-----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, T+EFBzwq5tWQ/KdIDrf56d4YVSpP8AdIQmA3IoFOUrZby4svPQTN7NYSLA5EF9eb E8yjfaCg0jcJBxLuA6JkOg== 0000912057-02-016273.txt : 20020424 0000912057-02-016273.hdr.sgml : 20020424 ACCESSION NUMBER: 0000912057-02-016273 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20020424 EFFECTIVENESS DATE: 20020424 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARIABLE ANNUITY ACCOUNT CENTRAL INDEX KEY: 0000768609 IRS NUMBER: 410417830 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-97564 FILM NUMBER: 02619001 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARIABLE ANNUITY ACCOUNT CENTRAL INDEX KEY: 0000768609 IRS NUMBER: 410417830 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04294 FILM NUMBER: 02619002 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 485BPOS 1 a2073211z485bpos.txt 485BPOS File Number 2-97564 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment Number -------- ---- Post-Effective Amendment Number X 20 -------- ---- and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment Number X 19 -------- ---- VARIABLE ANNUITY ACCOUNT (formerly Minnesota Mutual Variable Annuity Account) -------------------------------------------------------------------- (Exact Name of Registrant) MINNESOTA LIFE INSURANCE COMPANY (formerly The Minnesota Mutual Life Insurance Company) -------------------------------------------------------------------- (Name of Depositor) 400 ROBERT STREET NORTH, ST. PAUL, MINNESOTA 55101-2098 -------------------------------------------------------------------- (Address of Depositor's Principal Executive Offices) (Zip Code) (651) 665-3500 -------------------------------------------------------------------- (Depositor's Telephone Number, Including Area Code) Dennis E. Prohofsky Copy to: Executive Vice President, J. Sumner Jones, Esq. General Counsel and Secretary Jones & Blouch L.L.P. Minnesota Life Insurance Company 1025 Thomas Jefferson St., N.W. 400 Robert Street North Suite 410 East St. Paul, Minnesota 55101-2098 Washington, D.C. 20007 (Name and Address of Agent for Service) IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (check appropriate box) immediately upon filing pursuant to paragraph (b) --- X on May 1, 2002 pursuant to paragraph (b) of Rule 485 --- 60 days after filing pursuant to paragraph (a)(i) --- on (date) pursuant to paragraph (a)(i) --- 75 days after filing pursuant to paragraph (a)(ii) --- on (date) pursuant to paragraph (a)(ii) of Rule 485. --- IF APPROPRIATE, CHECK THE FOLLOWING BOX: ___ this post-effective amendment designates a new effective date for a previously filed post-effective amendment. TITLE OF SECURITIES BEING REGISTERED Variable Annuity Contracts PART A INFORMATION REQUIRED IN A PROSPECTUS Variable Annuity Account Cross Reference Sheet to Prospectus Form N-4 Item Number Caption in Prospectus 1. Cover Page 2. Special Terms and How To Contact Us 3. Questions and Answers About the Variable Annuity Contracts 4. Condensed Financial Information; Performance Data 5. General Descriptions 6. Contract Charges 7. Description of the Contracts 8. Description of the Contracts; Annuity Payments and Options 9. Description of the Contracts; Death Benefits 10. Description of the Contracts; Purchase Payments and Value of the Contract 11. Description of the Contracts; Redemptions 12. Federal Tax Status 13. Not Applicable 14. Table of Contents of the Statement of Additional Information VARIABLE ANNUITY CONTRACT PROSPECTUS FLEXIBLE PAYMENT AND SINGLE PAYMENT VARIABLE ANNUITY CONTRACTS OF MINNESOTA LIFE'S VARIABLE ANNUITY ACCOUNT COMBINATION FIXED AND VARIABLE ANNUITY CONTRACTS FOR PERSONAL RETIREMENT PLANS MINNESOTA LIFE INSURANCE COMPANY ("MINNESOTA LIFE") 400 Robert Street North St. Paul, Minnesota 55101-2098 Telephone: 1-800-362-3141 http://www.minnesotalife.com This Prospectus describes individual, single and flexible payment, variable annuity contracts (the "Contract(s)") offered by Minnesota Life Insurance Company. The contracts may be used in connection with all types of personal retirement plans. They may also be used apart from those plans. You may invest your contract values in our Variable Annuity Account or our General 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 - Templeton Global Asset Allocation Fund -- Class 2 Shares (formerly Templeton Asset Strategy Fund) - Franklin Small Cap Fund -- Class 2 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 - - Janus Aspen Series - Capital Appreciation Portfolio -- Service Shares - International Growth Portfolio -- Service Shares - - Credit Suisse Trust - Global Post-Venture Capital Portfolio 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. 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, 2002 THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS AUTHORIZED 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, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. TABLE OF CONTENTS SPECIAL TERMS AND HOW TO CONTACT US 1 QUESTIONS AND ANSWERS ABOUT THE VARIABLE ANNUITY CONTRACTS 3 EXPENSE TABLE 6 GENERAL DESCRIPTIONS 14 Minnesota Life Insurance Company 14 Variable Annuity Account 14 The Funds 15 Additions, Deletions or Substitutions 16 CONTRACT CHARGES 17 Sales Charges 17 Mortality and Expense Risk Charges 18 Premium Taxes 19 VOTING RIGHTS 19 DESCRIPTION OF THE CONTRACTS 20 General Provisions 20 Annuity Payments and Options 22 Death Benefits 27 Purchase Payments and Value of the Contract 28 Redemptions 33 FEDERAL TAX STATUS 34 PERFORMANCE DATA 40 RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM 41 STATEMENT OF ADDITIONAL INFORMATION 41 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 AND HOW TO CONTACT US 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 General Account and 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 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 investments for the Variable Annuity Account. Currently these include the funds or portfolios shown on the cover page of this prospectus, and in the Question and Answer section following. 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 paid to us under your contract. SEPARATE ACCOUNT: see definition of Variable Annuity Account. 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 kept separate from our other assets. VARIABLE ANNUITY: an annuity providing for payments varying in amount in accordance with the investment experience of the Fund. WE, OUR, US: Minnesota Life Insurance Company. YOU, YOUR: the Contract Owner. PAGE 1 HOW TO CONTACT US At Minnesota Life, we make it easy for you to find information on your annuity. Here's how you can get the answers you need. ON THE INTERNET Visit our Online Service Center 24 hours a day, 7 days a week at www.minnesotalife.com. Our Online Service Center offers access to: - Account values - Variable Investment Performance - Interest rates (when applicable) - Service forms - Beneficiary information - Transactions to transfer among investment options or change your allocation percentage. - Contribution and transaction history MINNESOTA LIFE'S ANNUITY SERVICE LINE - - Call 1-800-362-3141 and select Option 1 for our secure automated telephone access. The Automated Service line provides around-the-clock access to: - Account Values - Unit Values - Interest Rates - - Call our Service Line at 1-800-362-3141 to speak with one of our customer service representatives. They're available Monday through Friday from 7:30 a.m. to 4:30 p.m. Central Time. BY MAIL - - For contributions sent by regular mail: Minnesota Life Annuity Services P.O. Box 64628 St. Paul, MN 55164-0628 - - All other service requests, inquiries and overnight express mail should be sent to: Annuity Services A3-9999 400 Robert Street North St. Paul, MN 55101-2098 PAGE 2 QUESTIONS AND ANSWERS ABOUT THE VARIABLE ANNUITY CONTRACTS WHAT IS AN ANNUITY? An annuity is a series of payments for life; for life with a minimum number of payments guaranteed; for the joint lifetime of the annuitant and another person and thereafter during the lifetime of the survivor; or for a period certain. An annuity with payments which are guaranteed as to amount during the payment period is a fixed annuity. An annuity with payments which vary during the payment period in accordance with the investment experience of a separate account is called a variable annuity. An annuity contract may also be "deferred" or "immediate." An immediate annuity contract is one which begins annuity payments right away, generally within a month or two after our receipt of your purchase payment. A deferred annuity contract, as its name infers, delays the beginning of your annuity payments until a later date. During this deferral period, your annuity purchase payments have the chance to accumulate on a tax deferred basis. WHAT ARE THE CONTRACTS OFFERED BY THIS PROSPECTUS? The contracts are combined fixed and variable annuity contracts issued by us which provide for monthly annuity payments. These payments may begin immediately or at a future date you specify. We allocate your purchase payments either to our General Account or 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, in the Variable Annuity Account. In the General Account, your purchase payments receive certain interest and principal guarantees. WHAT TYPES OF VARIABLE ANNUITY CONTRACTS ARE AVAILABLE? We offer two types of contracts. They are the single payment variable annuity contract and the flexible payment variable annuity contract. WHAT INVESTMENT OPTIONS ARE AVAILABLE FOR THE VARIABLE ANNUITY ACCOUNT? Purchase payments allocated to the Variable Annuity Account are invested exclusively in shares of one or more Fund Portfolios. We reserve the right to add, combine or remove other eligible funds. PAGE 3 The available Portfolios of the Advantus Series Fund Inc. 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 The Variable Annuity Account also invests in: - - Franklin Templeton Variable Insurance Products Trust - Templeton Developing Markets Securities Fund -- Class 2 Shares - Templeton Global Asset Allocation Fund -- Class 2 Shares (formerly Templeton Asset Strategy Fund) - Franklin Small Cap Fund -- Class 2 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 - - Janus Aspen Series - Capital Appreciation Portfolio -- Service Shares - International Growth Portfolio -- Service Shares - - Credit Suisse Trust - Global Post-Venture Capital Portfolio 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 the Fund's prospectus before investing in the contract. CAN YOU CHANGE THE PORTFOLIO SELECTED? Yes. You may change your allocation of future purchase payments by giving us written notice, a telephone call or via our on-line service center notifying us of the change. Before annuity payments begin, you may transfer all or a part of your PAGE 4 accumulation value from one Portfolio to another and/or the General Account. 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. During the annuity period, annuity reserves may be transferred only from a variable annuity to a fixed annuity. Currently no charges are imposed on transfers between portfolios, however we reserve the right to impose such charges in the future. WHAT CHARGES ARE ASSOCIATED WITH THE CONTRACTS? We deduct a daily charge equal to an annual rate of 1.25% for mortality and expense risk guarantees. We reserve the right to increase the charge to not more than 1.40%. We deduct a deferred sales charge on contract withdrawals, surrenders and some annuity elections during the first ten contract years for expenses relating to the sale of the contracts. The amount of any deferred sales charge is deducted from the accumulation value. Under the flexible payment variable annuity contract, the amount of deferred sales charge, as a percentage of the amount surrendered, withdrawn or applied to provide an annuity, decreases uniformly during the first ten contract years from an initial charge of 9% to no charge after ten contract years. Under the single payment variable annuity contract, the amount of the deferred sales charge, as a percentage of the amount surrendered, withdrawn or applied to provide an annuity, decreases uniformly during the first ten contract years from an initial charge of 6% to no charge after ten contract years. The deferred sales charge is not applicable to some partial withdrawals from the contracts. Also, there is no deferred sales charge on amounts paid in the event of the death of the owner and the accumulation value is applied to provide annuity payments under an option where benefits are expected to continue for a period of at least five years. We may also deduct any applicable premium taxes (currently such taxes range from 0.0% to 3.5%) depending upon applicable law. The Portfolios pay investment advisory and other expenses. Total expenses net of waivers of the Portfolios range from .42% to 1.82% of average daily net assets of the Portfolios on an annual basis. We reserve the right to impose a charge on transfers between portfolios, however no charge is currently imposed. We also reserve the right to assess a $100 fee to cover administrative costs associated with an exchange, if you exchange from another contract to this one. PAGE 5 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 of Advantus Series Fund, Inc. after expense reimbursement. The following contract expense information is intended to illustrate the expenses of the MultiOption Annuity variable annuity contracts. 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. SINGLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT CONTRACT OWNER TRANSACTION EXPENSES Deferred Sales Load (as a percentage of 6% decreasing uniformly by .05% for amount surrendered) each of the first 120 months from the contract date
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% ======================================== ========================================
FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT CONTRACT OWNER TRANSACTION EXPENSES Deferred Sales Load (as a percentage of 9% decreasing uniformly by .075% for amount surrendered) each of the first 120 months from the contract date
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 fee to not more than the amount shown in the column 'Maximum Possible Charge'. PAGE 6 FUND ANNUAL EXPENSES (Unless otherwise noted, expenses shown are for the year ended December 31, 2001, and are shown as a percentage of average daily net assets for the described Fund Portfolios.)
TOTAL ANNUAL FUND OPERATING EXPENSES WITHOUT MANAGEMENT OTHER DISTRIBUTION WAIVERS OR FEE EXPENSES (12B-1) FEES REDUCTIONS ----------- -------- ------------ ---------------- ADVANTUS SERIES FUND, INC. (1): Growth Portfolio 0.45% 0.05% 0.25% 0.75% Bond Portfolio 0.30% 0.05% 0.25% 0.60% Money Market Portfolio 0.25% 0.07% 0.25% 0.57% Asset Allocation Portfolio 0.35% 0.04% 0.25% 0.64% Mortgage Securities Portfolio 0.30% 0.06% 0.25% 0.61% Index 500 Portfolio 0.12% 0.05% 0.25% 0.42% Capital Appreciation Portfolio 0.50% 0.05% 0.25% 0.80% International Stock Portfolio 0.59% 0.13% 0.25% 0.97% Small Company Growth Portfolio 0.65% 0.07% 0.25% 0.97% Maturing Government Bond 2002 Portfolio 0.25% 0.95% -- 1.20% Maturing Government Bond 2006 Portfolio 0.25% 0.91% -- 1.16% Maturing Government Bond 2010 Portfolio 0.25% 1.17% -- 1.42% Value Stock Portfolio 0.50% 0.09% 0.25% 0.84% Small Company Value Portfolio 0.70% 0.27% 0.25% 1.22% Global Bond Portfolio 0.60% 0.35% 0.25% 1.20% Index 400 Mid-Cap Portfolio 0.15% 0.27% 0.25% 0.67% Macro-Cap Value Portfolio 0.50% 0.45% 0.25% 1.20% Micro-Cap Growth Portfolio 0.95% 0.20% 0.25% 1.40% Real Estate Securities Portfolio 0.60% 0.74% 0.25% 1.59% FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST -- CLASS 2 SHARES: Templeton Developing Markets Securities Fund (2) 1.25% 0.32% 0.25% 1.82% Templeton Global Asset Allocation Fund (2) 0.61% 0.20% 0.25% 1.06% Franklin Small Cap Fund (2)(3) 0.53% 0.31% 0.25% 1.09% FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS -- SERVICE CLASS 2 SHARES (4): VIP Mid Cap Portfolio 0.58% 0.11% 0.25% 0.94% VIP Contrafund Portfolio 0.58% 0.11% 0.25% 0.94% VIP Equity-Income Portfolio 0.48% 0.11% 0.25% 0.84% JANUS ASPEN SERIES -- SERVICE SHARES: Capital Appreciation Portfolio 0.65% 0.01% 0.25% 0.91% International Growth Portfolio 0.65% 0.06% 0.25% 0.96% CREDIT SUISSE TRUST (5): Global Post-Venture Capital Portfolio 1.25% 0.36% -- 1.61%
(1) Advantus Capital is voluntarily absorbing all fees and expenses that exceed 1.10% of average daily net assets for the Small Company Value Portfolio, 1.00% of average daily net assets for the Real Estate Securities Portfolio, .65% of average daily net assets for each of the three Maturing Government Bond Portfolios, 1.07% of average daily net assets for the Macro-Cap Value Portfolio, and 1.34% of average daily net assets for the Micro-Cap Growth Portfolio. Advantus Capital has not agreed to absorb expenses over a specified period of time and it may cease its absorption of expenses at any time. If it does so, some Portfolio expenses would increase and thereby reduce investment return. (2) The Fund's class 2 distribution plan or "rule 12b-1 plan" is described in the Fund's prospectus. (3) The manager had agreed in advance to make an estimated reduction of 0.08% of its fee to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. This reduction is required by the Fund's Board of Trustees and the Securities and Exchange Commission. With this reduction, the net annual fund operating expenses are estimated to be 1.01% (4) Actual annual class operating expenses were lower because a portion of the brokerage commissions that the fund paid was used to reduce the fund's expenses. In addition, through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances are used to reduce a portion of the fund's custodian expenses. These offsets may be discontinued at any time. (5) The fund's manager has voluntarily agreed to reimburse expenses of .21%. This arrangement may be discontinued by the fund's manager at any time. PAGE 7 CONTRACT OWNER EXPENSE EXAMPLE -- CURRENT CHARGES SINGLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT 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, (3) surrender amounts reflect any annual amount that may be excluded from the contingent deferred sales charge, and (4) current annual separate account charges totalling 1.25%.
IF YOU ANNUITIZE AT IF YOU SURRENDERED THE END OF THE YOUR CONTRACT AT APPLICABLE TIME PERIOD THE END OF THE 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 $70 $104 $139 $233 $20 $63 $108 $233 Bond Portfolio $69 $100 $132 $217 $19 $58 $100 $217 Money Market Portfolio $69 $ 99 $130 $214 $18 $57 $ 99 $214 Asset Allocation Portfolio $69 $101 $134 $221 $19 $59 $102 $221 Mortgage Securities Portfolio $69 $100 $132 $218 $19 $58 $101 $218 Index 500 Portfolio $67 $ 94 $123 $198 $17 $53 $ 91 $198 Capital Appreciation Portfolio $71 $106 $142 $238 $21 $64 $110 $238 International Stock Portfolio $72 $110 $150 $255 $23 $69 $119 $255 Small Company Growth Portfolio $72 $110 $150 $255 $23 $69 $119 $255 Maturing Government Bond 2002 Portfolio $69 $101 $131 $205 $19 $71 $126 $274 Maturing Government Bond 2006 Portfolio $69 $101 $134 $222 $19 $70 $124 $271 Maturing Government Bond 2010 Portfolio $69 $101 $134 $222 $19 $76 $135 $295 Value Stock Portfolio $71 $107 $144 $242 $21 $65 $112 $242 Small Company Value Portfolio $74 $114 $156 $269 $24 $76 $130 $280 Global Bond Portfolio $75 $117 $161 $279 $25 $76 $131 $279 Index 400 Mid-Cap Portfolio $70 $102 $135 $224 $19 $60 $104 $224 Macro-Cap Value Portfolio $73 $113 $155 $266 $24 $75 $129 $278 Micro-Cap Growth Portfolio $76 $121 $168 $292 $26 $82 $140 $298 Real Estate Securities Portfolio $73 $111 $150 $254 $23 $82 $145 $312 FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST -- CLASS 2 SHARES: Templeton Developing Markets Securities Fund $81 $135 $191 $338 $31 $95 $161 $338 Templeton Global Asset Allocation Fund $73 $113 $154 $265 $23 $72 $124 $265 Franklin Small Cap Fund $73 $112 $152 $260 $23 $72 $124 $267 FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS -- SERVICE CLASS 2 SHARES: VIP Fund -- Mid Cap $72 $110 $148 $252 $22 $69 $117 $252 VIP Fund -- Contrafund $72 $110 $148 $252 $22 $69 $117 $252 VIP Fund -- Equity-Income $71 $107 $144 $242 $21 $65 $112 $242 JANUS ASPEN SERIES -- SERVICE SHARES: Capital Appreciation Portfolio $72 $109 $147 $249 $22 $68 $116 $249 International Growth Portfolio $72 $110 $149 $254 $22 $69 $118 $254 CREDIT SUISSE TRUST: Global Post-Venture Capital Portfolio $77 $123 $171 $298 $27 $87 $149 $317
This example should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown. PAGE 8 CONTRACT OWNER EXPENSE EXAMPLE -- MAXIMUM POSSIBLE CHARGES SINGLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT 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, (3) surrender amounts reflect any annual amount that may be excluded from the contingent deferred sales charge, and (4) maximum possible annual separate account charges totalling 1.40%.
IF YOU ANNUITIZE AT IF YOU SURRENDERED THE END OF THE YOUR CONTRACT AT APPLICABLE TIME PERIOD THE END OF THE 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 $72 $108 $146 $248 $22 $67 $115 $248 Bond Portfolio $70 $104 $139 $233 $20 $63 $108 $233 Money Market Portfolio $70 $103 $138 $230 $20 $62 $106 $230 Asset Allocation Portfolio $71 $105 $141 $237 $21 $64 $110 $237 Mortgage Securities Portfolio $70 $104 $140 $234 $20 $63 $108 $234 Index 500 Portfolio $69 $ 99 $130 $214 $18 $57 $ 99 $214 Capital Appreciation Portfolio $72 $110 $149 $253 $22 $69 $118 $253 International Stock Portfolio $74 $115 $157 $271 $24 $74 $127 $271 Small Company Growth Portfolio $74 $115 $157 $271 $24 $74 $127 $271 Maturing Government Bond 2002 Portfolio $71 $106 $137 $210 $21 $76 $133 $289 Maturing Government Bond 2006 Portfolio $71 $106 $142 $238 $21 $75 $131 $286 Maturing Government Bond 2010 Portfolio $71 $106 $142 $238 $21 $80 $142 $309 Value Stock Portfolio $73 $111 $151 $257 $23 $70 $120 $257 Small Company Value Portfolio $75 $119 $164 $284 $25 $80 $138 $295 Global Bond Portfolio $76 $121 $168 $293 $26 $81 $138 $293 Index 400 Mid-Cap Portfolio $71 $106 $143 $240 $21 $65 $111 $240 Macro-Cap Value Portfolio $75 $118 $162 $281 $25 $80 $137 $292 Micro-Cap Growth Portfolio $77 $125 $175 $307 $28 $86 $147 $312 Real Estate Securities Portfolio $74 $115 $157 $269 $24 $87 $152 $327 FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST -- CLASS 2 SHARES: Templeton Developing Markets Securities Fund $82 $139 $198 $352 $32 $99 $168 $352 Templeton Global Asset Allocation Fund $75 $117 $162 $280 $25 $77 $131 $280 Franklin Small Cap Fund $74 $116 $159 $275 $24 $77 $132 $282 FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS -- SERVICE CLASS 2 SHARES: VIP Fund -- Mid Cap $74 $114 $156 $268 $24 $73 $125 $268 VIP Fund -- Contrafund $74 $114 $156 $268 $24 $73 $125 $268 VIP Fund -- Equity-Income $73 $111 $151 $257 $23 $70 $120 $257 JANUS ASPEN SERIES -- SERVICE SHARES: Capital Appreciation Portfolio $73 $113 $154 $265 $23 $72 $124 $265 International Growth Portfolio $74 $115 $157 $270 $24 $74 $126 $270 CREDIT SUISSE TRUST: Global Post-Venture Capital Portfolio $78 $127 $178 $313 $28 $91 $156 $331
This example should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown. PAGE 9 CONTRACT OWNER EXPENSE EXAMPLE -- CURRENT CHARGES FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT 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 (3) surrender amounts reflect any annual amount that may be excluded from the contingent deferred sales charge, and (4) current annual separate account charges totalling 1.25%.
IF YOU ANNUITIZE AT THE END IF YOU SURRENDERED YOUR OF THE APPLICABLE TIME PERIOD CONTRACT AT THE END OF THE 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 $ 95 $125 $155 $233 $20 $63 $108 $233 Bond Portfolio $ 94 $120 $147 $217 $19 $58 $100 $217 Money Market Portfolio $ 94 $120 $146 $214 $18 $57 $ 99 $214 Asset Allocation Portfolio $ 94 $122 $149 $221 $19 $59 $102 $221 Mortgage Securities Portfolio $ 94 $121 $148 $218 $19 $58 $101 $218 Index 500 Portfolio $ 92 $115 $138 $198 $17 $53 $ 91 $198 Capital Appreciation Portfolio $ 96 $126 $157 $238 $21 $64 $110 $238 International Stock Portfolio $ 97 $131 $165 $255 $23 $69 $119 $255 Small Company Growth Portfolio $ 97 $131 $165 $255 $23 $69 $119 $255 Maturing Government Bond 2002 Portfolio $ 94 $122 $147 $205 $19 $71 $126 $274 Maturing Government Bond 2006 Portfolio $ 94 $122 $150 $222 $19 $70 $124 $271 Maturing Government Bond 2010 Portfolio $ 94 $122 $150 $222 $19 $76 $135 $295 Value Stock Portfolio $ 96 $127 $159 $242 $21 $65 $112 $242 Small Company Value Portfolio $ 99 $135 $172 $269 $24 $76 $130 $280 Global Bond Portfolio $100 $138 $176 $279 $25 $76 $131 $279 Index 400 Mid-Cap Portfolio $ 95 $122 $151 $224 $19 $60 $104 $224 Macro-Cap Value Portfolio $ 98 $134 $170 $266 $24 $75 $129 $278 Micro-Cap Growth Portfolio $101 $141 $183 $292 $26 $82 $140 $298 Real Estate Securities Portfolio $ 97 $131 $165 $254 $23 $82 $145 $312 FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST -- CLASS 2 SHARES: Templeton Developing Markets Securities Fund $105 $155 $206 $338 $31 $95 $161 $338 Templeton Global Asset Allocation Fund $ 98 $134 $170 $265 $23 $72 $124 $265 Franklin Small Cap Fund $ 98 $132 $167 $260 $23 $72 $124 $267 FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS -- SERVICE CLASS 2 SHARES: VIP Fund -- Mid Cap $ 97 $130 $164 $252 $22 $69 $117 $252 VIP Fund -- Contrafund $ 97 $130 $164 $252 $22 $69 $117 $252 VIP Fund -- Equity-Income $ 96 $127 $159 $242 $21 $65 $112 $242 JANUS ASPEN SERIES -- SERVICE SHARES: Capital Appreciation Portfolio $ 97 $129 $163 $249 $22 $68 $116 $249 International Growth Portfolio $ 97 $131 $165 $254 $22 $69 $118 $254 CREDIT SUISSE TRUST: Global Post-Venture Capital Portfolio $101 $143 $186 $298 $27 $87 $149 $317
*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. CONDENSED FINANCIAL INFORMATION AND FINANCIAL STATEMENTS The financial history of each sub-account may be found in the Appendix under the heading "Condensed Financial Information." The complete financial statements of the Variable Annuity Account and Minnesota Life are included in the Statement of Additional Information. PAGE 10 CONTRACT OWNER EXPENSE EXAMPLE -- MAXIMUM POSSIBLE CHARGES FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT 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 and (3) surrender amounts reflect any annual amount that may be excluded from the contingent deferred sales charge, and (4) maximum possible annual separate account charges totalling 1.40%.
IF YOU ANNUITIZE AT THE END IF YOU SURRENDERED YOUR OF THE APPLICABLE TIME PERIOD CONTRACT AT THE END OF THE 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 $ 97 $129 $162 $248 $22 $67 $115 $248 Bond Portfolio $ 95 $125 $155 $233 $20 $63 $108 $233 Money Market Portfolio $ 95 $124 $153 $230 $20 $62 $106 $230 Asset Allocation Portfolio $ 96 $126 $157 $237 $21 $64 $110 $237 Mortgage Securities Portfolio $ 95 $125 $155 $234 $20 $63 $108 $234 Index 500 Portfolio $ 94 $120 $146 $214 $18 $57 $ 99 $214 Capital Appreciation Portfolio $ 97 $130 $164 $253 $22 $69 $118 $253 International Stock Portfolio $ 99 $135 $173 $271 $24 $74 $127 $271 Small Company Growth Portfolio $ 99 $135 $173 $271 $24 $74 $127 $271 Maturing Government Bond 2002 Portfolio $ 96 $126 $153 $210 $21 $76 $133 $289 Maturing Government Bond 2006 Portfolio $ 96 $126 $157 $238 $21 $75 $131 $286 Maturing Government Bond 2010 Portfolio $ 96 $126 $157 $238 $21 $80 $142 $309 Value Stock Portfolio $ 98 $132 $166 $257 $23 $70 $120 $257 Small Company Value Portfolio $100 $139 $179 $284 $25 $80 $138 $295 Global Bond Portfolio $101 $142 $184 $293 $26 $81 $138 $293 Index 400 Mid-Cap Portfolio $ 96 $127 $158 $240 $21 $65 $111 $240 Macro-Cap Value Portfolio $100 $138 $177 $281 $25 $80 $137 $292 Micro-Cap Growth Portfolio $102 $146 $190 $307 $28 $86 $147 $312 Real Estate Securities Portfolio $ 99 $135 $172 $269 $24 $87 $152 $327 FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST -- CLASS 2 SHARES: Templeton Developing Markets Securities Fund $107 $159 $213 $352 $32 $99 $168 $352 Templeton Global Asset Allocation Fund $100 $138 $177 $280 $25 $77 $131 $280 Franklin Small Cap Fund $ 99 $136 $175 $275 $24 $77 $132 $282 FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS -- SERVICE CLASS 2 SHARES: VIP Fund -- Mid Cap $ 99 $134 $171 $268 $24 $73 $125 $268 VIP Fund -- Contrafund $ 99 $134 $171 $268 $24 $73 $125 $268 VIP Fund -- Equity-Income $ 98 $132 $166 $257 $23 $70 $120 $257 JANUS ASPEN SERIES -- SERVICE SHARES: Capital Appreciation Portfolio $ 98 $134 $170 $265 $23 $72 $124 $265 International Growth Portfolio $ 99 $135 $172 $270 $24 $74 $126 $270 CREDIT SUISSE TRUST: Global Post-Venture Capital Portfolio $103 $147 $193 $313 $28 $91 $156 $331
*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. CONDENSED FINANCIAL INFORMATION AND FINANCIAL STATEMENTS The financial history of each sub-account may be found in the Appendix under the heading "Condensed Financial Information." The complete financial statements of the Variable Annuity Account and Minnesota Life are included in the Statement of Additional Information. PAGE 11 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 request for a partial withdrawal must be in writing. Partial withdrawals are generally subject to the deferred sales charge. However, if withdrawals during the first calendar year are equal to or less than 10% of the purchase payments made during the first year and, if in subsequent calendar years they are equal to or less than 10% of the accumulation value at the end of the previous calendar year, the deferred sales charge will not apply to those partial withdrawals. The deferred sales charge described above will apply to all withdrawal amounts which exceed 10% of that accumulation value in any calendar year. In addition, a penalty tax on the amount of the taxable distribution may be assessed upon withdrawals from variable annuity contracts in certain circumstances including distributions made prior to the owner's attainment of age 59 1/2. DO YOU HAVE A RIGHT TO CANCEL THE CONTRACT? Yes. You may cancel the contract any time within ten days of your receipt of the contract by returning it to us or your agent. In some states, the free look period may be extended. In California, the free look period is extended to 30 days' time. These rights are subject to change and may vary among the states. IS THERE A GUARANTEED DEATH BENEFIT? Yes. The single payment and flexible payment variable annuity contract each have a guaranteed death benefit if you die before annuity payments have started. The death benefit in the case of the single payment contract shall be equal to the greater of: - the amount of the accumulation value payable at death; or - the amount of the total purchase payments paid to us during the first year as consideration for this contract, less all contract withdrawals. The death benefit in the case of the flexible payment contract shall be equal to the greater of: - the amount of the accumulation value payable at death; or - the amount of the total purchase payments paid to us, less all contract withdrawals. WHAT ANNUITY OPTIONS ARE AVAILABLE? The annuity options available are: - a life annuity; - a life annuity with a period certain of 120 months, 180 months or 240 months; - a joint and last survivor annuity; and - a period certain annuity. PAGE 12 Each annuity option may be elected as a variable annuity or a fixed annuity or a combination of the two. Other annuity options may be available from us on request. WHAT IF THE OWNER DIES? If you die before payments begin, we will pay the contract accumulation value or total purchase payments, less withdrawals, to the beneficiary. If the annuitant dies after annuity payments have begun, we will pay whatever death benefit may be called for by the annuity option selected. If the owner of this contract is other than a natural person, such as a trust, we will pay a death benefit of the accumulation value to the named beneficiary on the death of the annuitant if death occurs before annuity payments begin. 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 13 (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 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. Effective October 1, 1998, The Minnesota Mutual Life Insurance Company reorganized by forming a mutual insurance holding company named "Minnesota Mutual Companies, Inc." The Minnesota Mutual Life Insurance Company continued its corporate existence following conversion to a Minnesota stock life insurance company named "Minnesota Life Insurance Company" ("Minnesota Life"). All of the shares of the voting stock of Minnesota Life are owned by a second tier intermediate stock holding company named "Securian Financial Group, Inc.", which in turn is a wholly-owned subsidiary of a first tier intermediate stock holding company named "Securian Holding Company", which in turn is a wholly-owned subsidiary of the ultimate parent, Minnesota Mutual Companies, Inc. Our home office is at 400 Robert Street North, St. Paul, Minnesota 55101-2098, telephone: 1-800-362-3141, internet address: www.minnesotalife.com. 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 Securities and Exchange Commission under the Investment Company Act of 1940, but that registration does not mean that the Securities and Exchange Commission 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 which we may conduct. The investment performance of the Variable Annuity Account is entirely independent of both the investment performance of our General Account and our other separate accounts. All obligations under the contracts are general corporate obligations of Minnesota Life. The Variable Annuity Account 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 14 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, LLC 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 Global Asset Allocation Fund - Class 2 Shares Templeton Investment Counsel, LLC Franklin Advisers, 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 CREDIT SUISSE TRUST: - ------------------------------------------------------------------------------------------------------------------------------------ Global Post-Venture Capital Portfolio Credit Suisse Asset Management, LLC
PAGE 15 (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 these contracts, 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. 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 Fund. Sub-accounts may be established when, in our sole discretion, marketing, tax, investment or other conditions warrant such action. 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 will be made available to existing contract owners on any basis we may 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. The Fund serves as the underlying investment medium for amounts invested in life insurance company separate accounts funding both variable life insurance policies and variable annuity contracts (mixed funding), and as the investment medium for such policies and contracts issued by both Minnesota Life and other affiliated and unaffiliated life insurance companies (shared funding). Shared funding also occurs when the Fund is used by both a life insurance company to fund its policies or contracts and a participating qualified plan to fund plan benefits. It is possible that there may be circumstances where it is disadvantageous for either (i) the owners of variable life insurance policies and variable annuity contracts to invest in the Fund at the same time, or (ii) the owners of such policies and contracts issued by different life insurance companies to invest in the Fund at the same time or (iii) participating qualified plans to invest in shares of the Fund at the same time as one or more life insurance companies. Neither the Fund nor Minnesota Life currently foresees any disadvantage, but if the Fund determines that there is any such disadvantage due to a material conflict of interest between such policy owners and contract owners, or between different life insurance companies, or between participating qualified plans and one or more life insurance companies, or for any other reason, the Fund's Board of Directors will notify the life insurance companies and participating qualified plans of such conflict of interest or other applicable event. In that event, the life insurance companies or participating qualified plans may be required to sell Fund shares with respect to certain groups of policy owners or PAGE 16 (SIDEBAR) A deferred sales charge may apply. (END SIDEBAR) contract owners, or certain participants in participating qualified plans, in order to resolve any conflict. The life insurance companies and participating qualified plans will bear the entire cost of resolving any material conflict of interest. CONTRACT CHARGES A. SALES CHARGES No sales charge is deducted from any purchase payment made for this contract at the time of its receipt. However, when a contract's accumulation value is reduced by a withdrawal, or surrender, a deferred sales charge may be deducted. This is for expenses related to the sale of the contracts. The sales charge is deducted from the remaining accumulation value of the contract except in the case of a surrender, where it reduces the amount paid to you. We will deduct the sales charge proportionally from the fixed and variable accumulation value of the contract. The amount of the deferred sales charge, shown as a percentage of the accumulation value withdrawn, follows. Percentages are shown as of the contract date and the end of each of the first ten contract years. The percentages decrease uniformly each month for 120 months from the contract date.
DEFERRED SALES CHARGE ---------------------------------- FLEXIBLE PAYMENT SINGLE PAYMENT BEGINNING OF VARIABLE ANNUITY VARIABLE ANNUITY CONTRACT YEAR CONTRACT CONTRACT - ------------- ---------------- ---------------- 1 9.0% 6.0% 2 8.1 5.4 3 7.2 4.8 4 6.3 4.2 5 5.4 3.6 6 4.5 3.0 7 3.6 2.4 8 2.7 1.8 9 1.8 1.2 10 0.9 0.6 11 0 0
No deferred sales charge is deducted from the accumulation value withdrawn if: - the withdrawal occurs after a contract has been in force for at least ten contract years, - withdrawals during the first calendar year are equal to or less than 10% of the purchase payments and, if in subsequent calendar years they are equal to or less than 10% of the accumulation value at the end of the previous calendar year, - the withdrawal is on account of the annuitant's death, or PAGE 17 (SIDEBAR) We pay broker-dealers to sell the contracts. (END SIDEBAR) - the withdrawal is for the purpose of providing annuity payments under an option where payments are expected to continue for at least five years. - the amount is withdrawn because of an excess contribution to a tax- qualified contract (including for example IRAs and tax sheltered annuities); - certain amounts of a contract's accumulation value are 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); - for contracts issued 5 or more years ago, and amounts withdrawn and applied to the purchase of our SecureOption Acclaim annuity contract, a single payment, deferred fixed annuity contract, with a market value adjustment. If withdrawals in a calendar year exceed 10% of those purchase payments or accumulation value, the sales charge applies to the amount of the excess withdrawal. The deferred sales charge is designed to compensate us for the distribution expenses of the contract. To the extent that sales expenses are not recovered from the sales load, we will recover them from our other assets or surplus including profits from mortality and expense risk charges. As a percentage of purchase payments paid to the contracts, Securian Financial Services, Inc. ("Securian Financial"), the principal underwriter, may pay up to 4.75% of the amount of those purchase payments to broker-dealers responsible for the sales of the contracts. In addition, Securian Financial or we will pay, based uniformly on the sale of variable annuity contracts by broker-dealers, credits which allow registered representatives responsible for sales of variable annuity contracts to attend conventions and other meetings sponsored by us or our affiliates for the purpose of promoting the sale of the insurance and/or investment products that we offer. Credits may cover things such as the registered representatives' transportation, hotel accommodations, meals, and registration fees. We may also pay those registered representatives amounts based upon their production and the persistency of life insurance and annuity business placed with us. B. MORTALITY AND EXPENSE RISK CHARGES We assume the mortality risk under the contracts by our obligation to continue to make monthly annuity payments, in accordance with the annuity rate tables and other provisions in the contracts, regardless of how long that annuitant lives or all annuitants 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. PAGE 18 (SIDEBAR) The mortality and expense risk charge is 1.25%. We may increase it to 1.40%. You can instruct us how to vote Fund shares. (END SIDEBAR) Our expense risk is the risk that charges under the contracts 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%. If these deductions are insufficient to cover our actual costs, then we will absorb the resulting losses. If the deductions prove to be more than sufficient after the establishment of any contingency reserves deemed prudent or as required by law, any excess will be profit (or "retained earnings") to us. Some or all of such profit may be used to cover any distributions costs not recovered through the deferred sales charge. C. PREMIUM TAXES Deduction for any applicable state premium taxes may be made from each purchase payment or at the commencement of annuity payments. (Currently, such taxes range from 0.0% to 3.5%, depending on the applicable law.) An amount withdrawn from the contract may be reduced by any premium taxes not previously deducted. VOTING RIGHTS We will vote Fund shares held in the Variable Annuity 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 may be allowed to vote shares in our own right, then we may elect to do so. During the accumulation period you hold the voting interest in each contract. The number of votes is reached 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 each contract. The number of votes is reached 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 for contract will decrease as the reserves decrease. In determining any voting interest, we count fractional shares. We will notify you or the annuitant of a Fund shareholders' meeting if the contract has shares to vote. We will also send proxy materials and a form of instruction so that you can instruct us about voting. PAGE 19 (SIDEBAR) The contract is a flexible payment variable annuity. It is also available as a single payment contract. We issue the contract to you and you select the annuitant. (END SIDEBAR) DESCRIPTION OF THE CONTRACTS A. GENERAL PROVISIONS 1. Types of Contracts Offered (a) Single Payment Variable Annuity Contract This type of contract may be used in connection with a pension or profit-sharing plan under which plan contributions have been accumulating. It may be used in connection with a plan which has previously been funded with insurance or annuity contracts. It may be used under state deferred compensation plans or individual retirement annuity programs. It may also be purchased by individuals not as a part of any qualified plan. The contract provides for a fixed or variable annuity to begin at some future date with the purchase payment made either in a lump sum or in a series of payments in a single contract year. (b) Flexible Payment Variable Annuity Contract This type of contract may be used in connection with all types of plans, state deferred compensation plans or individual retirement annuities adopted by or on behalf of individuals. It may also be purchased by individuals not as a part of any plan. The contract provides for a variable annuity or a fixed annuity to begin at some future date with the purchase payments for the contract to be paid prior to the annuity commencement date in a series of payments flexible in respect to the date and amount of payment. 2. Issuance of Contracts The contracts are issued to you, the contract owner named in the application. The owner of the contract may be the annuitant or someone else. 3. Modification of the Contracts Your contract may be modified at any time by written agreement between you and us. However, no 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. PAGE 20 (SIDEBAR) You cannot pay more than $1 million unless we consent. We may cancel your contract if you stop making payments and have a small accumulation value. (END SIDEBAR) 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,) - 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 made by us before it was recorded. Any proceeds which become payable to an assignee will be payable 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 For the single payment variable annuity contract, the single payment will be deemed to include all purchase payments made within 12 months of the contract date. The amount of an initial purchase payment must be at least $5,000. The amount of any subsequent payment during that 12 month period must be at least $1,000. Some states, for example, New Jersey, will limit these contracts to a single purchase payment and contracts issued there are so limited. You choose when to make purchase payments under a flexible payment variable annuity contract. 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 or to the General Account. Total purchase payments under either contract may not exceed $1,000,000, except with our consent. We may cancel a flexible payment contract, at our discretion, if no purchase payments are made for a period of two or more full contract years and both (a) the total purchase payments made, less any withdrawals and associated charges, and (b) the accumulation value of the entire contract, are less than $2,000. If such a cancellation takes place, we will pay you the accumulation value of your contract and we will notify you, in advance, of our intent to exercise this right in our annual report which advises contract owners of the status of their contracts. We will act to cancel the contract ninety days after the contract anniversary unless an additional purchase payment is received before the end of PAGE 21 (SIDEBAR) We normally pay lump sum payments within 7 days, but may delay payments in certain circumstances. The contract is non-participating. (END SIDEBAR) that ninety day period. Contracts issued in some states, for example, New Jersey, do not permit such a cancellation and contracts issued there do not contain this provision. There may be limits on the maximum contributions to retirement plans that qualify for special tax treatment. 6. Deferment of Payment Whenever any payment under a contract is to be made in a single sum, payment will be made within seven days after the date such payment is called for by the terms of the contract, except as payment may be subject for postponement for: (a) any period during which the New York Stock Exchange is closed other than customary weekend and holiday closings, or during which trading on the New York Stock Exchange is restricted, as determined by the Securities and Exchange Commission; (b) any period during which an emergency exists as determined by the Commission as a result of which it is not reasonably practical to dispose of securities in the Fund or to fairly determine the value of the assets of the Fund; or (c) such other periods as the Commission may by order permit for the protection of the contract owners. 7. Participation The contracts are non-participating. Contracts issued prior to October 1, 1998 were participating. The amounts, if any, that will be distributable under participating contracts in the future will be determined by us and credited to the contracts on a basis we determine. We do not anticipate dividend payments. B. ANNUITY PAYMENTS AND OPTIONS 1. Annuity Payments Variable annuity payments are determined on the basis of (a) the mortality table specified in the contract, which reflects the age of the annuitant, (b) the type of annuity payment option selected, and (c) the investment performance of the Fund Portfolios selected by the contract owner. 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 such units, and thus the amounts of the monthly annuity payments will, however, reflect investment gains and losses and investment income of the Funds, and thus the annuity payments will vary with the investment experience of the assets of the Portfolio of the Fund selected by the contract owner. PAGE 22 (SIDEBAR) Each of the annuity options is available on a fixed, variable or combination fixed and variable basis. You tell us when to start making annuity payments to the annuitant. (END SIDEBAR) 2. Electing the Retirement Date and Form of Annuity The contracts provide for four optional annuity forms, any one of which 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. Other annuity options may be available from us on request. While the contracts require that notice of election to begin annuity payments must be received by us at least 30 days prior to the annuity commencement date, we are currently waiving that requirement for such variable annuity elections received at least three 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. Each contract permits an annuity payment to begin on the first day of any month. Under the contracts payment must begin before the later of the 85th birthday of the annuitant, or five years after the date of issue of the contracts. A variable annuity will be provided and the annuity option shall 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 is $20. If such first monthly 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. 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. Optional Annuity Forms 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 died prior to the due date of the second annuity payment, two if he 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 PAGE 23 (SIDEBAR) The amount of your first annuity payment depends on the age of the annuitant and the annuity option you select. (END SIDEBAR) 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. OPTION 4 - PERIOD CERTAIN ANNUITY This is an annuity payable monthly for a period certain of from 5 to 20 years, as elected. If the annuitant dies before payments have been made for the period certain elected, payments will continue during the remainder of the fixed period to the beneficiary. Contracts issued prior to May of 1993, or such later date as we receive regulatory approval to issue these new contracts in a state and are administratively able to do so, may allow the election of a period certain option of less than five years. In the event of the death of the annuitant, you or the beneficiary may elect that (1) 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 (2) such 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, several 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). For contracts issued after May, 1993, a $200 fee may be deducted from the accumulation value when a fixed annuity is elected. 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 PAGE 24 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. 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%. A higher interest rate means a higher initial payment, but a more slowly rising (or more rapidly falling) series of subsequent payments. A lower assumption has the opposite effect. For contracts issued prior to May, 1993 which utilized such a lower rate, the payments will differ in the manner described here. 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. PAGE 25 (SIDEBAR) You may change Portfolios in the annuity period, subject to some restrictions. (END SIDEBAR) 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 (a) .996338, and (b) 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 rate, discussed in Section 3 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). 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 Annuity reserves are the measure of assets attributable to the contracts and held during the annuity period. During the annuity period amounts held as annuity reserves may be transferred among the variable annuity 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; and the written request for an annuity transfer must be received by us more than 30 days in advance of the due date of the annuity payment subject to the transfer. Upon request, we will provide you with annuity reserve amount information by sub-account. A transfer will be made on the basis of annuity unit values. The number of annuity units from the sub-account being transferred will be converted to a number of annuity units in the new sub-account. The annuity payment option will remain the same and cannot be changed. After this conversion, a number of annuity units in the new sub-account will be payable under the elected option. The first payment after conversion will be of the same amount as it would have been without the transfer. The number of annuity units will be set at that number of units which are needed to pay that same amount on the transfer date. PAGE 26 (SIDEBAR) If you die prior to commencement of annuity payments, there is a death benefit that is guaranteed to be not less than your purchase payments less withdrawals. (END SIDEBAR) 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. 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 and the sub-account to which reserves are transferred for the period between annuity valuation dates. 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. 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 methodology at the time of transfer that we use to determine an initial fixed annuity payment. Contracts with this transfer feature may not be available in all states. C. DEATH BENEFITS The contracts provide that in the event of the death of the owner before annuity payments begin, the amount payable at death will be the contract accumulation value determined as of the valuation date coincident with or next following the date due proof of death is received by us at our home office, less any withdrawals. Death proceeds will be paid to the beneficiary designated unless an annuity option is elected. Payment will be made within 7 days after we receive due proof of death. Except as noted below, the entire interest in the contract must be distributed within 5 years of the owner's death. The single payment and flexible payment variable annuity contract each have a guaranteed death benefit if you die before annuity payments have started. The death benefit for the single payment contract shall be equal to the greater of: - the amount of the accumulation value payable at death; or - the amount of the total purchase payments paid to us during the first 12 months as consideration for this contract, less all contract withdrawals. PAGE 27 The death benefit in the case of the flexible payment contract shall be equal to the greater of: - the amount of the accumulation value payable at death; or - the amount of the total purchase payments paid to us less all contract withdrawals. If the owner dies on or before the date on which annuity payments begin, we will pay the death benefit to the designated beneficiary. 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 so long as 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 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 any portion of your contract is payable to your designated beneficiary who is also your surviving spouse that spouse shall be treated as the contract owner for purposes of: - when payments must begin, and - the time of distribution in the event of that spouse's death. If the owner of this contract is other than a natural person, such as a trust, we will pay a death benefit of the accumulation value to the named beneficiary on the death of the annuitant, if death occurs before annuity payments begin. The value of the death benefit will be determined as of the valuation date coincident with or next following the day we receive due proof of death and any related information necessary. Any amounts due as a death benefit in excess of the accumulation value on the date we receive due proof of death will be directed into the money market sub-account in fulfillment of the death benefit provision of the Contract. Prior to any election by the beneficiary of a death benefit payment option, amounts held in the contract (including amounts paid or payable by us a death benefit to the accumulation value) shall continue to be affected by the sub- account performance as allocated by the contract owner. The beneficiary has the right to allocate or transfer any amount to any available sub-account option, subject to the same limitations imposed on the contract owner. 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 coincident with or next following the date we receive it at our home office. When the contracts are PAGE 28 (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) 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. Applications received without instructions as to allocation will be treated as incomplete. If the initial purchase payment is accompanied by an incomplete application, that purchase payment will not be credited until the valuation date coincident with or next following the date a completed application is received. We will offer to return the initial purchase payment accompanying an incomplete application if it appears that the application cannot be completed within five business days. Purchase payments are credited to the contract in accumulation units. We determine the number of accumulation units from each purchase payment 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 Funds. We will determine the value of accumulation units on each day on which the Portfolios of the Funds are valued. The net asset value of the Funds' shares are 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 (the primary close of trading is 3:00 p.m. (Central time), but this time may be changed) on each day, Monday through Friday, except: - days on which changes in the value of Fund's portfolio securities will not materially affect the current net asset value of such Fund's shares, - days during which no Fund's shares are tendered for redemption and no order to purchase or sell Fund's shares is received by such Fund and - customary national business holidays on which the New York Stock Exchange is closed for trading. The value of accumulation units will be the same on all purchase payments received by us at our home office on that day prior to the close of the Exchange. Purchase payments received after the close of business of the Exchange will be priced on the next valuation date. In addition to providing for the allocation of purchase payments to the sub- accounts of the Variable Annuity Account, the contracts allow you to allocate purchase payments to our General Account for accumulation at a guaranteed interest rate. 2. Transfers Values may be transferred between our General Account and the Variable Annuity Account or among the sub-accounts of the Variable Annuity Account. You may PAGE 29 effect transfers or change allocation of future purchase payments by written request, telephone transfer or via our internet service center located at: www.minnesotalife.com. We will make the transfer on the basis of accumulation unit values next determined after receipt of your request at our home office. With the exception of transfers from the General Account (see below), there is no dollar amount limitation on transfers. No deferred sales charge will be imposed on such transfers. In addition, there is no charge for transfers, though we reserve the right to impose a charge of up to $10 for transfers occurring more frequently than once per month. Unless stated otherwise, the same conditions and procedures that apply to written requests apply to telephone or internet requests. Telephone services are automatically available to you. We have procedures designed to provide reasonable assurance that telephone authorizations are genuine. To the extent that we do not have procedures, we may be liable for any losses due to unauthorized or fraudulent instructions. We require contract owners, or persons authorized by them to provide identifying information to us, we record telephone instruction conversations and we provide you with written confirmations of your telephone transactions. In order to access your contract information via our on-line service center, you will need to first go to the website and register for access. You will need certain personal information and at least one contract number. We will send an access code to your address of record. Internet access is available only to the following types of contracts: non-qualified, 403(b) contracts and IRA contracts. In addition, you will not be able to re-balance into or out of the General Account, or make transfers or re-balance if you have a TSA loan, through the on-line service center. We have procedures designed to provide reasonable assurance that internet authorizations are genuine. To the extent that we do not have procedures, we may be liable for any losses due to unauthorized of fraudulent instructions. We require that you, or persons authorized by you, long-on to the secure section of our website, we issue a confirmation number for each transaction, and we provide you with a written confirmation of your internet transaction. During periods of marked economic or market changes, you may experience difficulty making a telephone request or on-line service request due to the volume of telephone calls or internet activity. If that occurs, you should consider submitting a written request while continuing to attempt your transaction request. 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. If a transfer cannot be completed on that date, it will be made on the next available transfer date. Systematic transfers will be made on a monthly, quarterly, semi-annual or annual basis and will remain active until the applicable sub-account is depleted, in the absence of specific instructions otherwise. These arrangements are limited to a maximum of 20 sub-accounts. They will not affect the current allocation of future purchase payments. There will be no charge for systematic transfers. PAGE 30 One type of systematic transfer arrangement offered for certain contracts is known a automatic portfolio rebalancing ("APR"). You may elect APR on a quarterly, semi-annual or annual basis. They will be treated as instructions for transfers to and from various sub-accounts. APR will not affect the current allocation of future purchase payments and is not limited to a maximum or minimum number of sub-accounts. APR is not available for values in the General Account or in the Advantus Fund Maturing Government Bond portfolios, nor is it available through our on-line service center. There is no charge for APR transactions. APRs are processed on the 25th of each month (or next available date after if the 25th is not a valuation date). Transfers from the General Account to the Variable Annuity Account will be limited to a single transfer during any calendar year to an amount not to exceed 20% of the General Account accumulation value at the time of the transfer request. However, in the case of General Account accumulation values of $1000 or less, we will allow a one-time transfer of the entire accumulation value amount from the General Account to the sub-accounts of the Variable Annuity Account. If you have a systematic transfer arrangement with us, you may transfer current interest earnings or a specified amount from the General Account on a monthly, quarterly, semi-annual or annual basis. The maximum initial amount transferred may not exceed 10% of your current General Account accumulation value at the time of the transfer request. For contracts where the General Account accumulation value has increased during the year because of transfers into the General Account, or because of additional purchase payments made after the transfer program has been established, systematic transfers will be allowed to the extent of the greater of the current transfer amount of 10% of the then current General Account accumulation value. We reserve the right to alter such transfer restrictions, even if you have established a systematic transfer out of the General Account, but will do so only upon prior written notice to you. We reserve the right to restrict the frequency of -- or otherwise modify, condition, terminate or impose charges upon -- any transfer method(s). The underlying funds may restrict the amounts or frequency of transfers in order to protect fund shareholders. For more information on transactions related to your contract, you may contact us at 1-800-362-3141 or contract either us or your registered representative via Internet email. Please remember that an email is not a valid substitute for a written request that requires your signature. The interests of contract owners arising from the allocation of purchase payments or the transfer of contract values to our General Account are not registered under the Securities Act of 1933. We are not registered as an investment company under the Investment Company Act of 1940. Accordingly, such interests are not subject to the provisions of those acts that would apply if registration under such acts was required. Therefore, the General Account is not described here. PAGE 31 (SIDEBAR) Your contract's accumulation value varies with the performance of the Portfolios you select and is not guaranteed. (END SIDEBAR) 3. Value of the Contract The Accumulation Value of the contract at any time before annuity payments begin can be determined by multiplying the number of accumulation units credited to the contract for each sub-account by the current value of an accumulation unit for each respective sub-account. There is no assurance that the total value will equal or exceed the purchase payments made. You will be advised periodically of the number of accumulation units in your contract, the current value of an accumulation unit, and its total value. 4. 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 Variable Annuity Account. The value of an accumulation unit on any valuation date thereafter is determined by multiplying - the value of an accumulation unit on the immediately preceding valuation date by - the net investment factor for the applicable sub-account for the valuation period just ended. The value of an accumulation unit a day other than a valuation date is its value on the next valuation date. 5. 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 such 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. 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. PAGE 32 (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. (END SIDEBAR) E. REDEMPTIONS 1. Partial Withdrawals and Surrender Both contracts, provide that before annuity payments begin you may make partial withdrawals in amounts of at least $250. Your withdrawal or surrender request must be in writing and signed. It may be sent to us via facsimile. Our FAX number is: (651)665-7942. There are risks associated with not requiring original signatures in order to disburse contractholder monies. Payment of a partial withdrawal or surrender will be made to you within 7 days after we receive your completed request. If you make a withdrawal, the accumulation value will be reduced by the amount withdrawn and any deferred sales charge. Unless you tell us otherwise, withdrawals will be made from the General Account accumulation value and from the Variable Annuity Account accumulation value in the same proportion. If we have no instructions from you, withdrawals will be made from the sub-accounts on a pro-rata basis. We will waive the applicable dollar amount limitation on withdrawals where a systematic withdrawal program is in place and such a smaller amount satisfies the minimum distribution requirements of the Code or where the withdrawal is requested because of an excess contribution to a tax-qualified contract. We can only make pro-rata withdrawals from twenty sub-accounts on systematic withdrawals. If you use more than that number, you will have to identify those sub-accounts from which you wish funds taken. Before annuity payments begin, you may surrender the contract for its surrender value. You will receive in a single sum the accumulation value computed as of the valuation date next following the date of surrender, reduced by any applicable deferred sales charge and the administrative charge. Or you may elect an annuity. 2. Right of Cancellation You should read the contract carefully as soon as it is received. You may cancel the 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, of an intention to cancel. If the contract is canceled and returned, 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 extended. In California, the free look period is extended to thirty days' time. Those rights are subject to change and may vary among the states. PAGE 33 The liability of the Variable Annuity Account is limited to the accumulation value of the contract at the time it is returned for cancellation. Any additional amounts necessary to make our refund to you equal to the purchase payments will be made by us. 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(ies) may depend on the tax status of the individual concerned. THE COMPANY'S TAX STATUS 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 any investment income received by the Variable Annuity Account or on capital gains 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, 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. There is an exception to this general rule for annuity contracts which are held under a plan described in Section 401(a), 403(a), 403(b), 408 or 408A of the Code. There is also an exception to this general rule for immediate annuity contracts. An immediate annuity contract for these purposes is an annuity (i) purchased PAGE 34 with a single premium or annuity consideration, (ii) the annuity starting date of which commences within one year from the date of the purchase of the annuity, and (iii) which provides for a series of substantially equal periodic payments (to be made not less frequently than annually) during the annuity period. Corporation, trusts and other similar entities, other than natural persons, seeking to take advantage of this exception for immediate annuity contracts should consult with a tax adviser. 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 diversification requirements of Section 817(h) do not apply to annuity contracts which are held under a plan described in Section 401(a), 403(a), 403(b), 408, 408A or 457(b) of the Code. 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 Department. Contract owners bear the risk that the entire contract could be disqualified as an annuity contract under the Code due to the failure of the Variable Annuity Account to be deemed to be "adequately diversified". OWNERSHIP TREATMENT 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. 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 PAGE 35 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. TAXATION OF PARTIAL AND FULL WITHDRAWALS For payments made in the event of a full surrender of an annuity that is not part of a qualified program, the taxable portion of the amount you receive is generally the amount in excess of the cost basis (i.e., purchase payments less any amounts previously received from the contract which were not included in income) . Amounts withdrawn upon a partial withdrawal from a variable annuity contract that is 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 less any amounts previously received from the contract which were not included in income. 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 neither deductible when made nor excludable from the gross income of the individual. For annuities issued in connection with qualified plans, the "investment in the contract" can be zero. TAXATION OF ANNUITY PAYMENTS The taxable portion of a fixed annuity payment is generally equal to the excess of the payment over the exclusion amount. The exclusion amount is generally determined by a formula that establishes the ratio of the cost basis of the contract to the expected return under the contract (determined under Treasury Department regulations). In the case of variable annuity payments, the exclusion amount is generally determined by a formula that establishes the ratio of the cost basis of the contract to the expected number of payments to be made (determined by Treasury Department regulations which take into account the annuitant's life expectancy and the form of annuity benefit selected). The taxable portion of an annuity payment is taxed at ordinary income rates. Once the total amount of the investment under the contract is excluded using this ratio, annuity payments will be fully taxable. 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, as described PAGE 36 above or (2) if distributed under an annuity option, they are taxed in the same manner as annuity payments, as described above. For these purposes, the investment in the contract is not affected by the owner's death. That is, the investment in the contract remains the amount of any purchase payments paid which were not excluded from gross income. PENALTY TAX ON PREMATURE DISTRIBUTIONS 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 payment is made under an immediate annuity contract, as defined above, or: - 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 (not less frequently than annually), 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. For some types of qualified plans, other tax penalties may apply to certain distributions. AGGREGATION OF CONTRACTS 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 the ownership of serial contracts or otherwise. ASSIGNMENT OR PLEDGES 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. PAGE 37 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: (a) 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 (b) 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. The requirements of (b) above will be considered satisfied if any portion of the owner's interest which is payable to or for the benefit of a "designated beneficiary" who is a natural person, 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. 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. Similar rules apply to qualified contracts. 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, taking effect before 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 PAGE 38 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 the later of April 1 of the calendar year following the calendar year in which the Owner (or plan participant) (i) reaches age 70 1/2 or (ii) retires and must be made in a specified form or manner. If the plan participant is a "5 percent owner" (as defined in the Code), distributions generally must begin no later than April 1 of the calendar year following the calendar year in which the Owner (or plan participant) reaches age 70 1/2. 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. Some states have enacted similar rules. Different rules may apply to payments delivered outside the United States. PAGE 39 The Code generally allows the rollover of most distributions to and from tax- qualified plans, Section 403(b) annuities, individual retirement plans and eligible deferred compensation plans of state or local governments under Section 457(b). 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; - a hardship 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 here. 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 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 PAGE 40 quotations for a one-year period and for the period since the sub-account became available pursuant to the Variable Annuity Account's registration statement, and may also include cumulative total return quotations for the period since the sub-account became available pursuant to such registration statement. The Money Market Sub-Account may also quote such average annual and cumulative total return figures. Performance figures used by the 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 only charges made against the net asset value of the Variable Annuity Account pursuant to the terms of the contracts offered by this Prospectus. The various performance figures used in Variable Annuity Account advertisements relating to the contracts described in this Prospectus are summarized along with information on the computations in the Statement of Additional Information. RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM Section 36.105, Title 110B of the Texas Revised Civil Statutes, consistent with prior interpretations of the Attorney General of the State of Texas, permits participants in the Texas Optional Retirement Program (ORP) to redeem their interests in a variable annuity contract issued under the ORP only upon (1) termination of employment in all institutions of higher education as defined in Texas law, (2) retirement, or (3) death. Accordingly, participants in the ORP will be required to obtain certifications from their employers of their status with respect to ORP employers before they may redeem their contract or transfer contract values to another carrier qualified to participate in ORP. STATEMENT OF ADDITIONAL INFORMATION A Statement of Additional Information, which contains additional information including financial statements, is available from the offices of Minnesota Life 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 Contracts Performance Data Auditors Registration Statement Financial Statements PAGE 41 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 for the class of contracts for the periods indicated. This information should be read in conjunction with the financial statements and related notes of the Variable Annuity Account included in the Statement of Additional Information.
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 2001 2000 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Growth Sub-Account: Unit value at beginning of period... $5.11 $6.62 $5.34 $4.01 $3.04 $2.63 $2.14 Unit value at end of period......... $3.80 $5.11 $6.62 $5.34 $4.01 $3.04 $2.63 Number of units outstanding at end of period.......................... 36,996,585 44,741,308 49,216,657 47,805,851 44,705,247 38,448,452 35,809,340 Bond Sub-Account: Unit value at beginning of period... $2.60 $2.38 $2.48 $2.37 $2.19 $2.15 $1.82 Unit value at end of period......... $2.77 $2.60 $2.38 $2.48 $2.37 $2.19 $2.15 Number of units outstanding at end of period.......................... 40,325,182 40,948,594 48,459,470 51,341,159 43,266,404 36,732,062 28,069,241 Money Market Sub-Account: Unit value at beginning of period... $1.83 $1.75 $1.69 $1.63 $1.57 $1.52 $1.46 Unit value at end of period......... $1.87 $1.83 $1.75 $1.69 $1.63 $1.57 $1.52 Number of units outstanding at end of period.......................... 26,755,160 20,332,821 41,200,616 27,959,675 19,804,841 22,929,634 14,809,515 Asset Allocation Sub-Account: Unit value at beginning of period... $4.00 $4.51 $3.96 $3.25 $2.76 $2.49 $2.01 Unit value at end of period......... $3.37 $4.00 $4.51 $3.96 $3.25 $2.76 $2.49 Number of units outstanding at end of period.......................... 89,702,593 110,523,979 121,522,399 120,373,228 119,491,402 116,211,650 110,975,477 Mortgage Securities Sub-Account: Unit value at beginning of period... $2.54 $2.30 $2.28 $2.17 $2.01 $1.93 $1.66 Unit value at end of period......... $2.73 $2.54 $2.30 $2.28 $2.17 $2.01 $1.93 Number of units outstanding at end of period.......................... 38,356,257 35,322,437 40,937,593 41,507,338 34,751,197 32,527,955 31,277,934 Index 500 Sub-Account: Unit value at beginning of period... $5.12 $5.72 $4.81 $3.81 $2.91 $2.43 $1.79 Unit value at end of period......... $4.43 $5.12 $5.72 $4.81 $3.81 $2.91 $2.43 Number of units outstanding at end of period.......................... 48,729,709 57,419,887 64,735,863 60,268,563 54,579,265 46,097,553 35,272,024 Capital Appreciation Sub-Account: Unit value at beginning of period... $5.11 $5.76 $4.79 $3.71 $2.93 $2.52 $2.08 Unit value at end of period......... $3.80 $5.11 $5.76 $4.79 $3.71 $2.93 $2.52 Number of units outstanding at end of period.......................... 36,552,734 43,737,791 49,725,886 53,894,481 53,582,481 51,023,999 45,964,468 International Stock Sub-Account: Unit value at beginning of period... $2.40 $2.41 $2.01 $1.91 $1.73 $1.46 $1.30 Unit value at end of period......... $2.11 $2.40 $2.41 $2.01 $1.91 $1.73 $1.46 Number of units outstanding at end of period.......................... 66,295,954 78,843,583 89,983,922 99,956,739 103,600,602 86,521,264 68,725,183 Small Company Growth Sub-Account: Unit value at beginning of period... $2.24 $2.56 $1.78 $1.78 $1.67 $1.59 $1.22 Unit value at end of period......... $1.89 $2.24 $2.56 $1.78 $1.78 $1.67 $1.59 Number of units outstanding at end of period.......................... 49,424,891 58,341,477 61,721,924 69,789,850 68,590,765 59,295,273 43,234,716 Maturing Government Bond 2002 Sub-Account: Unit value at beginning of period... $1.47 $1.37 $1.40 $1.29 $1.21 $1.20 $0.97 Unit value at end of period......... $1.56 $1.47 $1.37 $1.40 $1.29 $1.21 $1.20 Number of units outstanding at end of period.......................... 4,405,136 4,447,621 5,090,494 4,526,963 2,938,848 2,935,860 2,417,823 Maturing Government Bond 2006 Sub-Account: Unit value at beginning of period... $1.63 $1.43 $1.57 $1.39 $1.25 $1.28 $0.96 Unit value at end of period......... $1.74 $1.63 $1.43 $1.57 $1.39 $1.25 $1.28 Number of units outstanding at end of period.......................... 4,145,135 3,285,116 3,776,193 3,881,227 2,665,421 2,334,109 1,878,731 Maturing Government Bond 2010 Sub-Account: Unit value at beginning of period... $1.74 $1.45 $1.66 $1.47 $1.27 $1.33 $0.95 Unit value at end of period......... $1.80 $1.74 $1.45 $1.66 $1.47 $1.27 $1.33 Number of units outstanding at end of period.......................... 2,672,564 2,534,718 3,079,844 3,046,112 2,017,743 2,077,124 924,681 Value Stock Sub-Account: Unit value at beginning of period... $2.06 $2.12 $2.14 $2.13 $1.78 $1.38 $1.05 Unit value at end of period......... $1.82 $2.06 $2.12 $2.14 $2.13 $1.78 $1.38 Number of units outstanding at end of period.......................... 42,367,064 48,857,170 61,230,340 69,982,001 68,251,135 43,796,523 18,744,902 Small Company Value Sub-Account: Unit value at beginning of period... $1.15 $0.91 $0.95 $1.03 $1.00(d) Unit value at end of period......... $1.31 $1.15 $0.91 $0.95 $1.03 Number of units outstanding at end of period.......................... 14,970,572 11,880,948 10,422,707 7,555,601 4,822,504 YEAR ENDED DECEMBER 31, 1994 1993 1992 ---------- ---------- ---------- Growth Sub-Account: Unit value at beginning of period... $2.15 $2.08 $2.01 Unit value at end of period......... $2.14 $2.15 $2.08 Number of units outstanding at end of period.......................... 33,090,790 25,980,318 18,152,996 Bond Sub-Account: Unit value at beginning of period... $1.93 $1.77 $1.68 Unit value at end of period......... $1.82 $1.93 $1.77 Number of units outstanding at end of period.......................... 23,798,963 18,794,458 11,267,890 Money Market Sub-Account: Unit value at beginning of period... $1.42 $1.40 $1.38 Unit value at end of period......... $1.46 $1.42 $1.40 Number of units outstanding at end of period.......................... 11,720,778 9,783,391 7,414,734 Asset Allocation Sub-Account: Unit value at beginning of period... $2.07 $1.97 $1.86 Unit value at end of period......... $2.01 $2.07 $1.97 Number of units outstanding at end of period.......................... 109,044,286 99,680,197 66,121,882 Mortgage Securities Sub-Account: Unit value at beginning of period... $1.74 $1.61 $1.54 Unit value at end of period......... $1.66 $1.74 $1.61 Number of units outstanding at end of period.......................... 31,542,405 33,032,291 20,284,849 Index 500 Sub-Account: Unit value at beginning of period... $1.80 $1.66 $1.56 Unit value at end of period......... $1.79 $1.80 $1.66 Number of units outstanding at end of period.......................... 29,639,298 23,455,059 16,294,129 Capital Appreciation Sub-Account: Unit value at beginning of period... $2.06 $1.89 $1.82 Unit value at end of period......... $2.08 $2.06 $1.89 Number of units outstanding at end of period.......................... 40,739,415 30,907,396 21,822,440 International Stock Sub-Account: Unit value at beginning of period... $1.32 $0.93 $1.00(a) Unit value at end of period......... $1.30 $1.32 $0.93 Number of units outstanding at end of period.......................... 61,474,893 38,637,487 16,751,564 Small Company Growth Sub-Account: Unit value at beginning of period... $1.16 $1.00(b) Unit value at end of period......... $1.22 $1.16 Number of units outstanding at end of period.......................... 29,723,609 9,554,322 Maturing Government Bond 2002 Sub-Account: Unit value at beginning of period... $1.00(c) Unit value at end of period......... $0.97 Number of units outstanding at end of period.......................... 2,528,509 Maturing Government Bond 2006 Sub-Account: Unit value at beginning of period... $1.00(c) Unit value at end of period......... $0.96 Number of units outstanding at end of period.......................... 1,808,705 Maturing Government Bond 2010 Sub-Account: Unit value at beginning of period... $1.00(c) Unit value at end of period......... $0.95 Number of units outstanding at end of period.......................... 913,358 Value Stock Sub-Account: Unit value at beginning of period... $1.00(c) Unit value at end of period......... $1.05 Number of units outstanding at end of period.......................... 7,178,675 Small Company Value Sub-Account: Unit value at beginning of period... Unit value at end of period......... Number of units outstanding at end of period..........................
PAGE A-1
YEAR ENDED DECEMBER 31, 2001 2000 1999 1998 1997 ----------- ----------- ----------- ----------- ----------- Global Bond Sub-Account: Unit value at beginning of period..... $1.04 $1.04 $1.14 $1.00 $1.00(d) Unit value at end of period........... $1.02 $1.04 $1.04 $1.14 $1.00 Number of units outstanding at end of period............................... 29,537,291 29,794,509 28,982,189 26,841,307 25,083,345 Index 400 Mid-Cap Sub-Account: Unit value at beginning of period..... $1.51 $1.32 $1.16 $1.00 $1.00(d) Unit value at end of period........... $1.48 $1.51 $1.32 $1.16 $1.00 Number of units outstanding at end of period............................... 10,851,086 11,875,613 11,781,426 7,779,280 5,020,041 Macro-Cap Value Sub-Account: Unit value at beginning of period..... $1.14 $1.24 $1.18 $0.98 $1.00(e) Unit value at end of period........... $1.03 $1.14 $1.24 $1.18 $0.98 Number of units outstanding at end of period............................... 12,894,074 15,947,454 14,276,707 8,485,870 5,003,390 Micro-Cap Growth Sub-Account: Unit value at beginning of period..... $1.96 $2.51 $1.02 $0.91 $1.00(d) Unit value at end of period........... $1.72 $1.96 $2.51 $1.02 $0.91 Number of units outstanding at end of period............................... 13,868,152 16,303,716 11,992,142 6,922,652 5,019,879 Real Estate Securities Sub-Account: Unit value at beginning of period..... $1.01 $0.81 $0.86 $1.00(f) Unit value at end of period........... $1.10 $1.01 $0.81 $0.86 Number of units outstanding at end of period............................... 8,728,831 7,203,711 6,242,074 5,887,391 Templeton Developing Markets Securities Sub-Account: Unit value at beginning of period..... $0.55 $0.82 $0.54 $0.69 $1.00(d) Unit value at end of period........... $0.50 $0.55 $0.82 $0.54 $0.69 Number of units outstanding at end of period............................... 10,821,061 12,282,847 9,817,346 4,908,432 724,374 Templeton Global Asset Allocation Sub-Account: Unit value at beginning of period..... $0.97 $1.00(h) Unit value at end of period........... $0.86 $0.97 Number of units outstanding at end of period............................... 1,199,408 35,890 Franklin Small Cap Sub-Account: Unit value at beginning of period..... $0.81 $1.00(h) Unit value at end of period........... $0.67 $0.81 Number of units outstanding at end of period............................... 4,241,954 1,286,165 Fidelity VIP Mid Cap Sub-Account: Unit value at beginning of period..... $1.24 $1.00(g) Unit value at end of period........... $1.18 $1.24 Number of units outstanding at end of period............................... 10,774,179 11,054,158 Fidelity VIP Contrafund Sub-Account: Unit value at beginning of period..... $0.94 $1.00(g) Unit value at end of period........... $0.81 $0.94 Number of units outstanding at end of period............................... 14,483,654 13,258,550 Fidelity VIP Equity-Income Sub-Account: Unit value at beginning of period..... $1.12 $1.00(g) Unit value at end of period........... $1.05 $1.12 Number of units outstanding at end of period............................... 13,208,284 5,449,241 Janus Aspen Capital Appreciation Sub-Account: Unit value at beginning of period..... $0.81 $1.00(g) Unit value at end of period........... $0.62 $0.81 Number of units outstanding at end of period............................... 22,757,280 24,908,603 Janus Aspen International Growth Sub-Account: Unit value at beginning of period..... $0.82 $1.00(g) Unit value at end of period........... $0.62 $0.82 Number of units outstanding at end of period............................... 18,316,427 18,557,868 Credit Suisse Trust Global Post-Venture Capital Sub-Account: Unit value at beginning of period..... $0.75 $1.00(h) Unit value at end of period........... $0.53 $0.75 Number of units outstanding at end of period............................... 600,306 311,865
(a) Period from May 1, 1992, commencement of operations, to December 31, 1992. (b) Period from May 3, 1993, commencement of operations, to December 31, 1993. (c) Period from May 2, 1994, commencement of operations, to December 31, 1994. (d) Period from October 1, 1997, commencement of operations, to December 31, 1997. (e) Period from October 15, 1997, commencement of operations, to December 31, 1997. (f) Period from April 24, 1998, commencement of operations, to December 31, 1998. (g) Period from February 1, 2000, commencement of operations to December 31, 2000. (h) Period from August 1, 2000, commencement of operations to December 31, 2000. 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%, 6.68% and 10.00%. For illustration purposes, an average annual expense equal to 2.18% 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 2.18% includes: 1.25% for Mortality and Expense Risk, and an average of 0.93% 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: 06/01/1937 PRESENTED BY: MN Life ANNUITY COMMENCEMENT: 05/01/2002 ANNUITIZATION OPTION: 10 Year Certain with FUNDS: Non-Qualified 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 6.68% GROSS 10.00% GROSS DATE OF YEAR AGE (-2.18% NET) (4.50% NET) (7.82% NET) - ---- --------- -------- ------------ ----------- ------------ May 01, 2002................... 1 65 663 663 663 May 01, 2003................... 2 66 621 663 684 May 01, 2004................... 3 67 581 663 706 May 01, 2005................... 4 68 544 663 729 May 01, 2006................... 5 69 509 663 752 May 01, 2008................... 7 71 446 663 800 May 01, 2010................... 9 73 391 663 852 May 01, 2012................... 11 75 343 663 907 May 01, 2014................... 13 77 300 663 965 May 01, 2016................... 15 79 263 663 1,028 May 01, 2018................... 17 81 230 663 1,094 May 01, 2020................... 19 83 202 663 1,165 May 01, 2022................... 21 85 177 663 1,240 May 01, 2024................... 23 87 155 663 1,320 May 01, 2026................... 25 89 136 663 1,405 May 01, 2028................... 27 91 119 663 1,496 May 01, 2030................... 29 93 104 663 1,592 May 01, 2032................... 31 95 91 663 1,695 May 01, 2034................... 33 97 80 663 1,804 May 01, 2037................... 36 100 66 663 1,982
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 $703.90. Net rate of return reflects expenses totaling 2.18%, which consist of the 1.25% Variable Annuity Account mortality and expense risk charge and 0.93% for the fund management fee, other fund expenses, and distribution expenses (this is an average with the actual varying from 0.42% to 1.82%). Under the terms of the contract, the maximum possible charge for mortality and expense risk would be 1.40%. Minnesota Life MultiOption variable annuities are available through Securian Financial Services, Inc., Securities Dealer, Member NASD/SIPC. This illustration must be accompanied or preceded by the current prospectuses of 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. In addition, 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, hereinafter referred to as an "IRA". Also, 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 Internal Revenue Service. Purchasers of a Contract for use with IRAs will be provided with supplemental information required by the Internal Revenue Services 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. Purchasers 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 subject to certain limits each year 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. SIMPLE IRAS Certain small employers may establish Simple IRAs as provided by Section 408(p) of the Code, under which employees may elect to defer a certain percentage of their compensation (as increased for cost of living adjustments). The sponsoring employer is required to make a matching contribution on behalf of contributing employees. Distributions from a Simple IRA are subject to the same restrictions that apply to IRA distributions and are taxed as ordinary income. Subject to certain exceptions, PAGE C-1 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 contribute to a Roth IRA. Contributions to a Roth IRA, which are subject to certain limitations, are not deductible and must be made in cash or as a rollover or transfer from another Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA may be subject to tax and a contingent deferred sales charge. 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 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. DEFERRED COMPENSATION PLANS Code Section 457 provides for certain deferred compensation plans. These plans may be offered with respect to service for state governments, local governments, political subdivisions, agencies, instrumentalities and certain affiliates of such entities, and tax exempt organizations. The plans may permit participants to specify the form of investment for their deferred compensation account. With respect to non-governmental Section 457 plans, investments are owned by the sponsoring employer and are subject to the claims of the general creditors of the employer and depending on the terms of the particular plan, the employer may be entitled to draw on deferred amounts for purposes unrelated to its Section 457 plan obligations. In general, all amounts received under a Section 457 plan are taxable and are subject to federal income tax withholding as wages. PAGE C-2 PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION Variable Annuity Account Cross Reference Sheet to Statement of Additional Information Form N-4 Item Number Caption in Statement of Additional Information 15. Cover Page 16. Cover Page 17. Directors and Principal Management Officers of Minnesota Life 18. Not Applicable 19. Not Applicable 20. Distribution of Contracts 21. Performance Data 22. Not Applicable 23. Financial Statements 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: 1-800-362-3141 Statement of Additional Information The date of this document and the Prospectus is: May 1, 2002 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 1-800-362-3141; or writing to Minnesota Life at 400 Robert Street North, St. Paul, Minnesota 55101-2098. Directors and Principal Management Officers of Minnesota Life Distribution of Contracts Performance Data Auditors Registration Statement Financial Statements 1 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) Richard H. Anderson Chief Executive Officer, Northwest Airlines, Inc., since February 2001; prior thereto for more than five years Executive Vice President and Chief Operating Officer John F. Grundhofer Chairman, U.S. Bancorp, Minneapolis, Minnesota (Banking) Robert E. Hunstad Executive Vice President, Minnesota Life Insurance Company Reatha C. King Ph.D. President and Executive Director, General Mills Foundation, Minneapolis, Minnesota Dennis E. Prohofsky Executive 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 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 2 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 Randy F. Wallake Executive Vice President Except for Richard H. Anderson and William N. Westhoff, all Directors have had the principal occupation (or employers) shown for at least five years. All officers of Minnesota Life have been employed by Minnesota Life for at least five years. DISTRIBUTION OF CONTRACTS The contracts will be sold in a continuous offering by our life insurance agents who are also registered representatives of Securian Financial Services, Inc. ("Securian Financial") or other broker-dealers who have entered into selling agreements with Securian Financial. Securian Financial acts as principal underwriter of the contracts. Securian Financial is a wholly-owned subsidiary of Advantus Capital Management, Inc., which in turn is a wholly-owned subsidiary of Minnesota Life. Minnesota Life is also the sole owner of the shares of Advantus Capital Management Inc., a registered investment adviser and the investment adviser to the Advantus Series Fund, Inc. Securian 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. and Amounts paid by Minnesota Life to the underwriter for 2001, 2000, and 1999, were $11,309,746, $16,138,258 and $16,104,617 respectively, for payments to associated dealers on the sale of the contracts, which include other contracts issued through the Variable Annuity Account. The underwriter also receives amounts from the Fund for services provided under a 12b-1 plan of distribution. For providing these distribution services, the underwriter receives a fee of .25% of the average daily net assets of those Portfolios of the Fund which have a 12b-1 fee. Agents of Minnesota Life who are also registered representatives of Securian Financial are compensated directly by Minnesota Life. 3 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, 2001 were 0.34% and 0.34%, respectively. Yield figures quoted by the Money Market Sub-Account will not reflect the deduction of any applicable deferred sales charges (the deferred sales charges, as a percentage of the accumulation value withdrawn, begin as of the contract date at 9% for the flexible payment contract and at 6% for the single payment contract, and decrease uniformly each month for 120 months). 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 contracts described in the Prospectus will reflect Minnesota Life's voluntary absorption of certain Fund expenses described below. The cumulative total returns for the Sub-Accounts for the specified periods ended December 31, 2001 are shown in the table below. The figures in parentheses show what the cumulative total returns would have been had Minnesota Life not absorbed Fund expenses as described. 4 CUMULATIVE TOTAL RETURN
From Inception Date of to 12/31/01 inception ----------- --------- Growth Sub-Account (259.88%) 263.12% 12/3/85 Bond Sub-Account (172.13%) 173.73% 12/3/85 Money Market Sub-Account (82.40%) 85.98% 12/3/85 Asset Allocation Sub-Account (227.85%) 228.58% 12/3/85 Mortgage Securities Sub-Account (172.22%) 172.80% 6/1/87 Index 500 Sub-Account (342.30%) 343.71% 6/1/87 Capital Appreciation Sub-Account (277.17%) 281.30% 6/1/87 International Stock Sub-Account (110.50%) 110.55% 5/1/92 Small Company Growth Sub-Account (88.92%) 88.93% 5/3/93 Maturing Government Bond 2002 Sub-Account (55.79%) 59.59% 5/2/94 Maturing Government Bond 2006 Sub-Account (73.32%) 79.68% 5/2/94 Maturing Government Bond 2010 Sub-Account (75.61%) 87.54% 5/2/94 Value Stock Sub-Account (81.68%) 81.94% 5/2/94 Small Company Value Sub-Account (29.23%) 29.72% 10/1/97 Global Bond Sub-Account (1.53%) 1.53% 10/1/97 Index 400 Mid-Cap Sub-Account (46.79%) 47.40% 10/1/97 Macro-Cap Value Sub-Account (3.95%) 4.06% 10/15/97 Micro-Cap Growth Sub-Account (61.89%) 62.60% 10/1/97 Real Estate Securities Sub-Account (8.96%) 9.26% 5/1/98 Templeton Developing Markets Securities Class 2 Sub-Account (-50.07%) -50.07% 10/1/97 Fidelity VIP ContraFund Service Class 2 Sub-Account (-18.48%) -18.48% 2/1/00 Fidelity VIP Mid Cap Service Class 2 Sub-Account (20.70%) 20.70% 2/1/00 Fidelity VIP Equity-Income Service Class 2 Sub-Account (4.67%) 4.67% 2/1/00 Janus Aspen Capital Appreciation Service Shares Sub-Account (-36.64%) -36.64% 2/1/00 Janus Aspen International Growth Service Shares Sub-Account (-37.43%) -37.43% 2/1/00 Franklin Small Cap Class 2 Sub-Account (-28.48%) -28.48% 8/1/00 Templeton Global Asset Allocation Class 2 Sub-Account (-12.89%) -12.89% 8/1/00 Credit Suisse Global Post-Venture Capital Sub-Account (-44.18%) -44.18% 8/1/00
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. 5 For the period subsequent to March 9, 1987, Minnesota Life is voluntarily absorbed the fees and expenses that exceeded .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 Portfolios of the Fund, .90% of the average daily net assets of the Capital Appreciation and Small Company Portfolios of the Funds and 1.00% of the average daily net assets of the International Stock Portfolios of the Fund exclusive of the advisory fee. For the period subsequent to May 2, 1994, Minnesota Life has voluntarily absorbed fees and expenses that exceeded .90% of the average daily net assets of the Value Stock Portfolios, .40% of the average daily net assets of the Maturing Government Bond Portfolios maturing in 2006 and 2010, .20% of the average daily net assets of the Maturing Government Bond Portfolios maturing in 1998 and 2002. For the period subsequent to October 1, 1997, Minnesota Life has voluntarily absorbed fees and expenses that exceeded .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 1.00% of the average daily net assets of the Global Bond Portfolio of the Fund exclusive of the advisory fee. Subsequent to May 1, 1998, Minnesota Life has voluntarily absorbed fees and expenses that exceeded .40% of the average daily net assets of the Maturing Government Bond Portfolios maturing in 1998 and 2002, and .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%. Prior to May 1, 2000, Minnesota Life voluntarily absorbed all fees and expenses that exceeded .55% of average daily net assets for the Index 400 Mid-Cap Portfolio, .90% of average daily net assets for the Small Company Value Porfolio, and Real Estate Securities Portfolio, .40% of average daily net assets for each of the three Maturing Government Bond Portfolios, .85% of average daily net assets for the Macro-Cap Value Portfolio, and 1.25% of average daily net assets for the Micro-Cap Growth Portfolio. Effective May 1, 2000, Advantus Capital Management, Inc. (Advantus Capital) voluntarily absorbed all fees and expenses that exceeded .55% of average daily net assets for the Index 400 Mid-Cap Portfolio, 1.10% of average daily net assets for the Small Company Value Portfolio, 1.00% of average daily net assets for the Real Estate Securities Portfolio, .40% of average daily net assets for each of the three Maturing Government Bond Portfolios, 1.00% of average daily net assets for the Macro-Cap Value Portfolio, and 1.35% of average daily net assets for the Micro-Cap Growth Portfolio. Effective January 1, 2002, Advantus Capital is voluntarily absorbing all fees and expenses that exceed 1.10% of average daily net assets for the Small Company Value Portfolio, 1.00% of average daily net assets for the Real Estate Securities Portfolio, 0.40% of average daily net assets for each of the three Maturing Government Bond Portfolios, 0.55% of average daily net assets for the Index 400 Mid-Cap Portfolio, 1.07% of average daily net assets for the Macro-Cap Value Portfolio, and 1.34% of average daily net assets for the Micro-Cap Growth Portfolio. There is no specified or minimum period of time during which Advantus Capital has agreed to continue its voluntary absorption of these expenses, and Advantus Capital may in its discretion cease its absorption of expenses at any time. Should Advantus Capital cease absorbing expenses the effect would be to increase substantially Fund expenses and thereby reduce investment return. 6 The average annual rates of return for the Sub-Accounts, in connection with both the flexible premium and single premium contracts described in the Prospectus, for the specified periods ended December 31, 2000 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.
Flexible Premium Contract ------------------------- Date of Year Ended Five Years Ten Years From Inception Inception 12/31/01 Ended 12/31/01 Ended 12/31/01 to 12/31/01 of Sub-Account -------- -------------- -------------- ----------- -------------- Growth Sub-Account (-30.94%) -30.94% (3.69%) 3.69% (6.55%) 6.55% (n/a) n/a 12/3/85 Bond Sub-Account (-1.26%) -1.26% (3.93%) 3.93% (5.09%) 5.09% (n/a) n/a 12/3/85 Money Market Sub-Account (-5.00%) -5.00% (2.75%) 2.75% (3.14%) 3.15% (n/a) n/a 12/3/85 Asset Allocation Sub-Account (-21.47%) -21.47% (3.24%) 3.24% (6.15%) 6.15% (n/a) n/a 12/3/85 Mortgage Securities Sub-Account (-.29%) -.29% (5.42%) 5.42% (5.93%) 5.93% (n/a) n/a 6/1/87 Index 500 Sub-Account (-19.55%) -19.55% (7.88%) 7.88% (10.99%) 10.99% (n/a) n/a 6/1/87 Capital Appreciation Sub-Account (-30.79%) -30.79% (4.51%) 4.51% (7.63%) 7.63% (n/a) n/a 6/1/87 International Stock Sub-Account (-18.61%) -18.61% (3.19%) 3.19% (n/a) n/a (7.97%) 7.97% 5/1/92 Small Company Growth Sub-Account (-21.77%) -21.77% (1.64%) 1.64% (n/a) n/a (7.48%) 7.48% 5/3/93 Maturing Government Bond 2002 Sub-Account (-2.42%) -1.58% (3.67%) 4.41% (n/a) n/a (5.25%) 6.01% 5/2/94
7
Flexible Premium Contract ------------------------- Date of Year Ended Five Years Ten Years From Inception Inception 12/31/01 Ended 12/31/01 Ended 12/31/01 to 12/31/01 of Sub-Account -------- -------------- -------------- ----------- -------------- Maturing Government Bond 2006 Sub-Account (-1.84%) -1.10% (5.11%) 5.98% (n/a) n/a (6.65%) 7.66% 5/2/94 Maturing Government Bond 2010 Sub-Account (-5.03%) -3.93% (5.12%) 6.47% (n/a) n/a (6.76%) 8.27% 5/2/94 Value Stock Sub-Account (-17.92%) -17.92% (-.35%) -.35% (n/a) n/a (7.69%) 7.71% 5/2/94 Small Company Value Sub-Account (5.61%) 5.71% (n/a) n/a (n/a) n/a (4.83%) 5.09% 10/1/97 Global Bond Sub-Account (-9.80%) -9.80% (n/a) n/a (n/a) n/a (-.78%) -.78% 10/1/97 Index 400 Mid-Cap Sub-Account (-9.50%) -9.40% (n/a) n/a (n/a) n/a (8.06%) 8.32% 10/1/97 Macro-Cap Value Sub-Account (-15.66%) -15.46% (n/a) n/a (n/a) n/a (-.68%) -.19% 10/15/97 Micro-Cap Growth Sub-Account (-18.72%) -18.72% (n/a) n/a (n/a) n/a (10.85%) 10.86% 10/1/97 Real Estate Securities Sub-Account (.18%) .68% (n/a) n/a (n/a) n/a (-.13%) .62% 5/1/98 Templeton Developing Markets Securities Class 2 Sub-Account (-15.77%) -15.77% (n/a) n/a (n/a) n/a (-16.03%) -16.03% 10/1/97 Fidelity VIP ContraFund Service Class 2 Sub-Account (-19.75%) -19.75% (n/a) n/a (n/a) n/a (-13.22%) -13.22% 2/1/00
8
Flexible Premium Contract ------------------------- Date of Year Ended Five Years Ten Years From Inception Inception 12/31/01 Ended 12/31/01 Ended 12/31/01 to 12/31/01 of Sub-Account -------- -------------- -------------- ----------- -------------- Fidelity VIP Mid Cap Service Class 2 Sub-Account (-11.62%) -11.62% (n/a) n/a (n/a) n/a (6.47%) 6.47% 2/1/00 Fidelity VIP Equity-Income Service Class 2 Sub-Account (-13.18%) -13.18% (n/a) n/a (n/a) n/a (-1.16%) -1.16% 2/1/00 Janus Aspen Capital Appreciation Service Shares Sub-Account (-28.25%) -28.25% (n/a) n/a (n/a) n/a (-23.90%) -23.90% 2/1/00 Janus Aspen International Growth Service Shares Sub-Account (-29.70%) -29.70% (n/a) n/a (n/a) n/a (-24.39%) -24.39% 2/1/00 Franklin Small Cap Class 2 Sub-Account (-22.27%) -22.27% (n/a) n/a (n/a) n/a (-28.00%) -28.00% 8/1/00 Templeton Global Asset Allocation Class 2 Sub-Account (-17.46%) -17.46% (n/a) n/a (n/a) n/a (-14.42%) -14.42% 8/1/00 Credit Suisse Global Post-Venture Capital Sub-Account (-34.42%) -34.42% (n/a) n/a (n/a) n/a (-39.31%) -39.31% 8/1/00
9
Single Premium Contract - ----------------------- Date of Year Ended Five Years Ten Years From Inception Inception 12/31/01 Ended 12/31/01 Ended 12/31/01 to 12/31/01 of Sub-Account -------- -------------- -------------- ----------- -------------- Growth Sub-Account (-29.21%) -29.21% (3.97%) 3.97% (6.55%) 6.55% (n/a) n/a 12/3/85 Bond Sub-Account (1.35%) 1.35% (4.22%) 4.22% (5.09%) 5.09% (n/a) n/a 12/3/85 Money Market Sub-Account (-2.50%) -2.50% (3.04%) 3.04% (3.14%) 3.15% (n/a) n/a 12/3/85 Asset Allocation Sub-Account (-19.45%) -19.45% (3.52%) 3.52% (6.15%) 6.15% (n/a) n/a 12/3/85 Mortgage Securities Sub-Account (2.35%) 2.35% (5.72%) 5.72% (5.93%) 5.93% (n/a) n/a 6/1/87 Index 500 Sub-Account (-17.48%) -17.48% (8.18%) 8.18% (10.99%) 10.99% (n/a) n/a 6/1/87 Capital Appreciation Sub-Account (-29.05%) -29.05% (4.79%) 4.79% (7.63%) 7.63% (n/a) n/a 6/1/87 International Stock Sub-Account (-16.51%) -16.51% (3.47%) 3.47% (n/a) n/a (7.98%) 7.98% 5/1/92 Small Company Growth Sub-Account (-19.77%) -19.77% (1.92%) 1.92% (n/a) n/a (7.52%) 7.52% 5/3/93 Maturing Government Bond 2002 Sub-Account (.18%) 1.02% (3.97%) 4.71% (n/a) n/a (5.34%) 6.10% 5/2/94 Maturing Government Bond 2006 Sub-Account (.77%) 1.51% (5.41%) 6.28% (n/a) n/a (6.75%) 7.76% 5/2/94
10
Single Premium Contract - ----------------------- Date of Year Ended Five Years Ten Years From Inception Inception 12/31/01 Ended 12/31/01 Ended 12/31/01 to 12/31/01 of Sub-Account -------- -------------- -------------- ----------- -------------- Maturing Government Bond 2010 Sub-Account (-2.50%) -1.40% (5.42%) 6.77% (n/a) n/a (6.85%) 8.36% 5/2/94 Value Stock Sub-Account (-15.80%) -15.80% (-.08%) -.08% (n/a) n/a (7.78%) 7.80% 5/2/94 Small Company Value Sub-Account (8.42%) 8.52% (n/a) n/a (n/a) n/a (5.25%) 5.50% 10/1/97 Global Bond Sub-Account (-7.45%) -7.45% (n/a) n/a (n/a) n/a (-.39%) -.39% 10/1/97 Index 400 Mid-Cap Sub-Account (-7.13%) -7.03% (n/a) n/a (n/a) n/a (8.47%) 8.73% 10/1/97 Macro-Cap Value Sub-Account (-13.47%) -13.27% (n/a) n/a (n/a) n/a (-.31%) .19% 10/15/97 Micro-Cap Growth Sub-Account (-16.62%) -16.62% (n/a) n/a (n/a) n/a (11.28%) 11.29% 10/1/97 Real Estate Securities Sub-Account (2.84%) 3.34% (n/a) n/a (n/a) n/a (.37%) 1.13% 5/1/98 Templeton Developing Markets Securities Class 2 Sub-Account (-13.59%) -13.59% (n/a) n/a (n/a) n/a (-15.71%) -15.71% 10/1/97 Fidelity VIP ContraFund Service Class 2 Sub-Account (-17.69%) -17.69% (n/a) n/a (n/a) n/a (-12.17%) -12.17% 2/1/00 Fidelity VIP Mid Cap Service Class 2 Sub-Account (-9.32%) -9.32% (n/a) n/a (n/a) n/a (7.77%) 7.77% 2/1/00
11
Single Premium Contract - ----------------------- Date of Year Ended Five Years Ten Years From Inception Inception 12/31/01 Ended 12/31/01 Ended 12/31/01 to 12/31/01 of Sub-Account -------- -------------- -------------- ----------- -------------- Fidelity VIP Equity-Income Service Class 2 Sub-Account (-10.92%) -10.92% (n/a) n/a (n/a) n/a (.04%) .04% 2/1/00 Janus Aspen Capital Appreciation Service Shares Sub-Account (-26.43%) -26.43% (n/a) n/a (n/a) n/a (-23.00%) -23.00% 2/1/00 Janus Aspen International Growth Service Shares Sub-Account (-27.93%) -27.93% (n/a) n/a (n/a) n/a (-23.49%) -23.49% 2/1/00 Franklin Small Cap Class 2 Sub-Account (-20.28%) -20.28% (n/a) n/a (n/a) n/a (-26.75%) -26.75% 8/1/00 Templeton Global Asset Allocation Class 2 Sub-Account (-15.33%) -15.33% (n/a) n/a (n/a) n/a (-12.93%) -12.93% 8/1/00 Credit Suisse Global Post-Venture Capital Sub-Account (-32.79%) -32.79% (n/a) n/a (n/a) n/a (-38.29%) -38.29% 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, 2000 are shown in the table below. Inasmuch as no deferred sales charges are reflected in these figures, they are the same for both the flexible premium and the single premium contracts. The figures in parentheses show what the 12 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.
Date of Year Ended Five Years Ten Years From Inception Inception 12/31/01 Ended 12/31/01 Ended 12/31/01 to 12/31/01 of Sub-Account -------- -------------- -------------- ----------- -------------- Growth Sub-Account (-25.74%) -25.74% (4.51%) 4.51% (6.55%) 6.55% (n/a) n/a 12/3/85 Bond Sub-Account (6.56%) 6.56% (4.80%) 4.80% (5.09%) 5.09% (n/a) n/a 12/3/85 Money Market Sub-Account (2.50%) 2.50% (3.60%) 3.60% (3.14%) 3.15% (n/a) n/a 12/3/85 Asset Allocation Sub-Account (-15.43%) -15.43% (4.08%) 4.08% (6.15%) 6.15% (n/a) n/a 12/3/85 Mortgage Securities Sub-Account (7.62%) 7.62% (6.31%) 6.31% (5.93%) 5.93% (n/a) n/a 6/1/87 Index 500 Sub-Account (-13.34%) -13.34% (8.76%) 8.76% 10.99%) 10.99% (n/a) n/a 6/1/87 Capital Appreciation Sub-Account (-25.57%) -25.57% (5.34%) 5.34% (7.63%) 7.63% (n/a) n/a 6/1/87 International Stock Sub-Account (-12.31%) -12.31% (4.03%) 4.03% (n/a) n/a (8.00%) 8.00% 5/1/92 Small Company Growth Sub-Account (-15.76%) -15.76% (2.47%) 2.47% (n/a) n/a (7.62%) 7.62% 5/3/93 Maturing Government Bond 2002 Sub-Account (5.37%) 6.21% (4.55%) 5.29% (n/a) n/a (5.53%) 6.29% 5/2/94
13
Date of Year Ended Five Years Ten Years From Inception Inception 12/31/01 Ended 12/31/01 Ended 12/31/01 to 12/31/01 of Sub-Account -------- -------------- -------------- ----------- -------------- Maturing Government Bond 2006 Sub-Account (5.99%) 6.73% (6.00%) 6.87% (n/a) n/a (6.93%) 7.94% 5/2/94 Maturing Government Bond 2010 Sub-Account (2.56%) 3.66% (6.00%) 7.35% (n/a) n/a (7.04%) 8.55% 5/2/94 Value Stock Sub-Account (-11.57%) -11.57% (.46%) .46% (n/a) n/a (7.96%) 7.98% 5/2/94 Small Company Value Sub-Account (14.05%) 14.15% (n/a) n/a (n/a) n/a (6.05%) 6.31% 10/1/97 Global Bond Sub-Account (-2.73%) -2.73% (n/a) n/a (n/a) n/a (.36%) .36% 10/1/97 Index 400 Mid-Cap Sub-Account (-2.40%) -2.30% (n/a) n/a (n/a) n/a (9.29%) 9.55% 10/1/97 Macro-Cap Value Sub-Account (-9.09%) -8.89% (n/a) n/a (n/a) n/a (.44%) .95% 10/15/97 Micro-Cap Growth Sub Account (-12.43%) -12.43% (n/a) n/a (n/a) n/a (12.10%) 12.11% 10/1/97 Real Estate Securities Sub-Account (8.17%) 8.67% (n/a) n/a (n/a) n/a (1.35%) 2.11% 5/1/98 Templeton Developing Markets Securities Class 2 Sub-Account (-9.23%) -9.23% (n/a) n/a (n/a) n/a (-15.08%) -15.08% 10/1/97 Fidelity VIP ContraFund Service Class 2 Sub-Account (-13.56%) -13.56% (n/a) n/a (n/a) n/a (-10.12%) -10.12% 2/1/00 Fidelity VIP Mid Cap Service Class 2 Sub-Account (-4.71%) -4.71% (n/a) n/a (n/a) n/a (10.32%) 10.32% 2/1/00 Fidelity VIP Equity-Income Service Class 2 Sub-Account (-6.40%) -6.40% (n/a) n/a (n/a) n/a (2.41%) 2.41% 2/1/00 Janus Aspen Capital Appreciation Service Shares Sub-Account (-22.80%) -22.80% (n/a) n/a (n/a) n/a (-21.23%) -21.23% 2/1/00 Janus Aspen International Growth Service Shares Sub-Account (-24.38%) -24.38% (n/a) n/a (n/a) n/a (-21.74%) -21.74% 2/1/00 Franklin Small Cap Class 2 Sub-Account (-16.30%) -16.30% (n/a) n/a (n/a) n/a (-24.29%) -24.29% 8/1/00 Templeton Global Asset Allocation Class 2 Sub-Account (-11.07%) -11.07% (n/a) n/a (n/a) n/a (-9.98%) -9.98% 8/1/00 Credit Suisse Global Post-Venture Capital Sub-Account (-29.52%) -29.52% (n/a) n/a (n/a) n/a (-36.27%) -36.27% 8/1/00
14 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) to the power of 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. Because the Portfolio's expenses and composition do not remain constant, however, the Company may 15 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 any other date, however, may be materially different. AUDITORS The consolidated financial statements of Minnesota Life and the Variable Annuity Account included herein have been audited by KPMG LLP, 4200 Wells Fargo 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. The audit report covering Minnesota Life Insurance Company and subsidiaries' December 31, 2001 consolidated financial statements refers to changes in accounting for derivatives and beneficial interests in securitized financial assets due to the adoption of new accounting standards in 2001. 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 contracts 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 contracts. 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. 16 [KPMG LETTERHEAD] 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, Templeton Developing Markets, Templeton Asset Strategy, Franklin Small Cap, Fidelity VIP Mid Cap, Fidelity VIP Contrafund, Fidelity VIP Equity-Income, Janus Aspen Capital Appreciation, Janus Aspen International Growth and Credit Suisse Global Post-Venture Capital Segregated Sub-Accounts of Variable Annuity Account (the Account), as of December 31, 2001, 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 auditing standards generally accepted in the United States of America. 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, 2001, 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 and financial highlights 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, Templeton Developing Markets, Templeton Asset Strategy, Franklin Small Cap, Fidelity VIP Mid Cap, Fidelity VIP Contrafund, Fidelity VIP Equity-Income, Janus Aspen Capital Appreciation, Janus Aspen International Growth and Credit Suisse Global Post-Venture Capital Segregated Sub-Accounts of Variable Annuity Account at December 31, 2001, and the results of their operations, changes in their net assets and the financial highlights for the periods presented, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Minneapolis, Minnesota March 8, 2002 VARIABLE ANNUITY ACCOUNT Statements of Assets and Liabilities December 31, 2001
SEGREGATED SUB-ACCOUNTS ------------------------------- ASSETS GROWTH BOND ------ ----------- ---------------- Investments in shares of Advantus Series Fund, Inc.: Growth Portfolio, 101,857,284 shares at net asset value of $1.57 per share (cost $225,307,075) ................................................................. $159,860,949 -- Bond Portfolio, 115,994,335 shares at net asset value of $1.18 per share (cost $142,358,952) ................................................................. -- 136,717,695 Money Market Portfolio, 73,086,827 shares at net asset value of $1.00 per share (cost $73,086,827) .................................................................. -- -- Asset Allocation Portfolio, 229,906,293 shares at net asset value of $1.45 per share (cost $418,044,802) ................................................................. -- -- Mortgage Securities Portfolio, 116,458,628 shares at net asset value of $1.18 per share (cost $138,021,525) ................................................................. -- -- Index 500 Portfolio, 81,453,679 shares at net asset value of $3.47 per share (cost $261,908,244) ................................................................. -- -- Capital Appreciation Portfolio, 95,807,466 shares at net asset value of $1.60 per share (cost $220,079,864) ................................................................. -- -- ------------ ------------ 159,860,949 136,717,695 Receivable for investments sold ............................................................. 99,022 87,857 Receivable from Minnesota Life for contract purchase payments ............................... 44,066 43,015 ------------ ------------ Total assets .................................................................... 160,004,037 136,848,567 ------------ ------------ LIABILITIES ----------- Payable for investments purchased ........................................................... 44,066 43,015 Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges .......................................................... 99,022 87,857 ------------ ------------ Total liabilities ............................................................... 143,088 130,872 ------------ ------------ Net assets applicable to annuity contract owners ................................ $159,860,949 136,717,695 ============ ============ CONTRACT OWNERS' EQUITY ----------------------- Contracts in accumulation period (MultiOption Flex/Single/Select) ........................... $140,411,775 111,569,954 Contracts in accumulation period (MultiOption Classic/Achiever) ............................. 11,865,747 18,189,765 Contracts in accumulation period (MegAnnuity) ............................................... 5,714,794 4,970,733 Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2) ............... 1,638,806 1,462,145 Contracts in annuity payment period (MultiOption Classic/Achiever) (note 2) ................. 170,870 496,017 Contracts in annuity payment period (Megannuity) (note 2) ................................... 58,957 29,081 Contracts in annuity payment period (Adjustable Income Annuity) (note 2) .................... -- -- ------------ ------------ Total contract owners' equity ................................................... $159,860,949 136,717,695 ============ ============ ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/SELECT) ............................. 36,996,585 40,325,182 ============ ============ ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER) ............................... 17,789,554 15,745,921 ============ ============ ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) ................................................. 1,842,615 1,709,084 ============ ============ NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION FLEX/SINGLE/SELECT) ...................... $ 3.80 2.77 ============ ============ NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION CLASSIC/ACHIEVER) ........................ $ 0.67 1.16 ============ ============ NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY) .......................................... $ 3.10 2.91 ============ ============ SEGREGATED SUB-ACCOUNTS --------------------------- MONEY ASSET ASSETS MARKET ALLOCATION ------ ----------- ------------ Investments in shares of Advantus Series Fund, Inc.: Growth Portfolio, 101,857,284 shares at net asset value of $1.57 per share (cost $225,307,075) ................................................................. -- -- Bond Portfolio, 115,994,335 shares at net asset value of $1.18 per share (cost $142,358,952) ................................................................. -- -- Money Market Portfolio, 73,086,827 shares at net asset value of $1.00 per share (cost $73,086,827) .................................................................. 73,086,827 -- Asset Allocation Portfolio, 229,906,293 shares at net asset value of $1.45 per share (cost $418,044,802) ................................................................. -- 334,282,742 Mortgage Securities Portfolio, 116,458,628 shares at net asset value of $1.18 per share (cost $138,021,525) ................................................................. -- -- Index 500 Portfolio, 81,453,679 shares at net asset value of $3.47 per share (cost $261,908,244) ................................................................. -- -- Capital Appreciation Portfolio, 95,807,466 shares at net asset value of $1.60 per share (cost $220,079,864) ................................................................. -- -- ------------ ------------ 73,086,827 334,282,742 Receivable for investments sold ............................................................. 135,119 164,002 Receivable from Minnesota Life for contract purchase payments ............................... 354,277 78,651 ------------ ------------ Total assets .................................................................... 73,576,223 334,525,395 ------------ ------------ LIABILITIES ----------- Payable for investments purchased ........................................................... 354,277 78,651 Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges .......................................................... 135,119 164,002 ------------ ------------ Total liabilities ............................................................... 489,396 242,653 ------------ ------------ Net assets applicable to annuity contract owners ................................ 73,086,827 334,282,742 ============ ============ CONTRACT OWNERS' EQUITY ----------------------- Contracts in accumulation period (MultiOption Flex/Single/Select) ........................... 50,154,073 302,665,647 Contracts in accumulation period (MultiOption Classic/Achiever) ............................. 19,548,492 20,132,459 Contracts in accumulation period (MegAnnuity) ............................................... 3,256,767 5,743,497 Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2) ............... 97,297 5,239,247 Contracts in annuity payment period (MultiOption Classic/Achiever) (note 2) ................. 30,198 117,215 Contracts in annuity payment period (Megannuity) (note 2) ................................... -- 384,677 Contracts in annuity payment period (Adjustable Income Annuity) (note 2) .................... -- -- ------------ ------------ Total contract owners' equity ................................................... 73,086,827 334,282,742 ============ ============ ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/SELECT) ............................. 26,755,160 89,702,593 ============ ============ ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER) ............................... 18,083,995 24,352,253 ============ ============ ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) ................................................. 1,593,977 1,760,361 ============ ============ NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION FLEX/SINGLE/SELECT) ...................... 1.87 3.37 ============ ============ NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION CLASSIC/ACHIEVER) ........................ 1.08 0.83 ============ ============ NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY) .......................................... 2.04 3.26 ============ ============ SEGREGATED SUB-ACCOUNTS ------------------------------------- MORTGAGE INDEX CAPITAL ASSETS SECURITIES 500 APPRECIATION ------ ---------- ----- ------------ Investments in shares of Advantus Series Fund, Inc.: Growth Portfolio, 101,857,284 shares at net asset value of $1.57 per share (cost $225,307,075) ................................................................. -- -- -- Bond Portfolio, 115,994,335 shares at net asset value of $1.18 per share (cost $142,358,952) ................................................................. -- -- -- Money Market Portfolio, 73,086,827 shares at net asset value of $1.00 per share (cost $73,086,827) .................................................................. -- -- -- Asset Allocation Portfolio, 229,906,293 shares at net asset value of $1.45 per share (cost $418,044,802) ................................................................. -- -- -- Mortgage Securities Portfolio, 116,458,628 shares at net asset value of $1.18 per share (cost $138,021,525) ................................................................. 136,919,160 -- -- Index 500 Portfolio, 81,453,679 shares at net asset value of $3.47 per share (cost $261,908,244) ................................................................. -- 283,002,183 -- Capital Appreciation Portfolio, 95,807,466 shares at net asset value of $1.60 per share (cost $220,079,864) ................................................................. -- -- 153,135,035 ----------- ------------ ------------ 136,919,160 283,002,183 153,135,035 Receivable for investments sold ............................................................. 59,464 91,338 78,425 Receivable from Minnesota Life for contract purchase payments ............................... 57,113 522,917 51,436 ----------- ------------ ------------ Total assets .................................................................... 137,035,737 283,616,438 153,264,896 ----------- ------------ ------------ LIABILITIES ----------- Payable for investments purchased ........................................................... 57,113 522,917 51,436 Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges .......................................................... 59,464 91,338 78,425 ----------- ------------ ------------ Total liabilities ............................................................... 116,577 614,255 129,861 ----------- ------------ ------------ Net assets applicable to annuity contract owners ................................ 136,919,160 283,002,183 153,135,035 =========== ============ ============ CONTRACT OWNERS' EQUITY ----------------------- Contracts in accumulation period (MultiOption Flex/Single/Select) ........................... 104,741,902 216,034,042 139,044,399 Contracts in accumulation period (MultiOption Classic/Achiever) ............................. 28,061,095 21,558,741 6,388,948 Contracts in accumulation period (MegAnnuity) ............................................... 2,563,595 13,108,250 6,023,602 Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2) ............... 1,231,266 3,378,796 1,521,664 Contracts in annuity payment period (MultiOption Classic/Achiever) (note 2) ................. 297,541 612,904 108,755 Contracts in annuity payment period (Megannuity) (note 2) ................................... 23,761 16,770 47,667 Contracts in annuity payment period (Adjustable Income Annuity) (note 2) .................... -- 28,292,680 -- ----------- ------------ ------------ Total contract owners' equity ................................................... 136,919,160 283,002,183 153,135,035 =========== ============ ============ ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/SELECT) ............................. 38,356,257 48,729,709 36,552,734 =========== ============ ============ ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER) ............................... 23,580,046 25,641,202 7,632,051 =========== ============ ============ ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) ................................................. 812,810 2,891,401 1,546,270 =========== ============ ============ NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION FLEX/SINGLE/SELECT) ...................... 2.73 4.43 3.80 =========== ============ ============ NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION CLASSIC/ACHIEVER) ........................ 1.19 0.84 0.84 =========== ============ ============ NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY) .......................................... 3.15 4.53 3.90 =========== ============ ============
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT Statements of Assets and Liabilities December 31, 2001
SEGREGATED SUB-ACCOUNTS ----------------------------- SMALL ASSETS INTERNATIONAL COMPANY ------ STOCK GROWTH --------------- ------------- Investments in shares of Advantus Series Fund, Inc.: International Stock Portfolio, 115,801,854 shares at net asset value of $1.34 per share (cost $177,763,832) ........................................................................ $154,874,874 -- Small Company Growth Portfolio, 109,797,626 shares at net asset value of $.97 per share (cost $142,630,691) ........................................................................ -- 106,352,320 Maturing Government Bond 2002 Portfolio, 7,011,103 shares at net asset value of $1.10 per share (cost $7,635,451) .......................................................................... -- -- Maturing Government Bond 2006 Portfolio, 7,139,039 shares at net asset value of $1.22 per share (cost $8,490,124) .......................................................................... -- -- Maturing Government Bond 2010 Portfolio, 4,597,430 shares at net asset value of $1.27 per share (cost $5,888,502) .......................................................................... -- -- Value Stock Portfolio, 57,746,491 shares at net asset value of $1.48 per share (cost $94,158,301) ......................................................................... -- -- ------------ ------------ 154,874,874 106,352,320 Receivable for investments sold .................................................................... 79,112 31,463 Receivable from Minnesota Life for contract purchase payments ...................................... 35,616 52,115 ------------ ------------ Total assets ........................................................................... 154,989,602 106,435,898 ------------ ------------ LIABILITIES ----------- Payable for investments purchased .................................................................. 35,616 52,115 Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges ................................................................. 79,112 31,463 ------------ ------------ Total liabilities ...................................................................... 114,728 83,578 ------------ ------------ Net assets applicable to annuity contract owners ....................................... $154,874,874 106,352,320 ============ ============ CONTRACT OWNERS' EQUITY ----------------------- Contracts in accumulation period (MultiOption Flex/Single/Select) .................................. $139,728,905 93,408,711 Contracts in accumulation period (MultiOption Classic/Achiever) .................................... 8,926,620 8,101,414 Contracts in accumulation period (MegAnnuity) ...................................................... 4,087,052 3,267,444 Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2) ...................... 1,856,726 1,510,977 Contracts in annuity payment period (MultiOption Classic/Achiever) (note 2) ........................ 103,501 49,528 Contracts in annuity payment period (Megannuity) (note 2) .......................................... 172,070 14,246 Contracts in annuity payment period (Adjustable Income Annuity) (note 2) ........................... -- -- ------------ ------------ Total contract owners' equity .......................................................... $154,874,874 106,352,320 ============ ============ ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/SELECT) .................................... 66,295,954 49,424,891 ============ ============ ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER) ...................................... 9,578,861 7,844,387 ============ ============ ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) ........................................................ 1,775,314 1,605,262 ============ ============ NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION FLEX/SINGLE/SELECT) ............................. $ 2.11 1.89 ============ ============ NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION CLASSIC/ACHIEVER) ............................... $ 0.93 1.03 ============ ============ NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY) ................................................. $ 2.30 2.04 ============ ============ SEGREGATED SUB-ACCOUNTS ---------------------------- MATURING MATURING GOVERNMENT GOVERNMENT BOND BOND ASSETS 2002 2006 ------ ----------- ------------ Investments in shares of Advantus Series Fund, Inc.: International Stock Portfolio, 115,801,854 shares at net asset value of $1.34 per share (cost $177,763,832) ........................................................................ -- -- Small Company Growth Portfolio, 109,797,626 shares at net asset value of $.97 per share (cost $142,630,691) ........................................................................ -- -- Maturing Government Bond 2002 Portfolio, 7,011,103 shares at net asset value of $1.10 per share (cost $7,635,451) .......................................................................... 7,694,243 -- Maturing Government Bond 2006 Portfolio, 7,139,039 shares at net asset value of $1.22 per share (cost $8,490,124) .......................................................................... -- 8,692,552 Maturing Government Bond 2010 Portfolio, 4,597,430 shares at net asset value of $1.27 per share (cost $5,888,502) .......................................................................... -- -- Value Stock Portfolio, 57,746,491 shares at net asset value of $1.48 per share (cost $94,158,301) ......................................................................... -- -- ---------- ---------- 7,694,243 8,692,552 Receivable for investments sold .................................................................... 20 189 Receivable from Minnesota Life for contract purchase payments ...................................... 6,336 440 ---------- ---------- Total assets ........................................................................... 7,700,599 8,693,181 ---------- ---------- LIABILITIES ----------- Payable for investments purchased .................................................................. 6,336 440 Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges ................................................................. 20 189 ---------- ---------- Total liabilities ...................................................................... 6,356 629 ---------- ---------- Net assets applicable to annuity contract owners ....................................... 7,694,243 8,692,552 ========== ========== CONTRACT OWNERS' EQUITY ----------------------- Contracts in accumulation period (MultiOption Flex/Single/Select) .................................. 6,870,314 7,222,845 Contracts in accumulation period (MultiOption Classic/Achiever) .................................... 303,063 403,777 Contracts in accumulation period (MegAnnuity) ...................................................... 492,124 727,176 Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2) ...................... 8,932 312,803 Contracts in annuity payment period (MultiOption Classic/Achiever) (note 2) ........................ -- -- Contracts in annuity payment period (Megannuity) (note 2) .......................................... 19,810 25,951 Contracts in annuity payment period (Adjustable Income Annuity) (note 2) ........................... -- -- ---------- ---------- Total contract owners' equity .......................................................... 7,694,243 8,692,552 ========== ========== ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/SELECT) .................................... 4,405,136 4,145,135 ========== ========== ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER) ...................................... 267,658 335,342 ========== ========== ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) ........................................................ 290,002 383,557 ========== ========== NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION FLEX/SINGLE/SELECT) ............................. 1.56 1.74 ========== ========== NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION CLASSIC/ACHIEVER) ............................... 1.13 1.20 ========== ========== NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY) ................................................. 1.70 1.90 ========== ==========
SEGREGATED SUB-ACCOUNTS ---------------------------- MATURING GOVERNMENT BOND VALUE ASSETS 2010 STOCK ------ ---------- ----------- Investments in shares of Advantus Series Fund, Inc.: International Stock Portfolio, 115,801,854 shares at net asset value of $1.34 per share (cost $177,763,832) ........................................................................ -- -- Small Company Growth Portfolio, 109,797,626 shares at net asset value of $.97 per share (cost $142,630,691) ........................................................................ -- -- Maturing Government Bond 2002 Portfolio, 7,011,103 shares at net asset value of $1.10 per share (cost $7,635,451) .......................................................................... -- -- Maturing Government Bond 2006 Portfolio, 7,139,039 shares at net asset value of $1.22 per share (cost $8,490,124) .......................................................................... -- -- Maturing Government Bond 2010 Portfolio, 4,597,430 shares at net asset value of $1.27 per share (cost $5,888,502) .......................................................................... 5,840,469 -- Value Stock Portfolio, 57,746,491 shares at net asset value of $1.48 per share (cost $94,158,301) ......................................................................... -- 85,380,743 ---------- ---------- 5,840,469 85,380,743 Receivable for investments sold .................................................................... 1,042 99,680 Receivable from Minnesota Life for contract purchase payments ...................................... 487 26,319 ---------- ---------- Total assets ........................................................................... 5,841,998 85,506,742 ---------- ---------- LIABILITIES Payable for investments purchased .................................................................. 487 26,319 Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges ................................................................. 1,042 99,680 ---------- ---------- Total liabilities ...................................................................... 1,529 125,999 ---------- ---------- Net assets applicable to annuity contract owners ....................................... 5,840,469 85,380,743 ========== ========== CONTRACT OWNERS' EQUITY Contracts in accumulation period (MultiOption Flex/Single/Select) .................................. 4,819,864 77,088,364 Contracts in accumulation period (MultiOption Classic/Achiever) .................................... 592,500 5,128,531 Contracts in accumulation period (MegAnnuity) ...................................................... 130,343 1,897,868 Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2) ...................... 297,762 1,183,007 Contracts in annuity payment period (MultiOption Classic/Achiever) (note 2) ........................ -- 68,596 Contracts in annuity payment period (Megannuity) (note 2) .......................................... -- 14,377 Contracts in annuity payment period (Adjustable Income Annuity) (note 2) ........................... -- -- ---------- ---------- Total contract owners' equity .......................................................... 5,840,469 85,380,743 ========== ========== ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/SELECT) .................................... 2,672,564 42,367,064 ========== ========== ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER) ...................................... 487,501 5,936,687 ========== ========== ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) ........................................................ 66,425 958,634 ========== ========== NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION FLEX/SINGLE/SELECT) ............................. 1.80 1.82 ========== ========== NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION CLASSIC/ACHIEVER) ............................... 1.22 0.86 ========== ========== NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY) ................................................. 1.96 1.98 ========== ==========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT Statements of Assets and Liabilities December 31, 2001
SEGREGATED SUB-ACCOUNTS -------------------------- SMALL COMPANY GLOBAL ASSETS VALUE BOND ------ ------------ ----------- Investments in shares of Advantus Series Fund, Inc.: Small Company Value Portfolio, 21,340,146 shares at net asset value of $1.27 per share (cost $23,935,955) .................................................................. $27,119,932 -- Global Bond Portfolio, 39,075,720 shares at net asset value of $.92 per share (cost $38,305,296) .................................................................. -- 36,124,400 Index Mid-Cap 400 Portfolio, 19,327,897 shares at net asset value of $1.13 per share (cost $22,264,825) .................................................................. -- -- Macro-Cap Value Portfolio, 17,801,103 shares at net asset value of $.98 per share (cost $19,234,359) .................................................................. -- -- Micro-Cap Growth Portfolio, 19,246,561 shares at net asset value of $1.55 per share (cost $35,494,937) .................................................................. -- -- Real Estate Securities Portfolio, 12,929,397 shares at net asset value of $.96 per share (cost $11,960,619) .................................................................. -- -- Investment in shares of Franklin Templeton Variable Insurance Products Trust: Templeton Developing Markets Fund - Class 2, 1,648,701 shares at net asset value of $4.76 per share (cost $10,261,389) .............................................. -- -- Templeton Asset Strategy Fund - Class 2, 144,037 shares at net asset value of $15.41 per share (cost $2,377,922) .............................................. -- -- ----------- ----------- 27,119,932 36,124,400 Receivable for investments sold .............................................................. 13,620 8,927 Receivable from Minnesota Life for contract purchase payments ................................ 20,553 7,427 ----------- ----------- Total assets ..................................................................... 27,154,105 36,140,754 ----------- ----------- LIABILITIES ----------- Payable for investments purchased ............................................................ 20,553 7,427 Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges ........................................................... 13,620 8,927 ----------- ----------- Total liabilities ................................................................ 34,173 16,354 ----------- ----------- Net assets applicable to annuity contract owners ................................. $27,119,932 36,124,400 =========== =========== CONTRACT OWNERS' EQUITY ----------------------- Contracts in accumulation period (MultiOption Flex/Single/Select) ............................ $19,579,756 29,993,669 Contracts in accumulation period (MultiOption Classic/Achiever) .............................. 6,263,779 5,805,951 Contracts in accumulation period (MegAnnuity) ................................................ 702,424 94,139 Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2) ................ 413,384 144,981 Contracts in annuity payment period (MultiOption Classic/Achiever) (note 2) .................. 160,589 84,244 Contracts in annuity payment period (Megannuity) (note 2) .................................... -- 1,416 Contracts in annuity payment period (Adjustable Income Annuity) (note 2) ..................... -- -- ----------- ----------- Total contract owners' equity .................................................... $27,119,932 36,124,400 =========== =========== ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/SELECT) .............................. 14,970,572 29,537,291 =========== =========== ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER) ................................ 4,382,496 6,022,517 =========== =========== ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) .................................................. 522,183 89,097 =========== =========== NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION FLEX/SINGLE/SELECT) ....................... $ 1.31 1.02 =========== =========== NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION CLASSIC/ACHIEVER) ......................... $ 1.43 0.96 =========== =========== NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY) ........................................... $ 1.35 1.06 =========== =========== SEGREGATED SUB-ACCOUNTS ----------------------------------- INDEX 400 MACRO-CAP MICRO-CAP ASSETS MID-CAP VALUE GROWTH ------ ------------ ----------- ---------- Investments in shares of Advantus Series Fund, Inc.: Small Company Value Portfolio, 21,340,146 shares at net asset value of $1.27 per share (cost $23,935,955) .................................................................. -- -- -- Global Bond Portfolio, 39,075,720 shares at net asset value of $.92 per share (cost $38,305,296) .................................................................. -- -- -- Index Mid-Cap 400 Portfolio, 19,327,897 shares at net asset value of $1.13 per share (cost $22,264,825) .................................................................. 21,884,881 -- -- Macro-Cap Value Portfolio, 17,801,103 shares at net asset value of $.98 per share (cost $19,234,359) .................................................................. -- 17,416,946 -- Micro-Cap Growth Portfolio, 19,246,561 shares at net asset value of $1.55 per share (cost $35,494,937) .................................................................. -- -- 29,750,152 Real Estate Securities Portfolio, 12,929,397 shares at net asset value of $.96 per share (cost $11,960,619) .................................................................. -- -- -- Investment in shares of Franklin Templeton Variable Insurance Products Trust: Templeton Developing Markets Fund - Class 2, 1,648,701 shares at net asset value of $4.76 per share (cost $10,261,389) ............................................... -- -- -- Templeton Asset Strategy Fund - Class 2, 144,037 shares at net asset value of $15.41 per share (cost $2,377,922) ............................................... -- -- -- ----------- ----------- ----------- 21,884,881 17,416,946 29,750,152 Receivable for investments sold .............................................................. 15,189 12,249 3,482 Receivable from Minnesota Life for contract purchase payments ................................ 23,706 29,751 12,910 ----------- ----------- ----------- Total assets ..................................................................... 21,923,776 17,458,946 29,766,544 ----------- ----------- ----------- LIABILITIES ----------- Payable for investments purchased ............................................................ 23,706 29,751 12,910 Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges ........................................................... 15,189 12,249 3,482 ----------- ----------- ----------- Total liabilities ................................................................ 38,895 42,000 16,392 ----------- ----------- ----------- Net assets applicable to annuity contract owners ................................. 21,884,881 17,416,946 29,750,152 =========== =========== =========== CONTRACT OWNERS' EQUITY ----------------------- Contracts in accumulation period (MultiOption Flex/Single/Select) ............................ 16,038,576 13,322,778 23,810,164 Contracts in accumulation period (MultiOption Classic/Achiever) .............................. 4,951,875 3,341,745 5,221,553 Contracts in accumulation period (MegAnnuity) ................................................ 544,883 322,693 422,204 Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2) ................ 242,718 231,752 147,541 Contracts in annuity payment period (MultiOption Classic/Achiever) (note 2) .................. 106,829 197,978 147,872 Contracts in annuity payment period (Megannuity) (note 2) .................................... -- -- 818 Contracts in annuity payment period (Adjustable Income Annuity) (note 2) ..................... -- -- -- ----------- ----------- ----------- Total contract owners' equity .................................................... 21,884,881 17,416,946 29,750,152 =========== =========== =========== ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/SELECT) .............................. 10,851,086 12,894,074 13,868,152 =========== =========== =========== ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER) ................................ 4,064,699 3,861,820 4,250,985 =========== =========== =========== ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) .................................................. 356,197 293,780 256,057 =========== =========== =========== NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION FLEX/SINGLE/SELECT) ....................... 1.48 1.03 1.72 =========== =========== =========== NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION CLASSIC/ACHIEVER) ......................... 1.22 0.87 1.23 =========== =========== =========== NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY) ........................................... 1.53 1.10 1.65 =========== =========== =========== SEGREGATED SUB-ACCOUNTS ----------------------------------- REAL TEMPLETON TEMPLETON ESTATE DEVELOPING ASSET ASSETS SECURITIES MARKETS STRATEGY ------ ------------- ----------- ---------- Investments in shares of Advantus Series Fund, Inc.: Small Company Value Portfolio, 21,340,146 shares at net asset value of $1.27 per share (cost $23,935,955) .................................................................. -- -- -- Global Bond Portfolio, 39,075,720 shares at net asset value of $.92 per share (cost $38,305,296) .................................................................. -- -- -- Index Mid-Cap 400 Portfolio, 19,327,897 shares at net asset value of $1.13 per share (cost $22,264,825) .................................................................. -- -- -- Macro-Cap Value Portfolio, 17,801,103 shares at net asset value of $.98 per share (cost $19,234,359) .................................................................. -- -- -- Micro-Cap Growth Portfolio, 19,246,561 shares at net asset value of $1.55 per share (cost $35,494,937) .................................................................. -- -- -- Real Estate Securities Portfolio, 12,929,397 shares at net asset value of $.96 per share (cost $11,960,619) .................................................................. 12,378,669 -- -- Investment in shares of Franklin Templeton Variable Insurance Products Trust: Templeton Developing Markets Fund - Class 2, 1,648,701 shares at net asset value of $4.76 per share (cost $10,261,389) ............................................... -- 7,847,819 -- Templeton Asset Strategy Fund - Class 2, 144,037 shares at net asset value of $15.41 per share (cost $2,377,922) ............................................... -- -- 2,219,608 ----------- ----------- --------- 12,378,669 7,847,819 2,219,608 Receivable for investments sold .............................................................. 3,953 98 -- Receivable from Minnesota Life for contract purchase payments ................................ 42,067 9,523 36,018 ----------- ----------- --------- Total assets ..................................................................... 12,424,689 7,857,440 2,255,626 ----------- ----------- --------- LIABILITIES ----------- Payable for investments purchased ............................................................ 42,067 9,523 36,018 Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges ........................................................... 3,953 98 -- ----------- ----------- --------- Total liabilities ................................................................ 46,020 9,621 36,018 ----------- ----------- --------- Net assets applicable to annuity contract owners ................................. 12,378,669 7,847,819 2,219,608 =========== =========== ========= CONTRACT OWNERS' EQUITY ----------------------- Contracts in accumulation period (MultiOption Flex/Single/Select) ............................ 9,590,511 5,400,511 1,033,344 Contracts in accumulation period (MultiOption Classic/Achiever) .............................. 2,405,575 2,094,438 1,109,120 Contracts in accumulation period (MegAnnuity) ................................................ 278,318 111,479 59,144 Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2) ................ 80,173 202,961 -- Contracts in annuity payment period (MultiOption Classic/Achiever) (note 2) .................. 24,092 38,430 18,000 Contracts in annuity payment period (Megannuity) (note 2) .................................... -- -- -- Contracts in annuity payment period (Adjustable Income Annuity) (note 2) ..................... -- -- -- ----------- ----------- --------- Total contract owners' equity .................................................... 12,378,669 7,847,819 2,219,608 =========== =========== ========= ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/SELECT) .............................. 8,728,831 10,821,061 1,199,408 =========== =========== ========= ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER) ................................ 1,845,023 2,872,730 1,290,152 =========== =========== ========= ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) .................................................. 246,482 212,265 67,571 =========== =========== ========= NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION FLEX/SINGLE/SELECT) ....................... 1.10 0.50 0.86 =========== =========== ========= NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION CLASSIC/ACHIEVER) ......................... 1.30 0.73 0.86 =========== =========== ========= NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY) ........................................... 1.13 0.53 0.88 =========== =========== =========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT Statements of Assets and Liabilities December 31, 2001
SEGREGATED SUB-ACCOUNTS -------------------------- FIDELITY FRANKLIN VIP ASSETS SMALL CAP MID CAP ------ ----------- ------------ Investment in shares of the Franklin Templeton Variable Insurance Products Trust: Small Cap Fund, 383,921 shares at net asset value of $17.85 per share (cost $7,525,215) .................................................................. $ 6,852,986 -- Investment in shares of Fidelity Variable Insurance Products Fund: VIP Mid Cap Portfolio, 1,076,693 shares at net asset value of $19.49 per share (cost $20,238,579) ................................................................. -- 20,984,737 VIP Contrafund Portfolio, 1,075,059 shares at net asset value of $20.00 per share (cost $25,162,566) ................................................................. -- -- VIP Equity-Income Portfolio, 1,044,141 shares at net asset value of $22.59 per share (cost $23,991,862) ................................................................. -- -- Investment in shares of Janus Aspen Series Trust: Capital Appreciation Portfolio, 1,182,510 shares at net asset value of $20.57 per share (cost $36,023,834) ................................................................. -- -- International Growth Portfolio, 823,825 shares at net asset value of $23.30 per share (cost $29,545,913) ................................................................. -- -- Investment in shares of the Credit Suisse Global Post-Venture Capital Portfolio, 101,352 shares at net asset value of $9.72 per share (cost $1,294,711) .................................................................. -- -- ----------- ----------- 6,852,986 20,984,737 Receivable for investments sold ............................................................ -- 3 Receivable from Minnesota Life for contract purchase payments .............................. 6,810 6,670 ----------- ----------- Total assets ................................................................... 6,859,796 20,991,410 ----------- ----------- LIABILITIES ----------- Payable for investments purchased .......................................................... 6,810 6,670 Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges ......................................................... -- 3 ----------- ----------- Total liabilities .............................................................. 6,810 6,673 ----------- ----------- Net assets applicable to annuity contract owners ............................... $ 6,852,986 20,984,737 =========== =========== CONTRACT OWNERS' EQUITY ----------------------- Contracts in accumulation period (MultiOption Flex/Single/Select) .......................... $ 2,858,915 12,705,084 Contracts in accumulation period (MultiOption Classic/Achiever) ............................ 3,842,066 7,696,449 Contracts in accumulation period (MegAnnuity) .............................................. 87,540 477,831 Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2) .............. 63,701 31,017 Contracts in annuity payment period (MultiOption Classic/Achiever) (note 2) ................ -- 73,590 Contracts in annuity payment period (Megannuity) (note 2) .................................. 764 766 Contracts in annuity payment period (Adjustable Income Annuity) (note 2) ................... -- -- ----------- ----------- Total contract owners' equity .................................................. $ 6,852,986 20,984,737 =========== =========== ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/SELECT) ............................ 4,241,954 10,774,179 =========== =========== ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER) .............................. 5,712,939 6,545,701 =========== =========== ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) ................................................ 127,846 396,693 =========== =========== NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION FLEX/SINGLE/SELECT) ..................... $ 0.67 1.18 =========== =========== NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION CLASSIC/ACHIEVER) ....................... $ 0.67 1.18 =========== =========== NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY) ......................................... $ 0.68 1.20 =========== =========== SEGREGATED SUB-ACCOUNTS --------------------------- FIDELITY FIDELITY VIP VIP ASSETS CONTRAFUND EQUITY-INCOME ------ ------------- ------------- Investment in shares of the Franklin Templeton Variable Insurance Products Trust: Small Cap Fund, 383,921 shares at net asset value of $17.85 per share (cost $7,525,215) .................................................................. -- -- Investment in shares of Fidelity Variable Insurance Products Fund: VIP Mid Cap Portfolio, 1,076,693 shares at net asset value of $19.49 per share (cost $20,238,579) ................................................................. -- -- VIP Contrafund Portfolio, 1,075,059 shares at net asset value of $20.00 per share (cost $25,162,566) ................................................................. 21,501,171 -- VIP Equity-Income Portfolio, 1,044,141 shares at net asset value of $22.59 per share (cost $23,991,862) ................................................................. -- 23,587,152 Investment in shares of Janus Aspen Series Trust: Capital Appreciation Portfolio, 1,182,510 shares at net asset value of $20.57 per share (cost $36,023,834) ................................................................. -- -- International Growth Portfolio, 823,825 shares at net asset value of $23.30 per share (cost $29,545,913) ................................................................. -- -- Investment in shares of the Credit Suisse Global Post-Venture Capital Portfolio, 101,352 shares at net asset value of $9.72 per share (cost $1,294,711) .................................................................. -- -- ----------- ----------- 21,501,171 23,587,152 Receivable for investments sold ............................................................ -- -- Receivable from Minnesota Life for contract purchase payments .............................. 46,699 103,106 ----------- ----------- Total assets ................................................................... 21,547,870 23,690,258 ----------- ----------- LIABILITIES ----------- Payable for investments purchased .......................................................... 46,699 103,106 Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges ......................................................... -- -- ----------- ----------- Total liabilities .............................................................. 46,699 103,106 ----------- ----------- Net assets applicable to annuity contract owners ............................... 21,501,171 23,587,152 =========== =========== CONTRACT OWNERS' EQUITY ----------------------- Contracts in accumulation period (MultiOption Flex/Single/Select) .......................... 11,767,810 13,889,712 Contracts in accumulation period (MultiOption Classic/Achiever) ............................ 9,281,535 9,215,965 Contracts in accumulation period (MegAnnuity) .............................................. 303,453 292,166 Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2) .............. 75,511 137,461 Contracts in annuity payment period (MultiOption Classic/Achiever) (note 2) ................ 72,862 49,630 Contracts in annuity payment period (Megannuity) (note 2) .................................. -- 2,218 Contracts in annuity payment period (Adjustable Income Annuity) (note 2) ................... -- -- ----------- ----------- Total contract owners' equity .................................................. 21,501,171 23,587,152 =========== =========== ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/SELECT) ............................ 14,483,654 13,208,284 =========== =========== ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER) .............................. 11,456,649 8,789,373 =========== =========== ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) ................................................ 365,617 271,988 =========== =========== NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION FLEX/SINGLE/SELECT) ..................... 0.81 1.05 =========== =========== NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION CLASSIC/ACHIEVER) ....................... 0.81 1.05 =========== =========== NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY) ......................................... 0.83 1.07 =========== =========== SEGREGATED SUB-ACCOUNTS ------------------------------------- CREDIT SUISSE JANUS ASPEN JANUS ASPEN GLOBAL POST- CAPITAL INTERNATIONAL VENTURE ASSETS APPRECIATION GROWTH CAPITAL ------ ------------ ------------- ---------- Investment in shares of the Franklin Templeton Variable Insurance Products Trust: Small Cap Fund, 383,921 shares at net asset value of $17.85 per share (cost $7,525,215) .................................................................. -- -- -- Investment in shares of Fidelity Variable Insurance Products Fund: VIP Mid Cap Portfolio, 1,076,693 shares at net asset value of $19.49 per share (cost $20,238,579) ................................................................. -- -- -- VIP Contrafund Portfolio, 1,075,059 shares at net asset value of $20.00 per share (cost $25,162,566) ................................................................. -- -- -- VIP Equity-Income Portfolio, 1,044,141 shares at net asset value of $22.59 per share (cost $23,991,862) ................................................................. -- -- -- Investment in shares of Janus Aspen Series Trust: Capital Appreciation Portfolio, 1,182,510 shares at net asset value of $20.57 per share (cost $36,023,834) ................................................................. 24,324,231 -- -- International Growth Portfolio, 823,825 shares at net asset value of $23.30 per share (cost $29,545,913) ................................................................. -- 19,195,115 -- Investment in shares of the Credit Suisse Global Post-Venture Capital Portfolio, 101,352 shares at net asset value of $9.72 per share (cost $1,294,711) .................................................................. -- -- 985,138 ----------- ----------- ----------- 24,324,231 19,195,115 985,138 Receivable for investments sold ............................................................ 891 2,612 52 Receivable from Minnesota Life for contract purchase payments .............................. 7,049 8,871 194 ----------- ----------- ----------- Total assets ................................................................... 24,332,171 19,206,598 985,384 ----------- ----------- ----------- LIABILITIES ----------- Payable for investments purchased .......................................................... 7,049 8,871 194 Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges ......................................................... 891 2,612 52 ----------- ----------- ----------- Total liabilities .............................................................. 7,940 11,483 246 ----------- ----------- ----------- Net assets applicable to annuity contract owners ............................... 24,324,231 19,195,115 985,138 =========== =========== =========== CONTRACT OWNERS' EQUITY ----------------------- Contracts in accumulation period (MultiOption Flex/Single/Select) .......................... 14,181,814 11,389,135 316,895 Contracts in accumulation period (MultiOption Classic/Achiever) ............................ 9,585,278 7,283,338 665,033 Contracts in accumulation period (MegAnnuity) .............................................. 399,931 324,489 3,210 Contracts in annuity payment period (MultiOption Flex/Single/Select) (note 2) .............. 66,491 108,853 -- Contracts in annuity payment period (MultiOption Classic/Achiever) (note 2) ................ 87,768 87,794 -- Contracts in annuity payment period (Megannuity) (note 2) .................................. 2,949 1,506 -- Contracts in annuity payment period (Adjustable Income Annuity) (note 2) ................... -- -- -- ----------- ----------- ----------- Total contract owners' equity .................................................. 24,324,231 19,195,115 985,138 =========== =========== =========== ACCUMULATION UNITS OUTSTANDING (MULTIOPTION FLEX/SINGLE/SELECT) ............................ 22,757,280 18,316,427 600,306 =========== =========== =========== ACCUMULATION UNITS OUTSTANDING (MULTIOPTION CLASSIC/ACHIEVER) .............................. 15,425,939 11,747,393 1,262,527 =========== =========== =========== ACCUMULATION UNITS OUTSTANDING (MEGANNUITY) ................................................ 628,238 510,863 5,984 =========== =========== =========== NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION FLEX/SINGLE/SELECT) ..................... 0.62 0.62 0.53 =========== =========== =========== NET ASSET VALUE PER ACCUMULATION UNIT (MULTIOPTION CLASSIC/ACHIEVER) ....................... 0.62 0.62 0.53 =========== =========== =========== NET ASSET VALUE PER ACCUMULATION UNIT (MEGANNUITY) ......................................... 0.64 0.64 0.54 =========== =========== ===========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT Statements of Operations Year Ended December 31, 2001
SEGREGATED SUB-ACCOUNTS --------------------------------- GROWTH BOND ----------------- -------------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4) ..... $ - 14,320,007 Mortality and expense charges (MultiOption Flex/Single/Select) (note 3)... (2,115,510) (1,394,324) Mortality and expense charges (MultiOption Classic/Achiever) (note 3)..... (139,076) (161,662) Administrative charges (MultiOption Classic/Achiever) (note 3) ........... (16,682) (19,391) Administrative charges (MegAnnuity) (note 3) ............................. (9,475) (7,198) Mortality and expense charges (Adjustable Income Annuity) (note 3) ....... - - Administrative charges (Adjustable Income Annuity) (note 3) .............. - - ------------ ------------ Investment income (loss) - net ........................................ (2,280,743) 12,737,432 ------------ ------------ Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund (note 4) ......... 30,613,918 - ------------ ------------ Realized gains (losses) on sales of investments: Proceeds from sales ................................................... 46,999,053 24,474,884 Cost of investments sold .............................................. (60,168,440) (24,360,790) ------------ ------------ (13,169,387) 114,094 ------------ ------------ Net realized gains on investments ..................................... 17,444,531 114,094 ------------ ------------ Net change in unrealized appreciation or depreciation of investments ..................................................... (77,895,141) (4,892,896) ------------ ------------ Net gains (losses) on investments ..................................... (60,450,610) (4,778,802) ------------ ------------ Net increase (decrease) in net assets resulting from operations ............... $(62,731,353) 7,958,630 ============ ============
SEGREGATED SUB-ACCOUNTS ---------------------------------------- MONEY ASSET MARKET ALLOCATION -------------------- ------------------ Investment income (loss): Investment income distributions from underlying mutual fund (note 4) ..... 2,358,139 7,188,198 Mortality and expense charges (MultiOption Flex/Single/Select) (note 3)... (563,368) (4,460,643) Mortality and expense charges (MultiOption Classic/Achiever) (note 3) .... (221,106) (266,171) Administrative charges (MultiOption Classic/Achiever) (note 3) ........... (26,521) (31,926) Administrative charges (MegAnnuity) (note 3) ............................. (5,004) (9,883) Mortality and expense charges (Adjustable Income Annuity) (note 3) ....... - - Administrative charges (Adjustable Income Annuity) (note 3) .............. - - ------------ ------------ Investment income (loss) - net ........................................ 1,542,140 2,419,575 ------------ ------------ Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund (note 4) ......... - 49,296,580 ------------ ------------ Realized gains (losses) on sales of investments: Proceeds from sales ................................................... 74,021,379 98,164,879 Cost of investments sold .............................................. (74,021,379) (116,529,161) ------------ ------------ - (18,364,282) ------------ ------------ Net realized gains on investments ..................................... - 30,932,298 ------------ ------------ Net change in unrealized appreciation or depreciation of investments ..................................................... - (107,229,500) ------------ ------------ Net gains (losses) on investments ..................................... - (76,297,202) ------------ ------------ Net increase (decrease) in net assets resulting from operations ............... 1,542,140 (73,877,627) ============ ============ SEGREGATED SUB-ACCOUNTS ---------------------------------------------------- MORTGAGE INDEX CAPITAL SECURITIES 500 APPRECIATION ---------------- --------------- ----------------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4) ..... 14,605,993 2,761,073 161,094 Mortality and expense charges (MultiOption Flex/Single/Select) (note 3)... (1,234,412) (3,097,977) (2,129,246) Mortality and expense charges (MultiOption Classic/Achiever) (note 3) .... (243,059) (239,516) (78,333) Administrative charges (MultiOption Classic/Achiever) (note 3) ........... (29,081) (28,729) (9,396) Administrative charges (MegAnnuity) (note 3) ............................. (3,256) (20,208) (10,347) Mortality and expense charges (Adjustable Income Annuity) (note 3) ....... - (246,726) - Administrative charges (Adjustable Income Annuity) (note 3) .............. - (46,263) - ------------ ------------ ------------ Investment income (loss) - net ........................................ 13,096,185 (918,346) (2,066,228) ------------ ------------ ------------ Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund (note 4) ......... - 3,624,323 58,259,376 ------------ ------------ ------------ Realized gains (losses) on sales of investments: Proceeds from sales ................................................... 23,633,144 72,370,058 40,712,725 Cost of investments sold .............................................. (22,684,701) (63,510,542) (50,811,828) ------------ ------------ ------------ 948,443 8,859,516 (10,099,103) ------------ ------------ ------------ Net realized gains on investments ..................................... 948,443 12,483,839 48,160,273 ------------ ------------ ------------ Net change in unrealized appreciation or depreciation of investments ..................................................... (5,803,739) (59,177,857) (105,213,252) ------------ ------------ ------------ Net gains (losses) on investments ..................................... (4,855,296) (46,694,018) (57,052,979) ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations ............... 8,240,889 (47,612,364) (59,119,207) ============ ============ ============
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT Statements of Operations Year Ended December 31, 2001
SEGREGATED SUB-ACCOUNTS ------------------------------------------ Small International Company Stock Growth ------------------- ------------------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4) .............. $ 7,284,278 - Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) .......... (1,997,679) (1,236,859) Mortality and expense charges (MultiOption Classic/Achiever) (note 3) ............. (96,827) (84,257) Administrative charges (MultiOption Classic/Achiever) (note 3)..................... (11,614) (10,106) Administrative charges (MegAnnuity) (note 3)....................................... (6,946) (4,958) Mortality and expense charges (Adjustable Income Annuity) (note 3)................. - - Administrative charges (Adjustable Income Annuity) (note 3)........................ - - ------------------- ------------------- Investment income (loss) - net ................................................. 5,171,212 (1,336,180) ------------------- ------------------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund (note 4) .................. 18,167,566 45,532,047 ------------------- ------------------- Realized gains (losses) on sales of investments: Proceeds from sales ............................................................ 38,842,983 24,900,767 Cost of investments sold ....................................................... (42,015,747) (33,097,214) ------------------- ------------------- (3,172,764) (8,196,447) ------------------- ------------------- Net realized gains (losses) on investments ..................................... 14,994,802 37,335,600 ------------------- ------------------- Net change in unrealized appreciation or depreciation of investments .............................................................. (44,770,596) (59,319,337) ------------------- ------------------- Net gains (losses) on investments .............................................. (29,775,794) (21,983,737) ------------------- ------------------- Net increase (decrease) in net assets resulting from operations .......................... $ (24,604,582) (23,319,917) =================== ===================
SEGREGATED SUB-ACCOUNTS ---------------------------------------- Maturing Maturing Government Government Bond Bond 2002 2006 ------------------- ------------------ Investment income (loss): Investment income distributions from underlying mutual fund (note 4) .............. 409,043 425,973 Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) .......... (82,593) (86,450) Mortality and expense charges (MultiOption Classic/Achiever) (note 3) ............. (3,775) (4,431) Administrative charges (MultiOption Classic/Achiever) (note 3)..................... (453) (532) Administrative charges (MegAnnuity) (note 3)....................................... (894) (938) Mortality and expense charges (Adjustable Income Annuity) (note 3)................. - - Administrative charges (Adjustable Income Annuity) (note 3)........................ - - ------------------- ------------------ Investment income (loss) - net ................................................. 321,328 333,622 ------------------- ------------------ 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 ............................................................ 2,452,298 1,559,783 Cost of investments sold ....................................................... (2,423,495) (1,480,997) ------------------- ------------------ 28,803 78,786 ------------------- ------------------ Net realized gains (losses) on investments ..................................... 28,803 78,786 ------------------- ------------------ Net change in unrealized appreciation or depreciation of investments .............................................................. 112,049 77,124 ------------------- ------------------ Net gains (losses) on investments .............................................. 140,852 155,910 ------------------- ------------------ Net increase (decrease) in net assets resulting from operations .......................... 462,180 489,532 =================== ==================
SEGREGATED SUB-ACCOUNTS ------------------------------------- Maturing Government Bond Value 2010 Stock ----------------- ------------------ Investment income (loss): Investment income distributions from underlying mutual fund (note 4) .............. 629,934 1,014,495 Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) .......... (64,022) (1,104,275) Mortality and expense charges (MultiOption Classic/Achiever) (note 3) ............. (7,456) (50,727) Administrative charges (MultiOption Classic/Achiever) (note 3)..................... (894) (6,085) Administrative charges (MegAnnuity) (note 3)....................................... (425) 2,864 Mortality and expense charges (Adjustable Income Annuity) (note 3)................. - - Administrative charges (Adjustable Income Annuity) (note 3)........................ - - ----------------- ------------------ Investment income (loss) - net ................................................. 557,137 (143,728) ----------------- ------------------ 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 ............................................................ 1,878,131 21,295,759 Cost of investments sold ....................................................... (1,792,338) (22,414,632) ----------------- ------------------ 85,793 (1,118,873) ----------------- ------------------ Net realized gains (losses) on investments ..................................... 85,793 (1,118,873) ----------------- ------------------ Net change in unrealized appreciation or depreciation of investments .............................................................. (476,175) (10,703,718) ----------------- ------------------ Net gains (losses) on investments .............................................. (390,382) (11,822,591) ----------------- ------------------ Net increase (decrease) in net assets resulting from operations .......................... 166,755 (11,966,319) ================= ==================
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2001
SEGREGATED SUB-ACCOUNTS ------------------------------------ Small Company Global Value Bond ------------------ -------------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4) .................. $ - 390,804 Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) .............. (226,528) (384,507) Mortality and expense charges (MultiOption Classic/Achiever) (note 3) ................. (53,204) (57,734) Administrative charges (MultiOption Classic/Achiever) (note 3)......................... (6,382) (6,925) Administrative charges (MegAnnuity) (note 3)........................................... (700) (140) Mortality and expense charges (Adjustable Income Annuity) (note 3) .................... - - Administrative charges (Adjustable Income Annuity) (note 3)............................ - - ------------------ -------------- Investment income (loss) - net ..................................................... (286,814) (58,502) ------------------ -------------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund (note 4) ...................... 1,326,912 - ------------------ -------------- Realized gains (losses) on sales of investments: Proceeds from sales ................................................................ 8,111,218 3,471,714 Cost of investments sold ........................................................... (6,950,950) (3,617,478) ------------------ -------------- 1,160,268 (145,764) ------------------ -------------- Net realized gains (losses) on investments ......................................... 2,487,180 (145,764) ------------------ -------------- Net change in unrealized appreciation or depreciation of investments .................................................................. 408,180 (682,425) ------------------ -------------- Net gains (losses) on investments .................................................. 2,895,360 (828,189) ------------------ -------------- Net increase (decrease) in net assets resulting from operations ............................ $ 2,608,546 (886,691) ================== ==============
SEGREGATED SUB-ACCOUNTS --------------------------------- Index 400 Macro-Cap Mid-Cap Value --------------- --------------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4) .................. 186,399 47,895 Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) .............. (217,656) (211,842) Mortality and expense charges (MultiOption Classic/Achiever) (note 3) ................. (48,033) (33,799) Administrative charges (MultiOption Classic/Achiever) (note 3)......................... (5,761) (4,054) Administrative charges (MegAnnuity) (note 3)........................................... (806) (392) Mortality and expense charges (Adjustable Income Annuity) (note 3) .................... - - Administrative charges (Adjustable Income Annuity) (note 3)............................ - - --------------- --------------- Investment income (loss) - net ..................................................... (85,857) (202,192) --------------- --------------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund (note 4) ...................... 1,061,289 - --------------- --------------- Realized gains (losses) on sales of investments: Proceeds from sales ................................................................ 6,481,635 7,119,176 Cost of investments sold ........................................................... (6,610,945) (7,969,071) --------------- --------------- (129,310) (849,895) --------------- --------------- Net realized gains (losses) on investments ......................................... 931,979 (849,895) --------------- --------------- Net change in unrealized appreciation or depreciation of investments .................................................................. (1,430,377) (857,852) --------------- --------------- Net gains (losses) on investments .................................................. (498,398) (1,707,747) --------------- --------------- Net increase (decrease) in net assets resulting from operations ............................ (584,255) (1,909,939) =============== ===============
SEGREGATED SUB-ACCOUNTS ----------------------------------- Real Micro-Cap Estate Growth Securities --------------- --------------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4) .................. - 392,283 Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) .............. (321,429) (101,469) Mortality and expense charges (MultiOption Classic/Achiever) (note 3) ................. (58,183) (17,435) Administrative charges (MultiOption Classic/Achiever) (note 3)......................... (6,979) (2,091) Administrative charges (MegAnnuity) (note 3)........................................... (640) (247) Mortality and expense charges (Adjustable Income Annuity) (note 3) .................... - - Administrative charges (Adjustable Income Annuity) (note 3)............................ - - --------------- --------------- Investment income (loss) - net ..................................................... (387,231) 271,041 --------------- --------------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund (note 4) ...................... 102,649 - --------------- --------------- Realized gains (losses) on sales of investments: Proceeds from sales ................................................................ 8,408,665 2,450,523 Cost of investments sold ........................................................... (10,646,622) (2,462,918) --------------- --------------- (2,237,957) (12,395) --------------- --------------- Net realized gains (losses) on investments ......................................... (2,135,308) (12,395) --------------- --------------- Net change in unrealized appreciation or depreciation of investments .................................................................. (2,236,324) 583,655 --------------- --------------- Net gains (losses) on investments .................................................. (4,371,632) 571,260 --------------- --------------- Net increase (decrease) in net assets resulting from operations ............................ (4,758,863) 842,301 =============== ===============
SEGREGATED SUB-ACCOUNTS --------------------------------- Templeton Templeton Developing Asset Markets Strategy --------------- --------------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4) .................. 8,520 111,666 Mortality and expense charges (MultiOption Flex/Single/Select) (note 3) .............. (77,284) (6,924) Mortality and expense charges (MultiOption Classic/Achiever) (note 3) ................. (24,008) (7,206) Administrative charges (MultiOption Classic/Achiever) (note 3)......................... (2,880) (864) Administrative charges (MegAnnuity) (note 3)........................................... (185) (19) Mortality and expense charges (Adjustable Income Annuity) (note 3) .................... - - Administrative charges (Adjustable Income Annuity) (note 3)............................ - - --------------- --------------- Investment income (loss) - net ..................................................... (95,837) 96,653 --------------- --------------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund (note 4) ...................... 61,029 - --------------- --------------- Realized gains (losses) on sales of investments: Proceeds from sales ................................................................ 1,722,781 230,861 Cost of investments sold ........................................................... (2,239,532) (264,928) --------------- --------------- (516,751) (34,067) --------------- --------------- Net realized gains (losses) on investments ......................................... (455,722) (34,067) --------------- --------------- Net change in unrealized appreciation or depreciation of investments .................................................................. (263,748) (162,735) --------------- --------------- Net gains (losses) on investments .................................................. (719,470) (196,802) --------------- --------------- Net increase (decrease) in net assets resulting from operations ............................ (815,307) (100,149) =============== ===============
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2001
SEGREGATED SUB-ACCOUNTS -------------------------------------------------- Fidelity Fidelity Franklin VIP VIP Small Cap Mid Cap Contrafund -------------- --------------- ---------------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4) .... $ 18,600 - 132,852 Mortality and expense charges (MultiOption Flex/Single/Select) (note 3).. (25,413) (163,016) (145,978) Mortality and expense charges (MultiOption Classic/Achiever) (note 3) ... (33,039) (79,224) (96,434) Administrative charges (MultiOption Classic/Achiever) (note 3) .......... (3,963) (9,503) (11,567) Administrative charges (MegAnnuity) (note 3) ............................ (42) (798) (530) Mortality and expense charges (Adjustable Income Annuity) (note 3) ...... - - - Administrative charges (Adjustable Income Annuity) (note 3) ............. - - - ---------- ---------- ---------- Investment income (loss) - net ....................................... (43,857) (252,541) (121,657) ---------- ---------- ---------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund (note 4) ........ - - 498,271 ---------- ---------- ---------- Realized gains (losses) on sales of investments: Proceeds from sales .................................................. 664,703 4,410,935 3,298,367 Cost of investments sold ............................................. (815,658) (4,491,877) (4,001,036) ---------- ---------- ---------- (150,955) (80,942) (702,669) ---------- ---------- ---------- Net realized gains (losses) on investments ........................... (150,955) (80,942) (204,398) ---------- ---------- ---------- Net change in unrealized appreciation or depreciation of investments .................................................... (363,329) (528,418) (2,416,985) ---------- ---------- ---------- Net gains (losses) on investments .................................... (514,284) (609,360) (2,621,383) ---------- ---------- ---------- Net increase (decrease) in net assets resulting from operations .............. $ (558,141) (861,901) (2,743,040) ========== ========== ==========
SEGREGATED SUB-ACCOUNTS --------------------------------------------------------- Fidelity Janus Aspen Janus Aspen Credit Suisse VIP Capital International Global Post- Equity-Income Appreciation Growth Venture Capital ------------- ------------- ------------- -------------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4) ........................................................ 175,255 227,190 138,700 - Mortality and expense charges (MultiOption Flex/Single/Select) (note 3)......................................................... (123,790) (206,796) (160,027) (3,625) Mortality and expense charges (MultiOption Classic/Achiever) (note 3)......................................................... (79,414) (115,837) (81,872) (6,283) Administrative charges (MultiOption Classic/Achiever) (note 3) .... (9,525) (13,894) (9,820) (754) Administrative charges (MegAnnuity) (note 3) ...................... (504) (640) (484) (5) Mortality and expense charges (Adjustable Income Annuity) (note 3). - - - - Administrative charges (Adjustable Income Annuity) (note 3) ....... - - - - ---------- ---------- ---------- ---------- Investment income (loss) - net ................................. (37,978) (109,977) (113,503) (10,667) ---------- ---------- ---------- ---------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund (note 4) .. 504,292 - - - ---------- ---------- ---------- ---------- Realized gains (losses) on sales of investments: Proceeds from sales ............................................ 1,936,106 5,419,059 3,545,189 330,936 Cost of investments sold ....................................... (2,037,017) (7,834,328) (5,567,902) (438,660) ---------- ---------- ---------- ---------- (100,911) (2,415,269) (2,022,713) (107,724) ---------- ---------- ---------- ---------- Net realized gains (losses) on investments ..................... 403,381 (2,415,269) (2,022,713) (107,724) ---------- ---------- ---------- ---------- Net change in unrealized appreciation or depreciation of investments .............................................. (1,289,643) (4,636,027) (3,641,922) (140,812) ---------- ---------- ---------- ---------- Net gains (losses) on investments .............................. (886,262) (7,051,296) (5,664,635) (248,536) ---------- ---------- ---------- ---------- Net increase (decrease) in net assets resulting from operations ........ (924,240) (7,161,273) (5,778,138) (259,203) ========== ========== ========== ==========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2001
SEGREGATED SUB-ACCOUNTS -------------------------------------------- MONEY GROWTH BOND MARKET ------------ ------------- -------------- Operations: Investment income (loss) - net ............................... $ (2,280,743) 12,737,432 1,542,140 Net realized gains (losses) on investments ................... 17,444,531 114,094 - Net change in unrealized appreciation or depreciation of investments ............................................ (77,895,141) (4,892,896) - ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations ... (62,731,353) 7,958,630 1,542,140 ------------- ------------- ------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select ............................ 10,086,516 18,192,981 59,023,454 MultiOption Classic/Achiever .............................. 6,028,840 12,165,387 28,700,388 MegAnnuity ................................................ 1,043,473 1,409,273 3,095,448 Adjustable Income Annuity ................................. - - - Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select ............................ (41,321,119) (19,702,710) (47,048,535) MultiOption Classic/Achiever .............................. (1,684,933) (1,594,115) (23,997,060) MegAnnuity ................................................ (1,410,456) (1,316,793) (2,178,604) Adjustable Income Annuity ................................. - - - Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select ............................ (5,100) (760) (313) MultiOption Classic/Achiever .............................. 3 (428) - MegAnnuity ................................................ (31) (83) - Adjustable Income Annuity ................................. - - - Annuity benefit payments: MultiOption Flex/Single/Select ............................ (264,450) (222,295) (30,184) MultiOption Classic/Achiever .............................. (27,190) (53,069) (10,129) MegAnnuity ................................................ (5,035) (2,056) - Adjustable Income Annuity ................................. - - - ------------- ------------- ------------- Increase (decrease) in net assets from contract transactions ...... (27,559,482) 8,875,332 17,554,465 ------------- ------------- ------------- Increase (decrease) in net assets ................................. (90,290,835) 16,833,962 19,096,605 Net assets at the beginning of year ............................... 250,151,784 119,883,733 53,990,221 ------------- ------------- ------------- Net assets at the end of year ..................................... $ 159,860,949 136,717,695 73,086,826 ============= ============= =============
SEGREGATED SUB-ACCOUNTS ---------------------------------------------------------------- ASSET MORTGAGE INDEX CAPITAL ALLOCATION SECURITIES 500 APPRECIATION --------------- -------------- --------------- -------------- Operations: Investment income (loss) - net ............................... 2,419,575 13,096,185 (918,346) (2,066,228) Net realized gains (losses) on investments ................... 30,932,298 948,443 12,483,839 48,160,273 Net change in unrealized appreciation or depreciation of investments ............................................ (107,229,500) (5,803,739) (59,177,857) (105,213,252) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations ... (73,877,627) 8,240,889 (47,612,364) (59,119,207) ------------- ------------- ------------- ------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select ............................ 13,663,875 26,621,194 17,255,786 6,151,204 MultiOption Classic/Achiever .............................. 9,538,808 20,289,595 11,029,755 3,298,061 MegAnnuity ................................................ 866,771 1,116,618 2,185,449 592,549 Adjustable Income Annuity ................................. - - 5,215,886 - Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select ............................ (84,633,135) (18,176,515) (56,539,241) (35,907,111) MultiOption Classic/Achiever .............................. (6,264,052) (3,245,732) (3,205,633) (1,019,427) MegAnnuity ................................................ (1,764,676) (503,949) (2,199,505) (1,255,993) Adjustable Income Annuity ................................. - - (4,939,393) - Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select ............................ (28,921) 2,472 (25,318) (10,269) MultiOption Classic/Achiever .............................. (157) (1,181) (541) 185 MegAnnuity ................................................ (86) 2 (259) (21) Adjustable Income Annuity ................................. - - 922,269 - Annuity benefit payments: MultiOption Flex/Single/Select ............................ (665,516) (184,148) (502,563) (268,691) MultiOption Classic/Achiever .............................. (15,379) (13,722) (61,780) (21,611) MegAnnuity ................................................ (24,334) (562) (4,949) (2,465) Adjustable Income Annuity ................................. - - (2,133,724) - ------------- ------------- ------------- ------------- Increase (decrease) in net assets from contract transactions ...... (69,326,802) 25,904,072 (33,003,761) (28,443,587) ------------- ------------- ------------- ------------- Increase (decrease) in net assets ................................. (143,204,429) 34,144,961 (80,616,125) (87,562,794) Net assets at the beginning of year ............................... 477,487,171 102,774,199 363,618,308 240,697,829 ------------- ------------- ------------- ------------- Net assets at the end of year ..................................... 334,282,742 136,919,160 283,002,183 153,135,035 ============= ============= ============= =============
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT Statements of Changes in Net Assets Year Ended December 31, 2001
SEGREGATED SUB-ACCOUNTS ----------------------------------------------- MATURING SMALL GOVERNMENT INTERNATIONAL COMPANY BOND STOCK GROWTH 2002 ------------- ------------- ------------- Operations: Investment income (loss) - net ....................................... $ 5,171,212 (1,336,180) 321,328 Net realized gains (losses) on investments ........................... 14,994,802 37,335,600 28,803 Net change in unrealized appreciation or depreciation of investments .................................................... (44,770,596) (59,319,337) 112,049 ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations ........... (24,604,582) (23,319,917) 462,180 ------------- ------------- ------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select .................................... 6,792,408 5,509,192 980,548 MultiOption Classic/Achiever ...................................... 4,258,361 3,265,758 10,855 MegAnnuity ........................................................ 1,078,325 505,694 25,340 Adjustable Income Annuity ......................................... -- -- -- Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select .................................... (33,691,697) (21,332,603) (1,045,734) MultiOption Classic/Achiever ...................................... (947,084) (1,071,471) (26,916) MegAnnuity ........................................................ (1,761,063) (925,593) (1,289,407) Adjustable Income Annuity ......................................... -- -- -- Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select .................................... (5,625) (9,842) (48) MultiOption Classic/Achiever ...................................... (137) (176) -- MegAnnuity ........................................................ (288) (29) 1 Adjustable Income Annuity ......................................... -- -- -- Annuity benefit payments: MultiOption Flex/Single/Select .................................... (305,253) (219,773) (2,478) MultiOption Classic/Achiever ...................................... (7,467) (4,147) -- MegAnnuity ........................................................ (11,304) (954) -- Adjustable Income Annuity ......................................... -- -- -- ------------- ------------- ------------- Increase (decrease) in net assets from contract transactions .............. (24,600,824) (14,283,944) (1,347,839) ------------- ------------- ------------- Increase (decrease) in net assets ......................................... (49,205,406) (37,603,861) (885,659) Net assets at the beginning of year ....................................... 204,080,280 143,956,181 8,579,902 ------------- ------------- ------------- Net assets at the end of year ............................................. $ 154,874,874 106,352,320 7,694,243 ============= ============= ============= SEGREGATED SUB-ACCOUNTS ------------------------------------------------ MATURING MATURING GOVERNMENT GOVERNMENT BOND BOND VALUE 2006 2010 STOCK ------------- ------------- ------------- Operations: Investment income (loss) - net ....................................... 333,622 557,137 (143,728) Net realized gains (losses) on investments ........................... 78,786 85,793 (1,118,873) Net change in unrealized appreciation or depreciation of investments .................................................... 77,124 (476,175) (10,703,718) ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations ........... 489,532 166,755 (11,966,319) ------------- ------------- ------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select .................................... 2,814,823 1,804,178 6,524,582 MultiOption Classic/Achiever ...................................... 121,144 39,550 3,177,504 MegAnnuity ........................................................ 307,331 122,476 337,749 Adjustable Income Annuity ......................................... -- -- -- Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select .................................... (1,355,238) (1,532,887) (18,803,700) MultiOption Classic/Achiever ...................................... (42,922) (35,066) (773,549) MegAnnuity ........................................................ (32,348) (204,630) (338,561) Adjustable Income Annuity ......................................... -- -- -- Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select .................................... (1,675) (1,619) (6,284) MultiOption Classic/Achiever ...................................... -- -- (99) MegAnnuity ........................................................ (9) -- (33) Adjustable Income Annuity ......................................... -- -- -- Annuity benefit payments: MultiOption Flex/Single/Select .................................... (31,940) (31,130) (210,702) MultiOption Classic/Achiever ...................................... -- -- (3,550) MegAnnuity ........................................................ (3,300) -- (1,058) Adjustable Income Annuity ......................................... -- -- -- ------------- ------------- ------------- Increase (decrease) in net assets from contract transactions .............. 1,775,866 160,872 (10,097,701) ------------- ------------- ------------- Increase (decrease) in net assets ......................................... 2,265,398 327,627 (22,064,020) Net assets at the beginning of year ....................................... 6,427,154 5,512,842 107,444,763 ------------- ------------- ------------- Net assets at the end of year ............................................. 8,692,552 5,840,469 85,380,743 ============= ============= =============
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2001
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------ SMALL COMPANY GLOBAL INDEX 400 MACRO-CAP VALUE BOND MID-CAP VALUE ------------ ------------ ------------ ------------ Operations: Investment income (loss) - net ....................................... $ (286,814) (58,502) (85,857) (202,192) Net realized gains (losses) on investments ........................... 2,487,180 (145,764) 931,979 (849,895) Net change in unrealized appreciation or depreciation of investments .................................................... 408,180 (682,425) (1,430,377) (857,852) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations ........... 2,608,546 (886,691) (584,255) (1,909,939) ------------ ------------ ------------ ------------ Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select .................................... 10,824,632 2,205,693 4,094,858 3,294,368 MultiOption Classic/Achiever ...................................... 4,274,965 3,194,978 2,338,091 2,257,223 MegAnnuity ........................................................ 507,905 17,236 137,002 186,496 Adjustable Income Annuity ......................................... -- -- -- -- Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select .................................... (6,838,968) (2,451,032) (5,477,900) (6,420,190) MultiOption Classic/Achiever ...................................... (827,001) (532,392) (598,273) (389,578) MegAnnuity ........................................................ (100,516) (12,961) (98,032) (17,620) Adjustable Income Annuity ......................................... -- -- -- -- Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select .................................... (3,207) 776 (457) 393 MultiOption Classic/Achiever ...................................... (2,787) (863) (56) (1,036) MegAnnuity ........................................................ -- 2 -- (1) Adjustable Income Annuity ......................................... -- -- -- -- Annuity benefit payments: MultiOption Flex/Single/Select .................................... (40,916) (20,022) (22,471) (24,412) MultiOption Classic/Achiever ...................................... (10,945) (5,859) (12,134) (16,561) MegAnnuity ........................................................ (64) (56) (57) (84) Adjustable Income Annuity ......................................... -- -- -- -- ------------ ------------ ------------ ------------ Increase (decrease) in net assets from contract transactions .............. 7,783,098 2,395,500 360,571 (1,131,003) ------------ ------------ ------------ ------------ Increase (decrease) in net assets ......................................... 10,391,644 1,508,809 (223,684) (3,040,942) Net assets at the beginning of year ....................................... 16,728,288 34,615,591 22,108,565 20,457,888 ------------ ------------ ------------ ------------ Net assets at the end of year ............................................. $ 27,119,932 36,124,400 21,884,881 17,416,946 ============ ============ ============ ============ SEGREGATED SUB-ACCOUNTS ------------------------------------------------------- REAL TEMPLETON TEMPLETON MICRO-CAP ESTATE DEVELOPING ASSET GROWTH SECURITIES MARKETS STRATEGY ------------ ------------ ------------ ------------ Operations: Investment income (loss) - net ....................................... (387,231) 271,041 (95,837) 96,653 Net realized gains (losses) on investments ........................... (2,135,308) (12,395) (455,722) (34,067) Net change in unrealized appreciation or depreciation of investments .................................................... (2,236,324) 583,655 (263,748) (162,735) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations ........... (4,758,863) 842,301 (815,307) (100,149) ------------ ------------ ------------ ------------ Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select .................................... 2,675,725 3,552,503 546,740 1,241,844 MultiOption Classic/Achiever ...................................... 2,543,006 2,080,682 781,856 1,039,874 MegAnnuity ........................................................ 94,341 209,909 36,709 62,009 Adjustable Income Annuity ......................................... -- -- -- -- Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select .................................... (6,704,780) (1,911,551) (1,305,686) (190,301) MultiOption Classic/Achiever ...................................... (1,171,087) (364,755) (235,020) (19,997) MegAnnuity ........................................................ (105,203) (44,705) (48,098) (5,074) Adjustable Income Annuity ......................................... -- -- -- -- Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select .................................... (171) (120) (1,080) -- MultiOption Classic/Achiever ...................................... (434) (301) (774) (13) MegAnnuity ........................................................ -- -- (1) -- Adjustable Income Annuity ......................................... -- -- -- -- Annuity benefit payments: MultiOption Flex/Single/Select .................................... (25,940) (6,418) (24,855) -- MultiOption Classic/Achiever ...................................... (13,749) (1,432) (2,892) (463) MegAnnuity ........................................................ (70) -- (18) -- Adjustable Income Annuity ......................................... -- -- -- -- ------------ ------------ ------------ ------------ Increase (decrease) in net assets from contract transactions .............. (2,708,362) 3,513,812 (253,119) 2,127,879 ------------ ------------ ------------ ------------ Increase (decrease) in net assets ......................................... (7,467,225) 4,356,113 (1,068,426) 2,027,730 Net assets at the beginning of year ....................................... 37,217,377 8,022,556 8,916,245 191,878 ------------ ------------ ------------ ------------ Net assets at the end of year ............................................. 29,750,152 12,378,669 7,847,819 2,219,608 ============ ============ ============ ============
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2001
SEGREGATED SUB-ACCOUNTS ---------------------------------------------------- FIDELITY FIDELITY FIDELITY FRANKLIN VIP VIP VIP SMALL CAP MID CAP CONTRAFUND EQUITY-INCOME ----------- ----------- ----------- ------------- Operations: Investment income (loss) - net ....................................... $ (43,857) (252,541) (121,657) (37,978) Net realized gains (losses) on investments ........................... (150,955) (80,942) (204,398) 403,381 Net change in unrealized appreciation or depreciation of investments .................................................... (363,329) (528,418) (2,416,985) (1,289,643) ----------- ----------- ----------- ------------- Net increase (decrease) in net assets resulting from operations ........... (558,141) (861,901) (2,743,040) (924,240) ----------- ----------- ----------- ------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select .................................... 2,505,342 3,145,949 3,423,303 9,483,718 MultiOption Classic/Achiever ...................................... 2,884,392 3,636,395 4,699,169 6,322,845 MegAnnuity ........................................................ 92,420 117,742 174,173 389,754 Adjustable Income Annuity ......................................... -- -- -- -- Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select .................................... (363,137) (3,377,930) (2,359,640) (1,069,899) MultiOption Classic/Achiever ...................................... (234,906) (570,118) (444,531) (305,024) MegAnnuity ........................................................ -- (198,195) (225,238) (334,703) Adjustable Income Annuity ......................................... -- -- -- -- Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select .................................... 173 193 107 13 MultiOption Classic/Achiever ...................................... -- (867) 89 (100) MegAnnuity ........................................................ 2 1 -- 1 Adjustable Income Annuity ......................................... -- -- -- -- Annuity benefit payments: MultiOption Flex/Single/Select .................................... (4,373) (4,235) (7,904) (7,205) MultiOption Classic/Achiever ...................................... -- (7,239) (6,742) (5,941) MegAnnuity ........................................................ (5) (5) -- (14) Adjustable Income Annuity ......................................... -- -- -- -- ----------- ----------- ----------- ------------- Increase in net assets from contract transactions ......................... 4,879,909 2,741,691 5,252,787 14,473,445 ----------- ----------- ----------- ------------- Increase in net assets .................................................... 4,321,768 1,879,790 2,509,746 13,549,205 Net assets at the beginning of year ....................................... 2,531,218 19,104,947 18,991,425 10,037,947 ----------- ----------- ----------- ------------- Net assets at the end of year ............................................. $ 6,852,986 20,984,737 21,501,171 23,587,152 =========== =========== =========== ============= SEGREGATED SUB-ACCOUNTS --------------------------------------------- JANUS ASPEN JANUS ASPEN CREDIT SUISSE CAPITAL INTERNATIONAL GLOBAL POST- APPRECIATION GROWTH VENTURE CAPITAL ------------ ------------- --------------- Operations: Investment income (loss) - net ....................................... (109,977) (113,503) (10,667) Net realized gains (losses) on investments ........................... (2,415,269) (2,022,713) (107,724) Net change in unrealized appreciation or depreciation of investments .................................................... (4,636,027) (3,641,922) (140,812) ------------ ------------- --------------- Net increase (decrease) in net assets resulting from operations ........... (7,161,273) (5,778,138) (259,203) ------------ ------------- --------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select .................................... 2,648,153 2,841,311 313,174 MultiOption Classic/Achiever ...................................... 4,328,073 3,889,896 619,197 MegAnnuity ........................................................ 233,032 205,795 1,186 Adjustable Income Annuity ......................................... -- -- -- Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select .................................... (3,885,686) (2,736,852) (111,766) MultiOption Classic/Achiever ...................................... (968,060) (384,028) (207,007) MegAnnuity ........................................................ (213,870) (153,916) (1,495) Adjustable Income Annuity ......................................... -- -- -- Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select .................................... (66) 148 -- MultiOption Classic/Achiever ...................................... (745) (462) -- MegAnnuity ........................................................ 2 1 -- Adjustable Income Annuity ......................................... -- -- -- Annuity benefit payments: MultiOption Flex/Single/Select .................................... (4,140) (6,584) -- MultiOption Classic/Achiever ...................................... (9,307) (11,281) -- MegAnnuity ........................................................ (19) (10) -- Adjustable Income Annuity ......................................... -- -- -- ------------ ------------- --------------- Increase in net assets from contract transactions ......................... 2,127,367 3,644,018 613,289 ------------ ------------- --------------- Increase in net assets .................................................... (5,033,906) (2,134,120) 354,086 Net assets at the beginning of year ....................................... 29,358,137 21,329,235 631,052 ------------ ------------- --------------- Net assets at the end of year ............................................. 24,324,231 19,195,115 985,138 ============ ============= ===============
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2000
SEGREGATED SUB-ACCOUNTS ---------------------------------------------- MONEY GROWTH BOND MARKET --------------- ------------ ------------ Operations: Investment income (loss) - net ............................... $ (3,962,879) 5,695,286 2,513,988 Net realized gains (losses) on investments ................... 28,568,745 (1,880,231) - Net change in unrealized appreciation or depreciation of investments ............................................ (98,769,669) 6,286,581 - ------------- ------------ ----------- Net increase (decrease) in net assets resulting from operations .. (74,163,803) 10,101,636 2,513,988 ------------- ------------ ----------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select ............................. 26,714,125 7,646,679 33,530,008 MultiOption Classic/Achiever ............................... 13,419,320 7,035,800 42,215,719 MegAnnuity ................................................. 2,994,907 342,905 1,013,057 Adjustable Income Annuity .................................. - - - Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select ............................. (55,386,334) (25,870,798) (70,295,339) MultiOption Classic/Achiever ............................... (1,488,374) (673,275) (31,596,179) MegAnnuity ................................................. (1,969,332) (1,728,203) (1,100,211) Adjustable Income Annuity .................................. - - - Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select ............................. 22,451 30,404 705 MultiOption Classic/Achiever ............................... 174 623 1,614 MegAnnuity ................................................. 117 (54) - Adjustable Income Annuity .................................. - - - Annuity benefit payments: MultiOption Flex/Single/Select ............................. (413,910) (206,773) (31,005) MultiOption Classic/Achiever ............................... (10,384) (5,340) (8,724) MegAnnuity ................................................. (8,781) (1,911) - Adjustable Income Annuity .................................. - - - ------------- ------------ ----------- Increase (decrease) in net assets from contract transactions ..... (16,126,021) (13,429,943) (26,270,355) ------------- ------------ ----------- Increase (decrease) in net assets ................................ (90,289,824) (3,328,307) (23,756,367) Net assets at the beginning of year .............................. 340,441,608 123,212,040 77,746,588 ------------- ------------ ----------- Net assets at the end of year .................................... $ 250,151,784 119,883,733 53,990,221 ============= ============ ===========
SEGREGATED SUB-ACCOUNTS --------------------------------------------------------------- ASSET MORTGAGE INDEX CAPITAL ALLOCATION SECURITIES 500 APPRECIATION ---------------- ------------- ----------- --------------- Operations: Investment income (loss) - net ............................... 5,417,363 5,160,916 (1,858,134) (3,415,827) Net realized gains (losses) on investments ................... 43,222,279 (228,398) 34,073,913 41,410,252 Net change in unrealized appreciation or depreciation of investments ............................................ (109,938,998) 4,726,003 (74,944,427) (68,414,537) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations .. (61,299,356) 9,658,521 (42,728,648) (30,420,112) ------------ ------------ ------------ ------------ Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select ............................. 30,871,734 8,476,428 34,658,854 14,816,739 MultiOption Classic/Achiever ............................... 22,438,491 9,228,001 17,690,465 6,717,710 MegAnnuity ................................................. 1,079,614 280,300 2,793,294 1,982,262 Adjustable Income Annuity .................................. - - 6,354,182 - Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select ............................. (79,576,540) (21,680,631) (74,427,900) (49,290,448) MultiOption Classic/Achiever ............................... (2,394,599) (606,232) (1,365,830) (668,681) MegAnnuity ................................................. (1,340,764) (948,108) (3,057,694) (1,402,231) Adjustable Income Annuity .................................. - - (386,582) - Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select ............................. 16,884 31,321 (12,501) (13,456) MultiOption Classic/Achiever ............................... 411 421 594 102 MegAnnuity ................................................. 985 - (222) 40 Adjustable Income Annuity .................................. - - (185,901) - Annuity benefit payments: MultiOption Flex/Single/Select ............................. (802,272) (153,042) (531,645) (382,162) MultiOption Classic/Achiever ............................... (8,208) (2,497) (31,142) (3,561) MegAnnuity ................................................. (32,168) - (6,758) (3,448) Adjustable Income Annuity .................................. - - (2,412,500) - ------------ ------------ ------------ ------------ Increase (decrease) in net assets from contract transactions ..... (29,746,432) (5,374,039) (20,921,286) (28,247,134) ------------ ------------ ------------ ------------ Increase (decrease) in net assets ................................ (91,045,788) 4,284,482 (63,649,934) (58,667,246) Net assets at the beginning of year .............................. 568,532,959 98,489,717 427,268,242 299,365,075 ------------ ------------ ------------ ------------ Net assets at the end of year .................................... 477,487,171 102,774,199 363,618,308 240,697,829 ============ ============ ============ ============
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2000
SEGREGATED SUB-ACCOUNTS ----------------------------------------------- MATURING SMALL GOVERNMENT INTERNATIONAL COMPANY BOND STOCK GROWTH 2002 ------------- ------------- ------------- Operations: Investment income (loss) - net ....................................... $ 928,616 (2,041,916) 389,636 Net realized gains (losses) on investments ........................... 23,930,438 19,913,532 (64,993) Net change in unrealized appreciation or depreciation of investments .................................................... (26,208,897) (38,881,029) 248,657 ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations ........... (1,349,843) (21,009,413) 573,300 ------------- ------------- ------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select .................................... 14,360,982 18,734,348 206,299 MultiOption Classic/Achiever ...................................... 6,164,824 8,320,627 283,593 MegAnnuity ........................................................ 2,592,381 1,816,508 -- Adjustable Income Annuity ......................................... -- -- -- Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select .................................... (40,575,277) (26,872,181) (1,101,900) MultiOption Classic/Achiever ...................................... (490,307) (1,130,156) (19,362) MegAnnuity ........................................................ (2,611,089) (1,013,227) (1,518,827) Adjustable Income Annuity ......................................... -- -- -- Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select .................................... 7,954) 1,399 (40) MultiOption Classic/Achiever ...................................... 165 277 -- MegAnnuity ........................................................ (80) (36) -- Adjustable Income Annuity ......................................... -- -- -- Annuity benefit payments: MultiOption Flex/Single/Select .................................... (339,896) (305,047) (2,493) MultiOption Classic/Achiever ...................................... (2,583) (1,772) -- MegAnnuity ........................................................ (12,660) (1,381) -- Adjustable Income Annuity ......................................... -- -- -- ------------- ------------- ------------- Increase (decrease) in net assets from contract transactions .............. (20,905,586) (450,641) (2,152,730) ------------- ------------- ------------- Increase (decrease) in net assets ......................................... (22,255,429) (21,460,054) (1,579,430) Net assets at the beginning of year ....................................... 226,335,709 165,416,235 10,159,332 ------------- ------------- ------------- Net assets at the end of year ............................................. $ 204,080,280 143,956,181 8,579,902 ============= ============= ============= SEGREGATED SUB-ACCOUNTS ------------------------------------------------ MATURING MATURING GOVERNMENT GOVERNMENT BOND BOND VALUE 2006 2010 STOCK ------------- ------------- ------------- Operations: Investment income (loss) - net ....................................... 292,615 252,614 (440,108) Net realized gains (losses) on investments ........................... (37,975) (25,037) 255,837 Net change in unrealized appreciation or depreciation of investments .................................................... 550,702 689,359 (3,877,743) ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations ........... 805,342 916,936 (4,062,014) ------------- ------------- ------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select .................................... 310,444 308,660 7,970,530 MultiOption Classic/Achiever ...................................... 181,528 528,932 3,085,961 MegAnnuity ........................................................ 4,814 -- 457,252 Adjustable Income Annuity ......................................... -- -- -- Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select .................................... (1,022,949) (1,118,230) (33,111,539) MultiOption Classic/Achiever ...................................... (10,980) (31,564) (193,315) MegAnnuity ........................................................ (66,261) -- (649,526) Adjustable Income Annuity ......................................... -- -- -- Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select .................................... (1,287) (1,228) 15,345 MultiOption Classic/Achiever ...................................... -- -- (7) MegAnnuity ........................................................ (9) -- (29) Adjustable Income Annuity ......................................... -- -- -- Annuity benefit payments: MultiOption Flex/Single/Select .................................... (29,607) (28,540) (238,379) MultiOption Classic/Achiever ...................................... -- -- (862) MegAnnuity ........................................................ (3,142) -- (1,155) Adjustable Income Annuity ......................................... -- -- -- ------------- ------------- ------------- Increase (decrease) in net assets from contract transactions .............. (637,449) (341,970) (22,665,724) ------------- ------------- ------------- Increase (decrease) in net assets ......................................... 167,893 574,966 (26,727,738) Net assets at the beginning of year ....................................... 6,259,261 4,937,876 134,172,501 ------------- ------------- ------------- Net assets at the end of year ............................................. 6,427,154 5,512,842 107,444,763 ============= ============= =============
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2000
SEGREGATED SUB-ACCOUNTS -------------------------------------------------------- SMALL COMPANY GLOBAL INDEX 400 MACRO-CAP VALUE BOND MID-CAP VALUE ------------ ------------- ------------ ------------ Operations: Investment income (loss) - net ............................... $ (106,973) (389,321) (34,069) (171,559) Net realized gains (losses) on investments ................... (4,485) (265,699) 3,145,176 378,940 Net change in unrealized appreciation or depreciation of investments ............................................ 3,384,054 792,162 (584,218) (1,930,027) ---------- ---------- ---------- ---------- Net increase (decrease) in net assets resulting from operations ... 3,272,596 137,142 2,526,889 (1,722,646) ---------- ---------- ---------- ---------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select ............................ 3,680,102 3,109,758 6,263,541 5,444,040 MultiOption Classic/Achiever .............................. 2,077,512 31,114,185 2,930,638 2,044,865 MegAnnuity ................................................ 141,408 59,680 258,701 23,320 Adjustable Income Annuity ................................. -- -- -- -- Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select ............................ (2,247,056) (2,283,569) (5,984,289) (3,381,958) MultiOption Classic/Achiever .............................. (138,881) (206,940) (224,583) (258,681) MegAnnuity ................................................ (141,389) (103,450) (190,172) (280,690) Adjustable Income Annuity ................................. -- -- -- -- Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select ............................ (1,439) 1,167 499 161 MultiOption Classic/Achiever .............................. 260 278 430 66 MegAnnuity ................................................ -- 1 (1) (1) Adjustable Income Annuity ................................. -- -- -- -- Annuity benefit payments: MultiOption Flex/Single/Select ............................ (31,668) (15,002) (19,593) (20,533) MultiOption Classic/Achiever .............................. (1,612) (1,795) (7,603) (7,353) MegAnnuity ................................................ (61) (56) (70) (117) Adjustable Income Annuity ................................. -- -- -- -- ---------- ---------- ---------- ---------- Increase in net assets from contract transactions ................. 3,337,176 3,674,257 3,027,498 3,568,119 ---------- ---------- ---------- ---------- Increase (decrease) in net assets ................................. 6,609,772 3,811,399 5,554,387 1,845,473 Net assets at the beginning of period ............................. 10,118,516 30,804,192 16,554,178 18,612,415 ---------- ---------- ---------- ---------- Net assets at the end of period ................................... $16,728,288 34,615,591 22,108,565 20,457,888 ========== ========== ========== ==========
SEGREGATED SUB-ACCOUNTS ---------------------------------------------------------------- REAL TEMPLETON TEMPLETON MICRO-CAP ESTATE DEVELOPING ASSET GROWTH SECURITIES MARKETS STRATEGY(b) --------------- -------------- --------------- -------------- Operations: Investment income (loss) - net ............................... (524,098) 360,984 (47,668) (437) Net realized gains (losses) on investments ................... 8,044,856 (54,359) 180,732 11 Net change in unrealized appreciation or depreciation of investments ............................................ (19,551,184) 1,070,805 (3,807,825) 4,421 ---------- ---------- --------- -------- Net increase (decrease) in net assets resulting from operations ... (12,030,426) 1,377,430 (3,674,761) 3,995 ---------- ---------- --------- -------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select ............................ 21,109,276 1,391,449 4,136,077 34,863 MultiOption Classic/Achiever .............................. 5,893,283 587,445 2,133,566 153,718 MegAnnuity ................................................ 866,777 94,569 129,096 300 Adjustable Income Annuity ................................. -- -- -- -- Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select ............................ (8,622,706) (475,761) (2,442,796) (998) MultiOption Classic/Achiever .............................. (860,923) (59,993) (206,181) -- MegAnnuity ................................................ (708,706) (57,583) (226,479) -- Adjustable Income Annuity ................................. -- -- -- -- Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select ............................ (2,213) 114 (1,620) -- MultiOption Classic/Achiever .............................. (39) (47) 80 -- MegAnnuity ................................................ -- -- 61 -- Adjustable Income Annuity ................................. -- -- -- -- Annuity benefit payments: MultiOption Flex/Single/Select ............................ (29,875) (2,369) (34,078) -- MultiOption Classic/Achiever .............................. (7,510) (327) (482) -- MegAnnuity ................................................ (112) -- (29) -- Adjustable Income Annuity ................................. -- -- -- -- ---------- ---------- --------- -------- Increase in net assets from contract transactions ................. 17,637,252 1,477,497 3,487,215 187,883 ---------- ---------- --------- -------- Increase (decrease) in net assets ................................. 5,606,826 2,854,927 (187,546) 191,878 Net assets at the beginning of period ............................. 31,610,551 5,167,629 9,103,791 -- ---------- ---------- --------- -------- Net assets at the end of period ................................... 37,217,377 8,022,556 8,916,245 191,878 ========== ========== ========= ========
(b) For the period from August 1, 2000, commencement of operations, to December 31, 2000 See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2000
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------- FIDELITY FIDELITY FIDELITY FRANKLIN VIP VIP VIP SMALL CAP(b) MID CAP(a) CONTRAFUND(a) EQUITY-INCOME(a) ------------ ---------- ------------- ---------------- Operations: Investment income (loss) - net ....................................... $ (6,413) (65,252) (144,456) (62,802) Net realized gains (losses) on investments ........................... 25 12,538 13,731 31,512 Net change in unrealized appreciation or depreciation of investments .................................................... (308,900) 1,274,576 (1,244,410) 884,933 ----------- ----------- ----------- ------------- Net increase (decrease) in net assets resulting from operations ........... (315,290) 1,221,862 (1,375,135) 853,643 ----------- ----------- ----------- ------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select .................................... 1,211,559 13,818,767 14,374,122 6,261,192 MultiOption Classic/Achiever ...................................... 1,647,453 5,034,834 6,572,694 3,525,547 MegAnnuity ........................................................ 2,072 574,833 456,150 275,012 Adjustable Income Annuity ......................................... -- -- -- -- Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select .................................... (9,883) (1,054,880) (839,532) (687,717) MultiOption Classic/Achiever ...................................... (4,735) (458,759) (185,320) (165,261) MegAnnuity ........................................................ (7) (28,069) (7,194) (23,105) Adjustable Income Annuity ......................................... -- -- -- -- Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select .................................... 64 64 421 701 MultiOption Classic/Achiever ...................................... -- (116) 284 249 MegAnnuity ........................................................ -- -- -- -- Adjustable Income Annuity ......................................... -- -- -- -- Annuity benefit payments: MultiOption Flex/Single/Select .................................... (15) (1,260) (3,476) (904) MultiOption Classic/Achiever ...................................... -- (2,329) (1,589) (1,410) MegAnnuity ........................................................ -- -- -- -- Adjustable Income Annuity ......................................... -- -- -- -- ----------- ----------- ----------- ------------- Increase in net assets from contract transactions ......................... 2,846,508 17,883,085 20,366,560 9,184,304 ----------- ----------- ----------- ------------- Increase in net assets .................................................... 2,531,218 19,104,947 18,991,425 10,037,947 Net assets at the beginning of year ....................................... -- -- -- -- ----------- ----------- ----------- ------------- Net assets at the end of year ............................................. $ 2,531,218 19,104,947 18,991,425 10,037,947 =========== =========== =========== ============= SEGREGATED SUB-ACCOUNTS --------------------------------------------- JANUS ASPEN JANUS ASPEN WARBURG PINCUS CAPITAL INTERNATIONAL GLOBAL POST- APPRECIATION(a) GROWTH(a) VENTURE CAPITAL(a) --------------- ------------- ------------------ Operations: Investment income (loss) - net ....................................... (32,363) 65,725 (1,275) Net realized gains (losses) on investments ........................... (108,147) 478,457 63,742 Net change in unrealized appreciation or depreciation of investments .................................................... (7,063,576) (6,708,876) (168,761) ------------ ------------- --------------- Net increase (decrease) in net assets resulting from operations ........... (7,204,086) (6,164,694) (106,294) ------------ ------------- --------------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: MultiOption Flex/Single/Select .................................... 27,556,217 21,484,717 299,553 MultiOption Classic/Achiever ...................................... 10,742,548 7,314,025 439,779 MegAnnuity ........................................................ 672,636 604,272 5,522 Adjustable Income Annuity ......................................... -- -- -- Contract terminations, withdrawal payments and charges: MultiOption Flex/Single/Select .................................... (1,957,646) (1,345,000) (7,508) MultiOption Classic/Achiever ...................................... (420,568) (452,727) -- MegAnnuity ........................................................ (26,493) (104,056) -- Adjustable Income Annuity ......................................... -- -- -- Actuarial adjustments for mortality experience on annuities in payment period: MultiOption Flex/Single/Select .................................... 99 76 -- MultiOption Classic/Achiever ...................................... 359 970 -- MegAnnuity ........................................................ -- -- -- Adjustable Income Annuity ......................................... -- -- -- Annuity benefit payments: MultiOption Flex/Single/Select .................................... (2,060) (2,459) -- MultiOption Classic/Achiever ...................................... (2,869) (5,889) -- MegAnnuity ........................................................ -- -- -- Adjustable Income Annuity ......................................... -- -- -- ------------ ------------- --------------- Increase in net assets from contract transactions ......................... 36,562,223 27,493,929 737,346 ------------ ------------- --------------- Increase in net assets .................................................... 29,358,137 21,329,235 631,052 Net assets at the beginning of year ....................................... -- -- -- ------------ ------------- --------------- Net assets at the end of year ............................................. 29,358,137 21,329,235 631,052 ============ ============= ===============
(a) For the period from February 1, 2000, commencement of operations, to December 31, 2000 (b) For the period from August 1, 2000, commencement of operations, to December 31, 2000 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 seven types of contracts each consisting of twenty-eight segregated sub-accounts to which contract owners may allocate their purchase payments. The financial statements presented herein include MultiOption Flex, MultiOption Single, and MultiOption Select (each of which has the same mortality and expense charges); MultiOption Classic and MultiOption Achiever (each of which has the same mortality and expense charges and administrative charges); MegAnnuity; and Adjustable Income Annuity. The Account's mortality and expense risk charge and administrative charge vary 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-eight segregated sub accounts. Such payments are then invested in shares of the Advantus Series Fund, Inc. (the Fund), Franklin Templeton Variable Insurance Products Trust, Fidelity Variable Products Insurance Fund, Janus Aspen Series, and Credit Suisse Trust, formerly Warburg Pincus Trust, (collectively, the 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, Templeton Developing Market Securities, Templeton Asset Strategy, Franklin Small Cap, Fidelity VIP Mid-Cap, Fidelity VIP Contrafund, Fidelity VIP Equity-Income, Janus Capital Appreciation, Janus International Growth, and Credit Suisse Global Post-Venture Capital, formerly Warburg Pincus Global Post-Venture Capital, 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 Fund; Templeton Developing Market Securities, Templeton Asset Strategy, and Franklin Small Cap--Class 2 of Franklin Templeton Variable Insurance Products Trust; Fidelity VIP Mid Cap, Fidelity VIP Contrafund, and Fidelity VIP Equity Income--Service Class 2 shares of Fidelity Variable Insurance Products Fund; Capital Appreciation Portfolio and International Growth Portfolio--Service Shares of Janus Aspen Series; and Global Post-Venture Capital Portfolio of Credit Suisse Trust, formerly Warburg Pincus Trust, respectively. Securian Financial Services, Inc., formerly Ascend Financial Services, Inc., acts as the underwriter for the Account. Advantus Capital Management, Inc. acts as the investment adviser for the Fund. Securian Financial Services, Inc. is a wholly owned subsidiary of Advantus Capital Management, Inc. which in turn is a wholly owned subsidiary of Minnesota Life. 2 VARIABLE ANNUITY ACCOUNT (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 Underlying Fund. Investment transactions are accounted for on the date the shares are purchased or sold. The cost of investments sold is determined on the average cost method. All dividend distributions received from the Underlying Funds are reinvested in additional shares of the Underlying Funds and are recorded by the segregated sub-accounts on the ex-dividend date. FEDERAL INCOME TAXES The Account is treated as part of Minnesota Life for federal income tax purposes. Under current interpretation 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. If additional annuity reserves for mortality and risk expense charges are required, Minnesota Life reimburses the Account. If the reserves required are less than originally estimated, transfers may be made to Minnesota Life. 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. 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. If additional annuity reserves for mortality and risk expense charges are required, Minnesota Life reimburses the Account. If the reserves required are less than originally estimated, transfers may be made to Minnesota Life. 3 VARIABLE ANNUITY ACCOUNT (3) EXPENSES AND RELATED PARTY TRANSACTIONS 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 paid 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 to $3,921,451 and $4,223,316, 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. The administrative charge paid to Minnesota Life is equal, on an annual basis, to 0.15 percent of the average daily net net assets of the Account. Under certain conditions, the charge may be increased to not more than 0.40 percent of the average daily net assets of the Account. A contingent deferred sales charge paid may be imposed on a Multi-Option Classic or Multi-Option Achiever 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 to $500,225 and $60,773, respectively. MEGANNUITY: The administrative charge paid to Minnesota Life is equal, on an annual basis, to percent of the average daily net assets of the Account. Under certain conditions, the charge may be increased to not more than 0.35 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 the purchase payments for the years ended December 31, 2001 and 2000. 4 VARIABLE ANNUITY ACCOUNT (3) Expenses and Related Party Transactions - Continued ADJUSTABLE INCOME ANNUITY: The mortality and expense risk charge paid to Minnesota Life is computed daily and is equal, on an annual basis, to 0.80 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 0.15 percent of the average net assets of the Account. Under certain conditions, the charge may be increased to not more than 0.40 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 Minnesota Life: A sales charge ranging from 3.75 to 4.5 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, 2001 and 2000 amounted to $5,118 and $2,172, 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 percent. Total risk charges deducted from contract purchase payments for the years ended December 31, 2001 and 2000 amounted to $28,646 and $48,644, respectively. A premium tax charge of up to 3.5 percent is deducted from each contract purchase payment. Total premium tax charges deducted from contract purchase payments for the years ended December 31, 2001 and 2000 amounted to $2,242 and $80, respectively. To the extent the Account invests in the Advantus Series Fund, Inc., the Account indirectly incurs management fees that are payable to Advantus Capital Management, Inc, an affiliate of Minnesota Life. The advisory fee agreement provides for payments ranging from .15% to .95% of average daily net assets. In addition, the Advantus Series Fund, Inc., has adopted a Rule 12b-1 distribution plan covering all of its portfolios except the Maturing Government Bond Portfolios. Under the plan, the Advantus Series Fund, Inc. pays distribution fees equal to .25% of average daily net assets to Securian Financial Services, Inc., an affiliate of Minnesota Life. 5 VARIABLE ANNUITY ACCOUNT (4) The Account's purchases of Underlying Funds shares, including reinvestment of dividend distributions, were as follows during the year ended December 31, 2001: Growth .................................... $47,772,746 Bond ...................................... 46,087,648 Money Market .............................. 93,117,985 Asset Allocation .......................... 80,554,232 Mortgage Securities ....................... 62,633,401 Index 500 ................................. 42,072,274 Capital Appreciation ...................... 68,462,286 International Stock ....................... 37,580,937 Small Company Growth ...................... 54,812,690 Maturing Government Bond 2002 ............. 1,425,787 Maturing Government Bond 2006 ............. 3,669,271 Maturing Government Bond 2010 ............. 2,596,140 Value Stock ............................... 11,054,330 Small Company Value ....................... 16,934,414 Global Bond ............................... 5,808,712 Index 400 ................................. 7,817,638 Macro-Cap Value ........................... 5,785,981 Micro-Cap Growth .......................... 5,415,721 Real Estate Securities .................... 6,235,376 Templeton Developing Market Securities Fund .................................... 1,434,854 Templeton Asset Strategy Fund ............. 2,455,393 Franklin Small Cap Fund ................... 5,500,755 VIP Mid Cap Portfolio ..................... 6,900,085 VIP Contrafund Portfolio .................. 8,927,767 VIP Equity-Income Portfolio ............... 16,875,865 Capital Appreciation Portfolio ............ 7,436,449 International Growth Portfolio ............ 7,075,704 Global Post-Venture Capital Portfolio ..... 933,558
6 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, 2001 and 2000 were as follows:
SEGREGATED SUB-ACCOUNTS ---------------------------------------------------------------------------- MONEY ASSET MORTGAGE GROWTH BOND MARKET ALLOCATION SECURITIES ------------ ------------ ------------ ------------ ------------ Units outstanding at December 31, 1999 ................ 49,216,657 48,459,470 41,200,616 121,522,399 40,937,593 Contract purchase payments ........... 4,069,809 3,108,355 18,766,332 6,626,958 3,538,391 Contract terminations, withdrawal payments and charges ........ (8,545,158) (10,619,231) (39,634,127) (17,625,378) (9,153,547) ------------ ------------ ------------ ------------ ------------ Units outstanding at December 31, 2000 ................ 44,741,308 40,948,594 20,332,821 110,523,979 35,322,437 ============ ============ ============ ============ ============ Contract purchase payments .......... 2,386,244 6,629,588 31,782,472 3,764,276 9,835,724 Contract terminations, withdrawal payments and charges ....... (10,130,967) (7,253,000) (25,360,133) (24,585,662) (6,801,904) ------------ ------------ ------------ ------------ ------------ Units outstanding at December 31, 2001 ................ 36,996,585 40,325,182 26,755,160 89,702,593 38,356,257 ============ ============ ============ ============ ============
7 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
SEGREGATED SUB-ACCOUNTS ----------------------------------------------------------------------- SMALL MATURING INDEX CAPITAL INTERNATIONAL COMPANY GOVERNMENT 500 APPRECIATION STOCK GROWTH BOND 2002 ----------- ------------ ----------- ----------- ----------- Units outstanding at December 31, 1999 ................ 64,735,863 49,725,886 89,983,922 61,721,924 5,090,494 Contract purchase payments ........... 6,100,097 2,568,458 5,998,945 6,971,325 146,581 Contract terminations, withdrawal payments and charges ........ (13,416,073) (8,556,553) (17,139,284) (10,351,772) (789,454) ----------- ----------- ----------- ----------- ----------- Units outstanding at December 31, 2000 ................ 57,419,887 43,737,791 78,843,583 58,341,477 4,447,621 =========== =========== =========== =========== =========== Contract purchase payments ........... 3,664,536 1,457,671 3,055,548 2,996,786 635,902 Contract terminations, withdrawal payments and charges ........ (12,354,714) (8,642,728) (15,603,177) (11,913,372) (678,387) ----------- ----------- ----------- ----------- ----------- Units outstanding at December 31, 2001 ................ 48,729,709 36,552,734 66,295,954 49,424,891 4,405,136 =========== =========== =========== =========== ===========
8 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
SEGREGATED SUB-ACCOUNTS ----------------------------------------------------------------------- MATURING MATURING SMALL GOVERNMENT GOVERNMENT VALUE COMPANY GLOBAL BOND 2006 BOND 2010 STOCK VALUE BOND ----------- ----------- ----------- ----------- ----------- Units outstanding at December 31, 1999 ............... 3,776,193 3,079,844 61,230,340 10,422,707 28,982,189 Contract purchase payments ........... 204,580 194,573 3,841,699 3,841,143 3,063,104 Contract terminations, withdrawal payments and charges ........ (695,657) (739,699) (16,214,869) (2,382,902) (2,250,784) ----------- ----------- ----------- ----------- ----------- Units outstanding at December 31, 2000 ............... 3,285,116 2,534,718 48,857,170 11,880,948 29,794,509 =========== =========== =========== =========== =========== Contract purchase payments ........... 1,638,226 984,549 3,386,013 8,644,537 2,125,147 Contract terminations, withdrawal payments and charges ........ (778,207) (846,703) (9,876,119) (5,554,913) (2,382,365) ----------- ----------- ----------- ----------- ----------- Units outstanding at December 31, 2001 ................ 4,145,135 2,672,564 42,367,064 14,970,572 29,537,291 =========== =========== =========== =========== ===========
9 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
SEGREGATED SUB-ACCOUNTS -------------------------------------------------------- INDEX 400 MACRO-CAP MICRO-CAP REAL ESTATE MID-CAP VALUE GROWTH SECURITIES ----------- ----------- ----------- ----------- Units outstanding at December 31, 1999 ............... 11,781,426 14,276,707 11,992,142 6,242,074 Contract purchase payments ........... 4,431,877 4,431,030 7,783,876 1,485,072 Contract terminations, withdrawal payments and charges ........ (4,337,690) (2,760,283) (3,472,302) (523,435) ----------- ----------- ----------- ----------- Units outstanding at December 31, 2000 ............... 11,875,613 15,947,454 16,303,716 7,203,711 =========== =========== =========== =========== Contract purchase payments ........... 2,923,984 3,099,648 1,591,287 3,385,738 Contract terminations, withdrawal payments and charges ........ (3,948,511) (6,153,028) (4,026,851) (1,860,618) ----------- ----------- ----------- ----------- Units outstanding at December 31, 2001 ............... 10,851,086 12,894,074 13,868,152 8,728,831 =========== =========== =========== ===========
10 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
SEGREGATED SUB-ACCOUNTS -------------------------------------------------------- TEMPLETON TEMPLETON DEVELOPING ASSET FRANKLIN FIDELITY VIP MARKETS STRATEGY SMALL CAP MID CAP SECURITIES FUND FUND PORTFOLIO ----------- ----------- ----------- ----------- Units outstanding at December 31, 1999 ............... 9,817,346 -- -- -- Contract purchase payments ........... 5,921,146 36,964 1,297,687 11,978,605 Contract terminations, withdrawal payments and charges ........ (3,455,645) (1,074) (11,522) (924,447) ----------- ----------- ----------- ----------- Units outstanding at December 31, 2000 ............... 12,282,847 35,890 1,286,165 11,054,158 =========== =========== =========== =========== Contract purchase payments ........... 1,621,141 1,462,714 3,975,760 4,171,179 Contract terminations, withdrawal payments and charges ........ (3,082,927) (299,196) (1,019,971) (4,451,158) ----------- ----------- ----------- ----------- Units outstanding at December 31, 2001 ............... 10,821,061 1,199,408 4,241,954 10,774,179 =========== =========== =========== ===========
11 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MULTIOPTION FLEX/SINGLE/SELECT - CONTINUED
SEGREGATED SUB-ACCOUNTS -------------------------------------------------------------------------- JANUS ASPEN JANUS ASPEN CREDIT SUISSE FIDELITY VIP FIDELITY VIP CAPITAL INTERNATIONAL GLOBAL POST CONTRAFUND EQUITY-INCOME APPRECIATION GROWTH VENTURE CAPITAL PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ----------- ------------- ------------ ----------- --------------- Units outstanding at December 31, 1999 ................ -- -- -- -- -- Contract purchase payments ............ 14,119,670 6,105,114 27,008,407 20,021,442 320,561 Contract terminations, withdrawal payments and charges ......... (861,120) (655,873) (2,099,804) (1,463,574) (8,696) ----------- ----------- ----------- ----------- ----------- Units outstanding at December 31, 2000 ................ 13,258,550 5,449,241 24,908,603 18,557,868 311,865 =========== =========== =========== =========== =========== Contract purchase payments ............ 5,565,427 10,456,743 5,909,919 6,163,402 459,201 Contract terminations, withdrawal payments and charges ......... (4,340,323) (2,697,700) (8,061,242) (6,404,843) (170,761) ----------- ----------- ----------- ----------- ----------- Units outstanding at December 31, 2001 ................ 14,483,654 13,208,284 22,757,280 18,316,427 600,306 =========== =========== =========== =========== ===========
12 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MULTIOPTION CLASSIC/ACHIEVER Transactions in units for each segregated sub-account for the years ended December 31, 2001 and 2000 were as follows:
SEGREGATED SUB-ACCOUNTS ---------------------------------------------------------------------------- MONEY ASSET MORTGAGE GROWTH BOND MARKET ALLOCATION SECURITIES ------------- ------------- -------------- --------------- ------------- Units outstanding at December 31, 1999 ............................ 1,608,959 765,852 3,372,875 3,296,125 989,073 Contract purchase payments ............... 11,749,866 6,494,207 40,856,102 20,172,496 8,745,964 Contract terminations, withdrawal payments and charges ............ (1,362,184) (636,160) (30,551,007) (2,214,577) (573,977) ----------- ----------- ----------- ----------- ----------- Units outstanding at December 31, 2000 ............................ 11,996,641 6,623,899 13,677,970 21,254,044 9,161,060 =========== =========== =========== =========== =========== Contract purchase payments ............... 8,158,005 10,518,039 26,746,610 10,628,498 17,191,267 Contract terminations, withdrawal payments and charges ............ (2,365,092) (1,396,017) (22,340,585) (7,530,289) (2,772,281) ----------- ----------- ----------- ----------- ----------- Units outstanding at December 31, 2001 ............................ 17,789,554 15,745,921 18,083,995 24,352,253 23,580,046 =========== =========== =========== =========== ===========
13 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MULTIOPTION CLASSIC/ACHIEVER - CONTINUED
SEGREGATED SUB-ACCOUNTS ----------------------------------------------------------------------- SMALL MATURING INDEX CAPITAL INTERNATIONAL COMPANY GOVERNMENT 500 APPRECIATION STOCK GROWTH BOND 2002 -------------- ------------- -------------- ----------- ----------- Units outstanding at December 31, 1999 .................................. 2,038,959 602,909 888,642 503,561 21,585 Contract purchase payments ..................... 16,356,635 5,236,081 5,814,947 5,987,582 279,691 Contract terminations, withdrawal payments and charges .................. (1,306,925) (553,398) (467,204) (877,925) (19,005) ----------- ---------- ---------- ---------- -------- Units outstanding at December 31, 2000 .................................. 17,088,669 5,285,592 6,236,385 5,613,218 282,271 =========== ========== ========== ========== ======== Contract purchase payments ..................... 12,199,387 3,458,507 4,344,974 3,311,905 9,844 Contract terminations, withdrawal payments and charges .................. (3,646,854) (1,112,048) (1,002,498) (1,080,736) (24,785) ----------- ---------- ---------- ---------- -------- Units outstanding at December 31, 2001 .................................. 25,641,202 7,632,051 9,578,861 7,844,387 267,330 =========== ========== ========== ========== ========
14 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MULTIOPTION CLASSIC/ACHIEVER - CONTINUED
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------------ MATURING MATURING SMALL GOVERNMENT GOVERNMENT VALUE COMPANY GLOBAL BOND 2006 BOND 2010 STOCK VALUE BOND ----------- -------------- --------- ----------- -------------- Units outstanding at December 31, 1999 ........................ 102,972 4,254 392,479 179,266 342,453 Contract purchase payments ........... 177,843 509,229 3,161,866 1,915,527 3,199,129 Contract terminations, withdrawal payments and charges ........ (10,502) (29,437) (199,887) (132,981) (216,678) -------- -------- ---------- ---------- ---------- Units outstanding at December 31, 2000 ........................ 270,313 484,046 3,354,458 1,961,812 3,324,904 ======== ======== ========== ========== ========== Contract purchase payments ........... 101,932 32,850 3,433,820 3,052,249 3,242,206 Contract terminations, withdrawal payments and charges ........ (36,903) (29,581) (851,591) (631,565) (544,593) -------- -------- ---------- ---------- ---------- Units outstanding at December 31, 2001 ........................ 335,342 487,315 5,936,687 4,382,496 6,022,517 ======== ======== ========== ========== ==========
15 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MULTIOPTION CLASSIC/ACHIEVER - CONTINUED
SEGREGATED SUB-ACCOUNTS --------------------------------------------------------------------- INDEX 400 MACRO-CAP MICRO-CAP REAL ESTATE MID-CAP VALUE GROWTH SECURITIES ---------------- -------------- --------------- ------------------ Units outstanding at December 31, 1999 ................................. 398,475 236,331 420,716 17,691 Contract purchase payments .................... 2,427,079 1,889,404 3,315,400 505,915 Contract terminations, withdrawal payments and charges ................. (191,036) (258,195) (559,193) (52,417) ---------- ---------- ---------- ---------- Units outstanding at December 31, 2000 ................................. 2,634,518 1,867,540 3,176,923 471,189 ========== ========== ========== ========== Contract purchase payments .................... 1,947,353 2,439,987 2,049,284 1,682,415 Contract terminations, withdrawal payments and charges ................. (517,172) (445,707) (975,222) (308,581) ---------- ---------- ---------- ---------- Units outstanding at December 31, 2001 ................................. 4,064,699 3,861,820 4,250,985 1,845,023 ========== ========== ========== ==========
16 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MULTIOPTION CLASSIC/ACHIEVER - CONTINUED
SEGREGATED SUB-ACCOUNTS --------------------------------------------------------------------- TEMPLETON TEMPLETON DEVELOPING ASSET FRANKLIN FIDELITY VIP MARKETS STRATEGY SMALL CAP MID CAP SECURITIES FUND FUND PORTFOLIO -------------- -------------- ------------- ------------- Units outstanding at December 31, 1999 ................................. 268,232 - - - Contract purchase payments .................... 2,116,526 161,983 1,858,396 4,248,792 Contract terminations, withdrawal payments and charges ................. (204,790) - (5,834) (404,137) ---------- ---------- ---------- ---------- Units outstanding at December 31, 2000 ................................. 2,179,968 161,983 1,852,562 3,844,655 ========== ========== ========== ========== Contract purchase payments .................... 1,078,762 1,188,243 4,259,320 3,398,338 Contract terminations, withdrawal payments and charges ................. (386,000) (60,074) (398,943) (697,292) ---------- ---------- ---------- ---------- Units outstanding at December 31, 2001 ................................. 2,872,730 1,290,152 5,712,939 6,545,701 ========== ========== ========== ==========
17 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MULTIOPTION CLASSIC/ACHIEVER - CONTINUED
SEGREGATED SUB-ACCOUNTS --------------------------------------------------------------------------- JANUS ASPEN JANUS ASPEN CREDIT SUISSE FIDELITY VIP FIDELITY VIP CAPITAL INTERNATIONAL GLOBAL POST CONTRAFUND EQUITY-INCOME APPRECIATION GROWTH VENTURE CAPITAL PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------- ------------- ------------- -------------- ---------------- Units outstanding at December 31, 1999 ............................... - - - - - Contract purchase payments ................. 6,596,582 3,337,156 11,178,419 7,262,190 525,721 Contract terminations, withdrawal payments and charges .............. (190,823) (156,139) (480,909) (483,823) - ----------- ---------- ----------- ----------- ---------- Units outstanding at December 31, 2000 ............................... 6,405,759 3,181,017 10,697,510 6,778,367 525,721 =========== ========== =========== =========== ========== Contract purchase payments .................. 6,236,944 6,404,642 7,099,995 6,436,131 853,779 Contract terminations, withdrawal payments and charges ............... (1,186,054) (796,286) (2,371,566) (1,467,105) (116,973) ----------- ---------- ----------- ----------- ---------- Units outstanding at December 31, 2001 ............................... 11,456,649 8,789,373 15,425,939 11,747,393 1,262,527 =========== ========== =========== =========== ==========
18 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MEGANNUITY Transactions in units for each segregated sub-account for the years ended December 31, 2001 and 1999 were as follows:
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------ MONEY ASSET MORTGAGE GROWTH BOND MARKET ALLOCATION SECURITIES ---------- ---------- ---------- ---------- ---------- Units outstanding at December 31, 1999 ............... 1,773,719 2,238,400 1,175,791 2,078,286 878,899 Contract purchase payments .......... 564,866 134,867 529,420 253,025 105,762 Contract terminations, withdrawal payments and charges ....... (386,741) (696,805) (577,244) (310,224) (360,970) ---------- ---------- ---------- ---------- ---------- Units outstanding at December 31, 2000 ............... 1,951,844 1,676,462 1,127,967 2,021,087 623,691 ========== ========== ========== ========== ========== Contract purchase payments .......... 309,680 493,792 1,552,497 251,967 353,477 Contract terminations, withdrawal payments and charges ....... (418,909) (461,170) (1,086,487) (512,693) (164,359) ---------- ---------- ---------- ---------- ---------- Units outstanding at December 31, 2001 ............... 1,842,615 1,709,084 1,593,977 1,760,361 812,810 ========== ========== ========== ========== ==========
19 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MEGANNUITY - CONTINUED
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------ SMALL MATURING INDEX CAPITAL INTERNATIONAL COMPANY GOVERNMENT 500 APPRECIATION STOCK GROWTH BOND 2002 ---------- ------------ ------------ ---------- ---------- Units outstanding at December 31, 1999 ............... 2,938,591 1,598,318 2,062,152 1,577,615 2,134,169 Contract purchase payments .......... 507,864 344,200 1,020,991 624,931 -- Contract terminations, withdrawal payments and charges ....... (550,076) (240,198) (1,025,332) (372,659) (1,040,531) ---------- ---------- ---------- ---------- ---------- Units outstanding at December 31, 2000 ............... 2,896,379 1,702,320 2,057,811 1,829,887 1,093,638 ========== ========== ========== ========== ========== Contract purchase payments .......... 464,379 140,466 464,111 264,854 3,047 Contract terminations, withdrawal payments and charges ....... (469,357) (296,516) (746,608) (489,479) (806,683) ---------- ---------- ---------- ---------- ---------- Units outstanding at December 31, 2001 ............... 2,891,401 1,546,270 1,775,314 1,605,262 290,002 ========== ========== ========== ========== ==========
20 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MEGANNUITY - CONTINUED
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------ MATURING MATURING SMALL GOVERNMENT GOVERNMENT VALUE COMPANY GLOBAL BOND 2006 BOND 2010 STOCK VALUE BOND ---------- ---------- ---------- ---------- ---------- Units outstanding at December 31, 1999 .............. 268,923 107,403 1,038,209 213,346 125,858 Contract purchase payments .......... 3,028 -- 213,038 154,761 72,597 Contract terminations, withdrawal payments and charges ....... (43,221) -- (300,541) (152,748) (113,224) ---------- ---------- ---------- ---------- ---------- Units outstanding at December 31, 2000 .............. 228,730 107,403 950,706 215,359 85,231 ========== ========== ========== ========== ========== Contract purchase payments .......... 168,799 63,377 163,116 389,733 15,937 Contract terminations, withdrawal payments and charges ....... (13,972) (104,355) (155,188) (82,909) (12,071) ---------- ---------- ---------- ---------- ---------- Units outstanding at December 31, 2001 .............. 383,557 66,425 958,634 522,183 89,097 ========== ========== ========== ========== ==========
21 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MEGANNUITY - CONTINUED
SEGREGATED SUB-ACCOUNTS -------------------------------------------- INDEX 400 MACRO-CAP MICRO-CAP REAL ESTATE MID-CAP VALUE GROWTH SECURITIES -------- -------- -------- ---------- Units outstanding at December 31, 1999 .............. 275,066 339,537 227,183 64,837 Contract purchase payments .......... 189,682 22,752 308,820 98,742 Contract terminations, withdrawal payments and charges ....... (130,438) (221,983) (270,159) (66,362) -------- -------- -------- -------- Units outstanding at December 31, 2000 .............. 334,310 140,306 265,844 97,217 ======== ======== ======== ======== Contract purchase payments .......... 92,896 168,475 62,512 192,346 Contract terminations, withdrawal payments and charges ....... (71,009) (15,001) (72,299) (43,081) -------- -------- -------- -------- Units outstanding at December 31, 2001 .............. 356,197 293,780 256,057 246,482 ======== ======== ======== ========
22 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MEGANNUITY - CONTINUED
SEGREGATED SUB-ACCOUNTS ---------------------------------------------- TEMPLETON TEMPLETON DEVELOPING ASSET FRANKLIN FIDELITY VIP MARKETS STRATEGY SMALL CAP MID CAP SECURITIES FUND FUND PORTFOLIO ---------- -------- --------- ------------ Units outstanding at December 31, 1999 .............. 384,533 -- -- -- Contract purchase payments .......... 256,858 302 2,649 488,076 Contract terminations, withdrawal payments and charges ....... (404,800) -- (8) (23,193) -------- -------- -------- -------- Units outstanding at December 31, 2000 .............. 236,591 302 2,641 464,883 ======== ======== ======== ======== Contract purchase payments .......... 36,149 73,549 133,890 113,289 Contract terminations, withdrawal payments and charges ....... (60,475) (6,280) (8,685) (181,479) -------- -------- -------- -------- Units outstanding at December 31, 2001 .............. 212,265 67,571 127,846 396,693 ======== ======== ======== ========
23 VARIABLE ANNUITY ACCOUNT (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - MEGANNUITY - CONTINUED
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------------------ JANUS ASPEN JANUS ASPEN CREDIT SUISSE FIDELITY VIP FIDELITY VIP CAPITAL INTERNATIONAL GLOBAL POST CONTRAFUND EQUITY-INCOME APPRECIATION GROWTH VENTURE CAPITAL PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO -------------- ------------- ------------ ------------- ---------------- Units outstanding at December 31, 1999 ............... -- -- -- -- -- Contract purchase payments .......... 437,564 268,773 649,865 544,572 5,215 Contract terminations, withdrawal payments and charges ....... (6,901) (21,652) (26,352) (92,745) -- --------- --------- --------- --------- --------- Units outstanding at December 31, 2000 ............... 430,663 247,121 623,513 451,827 5,215 ========= ========= ========= ========= ========= Contract purchase payments ........... 220,287 365,968 331,315 283,641 3,017 Contract terminations, withdrawal payments and charges ........ (285,333) (341,101) (326,590) (224,605) (2,248) --------- --------- --------- --------- --------- Units outstanding at December 31, 2001 ............... 365,617 271,988 628,238 510,863 5,984 ========= ========= ========= ========= =========
24 VARIABLE ANNUITY ACCOUNT (6) FINANCIAL HIGHLIGHTS
At December 31, 2001 ----------------------------------------------- Unit Value Sub-account lowest to highest Net Assets - ---------------------------------------------------------------------------------------- Growth $ 0.67 to 3.80 $ 159,860,949 Bond 1.16 to 2.91 136,717,695 Money Market 1.08 to 2.04 73,086,827 Asset Allocation 0.83 to 3.37 334,282,742 Mortgage Securities 1.19 to 3.15 136,919,160 Index 500 0.84 to 4.53 283,002,183 Capital Appreciation 0.84 to 3.90 153,135,035 International Stock 0.93 to 2.30 154,874,874 Small Company Growth 1.03 to 2.04 106,352,320 Maturing Government Bond 2002 1.13 to 1.70 7,694,243 Maturing Government Bond 2006 1.20 to 1.90 8,692,552 Maturing Government bond 2010 1.22 to 1.96 5,840,469 Value Stock 0.86 to 1.98 85,380,743 Small Company Value 1.31 to 1.43 27,119,932 Global Bond 0.96 to 1.06 36,124,400 Index 400 Mid-Cap 1.22 to 1.53 21,884,881 Macro-Cap Value 0.87 to 1.10 17,416,946 Micro-Cap Growth 1.23 to 1.72 29,750,152 Real Estate Securities 1.10 to 1.30 12,378,669 Templeton Developing Markets 0.50 to 0.73 7,847,819 Templeton Asset Strategy 0.86 to 0.88 2,219,608 Franklin Small Cap 0.67 to 0.68 6,852,986 Fidelity VIP Mid-Cap 1.18 to 1.20 20,984,737 Fidelity VIP Contrafund 0.81 to 0.83 21,501,171 Fidelity VIP Equity-Income 1.05 to 1.07 23,587,152 Janus Aspen Capital Appreciation 0.62 to 0.64 24,324,231 Janus Apsen International Growth 0.62 to 0.64 19,195,115 Credit Suisse Global Post Venture Capital 0.53 to 0.54 985,138
For the year ended December 31, 2001 ---------------------------------------------------------------------------- Investment Income Ratio* Expense Ratio** Total Return *** Sub-Account lowest to highest lowest to highest lowest to highest - --------------------------------------------------------------------------------------------------------------------- Growth 0.00 to 0.00 % 0.15 to 1.40 % (25.8) to (24.91) % Bond 10.87 to 12.38 0.15 to 1.40 6.40 to 7.74 Money Market 3.54 to 3.64 0.15 to 1.40 2.34 to 3.63 Asset Allocation 1.85 to 2.04 0.15 to 1.40 (15.55) to (14.49) Mortgage Securities 12.02 to 12.74 0.15 to 1.40 7.46 to 8.81 Index 500 0.87 to 1.12 0.15 to 1.40 (13.48) to (12.39) Capital Appreciation 0.09 to 0.11 0.15 to 1.40 (25.68) to (24.74) International Stock 4.13 to 4.23 0.15 to 1.40 (12.45) to (11.34) Small Company Growth 0.00 to 0.00 0.15 to 1.40 (15.89) to (14.83) Maturing Government Bond 2002 4.58 to 5.53 0.15 to 1.40 6.05 to 7.39 Maturing Government Bond 2006 5.34 to 5.92 0.15 to 1.40 6.57 to 7.91 Maturing Government bond 2010 7.17 to 10.68 0.15 to 1.40 3.51 to 4.81 Value Stock 1.05 to 1.51 0.15 to 1.40 (11.70) to (10.59) Small Company Value 0.00 to 0.00 0.15 to 1.40 13.98 to 15.41 Global Bond 1.06 to 1.38 0.15 to 1.40 (2.88) to (1.66) Index 400 Mid-Cap 0.81 to 1.08 0.15 to 1.40 (2.44) to (1.22) Macro-Cap Value 0.22 to 0.36 0.15 to 1.40 (9.03) to (7.88) Micro-Cap Growth 0.00 to 0.00 0.15 to 1.40 (12.56) to (11.46) Real Estate Securities 3.78 to 5.55 0.15 to 1.40 8.51 to 9.87 Templeton Developing Markets 0.10 to 0.11 0.15 to 1.40 (9.36) to (8.22) Templeton Asset Strategy 0.23 to 10.47 0.15 to 1.40 (11.20) to (10.08) Franklin Small Cap 0.22 to 0.41 0.15 to 1.40 (16.43) to (15.37) Fidelity VIP Mid-Cap 0.00 to 0.00 0.15 to 1.40 (4.86) to (3.66) Fidelity VIP Contrafund 0.58 to 0.73 0.15 to 1.40 (13.69) to (12.60) Fidelity VIP Equity-Income 1.01 to 1.97 0.15 to 1.40 (6.55) to (5.37) Janus Aspen Capital Appreciation 0.85 to 0.90 0.15 to 1.40 (22.92) to (21.95) Janus Apsen International Growth 0.68 to 0.74 0.15 to 1.40 (24.50) to (23.54) Credit Suisse Global Post Venture Capital 0.00 to 0.00 0.15 to 1.40 (33.72) to (29.52)
25 The unit values, investment income ratios, expense ratios, and total returns are presented in ranges representing the various contracts offered by the Account and allocating payments to each sub-account. *These amounts represent the dividends, excluding distributions of capital gains, received by the sub-account from the underlying mutual fund, net of expenses assessed by the fund, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges and administrative charges, that result in direct reductions in the unit values. The recognition of investment income by the sub-account is affected by the timing of the declaration of dividends by the underlying fund in which the sub-account invests. **These ratios represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges and administrative charges. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund are excluded. ***These amounts represent the total return for the year ended, including changes in the value of the underlying fund, and reflect deductions for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. 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, 2001 and 2000, 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, 2001. 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 auditing standards generally accepted in the United States of America. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. As discussed in note 2 to the consolidated financial statements, effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities; and effective April 1, 2001, the Company adopted Emerging Issues Task Force 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Interests in Securitized Financial Assets. 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. /s/ KMPG LLP Minneapolis, Minnesota February 11, 2002 ML-1 Minnesota Life Insurance Company and Subsidiaries Consolidated Balance Sheets December 31, 2001 and 2000 Assets
2001 2000 ----------- ----------- (In thousands) Fixed maturity securities: Available-for-sale, at fair value (amortized cost $5,061,422 and $4,501,951) $ 5,279,515 $ 4,623,058 Held-to-maturity, at amortized cost (fair value $0 and $886,315) -- 860,632 Equity securities, at fair value (cost $594,916 and $561,236) 602,554 638,032 Mortgage loans, net 738,749 664,853 Real estate, net 11,925 17,520 Finance receivables, net 126,037 128,545 Policy loans 256,844 250,246 Short-term investments 621,907 216,230 Private equity investments (cost $301,728 and $293,333) 263,928 464,303 Fixed maturity securites on loan, at fair value (amortized cost $348,651 and $0) 365,031 -- Equity securites on loan, at fair value (cost $39,575 and $59,009) 48,280 72,372 Other invested assets 166,340 83,851 ----------- ----------- Total investments 8,481,110 8,019,642 Cash 32,589 67,951 Deferred policy acquisition costs 683,339 711,546 Accrued investment income 94,539 91,887 Premiums receivable, net 116,483 109,062 Property and equipment, net 80,822 67,095 Reinsurance recoverables 621,615 587,335 Other assets 42,645 59,862 Separate account assets 7,558,283 8,201,803 ----------- ----------- Total assets $17,711,425 $17,916,183 =========== =========== Liabilities and Stockholder's Equity Liabilities: Policy and contract account balances $ 4,191,843 $ 4,061,213 Future policy and contract benefits 1,929,205 1,875,370 Pending policy and contract claims 133,920 107,015 Other policyholders funds 499,940 472,108 Policyholders dividends payable 55,978 55,813 Unearned premiums and fees 209,255 210,878 Federal income tax liability: Current 32,360 44,060 Deferred 113,060 192,525 Other liabilities 518,547 411,814 Notes payable 159,000 185,000 Securities lending collateral 424,406 77,124 Separate account liabilities 7,511,607 8,156,131 ----------- ----------- Total liabilities 15,779,121 15,849,051 ----------- ----------- Stockholder's equity: Common stock, $1 par value, 5,000,000 shares authorized, issued and outstanding 5,000 5,000 Additional paid in capital 3,000 3,000 Retained earnings 1,821,015 1,811,707 Accumulated other comprehensive income 103,289 247,425 ----------- ----------- Total stockholder's equity 1,932,304 2,067,132 ----------- ----------- Total liabilities and stockholder's equity $17,711,425 $17,916,183 =========== ===========
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, 2001, 2000 and 1999
2001 2000 1999 ---------- ---------- ---------- (In thousands) Revenues: Premiums $ 793,357 $ 761,451 $ 697,799 Policy and contract fees 354,373 359,980 331,110 Net investment income 527,335 575,900 540,056 Net realized investment gains (losses) (12,972) 147,623 79,615 Finance charge income 33,400 31,000 31,969 Other income 105,914 89,386 81,135 ---------- ---------- ---------- Total revenues 1,801,407 1,965,340 1,761,684 ---------- ---------- ---------- Benefits and expenses: Policyholders benefits 749,122 697,396 667,207 Interest credited to policies and con- tracts 288,673 289,298 282,627 General operating expenses 447,848 379,933 358,387 Commissions 122,709 123,463 110,645 Administrative and sponsorship fees 81,194 80,288 79,787 Dividends to policyholders 19,670 19,526 18,928 Interest on notes payable 16,684 26,146 24,282 Amortization of deferred policy acqui- sition costs 171,580 185,962 123,455 Capitalization of policy acquisition costs (185,366) (180,689) (152,602) ---------- ---------- ---------- Total benefits and expenses 1,712,114 1,621,323 1,512,716 ---------- ---------- ---------- Income from operations before taxes 89,293 344,017 248,968 Federal income tax expense (benefit): Current 22,793 113,700 75,172 Deferred (3,928) (4,403) (1,439) ---------- ---------- ---------- Total federal income tax expense 18,865 109,297 73,733 ---------- ---------- ---------- Net income $ 70,428 $ 234,720 $ 175,235 ========== ========== ========== Other comprehensive income (loss), net of tax: Unrealized gains (losses) on securi- ties $ (144,136) $ 129,348 $ (85,538) ---------- ---------- ---------- Other comprehensive income (loss), net of tax (144,136) 129,348 (85,538) ---------- ---------- ---------- Comprehensive income (loss) $ (73,708) $ 364,068 $ 89,697 ========== ========== ==========
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, 2001, 2000 and 1999
2001 2000 1999 ---------- ---------- ---------- (In thousands) Common stock: Total common stock $ 5,000 $ 5,000 $ 5,000 ========== ========== ========== Additional paid in capital: Beginning balance $ 3,000 $ 3,000 $ -- Contribution -- -- 3,000 ---------- ---------- ---------- Total additional paid in capital $ 3,000 $ 3,000 $ 3,000 ========== ========== ========== Retained earnings: Beginning balance $1,811,707 $1,629,787 $1,513,661 Net income 70,428 234,720 175,235 Dividends to stockholder (61,120) (52,800) (59,109) ---------- ---------- ---------- Total retained earnings $1,821,015 $1,811,707 $1,629,787 ========== ========== ========== Accumulated other comprehensive income: Beginning balance $ 247,425 $ 118,077 $ 203,615 Change in unrealized appreciation (de- preciation) of securities (144,136) 129,348 (85,538) ---------- ---------- ---------- Total accumulated other comprehensive income $ 103,289 $ 247,425 $ 118,077 ========== ========== ========== Total stockholder's equity $1,932,304 $2,067,132 $1,755,864 ========== ========== ==========
See accompanying notes to consolidated financial statements. ML-4 Minnesota Life Insurance Company and Subsidiaries Consolidated Statements of Cash Flows Years ended December 31, 2001, 2000 and 1999
2001 2000 1999 ----------- ----------- ----------- (In thousands) Cash Flows from Operating Activities Net income $ 70,428 $ 234,720 $ 175,235 Adjustments to reconcile net income to net cash provided by operating activities: Interest credited to annuity and insur- ance contracts 288,673 289,298 282,627 Fees deducted from policy and contract balances (221,645) (222,243) (217,941) Change in future policy benefits 53,835 48,417 68,578 Change in other policyholders liabili- ties, net 18,215 23,655 29,426 Amortization of deferred policy acquisi- tion costs 171,580 185,962 123,455 Capitalization of policy acquisition costs (185,366) (180,689) (152,602) Change in premiums receivable (7,421) (14,891) (31,562) Deferred tax provision (3,928) (4,403) (1,439) Change in federal income tax liabili- ties--current (11,700) (19,044) 15,281 Net realized investment losses (gains) 12,972 (147,623) (79,615) Change in reinsurance recoverables (32,041) (406,852) (18,257) Other, net (37,774) 110,107 (8,301) ----------- ----------- ----------- Net cash provided by (used for) operat- ing activities 115,828 (103,586) 184,885 ----------- ----------- ----------- Cash Flows from Investing Activities Proceeds from sales of: Fixed maturity securities, available- for-sale 1,738,948 1,373,968 1,856,757 Equity securities 481,396 791,354 705,050 Real estate 5,362 4,226 7,341 Private equity investments 15,596 46,012 28,128 Other invested assets 5,896 18,554 5,731 Proceeds from maturities and repayments of: Fixed maturity securities, available- for-sale 379,989 306,017 345,677 Fixed maturity securities, held-to-matu- rity -- 127,450 122,704 Mortgage loans 44,312 100,617 116,785 Purchases of: Fixed maturity securities, available- for-sale (2,249,224) (1,390,655) (2,432,049) Fixed maturity securities, held-to-matu- rity -- (13,897) (8,446) Equity securities (502,064) (634,873) (613,596) Mortgage loans (118,003) (68,685) (130,013) Real estate (140) (99) (1,016) Private equity investments (28,580) (84,239) (79,584) Other invested assets (8,381) (2,689) (11,435) Finance receivable originations or pur- chases (83,578) (180,433) (74,989) Finance receivable principal payments 78,289 176,053 88,697 Securities lending collateral 347,282 77,124 -- Securities in transit 99,765 (75,314) (80,300) Other, net (41,741) (21,243) (11,046) ----------- ----------- ----------- Net cash provided by (used for) invest- ing activities 165,124 549,248 (165,604) ----------- ----------- ----------- Cash Flows from Financing Activities Deposits credited to annuity and insurance contracts 948,380 497,868 448,012 Withdrawals from annuity and insurance contracts (834,348) (689,749) (478,775) Proceeds from issuance of debt -- -- 50,000 Payments on debt (26,000) (123,000) (49,000) Dividends paid to stockholder -- (52,800) (83,809) Other, net 1,331 (4,596) (7,008) ----------- ----------- ----------- Net cash provided by (used for) financ- ing activities 89,363 (372,277) (120,580) ----------- ----------- ----------- Net increase (decrease) in cash and short- term investments 370,315 73,385 (101,299) Cash and short-term investments, beginning of year 284,181 210,796 312,095 ----------- ----------- ----------- Cash and short-term investments, end of year $ 654,496 $ 284,181 $ 210,796 =========== =========== ===========
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 The accompanying consolidated financial statements include the accounts of Minnesota Life Insurance Company (a wholly-owned subsidiary of Securian Financial Group, Inc.) and its wholly-owned subsidiaries, Personal Finance Company, Enterprise Holding Company, Advantus Capital Management, Inc., HomePlus Insurance Company, Northstar Life Insurance Company, The Ministers Life Insurance Company and its majority-owned subsidiary MIMLIC Life Insurance Company. 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 Financial Security, Financial Services, Group Insurance, Retirement Services and Asset Management. Revenues in 2001 for these business units were $640,162,000, $305,591,000, $563,784,000, $182,488,000 and $72,378,000, respectively. Additional revenues of $37,004,000 were reported by the Company's subsidiaries and corporate product line. The Company serves over six million people through more than 4,400 associates located at its St. Paul, Minnesota headquarters and in sales offices nationwide. (2) Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (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. 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 the 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 ML-6 Minnesota Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) (2) Summary of Significant Accounting Policies (continued) Deferred Policy Acquisition Costs (continued) 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 (DAC) 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, DAC is 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. The Company reviews actuarial assumptions used to project estimated gross profits, such as mortality, persistency, expenses and investment returns periodically throughout the year. Actuarial assumptions are updated as necessary to reflect the Company's best estimate of each assumption used. Any resulting impact to financial results from a change in actuarial assumption is included in amortization of deferred policy acquisition costs in the statement of operations. Software Capitalization Computer software costs incurred for internal use are capitalized and amortized over a three or five-year period. Computer software costs include application software, purchased software packages and significant upgrades to software. The Company had unamortized cost of $18,575,000, $13,314,000 and $7,790,000 and amortized software expense of $8,065,000, $5,014,000 and $1,716,000 as of December 31, 2001, 2000 and 1999, respectively. Finance Charge Income and Receivables Finance charge income represents fees and interest charged on consumer loans. The Company uses the interest (actuarial) method of accounting for finance charges and interest on finance receivables. Finance receivables are reported net of unearned finance charges. 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. On large homogeneous loans, finance charges and interest are 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 is written off. 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, which may be sold prior to maturity, including fixed maturities on loan, are classified as available-for-sale and are carried at fair value. Effective January 1, 2001, all fixed maturity securities classified as held-to-maturity securities were converted to available-for-sale securities, under the one time provision allowed under FASB Statement No. 133 (FAS 133), Accounting for Derivative Instruments and Hedging Activities. These securities were previously carried at amortized cost, net of any impairment write-downs. The net impact to accumulated other comprehensive income upon conversion was an approximate increase of $16,705,000. Premiums and discounts are amortized or accreted over the estimated lives of the securities based on the interest yield method. ML-7 Minnesota Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) (2) Summary of Significant Accounting Policies (continued) Valuation of Investments (continued) Equity securities (common stocks, preferred stocks and equity securities on loan) 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 and mutual funds in select asset classes that are sub-advised. 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. Private equity investments in limited partnerships are carried on the balance sheet at the amount invested, adjusted to recognize the Company's ownership share of the earnings or losses of the investee after the date of the acquisition, adjusted for any distributions received. 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. The valuation of private equity investments is recorded based on the partnership financial statements from the previous quarter. The Company believes this valuation represents the best available estimate, however, to the extent that market conditions fluctuate significantly, any change in the following quarter partnership financial statements could be material to the Company's unrealized gains or losses included in stockholder's equity. Fair values of fixed maturity securities, equity securities and private equity investments are based on quoted market prices, where available. If quoted market prices are not available, fair values are estimated using values obtained from either independent pricing services which specialize in matrix pricing and modeling techniques, independent broker bids, financial statement valuations or internal appraisal. 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, 2001 and 2000, was $7,503,000 and $7,334,000, respectively. Policy loans are carried at the unpaid principal balance. Effective March 15, 2001 the FASB issued EITF 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Certain Securitized Financial Assets, which establishes standardized reporting models for certain types of asset backed securities including all interest only strips and asset backed securities not of high credit quality. The holder of the beneficial interest should recognize the excess of all cash flows attributable to the beneficial interest estimated at the acquisition/transaction date over the initial investment and record as interest income over the life of the beneficial interest using the effective yield method. Upon initial application of EITF 99-20, the Company identified holdings with a market value of $36,000,000 that it deemed subject to application of this pronouncement. Upon calculating the excess of the net present value of the cash flows using market discount rates and comparing to the initial cost of the investments, approximately $14,300,000 of permanent write-downs were recorded as realized losses. Derivative Financial Instruments Effective January 1, 2001, the Company adopted FAS 133 which requires that all derivative instruments be recorded on the balance sheet at fair value. On the date derivative contracts are entered into, the Company designates the derivative as either (a) a hedge of the fair value of a recognized firm commitment (fair value hedge), (b) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge), or (c) a hedge of a net investment in a foreign operation (net investment hedge). ML-8 Minnesota Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) (2) Summary of Significant Accounting Policies (continued) Derivative Financial Instruments (continued) The Company holds derivative financial instruments for the purpose of hedging the risks of certain identifiable and anticipated transactions. In general, the types of risks hedged are those relating to the variability of future earnings and cash flows caused by movements in foreign currency exchange rates and changes in interest rates. The Company documents its risk management strategy and hedge effectiveness at the inception of and during the term of each hedge. In the normal course of business the Company currently holds derivatives in the form of equity swaps. The purpose of these swaps is to hedge the fair value of equity linked instruments to equity market movements. Equity swaps are considered to be fair value hedges and were entered into only for the purpose of hedging such risks, not for speculation. Generally, the Company enters into hedging relationships such that changes in the fair values or cash flows of items and transactions being hedged are expected to be offset by corresponding changes in the values of the derivatives. Changes in fair value of these swaps are generally offset to net realized investment gains (losses) by changes in the fair value of the item being hedged. Additionally, effective January 1, 2001 the Company is using short-duration spot contracts to manage the foreign exchange risk inherent in the elapsed time between trade processing and trade settlement. The contracts have an immaterial impact on the Company's current year operating results. Upon initial application of FAS 133, January 1, 2001, the Company reclassified embedded derivatives on convertible bonds of approximately $26,200,000 from fixed maturity securities classified as available-for-sale to other invested assets. The Company also reclassified certain mortgage dollar roll securities and embedded options within convertible bonds from fixed maturity and equity securities classified as available-for-sale in the amount of $74,100,000 to other invested assets. As of December 31, 2001, the change in fair value of these securities of $1,600,000 was included in realized capital gains. Prior to the fourth quarter of 2000, the Company had invested in international bonds denominated in foreign currencies. These positions were all sold during the fourth quarter of 2000. The Company realized a loss on this sale, including foreign exchange losses, of $17,171,000. The Company used forward foreign exchange currency contracts as a part of its risk management strategy for international investments. The Company does not currently make use of foreign exchange currency contracts, other than the short-duration spot contracts disclosed above, as part of its investment strategy. Upon sale of the international investments, the Company purchased offsetting forward contracts. The impact, from this transaction, to the Company's results of operations was $84,000. The notional amount of the forward contracts for the year ended December 31, 2000, was $65,771,000. Realized and Unrealized Gains and Losses Realized and unrealized gains and losses are determined on the specific identification method. Write-downs of held-to-maturity securities, available- for-sale 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. Impairments in the value of securities held by the Company, considered to be other than temporary, are recorded as a reduction of the cost of the security, and a corresponding realized loss is recognized in the consolidated statements of operations and comprehensive income. The Company reviews all securities on a quarterly basis and recognizes impairment after evaluating various subjective and objective factors, such as the financial condition of the issuer, market and industry. ML-9 Minnesota Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) (2) Summary of Significant Accounting Policies (continued) Securities Lending The Company engages in securities lending whereby certain investments are loaned to other financial institutions for short periods of time. When these loan transactions occur, the lending broker provides cash collateral equivalent to 102% to 105% of the market value of the loaned securities. This collateral is deposited with a lending agent who invests the collateral on behalf of the Company. The income from these investments is recorded in net investment income and was $239,000 and $105,000 as of December 31, 2001 and 2000, respectively. Securities, consisting of equity securities and fixed maturity securities, were loaned to other financial institutions. Amounts loaned as of December 31, 2001 and 2000 were $413,311,000 and $72,372,000, respectively. As of December 31, 2001 and 2000, the collateral associated with securities lending was $424,406,000 and $77,124,000, respectively. The Company accounts for its securities lending transactions as secured borrowings, in which the collateral received and the related obligation to return the collateral are recorded in the consolidated balance sheet as short- term securities and securities lending collateral, respectively. Although the Company's securities lending program involves certain credit risk, the Company believes that the high quality of the collateral received (primarily cash and money market instruments) and the Company's monitoring policies and procedures mitigate the likelihood of material losses under these arrangements. Property and Equipment Property and equipment are carried at cost, net of accumulated depreciation of $138,819,000 and $131,841,000 at December 31, 2001 and 2000, respectively. Buildings are depreciated over 40 years and equipment is generally depreciated over 5 to 10 years. Depreciation expense for the years ended December 31, 2001, 2000 and 1999, was $13,242,000, $13,723,000 and $11,749,000, respectively. Goodwill and Other Intangible Assets In July 2001, the FASB issued Statement No. 142 (FAS 142), Goodwill and Other Intangible Assets, which establishes accounting and reporting standards for goodwill and other intangible assets, effective for fiscal years beginning after December 15, 2001. The Company will adopt FAS 142 effective January 1, 2002. The Company expects no material impacts to its results of operations or financial position due to the adoption of FAS 142. Separate Accounts Separate account assets and liabilities represent segregated funds administered and invested by the Company for the exclusive benefit of pension, variable annuity and variable life insurance policyholders and contractholders. Assets consist principally of marketable securities and both assets and liabilities are reported at fair value, based upon the market value of the investments held in the segregated funds. The Company receives administrative and investment advisory fees for services rendered on behalf of these accounts. The Company periodically invests money in its separate accounts. The market value of such investments, included with separate account assets, amounted to $46,677,000 and $45,672,000 at December 31, 2001 and 2000, 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. ML-10 Minnesota Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) (2) Summary of Significant Accounting Policies (continued) Policyholders Liabilities (continued) Other policyholder funds are comprised of dividend accumulations, premium deposit funds and supplementary contracts without life contingencies. 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. 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, 2001 and 2000, the total participating business in force was $20,121,593,000 and $20,372,806,000, respectively. Closed Block of Business In December 2000, the Accounting Standards Executive Committee issued Statement of Position 00-3 (SOP 00-3), Accounting by Insurance Enterprises for Demutualizations and Formations of Mutual Insurance Holding Companies and for Certain Long-Duration Participating Contracts, effective for fiscal years beginning after December 15, 2000. The Company has adopted SOP 00-3 as of January 1, 2001. The Company has determined that there are no material impacts to its statement of operations or financial position due to the adoption of SOP 00-3. Business Combinations In June 2001, the FASB issued Statement No. 141 (FAS 141), Business Combinations, which establishes accounting and reporting standards for business combinations. FAS 141 is effective for all business combinations initiated after June 30, 2001. The Company has adopted FAS 141 effective July 1, 2001. The Company has determined that there are no material impacts to its statements of operations or financial position due to the adoption of FAS 141. Impairment or Disposal of Long-Lived Assets In August 2001, the FASB issued Statement No. 144 (FAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting standards for the impairment and disposal of long- lived assets for fiscal years beginning after December 15, 2001. The Company will adopt FAS 144 effective January 1, 2002. The Company expects no material impacts to its results of operations or financial position due to the adoption of FAS 144. Income Taxes The Company's federal income tax return is a consolidated life/non-life return filed under Minnesota Mutual Companies, Inc., the Company's ultimate parent. The method of allocation between companies is subject to written agreement, approved by an officer of the Company. Allocation is based upon separate return calculations with a credit for any currently used net losses and tax credits. Intercompany tax balances are settled annually when the tax return is filed with the Internal Revenue Service. 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. Reclassification Certain 2000 and 1999 financial statement balances have been reclassified to conform to the 2001 presentation. ML-11 Minnesota Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) (3) Investments Net investment income for the years ended December 31 was as follows:
2001 2000 1999 -------- -------- -------- (In thousands) Fixed maturity securities $411,208 $429,168 $428,286 Equity securities 29,088 52,097 29,282 Mortgage loans 55,682 54,313 54,596 Real estate 1,672 3,697 11 Policy loans 18,257 17,371 16,016 Short-term investments 7,499 14,257 5,829 Private equity investments 3,289 3,191 4,114 Other invested assets 1,463 5,404 6,278 -------- -------- -------- Gross investment income 528,158 579,498 544,412 Investment expenses (823) (3,598) (4,356) -------- -------- -------- Total $527,335 $575,900 $540,056 ======== ======== ========
Net realized investment gains (losses) for the years ended December 31 were as follows:
2001 2000 1999 -------- -------- -------- (In thousands) Fixed maturity securities $(15,772) $(57,955) $(31,404) Equity securities (1,373) 177,243 91,591 Mortgage loans 1 (419) 1,344 Real estate 3,245 (2,456) 4,806 Private equity investments (1,676) 28,128 13,983 Other invested assets 2,603 3,082 (705) -------- -------- -------- Total $(12,972) $147,623 $ 79,615 ======== ======== ========
Gross realized gains (losses) on the sales of fixed maturity securities, equity securities and private equity investments for the years ended December 31 were as follows:
2001 2000 1999 -------- -------- -------- (In thousands) Fixed maturity securities, available-for-sale: Gross realized gains $ 34,884 $ 10,926 $ 28,619 Gross realized losses (50,656) (68,881) (60,023) Equity securities: Gross realized gains 81,647 260,022 143,180 Gross realized losses (83,020) (82,779) (51,589) Private equity investments: Gross realized gains 4,857 29,076 14,558 Gross realized losses (6,533) (948) (575)
Net unrealized gains (losses) included in stockholder's equity at December 31 were as follows:
2001 2000 --------- --------- (In thousands) Gross unrealized gains $ 361,575 $ 523,768 Gross unrealized losses (168,979) (147,016) Adjustment to deferred acquisition costs (41,993) -- Adjustment to unearned policy and contract fees 6,433 -- Deferred federal income taxes (53,747) (129,327) --------- --------- Net unrealized gains $ 103,289 $ 247,425 ========= =========
ML-12 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, 2001 United States government and government agencies and authorities $ 203,806 $ 66,552 $ 1,672 $ 268,686 Foreign governments 1,425 -- 79 1,346 Corporate securities 3,076,890 139,127 47,927 3,168,090 Mortgage-backed securities 1,779,301 65,522 3,430 1,841,393 ---------- -------- -------- ---------- Total fixed maturities 5,061,422 271,201 53,108 5,279,515 Equity securities-unaffiliated 453,563 64,431 69,079 448,915 Equity securities-affiliated mutual funds 141,353 19,199 6,913 153,639 ---------- -------- -------- ---------- Total equity securities 594,916 83,630 75,992 602,554 ---------- -------- -------- ---------- Total $5,656,338 $354,831 $129,100 $5,882,069 ========== ======== ======== ==========
Gross Unrealized ----------------- Amortized Fair Cost Gains Losses Value ---------- -------- -------- ---------- (In thousands) December 31, 2000 Available-for-sale: United States government and government agencies and authori- ties $ 141,759 $ 5,728 $ 236 $ 147,251 Foreign governments 4,706 186 55 4,837 Corporate securities 2,910,328 174,534 77,102 3,007,760 Mortgage-backed securities 1,445,158 27,463 9,411 1,463,210 ---------- -------- -------- ---------- Total fixed maturities 4,501,951 207,911 86,804 4,623,058 Equity securities-unaffiliated 418,307 111,964 59,457 470,814 Equity securities-affiliated mu- tual funds 142,929 24,332 43 167,218 ---------- -------- -------- ---------- Total equity securities 561,236 136,296 59,500 638,032 ---------- -------- -------- ---------- Total available-for-sale 5,063,187 344,207 146,304 5,261,090 Held-to maturity: Corporate securities 750,121 29,855 5,997 773,979 Mortgage-backed securities 110,511 4,474 2,649 112,336 ---------- -------- -------- ---------- Total held-to-maturity 860,632 34,329 8,646 886,315 ---------- -------- -------- ---------- Total $5,923,819 $378,536 $154,950 $6,147,405 ========== ======== ======== ==========
ML-13 Minnesota Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) (3)Investments (continued) The amortized cost and fair value of securities on loan by type of investment were as follows:
Gross Unrealized -------------- Amortized Fair Cost Gains Losses Value --------- ------- ------ -------- (In thousands) December 31, 2001 United States government and government agencies and authorities $145,685 $10,187 $1,039 $154,833 Corporate securities 87,547 5,137 219 92,465 Mortgage-backed securities 115,419 2,592 278 117,733 -------- ------- ------ -------- Total fixed maturities 348,651 17,916 1,536 365,031 Equity securities-unaffiliated 39,575 10,764 2,059 48,280 -------- ------- ------ -------- Total $388,226 $28,680 $3,595 $413,311 ======== ======= ====== ========
Gross Unrealized -------------- Amortized Fair Cost Gains Losses Value --------- ------- ------ ------- (In thousands) December 31, 2000 Available-for-sale: Equity securities-unaffiliated $59,009 $22,346 $8,983 $72,372 ------- ------- ------ ------- Total $59,009 $22,346 $8,983 $72,372 ======= ======= ====== =======
The amortized cost and estimated fair value of fixed maturity securities at December 31, 2001 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 Securities-on-Loan --------------------- ------------------ Amortized Fair Amortized Fair Cost Value Cost Value ---------- ---------- --------- -------- (In thousands) Due in one year or less $ 97,456 $ 99,133 $ 12,033 $ 12,628 Due after one year through five years 854,123 934,026 67,147 71,282 Due after five years through ten years 1,386,267 1,444,009 100,532 107,421 Due after ten years 944,275 960,954 53,520 55,967 ---------- ---------- -------- -------- 3,282,121 3,438,122 233,232 247,298 Mortgage-backed securities 1,779,301 1,841,393 115,419 117,733 ---------- ---------- -------- -------- Total $5,061,422 $5,279,515 $348,651 $365,031 ========== ========== ======== ========
At December 31, 2001 and 2000, fixed maturity securities and short-term investments with a carrying value of $15,815,000 and $14,902,000, respectively, were on deposit with various regulatory authorities as required by law. At December 31, 2001 and 2000, no specific mortgage loans were considered impaired. A general allowance for credit losses was established for potential impairments in the mortgage loan portfolio. The general allowance was $1,500,000 at December 31, 2001 and 2000. There were no provisions for credit losses or charge-offs in 2001, 2000 or 1999. ML-14 Minnesota Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) (3) Investments (continued) Below is a summary of interest income on impaired mortgage loans.
2001 2000 1999 ----- ----- ---- (In thousands) Average impaired mortgage loans $ -- $ 2 $ 4 Interest income on impaired mortgage loans--contractual -- -- 4 Interest income on impaired mortgage loans--collected -- -- 4
(4) Notes Receivable 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 in connection with the Company's construction of an additional home office facility in St. Paul, Minnesota. The note bears interest at a rate of 8.625%, with principal payments to the Company commencing February 2004 and a maturity date of August 2025. Interest payments to the Company 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, 2001, there were no available tax increments, therefore no interest payments were received. As of December 31, 2001 and 2000, the Company has loaned HRA $14,581,000 and $14,523,000 respectively. The accrued interest on this loan contingency was $4,288,000 and $3,015,000, as of December 31, 2001 and 2000, respectively. The loan balance is included in other invested assets, accrued interest is included in accrued investment income and investment income is included in net investment income. (5) Net Finance Receivables Finance receivables as of December 31 were as follows:
2001 2000 -------- -------- (In thousands) Direct installment loans $115,233 $119,310 Retail installment notes 13,973 12,432 Retail revolving credit 226 677 Accrued interest 2,451 2,462 -------- -------- Gross receivables 131,883 134,881 Allowance for uncollectible amounts (5,846) (6,336) -------- -------- Finance receivables, net $126,037 $128,545 ======== ========
The direct installment loans, at December 31, 2001 and 2000, consisted of $93,733,000 and $90,466,000, respectively, of discount basis loans (net of unearned finance charges) and $21,500,000 and $28,844,000, 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 $13,000,000 and $19,000,000 of real estate secured loans at December 31, 2001 and 2000, respectively. Revolving credit loans included approximately $200,000 and $500,000 of real estate secured loans at December 31, 2001 and 2000, 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, 2001 and 2000, 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, 2001 and 2000, principal cash collections of direct installment loans were $55,176,000 and $60,800,000, respectively, and the percentages of these cash collections to average net balances were 48% and 52%, respectively. Retail installment notes' principal cash collections to average net balances were $20,667,000 and $15,470,000, respectively and the percentages of these cash collections to average net balances were 153% and 149%, respectively. ML-15 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, 2001 and 2000 was 4.4% and 4.7%, respectively. Changes in the allowance for losses for the periods ended December 31, were as follows:
2001 2000 1999 -------- -------- -------- (In thousands) Balance at beginning of year $ 6,336 $ 7,728 $ 16,076 Provision for credit losses 6,924 6,244 5,434 Allowance applicable to bulk purchase 19 -- 125 Charge-offs (10,302) (10,523) (16,712) Recoveries 2,869 2,887 2,805 -------- -------- -------- Balance at end of year $ 5,846 $ 6,336 $ 7,728 ======== ======== ========
At December 31, 2001, 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, 2001 and the related allowance for credit losses were as follows:
Installment Revolving Loans Credit Total ----------- --------- ------ (In thousands) Balances at December 31, 2001 $1,515 65 $1,580 Related allowance for credit losses $ 514 11 $ 525
All loans deemed to be impaired are placed on a non-accrual status. No accrued or unpaid interest was recognized on impaired loans during 2001. The average quarterly balance of impaired loans during the years ended December 31, 2001 and 2000, was $1,685,000 and $3,544,000 for installment basis loans and $28,000 and $634,000 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, 2001. (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:
2001 2000 1999 ------- -------- ------- (In thousands) Computed tax expense $31,253 $120,406 $87,139 Difference between com- puted and actual tax ex- pense: Dividends received de- duction (7,606) (4,696) (3,127) Special tax on mutual life insurance compa- nies -- (5,235) (9,568) Foundation gain (580) (568) (538) Tax credits (1,300) (3,400) (4,500) Expense adjustments and other (2,902) 2,790 4,327 ------- -------- ------- Total tax expense $18,865 $109,297 $73,733 ======= ======== =======
ML-16 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:
2001 2000 -------- -------- (In thousands) Deferred tax assets: Policyholders liabilities $ 7,152 $ 11,899 Pension and post retirement benefits 31,209 34,079 Tax deferred policy acquisition costs 94,828 90,600 Deferred gain on individual disability coinsurance 20,726 22,152 Net realized capital losses 19,203 12,688 Ceding commissions 4,244 -- Other 11,287 13,023 -------- -------- Gross deferred tax assets 188,649 184,441 -------- -------- Deferred tax liabilities: Deferred policy acquisition costs 189,421 198,195 Premiums 15,094 14,525 Real estate and property and equipment depreciation 6,561 6,478 Basis difference on investments 16,575 21,307 Net unrealized capital gains 65,875 129,327 Other 8,183 7,134 -------- -------- Gross deferred tax liabilities 301,709 376,966 -------- -------- Net deferred tax liability $113,060 $192,525 ======== ========
A valuation allowance for deferred tax assets was not considered necessary as of December 31, 2001 and 2000 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, 2001, 2000 and 1999, were $34,493,000, $132,744,000 and $59,905,000, respectively. During 2001 the Internal Revenue Service (IRS) began their audit of the Company's federal income tax returns for 2000, 1999 and 1998. As of December 31, 2001, there were no proposed adjustments affecting the Company. The Company believes that any adjustments, as a result of this examination, will not have a material effect on its financial position. ML-17 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:
2001 2000 1999 -------- --------- -------- (In thousands) Balance at January 1 $480,650 $ 470,501 $435,079 Less: reinsurance recoverable 404,357 121,395 108,918 -------- --------- -------- Net balance at January 1 76,293 349,106 326,161 -------- --------- -------- Incurred related to: Current year 65,370 95,703 92,421 Prior years (2,577) 11,761 19,435 -------- --------- -------- Total incurred 62,793 107,464 111,856 -------- --------- -------- Paid related to: Current year 25,925 28,968 25,084 Prior years 28,275 58,557 63,827 -------- --------- -------- Total paid 54,200 87,525 88,911 -------- --------- -------- Individual disability transfer -- (292,752) -- -------- --------- -------- Net balance at December 31 84,886 76,293 349,106 Plus: reinsurance recoverable 433,323 404,357 121,395 -------- --------- -------- Balance at December 31 $518,209 $ 480,650 $470,501 ======== ========= ========
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 decreased by $2,577,000 in 2001 and increased by $11,761,000 and $19,435,000 in 2000 and 1999, respectively, which includes the amortization of discount on individual accident and health claim reserves of $430,000, $14,016,000, and $13,918,000 in 2001, 2000 and 1999, 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. During 2000, the Company transferred reserves associated with its Individual Disability line of business to Standard Insurance Company under a 100% coinsurance agreement. Associated reserves for accident and health claims, reserve for losses and claim and loss adjustment expenses were transferred as a part of this agreement. (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. ML-18 Minnesota Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) (8) Employee Benefit Plans (continued) Pension Plans and Post Retirement Plans Other than Pensions (continued) 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. 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 ------------------ ------------------ 2001 2000 2001 2000 -------- -------- -------- -------- (In thousands) Change in benefit obligation: Benefit obligation at beginning of year $210,342 $197,025 $ 31,552 $ 33,720 Service cost 9,031 8,895 1,342 1,454 Interest cost 16,222 15,058 2,357 2,314 Actuarial loss (gain) 12,308 (4,229) 2,620 (3,987) Benefits paid (5,711) (6,407) (1,127) (1,949) -------- -------- -------- -------- Benefit obligation at end of year $242,192 $210,342 $ 36,744 $ 31,552 ======== ======== ======== ======== Change in plan assets: Fair value of plan assets at beginning of year $167,171 $159,694 $ -- $ -- Actual return on plan assets (12,241) 6,987 -- -- Employer contribution 8,877 6,897 1,127 1,949 Benefits paid (5,711) (6,407) (1,127) (1,949) -------- -------- -------- -------- Fair value of plan assets at end of year $158,096 $167,171 $ -- $ -- ======== ======== ======== ======== Pension Benefits Other Benefits ------------------ ------------------ 2001 2000 2001 2000 -------- -------- -------- -------- (In thousands) Funded status $(84,096) $(43,171) $(36,744) $(31,552) Unrecognized net actuarial loss (gain) 46,488 8,004 (6,411) (9,629) Unrecognized prior service cost (bene- fit) 6,816 7,770 (1,446) (1,959) -------- -------- -------- -------- Net amount recognized $(30,792) $(27,397) $(44,601) $(43,140) ======== ======== ======== ======== Amounts recognized in the balance sheet statement consist of: Accrued benefit cost $(32,306) $(31,624) $(44,601) $(43,170) Intangible asset 1,514 4,227 -- 30 -------- -------- -------- -------- Net amount recognized $(30,792) $(27,397) $(44,601) $(43,140) ======== ======== ======== ======== Pension Benefits Other Benefits ------------------ ------------------ 2001 2000 2001 2000 -------- -------- -------- -------- Weighted average assumptions as of De- cember 31: Discount rate 7.25% 8.00% 7.25% 8.00% Expected return on plan assets 8.25% 8.26% -- -- Rate of compensation increase 5.43% 5.36% -- --
For measurement purposes, a 7.5 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 2001. The rate was assumed to decrease gradually to 5.5 percent for 2005 and remain at that level thereafter. ML-19 Minnesota Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) (8) Employee Benefit Plans (continued) Pension Plans and Post Retirement Plans Other than Pensions (continued)
Pension Benefits Other Benefits ---------------------------- ---------------------- 2001 2000 1999 2001 2000 1999 -------- -------- -------- ------ ------ ------ (In thousands) Components of net peri- odic benefit cost: Service cost $ 9,031 $ 8,895 $ 8,272 $1,342 $1,454 $1,419 Interest cost 16,222 15,058 13,132 2,357 2,314 2,340 Expected return on plan assets (14,256) (13,151) (12,080) -- -- -- Amortization of prior service cost (benefit) 954 954 954 (513) (513) (513) Recognized net actuarial loss (gain) 321 743 459 (597) (448) (195) -------- -------- -------- ------ ------ ------ Net periodic benefit cost $ 12,272 $ 12,499 $ 10,737 $2,589 $2,807 $3,051 ======== ======== ======== ====== ====== ======
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 $53,756,000, $40,746,000, and $21,129,000, respectively, as of December 31, 2001, and $50,689,000, $39,217,000 and $19,772,000, respectively, as of December 31, 2000. The assumptions presented herein are based on pertinent information available to management as of December 31, 2001 and 2000. 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, 2001 by $6,988,000 and the estimated eligibility cost and interest cost components of net periodic benefit costs for 2001 by $805,000. 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, 2001 by $5,494,000 and the estimated eligibility cost and interest cost components of net periodic postretirement benefit costs for 2001 by $620,000. 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 2001, 2000 and 1999 of $4,563,000, $8,794,000 and $6,003,000, respectively. Participants may elect to receive a portion of their contributions in cash. (9) 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:
2001 2000 1999 --------- -------- -------- (In thousands) Direct premiums $ 761,877 $697,933 $662,775 Reinsurance assumed 140,303 129,800 102,154 Reinsurance ceded (108,823) (66,282) (67,130) --------- -------- -------- Net premiums $ 793,357 $761,451 $697,799 ========= ======== ========
ML-20 Minnesota Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) (9) Reinsurance (continued) Reinsurance recoveries on ceded reinsurance contracts were $95,136,000, $73,484,000 and $71,922,000 during 2001, 2000 and 1999, respectively. On January 12, 2001, the Company entered into a written agreement with First Allmerica Financial Life Insurance Company whereby 401(k) accounts representing approximately 370 contracts with associated fixed and variable assets of approximately $364,600,000 were transferred to separate accounts and approximately $31,600,000 were transferred to the general account, effective July 2, 2001. On October 1, 2000, the Company entered into a 100% coinsurance agreement of its Individual Disability line of business, inforce and future sales, with Standard Insurance Company. In addition, the Company recaptured a previous reinsurance agreement with Paul Revere Insurance Company as part of this transaction. Paul Revere transferred reserves of approximately $141,818,000. The Company transferred net reserves of approximately $499,000,000. Under the terms of the coinsurance agreement, assets supporting these reserves are held under a trust agreement for the benefit of the Company in the event that the reinsurer is unable to perform its obligations. A deferred gain of approximately $64,000,000 was recognized as part of this transaction. This gain will be amortized over the life of the underlying policies in a manner similar to the related deferred policy acquisition costs. The deferred gain balance is included in other liabilities in the consolidated balance sheet. Amortization of this gain is included in other income in the statement of operations. The amortized gain for 2001 and 2000 was $4,074,000 and $1,018,000, respectively. The amounts of reinsurance recoveries pertaining to the Standard Insurance Company coinsurance agreement were $54,489,000 and $9,828,000 during 2001 and 2000, respectively. The amounts of reinsurance recoverables carried on the balance sheet were $552,790,000 and $531,487,000 at December 31, 2001 and 2000, respectively. The Company continues to write disability policies and cedes all policies to Standard Insurance Company. On January 1, 1999, the Company entered into an agreement to sell its assumed individual life reinsurance business representing $1,982,509,000 of inforce 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. (10) 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, 2001 and 2000. 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 equity investments 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, 2001 and 2000, 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, 2001 and 2000, 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, 2001 and 2000 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-21 Minnesota Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) (10) 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:
2001 2000 ----------------------- ----------------------- Carrying Fair Carrying Fair Amount Value Amount Value ----------- ----------- ----------- ----------- (In thousands) Fixed maturity securities: Available-for-sale $ 5,279,515 $ 5,279,515 $ 4,623,058 $ 4,623,058 Held-to-maturity -- -- 860,632 886,315 Equity securities 602,554 602,554 638,032 638,032 Fixed maturity securities on loan 365,031 365,031 -- -- Equity securities on loan 48,280 48,280 72,372 72,372 Mortgage loans: Commercial 738,749 761,004 664,818 679,245 Residential -- -- 35 36 Policy loans 256,844 256,844 250,246 250,246 Short-term investments 621,907 621,907 216,230 216,230 Cash 32,589 32,589 67,951 67,951 Finance receivables, net 126,037 126,037 128,545 128,545 Private equity investments 263,928 263,928 464,303 464,303 Foreign currency exchange con- tract -- -- 84 84 Separate account assets 7,558,283 7,558,283 8,201,803 8,201,803 Other assets 74,078 74,078 -- -- ----------- ----------- ----------- ----------- Total financial assets $15,967,795 $15,990,050 $16,188,109 $16,228,220 =========== =========== =========== ===========
The carrying amounts and fair values of the Company's financial instruments, which were classified as liabilities as of December 31, were as follows:
2001 2000 ----------------------- ----------------------- Carrying Fair Carrying Fair Amount Value Amount Value ----------- ----------- ----------- ----------- (In thousands) Deferred annuities $ 1,615,774 $ 1,611,178 $ 1,620,378 $ 1,612,386 Annuity certain contracts 60,187 60,769 61,513 61,515 Other fund deposits 956,147 957,461 895,854 891,581 Supplementary contracts with- out life contingencies 42,092 43,134 39,125 40,489 Notes payable 159,000 162,341 185,000 188,025 Separate account liabilities 7,511,607 7,511,607 8,156,131 8,156,131 Securities lending collateral 424,406 424,406 77,124 77,124 ----------- ----------- ----------- ----------- Total financial liabilities $10,769,213 $10,770,896 $11,035,125 $11,027,251 =========== =========== =========== ===========
ML-22 Minnesota Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) (11) 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 Minnesota Department of Commerce (Department of Commerce). The approved accrued interest was $3,008,000 as of December 31, 2001 and 2000. The issuance costs of $1,421,000 are deferred and amortized over 30 years on straight-line basis. Notes payable as of December 31 were as follows:
2001 2000 -------- -------- (In thousands) Corporate-surplus notes, 8.25%, 2025 $125,000 $125,000 Consumer finance subsidiary-senior, 6.90%-8.77%, through 2003 34,000 60,000 -------- -------- Total notes payable $159,000 $185,000 ======== ========
At December 31, 2001, the aggregate minimum annual notes payable maturities for the next five years are as follows: 2002, $22,000,000; 2003, $12,000,000; 2004, $0; 2005, $0; 2006, $0; 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, 2001. The Company maintains a line of credit, which is drawn down periodically throughout the year. As of December 31, 2001 and 2000, the outstanding balance of this line of credit was zero. Interest paid on debt for the years ended December 31, 2001, 2000 and 1999, was $17,115,000, $26,775,000 and $24,120,000, respectively. (12) 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 deferred policy acquisition cost adjustments. The components of comprehensive income (loss), other than net income are illustrated below:
2001 2000 1999 --------- --------- --------- (In thousands) Other comprehensive income (loss), before tax: Unrealized gains (loss) on securities $(202,783) $ 346,347 $(162,242) Reclassification adjustment for gains (losses) included in net income 18,821 (147,416) (74,170) Adjustment to unearned policy and contract fees 6,433 473 (16,385) Adjustment to deferred policy acquisition costs (41,993) 414 119,128 --------- --------- --------- (219,522) 199,818 (133,669) Income tax expense related to items of other comprehensive income 75,386 (70,470) 48,131 --------- --------- --------- Other comprehensive income (loss), net of tax $(144,136) $ 129,348 $ (85,538) ========= ========= =========
ML-23 Minnesota Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) (13) Stock Dividends During 2001, the Company declared and paid dividends to Securian Financial Group, Inc. totaling approximately $12,372,000. These dividends were in the form of securities and the transfer of ownership of a corporate-owned life insurance policy. Additionally, the Company declared and accrued a dividend representing the affiliated stock of Advantus Capital Management, Inc. The amount of the transfer, on January 2, 2002, of Advantus Capital Management, Inc. was $48,748,000. During 2000, the Company declared and paid dividends to Securian Financial Group, Inc. totaling $52,800,000. These dividends were in the form of cash. 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 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. Dividend payments by Minnesota Life Insurance Company to its parent cannot exceed the greater of 10% of statutory capital and surplus or the statutory net gain from operations as of the preceding year-end, as well as the timing and amount of dividends paid in the preceding 12 months, without prior approval from the Department of Commerce. Based on these limitations and 2001 statutory results, the maximum amount available for the payment of dividends during 2002 by Minnesota Life Insurance Company without prior regulatory approval is $107,591,000 after November 7, 2002. (14) Legal Proceedings 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. Total expenses related to litigation or legal proceedings were $39,654,000, $3,529,000 and $3,670,000 in 2001, 2000 and 1999, respectively. (15) Commitments and Contingencies 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 $97,800,000 and $135,600,000 as of December 31, 2001 and 2000, respectively. 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 equity investments and real estate investments totaling $160,474,000 as of December 31, 2001. The Company estimates that $53,000,000 of these commitments will be invested in 2002, with the remaining $107,474,000 invested over the next four years. As of December 31, 2001, the Company had committed to purchase bonds and mortgage loans totaling $86,684,000 but had not completed the purchase transactions. The Company has a long-term lease agreement with an affiliated company, Capitol City Property Management, Inc., for rental space in downtown St. Paul. Minimum gross rental commitments under the lease are as follows: 2002, $11,267,000; 2003, $11,267,000; 2004, $11,267,000; 2005, $11,267,000; 2006, $11,267,000. The Company sub-leases space in downtown St. Paul. Commitments to the Company from these agreements are as follows: 2002, $676,000; 2003, $688,000; 2004, $726,000; 2005, $731,000; 2006, $605,000. Lease expense net of sub-lease income for the years ended December 31, 2001, 2000 and 1999 was $9,662,000, $2,491,000 and $0, respectively. ML-24 Minnesota Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) (15) Commitments and Contingencies (continued) At December 31, 2001, the Company had guaranteed the payment of $84,500,000 in policyholders dividends and discretionary amounts payable in 2002. The Company has pledged bonds, valued at $84,549,000 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, 2001 and 2000 the amount was immaterial to the financial statements. An asset is recorded for the amount of guaranty fund assessments paid, which can be recovered through future premium tax credits. This asset was $3,255,000 and $4,139,000 for the periods ending December 31, 2001 and 2000, respectively. These assets are being amortized over a five-year period. At December 31, 2001, the Company had guaranteed the payment of approximately $118,640,000 of senior notes issued by Capitol City Properties Management, Inc., an affiliated company, through the expiration date of the notes of 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. (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 (NAIC) and states in which the Company is licensed to do business. Statutory accounting practices focus primarily on solvency and surplus adequacy. Prescribed accounting practices include a variety of publications of the NAIC as well as state laws, regulation and general administrative rules. Permitted statutory accounting practices encompass all accounting practices that are not prescribed; such practices differ from state to state, may differ from company to company within a state, and may change in the future. The NAIC project to codify statutory accounting practices (Codification) was effective January 1, 2001. Codification continues to encompass both prescribed and permitted practices as described above. Any amounts identified as a change due to implementing Codification were recorded to statutory surplus. The Company determined that Codification, at the time of initial adoption, had an impact of increasing statutory surplus by approximately $48,790,000. ML-25 Minnesota Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) (16) Statutory Financial Data (continued) The significant differences that exist between statutory and GAAP accounting, and their effects are illustrated below (2001 results are codified, and 2000 and 1999 are prior to Codification):
Year ended December ---------------------- 2001 2000 ---------- ---------- (In thousands) Statutory capital and surplus $1,075,907 $1,304,825 Adjustments: Deferred policy acquisition costs 682,794 710,931 Net unrealized investment gains 217,864 125,511 Statutory asset valuation reserve 303,888 347,800 Statutory interest maintenance reserve 7,050 10,440 Premiums and fees deferred or receivable (51,572) (54,505) Change in reserve basis 113,646 111,657 Deferred reinsurance gain (59,217) (64,309) Separate accounts (39,126) (49,098) Unearned policy and contract fees (140,315) (143,220) Surplus notes (125,000) (125,000) Net deferred income taxes (313,147) (192,525) Pension benefit liabilities (6,815) (45,673) Non-admitted assets 194,154 55,395 Policyholders dividends 65,828 66,622 Other 6,365 8,281 ---------- ---------- Stockholder's equity as reported in the accompanying consolidated financial statements $1,932,304 $2,067,132 ========== ==========
As of December 31 --------------------------- 2001 2000 1999 ------- -------- -------- (In thousands) Statutory net income $47,505 $251,003 $167,957 Adjustments: Deferred policy acquisition costs 13,716 (5,203) 29,164 Statutory interest maintenance reserve (1,138) (20,544) (18,931) Premiums and fees deferred or receivable (10,213) (1,264) 3,686 Change in reserve basis (2,180) 3,783 2,555 Separate accounts 9,971 15,762 (8,044) Deferred reinsurance gain (2,394) 1,018 -- Unearned policy and contract fees (1,845) 1,645 (8,696) Realized gains (losses) 1,586 (11,747) 4,143 Net deferred income taxes 3,928 4,403 1,439 Policyholders dividends (714) 4,354 1,620 Pension benefits 16,605 (7,952) (590) Other (4,399) (538) 932 ------- -------- -------- Net income as reported in the accompanying consolidated financial statements $70,428 $234,720 $175,235 ======= ======== ========
(17) Subsequent Events On February 11, 2002, the Company declared a dividend to Securian Financial Group totaling $10,000,000. The amount was subsequently paid in cash. ML-26 Minnesota Life Insurance Company and Subsidiaries Schedule I Summary of Investments--Other than Investments in Related Parties December 31, 2001
As shown on the Market consolidated Type of investment Cost(3) Value balance sheet(1) - ------------------ ---------- ---------- ---------------- (In thousands) Fixed maturity securities: United States government and government agencies and authorities $ 203,806 $ 268,686 $ 268,686 Foreign governments 1,425 1,346 1,346 Public utilities 289,845 298,743 298,743 Mortgage-backed securities 1,779,301 1,841,393 1,841,393 All other corporate fixed maturity securities 2,787,045 2,869,347 2,869,347 ---------- ---------- ---------- Total fixed maturity securities 5,061,422 5,279,515 5,279,515 ---------- ---------- ---------- Equity securities: Common stocks: Public utilities 6,363 6,336 6,336 Banks, trusts and insurance compa- nies 107,177 97,529 97,529 Industrial, miscellaneous and all other 457,149 476,404 476,404 Nonredeemable preferred stocks 24,227 22,285 22,285 ---------- ---------- ---------- Total equity securities 594,916 602,554 602,554 ---------- ---------- ---------- Mortgage loans on real estate 740,249 xxxxxx 738,749 Real estate (2) 11,925 xxxxxx 11,925 Policy loans 256,844 xxxxxx 256,844 Other investments 292,377 xxxxxx 292,377 Private equity investments 301,728 xxxxxx 263,928 Fixed maturity securities on loan 348,651 xxxxxx 365,031 Equity securities on loan 39,575 xxxxxx 48,280 Short-term investments 621,907 xxxxxx 621,907 ---------- ---------- ---------- Total 2,613,256 -- 2,599,041 ---------- ---------- ---------- Total investments $8,269,594 $5,882,069 $8,481,110 ========== ========== ==========
- ------- (1) Fair value for common stocks and fixed maturity securities 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 fixed maturity securities and other investments. See independent auditors' report. ML-27 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 - ------- ----------- -------------- ----------- ------------ 2001: Life insurance $498,233 $2,563,749 $171,174 $113,351 Accident and health insurance 87,059 615,020 38,052 19,103 Annuity 98,047 2,942,241 29 1,466 Property and liability insurance -- 38 -- -- -------- ---------- -------- -------- $683,339 $6,121,048 $209,255 $133,920 ======== ========== ======== ======== 2000: Life insurance $526,289 $2,469,673 $173,063 $ 89,087 Accident and health insurance 88,320 579,170 37,815 17,659 Annuity 96,937 2,887,586 -- 269 Property and liability insurance -- 154 -------- ---------- -------- -------- $711,546 $5,936,583 $210,878 $107,015 ======== ========== ======== ======== 1999: Life insurance $535,709 $2,388,867 $172,430 $ 73,670 Accident and health insurance 80,371 552,833 35,558 16,858 Annuity 97,137 3,118,995 25 234 Property and liability insurance -- 441 -------- ---------- -------- -------- $713,217 $6,061,136 $208,013 $ 90,762 ======== ========== ======== ======== 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(5) costs expenses written(4) - ------- ----------- ---------- -------------- ------------ --------- ---------- 2001: Life insurance $ 918,901 $288,841 $ 810,101 $136,512 $470,668 Accident and health insurance 136,637 12,823 53,611 13,170 106,770 Annuity 92,192 225,200 193,772 21,898 90,793 Property and liability insurance -- 471 (19) -- 204 -- ----------- ---------- -------------- ------------ --------- ---------- $1,147,730 $527,335 $1,057,465 $171,580 $668,435 $ -- =========== ========== ============== ============ ========= ========== 2000: Life insurance $ 842,842 $304,584 $ 715,361 $153,634 $428,194 Accident and health insurance 175,762 40,232 85,680 8,613 101,201 Annuity 102,827 230,584 205,036 23,715 80,116 Property and liability insurance -- 500 143 319 -- ----------- ---------- -------------- ------------ --------- ---------- $1,121,431 $575,900 $1,006,220 $185,962 $609,830 $ -- =========== ========== ============== ============ ========= ========== 1999: Life insurance $ 762,745 $258,483 $ 645,695 $ 88,731 $391,454 Accident and health insurance 170,988 37,922 108,283 11,779 101,021 Annuity 95,190 243,160 214,461 22,945 79,883 Property and liability insurance (14) 491 323 743 (570) ----------- ---------- -------------- ------------ --------- ---------- $1,028,909 $540,056 $ 968,762 $123,455 $573,101 $(570) =========== ========== ============== ============ ========= ==========
- ------ (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 (5) Includes policyholder dividends See independent auditors' report. ML-28 Minnesota Life Insurance Company and Subsidiaries Schedule IV Reinsurance Years ended December 31, 2001, 2000 and 1999
Percentage Ceded to Assumed of amount Gross other from other Net assumed to amount companies companies amount net ------------ ----------- ----------- ------------ ---------- (In thousands) 2001: Life insurance in force $233,303,591 $28,244,100 $63,354,138 $268,413,629 23.6% ============ =========== =========== ============ Premiums: Life insurance $ 530,352 $ 30,128 $ 138,774 $ 638,998 21.7% Accident and health insurance 208,520 78,212 1,047 131,355 0.8% Annuity 23,004 -- -- 23,004 -- Property and liability insurance 1 483 482 -- -- ------------ ----------- ----------- ------------ Total premiums $ 761,877 $ 108,823 $ 140,303 $ 793,357 17.7% ============ =========== =========== ============ 2000: Life insurance in force $200,965,213 $22,944,226 $43,657,674 $221,678,661 19.7% ============ =========== =========== ============ Premiums: Life insurance $ 476,897 $ 28,343 $ 121,296 $ 569,850 21.3% Accident and health insurance 199,590 30,085 923 170,428 0.5% Annuity 21,173 -- -- 21,173 -- Property and liability insurance 273 7,854 7,581 -- -- ------------ ----------- ----------- ------------ Total premiums $ 697,933 $ 66,282 $ 129,800 $ 761,451 17.0% ============ =========== =========== ============ 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% ============ =========== =========== ============
See independent auditors' report. ML-29 PART C OTHER INFORMATION Variable Annuity Account Cross Reference Sheet to Other Information Form N-4 Item Number Caption in Other Information 24. Financial Statements and Exhibits 25. Directors and Officers of the Depositor 26. Persons Controlled by or Under Common Control with the Depositor or Registrant 27. Number of Contract Owners 28. Indemnification 29. Principal Underwriters 30. Location of Accounts and Records 31. Management Services 32. Undertakings PART C. OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) Audited Financial Statements of Variable Annuity Account for the fiscal year ended December 31, 2001, are included in Part B of this filing and consist of the following: 1. Independent Auditors' Report. 2. Statements of Assets and Liabilities, December 31, 2001. 3. Statements of Operations, year ended December 31, 2001. 4. Statements of Changes in Net Assets, years ended December 31, 2001 and 2000. 5. Notes to Financial Statements. (b) Audited Consolidated Financial Statements and Supplementary Schedules of the Depositor, Minnesota Life Insurance Company and subsidiaries, are included in Part B of this filing and consist of the following: 1. Independent Auditors' Report - Minnesota Life Insurance Company and subsidiaries, for the fiscal year ended December 31, 2001, 2000 and 1999. 2. Consolidated Balance Sheets - Minnesota Life Insurance Company and subsidiaries, for the fiscal year ended December 31, 2001 and 2000. 3. Consolidated Statements of Operations and Comprehensive Income - Minnesota Life Insurance Company and subsidiaries, for the fiscal years ended December 31, 2001, 2000 and 1999. 4. Consolidated Statements of Changes in Stockholder's Equity - Minnesota Life Insurance Company and subsidiaries, for the fiscal years ended December 31, 2001, 2000 and 1999. 5. Consolidated Statements of Cash Flows - Minnesota Life Insurance Company and subsidiaries, for the fiscal years ended December 31, 2001, 2000 and 1999. 6. Notes to Consolidated Financial Statements - Minnesota Life Insurance Company and subsidiaries, for the fiscal years ended December 31, 2001 and 2000. 7. Schedule I - Summary of Investments-Other than Investments in Related Parties - Minnesota Life Insurance Company and subsidiaries, for the fiscal year ended December 31, 2001. 8. Schedule III - Supplementary Insurance Information - Minnesota Life Insurance Company and subsidiaries, for the fiscal years ended December 31, 2001 and 2000. 9. Schedule IV - Reinsurance - Minnesota Life Insurance Company and subsidiaries, for the fiscal years ended December 31, 2001, 2000 and 1999. (c) Exhibits 1. The Resolution of The Minnesota Mutual Life Insurance Company's Executive Committee of its Board of Trustees establishing the Variable Annuity Account previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. 2. Not applicable. 3. The Distribution Agreement between The Minnesota Mutual Life Insurance Company and Ascend Financial Services, Inc. previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 15, is hereby incorporated by reference. 4. (a) The Flexible Payment Deferred Variable Annuity, form 84-9091 previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (b) The Single Payment Deferred Variable Annuity, form 84-9092 previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (c) The Qualified Plan Agreement, form 84-9094 previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (d) The Retirement Certificate, form MHC-83-9060 previously filed as Exhibit 24(4)(e) to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 16, is hereby incorporated by reference. (e) The Endorsement, form 86-9135 previously filed as Exhibit 24(4)(f) to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (f) The Endorsement, form 87-9171 previously filed as Exhibit 24(4)(g) to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (g) The Flexible Payment Deferred Variable Annuity Contract, form MHC-84-9091 Rev. 1-88 previously filed as Exhibit 24(4)(h) to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (h) The Single Payment Deferred Variable Annuity Contract, form MHC-84-9092 Rev. 1-88 previously filed as Exhibit 24(4)(i) to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (i) Tax Sheltered Annuity Amendment, form MHC-88-9213 previously filed as Exhibit 24(4)(j) to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 16, is hereby incorporated by reference. (j) Rider, Texas Optional Retirement Program, form F. 22976 Rev. 9- 81 previously filed as Exhibit 24(4)(k) to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (k) The Flexible Payment Deferred Variable Annuity Contract, form 84-9091 Rev. 3-91 previously filed as Exhibit 24(4)(l) to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (l) Endorsement, form 91-9256 previously filed as Exhibit 24(4)(m) to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (m) The Single Payment Deferred Variable Annuity Contract, form 84- 9092 Rev. 3-91 previously filed as Exhibit 24(4)(n) to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (n) Endorsement, form 91-9257 previously filed as Exhibit 24(4)(o) to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (o) Single Payment Deferred Variable Annuity Contract, form number MHC-92-9284 previously filed as Exhibit 24(4)(p) to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 16, is hereby incorporated by reference. (p) Flexible Payment Deferred Variable Annuity Contract, form number MHC-92-9283 previously filed as Exhibit 24(4)(q) to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 16, is hereby incorporated by reference. (q) Individual Retirement Annuity (IRA) Agreement, SEP, Traditional IRA and Roth-IRA, form number MHC-97-9418 previously filed as Exhibit 24(4)(r) to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 16, is hereby incorporated by reference. (r) Individual Retirement Annuity, SIMPLE - (IRA) Agreement, form number MHC-98-9431 previously filed as Exhibit 24(4)(s) to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 16, is hereby incorporated by reference. 5. (a) Amendment to the Application, Texas Optional Retirement Program, form 81-9013 previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (b) Variable Annuity Application, form number 99-70020 Rev. 5-2001, previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 18, is hereby incorporated by reference. (c) Variable Annuity Application, form number 92-9286 Rev. 9-1997 previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. 6. Certificate of Incorporation and Bylaws. (a) Restated Certificate of Incorporation of Minnesota Life Insurance Company previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 16, is hereby incorporated by reference. (b) Bylaws of Minnesota Life Insurance Company previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 19, is hereby incorporated by reference. 7. Not applicable. 8. Not applicable. 9. Opinion and consent of Donald F. Gruber, Esq. 10. Consent of KPMG LLP. 11. Not applicable. 12. Not applicable. 13. Schedule for Computation of Performance Quotation (a) Stock Segregated Sub-Account Performance Calculations previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (b) Bond Segregated Sub-Account Performance Calculations previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (c) Money Market Segregated Sub-Account Performance Calculations previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (d) Managed Segregated Sub-Account Performance Calculations previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (e) Mortgage Securities Segregated Sub-Account Performance Calculations previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (f) Index Segregated Sub-Account Performance Calculations previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (g) Aggressive Growth Segregated Sub-Account Performance Calculations previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (h) International Stock Segregated Sub-Account Performance Calculations previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (i) Small Company Segregated Sub-Account Performance Calculations previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (j) Value Stock Segregated Sub-Account Performance Calculation previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (k) Maturing Government Bond - 1998 Segregated Sub-Account Performance Calculation previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (l) Maturing Government Bond - 2002 Segregated Sub-Account Performance Calculation previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (m) Maturing Government Bond - 2006 Segregated Sub-Account Performance Calculation previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. (n) Maturing Government Bond - 2010 Segregated Sub-Account Performance Calculation previously filed as this exhibit to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 14, is hereby incorporated by reference. 15. Minnesota Life Insurance Company Power of Attorney To Sign Registration Statements ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR Name and Principal Positions and Offices Positions and Offices Business Address with Insurance Company with Registrant - ------------------ ---------------------- --------------------- Anthony L. Andersen Director None H. B. Fuller Company 2424 Territorial Road St. Paul, MN 55114 Richard H. Anderson Director None Northwest Airlines, Inc. 5101 Northwest Drive St. Paul, MN 55111 John F. Bruder Senior Vice President None Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Keith M. Campbell Senior Vice President None Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 John F. Grundhofer Director None U.S. Bancorp 601 2nd Avenue South Suite 2900 Minneapolis, MN 55402 Robert E. Hunstad Director and Executive None Minnesota Life Vice President Insurance Company 400 Robert Street North St. Paul, MN 55101 James E. Johnson Senior Vice President None Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Reatha C. King Ph.D. Director None General Mills Foundation Number One General Mills Blvd. Minneapolis, MN 55426-1348 Dennis E. Prohofsky Director, Executive None Minnesota Life President, General Insurance Company Counsel and Secretary 400 Robert Street North St. Paul, MN 55101 Robert L. Senkler Chairman, President and None Minnesota Life Chief Executive Officer Insurance Company 400 Robert Street North St. Paul, MN 55101 Michael E. Shannon Director None Ecolab, Inc. 370 Wabasha Street Ecolab Center St. Paul, MN 55102 Gregory S. Strong Senior Vice President and None Minnesota Life Chief Financial Officer Insurance Company 400 Robert Street North St. Paul, MN 55101 Randy F. Wallake Executive Vice President None Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 William N. Westhoff Director, Senior Vice None Minnesota Life President and Treasurer Insurance Company 400 Robert Street North St. Paul, MN 55101 ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR REGISTRANT Wholly-owned subsidiary of Minnesota Mutual Companies, Inc.: Securian Holding Company (Delaware) Wholly-owned subsidiaries of Securian Holding Company: Securian Financial Group, Inc. (Delaware) Capitol City Property Management, Inc. Robert Street Property Management, Inc. Wholly-owned subsidiaries of Securian Financial Group, Inc. Securian Ventures, Inc. Minnesota Life Insurance Company Securian Financial Network, Inc. Advantus Capital Management, Inc. Securian Financial Services, Inc. Wholly-owned subsidiaries of Minnesota Life Insurance Company: HomePlus Insurance Company Northstar Life Insurance Company (New York) The Ministers Life Insurance Company Personal Finance Company (Delaware) Enterprise Holding Corporation Wholly-owned subsidiaries of Securian Financial Services, Inc.: MIMLIC Insurance Agency of Massachusetts, Inc. (Massachusetts) MIMLIC Insurance Agency of Texas, Inc. (Texas) Securian Insurance Agency of Nevada, Inc. (Nevada) Securian Insurance Agency of Oklahoma, Inc. (Oklahoma) Worthmark Financial Services, LLC (Delaware) Wholly-owned subsidiaries of Enterprise Holding Corporation: Financial Ink Corporation Oakleaf Service Corporation Concepts in Marketing Research Corporation Lafayette Litho, Inc. DataPlan Securities, Inc. (Ohio) MIMLIC Imperial Corporation MIMLIC Funding, Inc. MCM Funding 1997-1, Inc. MCM Funding 1998-1, Inc. Ministers Life Resources, Inc. Open-end registered investment company offering shares solely to separate accounts of Minnesota Life Insurance Company: Advantus Series Fund, Inc. Fifty percent-owned subsidiary of MIMLIC Imperial Corporation: C.R.I. Securities, Inc. Majority-owned subsidiaries of Minnesota Life Insurance Company: MIMLIC Life Insurance Company (Arizona) Advantus Cornerstone Fund, Inc. Advantus Enterprise Fund, Inc. Advantus International Balanced Fund, Inc. Advantus Venture Fund, Inc. Advantus Real Estate Securities Fund, Inc. Less than 25% owned subsidiaries of Minnesota Life Insurance Company: Advantus Money Market Fund, Inc. Advantus Horizon Fund, Inc. Advantus Spectrum Fund, Inc. Advantus Mortgage Securities Fund, Inc. Advantus Bond Fund, Inc. Advantus Index 500 Fund, Inc. Wholly-owned subsidiaries of Securian Financial Network, Inc.: Securian Financial Network, Inc. (Alabama) Securian Financial Network, Inc. (Nevada) Securian Financial Network, Inc. (Oklahoma) Securian Financial Network, Inc. (Texas) Majority-owned subsidiary of Securian Financial Services, Inc.: MIMLIC Insurance Agency of Ohio, Inc. (Ohio) Unless indicated otherwise parenthetically, each of the above corporations is a Minnesota corporation. ITEM 27. NUMBER OF CONTRACT OWNERS As of March 27, 2002, the number of holders of securities of the Registrant were as follows: Number of Record Title of Class Holders -------------- ---------------- Variable Annuity Contracts 46,159 ITEM 28. INDEMNIFICATION The statement with respect to indemnification. Previously filed. ITEM 29. PRINCIPAL UNDERWRITERS (a) The principal underwriter is Securian Financial Services, Inc. Securian Financial Services, Inc. is also the principal underwriter for eleven mutual funds (Advantus Horizon Fund, Inc.; Advantus Spectrum Fund, Inc.; Advantus Money Market Fund, Inc.; Advantus Mortgage Securities Fund, Inc.; Advantus Bond Fund, Inc.,; Advantus Cornerstone Fund, Inc.; Advantus Enterprise Fund, Inc.; Advantus International Balanced Fund, Inc.; Advantus Venture Fund, Inc.; Advantus Index 500 Fund, Inc. and Advantus Real Estate Securities Fund, Inc.) and for four additional registered separate accounts of Minnesota Life Insurance Company, all of which offer annuity contracts and life insurance policies on a variable basis. DIRECTORS AND OFFICERS OF UNDERWRITER Positions and Positions and Name and Principal Offices Offices Business Address with Underwriter with Registrant - ------------------ ---------------- --------------- Robert E. Hunstad Director None Minnesota Life Insurance Company 400 Robert Street North St. Paul, Minnesota 55101 George I. Connolly President, Chief None Securian Financial Services, Inc. Executive Officer 400 Robert Street North and Director St. Paul, Minnesota 55101 Margaret Milosevich Vice President, Chief Assistant Securian Financial Services, Inc. Operations Officer, Secretary 400 Robert Street North Treasurer and Secretary St. Paul, Minnesota 55101 Loyall E. Wilson Vice President and Chief None Securian Financial Services, Inc. Compliance Officer 400 Robert Street North St. Paul, Minnesota 55101 Dennis E. Prohofsky Director None Minnesota Life Insurance Company 400 Robert Street North St. Paul, Minnesota 55101 Thomas L. Clark Assistant Treasurer Assistant Securian Financial Services, Inc. and Assistant Secretary Secretary 400 Robert Street North St. Paul, Minnesota 55101 Name of Net Underwriting Compensation on Principal Discounts and Redemption or Brokerage Other Underwriter Commissions Annuitization Commissions Compensation - ----------- ---------------- ---------------- ----------- ------------ Securian Financial Services, Inc. $11,309,746 ITEM 30. LOCATION OF ACCOUNTS AND RECORDS The accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the Rules promulgated thereunder are in the physical possession of Minnesota Life Insurance Company, St. Paul, Minnesota 55101-2098. ITEM 31. MANAGEMENT SERVICES None. Item 32. Undertakings (a) The Registrant hereby undertakes to file a post-effective amendment to this registration statement as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than 16 months old for so long as payments under the Contracts may be accepted. (b) The Registrant hereby undertakes to include as part of any application to purchase a contract offered by the prospectus a space that an applicant can check to request a Statement of Additional Information. (c) The Registrant hereby undertakes to deliver any Statement of Additional Information and any financial statement required to be made available under this form promptly upon written or oral request. (d) Minnesota Life Insurance Company hereby represents that, as to the variable annuity contract which is the subject of this Registration Statement, File No. 2-97564, the fees and charges deducted under the contract, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred and the risks assumed by Minnesota Life Insurance Company. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940 the Registrant, Variable Annuity Account, certifies that it meets the requirements of Securities Act Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of St. Paul and the State of Minnesota on the 24th day of April, 2002. VARIABLE ANNUITY ACCOUNT (Registrant) By: MINNESOTA LIFE INSURANCE COMPANY (Depositor) By ----------------------------------- Robert L. Senkler Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, the Depositor, Minnesota Life Insurance Company, has duly caused this Post-Effective Amendment to the Registration Statement to be signed on its behalf by the Undersigned, thereunto duly authorized, in the city of Saint Paul, and State of Minnesota, on the 24th day of April, 2002. MINNESOTA LIFE INSURANCE COMPANY BY ----------------------------------- Robert L. Senkler Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in their capacities with the Depositor and on the date indicated.
Signature Title Date --------- ----- ---- - -------------------------- Chairman, President and April 24, 2002 Robert L. Senkler Chief Executive Officer * Director - -------------------------- Anthony L. Andersen * Director - -------------------------- Richard H. Anderson * Director - -------------------------- John F. Grundhofer Director - -------------------------- Robert E. Hunstad * Director - -------------------------- Reatha C. King Ph.D. * Director - -------------------------- Dennis E. Prohofsky * Director - -------------------------- Michael E. Shannon * Director - -------------------------- William N. Westhoff Senior Vice President April 24, 2002 - -------------------------- (chief financial officer) Gregory S. Strong Senior Vice President April 24, 2002 - -------------------------- (chief accounting officer) Gregory S. Strong Senior Vice President and April 24, 2002 - -------------------------- Treasurer (treasurer) William N. Westhoff Director and Attorney-in-Fact April 24, 2002 - -------------------------- Dennis E. Prohofsky
* Pursuant to power of attorney dated April 8, 2002, a copy of which is filed herewith. EXHIBIT INDEX
Exhibit Number Description of Exhibit - -------------- ---------------------- 9. Opinion and consent of Donald F. Gruber, Esq. 10. Consent of KPMG LLP 15. Minnesota Life Insurance Company Power of Attorney To Sign Registration Statements
EX-99.C9 3 a2073211zex-99_c9.txt EXHIBIT 99.C9 Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101-2098 651.865.3500 Tel MINNESOTA LIFE A MINNESOTA MUTUAL COMPANY April 24, 2002 Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101-2098 Gentlepersons: In my capacity as counsel for the Minnesota Life Insurance Company (the "Company"), I have reviewed certain legal matters relating to the Company's Separate Account entitled Variable Annuity Account (the "Account") in connection with Post-Effective Amendment Number 20 to its Registration Statement on Form N-4. This Post-Effective Amendment is to be filed by the Company and the Account with the Securities and Exchange Commission under the Securities Act of 1933, as amended, with respect to certain variable annuity contracts (Securities and Exchange Commission File Number 2-97564). Based upon that review, I am of the following opinion: 1. The Account is a separate account of the Company duly created and validly existing pursuant to the laws of the State of Minnesota; and 2. The issuance and sale of the variable annuity contracts funded by the Account have been duly authorized by the Company and such contracts, when issued in accordance with and as described in the current Prospectus contained in the Registration Statement, and upon compliance with applicable local and federal laws, will be legal and binding obligations of the Company in accordance with their terms. I hereby consent to the filing of this opinion as an exhibit to the Registration Statement. Sincerely, /s/ Donald F. Gruber Donald F. Gruber Assistant General Counsel EX-99.C10 4 a2073211zex-99_c10.txt EXHIBIT 99.C10 KPMG 4200 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402 INDEPENDENT AUDITORS' CONSENT The Board of Directors Minnesota Life Insurance Company and Contract Owners of Variable Annuity Account: We consent to the use of our reports included herein and to the reference to our Firm under the heading "AUDITORS" in Part B of the Registration Statement. Our report on the consolidated financial statements of Minnesota Life Insurance Company and subsidiaries refers to changes in accounting for derivatives and beneficial interests in securitized financial assets due to the adoption of new accounting standards in 2001. /s/ KPMG LLP KPMG LLP Minneapolis, Minnesota April 24, 2002 EX-99.C15 5 a2073211zex-99_c15.txt EXHIBIT 99.C15 Minnesota Life Insurance Company Power of Attorney To Sign Registration Statements WHEREAS, Minnesota Life Insurance Company ("Minnesota Life") has established certain separate accounts to fund certain variable annuity and variable life insurance contracts, and WHEREAS, Variable Fund D ("Fund D") is a separate account of Minnesota Life registered as a unit investment trust under the Investment Company Act of 1940 offering variable annuity contracts registered under the Securities Act of 1933, and WHEREAS, Variable Annuity Account ("Variable Annuity Account") is a separate account of Minnesota Life registered as a unit investment trust under the Investment Company Act of 1940 offering variable annuity contracts registered under the Securities Act of 1933, and WHEREAS, Minnesota Life Variable Life Account ("Variable Life Account") is a separate account of Minnesota Life registered as a unit investment trust under the Investment Company Act of 1940 offering variable adjustable life insurance policies registered under the Securities Act of 1933, and WHEREAS, Minnesota Life Variable Universal Life Account ("Variable Universal Life Account") is a separate account of Minnesota Life which has been established for the purpose of issuing group and individual variable universal life insurance policies on a variable basis and which is to be registered as a unit investment trust under the Investment Company Act of 1940 offering group and individual variable universal life insurance policies to be registered under the Securities Act of 1933. NOW THEREFORE, We, the undersigned Directors and Officers of Minnesota Life, do hereby appoint Dennis E. Prohofsky and Garold M. Felland, and each of them individually, as attorney in fact for the purpose of signing their names and on our behalf as Directors of Minnesota Life and filing with the Securities and Exchange Commission Registration Statements, or any amendment thereto, for the purpose of: a) registering contracts and policies of Fund D, the Variable Annuity Account, the Variable Life Account and the Variable Universal Life Account for sale by those entities and Minnesota Life under the Securities Act of 1933; and b) registering Fund D, the Variable Annuity Account, the Variable Life Account and the Variable Universal Life Account as unit investment trusts under the Investment Company Act of 1940.
Signature Title Date --------- ----- ---- /s/ Robert L. Senkler Chairman of the Board, April 8, 2002 ------------------------------ President and Chief Robert L. Senkler Executive Officer /s/ Anthony L. Andersen Director April 8, 2002 ------------------------------ Anthony L. Andersen /s/ Richard H. Anderson Director April 8, 2002 ------------------------------ Richard H. Anderson /s/ John F. Grundhofer Director April 8, 2002 ------------------------------ John F. Grundhofer Director ------------------------------ Robert E. Hunstad /s/ Reatha C. King Director April 8, 2002 ------------------------------ Reatha C. King, Ph.D. /s/ Dennis E. Prohofsky Director April 8, 2002 ------------------------------ Dennis E. Prohofsky /s/ Michael E. Shannon Director April 8, 2002 ------------------------------ Michael E. Shannon /s/ William N. Westhoff Director April 8, 2002 ------------------------------ William N. Westhoff
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