation by paying in a single sum the surrender value of the contract which would otherwise have been applied to provide annuity payments. PAGE 17 The maximum amount which may be applied to provide a fixed annuity under the contract is $1,000,000. Except for Option 4, once annuity payments have commenced, you cannot surrender an annuity benefit and receive a single sum settlement in lieu thereof. Benefits under retirement plans that qualify for special tax treatment generally must commence no later than the April 1 following the year in which the participant reaches age 70 1/2 and are subject to other conditions and restrictions. 3. Annuity 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 offers the maximum monthly payment (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 and using the same interest rate which served as a basis for the annuity 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. If this option is elected, the contract and payments shall then be the joint property of the annuitant and the designated joint annuitant. It would be possible under this option for both annuitants to receive only one annuity payment if they both died prior to the due date of the second annuity payment, two if they died before the due date of the third annuity payment, etc. PAGE 18 (SIDEBAR) The amount of your first annuity payment depends on the age of the annuitant and the annuity option you select. (END SIDEBAR) OPTION 4 - PERIOD CERTAIN ANNUITY This is an annuity payable monthly for a period certain of 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 the period certain. At any time during the payment period, the payee may elect that: - the present value of the remaining guaranteed number of payments, based on the then current dollar amount of one such payment and using the same interest rate which served as a basis for the annuity, shall be paid in a single sum, or - the commuted amount shall be applied to effect a life annuity under Option 1 or Option 2. 4. Determination of Amount of First Monthly Annuity Payment The first monthly annuity payment under the contract is determined by the accumulation value of the contract 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 your 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). 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 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. PAGE 19 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 this contract which result in larger annuity payments, we will use those rates instead. 5. Amount of Second and Subsequent Monthly Annuity Payments The dollar amount of the second and later variable annuity payments is equal to the number of annuity units determined for each sub-account times 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. 6. Value of the Annuity Unit The value of an annuity unit for a sub-account is determined monthly as of the first day of each month 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 that sub-account 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 (.996338 is a factor to neutralize the assumed net investment factor, as discussed above, of 4.5% per annum built into the first payment calculation which is not applicable because the actual net investment rate is credited instead). PAGE 20 (SIDEBAR) You may change Portfolios in the annuity period, subject to some restrictions. (END SIDEBAR) The value of an annuity unit for a sub-account 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. 7. Transfer of Annuity Reserves During the annuity period, we hold amounts as "reserves" for our obligations to make annuity payments under your contract. You specify where we hold those reserves. If you specify a sub-account of the Variable Annuity Account, then the amount of your annuity payments will vary with the performance of that sub- account. Amounts held as annuity reserves may be transferred among the sub- accounts. Annuity reserves may also be transferred from a variable annuity to a fixed annuity during this time. The change must be made by a written request. The annuitant and joint annuitant, if any, must make such an election. There are restrictions to such a transfer: - The transfer of an annuity reserve amount from any sub-account must be at least equal to $5,000 or the entire amount of the reserve remaining in that sub-account. - 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. - We must receive the written request for an annuity transfer 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 the 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. PAGE 21 (SIDEBAR) If you die prior to commencement of annuity payments, there is a death benefit that is guaranteed not to be less than your purchase payments. (END SIDEBAR) Amounts held as reserves to pay a variable annuity may also be transferred to a fixed annuity during the annuity period. However, the restrictions which apply to annuity sub-account transfers will apply in this case 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 and a $200 contract fee will be imposed. 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 at the time of transfer that we use to determine an initial fixed annuity payment. However, if your annuity is based upon annuity units in a sub-account which matures on a date other than the stated annuity valuation date, then your annuity units will be adjusted to reflect sub-account performance in the maturing sub-account to which reserves are transferred for the period between annuity valuation dates. C. DEATH BENEFITS If the owner dies before annuity payments begin, the amount of the death benefit will be based upon the contract accumulation value next determined after we receive due proof of death at our home office. Death proceeds will be paid in a single sum to the beneficiary designated unless an annuity option is elected. Payment will be made within seven days after we receive due proof of death. Except as noted below, the entire interest in the contract must be distributed within five years of the owner's death. The contract has a guaranteed death benefit if the owner dies before annuity payments have started. The death benefit shall be equal to the greater of: - the amount of the accumulation value payable at death; or - the amount of your total purchase payments paid, less all contract withdrawals. If the owner dies on or before the date on which annuity payments begin and if the designated beneficiary is a person other than the owner's spouse, that beneficiary may elect an annuity option measured by a period not longer than that beneficiary's life expectancy only if annuity payments begin not later than one year after the owner's death. If there is no designated beneficiary, then the entire interest in a contract must be distributed within five years after the PAGE 22 (SIDEBAR) Initial purchase payments are credited within 2 business days of our receipt of a complete application. Subsequent purchase payments are credited on the day we receive them, or on the next business day if they arrive late in the day. (END SIDEBAR) owner's death. If the annuitant dies after annuity payments have begun, any payments received by a non-spouse beneficiary must be distributed at least as rapidly as under the method elected by the annuitant as of the date of death. If there are joint owners of this contract, the death benefit described will not be payable until the death of the surviving joint owner. If any portion of the contract interest is payable to the owner's designated beneficiary who is also the surviving spouse of the owner, that spouse shall be treated as the contract owner for purposes of determining: - when payments must begin, and - the time of distribution in the event of that spouse's death. Payments must be made in substantially equal installments. If the owner of this contract is other than a natural person, such as a trust or other entity, we will pay a death benefit of the accumulation value to the named beneficiary on the death of the annuitant, if death occurs prior to the date for annuity payments to begin. D. PURCHASE PAYMENTS AND VALUE OF THE CONTRACT 1. Crediting Accumulation Units During the accumulation period (the period before annuity payments begin) each purchase payment is credited on the valuation date on or following the date we receive the purchase payment at our home office. When the contract is originally issued, application forms are completed by the applicant and forwarded to our home office. We will review each application form for compliance with our issue criteria and, if it is accepted, we will issue a contract. If your initial purchase payment is accompanied by an incomplete application, your purchase payment will not be credited until we receive a completed application. Applications lacking instructions about allocation of purchase payment amounts among the sub-accounts will be treated as incomplete. We will immediately return your initial purchase payment in full if it appears your application cannot be completed within five business days, unless you specifically consent to our holding your purchase payment until your application is completed. We will credit your purchase payments to your 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 number of accumulation units so determined shall not be changed by any subsequent change in the value of an accumulation unit, but the value of an accumulation unit will vary from valuation date to valuation date to reflect the investment experience of the Portfolios you select. PAGE 23 (SIDEBAR) Systematic transfers and telephone transfers are available. (END SIDEBAR) We will determine the value of accumulation units on each day on which each Portfolio is valued. The net asset value of the Portfolios' shares shall be computed once daily, and, in the case of Money Market Portfolio, after the declaration of the daily dividend, as of the primary closing time for business on the New York Stock Exchange (currently, 3:00 p.m., (Central time)), on each day, Monday through Friday, except: - days on which changes in the value of that Fund's portfolio securities will not materially affect the current net asset value of that Portfolio's shares, - days during which none of that Portfolio's shares are tendered for redemption and no order to purchase or sell that Portfolio's shares is received by that Portfolio 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 New York Stock Exchange. The value of accumulation units applicable to purchase payments received after the close of business of the New York Stock Exchange will be the value determined on the next valuation date. 2. Transfers Upon your written request, accumulation values may be transferred among the sub-accounts of the Variable Annuity Account. We will make the transfer on the basis of accumulation unit values on the valuation date we receive the request at our home office. No deferred sales charge will be imposed on transfers. There is no dollar amount limitation on transfers. Systematic transfer arrangements may be established among the sub-accounts of the Variable Annuity Account. They may begin on the 10th or 20th of any month and if a transfer cannot be completed it will be made on the next available transfer date. In the absence of specific instructions, systematic transfers will be made on a monthly basis and will remain active until the appropriate sub-account accumulation value is depleted. Systematic transfer arrangements are limited to a maximum of twenty sub-accounts. There is no charge for systematic transfers. As a type of systematic transfer arrangement, for certain contracts we offer automatic portfolio rebalancing ("APR") on a quarterly, semi-annual and annual basis. Instructions to us must be in whole percentages totaling 100%. They will be treated as instructions for transfers to and from the various sub-accounts. Rebalancing instructions will not affect the current allocation of future contributions; they may differ from those future allocations and are not limited to any minimum or maximum number of sub-accounts. There will be no charge for APR transfers. APR is not available for values in the General Account or in the Series Fund Maturing Government Bond Portfolios. PAGE 24 (SIDEBAR) If you make very large purchase payments we may credit your contract with extra values ("volume credits"). (END SIDEBAR) You may effect transfers, cancel automatic premium plans or change the allocation of your future purchase payments by telephone. Telephone transfers are subject to the same conditions and procedures as written transfer requests. During periods of marked economic or market changes, you may experience difficulty in implementing a telephone transfer due to a heavy volume of telephone calls. If that occurs, you should consider submitting a written transfer request while continuing to attempt telephone instructions. We reserve the right to restrict the frequency of -- or otherwise modify, condition, terminate or impose charges upon -- telephone transfer privileges. Telephone contract services are automatically available to you. We will employ reasonable procedures to satisfy ourselves that instructions received from contract owners are genuine and, to the extent that we do not, we may be liable for any losses due to unauthorized or fraudulent instructions. We require contract owners or a person authorized by the owner to personally identify themselves in telephone conversations through information we designate. We record your telephone transfer instruction conversations and we provide you with a written confirmation of your telephone transfer. For more information on transactions related to your Contract, you may contact us at 1-800-362-3141. In addition you may be able to contact us or your registered representative via internet e-mail through our web site. Please remember that an 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. 3. Volume Credit Where allowed by law, we reserve the right to credit certain additional amounts ("volume credit") to your contract if you make large purchase payments. We pay for your volume credit with funds from our General Account. We reserve the right to modify, suspend or terminate this volume credit program at any time, or from time to time, without notice. The current breakpoints for qualifying for a volume credit are shown below. Also shown is the value of the volume credit as a percentage of your purchase payment.
VOLUME CREDIT AS A PURCHASE PAYMENT PERCENTAGE OF THE PURCHASE PAYMENT - ---------------------- ---------------------------------- $ 0 - 499,999 0.000 500,000 - 749,999 0.375 750,000 - 999,999 0.750 1,000,000 - 1,499,999 1.125 1,500,000 - 1,999,999 1.500 2,000,000 - 2,499,999 1.875 2,500,000 - 2,999,999 2.250 3,000,000 - 3,999,999 2.625 4,000,000 - 5,000,000 3.000
PAGE 25 (SIDEBAR) Volume credits may have tax consequences. Your contract's accumulation value varies with the performance of the Portfolios you select and is not guaranteed. (END SIDEBAR) Your volume credit is added the next business day after your purchase payments are allocated to your contract, and are allocated to the investment options in the same manner as the purchase payment. If you exercise your right to return your contract under the free look provision, the value of any volume credit as of the date your contract is canceled will be deducted from your accumulated value prior to determining the amount to be returned to you. We do not consider the volume credit to be part of your "investment in the contract" for income tax purposes (see "Federal Tax Status"). Generally, volume credit will be treated as gain upon distribution. Volume credit amounts may be withdrawn without assessment of the deferred sales charge (see "Deferred Sales Charge"). Each time a new purchase payment is made, a new volume credit will be calculated. The applicable percentage from the chart will be based on the total cumulative purchase payments to date, including the new purchase payment, less all prior purchase payments withdrawn. The new volume credit equals this percentage times the amount of the new purchase payment. 4. Value of the Contract The accumulation value of your contract at any time prior to the commencement of annuity payments can be determined by multiplying the number of accumulation units of each sub-account to which you allocate values by the current value of those units and then adding the values so calculated. There is no assurance that your accumulation value will equal or exceed your purchase payments. We will advise you periodically of the number of accumulation units credited to your contract for each sub-account of the Variable Annuity Account, the current value of each accumulation unit, and the total value of your contract. 5. Accumulation Unit Value The value of an accumulation unit for each sub-account of the Variable Annuity Account was set at $1.000000 on the first valuation date of the sub-account. The value of an accumulation unit on any subsequent valuation date is determined by multiplying the value of that accumulation unit on the immediately preceding valuation date by the net investment factor for the applicable sub-account (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 valuation date. 6. Net Investment Factor for Each Valuation Period 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 that sub-account for the valuation period, less a deduction for the mortality and expense risk charge at the current rate of 1.25% per annum. PAGE 26 The gross investment rate is equal to: - the net asset value per share of a Portfolio share held in a sub-account of the 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 the Portfolio if the "ex-dividend" date occurs during the current valuation period, divided by - the net asset value per share of that Portfolio share determined at the end of the preceding valuation period. The gross investment rate may be positive or negative. E. REDEMPTIONS 1. Partial Withdrawals and Surrender Prior to the date annuity payments begin you may make partial withdrawals from your contract in amounts of at least $250. Your accumulation value will be reduced by the amount of your withdrawal and any applicable deferred sales charge. Unless you instruct us otherwise, withdrawals will be made from the Variable Annuity Account in the same proportion that the value of your interest in any sub-account bears to your total accumulation value on a pro-rata basis. We will waive the applicable dollar amount limitation: - on withdrawals where a systematic withdrawal program is in place and the smaller amount satisfies the minimum distribution requirements of the Code, or - the withdrawal is requested because of an excess contribution to a tax-qualified contract. Withdrawal values will be determined as of the valuation date we received your written withdrawal request at our home office. Unless you tell us otherwise, systematic withdrawals will be made from the sub-accounts on a pro-rata basis if the accumulation values are in no more than twenty sub-accounts. No more than twenty sub-accounts may be used for systematic withdrawals. Prior to the commencement of annuity payments, you may elect to surrender your contract for its surrender value. You will receive in a single cash sum the accumulation value computed as of the valuation date your surrender request is received, reduced by any applicable deferred sales charge. In lieu of a cash sum payment, you may elect an annuity. Once annuity payments have commenced, the annuitant cannot surrender his or her annuity benefit and receive a single sum settlement in lieu thereof. For a discussion of commutation rights of annuitants and beneficiaries subsequent to the annuity commencement date, see "Optional Annuity Forms." PAGE 27 (SIDEBAR) You can cancel your contract within 10 days of receiving it and we will refund you the greater of your accumulation value or your purchase payments. We are not offering tax advice. You should consult your own tax adviser. (END SIDEBAR) You may also submit your signed written withdrawal or surrender requests to us by facsimile (FAX) transmission. Our FAX number is (651) 665-7942. You also may send us transfer instructions or changes of future allocations of purchase payments by FAX. Payment of a partial withdrawal or surrender will be made to you within 7 days after we receive your completed request. 2. Right of Cancellation You should read your contract carefully as soon as you receive it. You may cancel your purchase of a contract within ten days after its delivery, for any reason, by giving us written notice at 400 Robert Street North, St. Paul, Minnesota 55101-2098. If you cancel and return your contract, we will refund to you the greater of: - the accumulation value of the contract, or - the amount of purchase payments paid under the contract. Payment of the requested refund will be made to you within seven days after we receive notice of cancellation. In some states, the free look period may be longer. For example, California's free look period is thirty days. Those rights are subject to change and may vary among the states. The liability of the Variable Annuity Account under the foregoing is limited to the accumulation value of the contract at the time it is returned for cancellation. We will pay for any additional amounts necessary to make our refund to you equal to your purchase payments. FEDERAL TAX STATUS INTRODUCTION Our tax discussion in this prospectus is general in nature and is not intended as tax advice. You should consult a competent tax adviser. We make no attempt 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. We make no representation regarding the likelihood of continuation of current income tax laws or the current interpretations of the Internal Revenue Service ("IRS"). The contract may be purchased on a non-tax qualified basis or purchased and used in connection with certain retirement arrangements entitled to special income tax treatment under section 401(a), 403(b), 408(b), 408A or 457 of the Code. 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(s) 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 Variable Annuity Account form a part of, and are taxed with, our other business activities. Currently, we pay no federal income tax on income dividends received by the Variable Annuity Account or on capital gains PAGE 28 (SIDEBAR) Taxes on gains under the contract are normally deferred until there is a distribution of contract values. Ordinary income tax rates apply to amounts distributed in excess of purchase payments. Gains are assumed to be distributed before return of purchase payments. A penalty tax may apply to distributions prior to age 59 1/2. (END SIDEBAR) arising from the Variable Annuity Account's activities. The Variable Annuity Account is not taxed as a "regulated investment company" under the Code and we do not anticipate any change in that tax status. TAXATION OF ANNUITY CONTRACTS IN GENERAL Section 72 of the Code governs taxation of nonqualified annuities in general and some aspects of 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. As a general rule, deferred annuity contracts held by an entity (such as a corporation or trust) that is not 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. The taxable portion of payments made in the event of a full surrender of an annuity is generally the amount in excess of the purchase payments for the contract. Amounts withdrawn upon a partial withdrawal from the variable annuity contracts not part of a qualified program are treated first as taxable income to the extent of the excess of the contract value over the purchase payments made under the contract. All taxable amounts received under an annuity contract are subject to tax at ordinary rather than capital gain tax rates. In the case of a withdrawal under an annuity that is part of a tax-qualified retirement plan, 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. The taxable portion for annuity payments, is generally determined by a formula that establishes the ratio of the cost basis of the contract to the expected return under the contract. The taxable part is taxed at ordinary income rates. The Code imposes a 10% penalty tax on the taxable portion of certain distributions from annuity contracts. This additional tax does not apply: - where the taxpayer is 59 1/2 or older, - where payment is made on account of the taxpayer's disability, or - where payment is made by reason of the 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, where they are made for the life (or life expectancy) of the taxpayer or the joint lives (or joint life expectancies) of the taxpayer and beneficiary. PAGE 29 (SIDEBAR) Transfers, assignments and certain designations of annuitants can have tax consequences. (END SIDEBAR) For some types of qualified plans, other tax penalties may apply to certain distributions. A transfer of ownership of a contract, a pledge of any interest in a contract as security for a loan, the designation of an annuitant or other payee who is not also the contract owner, or the assignment of the contract may result in certain income or gift tax consequences to the contract owner that are beyond the scope of this discussion. If you are contemplating such a transfer, pledge, designation or assignment, you should consult a competent tax adviser about its potential tax effects. 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. DIVERSIFICATION REQUIREMENTS Section 817(h) of the Code authorizes the Treasury Department to set standards by regulation or otherwise for the investments of the Variable Annuity Account to be "adequately diversified" in order for the contract to be treated as an annuity contract for federal tax purposes. The Variable Annuity Account, through the Fund Portfolios, intends to comply with the diversification requirements prescribed in Regulations Section 1.817-5, which affect how the Portfolio's assets may be invested. Although the investment adviser of Advantus Fund is an affiliate of ours, we do not control Advantus Fund or the investments of its Portfolios. Nonetheless, we believe that each Portfolio of Advantus Fund in which the Variable Annuity Account owns shares will be operated in compliance with the requirements prescribed by the Treasury. Prior to the enactment of Section 817(h), the IRS published several rulings under which owners of certain variable annuity contracts were treated as owners, for federal income tax purposes, of the assets held in a separate account used to support their contracts. In those circumstances, income and gains from the separate account assets would be includable in the variable annuity contract owner's gross income. However, the continued effectiveness of the pre-Section 817(h) published rulings is somewhat uncertain. In connection with its issuance of proposed regulations under Section 817(h) in 1986, the Treasury Department announced that those regulations did not "provide guidance concerning the circumstances in which investor control of the investments of a segregated asset account may cause the investor (i.e., the contract owner), rather than the insurance company to be treated as the owner of the assets in the account." While the Treasury's 1986 announcement stated that guidance would be issued on the "extent to which the policyholders may direct their investment to particular sub-accounts without being treated as owners of the underlying assets", no such guidance has been forthcoming. PAGE 30 The ownership rights under the contract are similar to, but different in certain respects from, those described by the IRS in rulings in which it was determined that contract owners were not owners of separate account assets. For example, the owner of a contract has the choice of several 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 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 Variable Annuity Account. REQUIRED DISTRIBUTIONS In order to be treated as an annuity contract for federal income tax purposes, Section 72(s) of the Code requires any nonqualified contract issued after January 18, 1985 to provide that: - if an owner dies on or after the annuity starting date but prior to the time the entire interest in the contract has been distributed, the remaining portion of such interest will be distributed at least as rapidly as under the method of distribution being used as of the date of that owner's death; and - if an owner dies prior to the annuity starting date, the entire interest in the contract must be distributed within five years after the date of the owner's death. These requirements will be considered satisfied if any portion of the owner's interest which is payable to or for the benefit of a "designated beneficiary" is distributed over the life of that beneficiary or over a period not extending beyond the life expectancy of that beneficiary and such distributions begin within one year of that owner's death. The owner's "designated beneficiary", who must be a natural person, is the person designated by the owner as a beneficiary and to whom ownership of the contract passes by reason of death. It must be a natural person. If the owner's "designated beneficiary" is the surviving spouse of the owner, however, the contract may be continued with the surviving spouse as the new owner. Nonqualified contracts issued after January 18, 1985 contain provisions which are intended to comply with the requirements of Section 72(s) of the Code, although no regulations interpreting these requirements have yet been issued. We intend to review such provisions and modify them if necessary to assure that they comply with the requirements of Code Section 72(s) when clarified by regulation or otherwise. Other rules may apply to qualified contracts. PAGE 31 (SIDEBAR) Congress may change the tax laws and reduce or eliminate any tax advantages of the contract. (END SIDEBAR) TAXATION OF DEATH BENEFIT PROCEEDS Death benefits paid upon the death of a contract owner, generally, are includable in the income of the recipient as follows: (1) if distributed in a lump sum, they are taxed in the same manner as a full surrender of the contract, or (2) 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. TAX QUALIFIED PROGRAMS The contract 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; and - other specified circumstances. We make no attempt to provide more than general information about the use of annuities with the various types of retirement plans. The rights of any person to any 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 our annuity administration procedures. Owners, participants and beneficiaries are responsible for determining that contributions, distributions and other transactions with respect to the contracts 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. For qualified plans under Section 401(a), 403(b), and 457, the Code requires that distributions generally must commence 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 or retires and must be made in a specified form or manner. If the plan participant is a "5 percent owner" (as defined in the Code), distributions generally must begin no later than PAGE 32 (SIDEBAR) Distributions are subject to income tax withholding requirements unless you take steps to prevent it. (END SIDEBAR) April 1 of the calendar year following the calendar year in which the Owner (or plan participant) reaches age 70 1/2. For IRAs described in Section 408, distributions generally must commence 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. Roth IRAs under Section 408A do not require distributions at any time prior to the owner's death. WITHHOLDING In general, distributions from annuity contracts 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: - over the life or life expectancy of the employee, - over the joint lives or joint expectancies of the employee and the employee's designated beneficiary, or - 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. SEE YOUR OWN TAX ADVISER The foregoing summary 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 Code with varying effective dates, and regulations adopted thereunder may also alter the tax PAGE 33 consequences of specific factual situations. Due to the complexity of the applicable laws, tax advice may be needed by a person contemplating the purchase of a variable annuity contract or exercising elections under such a contract. For further information you should consult a tax adviser. PERFORMANCE DATA From time to time the Variable Annuity Account may publish advertisements containing performance data relating to its sub-accounts. In the case of the Money Market Sub-Account, the 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 one year, five year and ten year periods and for the period since the inception of the underlying Portfolios. Such performance data may be accompanied by cumulative total return quotations for the comparable periods. For periods prior to the date of this Prospectus the quotations will be based on the assumption that the contracts described herein were issued when the underlying Portfolios first became available to the Variable Annuity Account under other contracts issued by us. The Money Market Sub-Account may also quote such average annual and cumulative total return figures. Performance figures used by the 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 Variable Annuity Account will reflect charges made pursuant to the terms of the contracts offered by this Prospectus and charges of underlying funds. More detailed information on the computations is set forth in the Statement of Additional Information. 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: Directors and Principal Management Officers of Minnesota Life Distribution of Contract Performance Data Auditors Registration Statement Financial Statements PAGE 34 APPENDIX A -- CONDENSED FINANCIAL INFORMATION The financial statements of the Variable Annuity Account and the Consolidated Financial Statements of 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 ready in conjunction with the financial statements and related notes of the Variable Annuity Account included in this prospectus.
YEAR ENDED DECEMBER 31, 1999 1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- ----------- Growth Sub-Account: Unit value at beginning of period........... $5.34 $4.01 $3.04 $2.63 $2.14 $2.22 Unit value at end of period................. $6.62 $5.34 $4.01 $3.04 $2.63 $2.14 Number of units outstanding at end of period..................................... 49,216,657 47,805,851 44,705,247 38,448,452 35,809,340 33,090,790 Bond Sub-Account: Unit value at beginning of period........... $2.48 $2.37 $2.19 $2.15 $1.82 $1.84 Unit value at end of period................. $2.38 $2.48 $2.37 $2.19 $2.15 $1.82 Number of units outstanding at end of period..................................... 48,459,470 51,341,159 43,266,404 36,732,062 28,069,241 23,798,963 Money Market Sub-Account: Unit value at beginning of period........... $1.69 $1.63 $1.57 $1.52 $1.46 $1.44 Unit value at end of period................. $1.75 $1.69 $1.63 $1.57 $1.52 $1.46 Number of units outstanding at end of period..................................... 41,200,616 27,959,675 19,804,841 22,929,634 14,809,515 11,720,778 Asset Allocation Sub-Account: Unit value at beginning of period........... $3.96 $3.25 $2.76 $2.49 $2.01 $2.05 Unit value at end of period................. $4.51 $3.96 $3.25 $2.76 $2.49 $2.01 Number of units outstanding at end of period..................................... 121,522,399 120,373,228 119,491,402 116,211,650 110,975,477 109,044,286 Mortgage Securities Sub-Account: Unit value at beginning of period........... $2.28 $2.17 $2.01 $1.93 $1.66 $1.68 Unit value at end of period................. $2.30 $2.28 $2.17 $2.01 $1.93 $1.66 Number of units outstanding at end of period..................................... 40,937,593 41,507,338 34,751,197 32,527,955 31,277,934 31,542,405 Index 500 Sub-Account: Unit value at beginning of period........... $4.81 $3.81 $2.91 $2.43 $1.79 $1.85 Unit value at end of period................. $5.72 $4.81 $3.81 $2.91 $2.43 $1.79 Number of units outstanding at end of period..................................... 64,735,863 60,268,563 54,579,265 46,097,553 35,272,024 29,639,298 Capital Appreciation Sub-Account: Unit value at beginning of period........... $4.79 $3.71 $2.93 $2.52 $2.08 $2.10 Unit value at end of period................. $5.76 $4.79 $3.71 $2.93 $2.52 $2.08 Number of units outstanding at end of period..................................... 49,725,886 53,894,481 53,582,481 51,023,999 45,964,468 40,739,415 International Stock Sub-Account: Unit value at beginning of period........... $2.01 $1.91 $1.73 $1.46 $1.30 $1.37 Unit value at end of period................. $2.41 $2.01 $1.91 $1.73 $1.46 $1.30 Number of units outstanding at end of period..................................... 89,983,922 99,956,739 103,600,602 86,521,264 68,725,183 61,474,893 Small Company Growth Sub-Account: Unit value at beginning of period........... $1.78 $1.78 $1.67 $1.59 $1.22 $1.21 Unit value at end of period................. $2.56 $1.78 $1.78 $1.67 $1.59 $1.22 Number of units outstanding at end of period..................................... 61,721,924 69,789,850 68,590,765 59,295,273 43,234,716 29,723,609 Maturing Government Bond 2002 Sub-Account: Unit value at beginning of period........... $1.40 $1.29 $1.21 $1.20 $0.97 $0.99 Unit value at end of period................. $1.37 $1.40 $1.29 $1.21 $1.20 $0.97 Number of units outstanding at end of period..................................... 5,090,494 4,526,963 2,938,848 2,935,860 2,417,823 2,528,509
PAGE A-1
YEAR ENDED DECEMBER 31, 1999 1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- ---------- Maturing Government Bond 2006 Sub-Account: Unit value at beginning of period.... $1.57 $1.39 $1.25 $1.28 $0.96 $0.96 Unit value at end of period.......... $1.43 $1.57 $1.39 $1.25 $1.28 $0.96 Number of units outstanding at end of period.............................. 3,776,193 3,881,227 2,665,421 2,334,109 1,878,731 1,808,705 Maturing Government Bond 2010 Sub-Account: Unit value at beginning of period.... $1.66 $1.47 $1.27 $1.33 $0.95 $0.94 Unit value at end of period.......... $1.45 $1.66 $1.47 $1.27 $1.33 $0.95 Number of units outstanding at end of period.............................. 3,079,844 3,046,112 2,017,743 2,077,124 924,681 913,358 Value Stock Sub-Account: Unit value at beginning of period.... $2.14 $2.13 $1.78 $1.38 $1.05 $1.09 Unit value at end of period.......... $2.12 $2.14 $2.13 $1.78 $1.38 $1.05 Number of units outstanding at end of period.............................. 61,230,340 69,982,001 68,251,135 43,796,523 18,744,902 7,178,675 Small Company Value Sub-Account: Unit value at beginning of period.... $0.95 $1.03 $1.00(a) Unit value at end of period.......... $0.91 $0.95 $1.03 Number of units outstanding at end of period.............................. 10,422,707 7,555,601 4,822,504 Global Bond Sub-Account: Unit value at beginning of period.... $1.14 $1.00 $1.00(a) Unit value at end of period.......... $1.04 $1.14 $1.00 Number of units outstanding at end of period.............................. 28,982,189 26,841,307 25,083,345 Index 400 Mid-Cap Sub-Account: Unit value at beginning of period.... $1.16 $1.00 $1.00(a) Unit value at end of period.......... $1.32 $1.16 $1.00 Number of units outstanding at end of period.............................. 11,781,426 7,779,280 5,020,041 Macro-Cap Value Sub-Account: Unit value at beginning of period.... $1.18 $0.98 $1.00(b) Unit value at end of period.......... $1.24 $1.18 $0.98 Number of units outstanding at end of period.............................. 14,276,707 8,485,870 5,003,390 Micro-Cap Growth Sub-Account: Unit value at beginning of period.... $1.02 $0.91 $1.00(a) Unit value at end of period.......... $2.51 $1.02 $0.91 Number of units outstanding at end of period.............................. 11,992,142 6,922,652 5,019,879 Real Estate Securities Sub-Account: Unit value at beginning of period.... $0.86 $1.00(c) Unit value at end of period.......... $0.81 $0.86 Number of units outstanding at end of period.............................. 6,242,074 5,887,391 Templeton Developing Markets Securities Fund Sub-Account: Unit value at beginning of period.... $0.54 $0.69 $1.00(a) Unit value at end of period.......... $0.82 $0.54 $0.69 Number of units outstanding at end of period.............................. 9,817,346 4,908,432 724,374
(a) Period from October 1, 1997, commencement of operations, to December 31, 1997. (b) Period from October 15, 1997, commencement of operations, to December 31, 1997. (c) Period from April 24, 1998, commencement of operations, to December 31, 1998. PAGE A-2 APPENDIX B -- ILLUSTRATION OF VARIABLE ANNUITY VALUES The illustration included in this Appendix shows the effect of investment performance on the monthly variable annuity income. The illustration assumes a gross investment return of: 0.00%, 6.69% and 10.00%. For illustration purposes, an average annual expense equal to 2.19% of the average daily net assets is deducted from the gross investment return to determine the net investment return. The net investment return is then used to project the monthly variable annuity incomes. The average expense charge of 2.19% includes: 1.25% for Mortality and Expense Risk, and an average of 0.94%for the fund management fee, other fund expenses, and distribution fee. The average is calculated from the Fund Annual Expense table found in the front of this prospectus and is based on the total annual fund operating expenses with waivers or reductions applied. All portfolios, including those that may not be available until a later date, have been included in the average except for the Maturing Government Bond portfolios which are only available for contracts issued prior to May 1, 2000. The gross and net investment rates are for illustrative purposes only and are not a reflection of past or future performance. Actual variable annuity income will be more or less than shown if the actual returns are different than those illustrated. The illustration assumes 100% of the assets are invested in the sub-account(s) of the Variable Annuity Account. For comparison purposes, a current fixed annuity income, available through the General Account is also provided. The illustration assumes an initial interest rate, used to determine the first variable payment of 4.50%. After the first variable annuity payment future payments will increase if the annualized net rate of return exceeds the initial interest rate, and will decrease if the annualized net rate of return is less than the initial interest rate. The illustration provided is for a male, age 65, selecting a Life and 10 Year Certain annuity option with $100,000 of non-qualified funds, residing in the State of Minnesota. Upon request, we will provide a comparable illustration based on the proposed annuitant's date of birth, sex, annuity option, state of residence, type of funds, value of funds, and selected gross annual rate of return (not to exceed 12%). PAGE B-1 VARIABLE ANNUITY INCOME DETAIL PREPARED FOR: Client SEX: Male DATE OF BIRTH: 06/01/1935 PRESENTED BY: Minnesota Life ANNUITY COMMENCEMENT: 06/01/2000 ANNUITIZATION OPTION: 10 Year Certain FUNDS: Non-Qualified with Life Contingency ISSUE STATE: MN LIFE EXPECTANCY: 20.0 (IRS) 18.1 (ML) SINGLE PAYMENT RECEIVED: $100,000.00 INITIAL MONTHLY INCOME: $663.26 AMOUNT ALLOCATED TO VARIABLE: $100,000.00
The monthly variable annuity income amount shown below assumes a constant annual investment return. The initial interest rate of 4.50% is the assumed rate used to calculate the first monthly payment. Thereafter, monthly payments will increase or decrease based upon the relationship between the initial interest rate and the performance of the sub-account(s) selected. The investment returns shown are hypothetical and not a representation of future returns.
MONTHLY INCOME ASSUMING ----------------------------------------- ANNUAL RATE OF RETURN ----------------------------------------- BEGINNING 0.00% GROSS 6.69% GROSS 10.00% GROSS DATE OF YEAR AGE (-2.19% NET) (4.50% NET) (7.81% NET) - ---- --------- -------- ------------ ----------- ------------ June 01, 2000..................... 1 65 663 663 663 June 01, 2001..................... 2 66 621 663 684 June 01, 2002..................... 3 67 581 663 706 June 01, 2003..................... 4 68 544 663 728 June 01, 2004..................... 5 69 509 663 751 June 01, 2006..................... 7 71 446 663 800 June 01, 2008..................... 9 73 391 663 851 June 01, 2010..................... 11 75 342 663 906 June 01, 2012..................... 13 77 300 663 964 June 01, 2014..................... 15 79 263 663 1,026 June 01, 2016..................... 17 81 230 663 1,092 June 01, 2018..................... 19 83 202 663 1,163 June 01, 2020..................... 21 85 177 663 1,237 June 01, 2022..................... 23 87 155 663 1,317 June 01, 2024..................... 25 89 136 663 1,402 June 01, 2026..................... 27 91 119 663 1,492 June 01, 2028..................... 29 93 104 663 1,588 June 01, 2030..................... 31 95 91 663 1,690 June 01, 2032..................... 33 97 80 663 1,799 June 01, 2035..................... 36 100 65 663 1,976
If you applied the amount of your purchase payment allocated to variable to a fixed annuity on the quotation date of this illustration, your fixed annuity income would be $762.10. Net rate of return reflects expenses totaling 2.19%, which consist of the 1.25% Variable Annuity Account mortality and expense risk charge and 0.94% for the fund management fee, other fund expenses, and distribution expenses (this is an average with the actual varying from 0.42% to 1.81%). Minnesota Life MultiOption variable annuities are available through Ascend Financial Services, Inc., Securities Dealer, Member NASD/SIPC. This illustration must be accompanied or preceded by the current prospectuses for the Variable Annuity Account and each of the underlying funds. The prospectuses should be read carefully and retained for future reference. THE INVESTMENT RETURNS SHOWN ARE HYPOTHETICAL AND ARE NOT A REPRESENTATION OF FUTURE RESULTS. THIS IS AN ILLUSTRATION ONLY AND NOT A CONTRACT. PREPARED BY MINNESOTA LIFE INSURANCE COMPANY PAGE B-2 APPENDIX C -- TYPES OF QUALIFIED PLANS 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. Income attributable to elective contributions may not be distributed in the case of hardship. INDIVIDUAL RETIREMENT ANNUITIES Section 408 of the Code permits eligible individuals to contribute to an Individual Retirement Annuity, (an "IRA"). Distributions from certain other types of qualified plans may be "rolled over" on a tax-deferred basis into an IRA. The sale of a contract for use with an IRA may be subject to special disclosure requirements of the IRS. Purchasers of a contract for use with IRAs will be provided with supplemental information required by the IRS or other appropriate agency. Such purchasers will have the right to revoke their purchase within 7 days of the earlier of the establishment of the IRA or their purchase. A qualified contract issued in connection with an IRA will be amended as necessary to conform to the requirements of the Code. You should seek competent advice as to the suitability of the Contract for use with IRAs. Earnings in an IRA are not taxed until distribution. IRA contributions are limited each year to the lesser or $2,000 or 100% of the owner's adjusted gross income and may be deductible in whole or in part depending on the individual's income. The limit on the amount contributed to an IRA does not apply to distributions from certain other types of qualified plans that are "rolled over" on a tax-deferred basis into an IRA. Amounts in the IRA (other than nondeductible contributions) are taxed when distributed from the IRA. Distributions prior to age 59 1/2 (unless certain exceptions apply) are subject to a 10% penalty tax. 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. PAGE C-1 SIMPLE IRAS Beginning January 1, 1997, certain small employers may establish Simple IRAs as provided by Section 408(p) of the Code, under which employees may elect to defer up to $6,000 (as increased for cost of living adjustments) as a percentage of compensation. The sponsoring employer is required to make a matching contribution on behalf of contributing employees. Distributions from a Simple IRAs are subject to the same restrictions that apply to IRA distributions and are taxed as ordinary income. Subject to certain exceptions, premature distributions prior to age 59 1/2 are subject to a 10% penalty tax, which is increased to 25% if the distribution occurs within the first two years after the commencement of the employee's participation in the plan. ROTH IRAS Effective January 1, 1998, section 408A of the Code permits certain eligible individuals to make nondeductible contributions to an individual retirement program known as a Roth IRA. Contributions to a Roth IRA, which are subject to certain limitations, must be made in cash or as a rollover or conversion from another Roth IRA or a traditional IRA. A rollover from, or conversion of, a traditional IRA to a Roth IRA may be subject to tax, contingent deferred sales charge and other special rules may apply. Qualified distributions from a Roth IRA, as defined by the Code, generally are excluded from gross income. Qualified distributions include those distributions made more than five years after the taxable year of the first contribution to the Roth IRA, but only if : (1) the annuity owner has reached age 59 1/2; (2) the distribution is paid to a beneficiary after the owner's death; (3) the annuity owner becomes disabled; or (4) the distribution will be used for a first time home purchase and does not exceed $10,000. Non-qualified distributions are includable in gross income only to the extent they exceed contributions made to the Roth IRA. The taxable portion of a non-qualified distribution may be subject to a 10% penalty tax. In addition, state laws may not completely follow the federal tax treatment of Roth IRAs. You should consult your tax adviser for further information regarding Roth IRAs. 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. PAGE C-2 DEFERRED COMPENSATION PLANS Code Section 457 provides for certain deferred compensation plans. These plans may be offered for service to 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. In general, all amounts received under a Section 457 plan are taxable and are subject to federal income tax withholding as wages. Under the provisions of the Small Business Job Protection Act of 1996, all of the assets and income of a governmental plan maintained by an eligible employer as a Section 457 plan must be held in trust or in a qualifying custodial account or annuity contract held for the exclusive benefit of plan participants and beneficiaries. For such plans in effect at the time of the 1996 enactment, those plans must come into compliance with this requirement before January 1, 1999. PAGE C-3 Variable Annuity Account ("Variable Annuity Account"), a Separate Account of Minnesota Life Insurance Company ("Minnesota Life") 400 Robert Street North St. Paul, Minnesota 55101-2098 Telephone: (651) 665-3500 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 Fund's current Prospectus, bearing the same date, which may be obtained by calling Minnesota Life Insurance Company at (651) 665-3500; or writing to Minnesota Life at Minnesota Mutual Center, 400 Robert Street North, St. Paul, Minnesota 55101-2098. Directors and Principal Management Officers of Minnesota Life Distribution of Contract Performance Data Auditors Registration Statement Financial Statements DIRECTORS AND PRINCIPAL MANAGEMENT OFFICERS OF MINNESOTA LIFE Directors Principal Occupation 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) 1 Principal Officers (other than Directors) Name Position 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 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 CONTRACT The contract will be sold in a continuous offering by our life insurance agents who are also registered representatives of Ascend Financial Services, Inc. ("Ascend Financial") or other broker-dealers who have entered into selling agreements with Ascend Financial. Ascend Financial acts as principal underwriter of the contracts. Ascend Financial is a wholly-owned subsidiary of Advantus Capital Management, Inc., which in turn is a wholly-owned subsidiary of Minnesota Life. Advantus Capital Management, Inc., is a registered investment adviser and the investment adviser to the Advantus Series Fund, Inc. 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, and 1997 were $16,104,617, $15,989,724, and $15,067,613, respectively, for payment to associated dealers on the sale of the contracts, which include other contracts issued through the Variable Annuity Account. Agents of Minnesota Life who are also registered representatives of Ascend Financial are compensated directly by Minnesota Life. 2 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 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 3.96% and 4.04%, 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 9% for the flexible payment contract). 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 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 charges. The cumulative total return figures published by the Variable Annuity Account relating to the contract described in the Prospectus will reflect Minnesota Life's voluntary absorption of certain Fund expenses described below. 3 Cumulative total return quotations for Sub-Accounts will be accompanied by average annual total return figures for a one-year period and for the period since the Sub-Account became available pursuant to the Variable Annuity Account's registration statement. 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 and to the length of the period advertised. The average annual total return figures published by the Variable Annuity Account will reflect Minnesota Life's voluntary absorption of certain Fund expenses. Cumulative Total Return
From Inception Date of to 12/31/99 Inception of Sub-Account -------------- --------- Growth Sub-Account (526.84%) 533.40% 12/3/85 Bond Sub-Account (134.28%) 135.52% 12/3/85 Money Market Sub-Account (70.38%) 73.44% 12/3/85 Asset Allocation Sub-Account (338.01%) 339.09% 12/3/85 Mortgage Securities Sub-Account (129.14%) 129.58% 6/1/87 Index 500 Sub-Account (470.27%) 472.21% 6/1/87 Capital Appreciation Sub-Account (470.35%) 477.37% 6/1/87 International Stock Sub-Account (141.12%) 141.19% 5/1/92 Small Company Growth Sub-Account (155.97%) 155.97% 5/3/93 Maturing Government Bond 2002 Sub-Account (38.67%) 40.62% 5/2/94 Maturing Government Bond 2006 Sub-Account (44.49%) 47.42% 5/2/94 Maturing Government Bond 2010 Sub-Account (45.33%) 50.95% 5/2/94 Value Stock Sub-Account (111.40%) 111.75% 5/2/94 Small Company Value Sub-Account (-10.22%) -10.10% 10/1/97 Global Bond Sub-Account (4.22%) 4.22% 10/1/97 Index 400 Mid-Cap Sub-Account (31.33%) 31.63% 10/1/97 Macro-Cap Value Sub-Account (23.84%) 24.38% 10/15/97 Micro-Cap Growth Sub-Account (136.64%) 138.16% 10/1/97 Real Estate Securities Sub-Account (-19.29%) -18.95% 5/1/98 Templeton Developing Markets Securities Class 2 Sub-Account (-18.08%) -18.08% 10/1/97 Fidelity VIP II ContraFund Service Class 2 Sub-Account (n/a) n/a 2/1/00 Fidelity VIP III Mid Cap Service Class 2 Sub-Account (n/a) n/a 2/1/00 Fidelity VIP Equity-Income Service Class 2 Sub-Account (n/a) n/a 2/1/00 Janus Aspen Capital Appreciation Service Shares Sub-Account (n/a) n/a 2/1/00 Janus Aspen International Growth Service Shares Sub-Account (n/a) n/a 2/1/00 Franklin Small Cap Class 2 Sub-Account (n/a) n/a 8/1/00 Templeton Asset Strategy Class 2 Sub-Account (n/a) n/a 8/1/00 Warburg-Pincus Global Post-Venture Capital Sub-Account (n/a) n/a 8/1/00
4 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 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 (flexible premium/single premium) and to the length of the period advertised. The average annual total return figures published by the Variable Annuity Account will reflect Minnesota Life's voluntary absorption of certain Fund expenses. 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 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 Portfolios maturing in 1998 and 2002, Minnesota Life voluntarily absorbed fees and expenses that exceeded .20% of average daily net assets of those Portfolios until April 30, 1998. For the period subsequent to April 30, 1998, Minnesota Life has voluntarily agreed to absorb fees and expenses that exceed .40% of the average daily net assets of the Maturing Government Bond Portfolios maturing in 1998 and 2002. 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 Portfolio, 1.25% of the average daily net assets of the Micro-Cap Growth Portfolio, .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 subsequent to May 1, 1998, Minnesota Life has voluntarily agreed to absorb fees and expenses the exceed .90% of the average daily net assets of the Real Estate Securities Portfolio. 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. 5 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 not absorbed Fund expenses as described above. These figures also assume that the contracts described herein were issued when the Underlying Portfolios first became available to the Variable Annuity Account. This contract only became available as of the date of September 15, 1994. Flexible Premium Deferred Variable Annuity MultiOption Select
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 -------------------- ------------------ ----------------- --------------- --------- Growth Sub-Account (17.11%) 17.11% (24.98%) 24.98% (15.73%) 15.73% (n/a) n/a 12/3/85 Bond Sub-Account (-10.94%) -10.94% (4.86%) 4.86% (5.66%) 5.68% (n/a) n/a 12/3/85 Money Market Sub-Account (-3.60%) -3.60% (3.03%) 3.03% (3.34%) 3.49% (n/a) n/a 12/3/85 Asset Allocation Sub-Account (6.74%) 6.74% (17.07%) 17.07% (12.20%) 12.20% (n/a) n/a 12/3/85 Mortgage Securities Sub-Account (-6.28%) -6.28% (6.09%) 6.09% (6.37%) 6.38% (n/a) n/a 6/1/87 Index 500 Sub-Account (11.78%) 11.78% (25.77%) 25.77% (16.09%) 16.10% (n/a) n/a 6/1/87 Capital Appreciation Sub-Account (13.00%) 13.00% (22.21%) 22.21% (15.64%) 15.66% (n/a) n/a 6/1/87 International Stock Sub-Account (12.92%) 12.92% (12.76%) 12.76% (n/a) n/a (12.15%) 12.16% 5/1/92 Small Company Growth (36.82%) 36.82% (15.53%) 15.53% (n/a) n/a (15.01%) 15.01% 5/3/93 Sub-Account Maturing Government Bond 2002 Sub-Account (-9.24%) -8.72% (5.78%) 6.56% (n/a) n/a (5.00%) 5.80% 5/2/94 6 Maturing Government Bond 2006 Sub-Account (-16.79%) -15.96% (6.66%) 7.63% (n/a) n/a (5.67%) 6.70% 5/2/94 Maturing Government Bond 2010 Sub-Account (-20.55%) -19.64% (6.53%) 8.26% (n/a) n/a (5.31%) 7.15% 5/2/94 Value Stock Sub-Account (-7.97%) -7.97% (14.66%) 14.67% (n/a) n/a (13.62%) 13.67% 5/2/94 Small Company Value Sub-Account (-11.81%) -11.27% (n/a) n/a (n/a) n/a (-7.90%) -7.50% 10/1/97 Global Bond Sub-Account (-15.95%) -15.95% (n/a) n/a (n/a) n/a (-.80%) -.80% 10/1/97 Index 400 Mid-Cap Sub-Account (7.19%) 7.53% (n/a) n/a (n/a) n/a (10.34%) 10.66% 10/1/97 Macro-Cap Value Sub-Account (-1.65%) -1.16% (n/a) n/a (n/a) n/a (7.19%) 7.92% 10/15/97 Micro-Cap Growth Sub-Account (138.37%) 138.69% (n/a) n/a (n/a) n/a (44.45%) 45.35% 10/1/97 Real Estate Securities Sub-Account (-13.37%) -12.08% (n/a) n/a (n/a) n/a (-18.01%) -17.10% 5/1/98 Templeton Developing Markets Securities Class 2 Sub-Account (44.37%) 44.37% (n/a) n/a (n/a) n/a (-11.51%) -11.51% 10/1/97 Fidelity VIP II ContraFund Service Class 2 Sub-Account (N/A) N/A (N/A) N/A (N/A) N/A (N/A) N/A 2/1/00 Fidelity VIP III Mid Cap Service Class 2 Sub-Account (N/A) N/A (N/A) N/A (N/A) N/A (N/A) N/A 2/1/00 Fidelity VIP Equity - Income Service Class 2 Sub-Account (N/A) N/A (N/A) N/A (N/A) N/A (N/A) N/A 2/1/00 Janus Aspen Capital Appreciation Service Shares Sub-Account (N/A) N/A (N/A) N/A (N/A) N/A (N/A) N/A 2/1/00 Janus Aspen International Growth Service Shares Sub-Account (N/A) N/A (N/A) N/A (N/A) N/A (N/A) N/A 2/1/00 Franklin Small Cap Class 2 Sub-Account (N/A) N/A (N/A) N/A (N/A) N/A (N/A) N/A 8/1/00 Templeton Asset Strategy Class 2 Sub-Account (N/A) N/A (N/A) N/A (N/A) N/A (N/A) N/A 8/1/00 Warburg Pincus Global Post- Venture Capital Sub-Account (N/A) N/A (N/A) N/A (N/A) N/A (N/A) N/A 8/1/00
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. 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 7 average annual rates of return, without the application of applicable deferred sales charges, would have been had Minnesota Life not absorbed Fund expenses as described above.
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 -------- -------------- -------------- ----------- --------- Growth Sub-Account (24.11%) 24.11% (25.30%) 25.30% (15.73%) 15.73% (n/a) n/a 12/3/85 Bond Sub-Account (-3.94%) -3.94% (5.51%) 5.51% (5.66%) 5.68% (n/a) n/a 12/3/85 Money Market Sub-Account (3.41%) 3.41% (3.73%) 3.73% (3.34%) 3.49% (n/a) n/a 12/3/85 Asset Allocation Sub-Account (13.74%) 13.74% (17.49%) 17.49% (12.20%) 12.20% (n/a) n/a 12/3/85 Mortgage Securities Sub-Account (.72%) .72% (6.72%) 6.72% (6.37%) 6.38% (n/a) n/a 6/1/87 Index 500 Sub-Account (18.78%) 18.78% (26.08%) 26.08% (16.09%) 16.10% (n/a) n/a 6/1/87 Capital Appreciation Sub-Account (20.00%) 20.00% (22.57%) 22.57% (15.64%) 15.66% (n/a) n/a 6/1/87 International Stock Sub-Account (19.92%) 19.92% (13.25%) 13.25 (n/a) n/a (12.15%) 12.16% 5/1/92 Small Company Growth Sub-Account (43.82%) 43.82% (15.98%) 15.98% (n/a) n/a (15.14%) 15.14% 5/3/93 Maturing Government Bond 2002 Sub-Account (-2.24%) -1.72% (6.40%) 7.18% (n/a) n/a (5.40%) 6.20% 5/2/94 8 Maturing Government Bond 2006 Sub-Account (-9.79%) -8.96% (7.25%) 8.22% (n/a) n/a (6.06%) 7.09% 5/2/94 Maturing Government Bond 2010 Sub-Account (-13.55%) -12.64% (7.10%) 8.83% (n/a) n/a (5.69%) 7.53% 5/2/94 Value Stock Sub-Account (-.97%) -.97% (n/a) n/a (n/a) n/a (13.91%) 13.96% 5/2/94 Small Company Value Sub-Account (-4.81%) -4.27% (n/a) n/a (n/a) n/a (-5.02%) -4.62% 10/1/97 Global Bond Sub-Account (-8.95%) -8.95% (n/a) n/a (n/a) n/a (1.85%) 1.85% 10/1/97 Index 400 Mid-Cap Sub-Account (14.19%) 14.53% (n/a) n/a (n/a) n/a (12.66%) 12.98% 10/1/97 Macro-Cap Value Sub-Account (5.35%) 5.84% (n/a) n/a (n/a) n/a (9.63%) 10.36% 10/15/97 Micro-Cap Growth Sub-Account (145.37%) 145.69% (n/a) n/a (n/a) n/a (46.11%) 47.01% 10/1/97 Real Estate Securities Sub-Account (-6.37%) -5.08% (n/a) n/a (n/a) n/a (-13.34%) -12.43% 5/1/98 Templeton Developing Markets Securities Class 2 Sub-Account (51.37%) 51.37% (n/a) n/a (n/a) n/a (-8.47%) -8.47% 10/1/97 Fidelity VIP II ContraFund Service Class 2 Sub-Account (22.61%) 22.61% (N/A) N/A (N/A) N/A (26.13%) 26.13% 2/1/00 Fidelity VIP III Mid Cap Service Class 2 Sub-Account (45.99%) 45.99% (N/A) N/A (N/A) N/A (49.70%) 49.70% 2/1/00 Fidelity VIP Equity - Income Service Class 2 Sub-Account (4.94%) 4.94% (17.10%) 17.10% (13.05%) 13.05% (12.36%) 12.36% 2/1/00 Janus Aspen Capital Appreciation Service Shares Sub-Account (N/A) N/A (N/A) N/A (N/A) N/A (N/A) N/A 2/1/00 Janus Aspen International Growth Service Shares Sub-Account (N/A) N/A (N/A) N/A (N/A) N/A (N/A) N/A 2/1/00 Franklin Small Cap Class 2 Sub-Account (92.85%) 92.85% (N/A) N/A (N/A) N/A (26.66%) 26.66% 8/1/00 Templeton Asset Strategy Class 2 Sub-Account (21.02%) 21.02% (15.47%) 15.47% (11.61%) 11.61% (11.40%) 11.40% 8/1/00 Warburg-Pincus Global Post- Venture Capital Sub-Account (60.93%) 60.93% (N/A) N/A (N/A) N/A (20.83%) 20.83% 8/1/00
9 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 the Company 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: AVM = P(1 + AGR/2)2T 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. 10 Because the Portfolio's expenses and composition do not remain constant, however, the Company 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. The Company 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. The Company 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. AUDITORS The consolidated financial statements of Minnesota Life and the financial statements of the Minnesota Life Variable Annuity Account included herein have been audited by KPMG LLP, 4200 Norwest Center, 90 South Seventh Street, Minneapolis, Minnesota 55402, independent auditors, whose reports thereon appear elsewhere herein, and have been so included in reliance upon the reports of KPMG LLP and upon the authority of said firm as experts in accounting and auditing. 11 REGISTRATION STATEMENT We have filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, with respect to the contract offered hereby. This Prospectus does not contain all the information set forth in the registration statement and amendments thereto and the exhibits filed as a part thereof, to all of which reference is hereby made for further information concerning the Variable Annuity Account, Minnesota Life, and the contract. Statements contained in this Prospectus as to the contents of contracts and other legal instruments are summaries, and reference is made to such instruments as filed. 12 INDEPENDENT AUDITORS' REPORT The Board of Trustees of Minnesota Life Insurance Company and Contract Owners of Variable Annuity Account: We have audited the accompanying statements of assets and liabilities 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, Real Estate Securities, and Templeton Developing Markets Segregated Sub-Accounts of Variable Annuity Account (the Account), as of December 31, 1999 and the related statements of operations, the statements of changes in net assets and the financial highlights for the periods presented. 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, 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 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, Real Estate Securities, and Templeton Developing Markets Segregated Sub-Accounts of 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 presented, in conformity with generally accepted accounting principles. KPMG LLP Minneapolis, Minnesota February 4, 2000 VARIABLE ANNUITY ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1999
SEGREGATED SUB-ACCOUNTS -------------------------------------------------------------- MONEY ASSET ASSETS GROWTH BOND MARKET ALLOCATION ------ ------------ ----------- ----------- ----------- Investments in shares of Advantus Series Fund, Inc.: Growth Portfolio, 102,150,015 shares at net asset value of $3.33 per share (cost $229,222,924).............. $340,441,608 - - - Bond Portfolio, 104,450,367 shares at net asset value of $1.18 per share (cost $130,246,982).............. - 123,212,040 - - Money Market Portfolio, 77,746,588 shares at net asset value of $1.00 per share (cost $77,746,588)..... - - 77,746,588 - Asset Allocation Portfolio, 238,232,702 shares at net asset value of $2.39 per share (cost $435,126,522).... - - - 568,532,959 Mortgage Securities Portfolio, 84,279,775 shares at net asset value of $1.17 per share (cost $98,514,345).... - - - - Index 500 Portfolio, 93,620,590 shares at net asset value of $4.56 per share (cost $272,052,018).............. - - - - Capital Appreciation Portfolio, 80,817,036 shares at net asset value of $3.70 per share (cost $192,682,114).... - - - - ------------ ----------- ----------- ----------- 340,441,608 123,212,040 77,746,588 568,532,959 Receivable for investments sold................................... 399,903 78,433 141,970 786,111 Receivable from Minnesota Life for contract purchase payments..... 143,866 39,055 1,191,214 237,463 ------------ ----------- ----------- ----------- Total assets............................................ 340,985,377 123,329,528 79,079,772 569,556,533 ------------ ----------- ----------- ----------- LIABILITIES ----------- Payable for investments purchased................................. 143,866 39,055 1,191,214 237,463 Payable to Minnesota Life for contract terminations and mortality and expense charges.............................. 399,903 78,433 141,970 786,111 ------------ ----------- ----------- ----------- Total liabilities......................................... 543,769 117,488 1,333,184 1,023,574 ------------ ----------- ----------- ----------- Net assets applicable to annuity contract owners.......... $ 340,441,608 123,212,040 77,746,588 568,532,959 ------------ ----------- ----------- ----------- ------------ ----------- ----------- ----------- CONTRACT OWNERS' EQUITY ----------------------- Contracts in accumulation period (MultiOption Flex/Single/Select)............................... $ 325,822,734 115,403,799 72,023,538 547,968,676 Contracts in accumulation period (MultiOption Classic/Achiever)................................. 1,877,652 763,788 3,410,308 3,652,657 Contracts in accumulation period (MegAnnuity)..................... 9,386,598 5,481,670 2,191,566 8,864,610 Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2)...................... 3,209,966 1,533,406 121,176 7,480,265 Contracts in annuity payment period (Megannuity) (note 2)......... 144,658 29,377 - 566,751 Contracts in annuity payment period (Adjustable Income Annuity) (note 2)........................... - - - - ------------ ----------- ----------- ----------- Total contract owners' equity............................. $ 340,441,608 123,212,040 77,746,588 568,532,959 ------------ ----------- ----------- ----------- ------------ ----------- ----------- ----------- ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/SELECT)... 49,216,657 48,459,470 41,200,616 121,522,399 ------------ ----------- ----------- ----------- ------------ ----------- ----------- ----------- ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER)..... 1,608,959 765,852 3,372,875 3,296,125 ------------ ----------- ----------- ----------- ------------ ----------- ----------- ----------- ACCUMULATION UNITS OUTSTANDING (MEGANNUITY)....................... 1,773,719 2,238,400 1,175,791 2,078,286 ------------ ----------- ----------- ----------- ------------ ----------- ----------- ----------- NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION FLEX/SINGLE/SELECT)............................... $ 6.62 2.38 1.75 4.51 ------------ ----------- ----------- ----------- ------------ ----------- ----------- ----------- NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION CLASSIC/ACHIEVER)................................. $ 1.17 1.00 1.01 1.10 ------------ ----------- ----------- ----------- ------------ ----------- ----------- ----------- NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY)................ $ 5.29 2.45 1.86 4.27 ------------ ----------- ----------- ----------- ------------ ----------- ----------- ----------- SEGREGATED SUB-ACCOUNTS -------------------------------------------------------- MORTGAGE INDEX CAPITAL ASSETS SECURITIES 500 APPRECIATION ------ ------------ ----------- ---------------- Investments in shares of Advantus Series Fund, Inc.: Growth Portfolio, 102,150,015 shares at net asset value of $3.33 per share (cost $229,222,924).............. $ - - - Bond Portfolio, 104,450,367 shares at net asset value of $1.18 per share (cost $130,246,982).............. - - - Money Market Portfolio, 77,746,588 shares at net asset value of $1.00 per share (cost $77,746,588)..... - - - Asset Allocation Portfolio, 238,232,702 shares at net asset value of $2.39 per share (cost $435,126,522).... - - - Mortgage Securities Portfolio, 84,279,775 shares at net asset value of $1.17 per share (cost $98,514,345).... 98,489,717 - - Index 500 Portfolio, 93,620,590 shares at net asset value of $4.56 per share (cost $272,052,018).............. - 427,268,242 - Capital Appreciation Portfolio, 80,817,036 shares at net asset value of $3.70 per share (cost $192,682,114).... - - 299,365,075 ------------ ----------- ----------- 98,489,717 427,268,242 299,365,075 Receivable for investments sold................................... 109,009 876,116 376,169 Receivable from Minnesota Life for contract purchase payments..... 40,560 266,956 49,060 ------------ ----------- ----------- Total assets............................................ 98,639,286 428,411,314 299,790,304 ------------ ----------- ----------- LIABILITIES ----------- Payable for investments purchased................................. 40,560 266,956 49,060 Payable to Minnesota Life for contract terminations and mortality and expense charges.............................. 109,009 876,116 376,169 ------------ ----------- ----------- Total liabilities......................................... 149,569 1,143,072 425,229 ------------ ----------- ----------- Net assets applicable to annuity contract owners.......... $ 98,489,717 427,268,242 299,365,075 ------------ ----------- ----------- ------------ ----------- ----------- CONTRACT OWNERS' EQUITY ----------------------- Contracts in accumulation period (MultiOption Flex/Single/Select)............................... 94,095,555 370,000,382 286,307,412 Contracts in accumulation period (MultiOption Classic/Achiever)................................. 993,688 2,216,824 766,231 Contracts in accumulation period (MegAnnuity)..................... 2,282,486 16,762,759 9,218,987 Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2)...................... 1,117,988 4,077,098 2,995,002 Contracts in annuity payment period (Megannuity) (note 2)......... - 98,282 77,443 Contracts in annuity payment period (Adjustable Income Annuity) (note 2)........................... - 34,112,897 - ------------ ----------- ----------- Total contract owners' equity............................. $ 98,489,717 427,268,242 299,365,075 ------------ ----------- ----------- ------------ ----------- ----------- ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/SELECT)... 40,937,593 64,735,863 49,725,886 ------------ ----------- ----------- ------------ ----------- ----------- ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER)..... 989,073 2,038,959 602,909 ------------ ----------- ----------- ------------ ----------- ----------- ACCUMULATION UNITS OUTSTANDING (MEGANNUITY)....................... 878,899 2,938,591 1,598,318 ------------ ----------- ----------- ------------ ----------- ----------- NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION FLEX/SINGLE/SELECT)............................... $ 2.30 5.72 5.76 ------------ ----------- ----------- ------------ ----------- ----------- NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION CLASSIC/ACHIEVER)................................. $ 1.00 1.09 1.27 ------------ ----------- ----------- ------------ ----------- ----------- NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY)................ $ 2.60 5.70 5.77 ------------ ----------- ----------- ------------ ----------- -----------
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1999
SEGREGATED SUB-ACCOUNTS ---------------------------------------------- MATURING SMALL GOVERNMENT INTERNATIONAL COMPANY BOND ASSETS STOCK GROWTH 2002 ------ ------------- ------------- ------------- Investments in shares of Advantus Series Fund, Inc.: International Stock Portfolio, 116,701,083 shares at net asset value of $1.94 per share (cost $178,245,174) .................... $ 226,335,709 - - Small Company Growth Portfolio, 67,810,567 shares at net asset value of $2.44 per share (cost $103,494,241) .................... - 165,416,235 - Maturing Government Bond 2002 Portfolio, 9,631,089 shares at net asset value of $1.05 per share (cost $10,461,247) ..................... - - 10,159,332 Maturing Government Bond 2006 Portfolio, 5,760,595 shares at net asset value of $1.09 per share (cost $6,684,659) ...................... - - - Maturing Government Bond 2010 Portfolio, 4,147,470 shares at net asset value of $1.19 per share (cost $5,199,093) ...................... - - - Value Stock Portfolio, 78,347,675 shares at net asset value of $1.71 per share (cost $128,368,598) .................... - - - ------------- ------------- ------------- 226,335,709 165,416,235 10,159,332 Receivable for investments sold ................................................. 348,091 178,483 9,616 Receivable from Minnesota Life for contract purchase payments ................... 73,117 63,634 337 ------------- ------------- ------------- Total assets ............................................................ 226,756,917 165,658,352 10,169,285 ------------- ------------- ------------- LIABILITIES ----------- Payable for investments purchased ............................................... 73,117 63,634 337 Payable to Minnesota Life for contract terminations and mortality and expense charges ............................................................... 348,091 178,483 9,616 ------------- ------------- ------------- Total liabilities ....................................................... 421,208 242,117 9,953 ------------- ------------- ------------- Net assets applicable to annuity contract owners ........................ $ 226,335,709 165,416,235 10,159,332 ------------- ------------- ------------- ------------- ------------- ------------- CONTRACT OWNERS' EQUITY ----------------------- Contracts in accumulation period (MultiOption Flex/Single/Select)................ $ 217,231,990 158,030,561 6,995,326 Contracts in accumulation period (MultiOption Classic/Achiever).................. 951,414 706,670 21,599 Contracts in accumulation period (MegAnnuity).................................... 5,319,278 4,255,549 3,121,612 Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2).... 2,613,036 2,401,934 20,795 Contracts in annuity payment period (Megannuity) (note 2) ....................... 219,991 21,521 - Contracts in annuity payment period (Adjustable Income Annuity) (note 2)......... - - - ------------- ------------- ------------- Total contract owners' equity ........................................... $ 226,335,709 165,416,235 10,159,332 ------------- ------------- ------------- ------------- ------------- ------------- ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/ SELECT) ................ 89,983,922 61,721,924 5,090,494 ------------- ------------- ------------- ------------- ------------- ------------- ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER).................... 888,642 503,561 21,585 ------------- ------------- ------------- ------------- ------------- ------------- ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) ..................................... 2,062,152 1,577,615 2,134,169 ------------- ------------- ------------- ------------- ------------- ------------- NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION FLEX/SINGLE/SELECT) ......... $ 2.41 2.56 1.37 ------------- ------------- ------------- ------------- ------------- ------------- NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION CLASSIC/ACHIEVER) ............ $ 1.07 1.40 1.00 ------------- ------------- ------------- ------------- ------------- ------------- NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY) .............................. $ 2.58 2.70 1.46 ------------- ------------- ------------- ------------- ------------- ------------- SEGREGATED SUB-ACCOUNTS ------------------------------------------------ MATURING MATURING GOVERNMENT GOVERNMENT BOND BOND VALUE ASSETS 2006 2010 STOCK ------ ------------- ------------- ------------- Investments in shares of Advantus Series Fund, Inc.: International Stock Portfolio, 116,701,083 shares at net asset value of $1.94 per share (cost $178,245,174) .................... $ - - - Small Company Growth Portfolio, 67,810,567 shares at net asset value of $2.44 per share (cost $103,494,241) .................... - - - Maturing Government Bond 2002 Portfolio, 9,631,089 shares at net asset value of $1.05 per share (cost $10,461,247) ..................... - - - Maturing Government Bond 2006 Portfolio, 5,760,595 shares at net asset value of $1.09 per share (cost $6,684,659) ...................... 6,259,261 - - Maturing Government Bond 2010 Portfolio, 4,147,470 shares at net asset value of $1.19 per share (cost $5,199,093) ...................... - 4,937,876 - Value Stock Portfolio, 78,347,675 shares at net asset value of $1.71 per share (cost $128,368,598) .................... - - 134,172,501 ------------- ------------- ------------- 6,259,261 4,937,876 134,172,501 Receivable for investments sold ................................................. 865 11,578 89,622 Receivable from Minnesota Life for contract purchase payments ................... 576 778 17,914 ------------- ------------- ------------- Total assets ............................................................ 6,260,702 4,950,232 134,280,037 ------------- ------------- ------------- LIABILITIES ----------- Payable for investments purchased ............................................... 576 778 17,914 Payable to Minnesota Life for contract terminations and mortality and expense charges ............................................................... 865 11,578 89,622 ------------- ------------- ------------- Total liabilities ....................................................... 1,441 12,356 107,536 ------------- ------------- ------------- Net assets applicable to annuity contract owners ........................ $ 6,259,261 4,937,876 134,172,501 ------------- ------------- ------------- ------------- ------------- ------------- CONTRACT OWNERS' EQUITY ----------------------- Contracts in accumulation period (MultiOption Flex/Single/Select)................ $ 5,398,626 4,470,674 129,587,702 Contracts in accumulation period (MultiOption Classic/Achiever).................. 102,031 4,174 395,554 Contracts in accumulation period (MegAnnuity).................................... 409,215 165,944 2,338,693 Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2).... 317,498 297,084 1,831,894 Contracts in annuity payment period (Megannuity) (note 2) ....................... 31,891 - 18,658 Contracts in annuity payment period (Adjustable Income Annuity) (note 2)......... - - - ------------- ------------- ------------- Total contract owners' equity ........................................... $ 6,259,261 4,937,876 134,172,501 ------------- ------------- ------------- ------------- ------------- ------------- ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/ SELECT) ................ 3,776,193 3,079,844 61,230,340 ------------- ------------- ------------- ------------- ------------- ------------- ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER).................... 102,972 4,254 392,479 ------------- ------------- ------------- ------------- ------------- ------------- ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) ..................................... 268,923 107,403 1,038,209 ------------- ------------- ------------- ------------- ------------- ------------- NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION FLEX/SINGLE/SELECT) ......... $ 1.43 1.45 2.12 ------------- ------------- ------------- ------------- ------------- ------------- NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION CLASSIC/ACHIEVER) ............ $ 0.99 0.98 1.01 ------------- ------------- ------------- ------------- ------------- ------------- NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY) .............................. $ 1.52 1.55 2.25 ------------- ------------- ------------- ------------- ------------- -------------
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1999
SEGREGATED SUB-ACCOUNTS ----------------------------------------------------- SMALL COMPANY GLOBAL INDEX 400 MACRO-CAP ASSETS VALUE BOND MID-CAP VALUE ------------ ---------- ----------- ---------- Investments in shares of Advantus Series Fund, Inc.: Small Company Value Portfolio, 11,145,500 shares at net asset value of $0.91 per share (cost $10,726,773) ................................... $10,118,516 - - - Global Bond Portfolio, 32,945,742 shares at net asset value of $0.94 per share (cost $33,094,826) ....................... - 30,804,192 - - Index 400 Mid-Cap Portfolio, 13,987,034 shares at net asset value of $1.18 per share (cost $14,919,527) ................................... - - 16,554,178 - Macro-Cap Value Portfolio, 15,999,202 shares at net asset value of $1.16 per share (cost $17,641,949) ................................... - - - 18,612,415 Micro-Cap Growth Portfolio, 12,600,217 shares at net asset value of $2.51 per share (cost $15,567,827) ................................... - - - - Real Estate Securities Portfolio, 6,833,331 shares at net asset value of $0.76 per share (cost $6,404,040) .................................... - - - - Investment in shares of Templeton Variable Products Series Fund: Templeton Developing Markets Fund - Class 2, 1,176,200 shares at net asset value of $7.74 per share (cost $7,445,789) ........................ - - - - ------------ ---------- ----------- ---------- 10,118,516 30,804,192 16,554,178 18,612,415 Receivable for investments sold ............................................. 10,038 3,572 16,860 17,967 Receivable from Minnesota Life for contract purchase payments ............... 7,777 1,344 40,728 9,599 ------------ ---------- ----------- ---------- Total assets ............................................................ 10,136,331 30,809,108 16,611,766 18,639,981 ------------ ---------- ----------- ---------- LIABILITIES Payable for investments purchased ........................................... 7,777 1,344 40,728 9,599 Payable to Minnesota Life for contract terminations and mortality and expense charges ......................................................... 10,038 3,572 16,860 17,967 ------------ ---------- ----------- ---------- Total liabilities ....................................................... 17,815 4,916 57,588 27,566 ------------ ---------- ----------- ---------- Net assets applicable to annuity contract owners ........................ $10,118,516 30,804,192 16,554,178 18,612,415 ------------ ---------- ----------- ---------- ------------ ---------- ----------- ---------- CONTRACT OWNERS' EQUITY Contracts in accumulation period (MultiOption Flex/Single/Select) ........... $ 9,447,260 30,179,184 15,547,411 17,756,379 Contracts in accumulation period (MultiOption Classic/Achiever) ............. 178,103 339,555 434,727 245,153 Contracts in accumulation period (MegAnnuity) ............................... 194,564 133,395 367,506 436,026 Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2) 297,105 150,552 202,864 171,751 Contracts in annuity payment period (Megannuity) (note 2) ................... 1,484 1,506 1,670 3,106 Contracts in annuity payment period (Adjustable Income Annuity) (note 2) .... - - - - ------------ ---------- ----------- ---------- Total contract owners' equity ........................................... $10,118,516 30,804,192 16,554,178 18,612,415 ------------ ---------- ----------- ---------- ------------ ---------- ----------- ---------- ACCUMULATION UNITS OUTSTANDING (MultiOption Flex/Single/Select)............. 10,422,707 28,982,189 11,781,426 14,276,707 ------------ ---------- ----------- ---------- ------------ ---------- ----------- ---------- ACCUMULATION UNITS OUTSTANDING (MultiOption Classic/Achiever)................ 179,266 342,453 398,475 236,331 ------------ ---------- ----------- ---------- ------------ ---------- ----------- ---------- ACCUMULATION UNITS OUTSTANDING (MegAnnuity) ................................. 213,346 125,858 275,066 339,537 ------------ ---------- ----------- ---------- ------------ ---------- ----------- ---------- NET ASSET VALUE PER ACCUMULATION UNIT (MultiOption Flex/Single/Select) ...... $ 0.91 1.04 1.32 1.24 ------------ ---------- ----------- ---------- ------------ ---------- ----------- ---------- NET ASSET VALUE PER ACCUMULATION UNIT (MultiOption Classic/Achiever) ........ $ 0.99 0.99 1.09 1.04 ------------ ---------- ----------- ---------- ------------ ---------- ----------- ---------- NET ASSET VALUE PER ACCUMULATION UNIT (MegAnnuity) .......................... $ 0.91 1.06 1.34 1.28 ------------ ---------- ----------- ---------- ------------ ---------- ----------- ---------- SEGREGATED SUB-ACCOUNTS ------------------------------------------- REAL TEMPLETON MICRO-CAP ESTATE DEVELOPING ASSETS GROWTH SECURITIES MARKETS ----------- ---------- ------------ Investments in shares of Advantus Series Fund, Inc.: Small Company Value Portfolio, 11,145,500 shares at net asset value of $0.91 per share (cost $10,726,773) ................................... - - - Global Bond Portfolio, 32,945,742 shares at net asset value of $0.94 per share (cost $33,094,826) ....................... - - - Index 400 Mid-Cap Portfolio, 13,987,034 shares at net asset value of $1.18 per share (cost $14,919,527) ................................... - - - Macro-Cap Value Portfolio, 15,999,202 shares at net asset value of $1.16 per share (cost $17,641,949) ................................... - - - Micro-Cap Growth Portfolio, 12,600,217 shares at net asset value of $2.51 per share (cost $15,567,827) ................................... 31,610,551 - - Real Estate Securities Portfolio, 6,833,331 shares at net asset value of $0.76 per share (cost $6,404,040) .................................... - 5,167,629 - Investment in shares of Templeton Variable Products Series Fund: Templeton Developing Markets Fund - Class 2, 1,176,200 shares at net asset value of $7.74 per share (cost $7,445,789) ........................ - - 9,103,791 ----------- ---------- ------------ 31,610,551 5,167,629 9,103,791 Receivable for investments sold ............................................. 44,713 6,540 - Receivable from Minnesota Life for contract purchase payments ............... 104,409 292 - ----------- ---------- ------------ Total assets ............................................................ 31,759,673 5,174,461 9,103,791 ----------- ---------- ------------ LIABILITIES Payable for investments purchased ........................................... 104,409 292 - Payable to Minnesota Life for contract terminations and mortality and expense charges ......................................................... 44,713 6,540 - ----------- ---------- ------------ Total liabilities ....................................................... 149,122 6,832 - ----------- ---------- ------------ Net assets applicable to annuity contract owners ........................ 31,610,551 5,167,629 9,103,791 ----------- ---------- ------------ ----------- ---------- ------------ CONTRACT OWNERS' EQUITY Contracts in accumulation period (MultiOption Flex/Single/Select) ........... 30,144,820 5,087,178 8,042,400 Contracts in accumulation period (MultiOption Classic/Achiever) ............. 758,885 17,160 321,969 Contracts in accumulation period (MegAnnuity) ............................... 536,497 53,124 324,262 Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2) 167,322 10,167 414,256 Contracts in annuity payment period (Megannuity) (note 2) ................... 3,027 - 904 Contracts in annuity payment period (Adjustable Income Annuity) (note 2) .... - - - ----------- ---------- ------------ Total contract owners' equity ........................................... 31,610,551 5,167,629 9,103,791 ----------- ---------- ------------ ----------- ---------- ------------ ACCUMULATION UNITS OUTSTANDING (MultiOption Flex/Single/Select) ............. 11,992,142 6,242,074 9,817,346 ----------- ---------- ------------ ----------- ---------- ------------ ACCUMULATION UNITS OUTSTANDING (MultiOption Classic/Achiever)................ 420,716 17,691 268,232 ----------- ---------- ------------ ----------- ---------- ------------ ACCUMULATION UNITS OUTSTANDING (MegAnnuity) ................................. 227,183 64,837 384,533 ----------- ---------- ------------ ----------- ---------- ------------ NET ASSET VALUE PER ACCUMULATION UNIT (MultiOption Flex/Single/Select) ...... 2.51 0.81 0.82 ----------- ---------- ------------ ----------- ---------- ------------ NET ASSET VALUE PER ACCUMULATION UNIT (MultiOption Classic/Achiever) ........ 1.80 0.97 1.20 ----------- ---------- ------------ ----------- ---------- ------------ NET ASSET VALUE PER ACCUMULATION UNIT (MegAnnuity) .......................... 2.36 0.82 0.84 ----------- ---------- ------------ ----------- ---------- ------------
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999
SEGREGATED SUB-ACCOUNTS -------------------------------------------------------- MONEY ASSET GROWTH BOND MARKET ALLOCATION ------------- ------------ ------------- ------------ Investment income (loss): Investment income distributions from underlying mutual fund (note 4) .. $ 1,216,273 6,950,288 2,832,683 21,955,364 Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) (3,458,004) (1,552,717) (726,283) (6,247,042) Mortality and expense charges (MultiOption Classic/Achiever) (note 3) . (1,432) (750) (2,332) (3,681) Administrative Charges (MegAnnuity) (note 3) .......................... (11,518) (8,161) (4,544) (12,415) Mortality and expense charges (Adjustable Income Annuity) (note 3) .... - - - - Administrative Charges (Adjustable Income Annuity) (note 3) ........... - - - - ------------- ------------ ------------- ------------ Investment income (loss) - net ...................................... (2,254,681) 5,388,660 2,099,524 15,692,226 ------------- ------------ ------------- ------------ Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund (note 4) ...... 7,321,816 2,796,242 - 25,221,531 ------------- ------------ ------------- ------------ Realized gains on sales of investments: Proceeds from sales ................................................. 48,016,016 31,329,399 116,588,946 82,786,777 Cost of investments sold ............................................ (37,318,496) (32,499,749) (116,588,946) (67,047,883) ------------- ------------ ------------- ------------ 10,697,520 (1,170,350) - 15,738,894 ------------- ------------ ------------- ------------ Net realized gains on investments ................................... 18,019,336 1,625,892 - 40,960,425 ------------- ------------ ------------- ------------ Net change in unrealized appreciation or depreciation of investments .................................................... 50,293,092 (12,138,764) - 12,248,124 ------------- ------------ ------------- ------------ Net gains (losses) on investments ................................... 68,312,428 (10,512,872) - 53,208,549 ------------- ------------ ------------- ------------ Net increase (decrease) in net assets resulting from operations ......... $ 66,057,747 (5,124,212) 2,099,524 68,900,775 ------------- ------------ ------------- ------------ ------------- ------------ ------------- ------------ SEGREGATED SUB-ACCOUNTS --------------------------------------------- MORTGAGE INDEX CAPITAL SECURITIES 500 APPRECIATION ------------ ----------- ------------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4) .. 5,888,726 6,261,969 - Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) (1,219,304) (4,150,957) (3,091,406) Mortality and expense charges (MultiOption Classic/Achiever) (note 3) . (1,155) (2,136) (763) Administrative Charges (MegAnnuity) (note 3) .......................... (2,851) (23,085) (12,095) Mortality and expense charges (Adjustable Income Annuity) (note 3) .... - (184,538) - Administrative Charges (Adjustable Income Annuity) (note 3) ........... - (34,602) - ------------ ----------- ------------- Investment income (loss) - net ...................................... 4,665,416 1,866,651 (3,104,264) ------------ ----------- ------------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund (note 4) ...... - 4,842,801 35,390,810 ------------ ----------- ------------- Realized gains on sales of investments: Proceeds from sales ................................................. 26,190,893 76,250,729 54,508,699 Cost of investments sold ............................................ (26,137,445) (48,867,723) (41,509,406) ------------ ----------- ------------- 53,448 27,383,006 12,999,293 ------------ ----------- ------------- Net realized gains on investments ................................... 53,448 32,225,807 48,390,103 ------------ ----------- ------------- Net change in unrealized appreciation or depreciation of investments .................................................... (3,945,102) 31,274,622 4,294,708 ------------ ----------- ------------- Net gains (losses) on investments ................................... (3,891,654) 63,500,429 52,684,811 ------------ ----------- ------------- Net increase (decrease) in net assets resulting from operations ......... 773,762 65,367,080 49,580,547 ------------ ----------- ------------- ------------ ----------- -------------
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999
SEGREGATED SUB-ACCOUNTS -------------------------------------------------- MATURING SMALL GOVERNMENT INTERNATIONAL COMPANY BOND STOCK GROWTH 2002 -------------- ------------ ------------ Investment income (loss): Investment income distributions from underlying mutual fund (note 4) .. $ 5,304,166 - 421,025 Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) (2,551,540) (1,492,414) (87,077) Mortality and expense charges (MultiOption Classic/Achiever) (note 3) . (855) (533) (15) Administrative Charges (MegAnnuity) (note 3) .......................... (7,970) (4,553) (1,380) Mortality and expense charges (Adjustable Income Annuity) (note 3) .... - - - Administrative Charges (Adjustable Income Annuity) (note 3) ........... - - - -------------- ------------ ------------ Investment income (loss) - net ...................................... 2,743,801 (1,497,500) 332,553 -------------- ------------ ------------ Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund (note 4) ...... 10,304,189 - - -------------- ------------ ------------ Realized gains on sales of investments: Proceeds from sales ................................................. 48,332,606 33,118,273 1,740,616 Cost of investments sold ............................................ (41,708,533) (29,374,223) (1,722,269) -------------- ------------ ------------ 6,624,073 3,744,050 18,347 -------------- ------------ ------------ Net realized gains on investments ................................... 16,928,262 3,744,050 18,347 -------------- ------------ ------------ Net change in unrealized appreciation or depreciation of investments .................................................... 18,877,885 47,912,509 (462,548) -------------- ------------ ------------ Net gains (losses) on investments ................................... 35,806,147 51,656,559 (444,201) -------------- ------------ ------------ Net increase (decrease) in net assets resulting from operations ......... $ 38,549,948 50,159,059 (111,648) -------------- ------------ ------------ -------------- ------------ ------------ SEGREGATED SUB-ACCOUNTS ------------------------------------------- MATURING MATURING GOVERNMENT GOVERNMENT BOND BOND VALUE 2006 2010 STOCK -------------- ----------- ------------ Investment income (loss): Investment income distributions from underlying mutual fund (note 4) .. 374,252 230,926 4,050,401 Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) (76,319) (64,889) (1,759,082) Mortality and expense charges (MultiOption Classic/Achiever) (note 3) . (101) (4) (423) Administrative Charges (MegAnnuity) (note 3) .......................... (630) (266) (3,756) Mortality and expense charges (Adjustable Income Annuity) (note 3) .... - - - Administrative Charges (Adjustable Income Annuity) (note 3) ........... - - - -------------- ----------- ------------ Investment income (loss) - net ...................................... 297,202 165,767 2,287,140 -------------- ----------- ------------ Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund (note 4) ...... - 10,510 - -------------- ----------- ------------ Realized gains on sales of investments: Proceeds from sales ................................................. 1,789,392 2,075,487 40,309,094 Cost of investments sold ............................................ (1,741,443) (2,069,631) (37,674,442) -------------- ----------- ------------ 47,949 5,856 2,634,652 -------------- ----------- ------------ Net realized gains on investments ................................... 47,949 16,366 2,634,652 -------------- ----------- ------------ Net change in unrealized appreciation or depreciation of investments .................................................... (960,318) (913,774) (6,443,650) -------------- ----------- ------------ Net gains (losses) on investments ................................... (912,369) (897,408) (3,808,998) -------------- ----------- ------------ Net increase (decrease) in net assets resulting from operations ......... (615,167) (731,641) (1,521,858) -------------- ----------- ------------ -------------- ----------- ------------
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------ SMALL COMPANY GLOBAL INDEX 400 MACRO-CAP VALUE BOND MID-CAP VALUE ------------ ------------ ------------ ----------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4) .. $ 121,512 878,074 66,856 81,181 Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) (106,880) (382,244) (146,109) (171,858) Mortality and expense charges (MultiOption Classic/Achiever) (note 3) . (191) (313) (606) (169) Administrative Charges (MegAnnuity) (note 3) .......................... (444) (129) (480) (374) Mortality and expense charges (Adjustable Income Annuity) (note 3) .... - - - - Administrative Charges (Adjustable Income Annuity) (note 3) ........... - - - - ------------ ------------ ------------ ----------- Investment income (loss) - net ...................................... 13,997 495,388 (80,339) (91,220) ------------ ------------ ------------ ----------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund (note 4) ...... - 138,813 1,270,620 696,871 ------------ ------------ ------------ ----------- Realized gains (losses) on sales of investments: Proceeds from sales ................................................. 1,803,354 3,371,458 2,139,232 2,273,590 Cost of investments sold ............................................ (1,964,941) (3,507,115) (2,011,906) (2,115,511) ------------ ------------ ------------ ----------- (161,587) (135,657) 127,326 158,079 ------------ ------------ ------------ ----------- Net realized gains (losses) on investments .......................... (161,587) 3,156 1,397,946 854,950 ------------ ------------ ------------ ----------- Net change in unrealized appreciation or depreciation of investments (145,818) (3,362,094) 631,352 78,827 ------------ ------------ ------------ ----------- Net gains (losses) on investments ................................... (307,405) (3,358,938) 2,029,298 933,777 ------------ ------------ ------------ ----------- Net increase (decrease) in net assets resulting from operations .......... $ (293,408) (2,863,550) 1,948,959 842,557 ------------ ------------ ------------ ----------- ------------ ------------ ------------ ----------- SEGREGATED SUB-ACCOUNTS ------------------------------------------- REAL TEMPLETON MICRO-CAP ESTATE DEVELOPING GROWTH SECURITIES MARKETS ------------- ---------- ------------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4) .. - 278,798 41,274 Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) (158,745) (63,555) (61,821) Mortality and expense charges (MultiOption Classic/Achiever) (note 3) . (692) (15) (335) Administrative Charges (MegAnnuity) (note 3) .......................... (250) (46) (1,191) Mortality and expense charges (Adjustable Income Annuity) (note 3) .... - - - Administrative Charges (Adjustable Income Annuity) (note 3) ........... - - - ------------- ---------- ------------- Investment income (loss) - net ...................................... (159,687) 215,182 (22,073) ------------- ---------- ------------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund (note 4) ...... - - - ------------- ---------- ------------- Realized gains (losses) on sales of investments: Proceeds from sales ................................................. 1,869,456 650,164 27,924,792 Cost of investments sold ............................................ (1,413,012) (767,886) (27,952,683) ------------- ---------- ------------- 456,444 (117,722) (27,891) ------------- ---------- ------------- Net realized gains (losses) on investments .......................... 456,444 (117,722) (27,891) ------------- ---------- ------------- Net change in unrealized appreciation or depreciation of investments 15,639,140 (383,438) 2,207,898 ------------- ---------- ------------- Net gains (losses) on investments ................................... 16,095,584 (501,160) 2,180,007 ------------- ---------- ------------- Net increase (decrease) in net assets resulting from operations .......... 15,935,897 (285,978) 2,157,934 ------------- ---------- ------------- ------------- ---------- -------------
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1999
SEGREGATED SUB-ACCOUNTS ----------------------------------------------------------------- MONEY ASSET GROWTH BOND MARKET ALLOCATION ------------- ------------- ------------- ------------- Operations: Investment income (loss) - net .............................. $ (2,254,681) 5,388,660 2,099,524 15,692,226 Net realized gains on investments ........................... 18,019,336 1,625,892 - 40,960,425 Net change in unrealized appreciation or depreciation of investments .......................................... 50,293,092 (12,138,764) - 12,248,124 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations 66,057,747 (5,124,212) 2,099,524 68,900,775 ------------- ------------- ------------- ------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select .......................... 50,375,114 21,764,953 97,482,632 79,896,349 MultiOption Classic/Achiever ............................ 1,770,529 770,380 4,028,348 4,517,172 MegAnnuity .............................................. 2,451,486 1,595,769 40,082,783 1,775,775 Adjustable Income Annuity ............................... - - - - Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select .......................... (42,408,777) (28,146,686) (74,569,730) (73,367,680) MultiOption Classic/Achiever ............................ (746) (680) (625,007) (1,042,065) MegAnnuity .............................................. (1,778,180) (1,417,081) (40,635,718) (1,428,107) Adjustable Income Annuity ............................... - - - - Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select .......................... (7,146) 3,752 (3,307) 15,031 MultiOption Classic/Achiever ............................ - - - - MegAnnuity .............................................. 48 56 - 134 Adjustable Income Annuity ............................... - - - - Annuity benefit payments: MultiOption Flex/Single/Select .......................... (342,750) (205,229) (22,024) (671,498) MultiOption Classic/Achiever ............................ - - - - MegAnnuity .............................................. (7,511) (1,898) - (29,455) Adjustable Income Annuity ............................... - - - - ------------- ------------- ------------- ------------- Increase (decrease) in net assets from contract transactions .. 10,052,067 (5,636,664) 25,737,977 9,665,656 ------------- ------------- ------------- ------------- Increase (decrease) in net assets ............................. 76,109,814 (10,760,876) 27,837,501 78,566,431 Net assets at the beginning of year ........................... 264,331,794 133,972,916 49,909,087 489,966,528 ------------- ------------- ------------- ------------- Net assets at the end of year ................................. $ 340,441,608 123,212,040 77,746,588 568,532,959 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- SEGREGATED SUB-ACCOUNTS ----------------------------------------------- MORTGAGE INDEX CAPITAL SECURITIES 500 APPRECIATION ------------- ------------- ------------- Operations: Investment income (loss) - net .............................. 4,665,416 1,866,651 (3,104,264) Net realized gains on investments ........................... 53,448 32,225,807 48,390,103 Net change in unrealized appreciation or depreciation of investments .......................................... (3,945,102) 31,274,622 4,294,708 ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations 773,762 65,367,080 49,580,547 ------------- ------------- ------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select .......................... 23,575,223 88,025,964 29,786,676 MultiOption Classic/Achiever ............................ 996,373 2,125,515 693,669 MegAnnuity .............................................. 703,369 5,724,390 1,390,385 Adjustable Income Annuity ............................... - 16,412,426 - Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select .......................... (24,617,363) (63,918,267) (48,734,480) MultiOption Classic/Achiever ............................ (210) (859) (92) MegAnnuity .............................................. (204,506) (4,957,879) (2,322,797) Adjustable Income Annuity ............................... - (1,040,198) - Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select .......................... 3,502 (2,381) (13,552) MultiOption Classic/Achiever ............................ - - - MegAnnuity .............................................. - 279 22 Adjustable Income Annuity ............................... - 30,526 - Annuity benefit payments: MultiOption Flex/Single/Select .......................... (149,006) (428,960) (330,639) MultiOption Classic/Achiever ............................ - - - MegAnnuity .............................................. - (5,714) (2,897) Adjustable Income Annuity ............................... - (1,531,959) - ------------- ------------- ------------- Increase (decrease) in net assets from contract transactions .. 307,382 40,432,883 (19,533,705) ------------- ------------- ------------- Increase (decrease) in net assets ............................. 1,081,144 105,799,963 30,046,842 Net assets at the beginning of year ........................... 97,408,573 321,468,279 269,318,233 ------------- ------------- ------------- Net assets at the end of year ................................. 98,489,717 427,268,242 299,365,075 ------------- ------------- ------------- ------------- ------------- -------------
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1999
SEGREGATED SUB-ACCOUNTS ------------------------------------------------- MATURING SMALL GOVERNMENT INTERNATIONAL COMPANY BOND STOCK GROWTH 2002 --------------- --------------- ------------- Operations: Investment income (loss) - net ............................................ $ 2,743,801 (1,497,500) 332,553 Net realized gains on investments ......................................... 16,928,262 3,744,050 18,347 Net change in unrealized appreciation or depreciation of investments ....................................................... 18,877,885 47,912,509 (462,548) --------------- --------------- ------------- Net increase (decrease) in net assets resulting from operations ................ 38,549,948 50,159,059 (111,648) --------------- --------------- ------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select ....................................... 22,772,482 16,000,752 2,421,924 MultiOption Classic/Achiever ......................................... 900,786 627,050 21,644 MegAnnuity ........................................................... 992,032 994,221 2,626,630 Adjustable Income Annuity ............................................ - - - Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select ....................................... (43,506,808) (30,229,689) (1,644,661) MultiOption Classic/Achiever ......................................... (103) (64) (2) MegAnnuity ........................................................... (1,948,801) (1,165,442) (4,962) Adjustable Income Annuity ............................................ - - - Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select ....................................... (16,316) (9,224) 33 MultiOption Classic/Achiever ......................................... - - - MegAnnuity ........................................................... 68 (3) - Adjustable Income Annuity ............................................ - - - Annuity benefit payments: MultiOption Flex/Single/Select ....................................... (288,178) (214,932) (2,553) MultiOption Classic/Achiever ......................................... - - - MegAnnuity ........................................................... (12,104) (1,418) - Adjustable Income Annuity ............................................ - - - --------------- --------------- ------------- Increase (decrease) in net assets from contract transactions ................... (21,106,942) (13,998,749) 3,418,053 --------------- --------------- ------------- Increase (decrease) in net assets .............................................. 17,443,006 36,160,310 3,306,405 Net assets at the beginning of year ............................................ 208,892,703 129,255,925 6,852,927 --------------- --------------- ------------- Net assets at the end of year .................................................. $ 226,335,709 165,416,235 10,159,332 --------------- --------------- ------------- --------------- --------------- ------------- SEGREGATED SUB-ACCOUNTS -------------------------------------------------- MATURING MATURING GOVERNMENT GOVERNMENT BOND BOND VALUE 2006 2010 STOCK -------------- -------------- -------------- Operations: Investment income (loss) - net ............................................ 297,202 165,767 2,287,140 Net realized gains on investments ......................................... 47,949 16,366 2,634,652 Net change in unrealized appreciation or depreciation of investments ....................................................... (960,318) (913,774) (6,443,650) -------------- -------------- -------------- Net increase (decrease) in net assets resulting from operations ................ (615,167) (731,641) (1,521,858) -------------- -------------- -------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select ....................................... 1,526,636 2,030,474 18,700,154 MultiOption Classic/Achiever ......................................... 103,443 4,215 393,048 MegAnnuity ........................................................... 88,210 230 649,546 Adjustable Income Annuity ............................................ - - - Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select ....................................... (1,675,064) (1,957,748) (37,110,285) MultiOption Classic/Achiever ......................................... (12) - (51) MegAnnuity ........................................................... (4,530) (23,905) (1,172,623) Adjustable Income Annuity ............................................ - - - Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select ....................................... 1,110 1,057 (570) MultiOption Classic/Achiever ......................................... - - - MegAnnuity ........................................................... 168 57 (133) Adjustable Income Annuity ............................................ - - - Annuity benefit payments: MultiOption Flex/Single/Select ....................................... (30,605) (29,386) (260,590) MultiOption Classic/Achiever ......................................... - - - MegAnnuity ........................................................... (3,409) (403) (1,581) Adjustable Income Annuity ............................................ - - - -------------- -------------- -------------- Increase (decrease) in net assets from contract transactions ................... 5,947 24,591 (18,803,085) -------------- -------------- -------------- Increase (decrease) in net assets .............................................. (609,220) (707,050) (20,324,943) Net assets at the beginning of year ............................................ 6,868,481 5,644,926 154,497,444 -------------- -------------- -------------- Net assets at the end of year .................................................. 6,259,261 4,937,876 134,172,501 -------------- -------------- -------------- -------------- -------------- --------------
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1999
SEGREGATED SUB-ACCOUNTS -------------------------------------------------------------- SMALL COMPANY GLOBAL INDEX 400 MACRO-CAP VALUE BOND MID-CAP VALUE ------------- ------------- ------------- ------------- Operations: Investment income (loss) - net ............................ $ 13,997 495,388 (80,339) (91,220) Net realized gains (losses) on investments ................ (161,587) 3,156 1,397,946 854,950 Net change in unrealized appreciation or depreciation of investments ........................................ (145,818) (3,362,094) 631,352 78,827 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations . (293,408) (2,863,550) 1,948,959 842,557 ------------- ------------- ------------- ------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select ........................ 3,951,669 5,402,475 6,644,292 9,106,528 MultiOption Classic/Achiever .......................... 172,769 339,782 398,478 237,806 MegAnnuity ............................................ 132,181 91,001 195,712 316,809 Adjustable Income Annuity ............................. - - - - Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select ........................ (1,399,857) (2,969,821) (1,850,467) (2,069,201) MultiOption Classic/Achiever .......................... (331) (37) (73) (20) MegAnnuity ............................................ (264,558) (1,089) (126,401) (13,417) Adjustable Income Annuity ............................. - - - - Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select ........................ 1,175 138 188 372 MultiOption Classic/Achiever .......................... - - - - MegAnnuity ............................................ - 1 (2) 1 Adjustable Income Annuity ............................. - - - - Annuity benefit payments: MultiOption Flex/Single/Select ........................ (32,243) (17,940) (15,257) (18,875) MultiOption Classic/Achiever .......................... - - - - MegAnnuity ............................................ (24) (25) (25) (48) Adjustable Income Annuity ............................. - - - - ------------- ------------- ------------- ------------- Increase in net assets from contract transactions ............... 2,560,781 2,844,485 5,246,445 7,559,955 ------------- ------------- ------------- ------------- Increase (decrease) in net assets ............................... 2,267,373 (19,065) 7,195,404 8,402,512 Net assets at the beginning of year ............................. 7,851,143 30,823,257 9,358,774 10,209,903 ------------- ------------- ------------- ------------- Net assets at the end of year ................................... $ 10,118,516 30,804,192 16,554,178 18,612,415 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- SEGREGATED SUB-ACCOUNTS --------------------------------------------- REAL TEMPLETON MICRO-CAP ESTATE DEVELOPING GROWTH SECURITIES MARKETS ------------- ------------ ------------- Operations: Investment income (loss) - net ............................ (159,687) 215,182 (22,073) Net realized gains (losses) on investments ................ 456,444 (117,722) (27,891) Net change in unrealized appreciation or depreciation of investments ........................................ 15,639,140 (383,438) 2,207,898 ------------- ------------ ------------- Net increase (decrease) in net assets resulting from operations . 15,935,897 (285,978) 2,157,934 ------------- ------------ ------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select ........................ 9,266,982 898,091 4,760,534 MultiOption Classic/Achiever .......................... 626,486 16,835 290,558 MegAnnuity ............................................ 249,289 49,362 27,247,119 Adjustable Income Annuity ............................. - - - Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select ........................ (1,687,229) (582,994) (1,303,383) MultiOption Classic/Achiever .......................... (83) (2) (206) MegAnnuity ............................................ (3,824) (2,110) (26,984,731) Adjustable Income Annuity ............................. - - - Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select ........................ 145 - 1,015 MultiOption Classic/Achiever .......................... - - - MegAnnuity ............................................ (1) - (760) Adjustable Income Annuity ............................. - - - Annuity benefit payments: MultiOption Flex/Single/Select ........................ (18,746) (1,442) (81,211) MultiOption Classic/Achiever .......................... - - - MegAnnuity ............................................ (32) - (13) Adjustable Income Annuity ............................. - - - ------------- ------------ ------------- Increase in net assets from contract transactions ............... 8,432,987 377,740 3,928,922 ------------- ------------ ------------- Increase (decrease) in net assets ............................... 24,368,884 91,762 6,086,856 Net assets at the beginning of year ............................. 7,241,667 5,075,867 3,016,935 ------------- ------------ ------------- Net assets at the end of year ................................... 31,610,551 5,167,629 9,103,791 ------------- ------------ ------------- ------------- ------------ -------------
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1998
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------ MONEY ASSET GROWTH BOND MARKET ALLOCATION --------------- ------------- ------------- ---------------- Operations: Investment income (loss) - net ...................... $ (757,899) 5,096,987 1,421,466 5,708,809 Net realized gains on investments ................... 35,969,150 2,143,010 - 41,108,373 Net change in unrealized appreciation or depreciation of investments ................................... 28,752,083 (1,508,399) - 41,516,841 --------------- ------------- ------------- ---------------- Net increase in net assets resulting from operations ..... 63,963,334 5,731,598 1,421,466 88,334,023 --------------- ------------- ------------- ---------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: Personal Retirement Plans ........................ 51,637,934 41,441,722 72,457,091 70,303,040 MegAnnuity ....................................... 2,288,260 2,374,930 3,391,144 1,777,956 Adjustable Income Annuity ........................ - - - - Contract terminations and withdrawal payments: Personal Retirement Plans ........................ (36,450,685) (21,212,178) (58,811,259) (65,726,252) MegAnnuity ....................................... (1,455,740) (866,165) (1,931,680) (1,155,438) Adjustable Income Annuity ........................ - - - - Actuarial adjustments for mortality experience on annuities in payment period: Personal Retirement Plans ........................ 1,950 (43,058) 27 (4,603) MegAnnuity ....................................... 18 51 - 62 Adjustable Income Annuity ........................ - - - - Annuity benefit payments: Personal Retirement Plans ........................ (201,089) (140,143) (6,516) (441,066) MegAnnuity ....................................... (4,132) (1,922) - (26,300) Adjustable Income Annuity ........................ - - - - --------------- ------------- ------------- ---------------- Increase in net assets from contract transactions ........ 15,816,516 21,553,237 15,098,807 4,727,399 --------------- ------------- ------------- ---------------- Increase in net assets ................................... 79,779,850 27,284,835 16,520,273 93,061,422 Net assets at the beginning of year ...................... 184,551,944 106,688,081 33,388,814 396,905,106 --------------- ------------- ------------- ---------------- Net assets at the end of year ............................ $ 264,331,794 133,972,916 49,909,087 489,966,528 --------------- ------------- ------------- ---------------- --------------- ------------- ------------- ---------------- SEGREGATED SUB-ACCOUNTS -------------------------------------------------- MORTGAGE INDEX CAPITAL SECURITIES 500 APPRECIATION ----------------- ------------- --------------- Operations: Investment income (loss) - net ...................... 3,497,879 (971,183) (2,785,999) Net realized gains on investments ................... 653,974 19,013,210 23,604,148 Net change in unrealized appreciation or depreciation of investments ................................... 233,763 45,447,205 39,001,666 ----------------- ------------- --------------- Net increase in net assets resulting from operations ..... 4,385,616 63,489,232 59,819,815 ----------------- ------------- --------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: Personal Retirement Plans ........................ 33,557,094 67,949,692 37,672,274 MegAnnuity ....................................... 969,771 3,417,868 1,306,737 Adjustable Income Annuity ........................ - 6,647,680 - Contract terminations and withdrawal payments: Personal Retirement Plans ........................ (17,949,781) (42,752,201) (34,786,814) MegAnnuity ....................................... (479,285) (3,364,285) (1,158,543) Adjustable Income Annuity ........................ - (655,211) - Actuarial adjustments for mortality experience on annuities in payment period: Personal Retirement Plans ........................ (12,738) (13,196) (1,165) MegAnnuity ....................................... - 161 16 Adjustable Income Annuity ........................ - 81,585 - Annuity benefit payments: Personal Retirement Plans ........................ (85,620) (231,073) (212,803) MegAnnuity ....................................... - (2,538) (2,573) Adjustable Income Annuity ........................ - (794,250) - ----------------- ------------- --------------- Increase in net assets from contract transactions ........ 15,999,441 30,284,232 2,817,129 ----------------- ------------- --------------- Increase in net assets ................................... 20,385,057 93,773,464 62,636,944 Net assets at the beginning of year ...................... 77,023,516 227,694,815 206,681,289 ----------------- ------------- --------------- Net assets at the end of year ............................ 97,408,573 321,468,279 269,318,233 ----------------- ------------- --------------- ----------------- ------------- ---------------
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1998
SEGREGATED SUB-ACCOUNTS ----------------------------------------------------------- MATURING MATURING SMALL GOVERNMENT GOVERNMENT INTERNATIONAL COMPANY BOND BOND STOCK GROWTH 2002 2006 -------------- ------------- ------------ ------------- Operations: Investment income (loss) - net ........................... $ 3,125,103 (1,526,143) 266,243 258,869 Net realized gains on investments ........................ 12,699,612 1,655,860 104,469 156,665 Net change in unrealized appreciation or depreciation of investments ........................................ (5,845,206) (882,409) 31,481 218,033 -------------- ------------- ------------ ------------- Net increase (decrease) in net assets resulting from operations 9,979,509 (752,692) 402,193 633,567 -------------- ------------- ------------ ------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: Personal Retirement Plans ............................. 36,659,650 28,012,351 2,697,576 3,409,399 MegAnnuity ............................................ 1,096,968 1,086,917 104,356 206,525 Adjustable Income Annuity ............................. - - - - Contract terminations and withdrawal payments: Personal Retirement Plans ............................. (42,040,850) (24,558,706) (536,207) (1,258,332) MegAnnuity ............................................ (2,122,613) (689,332) (8,740) (11,210) Adjustable Income Annuity ............................. - - - - Actuarial adjustments for mortality experience on annuities in payment period: Personal Retirement Plans ............................. (2,076) (34,522) 11,619 14,151 MegAnnuity ............................................ 362 124 - 1,019 Adjustable Income Annuity ............................. - - - - Annuity benefit payments: Personal Retirement Plans ............................. (220,772) (170,663) (3,389) (23,275) MegAnnuity ............................................ (13,429) (1,198) - (2,341) Adjustable Income Annuity ............................. - - - - -------------- ------------- ------------ ------------- Increase (decrease) in net assets from contract transactions . (6,642,760) 3,644,971 2,265,215 2,335,936 -------------- ------------- ------------ ------------- Increase (decrease) in net assets ............................. 3,336,749 2,892,279 2,667,408 2,969,503 Net assets at the beginning of year ........................... 205,555,954 126,363,646 4,185,519 3,898,978 -------------- ------------- ------------ ------------- Net assets at the end of year ................................. $ 208,892,703 129,255,925 6,852,927 6,868,481 -------------- ------------- ------------ ------------- -------------- ------------- ------------ ------------- SEGREGATED SUB-ACCOUNTS ------------------------------ MATURING GOVERNMENT BOND VALUE 2010 STOCK -------------- -------------- Operations: Investment income (loss) - net ........................... 116,829 (1,889,523) Net realized gains on investments ........................ 183,887 2,176,444 Net change in unrealized appreciation or depreciation of investments ........................................ 233,938 (307,967) -------------- -------------- Net increase (decrease) in net assets resulting from operations 534,654 (21,046) -------------- -------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: Personal Retirement Plans ............................. 3,456,312 43,797,257 MegAnnuity ............................................ 25,510 1,341,893 Adjustable Income Annuity ............................. - - Contract terminations and withdrawal payments: Personal Retirement Plans ............................. (1,503,240) (38,307,284) MegAnnuity ............................................ (64,298) (1,811,450) Adjustable Income Annuity ............................. - - Actuarial adjustments for mortality experience on annuities in payment period: Personal Retirement Plans ............................. 3,086 3,280 MegAnnuity ............................................ 389 539 Adjustable Income Annuity ............................. - - Annuity benefit payments: Personal Retirement Plans ............................. 20,121 (198,093) MegAnnuity ............................................ (2,697) (3,411) Adjustable Income Annuity ............................. - - -------------- -------------- Increase (decrease) in net assets from contract transactions . 1,935,183 4,822,731 -------------- -------------- Increase (decrease) in net assets ............................. 2,469,837 4,801,685 Net assets at the beginning of year ........................... 3,175,089 149,695,759 -------------- -------------- Net assets at the end of year ................................. 5,644,926 154,497,444 -------------- -------------- -------------- --------------
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1998
SEGREGATED SUB-ACCOUNTS ----------------------------------------------------------- SMALL COMPANY GLOBAL INDEX 400 MACRO-CAP VALUE BOND MID-CAP VALUE --------------- ------------ ------------ ------------ Operations: Investment income (loss) - net ................................... $ 29,395 1,405,064 (19,463) (59,096) Net realized gains (losses) on investments ....................... 76,974 865,463 287,711 483,800 Net change in unrealized appreciation or depreciation of investments ................................................ (617,083) 1,473,702 955,141 1,007,945 --------------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations ....... (510,714) 3,744,229 1,223,389 1,432,649 --------------- ------------ ------------ ------------ Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: Personal Retirement Plans ...................................... 6,475,581 4,876,523 5,538,756 6,338,736 MegAnnuity ..................................................... 136,060 44,459 210,696 63,746 Adjustable Income Annuity ...................................... - - - - Contract terminations and withdrawal payments: Personal Retirement Plans ...................................... (3,395,717) (2,838,384) (2,645,937) (2,540,858) MegAnnuity ..................................................... (5,912) (16,675) (17,473) (3,721) Adjustable Income Annuity ...................................... - - - - Actuarial adjustments for mortality experience on annuities in payment period: Personal Retirement Plans ...................................... (2,310) (880) (576) (869) MegAnnuity ..................................................... - - - - Adjustable Income Annuity ...................................... - - - - Annuity benefit payments: Personal Retirement Plans ...................................... (23,150) (4,734) (1,971) (3,204) MegAnnuity ..................................................... - - - - Adjustable Income Annuity ...................................... - - - - --------------- ------------ ------------ ------------ Increase in net assets from contract transactions ..................... 3,184,552 2,060,309 3,083,495 3,853,830 --------------- ------------ ------------ ------------ Increase in net assets ................................................ 2,673,838 5,804,538 4,306,884 5,286,479 Net assets at the beginning of year ................................... 5,177,305 25,018,719 5,051,890 4,923,424 --------------- ------------ ------------ ------------ Net assets at the end of year ........................................ $ 7,851,143 30,823,257 9,358,774 10,209,903 --------------- ------------ ------------ ------------ --------------- ------------ ------------ ------------ SEGREGATED SUB-ACCOUNTS --------------------------------------------- REAL TEMPLETON MICRO-CAP ESTATE DEVELOPING GROWTH SECURITIES (a) MARKETS ------------- -------------- ------------ Operations: Investment income (loss) - net ................................... (65,522) 155,184 (6,121) Net realized gains (losses) on investments ....................... (94,680) (21,658) (41,787) Net change in unrealized appreciation or depreciation of investments ................................................ 953,763 (852,973) (444,051) ------------- -------------- ------------ Net increase (decrease) in net assets resulting from operations ...... 793,561 (719,447) (491,959) ------------- -------------- ------------ Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: Personal Retirement Plans ...................................... 3,203,379 5,877,266 3,575,326 MegAnnuity ..................................................... 105,113 10,489 70,613 Adjustable Income Annuity ...................................... - - - Contract terminations and withdrawal payments: Personal Retirement Plans ...................................... (1,387,271) (91,132) (650,918) MegAnnuity ..................................................... (57,134) (1,184) (3,025) Adjustable Income Annuity ...................................... - - - Actuarial adjustments for mortality experience on annuities in payment period: Personal Retirement Plans ...................................... (805) - (5,630) MegAnnuity ..................................................... - - - Adjustable Income Annuity ...................................... - - - Annuity benefit payments: Personal Retirement Plans ...................................... (6,101) (125) (15,524) MegAnnuity ..................................................... - - - Adjustable Income Annuity ...................................... - - - ------------- -------------- ------------ Increase in net assets from contract transactions ..................... 1,857,181 5,795,314 2,970,842 ------------- -------------- ------------ Increase in net assets ................................................ 2,650,742 5,075,867 2,478,883 Net assets at the beginning of year ................................... 4,590,925 - 538,052 ------------- -------------- ------------ Net assets at the end of year ........................................ 7,241,667 5,075,867 3,016,935 ------------- -------------- ------------ ------------- -------------- ------------
(a) Period from April 24, 1998, commencement of operations, to December 31, 1998. See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS (1) ORGANIZATION AND BASIS OF PRESENTATION The Variable Annuity Account (the Account), was established on September 10, 1984 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 currently offers six types of contracts each consisting of twenty segregated sub-accounts to which contract owners may allocate their purchase payments. The Account charges a mortality and expense risk charge, which varies based on the group-sponsored insurance program under which the contract is issued. The differentiating features of the contracts are described in notes 2 and 3 below. 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 segregated sub-accounts. Such payments are then invested in shares of Advantus Series Fund, Inc. and Templeton Variable Products Series Fund (Underlying Funds). The Advantus Series Fund, Inc. was organized by Minnesota Life as the investment vehicle for its variable annuity contracts and variable life policies. 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. Payments allocated to 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, Real Estate Securities, and Templeton Developing Markets 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. and Templeton Developing Markets Fund - Class 2 of the Templeton Variable Products Series Fund, respectively. Ascend Financial Services, Inc. acts as the underwriter for the Account. Advantus Capital Management, Inc. acts as the investment adviser for the Advantus Series Fund, Inc. Ascend Financial Services, Inc. is a wholly-owned subsidiary of Advantus Capital Management, Inc. and Advantus Capital Management, Inc. is a wholly-owned subsidiary of Minnesota Life. (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. 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. 2 VARIABLE ANNUITY ACCOUNT (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 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. CONTRACTS IN ANNUITY PAYMENT PERIOD MULTIOPTION FLEX/SINGLE/SELECT AND MULTIOPTION CLASSIC/ACHIEVER: Annuity reserves are computed for currently payable contracts according to the mortality and assumed interest rate assumptions used to purchase the annuity income. Charges to annuity reserves for mortality and risk expense are reimbursed to Minnesota Life if the reserves required are less than originally estimated. If additional reserves are required, Minnesota Life reimburses the Account. MEGANNUITY: Annuity reserves are computed for currently payable contracts according to the Progressive Annuity Mortality Table, using an assumed interest rate of 3.5 percent. Charges to annuity reserves for mortality and risk expense are reimbursed to Minnesota Life if the reserves required are less than originally estimated. If additional reserves are required, Minnesota Life reimburses the Account. ADJUSTABLE INCOME ANNUITY: Annuity reserves are computed for currently payable contracts according to the Individual Annuity 1983 Table A, using an assumed interest rate of 4.5 percent. Charges to annuity reserves for mortality and risk expense are reimbursed to Minnesota Life if the reserves required are less than originally estimated. If additional reserves are required, Minnesota Life reimburses the Account. (3) CONTRACT CHARGES MULTIOPTION FLEX/SINGLE/SELECT: The mortality and expense charge paid to Minnesota Life is computed daily and is equal, on an annual basis, to 1.25 percent of the average daily net assets of the Account. Under certain conditions, the charge may be increased to 1.40 percent of the average daily net assets of the Account. A contingent deferred sales charge may be imposed on a Multi-Option Annuity or Multi-Option Select contract owner during the first ten years or first seven years, respectively, if a contract's accumulation value is reduced by a withdrawal or surrender. Total sales charges deducted from redemption proceeds for the years ended December 31, 1999 and 1998 amounted to $4,481,055 and $3,304,803, respectively. MULTIOPTION CLASSIC/ACHIEVER: The mortality and expense charge paid to Minnesota Life is computed daily and is equal, on an annual basis, to 1.25 percent of the average daily net assets of the Account. Under certain conditions, the charge may be increased to 1.40 percent of the average daily net assets of the Account. A contingent deferred sales charge may be imposed on a Multi-Option Classic or Multi-Option Achiever contract owner during the first seven years or first ten years, respectively, if a contract's accumulation value is reduced by a withdrawal or surrender. There were no sales charges deducted from redemption proceeds for the year ended December 31, 1999. 3 VARIABLE ANNUITY ACCOUNT (3) CONTRACT CHARGES - CONTINUED MEGANNUITY: The administrative charge paid to Minnesota Life is equal, on an annual basis, to .15 percent of the average daily net assets of the Account. Under certain conditions, the charge may be increased to not more than .35 percent of the average daily net assets of the Account. Premium taxes may be deducted from purchase payments or at the commencement of annuity payments. Currently such taxes range from 0 to 3.5 percent depending on the applicable state law. No premium taxes were deducted from purchase payments for the years ended December 31, 1999 and 1998. ADJUSTABLE INCOME ANNUITY: The mortality and expense risk charge paid to Minnesota Life is computed daily and is equal, on an annual basis, to .80 percent of the average daily net assets of the Account. Under certain conditions, the charge may be increased to not more than 1.40 percent of the average daily net assets of the Account. The 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 administrative charge may be increased to not more than .40 percent of the average daily net assets of the Account. Contract purchase payments for Adjustable Income Annuity are reflected net of the following charges paid to Minnesota Life: A sales charge ranging from 3.75 to 4.50 percent, depending upon the total amount of purchase payments, is deducted from each contract purchase payment. Total sales charges deducted from contract purchase payments for the years ended December 31, 1999 and 1998 amounted to $9,925 and $111,222, respectively. A risk charge in the amount of 1.25 percent is deducted from each contract purchase payment. Under certain conditions, the risk charge may be as high as 2.00 percent. Total risk charges deducted from contract purchase payments for the years ended December 31, 1999 and 1998 amounted to $119,048 and $30,895, respectively. A premium tax charge of up to 3.50 percent is deducted from each contract purchase payment. Total premium tax charges deducted from contract purchase payments for the years ended December 31, 1999 and 1998 amounted to $3,773 and $121, respectively. 4 VARIABLE ANNUITY ACCOUNT (4) INVESTMENT TRANSACTIONS The Account's purchases of Underlying Funds shares, including reinvestment of dividend distributions, were as follows during the year ended December 31, 1999:
1999 --------------- Growth Portfolio .................................$ 63,135,218 Bond Portfolio ................................... 33,877,637 Money Market Portfolio ........................... 144,426,447 Asset Allocation Portfolio ....................... 133,366,190 Mortgage Securities Portfolio .................... 31,163,691 Index 500 Portfolio .............................. 123,393,064 Capital Appreciation Portfolio ................... 67,261,540 International Stock Portfolio .................... 40,273,654 Small Company Growth Portfolio ................... 17,622,024 Maturing Government Bond 1998 Portfolio .......... - Maturing Government Bond 2002 Portfolio .......... 5,491,222 Maturing Government Bond 2006 Portfolio .......... 2,092,541 Maturing Government Bond 2010 Portfolio .......... 2,276,355 Value Stock Portfolio ............................ 23,793,149 Small Company Value Portfolio..................... 4,378,296 Global Bond Portfolio............................. 6,850,146 Index 400 Mid-Cap Portfolio ...................... 8,575,958 Macro-Cap Value Portfolio ........................ 10,439,196 Micro-Cap Growth Portfolio ....................... 10,142,756 Real Estate Securities Portfolio ................. 1,243,086 Templeton Developing Markets Fund ................ 31,831,641
5 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MULTIOPTION FLEX/SINGLE/SELECT Transactions in units for each segregated sub-account for the years ended December 31, 1999 and 1998 were as follows:
SEGREGATED SUB-ACCOUNTS -------------------------------------------------------------------- MONEY ASSET MORTGAGE GROWTH BOND MARKET ALLOCATION SECURITIES ------------ ------------ ------------ ------------ ------------ Units outstanding at December 31, 1997 ......................... 44,705,247 43,266,404 19,804,841 119,491,402 34,751,197 Contract purchase payments ............................ 11,145,679 16,757,246 43,552,011 19,570,064 14,779,503 Deductions for contract terminations, withdrawal payments and charges ................ (8,045,075) (8,682,491) (35,397,177) (18,688,238) (8,023,362) ------------ ------------ ------------ ------------ ------------ Units outstanding at December 31, 1998 ......................... 47,805,851 51,341,159 27,959,675 120,373,228 41,507,338 Contract purchase payments ............................ 9,013,901 8,746,000 56,607,809 19,260,225 10,151,505 Deductions for contract terminations, withdrawal payments and charges ................. (7,603,095) (11,627,689) (43,366,868) (18,111,054) (10,721,250) ------------ ------------ ------------ ------------ ------------ Units outstanding at December 31, 1999 ......................... 49,216,657 48,459,470 41,200,616 121,522,399 40,937,593 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------- SMALL INDEX CAPITAL INTERNATIONAL COMPANY 500 APPRECIATION STOCK GROWTH ------------ ------------ ------------- ------------ Units outstanding at December 31, 1997 ......................... 54,579,265 53,582,481 103,600,602 68,590,765 Contract purchase payments ............................ 15,789,448 8,967,037 17,507,237 15,655,645 Deductions for contract terminations, withdrawal payments and charges ................ (10,100,150) (8,655,037) (21,151,100) (14,456,560) ------------ ------------ ------------- ------------ Units outstanding at December 31, 1998 ......................... 60,268,563 53,894,481 99,956,739 69,789,850 Contract purchase payments ............................ 16,766,526 6,273,116 10,351,698 8,682,270 Deductions for contract terminations, withdrawal payments and charges ................ (12,299,226) (10,441,711) (20,324,515) (16,750,196) ------------ ------------ ------------- ------------ Units outstanding at December 31, 1999 ......................... 64,735,863 49,725,886 89,983,922 61,721,924 ------------ ------------ ------------- ------------ ------------ ------------ ------------- ------------
6 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED -------------------------------------------------------------------------
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------------ MATURING MATURING MATURING SMALL GOVERNMENT GOVERNMENT GOVERNMENT VALUE COMPANY BOND 2002 BOND 2006 BOND 2010 STOCK VALUE ------------- ------------- ------------- -------------- ------------- Units outstanding at December 31, 1997 ............... 2,938,848 2,665,421 2,017,743 68,251,135 4,822,504 Contract purchase payments ................... 1,966,007 2,048,990 1,948,023 20,251,001 5,908,905 Deductions for contract terminations, withdrawal payments and charges ........ (377,892) (833,184) (919,654) (18,520,135) (3,175,808) ----------- ------------ ---------- ------------- ------------ Units outstanding December 31, 1998 ............... 4,526,963 3,881,227 3,046,112 69,982,001 7,555,601 Contract purchase payments ................... 1,794,875 1,057,788 1,311,371 8,642,347 4,423,543 Deductions for contract terminations, withdrawal payments and charges ....... (1,231,344) (1,162,822) (1,277,639) (17,394,008) (1,556,437) ----------- ------------ ---------- ------------- ------------ Units outstanding at December 31, 1999 ............... 5,090,494 3,776,193 3,079,844 61,230,340 10,422,707 ========== ============ ========== ============= ============ SEGREGATED SUB-ACCOUNTS -------------------------------------------------------------------------------------------- REAL TEMPLETON GLOBAL INDEX 400 MACRO-CAP MICRO-CAP ESTATE DEVELOPING BOND MID-CAP VALUE GROWTH SECURITIES MARKETS -------------- ------------- ------------- ------------- -------------- -------------- Units outstanding at December 31, 1997 ............... 25,083,345 5,020,041 5,003,390 5,019,479 - 724,374 Contract purchase payments ................... 4,365,049 5,194,349 5,753,309 3,282,037 5,998,094 5,312,035 Deductions for contract terminations, withdrawal payments and charges ....... (2,607,087) (2,435,110) (2,270,829) (1,378,864) (110,703) (1,127,977) -------------- ------------- ------------- ------------- -------------- -------------- Units outstanding at December 31, 1998 ............... 26,841,307 7,779,280 8,485,870 6,922,652 5,887,391 4,908,432 Contract purchase payments ................... 4,935,728 5,548,904 7,490,929 6,292,561 1,053,185 6,838,408 Deductions for contract terminations, withdrawal payments and charges ....... (2,794,846) (1,546,758) (1,700,092) (1,223,071) (698,502) (1,929,494) -------------- ------------- ------------- ------------- -------------- -------------- Units outstanding at December 31, 1999 ................ 28,982,189 11,781,426 14,276,707 11,992,142 6,242,074 9,817,346 ============== ============= ============= ============= ============== ==============
7 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MULTIOPTION CLASSIC/ACHIEVER Transactions in units for each segregated sub-account for the year ended December 31, 1999 were as follows:
SEGREGATED SUB-ACCOUNTS ---------------------------------------------------------------- MONEY ASSET MORTGAGE GROWTH BOND MARKET ALLOCATION SECURITIES ----------- ----------- ---------- ----------- ------------- Units outstanding at December 31, 1998................... - - - - - Contract purchase payments........................ 1,609,477 766,440 3,993,816 4,265,438 989,144 Deductions for contract terminations, withdrawal payments and charges............ (518) (588) (620,941) (969,313) (71) ---------- ---------- ------------ ------------ -------------- Units outstanding at December 31, 1999................... 1,608,959 765,852 3,372,875 3,296,125 989,073 ========== ========== =========== =========== ============= SEGREGATED SUB-ACCOUNTS --------------------------------------------------------------- SMALL MATURING INDEX CAPITAL INTERNATIONAL COMPANY GOVERNMENT 500 APPRECIATION STOCK GROWTH BOND 2002 --------- --------------- -------------- ----------- ------------ Units outstanding at December 31, 1998................... - - - - Contract purchase payments........................ 2,039,531 602,909 888,642 503,561 21,585 Deductions for contract terminations, withdrawal payments and charges............ (572) - - - - -------- -------------- ------------ ----------- ------------ Units outstanding at December 31, 1999.................. 2,038,959 602,909 888,642 503,561 21,585 ========= ============== ============ =========== ============ SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------- MATURING MATURING SMALL GOVERNMENT GOVERNMENT VALUE COMPANY GLOBAL BOND 2006 BOND 2010 STOCK VALUE BOND -------------- ----------- ---------- --------- ----------- Units outstanding at December 31, 1998................... - - - - - Contract purchase payments........................ 102,972 4,254 392,479 179,591 342,453 Deductions for contract terminations, withdrawal payments and charges............ - - - (325) - ------------ ---------- --------- ----------- -------- Units outstanding at December 31, 1999................... 102,972 4,254 392,479 179,266 342,453 ============ ========== ========= ========== ======== SEGREGATED SUB-ACCOUNTS -------------------------------------------------------------- REAL TEMPLETON INDEX 400 MACRO-CAP MICRO-CAP ESTATE DEVELOPING MID-CAP VALUE GROWTH SECURITIES MARKETS ----------- ---------- ---------- ----------- ---------- Units outstanding at December 31, 1998.................... - - - - - Contract purchase payments........................ 398,475 236,331 420,716 17,691 268,416 Deductions for contract terminations, withdrawal payments and charges........... - - - - (184) ----------- ------------ ---------- ------------ ---------- Units outstanding at December 31, 1999................... 398,475 236,331 420,716 17,691 268,232 =========== ============ ========== ============ ===========
8 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MEGANNUITY Transactions in units for each segregated sub-account for the years ended December 31, 1999 and 1998 were as follows:
SEGREGATED SUB-ACCOUNTS --------------------------------------------------------------------------------- MONEY ASSET MORTGAGE GROWTH BOND MARKET ALLOCATION SECURITIES ---------- ----------- ------------ ------------- ---------- Units outstanding at December 31, 1997............... 1,394,064 1,545,276 625,617 1,806,441 484,707 Contract purchase payments................... 657,711 972,566 1,947,732 546,207 395,612 Deductions for contract terminations, withdrawal payments and charges...... (423,308) (354,976) (1,109,635) (365,486) (194,240) ---------- ----------- ------------- ------------- ---------- Units outstanding at December 31, 1998............. 1,628,467 2,162,866 1,463,714 1,987,162 686,079 Contract purchase payments.................. 545,679 646,495 22,001,268 465,525 272,542 Deductions for contract terminations, withdrawal payments and charges....... (400,427) (570,961) (22,289,191) (374,401) (79,722) ---------- ----------- ------------- ------------- ---------- Units outstanding at December 31, 1999.............. 1,773,719 2,238,400 1,175,791 2,078,286 878,899 =========== ============ ============= ============= ========== SEGREGATED SUB-ACCOUNTS -------------------------------------------------------------- SMALL INDEX CAPITAL INTERNATIONAL COMPANY 500 APPRECIATION STOCK GROWTH --------- ------------ ------------ --------- Units outstanding at December 31, 1997............. 2,786,221 1,768,498 2,966,962 1,504,543 Contract purchase payments.................. 822,830 321,369 497,133 588,895 Deductions for contract terminations, withdrawal payments and charges....... (828,745) (289,215) (999,182) (411,648) --------- ------------ ------------ --------- Units outstanding at December 31, 1998............. 2,780,306 1,800,652 2,464,913 1,681,790 Contract purchase payments................... 1,111,383 301,006 431,585 483,647 Deductions for contract terminations, withdrawal payments and charges....... (953,098) (503,340) (834,346) (587,822) --------- ------------ ------------ --------- Units outstanding at December 31, 1999............... 2,938,591 1,598,318 2,062,152 1,577,615 =========== ============ ============= =============
9 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MEGANNUITY - CONTINUED
SEGREGATED SUB-ACCOUNTS --------------------------------------------------------------------- MATURING MATURING MATURING SMALL GOVERNMENT GOVERNMENT GOVERNMENT VALUE COMPANY BOND 2002 BOND 2006 BOND 2010 STOCK VALUE ----------- ---------- ----------- --------- --------- Units outstanding at December 31, 1997................. 272,962 117,035 109,462 1,500,040 215,169 Contract purchase payments...................... 72,286 112,281 14,766 590,073 152,448 Deductions for contract terminations, withdrawal payments and charges.......... (6,111) (6,280) (16,825) (829,771) (6,269) ----------- ---------- ----------- --------- --------- Units outstanding at December 31, 1998.................. 339,137 223,036 107,403 1,260,342 361,348 Contract purchase payments....................... 1,798,442 48,690 - 281,549 143,713 Deductions for contract terminations, withdrawal payments and charges........... (3,410) (2,803) - (503,682) (291,715) ----------- ---------- ----------- --------- --------- Units outstanding at December 31, 1999.................. 2,134,169 268,923 107,403 1,038,209 213,346 =========== ========== =========== ========= ========= SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------------------ REAL TEMPLETON GLOBAL INDEX 400 MACRO-CAP MICRO-CAP ESTATE DEVELOPING BOND MID-CAP VALUE GROWTH SECURITIES MARKETS --------- ---------- ----------- --------- ---------- ------------ Units outstanding at December 31, 1997.................. 15,173 9,788 39,998 18,000 - 33,388 Contract purchase payments....................... 42,386 225,451 60,652 119,408 13,452 104,594 Deductions for contract terminations, withdrawal payments and charges........... (14,916) (17,626) (3,069) (65,814) (1,428) (5,765) --------- ---------- ----------- --------- ---------- ------------ Units outstanding at December 31, 1998.................. 42,643 217,613 97,581 71,594 12,024 132,217 Contract purchase payments....................... 84,240 164,052 252,625 157,939 55,427 33,973,859 Deductions for contract terminations, withdrawal payments and charges............ (1,025) (106,599) (10,669) (2,350) (2,614) (33,721,543) --------- ---------- ----------- --------- ---------- ------------ Units outstanding at December 31, 1999................... 125,858 275,066 339,537 227,183 64,837 384,533 ========= ========== ============ ========= ========== ============
10 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT ----------------------------------------------------- The following tables for each segregated sub-account show certain data for an accumulation unit outstanding during the periods indicated: GROWTH ------
YEAR ENDED DECEMBER 31, ----------------------------------------------------------- 1999 1998 1997 1996 1995 ------- -------- -------- ------- ------- Unit value, beginning of year ................................ $ 5.34 4.01 3.04 2.63 2.14 -------- -------- -------- ------- ------- Income (loss) from investment operations: Net investment income (loss) ............................... (.05) (.02) (.02) (.01) (.01) Net gains or losses on securities (both realized and unrealized)............................ 1.33 1.35 .99 .42 .50 -------- -------- -------- ------- ------- Total from investment operations......................... 1.28 1.33 .97 .41 .49 -------- -------- -------- ------- ------- Unit value, end of year........................................ $ 6.62 5.34 4.01 3.04 2.63 -------- ------- -------- ------- ------- -------- ------- -------- ------- -------
11 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- BOND ----
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1999 1998 1997 1996 1995 -------- ------- ------- ------- ------- Unit value, beginning of year................................ $ 2.48 2.37 2.19 2.15 1.82 -------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income ................................... .10 .10 .09 .08 .04 Net gains or losses on securities (both realized and unrealized) ........................ (.20) .01 .09 (.04) .29 -------- ------- ------- ------- ------- Total from investment operations....................... (.10) .11 .18 .04 .33 -------- ------- ------- ------- ------- Unit value, end of year...................................... $ 2.38 2.48 2.37 2.19 2.15 -------- ------- ------- ------- ------- -------- ------- ------- ------- -------
12 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- MONEY MARKET ------------
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1999 1998 1997 1996 1995 -------- ------- ------- ------- ------- Unit value, beginning of year ................................. $ 1.69 1.63 1.57 1.52 1.46 -------- ------- ------- ------- ------- Income from investment operations: Net investment income ...................................... .06 .06 .06 .05 .06 -------- ------- ------- ------- ------- Total from investment operations........................ .06 .06 .06 .05 .06 -------- ------- ------- ------- ------- Unit value, end of year ....................................... $ 1.75 1.69 1.63 1.57 1.52 -------- ------- ------- ------- ------- -------- ------- ------- ------- -------
13 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- ASSET ALLOCATION ----------------
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1999 1998 1997 1996 1995 -------- ------- ------- ------- ------- Unit value, beginning of year.................................. $ 3.96 3.25 2.76 2.49 2.01 -------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income...................................... .13 .05 .04 .04 .04 Net gains or losses on securities (both realized and unrealized).......................... .42 .66 .45 .23 .44 -------- ------- ------- ------- ------- Total from investment operations........................ .55 .71 .49 .27 .48 -------- ------- ------- ------- ------- Unit value, end of year........................................ $ 4.51 3.96 3.25 2.76 2.49 -------- ------- ------- ------- ------- -------- ------- ------- ------- -------
14 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- MORTGAGE SECURITIES -------------------
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1999 1998 1997 1996 1995 -------- ------- ------- ------- ------- Unit value, beginning of year................................... $ 2.28 2.17 2.01 1.93 1.66 -------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income....................................... .11 .09 .10 .10 .10 Net gains or losses on securities (both realized and unrealized)........................... (.09) .02 .06 (.02) .17 -------- ------- ------- ------- ------- Total from investment operations......................... .02 .11 .16 .08 .27 -------- ------- ------- ------- ------- Unit value, end of year ........................................ $ 2.30 2.28 2.17 2.01 1.93 -------- ------- ------- ------- ------- -------- ------- ------- ------- -------
15 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- INDEX 500 ---------
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1999 1998 1997 1996 1995 -------- ------- ------- ------- ------- Unit value, beginning of year.................................. $ 4.81 3.81 2.91 2.43 1.79 -------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income (loss)............................... .02 (.02) (.01) -- .01 Net gains or losses on securities (both realized and unrealized).......................... .89 1.02 .91 .48 .63 -------- ------- ------- ------- ------- Total from investment operations........................ .91 1.00 .90 .48 .64 -------- ------- ------- ------- ------- Unit value, end of year........................................ $ 5.72 4.81 3.81 2.91 2.43 -------- ------- ------- ------- ------- -------- ------- ------- ------- -------
16 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- CAPITAL APPRECIATION --------------------
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1999 1998 1997 1996 1995 -------- ------- ------- ------- ------- Unit value, beginning of year................................... $ 4.79 3.71 2.93 2.52 2.08 -------- ------- ------- ------- ------- Income from investment operations: Net investment loss......................................... (.06) (.05) (.04) (.03) (.03) Net gains or losses on securities (both realized and unrealized)................................. 1.03 1.13 .82 .44 .47 -------- ------- ------- ------- ------- Total from investment operations......................... .97 1.08 .78 .41 .44 -------- ------- ------- ------- ------- Unit value, end of year......................................... $ 5.76 4.79 3.71 2.93 2.52 -------- ------- ------- ------- ------- -------- ------- ------- ------- -------
17 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- INTERNATIONAL STOCK -------------------
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1999 1998 1997 1996 1995 -------- ------- ------- ------- ------- Unit value, beginning of year................................... $ 2.01 1.91 1.73 1.46 1.30 -------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income (loss)................................ .03 .03 .03 .02 (.02) Net gains or losses on securities (both realized and unrealized)........................... .37 .07 .15 .25 .18 -------- ------- ------- ------- ------- Total from investment operations........................ .40 .10 .18 .27 .16 -------- ------- ------- ------- ------- Unit value, end of year........................................ $ 2.41 2.01 1.91 1.73 1.46 -------- ------- ------- ------- ------- -------- ------- ------- ------- -------
18 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- SMALL COMPANY GROWTH --------------------
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1999 1998 1997 1996 1995 -------- ------- ------- ------- ------- Unit value, beginning of period................................ $ 1.78 1.78 1.67 1.59 1.22 -------- ------- ------- ------- ------- Income from investment operations: Net investment loss......................................... (.02) (.02) (.02) (.02) (.02) Net gains or losses on securities (both realized and unrealized).......................... .80 .02 .13 .10 .39 -------- ------- ------- ------- ------- Total from investment operations........................ .78 - .11 .08 .37 -------- ------- ------- ------- ------- Unit value, end of period ..................................... $ 2.56 1.78 1.78 1.67 1.59 -------- ------- ------- ------- ------- -------- ------- ------- ------- -------
19 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- MATURING GOVERNMENT BOND 2002 -----------------------------
YEAR ENDED DECEMBER 31, ----------------------------------------------------------- 1999 1998 1997 1996 1995 ---------- --------- -------- ---------- ---------- Unit value, beginning of period ................ $ 1.40 1.29 1.21 1.20 .97 ---------- --------- -------- ---------- ---------- Income (loss) from investment operations: Net investment income ...................... .04 .07 .05 .06 .06 Net gains or losses on securities (both realized and unrealized) ............ (.07) .04 .03 (.05) .17 ---------- --------- -------- ---------- ---------- Total from investment operations ........ (.03) .11 .08 .01 .23 ---------- --------- -------- ---------- ---------- Unit value, end of period ...................... $ 1.37 1.40 1.29 1.21 1.20 ---------- --------- -------- ---------- ---------- ---------- --------- -------- ---------- ----------
20 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- MATURING GOVERNMENT BOND 2006 -----------------------------
YEAR ENDED DECEMBER 31, ----------------------------------------------------------- 1999 1998 1997 1996 1995 ---------- --------- -------- ---------- ---------- Unit value, beginning of period ................ $ 1.57 1.39 1.25 1.28 .96 ---------- --------- -------- ---------- ---------- Income (loss) from investment operations: Net investment income ....................... .07 .08 .05 .06 .06 Net gains or losses on securities (both realized and unrealized) ............. (.21) .10 .09 (.09) .26 ---------- --------- -------- ---------- ---------- Total from investment operations ......... (.14) .18 .14 (.03) .32 ---------- --------- -------- ---------- ---------- Unit value, end of period ...................... $ 1.43 1.57 1.39 1.25 1.28 ---------- --------- -------- ---------- ---------- ---------- --------- -------- ---------- ----------
21 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- MATURING GOVERNMENT BOND 2010 -----------------------------
YEAR ENDED DECEMBER 31, ----------------------------------------------------------- 1999 1998 1997 1996 1995 ---------- --------- -------- ---------- ---------- Unit value, beginning of period ................ $ 1.66 1.47 1.27 1.33 .95 ---------- --------- -------- ---------- ---------- Income (loss) from investment operations: Net investment income (loss) .............. .05 .05 .04 (.02) .06 Net gains or losses on securities (both realized and unrealized) ............ (.26) .14 .16 (.04) .32 ---------- --------- -------- ---------- ---------- Total from investment operations ........ (.21) .19 .20 (.06) .38 ---------- --------- -------- ---------- ---------- Unit value, end of period ...................... $ 1.45 1.66 1.47 1.27 1.33 ---------- --------- -------- ---------- ---------- ---------- --------- -------- ---------- ----------
22 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- VALUE STOCK -----------
YEAR ENDED DECEMBER 31, ----------------------------------------------------------- 1999 1998 1997 1996 1995 ---------- --------- -------- ---------- ---------- Unit value, beginning of period ................ $ 2.14 2.13 1.78 1.38 1.05 ---------- --------- -------- ---------- ---------- Income from investment operations: Net investment income (loss) ............... .03 (.03) - - - Net gains or losses on securities (both realized and unrealized) ............ (.05) .04 .35 .40 .33 ---------- --------- -------- ---------- ---------- Total from investment operations ........ (.02) .01 .35 .40 .33 ---------- --------- -------- ---------- ---------- Unit value, end of period ...................... $ 2.12 2.14 2.13 1.78 1.38 ---------- --------- -------- ---------- ---------- ---------- --------- -------- ---------- ----------
23 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- SMALL COMPANY VALUE -------------------
PERIOD FROM YEAR ENDED DECEMBER 31, OCTOBER 1, 1997* --------------------------- TO DECEMBER 1999 1998 31, 1997 ----------- ------------ --------------- Unit value, beginning of period .......................................... $ .95 1.03 1.00 ----------- ------------ --------------- Income from investment operations: Net investment income (loss) ....................................... - - - Net gains or losses on securities (both realized and unrealized) .... (.04) (.08) .03 ----------- ------------ --------------- Total from investment operations ................................. (.04) (.08) .03 ----------- ------------ --------------- Unit value, end of period ............................................... $ .91 .95 1.03 ----------- ------------ --------------- ----------- ------------ ---------------
* Inception of the segregated sub-account was October 1, 1997, when the units became effectively registered under the Securities Exchange Act of 1933. 24 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- GLOBAL BOND -----------
PERIOD FROM YEAR ENDED DECEMBER 31, OCTOBER 1, 1997* --------------------------- TO DECEMBER 1999 1998 31, 1997 ----------- ------------ --------------- Unit value, beginning of period ......................................... $ 1.14 1.00 1.00 ----------- ------------ --------------- Income from investment operations: Net investment income (loss) ....................................... .02 .06 .01 Net gains or losses on securities (both realized and unrealized) .... (.12) .08 (.01) ----------- ------------ --------------- Total from investment operations ................................. (.10) .14 - ----------- ------------ --------------- Unit value, end of period ............................................... $ 1.04 1.14 1.00 ----------- ------------ --------------- ----------- ------------ ---------------
* Inception of the segregated sub-account was October 1, 1997, when the units became effectively registered under the Securities Exchange Act of 1933. 25 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- INDEX 400 MID-CAP -----------------
PERIOD FROM YEAR ENDED DECEMBER 31, OCTOBER 1, 1997* --------------------------- TO DECEMBER 1999 1998 31, 1997 ----------- ------------ --------------- Unit value, beginning of period ......................................... $ 1.16 1.00 1.00 ----------- ------------ --------------- Income from investment operations: Net investment income (loss) ....................................... (.01) - - Net gains or losses on securities (both realized and unrealized) .... .17 .16 - ----------- ------------ --------------- Total from investment operations ................................. .16 .16 - ----------- ------------ --------------- Unit value, end of period ............................................... $ 1.32 1.16 1.00 ----------- ------------ --------------- ----------- ------------ ---------------
* Inception of the segregated sub-account was October 1, 1997, when the units became effectively registered under the Securities Exchange Act of 1933. 26 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- MACRO-CAP VALUE ---------------
PERIOD FROM YEAR ENDED DECEMBER 31, OCTOBER 15, 1997* --------------------------- TO DECEMBER 1999 1998 31, 1997 ----------- ------------ --------------- Unit value, beginning of period ......................................... $ 1.18 .98 1.00 ----------- ------------ --------------- Income (loss) from investment operations: Net investment income ............................................... (.01) (.01) - Net gains or losses on securities (both realized and unrealized) .... .07 .21 (.02) ----------- ------------ --------------- Total from investment operations ................................ .06 .20 (.02) ----------- ------------ --------------- Unit value, end of period ............................................... $ 1.24 1.18 .98 ----------- ------------ --------------- ----------- ------------ ---------------
* Inception of the segregated sub-account was October 15, 1997, when the units became effectively registered under the Securities Exchange Act of 1933. 27 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- MICRO-CAP GROWTH ----------------
PERIOD FROM YEAR ENDED DECEMBER 31, OCTOBER 1, 1997* --------------------------- TO DECEMBER 1999 1998 31, 1997 ----------- ------------ --------------- Unit value, beginning of period ......................................... $ 1.02 .91 1.00 ----------- ------------ --------------- Income (loss) from investment operations: Net investment loss ................................................. (.02) (.01) (.01) Net gains or losses on securities (both realized and unrealized) .... 1.51 .12 (.08) ----------- ------------ --------------- Total from investment operations ................................. 1.49 .11 (.09) ----------- ------------ --------------- Unit value, end of period ............................................... $ 2.51 1.02 .91 ----------- ------------ --------------- ----------- ------------ ---------------
* Inception of the segregated sub-account was October 1, 1997, when the units became effectively registered under the Securities Exchange Act of 1933. 28 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- REAL ESTATE SECURITIES ----------------------
YEAR PERIOD FROM ENDED APRIL 24, 1998 * DECEMBER 31, TO DECEMBER 1999 31, 1998 -------------- ----------------- Unit value, beginning of period ......................................... $ .86 1.00 -------------- ----------------- Income (loss) from investment operations: Net investment income ............................................... .03 .03 Net gains or losses on securities (both realized and unrealized) .... (.08) (.17) -------------- ----------------- Total from investment operations ................................. (.05) (.14) -------------- ----------------- Unit value, end of period .............................................. $ .81 .86 -------------- ----------------- -------------- -----------------
* Inception of the segregated sub-account was April 24, 1998, when the units became effectively registered under the Securities Exchange Act of 1933. 29 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED ----------------------------------------------------------------- TEMPLETON DEVELOPING MARKETS ----------------------------
PERIOD FROM YEAR ENDED DECEMBER 31, OCTOBER 2, 1997* --------------------------- TO DECEMBER 1999 1998 31, 1997 ----------- ------------ --------------- Unit value, beginning of period ......................................... $ .54 .69 1.00 ----------- ------------ --------------- Income (loss) from investment operations: Net investment income ............................................... - - - Net gains or losses on securities (both realized and unrealized) .... .28 (.15) (.31) ----------- ------------ --------------- Total from investment operations ................................ .28 (.15) (.31) ----------- ------------ --------------- Unit value, end of period ............................................... $ .82 .54 .69 ----------- ------------ --------------- ----------- ------------ ---------------
* Inception of the segregated sub-account was October 2, 1997, when the units became effectively registered under the Securities Exchange Act of 1933. 30 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MULTIOPTION CLASSIC/ACHIEVER --------------------------------------------------- The following tables for each segregated sub-account show certain data for an accumulation unit outstanding during the periods from September 9, 1999, commencement of the operations, to December 31, 1999:
SEGREGATED SUB-ACCOUNT -------------------------------------------------------------------------------- MONEY ASSET MORTGAGE INDEX CAPITAL GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION -------- ------ ------- ------------ ------------ ------- ------------- Unit value, beginning of period ............ $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 -------- ------ ------- ------------ ------------ ------- ------------- Income (loss) from investment operations: Net investment income (loss) ............ - - .01 .07 - .02 (.01) Net gains or losses on securities (both realized and unrealized) ......... .17 - - .03 - .07 .28 -------- ------ ------- ------------ ------------ ------- ------------- Total from investment operations .... .17 - .01 .10 - .09 .27 -------- ------ ------- ------------ ------------ ------- ------------- Unit value, end of year .................... $ 1.17 1.00 1.01 1.10 1.00 1.09 1.27 -------- ------ ------- ------------ ------------ ------- ------------- -------- ------ ------- ------------ ------------ ------- -------------
SEGREGATED SUB-ACCOUNT --------------------------------------------------------------------------------- SMALL MATURING MATURING MATURING SMALL INTERNATIONAL COMPANY GOVERNMENT GOVERNMENT GOVERNMENT VALUE COMPANY STOCK GROWTH BOND 2002 BOND 2006 BOND 2010 STOCK VALUE ------------- ------- ---------- ---------- ---------- ----- ------- Unit value, beginning of period ............ $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 ------------- ------- ---------- ---------- ---------- ----- ------- Income (loss) from investment operations: Net investment income (loss) ........... - (.01) .23 .22 - .04 .03 Net gains or losses on securities (both realized and unrealized) ........ .07 .41 (.23) (.23) (.02) (.03) (.04) ------------- ------- ---------- ---------- ---------- ----- ------- Total from investment operations ... .07 .40 - (.01) (.02) .01 (.01) ------------- ------- ---------- ---------- ---------- ----- ------- Unit value, end of year .................... $ 1.07 1.40 1.00 .99 .98 1.01 .99 ------------- ------- ---------- ---------- ---------- ----- ------- ------------- ------- ---------- ---------- ---------- ----- -------
SEGREGATED SUB-ACCOUNT ------------------------------------------------------------------------ REAL TEMPLETON GLOBAL INDEX 400 MACRO-CAP MICRO-CAP ESTATE DEVELOPING BOND MID-CAP VALUE GROWTH SECURITIES MARKETS ------ ----------- ----------- ----------- ---------- ---------- Unit value, beginning of period ............ $ 1.00 1.00 1.00 1.00 1.00 1.00 ------ ----------- ----------- ----------- ---------- ---------- Income (loss) from investment operations: Net investment income (loss) ............ .07 .01 .02 (.01) .18 (.01) Net gains or losses on securities (both realized and unrealized) ......... (.08) .08 .02 .81 (.21) .21 ------ ----------- ----------- ----------- ---------- ---------- Total from investment operations .... (.01) .09 .04 .80 (.03) .20 ------ ----------- ----------- ----------- ---------- ---------- Unit value, end of year .................... $ .99 1.09 1.04 1.80 .97 1.20 ------ ----------- ----------- ----------- ---------- ---------- ------ ----------- ----------- ----------- ---------- ----------
31 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY --------------------------------- The following tables for each segregated sub-account show certain data for an accumulation unit outstanding during the periods indicated: GROWTH ------
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1999 1998 1997 1996 1995 -------- --------- ----------- ---------- --------- Unit value, beginning of year ............. $ 4.22 3.14 2.35 2.01 1.62 -------- --------- ----------- ---------- --------- Income from investment operations: Net investment income ................. .01 .03 .02 .02 .01 Net gains on securities (both realized and unrealized) ....... 1.06 1.05 .77 .32 .38 -------- --------- ----------- ---------- --------- Total from investment operations ... 1.07 1.08 .79 .34 .39 -------- --------- ----------- ---------- --------- Unit value, end of year ................... $ 5.29 4.22 3.14 2.35 2.01 -------- --------- ----------- ---------- --------- -------- --------- ----------- ---------- ---------
32 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED --------------------------------------------- BOND ----
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1999 1998 1997 1996 1995 -------- --------- ----------- ---------- --------- Unit value, beginning of year ............ $ 2.52 2.38 2.18 2.12 1.77 -------- --------- ----------- ---------- --------- Income (loss) from investment operations: Net investment income ................ .13 .13 .11 .11 .07 Net gains or losses on securities (both realized and unrealized) ...... (.20) .01 .09 (.05) .28 -------- --------- ----------- ---------- --------- Total from investment operations .. (.07) .14 .20 .06 .35 -------- --------- ----------- ---------- --------- Unit value, end of year .................. $ 2.45 2.52 2.38 2.18 2.12 -------- --------- ----------- ---------- --------- -------- --------- ----------- ---------- ---------
33 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED --------------------------------------------- MONEY MARKET ------------
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1999 1998 1997 1996 1995 -------- --------- ----------- ---------- --------- Unit value, beginning of year ........... $ 1.78 1.70 1.62 1.55 1.47 -------- --------- ----------- ---------- --------- Income from investment operations: Net investment income ............... .08 .08 .08 .07 .08 -------- --------- ----------- ---------- --------- Total from investment operations . .08 .08 .08 .07 .08 -------- --------- ----------- ---------- --------- Unit value, end of year ................. $ 1.86 1.78 1.70 1.62 1.55 -------- --------- ----------- ---------- --------- -------- --------- ----------- ---------- ---------
34 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED --------------------------------------------- ASSET ALLOCATION ----------------
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1999 1998 1997 1996 1995 -------- --------- ----------- ---------- --------- Unit value, beginning of year ............ $ 3.71 3.00 2.53 2.25 1.80 -------- --------- ----------- ---------- --------- Income (loss) from investment operations: Net investment income ................. .17 .08 .08 .08 .06 Net gains or losses on securities (both realized and unrealized) ...... .39 .63 .39 .20 .39 -------- --------- ----------- ---------- --------- Total from investment operations .. .56 .71 .47 .28 .45 -------- --------- ----------- ---------- --------- Unit value, end of year .................. $ 4.27 3.71 3.00 2.53 2.25 -------- --------- ----------- ---------- --------- -------- --------- ----------- ---------- ---------
35 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED --------------------------------------------- MORTGAGE SECURITIES -------------------
YEAR ENDED DECEMBER 31, ------------------------------------------ 1999 1998 1997 1996 1995 ------- ------ ------ ------ ------- Unit value, beginning of year ............... $ 2.55 2.40 2.20 2.09 1.78 ------- ------ ------ ------ ------- Income from investment operations: Net investment income ................... .14 .13 .14 .13 .12 Net gains or losses on securities (both realized and unrealized) ....... (.09) .02 .06 (.02) .19 ------- ------ ------ ------ ------- Total from investment operations ..... .05 .15 .20 .11 .31 ------- ------ ------ ------ ------- Unit value, end of year ..................... $ 2.60 2.55 2.40 2.20 2.09 ------- ------ ------ ------ ------- ------- ------ ------ ------ -------
36 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED --------------------------------------------- INDEX 500 ---------
YEAR ENDED DECEMBER 31, ------------------------------------------ 1999 1998 1997 1996 1995 ------- ------ ------ ------ ------- Unit value, beginning of year ............... $ 4.75 3.72 2.81 2.32 1.70 ------- ------ ------ ------ ------- Income from investment operations: Net investment income ................... .08 .03 .03 .03 .03 Net gains or losses on securities (both realized and unrealized) ....... .87 1.00 .88 .46 .59 ------- ------ ------ ------ ------- Total from investment operations ..... .95 1.03 .91 .49 .62 ------- ------ ------ ------ ------- Unit value, end of year ..................... $ 5.70 4.75 3.72 2.81 2.32 ------- ------ ------ ------ ------- ------- ------ ------ ------ -------
37 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED --------------------------------------------- CAPITAL APPRECIATION --------------------
YEAR ENDED DECEMBER 31, ------------------------------------------ 1999 1998 1997 1996 1995 ------- ------ ------ ------ ------- Unit value, beginning of year ............... $ 4.75 3.64 2.84 2.42 1.97 ------- ------ ------ ------ ------- Income from investment operations: Net investment income (loss) ............ (.01) (.01) (.01) - - Net gains on securities (both realized and unrealized) ....... 1.03 1.12 .81 .42 .45 ------- ------ ------ ------ ------- Total from investment operations ..... 1.02 1.11 .80 .42 .45 ------- ------ ------ ------ ------- Unit value, end of year ..................... $ 5.77 4.75 3.64 2.84 2.42 ------- ------ ------ ------ ------- ------- ------ ------ ------ -------
38 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED --------------------------------------------- INTERNATIONAL STOCK -------------------
YEAR ENDED DECEMBER 31, ------------------------------------------ 1999 1998 1997 1996 1995 ------- ------ ------ ------ ------- Unit value, beginning of year ............... $ 2.13 2.00 1.79 1.50 1.31 ------- ------ ------ ------ ------- Income from investment operations: Net investment income (loss) ............ .06 .06 .05 .04 - Net gains on securities (both realized and unrealized) ....... .39 .07 .16 .25 .19 ------- ------ ------ ------ ------- Total from investment operations ..... .45 .13 .21 .29 .19 ------- ------ ------ ------ ------- Unit value, end of year ..................... $ 2.58 2.13 2.00 1.79 1.50 ------- ------ ------ ------ ------- ------- ------ ------ ------ -------
39 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED --------------------------------------------- SMALL COMPANY GROWTH --------------------
YEAR ENDED DECEMBER 31, ------------------------------------------ 1999 1998 1997 1996 1995 ------- ------ ------ ------ ------- Unit value, beginning of period ............. $ 1.86 1.84 1.71 1.60 1.22 ------- ------ ------ ------ ------- Income from investment operations: Net investment income ................... - - - - - Net gains on securities (both realized and unrealized) ....... .84 .02 .13 .11 .38 ------- ------ ------ ------ ------- Total from investment operations ..... .84 .02 .13 .11 .38 ------- ------ ------ ------ ------- Unit value, end of period.................... $ 2.70 1.86 1.84 1.71 1.60 ------- ------ ------ ------ ------- ------- ------ ------ ------ -------
40 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED --------------------------------------------- MATURING GOVERNMENT BOND 2002 -----------------------------
YEAR ENDED DECEMBER 31, ------------------------------------------ 1999 1998 1997 1996 1995 ------- ------ ------ ------ ------- Unit value, beginning of period ............. $ 1.47 1.35 1.24 1.22 .98 ------- ------ ------ ------ ------- Income (loss) from investment operations: Net investment income ................... .20 .08 .06 .15 .07 Net gains or losses on securities (both realized and unrealized) ....... (.21) .04 .05 (.13) .17 ------- ------ ------ ------ ------- Total from investment operations ..... (.01) .12 .11 .02 .24 ------- ------ ------ ------ ------- Unit value, end of period.................... $ 1.46 1.47 1.35 1.24 1.22 ------- ------ ------ ------ ------- ------- ------ ------ ------ -------
41 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED --------------------------------------------- MATURING GOVERNMENT BOND 2006 -----------------------------
YEAR ENDED DECEMBER 31, ------------------------------------------ 1999 1998 1997 1996 1995 ------- ------ ------ ------ ------- Unit value, beginning of period .............. $ 1.65 1.45 1.29 1.31 .97 ------- ------ ------ ------ ------- Income (loss) from investment operations: Net investment income .................... .10 .11 .06 .07 .07 Net gains or losses on securities (both realized and unrealized) ........ (.23) .09 .10 (.09) .27 ------- ------ ------ ------ ------- Total from investment operations ... (.13) .20 .16 (.02) .34 ------- ------ ------ ------ ------- Unit value, end of period..................... $ 1.52 1.65 1.45 1.29 1.31 ------- ------ ------ ------ ------- ------- ------ ------ ------ -------
42 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED --------------------------------------------- MATURING GOVERNMENT BOND 2010 -----------------------------
YEAR ENDED DECEMBER 31, ------------------------------------------ 1999 1998 1997 1996 1995 ------- ------ ------ ------ ------- Unit value, beginning of period ............. $ 1.75 1.53 1.30 1.35 .96 ------- ------ ------ ------ ------- Income (loss) from investment operations: Net investment income ................... .07 .08 .08 - .05 Net gains or losses on securities (both realized and unrealized) ......... (.27) .14 .15 (.05) .34 ------- ------ ------ ------ ------- Total from investment operations .... (.20) .22 .23 (.05) .39 ------- ------ ------ ------ ------- Unit value, end of period.................... $ 1.55 1.75 1.53 1.30 1.35 ------- ------ ------ ------ ------- ------- ------ ------ ------ -------
43 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED --------------------------------------------- VALUE STOCK -----------
YEAR ENDED DECEMBER 31, ------------------------------------------ 1999 1998 1997 1996 1995 ------- ------ ------ ------ ------- Unit value, beginning of period ............. $ 2.25 2.22 1.83 1.40 1.06 ------- ------ ------ ------ ------- Income from investment operations: Net investment income ................... .06 - .03 .02 .01 Net gains on securities (both realized and unrealized) ............... (.06) .03 .36 .41 .33 ------- ------ ------ ------ ------- Total from investment operations ..... - .03 .39 .43 .34 ------- ------ ------ ------ ------- Unit value, end of period.................... $ 2.25 2.25 2.22 1.83 1.40 ------- ------ ------ ------ ------- ------- ------ ------ ------ -------
44 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED ---------------------------------------------- SMALL COMPANY VALUE -------------------
PERIOD FROM YEAR ENDED DECEMBER 31, OCTOBER 1, 1997* ---------------------- TO DECEMBER 1999 1998 31, 1997 ------- ------ --------------- Unit value, beginning of period ................... $ .94 1.01 1.00 ------- ------ --------------- Income from investment operations: Net investment income ........................ .01 .02 - Net gains or losses on securities (both realized and unrealized) ............... (.04) (.09) .01 ------- ------ --------------- Total from investment operations ......... (.03) (.07) .01 ------- ------ --------------- Unit value, end of period.......................... $ .91 .94 1.01 ------- ------ --------------- ------- ------ ---------------
* Inception of the segregated sub-account was October 1, 1997, when the units became effectively registered under the Securities Exchange Act of 1933. 45 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED ---------------------------------------------- GLOBAL BOND -----------
PERIOD FROM YEAR ENDED DECEMBER 31, OCTOBER 1, 1997* ---------------------- TO DECEMBER 1999 1998 31, 1997 ------- ------ --------------- Unit value, beginning of period ................... $ 1.15 .99 1.00 ------- ------ --------------- Income (loss) from investment operations: Net investment income ........................ .04 .07 .01 Net gains or losses on securities (both realized and unrealized) ............... (.13) .09 (.02) ------- ------ --------------- Total from investment operations ........... (.09) .16 (.01) ------- ------ --------------- Unit value, end of period.......................... $ 1.06 1.15 .99 ------- ------ --------------- ------- ------ ---------------
* Inception of the segregated sub-account was October 1, 1997, when the units became effectively registered under the Securities Exchange Act of 1933. 46 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED ---------------------------------------------- INDEX 400 MID-CAP -----------------
PERIOD FROM YEAR ENDED DECEMBER 31, OCTOBER 1, 1997* ---------------------- TO DECEMBER 1999 1998 31, 1997 ------- ------ --------------- Unit value, beginning of period .................... $ 1.15 .99 1.00 ------- ------ --------------- Income (loss) from investment operations: Net investment income ......................... - .01 - Net gains or losses on securities (both realized and unrealized) ................ .19 .15 (.01) ------- ------ --------------- Total from investment operations ........... .19 .16 (.01) ------- ------ --------------- Unit value, end of period........................... $ 1.34 1.15 .99 ------- ------ --------------- ------- ------ ---------------
* Inception of the segregated sub-account was October 1, 1997, when the units became effectively registered under the Securities Exchange Act of 1933. 47 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED ---------------------------------------------- MACRO-CAP VALUE ---------------
PERIOD FROM YEAR ENDED DECEMBER 31, OCTOBER 1, 1997* ---------------------- TO DECEMBER 1999 1998 31, 1997 ------- ------ --------------- Unit value, beginning of period ................... $ 1.20 .99 1.00 ------- ------ --------------- Income (loss) from investment operations: Net investment income ......................... .01 .01 .01 Net gains or losses on securities (both realized and unrealized) ............... .07 .20 (.02) ------- ------ --------------- Total from investment operations .......... .08 .21 (.01) ------- ------ --------------- Unit value, end of period.......................... $ 1.28 1.20 .99 ------- ------ --------------- ------- ------ ---------------
* Inception of the segregated sub-account was October 15, 1997, when the units became effectively registered under the Securities Exchange Act of 1933. 48 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED ---------------------------------------------- MACRO-CAP GROWTH ----------------
PERIOD FROM YEAR ENDED DECEMBER 31, OCTOBER 1, 1997* ---------------------- TO DECEMBER 1999 1998 31, 1997 ------- ------ --------------- Unit value, beginning of period ................... $ .95 .84 1.00 ------- ------ --------------- Income (loss) from investment operations: Net investment income ......................... - - - Net gains or losses on securities (both realized and unrealized) ............... 1.41 .11 (.16) ------- ------ --------------- Total from investment operations .......... 1.41 .11 (.16) ------- ------ --------------- Unit value, end of period.......................... $2.36 .95 .84 ------- ------ --------------- ------- ------ ---------------
* Inception of the segregated sub-account was October 1, 1997, when the units became effectively registered under the Securities Exchange Act of 1933. 49 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED ---------------------------------------------- REAL ESTATES SECURITIES -----------------------
YEAR PERIOD FROM ENDED APRIL 1, 1998* DECEMBER 31, TO DECEMBER 1999 31, 1998 ----------- ------------- Unit value, beginning of period ................... $ .85 1.00 ----------- ------------- Income (loss) from investment operations: Net investment income ......................... .08 .08 Net gains or losses on securities (both realized and unrealized) ............... (.11) (.23) ----------- ------------- Total from investment operations ........... (.03) (.15) ----------- ------------- Unit value, end of period.......................... $ .82 .85 ----------- ------------- ----------- -------------
* Inception of the segregated sub-account was April 1, 1998, when the units became effectively registered under the Securities Exchange Act of 1933. 50 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS - MEGANNUITY - CONTINUED ---------------------------------------------- TEMPLETON DEVELOPING MARKETS ----------------------------
PERIOD FROM YEAR ENDED DECEMBER 31, OCTOBER 1, 1997* ---------------------- TO DECEMBER 1999 1998 31, 1997 ------- ------ --------------- Unit value, beginning of period ..................... $ .55 .70 1.00 ------- ------ --------------- Income (loss) from investment operations: Net investment income .......................... - .01 - Net gains or losses on securities (both realized and unrealized) ................. .29 (.16) (.30) ------- ------ --------------- Total from investment operations ............ .29 (.15) (.30) ------- ------ --------------- Unit value, end of period............................ $ .84 .55 .70 ------- ------ --------------- ------- ------ ---------------
* Inception of the segregated sub-account was October 2, 1997, when the units became effectively registered under the Securities Exchange Act of 1933. 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 Minnesota Life Insurance Company and Subsidiaries Consolidated Balance Sheets December 31, 1999 and 1998 Assets
1999 1998 ----------- ----------- (In thousands) 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 =========== ===========
See accompanying notes to consolidated financial statements. ML-2 Minnesota Life Insurance Company and Subsidiaries Consolidated Statements of Operations and Comprehensive Income Years ended December 31, 1999, 1998 and 1997
1999 1998 1997 ---------- ---------- ---------- (In thousands) 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 ========== ========== ==========
See accompanying notes to consolidated financial statements. ML-3 Minnesota Life Insurance Company and Subsidiaries Consolidated Statements of Changes in Stockholder's Equity Years ended December 31, 1999, 1998 and 1997
1999 1998 1997 ---------- ---------- ---------- (In thousands) 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 ========== ========== ==========
See accompanying notes to consolidated financial statements. ML-4 Minnesota Life Insurance Company and Subsidiaries Consolidated Statements of Cash Flows Years ended December 31, 1999, 1998 and 1997
1999 1998 1997 ----------- ----------- ----------- (In thousands) 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 =========== =========== ===========
See accompanying notes to consolidated financial statements. ML-5 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 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 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 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 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:
1999 1998 1997 -------- -------- -------- (In thousands) 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: 1999 1998 1997 -------- -------- -------- (In thousands) 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 ======== ======== ========
ML-10 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:
1999 1998 1997 -------- -------- -------- (In thousands) 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)
Net unrealized gains (losses) included in stockholder's equity at December 31 were as follows:
1999 1998 --------- --------- (In thousands) 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 ========= =========
ML-11 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:
Gross Unrealized ----------------- Amortized Fair Cost Gains Losses Value ---------- -------- -------- ---------- (In thousands) 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 ========== ======== ======== ==========
Gross Unrealized ---------------- Amortized Fair Cost Gains Losses Value ---------- -------- ------- ---------- (In thousands) 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 ========== ======== ======= ==========
ML-12 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.
Available-for-Sale Held-to-Maturity --------------------- ------------------ Amortized Fair Amortized Fair Cost Value Cost Value ---------- ---------- --------- -------- (In thousands) 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 ========== ========== ======== ========
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:
1999 1998 ------- ------- (In thousands) Mortgage loans $ 1,500 $ 1,500 Investment real estate -- 841 ------- ------- Total $ 1,500 $ 2,341 ======= =======
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:
1999 1998 1997 ------ ------ ------ (In thousands) 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. 1999 1998 1997 ------ ------ ------ (In thousands) 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
ML-13 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:
1999 1998 -------- -------- (In thousands) 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 ======== ========
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 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:
1999 1998 1997 -------- -------- -------- (In thousands) 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 ======== ======== ========
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:
Installment Revolving Loans Credit Total ----------- --------- ------ (In thousands) Balances at December 31, 1999 $5,539 692 $6,231 Related allowance for credit losses $1,478 330 $1,808
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:
1999 1998 1997 ------- ------- ------- (In thousands) 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 ======= ======= =======
ML-15 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:
1999 1998 -------- -------- (In thousands) 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 ======== ========
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 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:
1999 1998 1997 -------- -------- -------- (In thousands) 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 ======== ======== ========
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 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:
Pension Benefits Other Benefits ------------------ ------------------ 1999 1998 1999 1998 -------- -------- -------- -------- (In thousands) 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% -- --
ML-18 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.
Pension Benefits Other Benefits --------------------------- ---------------------- 1999 1998 1997 1999 1998 1997 -------- -------- ------- ------ ------ ------ (In thousands) 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 ======== ======== ======= ====== ====== ======
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 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:
1999 1998 1997 -------- -------- -------- (In thousands) 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 ======== ======== ========
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 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:
1999 1998 --------------------- --------------------- Carrying Fair Carrying Fair Amount Value Amount Value ---------- ---------- ---------- ---------- (In thousands) 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 ========== ========== ========== ==========
The carrying amounts and fair values of the Company's financial instruments, which were classified as liabilities as of December 31, were as follows:
1999 1998 --------------------- --------------------- Carrying Fair Carrying Fair Amount Value Amount Value ---------- ---------- ---------- ---------- (In thousands) 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 ========== ========== ========== ==========
(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 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:
1999 1998 -------- -------- (In thousands) 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 ======== ========
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:
1999 1998 1997 ---------- -------- -------- (In thousands) 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 ========== ======== ========
(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 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 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:
Year ended December ---------------------- 1999 1998 ---------- ---------- (In thousands) 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 ========== ==========
As of December 31 -------------------------------- 1999 1998 1997 -------- ---------- ---------- (In thousands) 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 ======== ========== ==========
ML-24 Minnesota Life Insurance Company and Subsidiaries Schedule I Summary of Investments--Other than Investments in Related Parties December 31, 1999
As Shown on the Market consolidated Type of investment Cost(3) Value balance sheet(1) - ------------------ ---------- ---------- ---------------- (In thousands) 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 ========== ========== ==========
- ------- (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 Minnesota Life Insurance Company and Subsidiaries Schedule III Supplementary Insurance Information (In thousands)
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 - ------- ----------- -------------- ----------- ------------ 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 ======== ========== ======== ======= 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) - ------- ----------- ---------- -------------- ------------ --------- ---------- 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 =========== ========== ============== ============ ========= ==========
- ------ (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 Minnesota Life Insurance Company and Subsidiaries Schedule IV Reinsurance For the years ended December 31, 1998, 1997 and 1996
Percentage Ceded to Assumed of amount Gross other from other Net assumed to amount companies companies amount net ------------ ----------- ----------- ------------ ---------- (In thousands) 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% ============ =========== =========== ============
See independent auditors' report. ML-27 -----END PRIVACY-ENHANCED MESSAGE-----