-----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, PDdYxiR9oFlNqp0l3z098/pnm0dPdNr4bi1RpcWIq9LkBgsGWdiTWRK4wiIOvmg0 HB5i/JG+8yG/07HPxzvjzw== 0000950134-05-007890.txt : 20050422 0000950134-05-007890.hdr.sgml : 20050422 20050421174711 ACCESSION NUMBER: 0000950134-05-007890 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20050422 DATE AS OF CHANGE: 20050421 EFFECTIVENESS DATE: 20050429 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: 333-79049 FILM NUMBER: 05765596 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 c93676be485bpos.txt POST-EFFECTIVE AMENDMENT TO FORM N-4 File Number 333-79049 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment Number --- Post-Effective Amendment Number 8 --- and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment Number --- VARIABLE ANNUITY ACCOUNT --------------------------------------------------------------------- (Exact Name of Registrant) MINNESOTA 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) Dwayne C. Radel Vice President and General Counsel Minnesota Life Insurance Company 400 Robert Street North St. Paul, Minnesota 55101-2098 ------------------------------------------- (Name and Address of Agent for Service) IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE(check appropriate box) immediately upon filing pursuant to paragraph (b) -- X on April 29, 2005 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 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 3. Questions and Answers About the Variable Annuity Contract 4. Condensed Financial Information Performance Data 5. General Descriptions 6. Contract Charges 7. Description of the Contract; General Descriptions 8. Description of the Contract; Annuity Payments and Options 9. Description of the Contract; Death Benefits 10. Description of the Contract; Purchase Payments and Value of the Contract and Transfers 11. Description of the Contract; Redemptions 12. Federal Tax Status 13. Not Applicable 14. Table of Contents of the Statement of Additional Information MultiOption Achiever Variable Annuity Contract Minnesota Life Insurance Company (MINNESOTA LIFE LOGO) 400 Robert Street North - St. Paul, Minnesota 55101-2098 - 1-800-362-3141 - www.minnesotalife.com This Prospectus describes an individual, flexible payment, variable annuity contract ("the contract") offered by the Minnesota Life Insurance Company. The contract may be used in connection with all types of personal retirement plans. It 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(TM) SERIES FUND, INC. LOGO) Advantus Series Fund, Inc. - - Bond Portfolio - - Index 400 Mid-Cap Portfolio - - Index 500 Portfolio - - International Bond Portfolio - - Maturing Government Bond Portfolios (only available to contracts issued prior to May 1, 2000) - - Money Market Portfolio - - Mortgage Securities Portfolio - - Real Estate Securities Portfolio (AIM FUNDS(SM) LOGO) AIM Variable Insurance Fund - - AIM V.I. Aggressive Growth Fund -- Series II Shares - - AIM V.I. Balanced Fund -- Series II Shares (AIM V.I. Basic Balanced Fund -- Series II Shares effective July 1, 2005) - - AIM V.I. Dent Demographic Trends Fund -- Series II Shares (AIM V.I. Demographic Trends Fund -- Series II Shares effective July 1, 2005) - - AIM V.I. Premier Equity Fund -- Series II Shares (AMERICAN CENTURY(R) LOGO) American Century Variable Portfolios, Inc. - - VP Income & Growth Fund -- Class II Shares - - VP Ultra(R) Fund -- Class II Shares - - VP Value Fund -- Class II Shares (CREDIT SUISSE ASSET MANAGEMENT LOGO) Credit Suisse Trust - - Global Small Cap Portfolio (formerly Global Post-Venture Capital Portfolio) (FIDELITY INVESTMENTS(R) WE HELP YOU INVEST RESPONSIBLY(SM) LOGO) Fidelity Variable Insurance Products Funds - - Contrafund(R) Portfolio -- Service Class 2 Shares - - Equity-Income Portfolio -- Service Class 2 Shares - - Mid Cap Portfolio -- Service Class 2 Shares (FRANKLIN TEMPLETON INVESTMENTS LOGO) Franklin Templeton Variable Insurance Products Trust - - Franklin Large Cap Growth Securities Fund -- Class 2 Shares - - Franklin Small-Mid Cap Growth Securities Fund -- Class 2 Shares (formerly Franklin Small Cap Fund -- Class 2 Shares) - - Mutual Shares Securities Fund -- Class 2 Shares - - Templeton Developing Markets Securities Fund -- Class 2 Shares - - Templeton Global Asset Allocation Fund -- Class 2 Shares (JANUS CAPITAL GROUP LOGO) Janus Aspen Series - - Balanced Portfolio -- Service Shares - - Forty Portfolio -- Service Shares (formerly Capital Appreciation Portfolio -- Service Shares) - - International Growth Portfolio -- Service Shares (MFS(R) INVESTMENT MANAGEMENT LOGO) MFS(R) Variable Insurance Trust(sm) - - Investors Growth Stock Series -- Service Shares - - Mid Cap Growth Series -- Service Shares - - New Discovery Series -- Service Shares - - Value Series -- Service Shares (OPPENHEIMER FUNDS(R) THE RIGHT WAY TO INVEST LOGO) Oppenheimer Variable Account Funds - - Capital Appreciation Fund -- Service Shares - - High Income Fund -- Service Shares Panorama Series Fund, Inc. - - International Growth Fund -- Service Shares (PUTNAM INVESTMENTS LOGO) Putnam Variable Trust - - Putnam VT Growth and Income Fund -- Class IB Shares - - Putnam VT International Equity Fund -- Class IB Shares - - Putnam VT New Opportunities Fund -- Class IB Shares - - Putnam VT New Value Fund -- Class IB Shares - - Putnam VT Voyager Fund -- Class IB Shares (W&R LOGO) W&R Target Funds, Inc. - - W&R Asset Strategy Portfolio - - W&R Balanced Portfolio - - W&R Core Equity Portfolio - - W&R Growth Portfolio - - W&R International Growth Portfolio (formerly W&R International Portfolio) - - W&R International Value Portfolio (formerly W&R International II Portfolio) - - W&R Micro Cap Growth Portfolio - - W&R Science and Technology Portfolio - - W&R Small Cap Growth Portfolio - - W&R Small Cap Value Portfolio - - W&R Value 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. The contract is designed for long-term investors. If you receive any Wealthbuilder Credit amount, it may be more than offset by the sales charge if one is imposed upon surrender of the contract. This Prospectus includes the information you should know before purchasing a contract. 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 contacting us at 1-800-362-3141. 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: APRIL 29, 2005. THIS PROSPECTUS IS NOT AN OFFERING IN ANY JURISDICTION IN WHICH THE OFFERING WOULD BE UNLAWFUL. WE HAVE NOT AUTHORIZED ANY DEALER, SALESMAN, OR OTHER PERSON TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THE PROSPECTUS, AND, IF GIVEN OR MADE, YOU SHOULD NOT RELY ON THEM. TABLE OF CONTENTS SPECIAL TERMS 1 HOW TO CONTACT US 2 QUESTIONS AND ANSWERS ABOUT THE VARIABLE ANNUITY CONTRACT 3 EXPENSE TABLES 6 GENERAL DESCRIPTIONS 9 Minnesota Life Insurance Company 9 Variable Annuity Account 9 The Funds 11 Additions, Deletions or Substitutions 14 Compensation Paid for the Sale of Contracts 14 Payments Made by Underlying Mutual Funds 16 CONTRACT CHARGES 17 Deferred Sales Charge 17 Mortality and Expense Risk Charges 19 Administrative Charge 19 Contract Fee 20 Premium Taxes 20 Transaction Charges 20 VOTING RIGHTS 20 DESCRIPTION OF THE CONTRACT 21 General Provisions 21 Annuity Payments and Options 23 Death Benefits 27 Purchase Payments and Value of the Contract 29 Redemptions 35 General Account 36 FEDERAL TAX STATUS 36 PERFORMANCE DATA 42 STATEMENT OF ADDITIONAL INFORMATION 42 APPENDIX A -- CONDENSED FINANCIAL INFORMATION A-1 APPENDIX B -- ILLUSTRATION OF VARIABLE ANNUITY VALUES B-1 APPENDIX C -- TYPES OF QUALIFIED PLANS C-1
(This page has been left blank intentionally.) SPECIAL TERMS As used in this Prospectus, the following terms have the indicated meanings: Accumulation Unit: an accounting device used to determine the value of a contract before annuity payments begin. Accumulation Value: the sum of your values under a contract in the Variable Annuity Account and in the General Account. Annuitant: the person who may receive lifetime benefits under the contract. Annuity: a series of payments for life; for life with a minimum number of payments guaranteed; for the joint lifetime of the annuitant and another person and thereafter during the lifetime of the survivor; or for a period certain. Annuity Unit: an accounting device used to determine the amount of annuity payments. Code: the Internal Revenue Code of 1986, as amended. Contract Owner: the owner of the contract, which could be the annuitant, his or her employer, or a trustee acting on behalf of the employer. Contract Year: a period of one year beginning with the contract date or a contract anniversary. Fixed Annuity: an annuity providing for payments of guaranteed amounts throughout the payment period. Fund(s) or Portfolio(s): the mutual funds whose separate investment portfolios we have designated as eligible 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: an annuity providing for payments varying in amount in accordance with the investment experience of the Funds. Variable Annuity Account: a separate investment account called the Variable Annuity Account. The investment experience of its assets is separate from that of our other assets. We, Our, Us: Minnesota Life Insurance Company. Wealthbuilder Credit: an additional amount, other than a dividend, which we may credit to your contract. 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 [COMPUTER ICON] 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 [TELEPHONE ICON] - 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 [MAIL ICON] - 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 CONTRACT 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; or for a specified period of time. An annuity with payments which are guaranteed as to amount during the payment period is a fixed annuity. An annuity with payments which vary with the investment experience of a separate account is 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 TYPE OF CONTRACT IS OFFERED BY THIS PROSPECTUS? The contract is a variable annuity contract which provides for monthly annuity payments. These payments may begin immediately or at a future date you specify. We allocate your purchase payments to the Variable Annuity Account or to our General 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 principal and interest guarantees. WHAT INVESTMENT OPTIONS ARE AVAILABLE? Any purchase payments you allocate to the Variable Annuity Account are invested exclusively in shares of one or more of the available Fund Portfolios. We reserve the right to add, combine or remove other eligible Funds and Portfolios. The available Portfolios of Advantus Series Fund, Inc. are: Bond Portfolio Index 400 Mid-Cap Portfolio Index 500 Portfolio International Bond Portfolio Maturing Government Bond Portfolios (only available to contracts issued prior to May 1, 2000) Money Market Portfolio Mortgage Securities Portfolio Real Estate Securities Portfolio The Variable Annuity Account also invests in: AIM Variable Insurance Fund: AIM V.I. Aggressive Growth Fund -- Series II Shares AIM V.I. Balanced Fund -- Series II Shares AIM V.I. Dent Demographic Trends Fund -- Series II Shares AIM V.I. Premier Equity Fund -- Series II Shares Page 3 American Century Variable Portfolios, Inc.: VP Income & Growth Fund -- Class II Shares VP Ultra(R) Fund -- Class II Shares VP Value Fund -- Class II Shares Credit Suisse Trust: Global Small Cap Portfolio Fidelity Variable Insurance Products Funds: Contrafund(R) Portfolio -- Service Class 2 Shares Equity-Income Portfolio -- Service Class 2 Shares Mid Cap Portfolio -- Service Class 2 Shares Franklin Templeton Variable Insurance Products Trust: Franklin Large Cap Growth Securities Fund -- Class 2 Shares Franklin Small-Mid Cap Growth Securities Fund -- Class 2 Shares Mutual Shares Securities Fund -- Class 2 Shares Templeton Developing Markets Securities Fund -- Class 2 Shares Templeton Global Asset Allocation Fund -- Class 2 Shares Janus Aspen Series: Balanced Portfolio -- Service Shares Forty Portfolio -- Service Shares International Growth Portfolio -- Service Shares MFS(R) Variable Insurance Trust(SM): Investors Growth Stock Series -- Service Shares Mid Cap Growth Series -- Service Shares New Discovery Series -- Service Shares Value Series -- Service Shares Oppenheimer Variable Account Funds: Capital Appreciation Fund -- Service Shares High Income Fund -- Service Shares Panorama Series Fund, Inc.: International Growth Fund -- Service Shares Putnam Variable Trust: Putnam VT Growth and Income Fund -- Class IB Shares Putnam VT International Equity Fund -- Class IB Shares Putnam VT New Opportunities Fund -- Class IB Shares Putnam VT New Value Fund -- Class IB Shares Putnam VT Voyager Fund -- Class IB Shares Page 4 W&R Target Funds, Inc.: W&R Asset Strategy Portfolio W&R Balanced Portfolio W&R Core Equity Portfolio W&R Growth Portfolio W&R International Growth Portfolio W&R International Value Portfolio W&R Micro Cap Growth Portfolio W&R Science and Technology Portfolio W&R Small Cap Growth Portfolio W&R Small Cap Value Portfolio W&R Value 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 prospectuses for each Fund, which are attached to this Prospectus. You should carefully read each Fund prospectus before purchasing the contract. CAN YOU CHANGE THE PORTFOLIO THAT YOU SELECT? Yes. You can 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 accumulation value among the Portfolios 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 only be transferred from a variable annuity to a fixed annuity. WHAT CHARGES ARE ASSOCIATED WITH THE CONTRACT? We deduct a daily charge equal to an annual rate of 1.25% of the net asset value of the Variable Annuity Account for mortality and expense risk guarantees. We reserve the right to increase the charge to not more than 1.40%. We also deduct a daily charge equal to an annual rate of 0.15% of the net asset value for administrative expenses incurred by us. We reserve the right to increase the charge to not more than 0.40% of the net asset value of the separate account. A deferred sales charge of up to 7% of purchase payments may apply if you make partial withdrawals or surrender your contract within seven or fewer years after your last purchase payment. There is a contract fee taken annually from the accumulation value of the contract. The charge applied will be equal to the lesser of $30 or 2% of the accumulation value at the end of the contract year taken generally from contracts with values of less than $50,000. Deductions for any applicable premium taxes may also be made (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 0.45% to 1.79% of average daily net assets of the Portfolios on an annual basis. We reserve the right to make a charge of up to $10 for transfers occurring more frequently than once a month. Page 5 EXPENSE TABLES The following contract expense information is intended to illustrate the expenses of the MultiOption Achiever variable annuity contract. All expenses shown are rounded to the nearest dollar. The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering the contract. The first table describes the fees and expenses that you will pay at the time you buy the contract, surrender the contract or transfer cash value between investment options. State premium taxes may also be deducted. Contract Owner Transaction Expenses DEFERRED SALES LOAD (as a percentage applied separately to each purchase payment):
CONTRACT YEARS SINCE PAYMENT CHARGE ---------------------------- ------ 0-1 7% 1-2 7% 2-3 6% 3-4 5% 4-5 4% 5-6 3% 6-7 2% 7 and thereafter 0% TRANSFER FEE* Maximum Charge: $10 Current Charge: $0
* We reserve the right, to impose a $10 charge for each transfer when transfer requests exceed 12 in a single calendar year. Currently this fee is waived. The next table describes the fees and expenses you will pay periodically during the time that you own the contract, not including Portfolio company fees and expenses. Annual Contract Fee: lesser of $30 or 2% of accumulation value (applied only to a contract where the greater of the accumulation value or purchase payments, less withdrawals, is less than $50,000) $30
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% Administrative Fee .15% .40% ----- ----- Total Separate Account Annual Expenses 1.40% 1.80% ===== =====
Note: We reserve the right to increase the mortality and expense risk fees and the administrative fees to not more than those shown in the column "Maximum Possible Charge". Page 6 The next item shows the minimum and maximum total operating expenses charged by the Portfolios that you may pay periodically during the time that you own the contract. More detail concerning each of the Portfolios fees and expenses is contained in the prospectus for each Portfolio.
MINIMUM MAXIMUM ------- ------- TOTAL ANNUAL PORTFOLIO COMPANY OPERATING EXPENSES (expenses that are deducted from portfolio assets, including management fees, distribution and/or service (12b-1) fees, and other expenses) 0.45% 1.79%
Contract Owner Expense Examples: These examples are intended to help you compare the cost of investing in the contract with the cost of investing in other variable annuity contracts. These costs include those described prior to each example. CONTACT OWNER EXPENSE EXAMPLE -- CURRENT SEPARATE ACCOUNT EXPENSES The example assumes that you invest $10,000 in the contract. The example also assumes that your investment has a 5% return each year and includes the current separate account expenses of 1.40%, the annual contract fee and shows the result with both the minimum and the maximum total fees and expenses of the portfolios available before any expense waiver or reimbursement. Although your actual costs may be higher or lower, based on these assumption your costs would be:
IF YOU SURRENDERED YOUR IF YOU ANNUITIZE AT THE END OF CONTRACT AT THE END OF THE THE APPLICABLE TIME PERIOD OR YOU APPLICABLE TIME PERIOD DO NOT SURRENDER YOUR CONTRACT 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS Maximum Portfolio Expenses $1,025 $1,593 $2,086 $3,526 $325 $993 $1,686 $3,526 - ---------------------------------------------------------------------------------------------------------------------------- Minimum Portfolio Expenses $ 891 $1,192 $1,419 $2,206 $191 $592 $1,019 $2,206 - ----------------------------------------------------------------------------------------------------------------------------
CONTACT OWNER EXPENSE EXAMPLE -- MAXIMUM SEPARATE ACCOUNT EXPENSES The example assumes that you invest $10,000 in the contract. The example also assumes that your investment has a 5% return each year and includes the maximum separate account expenses of 1.80%, the annual contract fee and shows the result with both the minimum and the maximum total fees and expenses of the portfolios available before any expense waiver or reimbursement. Although your actual costs may be higher or lower, based on these assumption your costs would be:
IF YOU SURRENDERED YOUR IF YOU ANNUITIZE AT THE END OF CONTRACT AT THE END OF THE THE APPLICABLE TIME PERIOD OR YOU APPLICABLE TIME PERIOD DO NOT SURRENDER YOUR CONTRACT 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS Maximum Portfolio Expenses $1,065 $1,710 $2,276 $3,884 $365 $1,110 $1,876 $3,884 - ---------------------------------------------------------------------------------------------------------------------------- Minimum Portfolio Expenses $ 932 $1,314 $1,623 $2,620 $232 $ 714 $1,223 $2,620 - ----------------------------------------------------------------------------------------------------------------------------
The examples contained in these tables should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown. Page 7 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. CAN YOU MAKE PARTIAL WITHDRAWALS FROM THE CONTRACT? Yes. You may make withdrawals of the accumulation value of your contract before an annuity begins. Your requests for partial withdrawals must be in writing. Partial withdrawals are generally subject to the deferred sales charge. In addition, a penalty tax on the amount of the taxable distribution may be assessed upon withdrawals from the variable annuity contract in certain circumstances, including distributions made prior to the owner's attainment of age 59 1/2. DO YOU HAVE A RIGHT TO CANCEL YOUR CONTRACT? Yes. You may cancel your contract any time within ten days of receiving it by returning it to us or your agent. In some states, the free look period may be longer than ten days. For example, California's free look period is thirty days. These rights are subject to change and may vary among the states. WHAT IF THE OWNER OR ANNUITANT DIES? If you die before annuity payments begin, we will pay the death benefit to the beneficiary. The death benefit payable to the beneficiary upon the death of the contract owner or annuitant, if applicable, if the contract owner or annuitant dies prior to his or her 80th birthday, during the accumulation period is equal to the greater of: - the accumulation value payable at death; or - the total amount of your purchase payments, less all partial withdrawals; or - the last "stepped-up value" prior to the date of death, adjusted for any purchase payments or withdrawals. If the contract owner or annuitant, if applicable, dies on or after his or her 80th birthday, the death benefit is the greater of: - the accumulation value payable at death; or - the total amount of purchase payments, less all partial withdrawals; or - the last "stepped-up value" prior to age 80, adjusted for any withdrawals. The "stepped-up value" will be determined on each contract anniversary that is an exact multiple of three and is prior to the 80th birthday of the oldest owner or annuitant, if applicable. If the annuitant dies after annuity payments have begun, we will pay whatever death benefit may be called for by the terms of the annuity option selected. If the owner of this contract is other than a natural person, such as a trust or other similar entity, we will pay the death benefit of the accumulation value to the named beneficiary on the death of the annuitant if death occurs prior to the commencement of annuity payments. Page 8 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. Each annuity option may be elected as a variable annuity or fixed annuity or a combination of the two. Other annuity options may be available from us on request. WHAT VOTING RIGHTS DO YOU HAVE? Contract owners and annuitants will be able to direct us as to how to vote shares of the Funds held for their contracts where shareholder approval is required by law in the affairs of the Funds. 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 SEC under the Investment Company Act of 1940, but that registration does not mean that the SEC supervises the management, or the investment practices or policies, of the Variable Annuity Account. The assets of the Variable Annuity Account are not chargeable with liabilities arising out of any other business we may conduct. The investment performance of the Variable Annuity Account is Page 9 entirely independent of both the investment performance of our General Account and our other separate accounts. All obligations under the contracts are our general corporate obligations. 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 10 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.: Bond Portfolio Advantus Capital Management, Inc. Index 400 Mid-Cap Portfolio Advantus Capital Management Inc. Index 500 Portfolio Advantus Capital Management, Inc. International Bond Portfolio Advantus Capital Management, Inc Julius Baer Investments Limited Maturing Government Bond Portfolio - 2006, Advantus Capital Management, Inc. 2010 Money Market Portfolio Advantus Capital Management, Inc. Mortgage Securities Portfolio Advantus Capital Management, Inc. Real Estate Securities Portfolio Advantus Capital Management, Inc. AIM VARIABLE INSURANCE FUND: AIM V.I. Aggressive Growth Fund - Series II A I M Advisors, Inc. Shares AIM V.I. Balanced Fund - Series II Shares A I M Advisors, Inc. AIM V.I. Dent Demographic Trends Fund - A I M Advisors, Inc. H.S. Dent Advisors, Inc. Series II Shares (through June 30, 2005) AIM V.I. Premier Equity Fund - Series II A I M Advisors, Inc. Shares AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.: VP Income & Growth Fund - Class II Shares American Century Investment Management, Inc. VP Ultra(R) Fund - Class II Shares American Century Investment Management, Inc. VP Value Fund - Class II Shares American Century Investment Management, Inc. CREDIT SUISSE TRUST: Global Small Cap Portfolio Credit Suisse Asset Management, LLC FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS: Contrafund(R) Portfolio - Service Class 2 Fidelity Management & Research Shares Company FMR Co., Inc. Fidelity Management & Research (U.K.) Inc. (FMR U.K.) Fidelity Management & Research (Far East) Inc. (FMR Far East) Fidelity International Investment Advisors (FIIA) Fidelity International Investment Advisors (U.K.) Limited (FIIA (U.K.) L) Fidelity Investments Japan Limited (FIJ)
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INVESTMENT INVESTMENT FUND/PORTFOLIO ADVISER SUB-ADVISER -------------- ---------- ----------- FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS (CONTINUED): Equity-Income Portfolio - Service Class 2 Fidelity Management & Research Shares Company FMR Co., Inc. Fidelity Management & Research (U.K.) Inc. (FMR U.K.) Fidelity Management & Research (Far East) Inc. (FMR Far East) Fidelity International Investment Advisors (FIIA) Fidelity International Investment Advisors (U.K.) Limited (FIIA (U.K.) L) Fidelity Investments Japan Limited (FIJ) Mid Cap Portfolio - Service Class 2 Shares Fidelity Management & Research Company FMR Co., Inc. Fidelity Management & Research (U.K.) Inc. (FMR U.K.) Fidelity Management & Research (Far East) Inc. (FMR Far East) Fidelity International Investment Advisors (FIIA) Fidelity International Investment Advisors (U.K.) Limited (FIIA (U.K.) L) Fidelity Investments Japan Limited (FIJ) FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST: Franklin Large Cap Growth Securities Fund - Franklin Advisers, Inc. Class 2 Shares Franklin Small-Mid Cap Growth Securities Franklin Advisers, Inc. Fund - Class 2 Shares Mutual Shares Securities Fund - Class 2 Franklin Mutual Advisers, LLC Shares Templeton Developing Markets Securities Templeton Asset Management Ltd. Fund - Class 2 Shares Templeton Global Asset Allocation Fund - Templeton Investment Counsel, LLC Class 2 Shares JANUS ASPEN SERIES: Balanced Portfolio - Service Shares Janus Capital Forty Portfolio - Service Shares Janus Capital International Growth Portfolio - Service Janus Capital Shares
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INVESTMENT INVESTMENT FUND/PORTFOLIO ADVISER SUB-ADVISER -------------- ---------- ----------- MFS(R) VARIABLE INSURANCE TRUST(SM): Investors Growth Stock Series - Service Massachusetts Financial Services Shares Company Mid Cap Growth Series - Service Shares Massachusetts Financial Services Company New Discovery Series - Service Shares Massachusetts Financial Services Company Value Series - Service Shares Massachusetts Financial Services Company OPPENHEIMER VARIABLE ACCOUNT FUNDS: Capital Appreciation Fund - Service Shares OppenheimerFunds, Inc. High Income Fund - Service Shares OppenheimerFunds, Inc. PANORAMA SERIES FUND, INC.: International Growth Fund - Service Shares OppenheimerFunds, Inc. PUTNAM VARIABLE TRUST: Putnam VT Growth and Income Fund - Class IB Putnam Investment Management, LLC Shares Putnam VT International Equity Fund - Class Putnam Investment Management, LLC IB Shares Putnam VT New Opportunities Fund - Class IB Putnam Investment Management, LLC Shares Putnam VT New Value Fund - Class IB Shares Putnam Investment Management, LLC Putnam VT Voyager Fund - Class IB Shares Putnam Investment Management, LLC W&R TARGET FUNDS, INC.: W&R Asset Strategy Portfolio Waddell & Reed Investment Management Company W&R Balanced Portfolio Waddell & Reed Investment Management Company W&R Core Equity Portfolio Waddell & Reed Investment Management Company W&R Growth Portfolio Waddell & Reed Investment Management Company W&R International Growth Portfolio Waddell & Reed Investment Management Company W&R International Value Portfolio Waddell & Reed Investment Management Templeton Investment Counsel, Company LLC W&R Micro Cap Growth Portfolio Waddell & Reed Investment Management Wall Street Associates Company W&R Science and Technology Portfolio Waddell & Reed Investment Management Company W&R Small Cap Growth Portfolio Waddell & Reed Investment Management Company W&R Small Cap Value Portfolio Waddell & Reed Investment Management BlackRock Financial Management, Company Inc. W&R Value Portfolio Waddell & Reed Investment Management Company
Page 13 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 new portfolio or mutual fund. Sub-accounts may be established when, in our sole discretion, marketing, tax, investment or other conditions warrant. We will use similar considerations in determining whether to eliminate one or more of the sub-accounts of the Variable Annuity Account. The addition of any investment option may be made available to existing contract owners on whatever basis we determine. We also reserve the right, when permitted by law, to de-register the Variable Annuity Account under the Investment Company Act of 1940, to restrict or eliminate any voting rights of the contract owners, and to combine the Variable Annuity Account with one or more of our other separate accounts. 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 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. E. COMPENSATION PAID FOR THE SALE OF CONTRACTS Securian Financial Services, Inc. ("Securian Financial"), an affiliate of Minnesota Life, is the principal underwriter of the contract. Securian Financial and other authorized broker-dealers sell contracts through their registered representatives, each of whom is also an insurance agent appointed by Minnesota Life. Commissions for the sale of contracts by broker-dealers other than Page 14 Securian Financial are paid directly to such broker-dealers by Minnesota Life, in all cases as agent for Securian Financial, and as authorized by the broker-dealers. The amount of commission received by an individual registered representative in connection with the sale of a contract is determined by his or her broker-dealer. In the case of contracts sold by registered representatives of Securian Financial, commissions are paid directly to such registered representatives by Minnesota Life as agent for Securian Financial. Minnesota Life also pays compensation as agent for Securian Financial to general agents of Minnesota Life who are also Securian Financial registered representatives. The commissions and compensation described in this paragraph, and the payments to broker-dealers described below, do not result in charges against the contract that are in addition to the Contract charges described elsewhere in this prospectus. Commissions paid to broker-dealers, and indirectly to registered representatives (including registered representatives of Securian Financial), will vary depending on a number of different factors, including the charge structure of the selected contract, the age of the contract owner at the time the purchase payment generating the commission is paid, and whether annuity payments will begin within twelve months of the date the contract is issued. Subject to these factors, all broker-dealers are paid base commissions for the sale of contracts pursuant to a standard schedule of broker-dealer commissions. These base commissions may be paid in the form of a front-end commission calculated as a percentage of purchase payments, an asset-based (or "trail") commission calculated as a percentage of contract value, or a combination of both. The maximum front-end base commission is 5.90% of purchase payments. From time to time certain broker-dealers may receive additional payments. These additional payments may be either in the form of front-end commissions in excess of base commissions or in the form of marketing allowances not based on purchase payments or contract values. Additional payments are intended to provide further encouragement to broker-dealers to sell contracts, and are paid based on a determination by Minnesota Life and Securian Financial of a broker-dealer's ability and willingness to promote and market the contracts. In no event will total front-end commissions paid to broker-dealers in connection with sales of contracts exceed 5.90% of purchase payments. A marketing allowance paid to a broker-dealer is not subject to any specified limit based on the purchase payments or contract values attributable to contracts sold by the broker-dealer. Aggregate trail commissions, which also recognize the on-going services of registered representatives that contribute to contact owner retention and satisfaction, are not subject to an upper limit and may, over time, exceed 5.90% of purchase payments. In addition to commission payments to registered representatives of Securian Financial, Minnesota Life may provide other non-cash benefits to such registered representatives that are directly or indirectly related to sales of the contracts. These benefits may include paid travel and accommodations at training conferences and recognition conventions sponsored by Minnesota Life and Securian Financial, eligibility to participate in certain retirement and other benefit plans (including deferred compensation, group health and life insurance and liability insurance programs), and various other Minnesota Life reward and recognition programs that provide non-cash benefits. All of these programs are designed to encourage Securian Financial's registered representatives to sell Minnesota Life's products, including the contracts described in this Prospectus. All of the compensation described here, and other compensation or benefits provided by Minnesota Life or our affiliates, may be more or less than the overall compensation on similar or other products. The amount and/or structure of the compensation may influence your registered representative, broker-dealer or selling institution to present this contract over other investment Page 15 alternatives. However, the differences in compensation may also reflect differences in sales effort or ongoing customer services expected of the registered representative or the broker-dealer. You may ask your registered representative about these differences and how he or she and his or her broker- dealer are compensated for selling the contracts. F. PAYMENTS MADE BY UNDERLYING MUTUAL FUNDS Minnesota Life pays the costs of selling contracts, some of which are described in more detail elsewhere in this prospectus, which benefits the underlying mutual funds by providing increased distribution of the shares of such funds. The underlying mutual funds, or their investment advisers or principal underwriters, may pay Minnesota Life (or Minnesota Life affiliates) a fee for the purpose of reimbursing Minnesota Life for the costs of certain distribution or operational services that Minnesota Life provides and that benefit the funds. Payments from an underlying fund that relate to distribution services are made pursuant to the fund's 12b-1 plan, under which the payments are deducted from the fund's assets and described in the fee table included in the fund's prospectus. 12b-1 payments from underlying funds range in amount from 0% to 0.25% of fund assets held in the separate account. In addition, payments may be made pursuant to service/administration agreements between Minnesota Life (or Minnesota Life affiliates) and the underlying mutual fund's investment adviser (or its affiliates), in which case payments are typically made from assets of that firm and not from the assets of the fund. Service and administrative payments reimburse Minnesota Life or its affiliates for such things as Minnesota Life's aggregation of all contract owner purchase, redemption, and transfer requests within the sub-accounts of the separate account each business day and the submission of one net purchase/redemption request to each underlying mutual fund. When the separate account aggregates such transactions through the separate account's omnibus account with an underlying mutual fund, the fund avoids the expenses associated with processing individual transactions. Those expenses are incurred by Minnesota Life as part of its contract administration. Service and administrative payments received by Minnesota Life or its affiliates range in amount from 0% to 0.35% of fund assets held in the separate account. Minnesota Life took into consideration anticipated payments from underlying mutual funds and their investment advisers (or the advisers' affiliates) when it determined the charges that are assessed under the contract. Without these payments, certain contract charges would likely be higher than they are currently. All of the underlying mutual funds offered in the contract currently pay 12b-1 fees to Minnesota Life, and some but not all of such funds' investment advisers (or the advisers' affiliates) currently pay service or administrative fees to Minnesota Life. Minnesota Life considers profitability when determining the charges in the contract. In early contract years, Minnesota Life does not anticipate earning a profit, since that is a time when administrative and distribution expenses are typically higher. Minnesota Life does, however, anticipate earning a profit in later contract years. In general, Minnesota Life's profit will be greater the longer a contract is held and the greater a contract's investment return. Page 16 CONTRACT CHARGES A. DEFERRED SALES CHARGE No sales charge is deducted from a 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 a surrender, a deferred sales charge may be deducted. This is for expenses related to the sale of the contracts. The amount of the deferred sales charge is determined from the percentages shown in the table below. The schedule in the table is applied separately to each purchase payment. All purchase payments will be allocated to a withdrawal or a surrender for this purpose on a first-in, first-out basis. It applies only to withdrawal or surrender of purchase payments we received within seven years of the date of the withdrawal or surrender. The applicable deferred sales charge percentage is as shown in the table below:
CONTRACT YEARS SINCE PAYMENT CHARGE - ---------------------------- ------ 0-1 7% 1-2 7% 2-3 6% 3-4 5% 4-5 4% 5-6 3% 6-7 2% 7 and thereafter 0%
The amount of the deferred sales charge is determined by: - calculating the number of years each purchase payment being withdrawn has been in the contract; - multiplying each purchase payment withdrawn by the appropriate sales charge percentage in the table; and - adding the deferred sales charge from all purchase payments so calculated. This amount is then deducted from your accumulation value. EXAMPLE Assuming that all amounts to be withdrawn are subject to a deferred sales load, if the contract owner requests a withdrawal of $1,000, and the applicable sales charge is 7% (because the purchase payment was made within the last 2 years), the contract owner will receive $1,000, the sales charge will be $75.27 (which represents the sales charge applied to the total amount withdrawn, including the sales charge) and the total withdrawn amount deducted from the accumulation value will equal $1,075.27. The deferred sales charge will not apply to: - amounts withdrawn in any calendar year that are less than or equal to the greater of: (1) accumulation value less purchase payments not previously withdrawn; or (2) 10% of the sum of purchase payments not previously withdrawn that have been received by us within seven years of withdrawal; - any amounts withdrawn to pay the contract fee; Page 17 - amounts payable as a death benefit upon the death of the owner or the annuitant, if applicable; - amounts applied to provide annuity payments under an annuity option; - amounts 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 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); - a surrender or withdrawal requested any time after the first contract anniversary when benefits are payable due to a qualifying confinement in a hospital or medical care facility as described below; or - a surrender or withdrawal requested any time after the first contract anniversary in the event that benefits are payable because of the diagnosis of a terminal illness as described below. A surrender or withdrawal request made any time after the first contract anniversary due to the owner's confinement in a hospital or medical care facility for at least 90 consecutive days will not be subject to a deferred sales charge. (This benefit is not available in Massachusetts.) The request must be made while the owner is still confined or within 60 days after the discharge from a hospital or medical care facility after a confinement of at least 90 consecutive days. A medical care facility for this purpose means a facility operated pursuant to law or any state licensed facility providing medically necessary in-patient care which is: - prescribed by a licensed Physician in writing; and - based on physical limitations which prohibit daily living in a non-institutional setting. A surrender or withdrawal request made any time after the first contract anniversary in the event the owner is diagnosed with a terminal illness will also not be subject to a deferred sales charge. A terminal illness for this purpose is a condition which: - is diagnosed by a licensed Physician; and - is expected to result in death within 12 months for 80% of diagnosed cases (except for Pennsylvania where the 80% limitation does not apply). For purposes of these provisions, we must receive due proof, satisfactory to us, of the owner's confinement or terminal illness in writing. Physician for this purpose means: - a licensed medical doctor (MD) or a licensed doctor of osteopathy (DO) practicing within the scope of his or her license; and - not the owner, the annuitant or a member of either the owner's or the annuitant's immediate families. In certain states (for example New Jersey or Texas) a surrender or withdrawal request due to the owner's confinement in a hospital or medical care facility; or if the owner is diagnosed with a terminal illness; may be made immediately after contract issue (rather than after the first contract anniversary). Please see your contract for the applicable provision in your state. Page 18 If the owner of this contract is other than a natural person, such as a trust or other similar entity, benefits payable due to nursing home confinement or terminal illness will be based upon the annuitant. If the owner, or annuitant in the case of a contract owned by a non-natural person, is changed subject to the provisions of this contract, there will be a one year waiting period before the new owner or annuitant is eligible for these benefits. 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. B. MORTALITY AND EXPENSE RISK CHARGES We assume mortality risk under the contract by our obligation to continue to make monthly annuity payments, in accordance with the annuity rate tables and other provisions in the contract, regardless of how long that annuitant lives or all annuitants as a group live. This assures an annuitant that neither the annuitant's own longevity nor an improvement in life expectancy generally will have an adverse effect on the monthly annuity payments received under the contract. Our expense risk is the risk that the charges under the contract will be inadequate to cover our expenses. For assuming these risks, we currently make a deduction from the Variable Annuity Account at the annual rate of 1.25% of net asset value. We reserve the right to increase the charge to not more than 1.40% on an annual basis. Certain states, such as Maryland, limit our ability to increase this charge. This charge is deducted during both the accumulation phase and the annuity phase of the contract. If these deductions are insufficient to cover our actual costs, then we will absorb the resulting losses. If the deductions are more than sufficient after the establishment of any contingency reserves deemed prudent or required by law, any excess will be profit (or "retained earnings") to us. Some or all of such profit may be used to cover any distribution costs not recovered through the deferred sales charge. C. ADMINISTRATIVE CHARGE We perform all contract administrative services. These include the review of applications, the preparation and issue of contracts, the receipt of purchase payments, forwarding amounts to the Funds for investment, the preparation and mailing of periodic reports and other services. For providing these services we make a deduction from the Variable Annuity Account at the annual rate of .15% of the net asset value of the Variable Annuity Account. We reserve the right to increase this administrative charge to an annual rate of not more than .40%. Certain states, such as Maryland, limit our ability to increase this charge. Because the charge is designed to cover administrative expenses, it is taken during both the accumulation period and the annuity period by the contract. Since the charge is taken from a contract on each valuation date, there is no return of any part of the charge in the event that the contract is redeemed. As the charge is made as a percentage of assets in the Variable Annuity Account, there is no necessary relationship between the amount of administrative charge imposed on a given contract and the amount of expenses that may be attributable to that contract. Page 19 D. CONTRACT FEE We charge a contract fee for maintaining the records and documents with each contract. This fee is the lesser of $30 or 2% of accumulation value at the end of the contract year. The contract fee will apply when the greater of either: - accumulation value or - purchase payments, less withdrawals, - is less than $50,000 at the end of the contract year. The fee is deducted on the contract anniversary pro rata from the General Account and Separate Account values, except in Washington and South Carolina where it is deducted only from the Separate Account values. E. PREMIUM TAXES Deduction for any applicable state premium taxes may be made from each purchase payment or when an annuity begins. Currently such taxes range from 0% to 3.5%, depending on applicable law. Any amount withdrawn from the contract may be reduced by any premium taxes not previously deducted. F. TRANSACTION CHARGES There currently is no charge for any transfer. However, we reserve the right to charge up to $10, for the second and subsequent transfers in any calendar month. VOTING RIGHTS We will vote the Fund shares held in the Variable Annuity Account at shareholder meetings of the Funds. We will vote shares attributable to contracts in accordance with instructions received from contract owners with voting interests in each sub-account of the Variable Annuity Account. We will vote shares for which no instructions are received and shares not attributable to contracts in the same proportion as shares for which instructions have been received. The number of votes for which a contract owner may provide instructions will be calculated separately for each sub-account of the Variable Annuity Account. If applicable laws should change so that we were allowed to vote shares in our own right, then we may elect to do so. During the accumulation period, you hold the voting interest in the contract. The number of votes will be determined by dividing the accumulation value of the contract attributable to each sub-account by the net asset value per share of the Fund shares held by that sub-account. During the annuity period the annuitant holds the voting interest in the contract. The number of votes will be determined by dividing the reserve for each contract allocated to each sub-account by the net asset value per share of the Fund shares held by that sub-account. After an annuity begins, the votes attributable to any particular contract will decrease as the reserves decrease. In determining any voting interest, we count fractional shares. We shall 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 with respect to voting. Page 20 DESCRIPTION OF THE CONTRACT A. GENERAL PROVISIONS 1. Flexible Payment Variable Annuity Contract The contract may be used in connection with all types of tax-qualified plans, state deferred compensation plans or individual retirement annuities 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. Purchase payments are flexible with respect to timing and amount. 2. Issuance of Contract The contract is issued to you, the contract owner named in the application. You may be the annuitant or you may specify someone else to be the annuitant. 3. Modification of the Contract Your contract may be modified at any time by written agreement between you and us. However, no such modification will adversely affect the rights of an annuitant under the contract unless the modification is made to comply with a law or government regulation. You will have the right to accept or reject the modification. 4. Assignment If the contract is sold in connection with a tax-qualified program (including employer sponsored employee pension benefit plans, tax-sheltered annuities and individual retirement annuities), then: - your or the annuitant's interest may not be assigned, sold, transferred, discounted or pledged as collateral for a loan or as security for the performance of an obligation or for any other purpose, and - to the maximum extent permitted by law, benefits payable under the contract shall be exempt from the claims of creditors. If the contract is not issued in connection with a tax-qualified program, any person's interest in the contract may be assigned during the lifetime of the annuitant. We will not be bound by any assignment until we have recorded written notice of it at our home office. We are not responsible for the validity of any assignment. An assignment will not apply to any payment or action made by us before it was recorded. Any payments to an assignee will be paid in a single sum. Any claim made by an assignee will be subject to proof of the assignee's interest and the extent of the assignment. 5. Limitations on Purchase Payments You choose when to make purchase payments. Purchase payments must be at least $2,000. This minimum may not apply under certain automatic or group payment plans, or if other retirement plan limitations apply. There may also be limits on the maximum contributions to retirement plans that qualify for special tax treatment. Certain states may also impose limitations on the timing or Page 21 frequency of purchase payments. For example, in the State of Oregon your initial purchase payment must be at least $5,000. There is no minimum amount which must be allocated to any sub-account of the Variable Annuity Account. In the Variable Annuity Account, your purchase payments are invested in the Funds according to your instructions. We will return your initial payment within five business days if: - your application fails to specify which Portfolios you desire, or is otherwise incomplete, and - you do not consent to our retention of your initial payment until the application is made complete. Total purchase payments under the contract may not exceed $5,000,000, except with our consent. The contract permits us to cancel your contract, and pay you its accumulation value if: - no purchase payments are made for a period of two or more full contract years, and - the total purchase payments made, less any withdrawals and associated charges, are less than $2,000, and - the accumulation value of the contract is less than $2,000. We will notify you, in advance, of our intent to exercise this right in our annual report to you about the status of your contract. We will cancel the contract ninety days after the contract anniversary unless we receive an additional purchase payment before the end of that ninety day period. Contracts issued in some states (for example, New Jersey) do not contain such a cancellation because the laws of those states do not permit it. Additional purchase payments will not be accepted while either the owner or joint owner qualifies under the nursing home or terminal illness provisions for the waiver of any contingent deferred sales charges. 6. Deferment of Payment We will pay any single sum payment within seven days after the date the payment is called for by the terms of the contract, unless the payment is postponed for: - any period during which the New York Stock Exchange is closed other than customary weekend and holiday closings, or during which trading on the New York Stock Exchange is restricted, as determined by the SEC; - any period during which an emergency exists as determined by the SEC as a result of which it is not reasonably practical to dispose of securities in the Portfolio(s) or to fairly determine the value of the assets of the Portfolio(s); or - other periods the SEC by order permits for the protection of the contract owners. Page 22 B. ANNUITY PAYMENTS AND OPTIONS 1. Annuity Payments Variable annuity payments are determined on the basis of: - the mortality table specified in the contract, which reflects the age of the annuitant, - the type of annuity payment option you select, and - the investment performance of the Fund Portfolios you select. The amount of the variable annuity payments will not be affected by adverse mortality experience or by an increase in our expenses in excess of the expense deductions provided for in the contract. The annuitant will receive the value of a fixed number of annuity units each month. The value of those units, and thus the amounts of the monthly annuity payments will, however, reflect investment gains and losses and investment income of the Funds. Thus, the annuity payments will vary with the investment experience of the assets of the Portfolio of the Fund you select. 2. Electing the Retirement Date and Form of Annuity The contract provides for four annuity options. Any one of them may be elected if permitted by law. Each annuity option may be elected on either a variable annuity or a fixed annuity basis, or a combination of the two. We may make other annuity options available on request. While the contract requires that we must receive your notice of election to begin annuity payments at least 30 days prior to the annuity commencement date, we are currently waiving that requirement for variable annuity elections received at least 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. The contract permits an annuity payment to begin on the first day of any month. Under the contract, if you do not make an election, annuity payments will begin on the later of: - the 85th birthday of the annuitant, or - seven years after the date of issue of the contract. Currently, it is our practice to await your instructions before beginning to pay annuity payments. If you fail to elect an annuity option, a variable annuity will be provided and the annuity option will be Option 2A, a life annuity with a period of 120 months. The minimum first monthly annuity payment on either a variable or fixed dollar basis must be at least $20. If the first monthly annuity payment would be less than $20, we may fulfill our obligation by paying in a single sum the surrender value of the contract which would otherwise have been applied to provide annuity payments. The maximum amount which may be applied to provide a fixed annuity under the contract is $1,000,000. Except for Option 4, once annuity payments have commenced, you cannot surrender an annuity benefit and receive a single sum settlement in lieu thereof. The exception for Option 4 does not apply to a beneficiary who elects to annuitize as a settlement option. 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. Page 23 3. Annuity Options OPTION 1 -- LIFE ANNUITY This is an annuity payable monthly during the lifetime of the annuitant and terminating with the last scheduled payment preceding the death of the annuitant. This option offers the maximum monthly payment (of those options involving life contingencies) since there is no guarantee of a minimum number of payments or provision for a death benefit for beneficiaries. It would be possible under this option for the annuitant to receive only one annuity payment if he or she died prior to the due date of the second annuity payment, two if he or she died before the due date of the third annuity payment, etc. OPTION 2 -- LIFE ANNUITY WITH A PERIOD CERTAIN OF 120 MONTHS (OPTION 2A), 180 MONTHS (OPTION 2B), OR 240 MONTHS (OPTION 2C) This is an annuity payable monthly during the lifetime of the annuitant, with the guarantee that if the annuitant dies before payments have been made for the period certain elected, payments will continue to the beneficiary during the remainder of the period certain. If the beneficiary so elects at any time during the remainder of the period certain, the present value of the remaining guaranteed number of payments, based on the then current dollar amount of one such payment and using the same interest rate which served as a basis for the annuity, shall be paid in a single sum to the beneficiary. OPTION 3 -- JOINT AND LAST SURVIVOR ANNUITY This is an annuity payable monthly during the joint lifetime of the annuitant and a designated joint annuitant and continuing thereafter during the remaining lifetime of the survivor. Under this option there is no guarantee of a minimum number of payments or provision for a death benefit for beneficiaries. If this option is elected, the contract and payments shall then be the joint property of the annuitant and the designated joint annuitant. It would be possible under this option for both annuitants to receive only one annuity payment if they both died prior to the due date of the second annuity payment, two if they died before the due date of the third annuity payment, etc. OPTION 4 -- PERIOD CERTAIN ANNUITY This is an annuity payable monthly for a period certain of 10 to 20 years, as elected. At any time prior to the annuitant's death, the annuitant may elect to withdraw the commuted value of any portion of the remaining annuity payments as determined by Minnesota Life. Redemption requests for any period certain annuity may not be less than the minimum contract withdrawal amount. Commutation prior to death is not available on the General Account. If the annuitant dies before all payments have been made for the period certain elected, payments will continue to the beneficiary during the remainder of the period certain, or be commuted to a present value as determined by Minnesota Life and paid as either a single sum or applied to effect a life annuity under Option 1 or Option 2, at the beneficiary's election. 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 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. Page 24 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). If, when annuity payments are elected, we are using tables of annuity rates for this contract which result in larger annuity payments, we will use those tables instead. The dollar amount of the first monthly variable annuity payment is determined by applying the accumulation value (minus any premium tax deduction) to a rate per $1,000 which is based on the Individual Annuity 1983 Table A female mortality rates with an age setback of one year 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 annuitant. This determination is made separately for each sub-account of the Variable Annuity Account. The number of annuity units is based upon the accumulation value in each sub-account as of the date annuity payments are to begin. The dollar amount determined for each sub-account will then be aggregated for purposes of making payments. The 4.50% interest rate assumed in the variable annuity determination would produce level annuity payments if the net investment factor remained constant at 4.50% per year. Subsequent variable annuity payments will decrease, remain the same or increase depending upon whether the actual net investment factor is less than, equal to, or greater than 4.50%. Annuity payments are always made as of the first day of a month. The contract requires that we receive notice of election to begin annuity payments at least thirty days prior to the annuity commencement date. We currently waive this notice requirement, but reserve the right to enforce it in the future. Money will be transferred to the General Account for the purpose of electing fixed annuity payments, or to the appropriate variable sub-accounts for variable annuity payments. The transfer will occur on the valuation date on or next following the date on which the request is received. The account value used to determine the fixed annuity payment will be the value as of the last valuation date of the month preceding the annuity commencement date. The account value used to determine the initial variable annuity payment will be the value as of the first valuation date following the fourteenth day of the month prior to the annuity commencement date. If the request for a fixed or variable annuity payment is not received at least three valuation days prior to the date used to determine the account value as described above, the annuity commencement date will be changed to the first of the month following the requested annuity commencement date. Page 25 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 multiplied by the annuity unit value for that sub-account as of the due date of the payment. This amount may increase or decrease from month to month. 6. Value of the Annuity Unit The value of an annuity unit for a sub-account is determined monthly as of the first day of each month by multiplying the value on the first day of the preceding month by the product of: - .996338, and - the ratio of the value of the accumulation unit for that sub-account for the valuation date next following the fourteenth day of the preceding month to the value of the accumulation unit for the valuation date next following the fourteenth day of the second preceding month (.996338 is a factor to neutralize the assumed net investment factor, as discussed above, of 4.5% per annum built into the first payment calculation which is not applicable because the actual net investment rate is credited instead). The value of an annuity unit for a sub-account as of any date other than the first day of a month is equal to its value as of the first day of the next succeeding month. 7. Transfer of Annuity Reserves During the annuity period, we hold amounts as "reserves" for our obligations to make annuity payments under your contract. You specify where we hold those reserves. If you specify a sub-account of the Variable Annuity Account, then the amount of your annuity payments will vary with the performance of that sub-account. Amounts held as annuity reserves may be transferred among the sub-accounts. Annuity reserves may also be transferred from a variable annuity to a fixed annuity during this time. The change must be made by a written request. The annuitant and joint annuitant, if any, must make such an election. There are restrictions to such a transfer: - The transfer of an annuity reserve amount from any sub-account must be at least equal to $5,000 or the entire amount of the reserve remaining in that sub-account, if less. - Annuity payments must have been in effect for a period of 12 months before a change may be made. - Such transfers can be made only once every 12 months. - We must receive the written request for an annuity transfer more than 30 days in advance of the due date of the annuity payment subject to the transfer. Upon request, we will 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 being transferred from the sub-account will be converted to a number of annuity units in the new sub-account. The annuity payment option will remain the same and cannot be changed. After this conversion, a number of annuity units in the new sub-account will be payable under the elected option. The first payment after conversion will be of the same amount as it would have been without the transfer. The number of annuity units will be set at the number of units which are needed to pay that same amount on the transfer date. Page 26 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. However, if your annuity is based upon annuity units in a sub-account which matures on a date other than the stated annuity valuation date, then your annuity units will be adjusted to reflect sub-account performance in the maturing sub-account to which reserves are transferred for the period between annuity valuation dates. Contracts with this transfer feature may not be available in all states. C. DEATH BENEFITS If you die before annuity payments begin, we will pay the death benefit to the beneficiary. If the owner of this contract is other than a natural person, such as a trust or other similar entity, we will pay the death benefit to the beneficiary on the death of the annuitant, if it occurs prior to the date that annuity payments have started. The death benefit will be paid in a single sum to the beneficiary designated unless an annuity payment option is elected. If the owner or the annuitant, if applicable, dies prior to his or her 80th birthday, the death benefit is the greater of: - accumulation value payable at death; or - the total amount of purchase payments, less all partial withdrawals; or - the last "stepped-up value" prior to the date of death, adjusted for any purchase payments and proportionately for withdrawals occurring thereafter. The definition of this "stepped-up value" is described below. If the contract owner or the annuitant, if applicable, dies on or after his or her 80th birthday, the death benefit is the greater of: - the accumulation value payable at death; or - the total amount of purchase payments, less all partial withdrawals; or - the last stepped-up value prior to the date of death, adjusted proportionately for any withdrawals occurring thereafter. Page 27 The stepped-up value will be determined on each contract anniversary that is an exact multiple of three and is prior to the 80th birthday of the owner or the annuitant, if applicable. The stepped-up value is the greater of: (a) accumulation value on that contract anniversary; or (b) the previous stepped-up value adjusted proportionately for any withdrawals occurring thereafter and adjusted for any contributions up to age 80. Where joint owners exist, there will be no further stepped-up values after the 80th birthday of the oldest joint owner. After the death of the first joint owner, stepped-up values may resume on the next contract anniversary that is an exact multiple of three providing the surviving joint owner continues the contract and has not yet reached his or her 80th birthday. If there are joint owners of the contract, at the death of the first owner, there will be no death benefit adjustment to the accumulation value, if the surviving owner elects to continue the contract. If any portion of the death benefit is payable to the designated beneficiary who is also the surviving spouse, that spouse shall be treated as the contract owner for purposes of: (1) when payments must begin, and (2) the time of distribution in the event of that spouse's death. In addition, if a surviving spouse elects to assume his or her deceased spouse's contract, there will be no adjustment to the accumulation value in the form of a death benefit. 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 death. If there is no designated beneficiary, then the entire value in the contract must be distributed within five years after the death. If the annuitant dies after annuity payments have started, we will pay whatever amount may be required by the terms of the annuity payment option selected. The remaining value in the contract must be distributed at least as rapidly as under the option in effect at the annuitant's death. To illustrate the death benefit, if you die before annuity payments begin, assume a contract is issued to an owner at age 63. A single purchase payment of $10,000 is made. On the third contract anniversary (owner age 66), the stepped-up value is determined to be $12,000, the accumulation value on that contract anniversary. The death benefit at this point in time is $12,000 since the death benefit is the greater of accumulation value ($12,000), purchase payments less withdrawals ($10,000), or the last stepped up value adjusted for any withdrawals ($12,000). Stepped-up values and death benefits for the sixth, ninth, twelfth, and fifteenth contract anniversaries are calculated in a similar fashion and are shown in the table below. On the eighteenth contract anniversary, the death benefit is not stepped-up since there are no further stepped-up values after the 80(th) birthday of the owner.
CONTRACT PURCHASE PAYMENTS ACCUMULATION STEPPED-UP DEATH ANNIVERSARY AGE LESS WITHDRAWALS VALUE DEATH BENEFIT BENEFIT - ----------- --- ----------------- ------------ ------------- ------- 0 63 10,000 10,000 n/a 10,000 3 66 10,000 12,000 12,000 12,000 6 69 10,000 16,000 16,000 16,000 9 72 10,000 18,000 18,000 18,000 12 75 10,000 14,000 18,000 18,000 15 78 10,000 22,000 22,000 22,000 18 81 10,000 24,000 22,000 24,000
Page 28 MULTIOPTION ACHIEVER DEATH BENEFIT ILLUSTRATION [PERFORMANCE GRAPH] 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 guaranteed 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 as 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 on or following the date we receive the purchase payment at our home office. When the contract is originally issued, application forms are completed by the applicant and forwarded to our home office. We will review each application form for compliance with our issue criteria and, if it is accepted, we will issue a contract. Applications received without instructions as to allocations will be treated as incomplete. If your initial purchase payment is accompanied by an incomplete application, your purchase payment will not be credited until we receive a completed application. We will immediately return your initial purchase payment in full if it appears your application cannot be completed within five business days, unless you specifically consent to our holding your purchase payment until your application is completed. Page 29 We will credit your purchase payments to your contract in the form of accumulation units. The number of accumulation units credited with respect to each purchase payment is determined by dividing the portion of the purchase payment allocated to each sub-account by the then current accumulation unit value for that sub-account. The number of accumulation units so determined shall not be changed by any subsequent change in the value of an accumulation unit, but the value of an accumulation unit will vary from valuation date to valuation date to reflect the investment experience of the Funds. We will determine the value of accumulation units on each day on which each Portfolio is valued. The net asset value of the Funds' shares shall be computed once daily, and, in the case of Money Market Portfolio, after the declaration of the daily dividend, as of the primary closing time for business on the New York Stock Exchange (currently, 3:00 p.m., Central time), on each day, Monday through Friday, except: - days on which changes in the value of that Fund's portfolio securities will not materially affect the current net asset value of that Fund's shares, - days during which none of that Funds' shares are tendered for redemption and no order to purchase or sell that Funds' shares is received by that 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 we receive 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 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 Page 30 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 or fraudulent instructions. We require that you, or persons authorized by you, log-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. One type of systematic transfer arrangement offered for certain contracts is known as 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 $1,000 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. Page 31 3. Market Timing and Disruptive Trading This contract is not designed to be used as a vehicle for frequent trading (i.e., transfers) in response to short-term fluctuations in the securities markets, often referred to generally as "market timing." Market timing activity and frequent trading in your contract can disrupt the efficient management of the underlying portfolios and their investment strategies, dilute the value of portfolio shares held by long-term shareholders, and increase portfolio expenses (including brokerage or other trading costs) for all portfolio shareholders, including long-term contract owners invested in affected portfolios who do not generate such expenses. It is the policy of Minnesota Life to discourage market timing and frequent transfer activity, and, when Minnesota Life becomes aware of such activity, to take steps to attempt to minimize the effect of frequent trading activity in affected portfolios. You should not purchase this contract if you intend to engage in market timing or frequent transfer activity. We have developed policies and procedures to detect and deter market timing and other frequent transfers, and we will not knowingly accommodate or create exceptions for contract owners engaging in such activity. We employ various means to attempt to detect and deter market timing or other abusive transfers. However, our monitoring may be unable to detect all harmful trading nor can we ensure that the underlying portfolios will not suffer disruptions or increased expenses attributable to market timing or abusive transfers resulting from other insurance carriers which invest in the same portfolios. In addition, because market timing can only be detected after it has occurred to some extent, our policies to stop market timing activity do not go into effect until after we have identified such activity. We reserve the right to restrict the frequency of -- or otherwise modify, condition or terminate -- any transfer method(s). Your transfer privilege is also subject to modification if we determine, in our sole discretion, that the exercise of the transfer privilege by one or more contract owners is or would be to the disadvantage of other contract owners. Any new restriction that we would impose will apply to your contract without regard to when you purchased it. We also reserve the right to implement, administer, and charge you for any fees or restrictions, including redemption fees that may be imposed by an underlying portfolio attributable to transfers in your contract. We will consider one or more of the following factors: - the dollar amount of the transfer(s); - whether the transfers are part of a pattern of transfers that appear designed to take advantage of market inefficiencies; - whether an underlying portfolio has requested that we look into identified unusual or frequent activity in a portfolio; - the number of transfers in the previous calendar quarter; - whether the transfers during a quarter constitute more than two "round trips" in a particular portfolio. A round trip is a purchase into a portfolio and a subsequent redemption out of the portfolio, without regard to order. In the event your transfer activity is identified as disruptive or otherwise constitutes a pattern of market timing, you will be notified in writing that your transfer privileges will be restricted in the future if the activity continues. Upon our detecting further prohibited activity, you will be notified in writing that your transfer privileges are limited to transfer requests delivered via regular Page 32 U.S. mail only. No fax, voice, internet, courier or express delivery requests will be accepted. The limitations for the transfer privileges in your contract will be permanent. None of these limitations apply to transfers under systematic transfer programs such as Dollar Cost Averaging or Automatic Portfolio Rebalancing. 4. MultiOption Wealthbuilder Credit Where allowed by law, we reserve the right to credit certain additional amounts ("Wealthbuilder Credit") to your contract if you make large purchase payments. We pay for your Wealthbuilder Credit with funds from our General Account. We reserve the right to modify, suspend or terminate this Wealthbuilder Credit program at any time, or from time to time, without notice. The current breakpoints for qualifying for a Wealthbuilder Credit are shown below. Also shown is the value of the Wealthbuilder Credit as a percentage of your purchase payment.
WEALTHBUILDER CREDIT AS A PURCHASE PAYMENT PERCENTAGE OF THE PURCHASE PAYMENT ---------------- ---------------------------------- $ 0- 499,999 0.000% 500,000- 749,999 0.375 750,000- 999,999 0.750 1,000,000-1,499,999 1.125 1,500,000-1,999,999 1.500 2,000,000-2,499,999 1.875 2,500,000-2,999,999 2.250 3,000,000-3,999,999 2.625 4,000,000-5,000,000 3.000
Your Wealthbuilder Credit is added the next business day after your purchase payments are allocated to your contract, and is allocated to the investment options in the same manner as the purchase payment. If you exercise your right to return your contract under the free look provision, the value of any Wealthbuilder Credit as of the date your contract is cancelled will be deducted from your accumulated value prior to determining the amount to be returned to you. This means that any loss attributable to the Wealthbuilder Credit amount will be borne by Minnesota Life if cancelled during the free look period. Similarly, the gain, if any attributable to the Wealthbuilder Credit amount, will be recaptured by Minnesota Life in the event of cancellation during the free look period. We do not consider the Wealthbuilder Credit to be part of your "investment in the contract" for income tax purposes (see "Federal Tax Status"). Generally, Wealthbuilder Credit will be treated as gain upon distribution. Wealthbuilder Credit amounts may be withdrawn without assessment of the deferred sales charge (see "Deferred Sales Charge"). Each time a new purchase payment is made, a new Wealthbuilder Credit will be calculated. The applicable percentage from the chart will be based on the total cumulative purchase payments to date, including the new purchase payment, less all prior purchase payments withdrawn. The new Wealthbuilder Credit equals the percentage from the table multiplied by the amount of the new purchase payment only. Notwithstanding the preceding formula, purchase payments received within 60 days of the contract issue date (or prior to annuitization if earlier) will be treated as a single purchase payment to determine if an additional Wealthbuilder Credit may apply. We will re-calculate the Wealthbuilder Page 33 Credit the earlier of your annuitization date or 60 days after the contract issue date. At that time we will aggregate all purchase payments received to date, less any purchase payments withdrawn, and treat those purchase payments as if they were all received as a single purchase payment. Any additional Wealthbuilder Credit amount that may be due as a result of this re-calculation will be added the next business day. Purchase payments received after this time will continue to be calculated according to the formula preceding this paragraph. 5. Value of the Contract The accumulation value of your contract at any time prior to when annuity payments begin can be determined by multiplying the number of accumulation units of each sub-account to which you allocate values by the current value of these units and then adding the values so calculated. There is no assurance that your accumulation value will equal or exceed your purchase payments. We will advise you periodically of the number of accumulation units in your contract, the current value of each accumulation unit, and its total value. 6. Accumulation Unit Value The value of an accumulation unit for each sub-account of the Variable Annuity Account was set at $1.000000 on the first valuation date of the sub-account. The value of an accumulation unit on any subsequent valuation date is determined by multiplying: - the value of that accumulation unit on the immediately preceding valuation date by - the net investment factor for the applicable sub-account (described below) for the valuation period just ended. The value of an accumulation unit any day other than a valuation date is its value on the next valuation date. 7. Net Investment Factor for Each Valuation Period The net investment factor is an index used to measure the investment performance of a sub-account from one valuation period to the next. For any sub-account, the net investment factor for a valuation period is the gross investment rate for that sub-account for the valuation period, less a deduction for the mortality and expense risk charge at the current rate of 1.25% per annum and a deduction for the administration charge at the current rate of .15% 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 34 E. REDEMPTIONS 1. Partial Withdrawals and Surrender Prior to the date annuity payments begin you may make partial withdrawals from your contract in amounts of at least $250. Your withdrawal or surrender request must be in writing and signed. It may be sent to us via facsimile. Our FAX number is: 1-651-665-7942. There are risks associated with not requiring original signatures in order to disburse contract owner monies. Payment of a partial withdrawal or surrender will be made to you within 7 days after we receive your completed request. Your accumulation value will be reduced by the amount of your withdrawal and any applicable 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. We will waive the applicable dollar amount limitation: - on withdrawals where a systematic withdrawal program is in place and the smaller amount satisfies the minimum distribution requirements of the Code, or - the withdrawal is requested because of an excess contribution to a tax-qualified contract. Withdrawal values will be determined as of the valuation date we received your written withdrawal request at our home office. Unless you tell us otherwise, withdrawals including systematic withdrawals, will be made from the sub-accounts on a pro rata basis. Please note that you can only make pro rata withdrawals from 20 sub-accounts on systematic withdrawals. Before annuity payments begin, you may surrender the contract for its surrender value. You will receive in a single cash sum the accumulation value computed as of the valuation date your surrender request is received, reduced by any applicable deferred sales charge. In lieu of a cash sum payment, you may elect an annuity. In most cases, once annuity payments begin for an annuitant, the annuitant cannot surrender that annuity benefit and receive a single sum instead. 2. Right of Cancellation You should read your contract carefully as soon as you receive it. You may cancel your purchase of a contract within ten days after its delivery, for any reason, by giving us written notice at 400 Robert Street North, St. Paul, Minnesota 55101-2098. If you cancel and return your contract, we will refund to you the greater of: - the accumulation value of the contract, or - the amount of purchase payments paid under the contract. Payment of the requested refund will be made to you within seven days after we receive notice of cancellation. In some states, the free look period may be longer. For example, California's free look period is thirty days. Those rights are subject to change and may vary among the states. The liability of the Variable Annuity Account is limited to the accumulation value of the contract at the time it is returned for cancellation. We will pay for any additional amounts necessary to make our refund to you equal to your purchase payments. Page 35 F. GENERAL ACCOUNT 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. 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. TAXATION OF MINNESOTA LIFE AND THE VARIABLE ANNUITY ACCOUNT 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 under the annuity option elected. 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 income 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 with a single premium or annuity consideration, (ii) the annuity starting date of which commences within one year from the date of Page 36 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. Corporations, 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 income 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 In connection with its issuance of temporary and 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" (which would result in the current taxation of the income on those assets to the contract owner). In Revenue Ruling 2003-91, the IRS provided such guidance by describing the circumstances under which the owner of a variable contract will not possess sufficient control over the assets underlying the contract to be treated as the owner of those assets for federal income tax purposes. Under the contracts in Rev. Rul. 2003-91, there was no arrangement, plan, contract or agreement between an owner and the insurance company regarding the availability of a particular investment option and other than an owner's right to allocate premiums and transfer funds among the available sub-accounts, all investment decisions concerning the sub-accounts were made by the insurance company or an advisor in its sole and absolute discretion. Rev. Rul. 2003-91 states that the determination of whether the owner of a variable contract is to be treated as the owner of the assets held by the insurance company under the contract will depend on all of the facts and circumstances. Minnesota Life does not believe that the ownership rights of a contract owner under the contract would result in any contract owner being treated as the owner of the assets of the Variable Annuity Account under Rev. Rul. 2003-91. However, Minnesota Life does not know whether additional guidance will be provided by the IRS on this issue and what standards may be contained in such guidance. Minnesota Life therefore reserves the right to modify the contract as necessary to attempt Page 37 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 "investment in the contract" (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 investment in the contract. All taxable amounts received under an annuity contract are subject to tax at ordinary rather than capital gain tax rates. In the case of a withdrawal under an annuity that is part of a tax-qualified retirement plan, a portion of the amount received is taxable based on the ratio of the "investment in the contract" to the individual's balance in the retirement plan, generally the value of the annuity. The "investment in the contract" generally equals the portion of any deposits made by or on behalf of an individual under an annuity which was 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 investment in 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 investment in 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 benefit payments are generally taxable to the recipient. 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 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. Page 38 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 qualified plans, this exception to the 10% additional tax applies only if payments begin after separation from service. 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 Transfers, assignments and certain designations of annuitants can have tax consequences. 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. 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. Page 39 The requirements of (b) above will be considered satisfied with respect to 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. 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 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. Page 40 Any annuity contract that is part of a qualified retirement plan must comply with the required minimum distribution (RMD) provisions of the Code, and the implementing regulations. A failure to comply with the RMD requirements will generally result in the imposition of an excise tax on the recipient equal to 50% of the amount by which the RMD exceeds the amount actually distributed. The IRS regulations permit treat partial withdrawals from your qualified retirement plan contract after annuity payments have begun after the required beginning date under certain limited circumstances as a violation of the RMD requirements. We will notify any holder of a contract issued under a qualified plan who requests a partial withdrawal of the effects of such a withdrawal on the contract prior to processing the withdrawal. 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) if later, 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. 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 life 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 should be noted that amounts received by individuals which are eligible for rollover may still be placed in another tax-qualified plan or Page 41 individual retirement account or individual retirement annuity if the transaction is completed within 60 days after the distribution has been received. However a taxpayer must replace withheld amounts with other funds in order 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 quotations for one year, five year and ten year periods and for the period when the underlying Portfolios first became available to the Variable Annuity Account. Such performance data may be accompanied by cumulative total return quotations for the comparable periods. For periods prior to the date of this Prospectus the quotations will be based on the assumption that the contract described herein were issued when the underlying Portfolios first became available to the Variable Annuity Account under other contracts issued by us. The money market sub-account may also quote such average annual and cumulative total return figures. Performance figures used by the Variable Annuity Account are based on historical information of the sub-accounts for specified periods, and the figures are not intended to suggest that such performance will continue in the future. Performance figures of the Variable Annuity Account will reflect charges made pursuant to the terms of the contracts offered by this Prospectus and charges of underlying funds. More detailed information on the computations is set forth in the Statement of Additional Information. STATEMENT OF ADDITIONAL INFORMATION A Statement of Additional Information, which contains additional information including financial statements, is available from us at your request. The table of contents for that Statement of Additional Information is as follows: General Information and History Distribution of Contracts Performance Data Auditors Registration Statement Financial Statements Page 42 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 period from the inception of each to December 31, 2004. Sub-accounts that became available after that time are not included. This information should be read in conjunction with the financial statements and related notes of the Variable Annuity Account included in this Prospectus.
2004 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- ---- BOND SUB-ACCOUNT: Unit value at beginning of period...................... $ 1.31 $ 1.26 $ 1.16 $ 1.09 $ 1.00 $ 1.00(a) Unit value at end of period... $ 1.35 $ 1.31 $ 1.26 $ 1.16 $ 1.09 $ 1.00 Number of units outstanding at end of period............... 21,494,605 25,909,159 23,681,107 15,745,921 6,623,899 765,852 INDEX 400 MID-CAP SUB-ACCOUNT: Unit value at beginning of period...................... $ 1.35 $ 1.02 $ 1.22 $ 1.25 $ 1.09 $ 1.00(a) Unit value at end of period... $ 1.55 $ 1.35 $ 1.02 $ 1.22 $ 1.25 $ 1.09 Number of units outstanding at end of period............... 5,004,688 5,148,241 4,713,421 4,064,699 2,634,518 398,475 INDEX 500 SUB-ACCOUNT: Unit value at beginning of period...................... $ 0.81 $ 0.64 $ 0.84 $ 0.97 $ 1.09 $ 1.00(a) Unit value at end of period... $ 0.88 $ 0.81 $ 0.64 $ 0.84 $ 0.97 $ 1.09 Number of units outstanding at end of period............... 30,531,817 32,775,746 29,546,722 25,641,202 17,088,669 2,038,959 INTERNATIONAL BOND SUB-ACCOUNT: Unit value at beginning of period...................... $ 1.33 $ 1.12 $ 0.96 $ 0.99 $ 0.99 $ 1.00(a) Unit value at end of period... $ 1.46 $ 1.33 $ 1.12 $ 0.96 $ 0.99 $ 0.99 Number of units outstanding at end of period............... 7,040,204 8,574,661 8,519,304 6,022,517 3,324,904 342,453 MATURING GOVERNMENT BOND 2006 SUB-ACCOUNT: Unit value at beginning of period...................... $ 1.35 $ 1.34 $ 1.20 $ 1.13 $ 0.99 $ 1.00(a) Unit value at end of period... $ 1.33 $ 1.35 $ 1.34 $ 1.20 $ 1.13 $ 0.99 Number of units outstanding at end of period............... 271,920 299,859 344,706 335,342 270,313 102,972 MATURING GOVERNMENT BOND 2010 SUB-ACCOUNT: Unit value at beginning of period...................... $ 1.44 $ 1.42 $ 1.22 $ 1.18 $ 0.98 $ 1.00(a) Unit value at end of period... $ 1.47 $ 1.44 $ 1.42 $ 1.22 $ 1.18 $ 0.98 Number of units outstanding at end of period............... 421,516 494,366 613,153 487,501 484,046 4,254 MONEY MARKET SUB-ACCOUNT: Unit value at beginning of period...................... $ 1.07 $ 1.08 $ 1.08 $ 1.06 $ 1.01 $ 1.00(a) Unit value at end of period... $ 1.06 $ 1.07 $ 1.08 $ 1.08 $ 1.06 $ 1.01 Number of units outstanding at end of period............... 6,231,731 9,645,256 17,966,326 18,083,995 13,677,970 3,372,875 MORTGAGE SECURITIES SUB- ACCOUNT: Unit value at beginning of period...................... $ 1.32 $ 1.29 $ 1.19 $ 1.11 $ 1.00 $ 1.00(a) Unit value at end of period... $ 1.37 $ 1.32 $ 1.29 $ 1.19 $ 1.11 $ 1.00 Number of units outstanding at end of period............... 26,275,858 33,367,107 33,981,412 23,580,046 9,161,060 989,073
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2004 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- ---- REAL ESTATE SECURITIES SUB- ACCOUNT: Unit value at beginning of period...................... $ 1.93 $ 1.38 $ 1.30 $ 1.21 $ 0.97 $ 1.00(a) Unit value at end of period... $ 2.58 $ 1.93 $ 1.38 $ 1.30 $ 1.21 $ 0.97 Number of units outstanding at end of period............... 6,976,637 6,782,868 5,448,250 1,845,023 471,189 17,691 AIM V.I. AGGRESSIVE GROWTH SUB-ACCOUNT: Unit Value at beginning of period...................... $ 0.95 $ 0.76 $ 1.00(d) Unit Value at end of period... $ 1.05 $ 0.95 $ 0.76 Number of units outstanding at end of period............... 526,815 464,421 200,861 AIM V.I. BALANCED SUB-ACCOUNT: Unit Value at beginning of period...................... $ 0.99 $ 0.86 $ 1.00(d) Unit Value at end of period... $ 1.04 $ 0.99 $ 0.86 Number of units outstanding at end of period............... 415,192 430,916 202,181 AIM V.I. DENT DEMOGRAPHIC TRENDS SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.00 $ 0.74 $ 1.00(d) Unit Value at end of period... $ 1.06 $ 1.00 $ 0.74 Number of units outstanding at end of period............... 197,435 280,686 44,099 AIM V.I. PREMIER EQUITY SUB-ACCOUNT: Unit Value at beginning of period...................... $ 0.95 $ 0.77 $ 1.00(d) Unit Value at end of period... $ 0.99 $ 0.95 $ 0.77 Number of units outstanding at end of period............... 305,239 406,453 333,328 AMERICAN CENTURY INVESTMENTS VP INCOME & GROWTH SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.04 $ 0.82 $ 1.00(d) Unit Value at end of period... $ 1.16 $ 1.04 $ 0.82 Number of units outstanding at end of period............... 843,426 715,153 271,073 AMERICAN CENTURY INVESTMENTS VP ULTRA(R) SUB-ACCOUNT: Unit Value at beginning of period...................... $ 0.98 $ 0.79 $ 1.00(d) Unit Value at end of period... $ 1.07 $ 0.98 $ 0.79 Number of units outstanding at end of period............... 4,961,428 4,718,784 1,768,593 AMERICAN CENTURY INVESTMENTS VP VALUE SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.10 $ 0.86 $ 1.00(d) Unit Value at end of period... $ 1.23 $ 1.10 $ 0.86 Number of units outstanding at end of period............... 1,947,986 1,498,981 607,599 CREDIT SUISSE SMALL CAP SUB- ACCOUNT:(N) Unit Value at beginning of period...................... $ 0.50 $ 0.34 $ 0.53 $ 0.75 $ 1.00(c) Unit Value at end of period... $ 0.58 $ 0.50 $ 0.34 $ 0.53 $ 0.75 Number of units outstanding at end of period............... 1,811,358 1,916,975 1,322,691 1,262,527 525,721
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2004 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- ---- FIDELITY VIP FUNDS: CONTRAFUND(R) SUB-ACCOUNT: Unit Value at beginning of period...................... $ 0.91 $ 0.72 $ 0.81 $ 0.94 $ 1.00(b) Unit Value at end of period... $ 1.04 $ 0.91 $ 0.72 $ 0.81 $ 0.94 Number of units outstanding at end of period............... 16,513,505 16,481,165 14,941,588 11,456,649 6,405,759 FIDELITY VIP FUNDS: EQUITY- INCOME SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.10 $ 0.86 $ 1.05 $ 1.12 $ 1.00(b) Unit Value at end of period... $ 1.20 $ 1.10 $ 0.86 $ 1.05 $ 1.12 Number of units outstanding at end of period............... 18,931,006 19,300,694 15,223,284 8,789,373 3,181,017 FIDELITY VIP FUNDS: MID CAP SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.42 $ 1.04 $ 1.18 $ 1.24 $ 1.00(b) Unit Value at end of period... $ 1.75 $ 1.42 $ 1.04 $ 1.18 $ 1.24 Number of units outstanding at end of period............... 9,708,842 9,614,828 8,753,213 6,545,701 3,844,655 FRANKLIN LARGE CAP GROWTH SECURITIES SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.03 $ 0.82 $ 1.00(d) Unit Value at end of period... $ 1.09 $ 1.03 $ 0.82 Number of units outstanding at end of period............... 594,301 552,200 244,326 FRANKLIN SMALL-MID CAP GROWTH SECURITIES SUB-ACCOUNT:(O) Unit Value at beginning of period...................... $ 0.64 $ 0.47 $ 0.67 $ 0.80 $ 1.00(c) Unit Value at end of period... $ 0.70 $ 0.64 $ 0.47 $ 0.67 $ 0.80 Number of units outstanding at end of period............... 9,343,826 10,016,452 8,972,535 5,712,939 1,852,562 MUTUAL SHARES SECURITIES SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.04 $ 0.84 $ 1.00(d) Unit Value at end of period... $ 1.16 $ 1.04 $ 0.84 Number of units outstanding at end of period............... 1,989,072 1,257,096 670,423 TEMPLETON DEVELOPING MARKETS SECURITIES SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.08 $ 0.72 $ 0.73 $ 0.80 $ 1.20 $ 1.00(a) Unit Value at end of period... $ 1.33 $ 1.08 $ 0.72 $ 0.73 0.80 $ 1.20 Number of units outstanding at end of period............... 3,884,795 802,588 3,367,040 2,872,730 2,179,968 268,232 TEMPLETON GLOBAL ASSET ALLOCATION SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.05 $ 0.81 $ 0.86 $ 0.97 $ 1.00(c) Unit Value at end of period... $ 1.20 $ 1.05 $ 0.81 $ 0.86 $ 0.97 Number of units outstanding at end of period............... 3,031,549 2,795,916 2,246,352 1,290,152 161,983 JANUS ASPEN: BALANCED SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.03 $ 0.92 $ 1.00(d) Unit Value at end of period... $ 1.10 $ 1.03 $ 0.92 Number of units outstanding at end of period............... 893,503 1,090,032 689,640
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2004 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- ---- JANUS ASPEN: FORTY SUB- ACCOUNT:(P) Unit Value at beginning of period...................... $ 0.61 $ 0.51 $ 0.62 $ 0.81 $ 1.00(b) Unit Value at end of period... $ 0.71 $ 0.71 $ 0.51 $ 0.62 $ 0.81 Number of units outstanding at end of period............... 13,688,074 14,875,999 16,035,369 15,425,939 10,697,510 JANUS ASPEN: INTERNATIONAL GROWTH SUB-ACCOUNT: Unit Value at beginning of period...................... $ 0.60 $ 0.45 $ 0.62 $ 0.82 $ 1.00(b) Unit Value at end of period... $ 0.70 $ 0.60 $ 0.45 $ 0.62 $ 0.82 Number of units outstanding at end of period............... 12,717,095 13,052,727 13,300,761 11,747,393 6,778,367 MFS INVESTORS GROWTH STOCK SERIES SUB-ACCOUNT: Unit Value at beginning of period...................... $ 0.95 $ 0.78 $ 1.00(d) Unit Value at end of period... $ 1.02 $ 0.95 $ 0.78 Number of units outstanding at end of period............... 614,966 832,716 254,637 MFS MID CAP GROWTH SERIES SUB-ACCOUNT: Unit Value at beginning of period...................... $ 0.96 $ 0.71 $ 1.00(d) Unit Value at end of period... $ 1.08 $ 0.96 $ 0.71 Number of units outstanding at end of period............... 466,280 403,896 132,901 MFS NEW DISCOVERY SERIES SUB-ACCOUNT: Unit Value at beginning of period...................... $ 0.98 $ 0.75 $ 1.00(d) Unit Value at end of period... $ 1.03 $ 0.98 $ 0.75 Number of units outstanding at end of period............... 1,933,655 1,983,423 1,073,449 MFS VALUE SERIES SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.02 $ 0.83 $ 1.00(d) Unit Value at end of period... $ 1.16 $ 1.02 $ 0.83 Number of units outstanding at end of period............... 1,562,334 1,394,860 853,323 OPPENHEIMER CAPITAL APPRECIATION/VA SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.01 $ 0.81 $ 1.00(d) Unit Value at end of period... $ 1.06 $ 1.01 $ 0.81 Number of units outstanding at end of period............... 1,976,229 1,540,613 890,405 OPPENHEIMER HIGH INCOME/VA SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.16 $ 0.95 $ 1.00(d) Unit Value at end of period... $ 1.24 $ 1.16 $ 0.95 Number of units outstanding at end of period............... 2,405,372 2,022,579 674,348 PANORAMA INTERNATIONAL GROWTH/VA SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.01 $ 0.71 $ 1.00(d) Unit Value at end of period... $ 1.17 $ 1.01 $ 0.71 Number of units outstanding at end of period............... 1,170,846 847,858 323,095
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2004 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- ---- PUTNAM VT GROWTH AND INCOME SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.02 $ 0.81 $ 1.00(d) Unit Value at end of period... $ 1.12 $ 1.02 $ 0.81 Number of units outstanding at end of period............... 536,912 592,809 296,889 PUTNAM VT INTERNATIONAL EQUITY SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.03 $ 0.81 $ 1.00(d) Unit Value at end of period... $ 1.18 $ 1.03 $ 0.81 Number of units outstanding at end of period............... 2,063,243 2,479,379 1,418,042 PUTNAM VT NEW OPPORTUNITIES SUB-ACCOUNT: Unit Value at beginning of period...................... $ 0.99 $ 0.76 $ 1.00(d) Unit Value at end of period... $ 1.08 $ 0.99 $ 0.76 Number of units outstanding at end of period............... 111,326 173,836 88,859 PUTNAM VT NEW VALUE SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.09 $ 0.83 $ 1.00(d) Unit Value at end of period... $ 1.24 $ 1.09 $ 0.83 Number of units outstanding at end of period............... 429,495 453,956 164,533 PUTNAM VT VOYAGER SUB-ACCOUNT: Unit Value at beginning of period...................... $ 0.96 $ 0.78 $ 1.00(d) Unit Value at end of period... $ 1.00 $ 0.96 $ 0.78 Number of units outstanding at end of period............... 413,787 383,732 228,014 W&R TARGET ASSET STRATEGY SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.06 $ 1.00(m) Unit Value at end of period... $ 1.18 $ 1.06 Number of units outstanding at end of period............... 133,392 40,737 W&R TARGET BALANCED SUB-ACCOUNT: Unit Value at beginning of period...................... $ 0.89 $ 0.74(f) $ 0.83 $ 0.98 $ 1.10 $ 1.00(a) Unit Value at end of period... $ 0.95 $ 0.89 $ 0.74 $ 0.83 $ 0.98 $ 1.10 Number of units outstanding at end of period............... 20,073,642 22,242,759 23,231,443 24,352,253 21,254,044 3,296,125 W&R TARGET CORE EQUITY SUB-ACCOUNT: Unit Value at beginning of period...................... $ 0.73 $ 0.61(k) $ 0.87 $ 0.95 $ 1.04 $ 1.00(a) Unit Value at end of period... $ 0.79 $ 0.73 $ 0.61 $ 0.87 $ 0.95 $ 1.04 Number of units outstanding at end of period............... 3,948,596 4,367,433 4,695,797 3,861,820 1,867,540 236,331 W&R TARGET GROWTH SUB-ACCOUNT: Unit Value at beginning of period...................... $ 0.61 $ 0.49(e) $ 0.67 $ 0.90 $ 1.17 $ 1.00(a) Unit Value at end of period... $ 0.62 $ 0.61 $ 0.49 $ 0.67 $ 0.90 $ 1.17 Number of units outstanding at end of period............... 27,025,049 28,219,938 20,141,737 17,789,554 11,996,641 1,608,959
Page A-5
2004 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- ---- W&R TARGET INTERNATIONAL GROWTH SUB-ACCOUNT:(Q) Unit Value at beginning of period...................... $ 1.13 $ 1.00(m) Unit Value at end of period... $ 1.27 $ 1.13 Number of units outstanding at end of period............... 205,418 54,111 W&R TARGET INTERNATIONAL VALUE SUB-ACCOUNT:(R) Unit Value at beginning of period...................... $ 1.09 $ 0.76(g) $ 0.93 $ 1.06 $ 1.07 $ 1.00(a) Unit Value at end of period... $ 1.32 $ 1.09 $ 0.76 $ 0.93 $ 1.06 $ 1.07 Number of units outstanding at end of period............... 14,651,290 14,857,883 12,810,736 9,578,861 6,236,385 888,642 W&R TARGET MICRO CAP GROWTH SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.04 $ 0.68(l) $ 1.23 $ 1.41 $ 1.80 $ 1.00(a) Unit Value at end of period... $ 1.13 $ 1.04 $ 0.68 $ 1.23 $ 1.41 $ 1.80 Number of units outstanding at end of period............... 4,530,387 5,328,676 4,329,696 4,250,985 3,176,923 420,716 W&R TARGET SCIENCE AND TECHNOLOGY SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.10 $ 1.00(m) Unit Value at end of period... $ 1.26 $ 1.10 Number of units outstanding at end of period............... 168,422 16,184 W&R TARGET SMALL CAP GROWTH SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.01 $ 0.69(h) $ 1.03 $ 1.23 $ 1.40 $ 1.00(a) Unit Value at end of period... $ 1.14 $ 1.01 $ 0.69 $ 1.03 $ 1.23 $ 1.40 Number of units outstanding at end of period............... 9,012,183 9,752,439 8,443,991 7,844,387 5,613,218 503,561 W&R TARGET SMALL CAP VALUE SUB-ACCOUNT: Unit Value at beginning of period...................... $ 1.66 $ 1.13(j) $ 1.43 $ 1.25 $ 0.99 $ 1.00(a) Unit Value at end of period... $ 1.89 $ 1.66 $ 1.13 $ 1.43 $ 1.25 $ 0.99 Number of units outstanding at end of period............... 6,768,726 7,346,447 6,806,593 4,382,496 1,961,812 179,266 W&R TARGET VALUE SUB-ACCOUNT: Unit Value at beginning of period...................... $ 0.90 $ 0.72(i) $ 0.86 $ 0.98 $ 1.01 $ 1.00(a) Unit Value at end of period... $ 1.02 $ 0.90 $ 0.72 $ 0.86 $ 0.98 $ 1.01 Number of units outstanding at end of period............... 6,825,470 7,551,233 7,261,909 5,936,687 3,354,458 392,479
(a) Period from September 9, 1999, commencement of operations, to December 31, 1999. (b) Period from February 1, 2000, commencement of operations, to December 31, 2000. (c) Period from August 1, 2000, commencement of operations, to December 31, 2000. (d) Period from May 1, 2002, commencement of operations, to December 31, 2002. (e) Prior to September 22, 2003, the sub-account invested in Advantus Series Fund Growth Portfolio. (f) Prior to September 22, 2003, the sub-account invested in Advantus Series Fund Asset Allocation Portfolio. (g) Prior to September 22, 2003, the sub-account invested in Advantus Series Fund International Stock Portfolio. (h) Prior to September 22, 2003, the sub-account invested in Advantus Series Fund Small Company Growth Portfolio. Page A-6 (i) Prior to September 22, 2003, the sub-account invested in Advantus Series Fund Value Stock Portfolio. (j) Prior to September 22, 2003, the sub-account invested in Advantus Series Fund Small Company Value Portfolio. (k) Prior to September 22, 2003, the sub-account invested in Advantus Series Fund Core Equity Portfolio. (l) Prior to September 22, 2003, the sub-account invested in Advantus Series Fund Micro-Cap Growth Portfolio. (m) Period from September 22, 2003, commencement of operations, to December 31, 2003. (n) Prior to May 1, 2005, the sub-account was known as Credit Suisse Trust Global Post-Venture Capital Portfolio. (o) Prior to May 1, 2005, the sub-account was known as Franklin Small Cap Fund. (p) Prior to May 1, 2005, the sub-account was known as Janus Aspen Capital Appreciation Portfolio. (q) Prior to May 1, 2005, the sub-account was known as W&R Target International Portfolio. (r) Prior to May 1, 2005, the sub-account was known as W&R Target International II Portfolio. Page A-7 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%, 6.95% and 10.00%. For illustration purposes, an average annual expense equal to 2.45% 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 2.45% includes: 1.25% for Mortality and Expense Risk, 0.15% for Administrative fee and an average of 1.05% for the fund management fee, other fund expenses, and distribution fee. The average is calculated from the Total Annual Portfolio Company Operating Expenses 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: June 1, 1940 PRESENTED BY: Minnesota Life ANNUITY COMMENCEMENT: May 1, 2005 ANNUITIZATION OPTION: 10 Year Certain with Life FUNDS: Non-Qualified 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 net interest rate of 4.50% is used to calculate the initial income amount. Your first payment and subsequent payments will increase or decrease based upon the relationship between the 4.50% 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 6.95% GROSS 10.00% GROSS DATE OF YEAR AGE (-2.45% NET) (4.50% NET) (7.55% NET) - ---- --------- --- ------------ ----------- ------------ May 01, 2004....................................... 1 65 663 663 663 May 01, 2005....................................... 2 66 619 663 683 May 01, 2006....................................... 3 67 578 663 703 May 01, 2007....................................... 4 68 540 663 723 May 01, 2008....................................... 5 69 504 663 744 May 01, 2009....................................... 6 70 470 663 766 NOW SHOWING EVERY 2 YEARS: May 01, 2011....................................... 8 72 410 663 811 May 01, 2013....................................... 10 74 357 663 859 May 01, 2015....................................... 12 76 311 663 910 May 01, 2017....................................... 14 78 271 663 964 May 01, 2019....................................... 16 80 236 663 1,021 May 01, 2021....................................... 18 82 206 663 1,082 May 01, 2023....................................... 20 84 179 663 1,146 May 01, 2025....................................... 22 86 156 663 1,214 May 01, 2027....................................... 24 88 136 663 1,285 May 01, 2029....................................... 26 90 119 663 1,362 May 01, 2031....................................... 28 92 103 663 1,442 May 01, 2033....................................... 30 94 90 663 1,528 May 01, 2035....................................... 32 96 79 663 1,618 May 01, 2037....................................... 34 98 68 663 1,714 May 01, 2039....................................... 36 100 60 663 1,815
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 $628.07. Net rate of return reflects expenses totaling 2.45%, which consist of the 1.25% Variable Annuity Account mortality and expense risk charge, 0.15% administrative fee and 1.05% for the fund management fee, other fund expenses, and distribution expenses (this is an average with the actual varying from 0.45% to 1.79%). Under the terms of the contract, the maximum possible charge for mortality and expense risk would be 1.40% and a 0.40% administrative charge. 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, severance from employment, disability, or financial hardship. Income attributable to elective contributions may not be distributed in the case of hardship. INDIVIDUAL RETIREMENT ANNUITIES Section 408 of the Code permits eligible individuals to contribute to an Individual Retirement Annuity, (an "IRA"). Distributions from certain other types of qualified plans may be "rolled over" on a tax-deferred basis into an IRA. The sale of a contract for use with an IRA will be subject to special disclosure requirements of the IRS. Purchasers of a contract for use with IRAs will be provided with supplemental information required by the IRS or other appropriate agency. Such purchasers will have the right to revoke their purchase within 7 days of the earlier of the establishment of the IRA or their purchase. A qualified contract issued in connection with an IRA will be amended as necessary to conform to the requirements of the Code. You should seek competent advice as to the suitability of the contract for use with IRAs. Earnings in an IRA are not taxed until distribution. IRA contributions are 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, 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. Page C-1 ROTH IRAS Section 408A of the Code permits certain eligible individuals to make nondeductible contributions to an individual retirement program known as a Roth IRA. Contributions to a Roth IRA, which are subject to certain limitations, must be made in cash or as a rollover or conversion from another Roth IRA or a traditional IRA. A rollover from, or conversion of, a traditional IRA to a Roth IRA may be subject to tax, contingent deferred sales charges and other special rules may apply. Qualified distributions from a Roth IRA, as defined by the Code, generally are excluded from gross income. Qualified distributions include those distributions made more than five years after the taxable year of the first contribution to the Roth IRA, but only if : (1) the annuity owner has reached age 59 1/2; (2) the distribution is paid to a beneficiary after the owner's death; (3) the annuity owner becomes disabled; or (4) the distribution will be used for a first time home purchase and does not exceed $10,000. Non-qualified distributions are includable in gross income only to the extent they exceed contributions made to the Roth IRA. The taxable portion of a non-qualified distribution may be subject to a 10% penalty tax. In addition, state laws may not completely follow the federal tax treatment of Roth IRAs. You should consult your tax adviser for further information regarding Roth IRAs. CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS Code Section 401(a) permits employers to establish various types of retirement plans for employees, and permits self-employed individuals to establish retirement plans for themselves and their employees. These retirement plans permit the purchase of the contracts to accumulate retirement savings under the plans for employees. 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 for service to state governments, local governments, political subdivisions, agencies, instrumentalities and certain affiliates of such entities, and tax exempt organizations. The plans may permit participants to specify the form of investment for their deferred compensation account. In general, all amounts received under a Section 457 plan are taxable and are subject to federal income tax withholding as wages. With respect to non-governmental Section 457 plans, all investments are owned by the sponsoring employer and are subject to the claims of the general creditors of the employer and depending on the terms of the particular plan, the employer may be entitled to draw on deferred amounts for purposes unrelated to its Section 457 plan obligations. Under the provisions of the Small Business Job Protection Act of 1996, all of the assets and income of a governmental plan maintained by an eligible employer as a Section 457 plan must be held in trust or in a qualifying custodial account or annuity contract held for the exclusive benefit of plan participants and beneficiaries. 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. General Information and History 18. Not applicable 19. Not applicable 20. Distribution of Contract 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: April 29, 2005 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 Variable Annuity Account'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 Minnesota Mutual Center, 400 Robert Street North, St. Paul, Minnesota 55101-2098. General Information and History Distribution of Contract Performance Data Auditors Registration Statement Financial Statements GENERAL INFORMATION AND HISTORY The Variable Annuity Account is a separate investment account of the 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, Minnesota Mutual reorganized by forming a mutual insurance holding company named "Minnesota Mutual Companies, Inc." Minnesota Mutual continued its corporate existence following conversion to a stock life insurance company named Minnesota Life. Minnesota Life is a subsidiary of Securian Financial Group, Inc. which in turn is a wholly-owned subsidiary of Securian Holding Company, which in turn is a wholly-owned subsidiary of the ultimate parent, Minnesota Mutual Companies, Inc. DISTRIBUTION OF CONTRACT The contract 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 and Advantus Capital Management, Inc. are wholly-owned subsidiaries of Securian Financial Group, Inc. Advantus Capital Management, Inc., is a registered investment adviser and the investment adviser to the following Advantus Series Fund, Inc. Portfolios: Maturing Government Bond, Real Estate Securities, Index 400 Mid Cap, International Bond, Index 500, Mortgage Securities, Money Market and Bond. 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. Amounts paid by Minnesota Life to the underwriter for 2004, 2003 and 2002 were $20,482,311, $13,415,829 and $10,463,691 respectively, or payment to associated dealers on the sale of the contracts, which includes other contracts issued through the Variable Annuity Account. The underwriter may also receive 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. PERFORMANCE DATA AVERAGE ANNUAL TOTAL RETURN Average annual total return figures for the sub-accounts represent the rates of return for the sub-accounts for the specified periods ended December 31, 2004. For periods prior to the date of this Prospectus the figures will be based on the assumption that the contracts described herein were issued when the underlying Portfolios first became available to the Variable Annuity Account. Average annual 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 referenced and the net asset value of that same investment at the end of that period. FOR THE FOLLOWING PERIODS, MINNESOTA LIFE VOLUNTARILY ABSORBED THE FEES AND EXPENSES THAT EXCEEDED THE OUTLINED PERCENTAGE OF AVERAGE DAILY NET ASSETS.
Fund Name 03/09/1987 05/02/1994 10/01/1997 05/01/1998 01/01/1999 01/01/2000 05/01/2000 01/01/2002 -- -- -- -- -- -- -- -- 05/01/1994 09/30/1997 04/30/1998 12/31/1998 12/31/1999 04/30/2000 12/31/2001 12/31/2002 Bond Sub-Account 0.65% 0.65% 0.65% 0.65% 0.65% 0.65% 0.65% 0.65% Index 400 Mid-Cap Sub-Account - - 0.55% 0.55% 0.45% 0.55% 0.55% 0.55% Index 500 Sub-Account 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% International Bond Sub-Account - - 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Maturing Government Bond 2006 - 0.40% 0.40% 0.40% 0.85% 0.40% 0.40% 0.40% Sub-Account Maturing Government Bond 2010 - 0.40% 0.40% 0.40% 1.03% 0.40% 0.40% 0.40% Sub-Account Money Market Sub-Account 0.65% 0.65% 0.65% 0.65% 0.65% 0.65% 0.65% 0.65% Mortgage Securities Sub-Account 0.65% 0.65% 0.65% 0.65% 0.65% 0.65% 0.65% 0.65% Real Estate Securities Sub-Account - - - 0.90% 1.15% 0.90% 1.00% 1.00% 01/01/2003 -- 12/31/2003 Bond Sub-Account 0.70% Index 400 Mid-Cap Sub-Account 1.40% Index 500 Sub-Account 0.55% International Bond Sub-Account 1.85% Maturing Government Bond 2006 1.25% Sub-Account Maturing Government Bond 2010 1.25% Sub-Account Money Market Sub-Account 0.65% Mortgage Securities Sub-Account 0.70% Real Estate Securities Sub-Account 1.85%
The average annual rates of return for the Sub-Accounts, in connection with the contract described in the Prospectus, for the specified periods ended December 31, 2004 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. AVERAGE ANNUAL TOTAL RETURN
From Date Year Ended Five Years Ten Years Inception to of 12/31/04 Ended 12/31/04 Ended 12/31/04 12/31/04 Inception ------------- ---------------- -------------- ----------------- ---------- Bond Sub-Account -3.10% (n/a) 5.78% (n/a) 5.81% (n/a) n/a (n/a) 12/3/1985 Index 400 Mid-Cap Sub-Account 7.04% (n/a) 6.69% (6.61%) n/a (n/a) 8.93% (8.73%) 10/1/1997 Index 500 Sub-Account 1.87% (n/a) -4.80% (n/a) 9.91% (n/a) n/a (n/a) 5/1/1987 International Bond Sub-Account 2.82% (n/a) 7.54% (n/a) n/a (n/a) 6.03% (n/a) 10/1/1997 Maturing Government Bond 2006 -7.65% (n/a) 5.58% (5.27%) 7.06% (6.46%) n/a (n/a) 5/2/1994 Sub-Account Maturing Government Bond 2010 -4.63% (n/a) 7.96% (7.64%) 8.54% (7.68%) n/a (n/a) 5/2/1994 Sub-Account Money Market Sub-Account -7.03% (n/a) 0.40% (n/a) 2.22% (n/a) n/a (n/a) 12/3/1985 Mortgage Securities Sub-Account -3.26% (n/a) 5.81% (n/a) 6.43% (n/a) n/a (n/a) 5/1/1987 Real Estate Securities 26.64% (n/a) 21.29% (20.98%) n/a (n/a) 11.79% (11.28%) 5/1/1998 Sub-Account AIM Aggressive Growth Sub-Account 2.85% (n/a) n/a (n/a) n/a (n/a) -0.12% (n/a) 5/1/2002 AIM Balanced Sub-Account -1.03% (n/a) n/a (n/a) n/a (n/a) -0.26% (n/a) 5/1/2002 AIM Dent Demographic Sub-Account -0.42% (n/a) n/a (n/a) n/a (n/a) 0.34% (n/a) 5/1/2002 AIM Premier Equity Sub-Account -2.63% (n/a) n/a (n/a) n/a (n/a) -2.60% (n/a) 5/1/2002
From Date Year Ended Five Years Ten Years Inception to of 12/31/04 Ended 12/31/04 Ended 12/31/04 12/31/04 Inception ------------- ---------------- -------------- ----------------- ---------- American Century Investments 3.93% (n/a) n/a (n/a) n/a (n/a) 5.72% (n/a) 5/1/2002 Income & Growth Sub-Account American Century Investments 2.04% (n/a) n/a (n/a) n/a (n/a) 2.43% (n/a) 5/1/2002 Ultra Sub-Account American Century Investments 5.51% (n/a) n/a (n/a) n/a (n/a) 6.40% (n/a) 5/1/2002 Value Sub-Account Credit Suisse Global Small Cap 9.27% (n/a) n/a (n/a) n/a (n/a) -12.67% (n/a) 8/1/2000 Capital Sub-Account Fidelity VIP Contrafund Service 6.48% (n/a) n/a (n/a) n/a (n/a) 0.15% (n/a) 2/1/2000 Class 2 Sub-Account Fidelity VIP Equity-Income 2.63% (n/a) n/a (n/a) n/a (n/a) 3.12% (n/a) 2/1/2000 Service Class 2 Sub-Account Fidelity VIP Mid Cap Service 15.84% (n/a) n/a (n/a) n/a (n/a) 12.15% (n/a) 2/1/2000 Class 2 Sub-Account Franklin Large Cap Growth -0.39% (n/a) n/a (n/a) n/a (n/a) 1.47% (n/a) 5/1/2002 Sub-Account Franklin Small-Mid Cap Growth 2.86% (n/a) n/a (n/a) n/a (n/a) -8.57% (n/a) 8/1/2000 Securities Class 2 Sub-Account Mutual Shares Sub-Account 3.99% (n/a) n/a (n/a) n/a (n/a) 3.86% (n/a) 5/1/2002 Templeton Developing Markets 15.90% (n/a) 1.43% (n/a) n/a (n/a) -1.49% (n/a) 10/1/1997 Securities Class 2 Sub-Account Templeton Global Asset 7.03% (n/a) n/a (n/a) n/a (n/a) 3.60% (n/a) 8/1/2000 Allocation Class 2 Sub-Account Janus Aspen Balanced Sub-Account -0.06% (n/a) n/a (n/a) n/a (n/a) 1.90% (n/a) 5/1/2002 Janus Aspen Forty Service 9.25% (n/a) n/a (n/a) n/a (n/a) -7.28% (n/a) 2/1/2000 Shares Sub-Account
From Date Year Ended Five Years Ten Years Inception to of 12/31/04 Ended 12/31/04 Ended 12/31/04 12/31/04 Inception ------------- ---------------- -------------- ----------------- ---------- Janus Aspen International 9.96% (n/a) n/a (n/a) n/a (n/a) -7.63% (n/a) 2/1/2000 Growth Service Shares Sub-Account MFS Investors Growth Stock 0.57% (n/a) n/a (n/a) n/a (n/a) -1.32% (n/a) 5/1/2002 Sub-Account MFS Mid Cap Growth Sub-Account 5.71% (n/a) n/a (n/a) n/a (n/a) 0.66% (n/a) 5/1/2002 MFS New Discovery Sub-Account -1.97% (n/a) n/a (n/a) n/a (n/a) -0.88% (n/a) 5/1/2002 MFS Value Sub-Account 6.15% (n/a) n/a (n/a) n/a (n/a) 3.64% (n/a) 5/1/2002 Oppenheimer Capital Appreciation -1.60% (n/a) n/a (n/a) n/a (n/a) 0.43% (n/a) 5/1/2002 Sub-Account Oppenheimer High Income 0.34% (n/a) n/a (n/a) n/a (n/a) 6.62% (n/a) 5/1/2002 Sub-Account Panorama International Growth 8.44% (n/a) n/a (n/a) n/a (n/a) 4.22% (n/a) 5/1/2002 Sub-Account Putnam Growth and Income 2.52% (n/a) n/a (n/a) n/a (n/a) 2.49% (n/a) 5/1/2002 Sub-Account Putnam International Equity 7.50% (n/a) n/a (n/a) n/a (n/a) 4.43% (n/a) 5/1/2002 Sub-Account Putnam New Opportunities 1.79% (n/a) n/a (n/a) n/a (n/a) 1.01% (n/a) 5/1/2002 Sub-Account Putnam New Value Sub-Account 6.74% (n/a) n/a (n/a) n/a (n/a) 6.58% (n/a) 5/1/2002 Putnam Voyager Sub-Account -3.05% (n/a) n/a (n/a) n/a (n/a) -2.10% (n/a) 5/1/2002 W&R Target Asset Strategy 4.64% (n/a) n/a (n/a) n/a (n/a) 9.40% (n/a) 9/22/2003 Sub-Account W&R Target Balanced Sub-Account 0.53% (n/a) -3.73% (n/a) 6.67% (n/a) n/a (n/a) 12/03/1985 W&R Target Core Equity 1.11% (n/a) -6.03% (n/a) n/a (n/a) 5.11% (n/a) 10/15/1997 Sub-Account
From Date Year Ended Five Years Ten Years Inception to of 12/31/04 Ended 12/31/04 Ended 12/31/04 12/31/04 Inception ------------- ---------------- -------------- ----------------- ---------- W&R Target Growth Sub-Account -4.63% (n/a) -13.00% (n/a) 4.96% (n/a) n/a (n/a) 12/03/1985 W&R Target International Growth 5.33% (n/a) n/a (n/a) n/a (n/a) 16.21% (n/a) 9/22/2003 Sub-Account W&R Target International Value 13.89% (n/a) 3.72% (n/a) 8.59% (n/a) n/a (n/a) 5/01/1992 Sub-Account W&R Target Micro Cap Growth 1.55% (n/a) -9.91% (n/a) n/a (n/a) 5.59% (n/a) 10/01/1997 Sub-Account W&R Target Science and 7.55% (n/a) n/a (n/a) n/a (n/a) 15.97% (n/a) 9/22/2003 Technology Sub-Account W&R Target Small Cap Growth 5.63% (n/a) -4.79% (n/a) 5.41% (n/a) n/a (n/a) 5/03/1993 Sub-Account W&R Target Small Cap Value 6.34% (n/a) 13.28% (n/a) n/a (n/a) 7.60% (n/a) 10/01/1997 Sub-Account W&R Target Value Sub-Account 6.03% (n/a) -0.37% (n/a) 7.36% (n/a) n/a (n/a) 5/02/1994
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 or contract fees. 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, 2004, are shown in the table below. The figures in parentheses show what the average annual rates of return, without the application of applicable deferred sales charges or contract fees, would have been had Minnesota Life not absorbed Fund expenses as described above.
From Date Year Ended Five Years Ten Years Inception to of 12/31/04 Ended 12/31/04 Ended 12/31/04 12/31/04 Inception ------------- ---------------- -------------- ----------------- ---------- Bond Sub-Account 3.52% (n/a) 6.31% (n/a) 5.83% (n/a) n/a (n/a) 12/3/1985 Index 400 Mid-Cap Sub-Account 14.12% (n/a) 7.22% (7.14%) n/a (n/a) 8.93% (8.73%) 10/1/1997 Index 500 Sub-Account 8.86% (n/a) -4.04% (n/a) 9.91% (n/a) n/a (n/a) 5/1/1987 International Bond Sub-Account 9.88% (n/a) 8.04% (n/a) n/a (n/a) 6.03% (n/a) 10/1/1997 Maturing Government Bond 2006 -1.27% (n/a) 6.09% (5.78%) 7.07% (6.47%) n/a (n/a) 5/2/1994 Sub-Account Maturing Government Bond 2010 1.88% (n/a) 8.43% (8.11%) 8.55% (7.69%) n/a (n/a) 5/2/1994 Sub-Account Money Market Sub-Account -0.65% (n/a) 1.03% (n/a) 2.29% (n/a) n/a (n/a) 12/3/1985 Mortgage Securities Sub-Account 3.35% (n/a) 6.34% (n/a) 6.45% (n/a) n/a (n/a) 5/1/1987 Real Estate Securities 33.64% (n/a) 21.58% (21.27%) n/a (n/a) 11.95% (11.44%) 5/1/1998 Sub-Account AIM Aggressive Growth Sub-Account 9.92% (n/a) n/a (n/a) n/a (n/a) 1.74% (n/a) 5/1/2002 AIM Balanced Sub-Account 5.75% (n/a) n/a (n/a) n/a (n/a) 1.61% (n/a) 5/1/2002 AIM Dent Demographic 6.40% (n/a) n/a (n/a) n/a (n/a) 2.28% (n/a) 5/1/2002 Sub-Account AIM Premier Equity Sub-Account 4.03% (n/a) n/a (n/a) n/a (n/a) -0.53% (n/a) 5/1/2002 American Century Investments 11.01% (n/a) n/a (n/a) n/a (n/a) 5.72% (n/a) 5/1/2002 Income & Growth Sub-Account
From Date Year Ended Five Years Ten Years Inception to of 12/31/04 Ended 12/31/04 Ended 12/31/04 12/31/04 Inception ------------- ---------------- -------------- ----------------- ---------- American Century Investments 9.05% (n/a) n/a (n/a) n/a (n/a) 2.43% (n/a) 5/1/2002 Ultra Sub-Account American Century Investments 12.59% (n/a) n/a (n/a) n/a (n/a) 8.17% (n/a) 5/1/2002 Value Sub-Account Credit Suisse Global Small Cap 16.35% (n/a) n/a (n/a) n/a (n/a) -11.62% (n/a) 8/1/2000 Capital Sub-Account Fidelity VIP Contrafund 13.56% (n/a) n/a (n/a) n/a (n/a) 0.81% (n/a) 2/1/2000 Service Class 2 Sub-Account Fidelity VIP Equity-Income 9.69% (n/a) n/a (n/a) n/a (n/a) 3.76% (n/a) 2/1/2000 Service Class 2 Sub-Account Fidelity VIP Mid Cap Service 22.92% (n/a) n/a (n/a) n/a (n/a) 12.57% (n/a) 2/1/2000 Class 2 Sub-Account Franklin Large Cap Growth 6.43% (n/a) n/a (n/a) n/a (n/a) 3.35% (n/a) 5/1/2002 Sub-Account Franklin Small-Mid Cap Growth 9.92% (n/a) n/a (n/a) n/a (n/a) -7.65% (n/a) 8/1/2000 Securities Class 2 Sub-Account Mutual Shares Sub-Account 11.07% (n/a) n/a (n/a) n/a (n/a) 5.64% (n/a) 5/1/2002 Templeton Developing Markets 22.98% (n/a) 2.10% (n/a) n/a (n/a) -1.35% (n/a) 10/1/1997 Securities Class 2 Sub-Account Templeton Global Asset 14.11% (n/a) n/a (n/a) n/a (n/a) 4.28% (n/a) 8/1/2000 Allocation Class 2 Sub-Account Janus Aspen Balanced 6.79% (n/a) n/a (n/a) n/a (n/a) 3.79% (n/a) 5/1/2002 Sub-Account Janus Aspen Forty Service 16.33% (n/a) n/a (n/a) n/a (n/a) -6.41% (n/a) 2/1/2000 Shares Sub-Account
From Date Year Ended Five Years Ten Years Inception to of 12/31/04 Ended 12/31/04 Ended 12/31/04 12/31/04 Inception ------------- ---------------- -------------- ----------------- ---------- Janus Aspen International 17.04% (n/a) n/a (n/a) n/a (n/a) -6.76% (n/a) 2/1/2000 Growth Service Shares Sub-Account MFS Investors Growth Stock 7.47% (n/a) n/a (n/a) n/a (n/a) 0.66% (n/a) 5/1/2002 Sub-Account MFS Mid Cap Growth Sub-Account 12.79% (n/a) n/a (n/a) n/a (n/a) 2.89% (n/a) 5/1/2002 MFS New Discovery Sub-Account 4.73% (n/a) n/a (n/a) n/a (n/a) 1.11% (n/a) 5/1/2002 MFS Value Sub-Account 13.23% (n/a) n/a (n/a) n/a (n/a) 5.68% (n/a) 5/1/2002 Oppenheimer Capital 5.13% (n/a) n/a (n/a) n/a (n/a) 2.35% (n/a) 5/1/2002 Appreciation Sub-Account Oppenheimer High Income 7.22% (n/a) n/a (n/a) n/a (n/a) 8.35% (n/a) 5/1/2002 Sub-Account Panorama International Growth 15.52% (n/a) n/a (n/a) n/a (n/a) 5.95% (n/a) 5/1/2002 Sub-Account Putnam Growth and Income 9.57% (n/a) n/a (n/a) n/a (n/a) 4.39% (n/a) 5/1/2002 Sub-Account Putnam International Equity 14.58% (n/a) n/a (n/a) n/a (n/a) 6.25% (n/a) 5/1/2002 Sub-Account Putnam New Opportunities 8.78% (n/a) n/a (n/a) n/a (n/a) 2.94% (n/a) 5/1/2002 Sub-Account Putnam New Value Sub-Account 13.82% (n/a) n/a (n/a) n/a (n/a) 8.34% (n/a) 5/1/2002 Putnam Voyager Sub-Account 3.57% (n/a) n/a (n/a) n/a (n/a) -0.13% (n/a) 5/1/2002 W&R Target Asset Strategy 11.72% (n/a) n/a (n/a) n/a (n/a) 13.92% (n/a) 9/22/2003 Sub-Account
From Date Year Ended Five Years Ten Years Inception to of 12/31/04 Ended 12/31/04 Ended 12/31/04 12/31/04 Inception ------------- ---------------- -------------- ----------------- ---------- W&R Target Balanced Sub-Account 7.42% (n/a) -3.00% (n/a) 6.68% (n/a) n/a (n/a) 12/03/1985 W&R Target Core Equity 8.05% (n/a) -5.24% (n/a) n/a (n/a) 5.11% (n/a) 10/15/1997 Sub-Account W&R Target Growth Sub-Account 1.87% (n/a) -11.94% (n/a) 4.97% (n/a) n/a (n/a) 12/03/1985 W&R Target International 12.41% (n/a) n/a (n/a) n/a (n/a) 20.38% (n/a) 9/22/2003 Growth Sub-Account W&R Target International Value 20.97% (n/a) 4.32% (n/a) 8.62% (n/a) n/a (n/a) 5/01/1992 Sub-Account W&R Target Micro Cap Growth 8.52% (n/a) -8.97% (n/a) n/a (n/a) 5.59% (n/a) 10/01/1997 Sub-Account W&R Target Science and 14.63% (n/a) n/a (n/a) n/a (n/a) 19.87% (n/a) 9/22/2003 Technology Sub-Account W&R Target Small Cap Growth 12.71% (n/a) -4.03% (n/a) 5.42% (n/a) n/a (n/a) 5/03/1993 Sub-Account W&R Target Small Cap Value 13.42% (n/a) 13.67% (n/a) n/a (n/a) 7.60% (n/a) 10/01/1997 Sub-Account W&R Target Value Sub-Account 13.11% (n/a) 0.27% (n/a) 7.37% (n/a) n/a (n/a) 5/02/1994
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, 2004 were -0.25% and - -0.25%, respectively. Such figures reflect the voluntary absorption of certain expenses of Advantus Series Fund, Inc. (the "Fund") by Minnesota Life described below under "Total Return Figures for All Sub-Accounts." Yield figures quoted by the Money Market Sub-Account will not reflect the deduction of any applicable deferred sales charges (the deferred sales charge, as a percentage of the accumulation value withdrawn, begins as of the contract date at 7% for the flexible payment contract), or the deduction of any applicable contract fees (the contract fee is the lesser of 2% of the accumulation value or $30. It is taken generally from contracts with values of less than $50,000). 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. Therefore, for periods prior to the date of that this Contract was available, the quotations will be based on the assumption that the contracts described herein were issued when the underlying Portfolios first commenced operations (that is, the date the underlying fund became effective). 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 referenced and the net asset value of that same investment at the end of that period. Such quotations of cumulative total return will not reflect the deduction of any applicable deferred sales charges, or any applicable contract fees. The cumulative total return figures published by the Variable Annuity Account relating to the contract described in the Prospectus will reflect Minnesota Life's voluntary absorption of certain Fund expenses described below. The cumulative total returns from the sub-accounts for the specified periods ended December 31, 2004 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. Cumulative total return quotations for Sub-Accounts will be accompanied by average annual total return figures for a one year period, five year period, ten year period or since the inception of the corresponding Fund Portfolios. 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 any deferred sales charge and contract fee applicable to the contract payments and to the length of the period the payments remain in the contract. For the purposes of these calculations, an average contract size of $45,000 is assumed and the deductions of annual contract fees equivalent to .08% of ending contract value are included in all surrender values. The average annual total return figures published by the Variable Annuity Account will reflect Minnesota Life's voluntary absorption of certain Fund expenses, described below. The figures in parentheses show what the average annual total returns would have been had Minnesota Life not absorbed Fund expenses as described. CUMULATIVE TOTAL RETURN
Date From of Inception to 12/31/04 Inception ---------------------------- ---------- Bond Sub-Account 213.73% (209.79%) 12/3/1985 Index 400 Mid-Cap Sub-Account 85.88% (83.17%) 10/1/1997 Index 500 Sub-Account 351.09% (349.13%) 5/1/1987 International Bond Sub-Account 52.89% (n/a) 10/1/1997 Maturing Government Bond 2006 Sub-Account 96.51% (81.41%) 5/2/1994 Maturing Government Bond 2010 Sub-Account 124.40% (99.01%) 5/2/1994 Money Market Sub-Account 78.65% (74.16%) 12/3/1985 Mortgage Securities Sub-Account 204.61% (203.69%) 5/1/1987 Real Estate Securities Sub-Account 112.30% (105.50%) 5/1/1998 AIM Aggressive Growth Sub-Account 4.70% (n/a) 5/1/2002 AIM Balanced Sub-Account 4.35% (n/a) 5/1/2002 AIM Dent Demographic Sub-Account 6.19% (n/a) 5/1/2002 AIM Premier Equity Sub-Account -1.42% (n/a) 5/1/2002 American Century Investments Income & Growth Sub-Account 16.00% (n/a) 5/1/2002 American Century Investments Ultra Sub-Account 6.63% (n/a) 5/1/2002 American Century Investments Value Sub-Account 23.31% (n/a) 5/1/2002 Credit Suisse Global Small Cap Capital Sub-Account -42.06% (n/a) 8/1/2000
Date From of Inception to 12/31/04 Inception ---------------------------- ---------- Fidelity VIP Contrafund Service Class 2 Sub-Account 4.02% (n/a) 2/1/2000 Fidelity VIP Equity-Income Service Class 2 Sub-Account 19.92% (n/a) 2/1/2000 Fidelity VIP Mid Cap Service Class 2 Sub-Account 78.95% (n/a) 2/1/2000 Franklin Large Cap Growth Sub-Account 9.18% (n/a) 5/1/2002 Franklin Small-Mid Cap Growth Securities Class 2 Sub-Account -29.64% (n/a) 8/1/2000 Mutual Shares Sub-Account 15.79% (n/a) 5/1/2002 Templeton Developing Markets Securities Class 2 Sub-Account -9.40% (n/a) 10/1/1997 Templeton Global Asset Allocation Class 2 Sub-Account 20.35% (n/a) 8/1/2000 Janus Aspen Balanced Sub-Account 10.44% (n/a) 5/1/2002 Janus Aspen Forty Service Shares Sub-Account -27.81% (n/a) 2/1/2000 Janus Aspen International Growth Service Shares Sub-Account -29.12% (n/a) 2/1/2000 MFS Investors Growth Stock Sub-Account 1.78% (n/a) 5/1/2002 MFS Mid Cap Growth Sub-Account 7.89% (n/a) 5/1/2002 MFS New Discovery Sub-Account 2.98% (n/a) 5/1/2002 MFS Value Sub-Account 15.89% (n/a) 5/1/2002 Oppenheimer Capital Appreciation Sub-Account 6.39% (n/a) 5/1/2002 Oppenheimer High Income Sub-Account 23.88% (n/a) 5/1/2002 Panorama International Growth Sub-Account 16.69% (n/a) 5/1/2002 Putnam Growth and Income Sub-Account 12.16% (n/a) 5/1/2002 Putnam International Equity Sub-Account 17.56% (n/a) 5/1/2002 Putnam New Opportunities Sub-Account 8.04% (n/a) 5/1/2002 Putnam New Value Sub-Account 23.85% (n/a) 5/1/2002 Putnam Voyager Sub-Account -0.35% (n/a) 5/1/2002 W&R Target Asset Strategy Sub-Account 18.09% (n/a) 9/22/2003 W&R Target Balanced Sub-Account 270.76% (n/a) 12/03/1985 W&R Target Core Equity Sub-Account 43.22% (n/a) 10/15/1997
Date From of Inception to 12/31/04 Inception ---------------------------- ---------- W&R Target Growth Sub-Account 230.53% (n/a) 12/03/1985 W&R Target International Growth Sub-Account 26.70% (n/a) 9/22/2003 W&R Target International Value Sub-Account 194.84% (n/a) 5/01/1992 W&R Target Micro Cap Growth Sub-Account 48.38% (n/a) 10/01/1997 W&R Target Science and Technology Sub-Account 26.01% (n/a) 9/22/2003 W&R Target Small Cap Growth Sub-Account 106.40% (n/a) 5/03/1993 W&R Target Small Cap Value Sub-Account 70.06% (n/a) 10/01/1997 W&R Target Value Sub-Account 110.90% (n/a) 5/02/1994
Predictability of Return Anticipated Value at Maturity. The maturity values of zero-coupon bonds are specified at the time the bonds are issued, and this feature, combined with the ability to calculate yield to maturity, has made these instruments popular investment vehicles for investors seeking reliable investments to meet long-term financial goals. Each Maturing Government Bond Portfolio of the Fund consists primarily of zero-coupon bonds but is actively managed to accommodate contract owner activity and to take advantage of perceived market opportunities. Because of this active management approach, there is no guarantee that a certain price per share of a Maturing Government Bond Portfolio, or a certain price per unit of the corresponding Sub-Account, will be attained by the time a Portfolio is liquidated. Instead, the Fund attempts to track the price behavior of a directly held zero-coupon bond by: (1) Maintaining a weighted average maturity within each Maturing Government Bond Portfolio's target maturity year; (2) Investing at least 90% of assets in securities that mature within one year of that Portfolio's target maturity year; (3) Investing a substantial portion of assets in Treasury STRIPS (the most liquid Treasury zero); (4) Under normal conditions, maintaining a nominal cash balance; (5) Executing portfolio transactions necessary to accommodate net contract owner purchases or redemptions on a daily basis; and (6) Whenever feasible, contacting several U.S. government securities dealers for each intended transaction in an effort to obtain the best price on each transaction. These measures enable Minnesota Life to calculate an anticipated value at maturity (AVM) for each unit of a Maturing Government Bond Sub-Account, calculated as of the date of purchase of such unit, that approximates the price per unit that such unit will achieve by the weighted average maturity date of the underlying Portfolio. The AVM calculation for each Maturing Government Bond Sub-Account is as follows: AVM = P(1 + AGR/2)2T where P = the Sub-Account's current price per unit; T = the Sub-Account's weighted average term to maturity in years; and AGR = the anticipated growth rate. This calculation assumes an expense ratio and a portfolio composition for the underlying Maturing Government Bond Portfolio that remain constant for the life of such Portfolio. Because the Portfolio's expenses and composition do not remain constant, however, Minnesota Life may calculate AVM for each Maturing Government Bond Sub-Account on any day on which the underlying Maturing Government Bond Portfolio is valued. Such an AVM is applicable only to units purchased on that date. In addition to the measures described above, which the adviser believes are adequate to assure close correspondence between the price behavior of each Portfolio and the price behavior of directly held zero-coupon bonds with comparable maturities, the Fund expects that each Portfolio will invest at least 90% of its net assets in zero-coupon bonds until it is within four years of its target maturity year and at least 80% of its net assets in zero-coupon securities within two to four years of its target maturity year. This expectation may be altered if the market supply of zero-coupon securities diminishes unexpectedly. Anticipated Growth Rate. Minnesota Life calculates an anticipated growth rate (AGR) for each Maturing Government Bond Sub-Account on each day on which the underlying Portfolio is valued. AGR is a calculation of the anticipated annualized rate of growth for a Sub-Account unit, calculated from the date of purchase of such unit to the Sub-Account's target maturity date. As is the case with calculations of AVM, the AGR calculation assumes that each underlying Maturing Government Bond Portfolio expense ratio and portfolio composition will remain constant. Each Maturing Government Bond Sub-Account AGR changes from day to day (i.e., a particular AGR calculation is applicable only to units purchased on that date), due primarily to changes in interest rates and, to a lesser extent, to changes in portfolio composition and other factors that affect the value of the underlying Portfolio. Minnesota Life expects that a contract owner who holds specific units until the underlying Portfolio's weighted average maturity date will realize an investment return and maturity value on those units that do not differ substantially from the AGR and AVM calculated on the day such units were purchased. The AGR and AVM calculated with respect to units purchased on any other date, however, may be materially different. The Maturing Government Bond portfolios are available only to Contracts issued prior to May 1, 2000. AUDITORS The consolidated financial statements of Minnesota Life and subsidiaries' and the financial statements of the Variable Annuity Account included herein have been audited by our independent registered public accounting firm, KPMG LLP, 4200 Wells Fargo Center, 90 South Seventh Street, Minneapolis, Minnesota 55402, 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 report dated March 10, 2005 on the consolidated financial statements of Minnesota Life Insurance Company and subsidiaries refers to the adoption, effective January 1, 2004, of Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts. REGISTRATION STATEMENT We have filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, with respect to the contract offered hereby. This Prospectus does not contain all the information set forth in the registration statement and amendments thereto and the exhibits filed as a part thereof, to all of which reference is hereby made for further information concerning the Variable Annuity Account, Minnesota Life, and the contract. Statements contained in this Prospectus as to the contents of contracts and other legal instruments are summaries, and reference is made to such instruments as filed. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors of Minnesota Life Insurance Company and Contract Owners of Variable Annuity Account: We have audited the accompanying statements of assets and liabilities of the Advantus Bond, Advantus Money Market, Advantus Index 500, Advantus Mortgage Securities, Advantus Maturing Government Bond 2006, Advantus Maturing Government Bond 2010, Advantus International Bond, Advantus Index 400 Mid-Cap, Advantus Real Estate Securities, AIM V.I. Aggressive Growth, AIM V.I. Balanced, AIM V.I. Dent Demographic Trends, AIM V.I. Premier Equity, American Century Income and Growth, American Century Ultra, American Century Value, Credit Suisse Global Post-Venture Capital, Fidelity VIP Contrafund, Fidelity VIP Equity-Income, Fidelity VIP Mid-Cap, Franklin Large Cap Growth Securities, Franklin Mutual Shares Securities, Franklin Small Cap, Templeton Developing Markets Securities, Templeton Global Asset Allocation, Janus Aspen Balanced, Janus Aspen Capital Appreciation, Janus Aspen International Growth, MFS Investors Growth Stock, MFS Mid Cap Growth, MFS New Discovery, MFS Value, Oppenheimer Capital Appreciation, Oppenheimer High Income, Oppenheimer International Growth, Putnam VT Growth and Income, Putnam VT International Growth, Putnam VT New Opportunities, Putnam VT New Value, Putnam VT Voyager, Van Kampen Comstock, Van Kampen Emerging Growth, Van Kampen Growth and Income, Waddell & Reed Balanced, Waddell & Reed Growth, Waddell & Reed International II, Waddell & Reed Small Cap Growth, Waddell & Reed Value, Waddell & Reed Micro-Cap Growth, Waddell & Reed Small Cap Value, Waddell & Reed Core Equity, Waddell & Reed Asset Strategy, Waddell & Reed International, Waddell & Reed Science & Technology, Waddell & Reed Bond, Waddell & Reed Dividend Income, Waddell & Reed High Income, Waddell & Reed Limited-Term Bond, Waddell & Reed Money Market, Waddell & Reed Mortgage Securities and Waddell & Reed Real Estate Securities Segregated Sub-Accounts of Variable Annuity Account (the Account), as of December 31, 2004, and the related statements of operations for the year or period then ended, the statements of changes in net assets for each of the two years or periods in the period then ended, and the financial highlights for each of the four years or periods in the period then ended. These financial statements and financial highlights are the responsibility of the Account's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, 2004, 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 Advantus Bond, Advantus Money Market, Advantus Index 500, Advantus Mortgage Securities, Advantus Maturing Government Bond 2006, Advantus Maturing Government Bond 2010, Advantus International Bond, Advantus Index 400 Mid-Cap, Advantus Real Estate Securities, AIM V.I. Aggressive Growth, AIM V.I. Balanced, AIM V.I. Dent Demographic Trends, AIM V.I. Premier Equity, American Century Income and Growth, American Century Ultra, American Century Value, Credit Suisse Global Post-Venture Capital, Fidelity VIP Contrafund, Fidelity VIP Equity-Income, Fidelity VIP Mid-Cap, Franklin Large Cap Growth Securities, Franklin Mutual Shares Securities, Franklin Small Cap, Templeton Developing Markets Securities, Templeton Global Asset Allocation, Janus Aspen Balanced, Janus Aspen Capital Appreciation, Janus Aspen International Growth, MFS Investors Growth Stock, MFS Mid Cap Growth, MFS New Discovery, MFS Value, Oppenheimer Capital Appreciation, Oppenheimer High Income, Oppenheimer International Growth, Putnam VT Growth and Income, Putnam VT International Growth, Putnam VT New Opportunities, Putnam VT New Value, Putnam VT Voyager, Van Kampen Comstock, Van Kampen Emerging Growth, Van Kampen Growth and Income, Waddell & Reed Balanced, Waddell & Reed Growth, Waddell & Reed International II, Waddell & Reed Small Cap Growth, Waddell & Reed Value, Waddell & Reed Micro-Cap Growth, Waddell & Reed Small Cap Value, Waddell & Reed Core Equity, Waddell & Reed Asset Strategy, Waddell & Reed International, Waddell & Reed Science & Technology, Waddell & Reed Bond, Waddell & Reed Dividend Income, Waddell & Reed High Income, Waddell & Reed Limited-Term Bond, Waddell & Reed Money Market, Waddell & Reed Mortgage Securities and Waddell & Reed Real Estate Securities Segregated Sub-Accounts of Variable Annuity Account at December 31, 2004, and the results of their operations for the year or period then ended, the changes in their net assets for each of the two years or periods in the period then ended, and the financial highlights for each of the four years or periods in the period then ended, in conformity with U.S. generally accepted accounting principles. Minneapolis, Minnesota March 25, 2005 VARIABLE ANNUITY ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------------------------- ADVANTUS ADVANTUS ADVANTUS ADVANTUS ADVANTUS MATURING MATURING ADVANTUS ADVANTUS MONEY INDEX MORTGAGE GOVERNMENT GOVERNMENT INTERNATIONAL BOND MARKET 500 SECURITIES BOND 2006 BOND 2010 BOND ------------ ---------- ----------- ----------- ---------- ---------- ------------- ASSETS Investments in shares of Advantus Series Fund, Inc.: Bond Portfolio, 109,225,443 shares at net asset value of $1.44 per share (cost $139,491,717)...................... $157,323,085 - - - - - - Money Market Portfolio, 34,035,387 shares at net asset value of $1.00 per share (cost $34,035,387)............. - 34,035,387 - - - - - Index 500 Portfolio, 71,991,263 shares at net asset value of $3.81 per share (cost $232,082,646)...................... - - 274,490,233 - - - - Mortgage Securities Portfolio, 98,153,772 shares at net asset value of $1.41 per share (cost $121,172,904)... - - - 138,001,553 - - - Maturing Government Bond 2006 Portfolio, 3,969,634 shares at net asset value of $1.40 per share (cost $4,968,579)..... - - - - 5,574,482 - - Maturing Government Bond 2010 Portfolio, 4,190,268 shares at net asset value of $1.60 per share (cost $5,944,364)..... - - - - - 6,710,156 - International Bond Portfolio, 33,858,007 shares at net asset value of $1.46 per share (cost $35,134,229)............. - - - - - - 49,268,412 ------------ ---------- ----------- ----------- --------- ---------- ---------- 157,323,085 34,035,387 274,490,233 138,001,553 5,574,482 6,710,156 49,268,412 Receivable from Minnesota Life for contract purchase payments.............. 30,052 - - - - 823 - Receivable for investments sold............... - 956,157 198,559 27,596 118 - 15,155 ------------ ---------- ----------- ----------- --------- ---------- ---------- Total assets.......................... 157,353,137 34,991,544 274,688,792 138,029,149 5,574,600 6,710,979 49,283,567 ------------ ---------- ----------- ----------- --------- ---------- ---------- LIABILITIES Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges............... - 956,220 198,682 27,706 118 - 15,155 Payable for investments purchased............. 30,320 - - - - 823 - ------------ ---------- ----------- ----------- --------- ---------- ---------- Total liabilities..................... 30,320 956,220 198,682 27,706 118 823 15,155 ------------ ---------- ----------- ----------- --------- ---------- ---------- Net assets applicable to Contract owners.............................. $157,322,817 34,035,324 274,490,110 138,001,443 5,574,482 6,710,156 49,268,412 ============ ========== =========== =========== ========== ========== ========== CONTRACT OWNERS' EQUITY Contracts in accumulation period.............. $155,153,399 33,977,157 192,256,364 135,762,207 5,313,984 6,432,288 48,965,160 Contracts in annuity payment period (note 2) 2,169,418 58,167 82,233,746 2,239,236 260,498 277,868 303,252 ------------ ---------- ----------- ----------- --------- ---------- ---------- Total Contract Owners' Equity (notes 5 and 6)..................... $157,322,817 34,035,324 274,490,110 138,001,443 5,574,482 6,710,156 49,268,412 ============ ========== =========== =========== ========= ========== ==========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS --------------------------------------------------------------------------------- AIM V.I. AMERICAN ADVANTUS ADVANTUS AIM V.I. DENT AIM V.I. CENTURY INDEX 400 REAL ESTATE AGGRESSIVE AIM V.I. DEMOGRAPHIC PREMIER INCOME MID-CAP SECURITIES GROWTH BALANCED TRENDS EQUITY AND GROWTH ------------ ----------- ---------- ---------- ----------- -------- ---------- ASSETS Investments in shares of Advantus Series Fund, Inc.: Index 400 Mid-Cap Portfolio, 24,406,472 shares at net asset value of $1.50 per share (cost $29,355,501).............. $ 36,571,488 - - - - - - Real Estate Securities Portfolio, 33,245,530 shares at net asset value of $1.97 per share (cost $42,919,399)..... - 65,607,560 - - - - - Investments in shares of the AIM Variable Insurance Funds: Aggressive Growth Fund, 131,820 shares at net asset value of $11.76 per share (cost $1,325,749)......................... - - 1,550,209 - - - - Balanced Fund, 201,821 shares at net asset value of $10.53 per share (cost $1,943,307)......................... - - - 2,125,173 - - - Dent Demographic Trends Fund, 133,410 shares at net asset value of $5.60 per share (cost $655,550)..................... - - - - 747,094 - - Premier Equity Fund, 27,409 shares at net asset value of $21.18 per share (cost $504,276)........................... - - - - - 580,519 - Investments in shares of the American Century Variable Portfolios, Inc.: Income and Growth Fund, 577,516 shares at net asset value of $7.30 per share (cost $3,630,283)......................... - - - - - - 4,215,867 ------------ ---------- --------- --------- ------- ------- --------- 36,571,488 65,607,560 1,550,209 2,125,173 747,094 580,519 4,215,867 Receivable from Minnesota Life for contract purchase payments............................ 48,697 46,284 - 3,436 - 50 8,888 Receivable for investments sold................ - - 59 - 33 - - ------------ ---------- --------- --------- ------- ------- --------- Total assets........................... 36,620,185 65,653,844 1,550,268 2,128,609 747,127 580,569 4,224,755 ------------ ---------- --------- --------- ------- ------- --------- LIABILITIES Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges................ - - 64 - 35 - - Payable for investments purchased.............. 48,792 46,446 - 3,448 - 52 8,916 ------------ ---------- --------- --------- ------- ------- --------- Total liabilities...................... 48,792 46,446 64 3,448 35 52 8,916 ------------ ---------- --------- --------- ------- ------- --------- Net assets applicable to Contract owners............................... $ 36,571,393 65,607,398 1,550,204 2,125,161 747,092 580,517 4,215,839 ============ ========== ========= ========= ======= ------- --------- CONTRACT OWNERS' EQUITY Contracts in accumulation period............... $ 36,173,740 64,752,961 1,550,204 2,125,161 747,092 580,517 4,215,839 Contracts in annuity payment period (note 2)... 397,653 854,437 - - - - - ------------ ---------- --------- --------- ------- ------- --------- Total Contract Owners' Equity (notes 5 and 6)...................... $ 36,571,393 65,607,398 1,550,204 2,125,161 747,092 580,517 4,215,839 ============ ========== ========= ========= ======= ======= =========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS -------------------------------------------------------------------------------------- CREDIT SUISSE FRANKLIN AMERICAN AMERICAN GLOBAL LARGE CAP CENTURY CENTURY POST-VENTURE FIDELITY VIP FIDELITY VIP FIDELITY VIP GROWTH ULTRA VALUE CAPITAL CONTRAFUND EQUITY-INCOME MID-CAP SECURITIES ----------- --------- ------------- ------------ ------------- ----------- ---------- ASSETS Investments in shares of the American Century Variable Portfolios, Inc.: Ultra Fund, 3,738,340 shares at net asset value of $10.13 per share (cost $33,570,764)............................ $37,869,381 - - - - - - Value Fund, 907,999 shares at net asset value of $8.74 per share (cost $6,999,886)........................... - 7,935,910 - - - - - Investments in shares of the Credit Suisse Trust: Global Post-Venture Capital Portfolio, 223,627 shares at net asset value of $11.15 per share (cost $2,101,529)... - - 2,493,440 - - - - Investments in shares of the Fidelity Variable Insurance Products Fund: Contrafund Portfolio, 1,740,758 shares at net asset value of $26.35 per share (cost $38,294,446)...................... - - - 45,868,975 - - - Equity-Income Portfolio, 3,669,622 shares at net asset value of $25.09 per share (cost $79,221,678)...................... - - - - 92,070,816 - - Mid-Cap Portfolio, 1,583,666 shares at net asset value of $29.88 per share (cost $32,832,297)...................... - - - - - 47,319,954 - Investments in shares of the Franklin Templeton Variable Insurance Products Fund: Large Cap Growth Securities Fund, 203,353 shares at net asset value of $14.90 per share (cost $2,825,593)............. - - - - - - 3,029,961 ----------- --------- --------- ---------- ---------- ---------- --------- 37,869,381 7,935,910 2,493,440 45,868,975 92,070,816 47,319,954 3,029,961 Receivable from Minnesota Life for contract purchase payments.......................... 115,177 19,415 6,395 230,508 123,034 19,969 - Receivable for investments sold.............. - - - - - - 8 ----------- --------- --------- ---------- ---------- ---------- --------- Total assets......................... 37,984,558 7,955,325 2,499,835 46,099,483 92,193,850 47,339,923 3,029,969 ----------- --------- --------- ---------- ---------- ---------- --------- LIABILITIES Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges.............. - - - - - - 24 Payable for investments purchased............ 115,430 19,458 6,395 230,580 123,392 20,055 - ----------- --------- --------- ---------- ---------- ---------- --------- Total liabilities.................... 115,430 19,458 6,395 230,580 123,392 20,055 24 ----------- --------- --------- ---------- ---------- ---------- --------- Net assets applicable to Contract owners............................. $37,869,128 7,935,867 2,493,440 45,868,903 92,070,458 47,319,868 3,029,945 =========== ========= ========= ========== ========== ========== ========= CONTRACT OWNERS' EQUITY Contracts in accumulation period............. $37,301,326 7,935,867 2,493,440 45,621,887 91,105,899 46,893,566 3,029,945 Contracts in annuity payment period (note 2)................................... 567,802 - - 247,016 964,559 426,302 - ----------- --------- --------- ---------- ---------- ---------- --------- Total Contract Owners' Equity (notes 5 and 6).................... $37,869,128 7,935,867 2,493,440 45,868,903 92,070,458 47,319,868 3,029,945 =========== ========= ========= ========== ========== ========== =========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS -------------------------------------------------------------------------------------- TEMPLETON JANUS FRANKLIN DEVELOPING TEMPLETON JANUS JANUS ASPEN MUTUAL SHARES FRANKLIN MARKETS GLOBAL ASSET ASPEN ASPEN CAPITAL INTERNATIONAL SECURITIES SMALL CAP SECURITIES ALLOCATION BALANCED APPRECIATION GROWTH ------------ ---------- ---------- ------------ --------- ------------- ----------- ASSETS Investments in shares of the Franklin Templeton Variable Insurance Products Fund: Mutual Shares Securities Fund, 363,178 shares at net asset value of $16.64 per share (cost $5,259,107)............. $6,043,278 - - - - - - Small Cap Fund, 877,011 shares at net asset value of $19.43 per share (cost $14,673,794)...................... - 17,040,325 - - - - - Developing Markets Securities Fund, 2,133,926 shares at net asset value of $8.67 per share (cost $14,101,434)... - - 18,501,141 - - - - Global Asset Allocation Fund, 368,531 shares at net asset value of $20.95 per share (cost $6,186,030)... - - - 7,720,719 - - - Investments in shares of the Janus Aspen Series: Balanced Portfolio, 135,695 shares at net asset value of $25.24 per share (cost $3,145,653)....................... - - - - 3,424,954 - - Capital Appreciation Portfolio, 862,459 shares at net asset value of $24.39 per share (cost $22,574,943)............ - - - - - 21,035,378 - International Growth Portfolio, 802,968 shares at net asset value of $26.94 per share (cost $22,597,809)............ - - - - - - 21,631,949 ---------- ---------- ---------- --------- --------- ---------- ---------- 6,043,278 17,040,325 18,501,141 7,720,719 3,424,954 21,035,378 21,631,949 Receivable from Minnesota Life for contract purchase payments............................ 2,690 984 15,434 - - - 928,120 Receivable for investments sold.............. - - - 23,717 141 14,233 - ---------- ---------- ---------- --------- --------- ---------- ---------- Total assets......................... 6,045,968 17,041,309 18,516,575 7,744,436 3,425,095 21,049,611 22,560,069 ---------- ---------- ---------- --------- --------- ---------- ---------- LIABILITIES Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges................ - - - 23,717 153 14,250 - Payable for investments purchased............ 2,719 1,014 15,465 - - - 928,155 ---------- ---------- ---------- --------- --------- ---------- ---------- Total liabilities.................... 2,719 1,014 15,465 23,717 153 14,250 928,155 ---------- ---------- ---------- --------- --------- ---------- ---------- Net assets applicable to Contract owners............................... $6,043,249 17,040,295 18,501,110 7,720,719 3,424,942 21,035,361 21,631,914 ========== ========== ========== ========= ========= ========== ========== CONTRACT OWNERS' EQUITY Contracts in accumulation period............. $6,043,249 16,963,509 18,162,392 7,671,991 3,424,942 20,902,761 21,500,472 Contracts in annuity payment period (note 2)..................................... - 76,786 338,718 48,728 - 132,600 131,442 ---------- ---------- ---------- --------- --------- ---------- ---------- Total Contract Owners' Equity (notes 5 and 6)..................... $6,043,249 17,040,295 18,501,110 7,720,719 3,424,942 21,035,361 21,631,914 ========== ========== ========== ========= ========= ========== ==========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES December 31, 2004
SEGREGATED SUB-ACCOUNTS ------------ --------- ----------------------------------------------------------- MFS MFS MFS OPPENHEIMER OPPENHEIMER INVESTORS MID CAP NEW MFS CAPITAL OPPENHEIMER INTERNATIONAL GROWTH STOCK GROWTH DISCOVERY VALUE APPRECIATION HIGH INCOME GROWTH ------------ --------- ---------- --------- ------------ ----------- ------------- ASSETS Investments in shares of the MFS Variable Insurance Trust: Investors Growth Stock Series, 153,639 shares at net asset value of $9.34 per share (cost $1,277,787)..... $ 1,434,986 - - - - - - Mid Cap Growth Series, 230,360 shares at net asset value of $7.00 per share (cost $1,479,452)..... - 1,612,520 - - - - - New Discovery Series, 790,975 shares at net asset value of $14.71 per share (cost $10,884,488)... - - 11,635,238 - - - - Value Series, 318,642 shares at net asset value of $12.07 per share (cost $3,230,629).... - - - 3,846,004 - - - Investments in shares of the Oppenheimer Variable Account Funds: Capital Appreciation Fund, 129,765 shares at net asset value of $36.73 per share (cost $4,297,176).... - - - - 4,766,250 - - High Income Fund, 1,940,649 shares at net asset value of $8.76 per share (cost $16,236,883).... - - - - - 17,000,083 - Investments in shares of the Panorama Series Funds, Inc.: International Growth, 3,661,049 shares at net asset value of $1.34 per share (cost $4,246,111)..... - - - - - - 4,905,806 ------------ --------- ---------- --------- ------------ ----------- ------------- 1,434,986 1,612,520 11,635,238 3,846,004 4,766,250 17,000,083 4,905,806 Receivable from Minnesota Life for contract purchase payments............... - - 27,773 8,214 1,998 38,577 - Receivable for investments sold............... 8 62 - - - - 145 ------------ --------- ---------- --------- ------------ ----------- ------------- Total assets......................... 1,434,994 1,612,582 11,663,011 3,854,218 4,768,248 17,038,660 4,905,951 ------------ --------- ---------- --------- ------------ ----------- ------------- LIABILITIES Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges................. 13 67 - - - - 170 Payable for investments purchased............. - - 27,848 8,229 2,013 38,686 - ------------ --------- ---------- --------- ------------ ----------- ------------- Total liabilities.................... 13 67 27,848 8,229 2,013 38,686 170 ------------ --------- ---------- --------- ------------ ----------- ------------- Net assets applicable to Contract owners.................... $ 1,434,981 1,612,515 11,635,163 3,845,989 4,766,235 16,999,974 4,905,781 ============ ========= ========== ========= ============ =========== ============= CONTRACT OWNERS' EQUITY Contracts in accumulation period.............. $ 1,434,981 1,612,515 11,490,492 3,845,989 4,766,235 16,612,658 4,905,781 Contracts in annuity payment period (note 2)............................ - - 144,671 - - 387,316 - ------------ --------- ---------- --------- ------------ ----------- ------------- Total Contract Owners' Equity (notes 5 and 6)............. $ 1,434,981 1,612,515 11,635,163 3,845,989 4,766,235 16,999,974 4,905,781 ============ ========= ========== ========= ============ =========== =============
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS ----------------------------------------------------------------------------------- PUTNAM VT PUTNAM VT PUTNAM VT PUTNAM VT VAN KAMPEN GROWTH AND INTERNATIONAL NEW NEW PUTNAM VT VAN KAMPEN EMERGING INCOME GROWTH OPPORTUNITIES VALUE VOYAGER COMSTOCK GROWTH ----------- ------------- ------------- --------- --------- ----------- ----------- ASSETS Investments in shares of the Putnam Variable Trust: Putnam Growth and Income Fund, 72,804 shares at net asset value of $25.44 per share (cost $1,566,081)..... $ 1,852,142 - - - - - - International Growth Fund, 787,292 shares at net asset value of $14.71 per share (cost $9,695,479)..... - 11,581,061 - - - - - New Opportunities Fund, 21,532 shares at net asset value of $16.80 per share (cost $312,132)....... - - 361,738 - - - - New Value Fund, 135,327 shares at net asset value of $16.33 per share (cost $1,872,983)........................ - - - 2,209,882 - - - Voyager Fund, 33,043 shares at net asset value of $27.20 per share (cost $809,722)........................... - - - - 898,773 - - Investments in shares of the Van Kampen Funds: Comstock Fund, 328,025 shares at net asset value of $13.69 per share (cost $3,859,576)......................... - - - - - 4,490,666 - Emerging Growth Fund, 9,841 shares at net asset value of $25.84 per share (cost $238,281)........................... - - - - - - 254,304 ----------- ---------- ------- --------- ------- --------- ------- 1,852,142 11,581,061 361,738 2,209,882 898,773 4,490,666 254,304 Receivable from Minnesota Life for contract purchase payments............................. 79 3,401 - 265 1,340 44,492 - Receivable for investments sold................. - - 7 - - - 9 ----------- ---------- ------- --------- ------- --------- ------- Total assets............................ 1,852,221 11,584,462 361,745 2,210,147 900,113 4,535,158 254,313 ----------- ---------- ------- --------- ------- --------- ------- LIABILITIES Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges................... - - 9 - - - 10 Payable for investments purchased............... 86 3,467 - 277 1,344 44,527 - ----------- ---------- ------- --------- ------- --------- ------- Total liabilities....................... 86 3,467 9 277 1,344 44,527 10 ----------- ---------- ------- --------- ------- --------- ------- Net assets applicable to Contract owners $ 1,852,135 11,580,995 361,736 2,209,870 898,769 4,490,631 254,303 =========== ========== ======= ========= ======= ========= ======= CONTRACT OWNERS' EQUITY Contracts in accumulation period................ $ 1,852,135 11,580,995 361,736 2,209,870 898,769 4,490,631 254,303 Contracts in annuity payment period (note 2).... - - - - - - - ----------- ---------- ------- --------- ------- --------- ------- Total Contract Owners' Equity (notes 5 and 6) $ 1,852,135 11,580,995 361,736 2,209,870 898,769 4,490,631 254,303 =========== ========== ======= ========= ======= ========= =======
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS -------------------------------------------------------------------------------------- WADDELL WADDELL WADDELL VAN KAMPEN WADDELL WADDELL & REED & REED WADDELL & REED GROWTH AND & REED & REED INTERNATIONAL SMALL CAP & REED MICRO-CAP INCOME BALANCED GROWTH II GROWTH VALUE GROWTH ------------ ----------- ----------- ------------- ---------- ---------- ---------- ASSETS Investments in shares of the Van Kampen Funds: Growth and Income Fund, 51,746 shares at net asset value of $19.29 per share (cost $871,010).......................... $ 998,175 - - - - - - Investments in shares of the Waddell & Reed Target Funds, Inc.: Balanced Portfolio, 29,742,507 shares at net asset value of $7.68 per share (cost $238,018,840)...................... - 228,371,891 - - - - - Growth Portfolio, 20,966,587 shares at net asset value of $8.37 per share (cost $199,991,378)............ - - 175,549,042 - - - - International II Portfolio, 9,226,822 shares at net asset value of $19.17 per share (cost $141,730,857).. - - - 176,860,656 - - - Small Cap Growth Portfolio, 8,659,892 shares at net asset value of $9.68 per share (cost $91,106,334)............. - - - - 83,836,418 - - Value Portfolio, 11,912,323 shares at net asset value of $6.22 per share (cost $66,281,284)............. - - - - - 74,124,428 - Micro-Cap Growth Portfolio, 1,275,765 shares at net asset value of $14.80 per share (cost $19,336,743)............. - - - - - - 18,880,306 ------------ ----------- ----------- ----------- ---------- ---------- ---------- 998,175 228,371,891 175,549,042 176,860,656 83,836,418 74,124,428 18,880,306 Receivable from Minnesota Life for contract purchase payments................. - - - 93,759 57,449 113,010 - Receivable for investments sold.............. 39 39,589 73,927 - - - 20,965 ------------ ----------- ----------- ----------- ---------- ---------- ---------- Total assets......................... 998,214 228,411,480 175,622,969 176,954,415 83,893,867 74,237,438 18,901,271 ------------ ----------- ----------- ----------- ---------- ---------- ---------- LIABILITIES Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges................ 45 39,676 74,045 - - - 20,998 Payable for investments purchased............ - - - 94,017 57,519 113,087 - ------------ ----------- ----------- ----------- ---------- ---------- ---------- Total liabilities................... 45 39,676 74,045 94,017 57,519 113,087 20,998 ------------ ----------- ----------- ----------- ---------- ---------- ---------- Net assets applicable to Contract owners................... $ 998,169 228,371,804 175,548,924 176,860,398 83,836,348 74,124,351 18,880,273 ============ =========== =========== =========== ========== ========== ========== CONTRACT OWNERS' EQUITY Contracts in accumulation period............. $ 998,169 223,879,635 173,469,811 174,949,398 82,681,954 73,129,782 18,712,567 Contracts in annuity payment period (note 2)............................ - 4,492,169 2,079,111 1,911,000 1,154,394 994,569 167,706 ------------ ----------- ----------- ------------ ---------- ---------- ---------- Total Contract Owners' Equity (notes 5 and 6).................. $ 998,169 228,371,804 175,548,922 176,860,398 83,836,348 74,124,351 18,880,273 ============ =========== =========== =========== ========== ========== ==========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------------------------------------ WADDELL & REED WADDELL WADDELL & REED WADDELL & REED WADDELL WADDELL & REED SMALL CAP & REED ASSET WADDELL & REED SCIENCE & & REED DIVIDEND VALUE CORE EQUITY STRATEGY INTERNATIONAL TECHNOLOGY BOND INCOME -------------- ----------- -------------- -------------- -------------- --------- -------------- ASSETS Investments in shares of the Waddell & Reed Target Funds, Inc.: Small Cap Value Portfolio, 2,993,417 shares at net asset value of $16.63 per share (cost $39,327,067).............. $ 49,789,208 - - - - - - Core Equity Portfolio, 1,207,995 shares at net asset value of $10.24 per share (cost $12,957,924).............. - 12,366,125 - - - - - Asset Strategy Portfolio, 673,044 shares at net asset value of $7.69 per share (cost $4,838,826)............... - - 5,177,458 - - - - International Portfolio, 623,830 shares at net asset value of $6.65 per share (cost $3,747,191)............... - - - 4,150,587 - - - Science & Technology Portfolio, 406,126 shares at net asset value of $14.40 per share (cost $5,259,370)......... - - - - 5,848,782 - - Bond Portfolio, 381,035 shares at net asset value of $5.48 per share (cost $2,183,949)..... - - - - - 2,086,625 - Dividend Income Portfolio, 348,099 shares at net asset value of $5.46 per share (cost $1,793,587)............... - - - - - - 1,902,187 -------------- ---------- --------- --------- --------- --------- --------- 49,789,208 12,366,125 5,177,458 4,150,587 5,848,782 2,086,625 1,902,187 Receivable from Minnesota Life for contract purchase payments.... 121,014 57,132 122,896 44,722 64,285 5,500 25,999 Receivable for investments sold.... - - - - - - - -------------- ---------- --------- --------- --------- --------- --------- Total assets................. 49,910,222 12,423,257 5,300,354 4,195,309 5,913,067 2,092,125 1,928,186 -------------- ---------- --------- --------- --------- --------- --------- LIABILITIES Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges..... - - - - - - - Payable for investments purchased........................ 121,130 57,156 122,938 44,757 64,341 5,525 26,023 -------------- ---------- --------- --------- --------- --------- --------- Total liabilities............ 121,130 57,156 122,938 44,757 64,341 5,525 26,023 -------------- ---------- --------- --------- --------- --------- --------- Net assets applicable to Contract owners............. $ 49,789,092 12,366,101 5,177,416 4,150,552 5,848,726 2,086,600 1,902,163 ============== ========== ========= ========= ========= ========= ========= CONTRACT OWNERS' EQUITY Contracts in accumulation period... $ 49,125,125 12,018,371 5,177,416 4,143,156 5,848,726 2,086,600 1,902,163 Contracts in annuity payment period (note 2).................. 663,967 347,730 - 7,396 - - - -------------- ---------- --------- --------- --------- --------- --------- Total Contract Owners' Equity (notes 5 and 6)...... $ 49,789,092 12,366,101 5,177,416 4,150,552 5,848,726 2,086,600 1,902,163 ============== ========== ========= ========= ========= ========= =========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS ----------------------------------------------------------------- WADDELL WADDELL WADDELL WADDELL WADDELL & REED & REED & REED & REED & REED HIGH LIMITED-TERM MONEY MORTGAGE REAL ESTATE INCOME BOND MARKET SECURITIES SECURITIES ----------- ------------ --------- ---------- ----------- ASSETS Investments in shares of the Waddell & Reed Target Funds, Inc.: High Income Portfolio, 1,182,348 shares at net asset value of $3.43 per share (cost $4,192,644)..... $ 4,052,617 - - - - Limited-Term Bond Portfolio, 131,108 shares at net asset value of $5.56 per share (cost $746,306)....... - 728,871 - - - Money Market Portfolio, 1,207,921 shares at net asset value of $1.00 per share (cost $1,207,921)..... - - 1,207,921 - - Mortgage Securities Portfolio, 3,378,439 shares at net asset value of $5.08 per share (cost $16,958,114)................................... - - - 17,159,432 - Real Estate Securities Portfolio, 1,464,770 shares at net asset value of $6.52 per share (cost $7,769,027).......................................... - - - - 9,546,784 ----------- ------------ --------- ---------- ----------- 4,052,617 728,871 1,207,921 17,159,432 9,546,784 Receivable from Minnesota Life for contract purchase payments....................................... 53,428 32,089 - 36,718 75,493 Receivable for investments sold........................... - - 125 - - ----------- ------------ --------- ---------- ----------- Total assets......................................... 4,106,045 760,960 1,208,046 17,196,150 9,622,277 ----------- ------------ --------- ---------- ----------- LIABILITIES Payable to Minnesota Life for contract terminations, withdrawal payments and mortality and expense charges................................................. - - 126 - - Payable for investments purchased......................... 53,476 32,096 - 36,732 75,525 ----------- ------------ --------- ---------- ----------- Total liabilities.................................... 53,476 32,096 126 36,732 75,525 ----------- ------------ --------- ---------- ----------- Net assets applicable to Contract owners............. $ 4,052,569 728,864 1,207,920 17,159,418 9,546,752 =========== ============ ========= ========== =========== CONTRACT OWNERS' EQUITY Contracts in accumulation period.......................... $ 4,052,569 728,864 1,207,920 17,159,418 9,546,752 Contracts in annuity payment period (note 2).............. - - - - - ----------- ------------ --------- ---------- ----------- Total Contract Owners' Equity (notes 5 and 6)........ $ 4,052,569 728,864 1,207,920 17,159,418 9,546,752 =========== ============ ========= ========== ===========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS --------------------------------------------------------------------------------------------- ADVANTUS ADVANTUS ADVANTUS ADVANTUS ADVANTUS MATURING MATURING ADVANTUS ADVANTUS MONEY INDEX MORTGAGE GOVERNMENT GOVERNMENT INTERNATIONAL BOND MARKET 500 SECURITIES BOND 2006 BOND 2010 BOND -------------- ----------- ----------- ----------- ---------- ---------- ------------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4)....................... $ - 277,394 - - - - - Mortality and expense charges (note 3)....................... (1,945,548) (475,369) (2,885,733) (1,834,573) (96,908) (90,095) (609,706) -------------- ----------- ----------- ----------- ---------- ---------- ------------- Investment income (loss) - net........................ (1,945,548) (197,975) (2,885,733) (1,834,573) (96,908) (90,095) (609,706) -------------- ----------- ----------- ----------- ---------- ---------- ------------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund.... - - - - - - - -------------- ----------- ----------- ----------- ---------- ---------- ------------- Realized gains (losses) on sales of investments: Proceeds from sales........... 27,008,309 46,582,337 34,137,802 34,487,458 4,496,571 1,630,846 13,816,595 Cost of investments sold...... (23,857,087) (46,582,337) (30,853,129) (30,561,247) (3,971,078) (1,417,074) (10,766,325) -------------- ----------- ----------- ----------- ---------- ---------- ------------- 3,151,222 - 3,284,673 3,926,211 525,493 213,772 3,050,270 -------------- ----------- ----------- ----------- ---------- ---------- ------------- Net realized gains (losses) on investments............... 3,151,222 - 3,284,673 3,926,211 525,493 213,772 3,050,270 -------------- ----------- ----------- ----------- ---------- ---------- ------------- Net change in unrealized appreciation or depreciation of investments................. 4,166,128 - 22,648,527 2,689,082 (498,087) 12,181 1,771,102 -------------- ----------- ----------- ----------- ---------- ---------- ------------- Net gains (losses) on investments.................. 7,317,350 - 25,933,200 6,615,293 27,406 225,953 4,821,372 -------------- ----------- ----------- ----------- ---------- ---------- ------------- Net increase (decrease) in net assets resulting from operations................... $ 5,371,802 (197,975) 23,047,467 4,780,720 (69,502) 135,858 4,211,666 ============== =========== =========== =========== ========== ========== =============
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------------------- AIM V.I. AMERICAN ADVANTUS ADVANTUS AIM V.I. DENT AIM V.I. CENTURY INDEX 400 REAL ESTATE AGGRESSIVE AIM V.I. DEMOGRAPHIC PREMIER INCOME MID-CAP SECURITIES GROWTH BALANCED TRENDS EQUITY AND GROWTH ------------ ------------ ---------- -------- ----------- --------- ---------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4) .... $ - - - 27,702 - 1,789 34,537 Mortality and expense charges (note 3) .... (395,143) (656,795) (16,624) (25,873) (8,834) (7,493) (49,035) ----------- ----------- --------- -------- ---------- -------- -------- Investment income (loss) - net ........ (395,143) (656,795) (16,624) 1,829 (8,834) (5,704) (14,498) ----------- ----------- --------- -------- ---------- -------- -------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund ................ - - - - - - - ----------- ----------- --------- -------- ---------- -------- -------- Realized gains (losses) on sales of investments: Proceeds from sales ................... 6,687,306 15,229,949 99,221 473,358 108,801 144,823 380,333 Cost of investments sold .............. (5,507,740) (10,117,430) (81,089) (476,346) (92,611) (120,304) (316,584) ----------- ----------- --------- -------- ---------- -------- -------- 1,179,566 5,112,519 18,132 (2,988) 16,190 24,519 63,749 ----------- ----------- --------- -------- ---------- -------- -------- Net realized gains (losses) on investments......................... 1,179,566 5,112,519 18,132 (2,988) 16,190 24,519 63,749 ----------- ----------- --------- -------- ---------- -------- -------- Net change in unrealized appreciation or depreciation of investments ........ 3,577,023 10,596,017 132,268 110,022 37,005 4,085 323,571 ----------- ----------- --------- -------- ---------- -------- -------- Net gains (losses) on investments ..... 4,756,589 15,708,536 150,400 107,034 53,195 28,604 387,320 ----------- ----------- --------- -------- ---------- -------- -------- Net increase (decrease) in net assets resulting from operations ... $ 4,361,446 15,051,741 133,776 108,863 44,361 22,900 372,822 =========== =========== ========= ======== ========== ======== ========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS ---------------------------------------------------------------------------------------- CREDIT SUISSE FIDELITY FRANKLIN AMERICAN AMERICAN GLOBAL FIDELITY VIP FIDELITY LARGE CAP CENTURY CENTURY POST-VENTURE VIP EQUITY VIP GROWTH ULTRA VALUE CAPITAL CONTRAFUND -INCOME MID-CAP SECURITIES ------------ ---------- ------------- ----------- ---------- ---------- ---------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4)........ $ - 29,672 - 74,836 851,808 - 8,750 Mortality and expense charges (note 3)............................... (367,216) (67,406) (29,485) (505,105) (989,541) (490,651) (28,006) ------------ ---------- ------------- ----------- ---------- ---------- ---------- Investment income (loss) - net...... (367,216) (37,734) (29,485) (430,269) (137,733) (490,651) (19,256) ------------ ---------- ------------- ----------- ---------- ---------- ---------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund................ - 27,235 - - 221,986 - - ------------ ---------- ------------- ----------- ---------- ---------- ---------- Realized gains (losses) on sales of investments: Proceeds from sales................. 776,627 1,198,772 830,363 4,941,668 5,139,962 3,853,168 4,196,518 Cost of investments sold............ (649,895) (1,005,372) (901,616) (4,426,351) (4,695,958) (2,823,517) (4,078,159) ------------ ---------- ------------- ----------- ---------- ---------- ---------- 126,732 193,400 (71,253) 515,317 444,004 1,029,651 118,359 ------------ ---------- ------------- ----------- ---------- ---------- ---------- Net realized gains (losses) on investments........................ 126,732 220,635 (71,253) 515,317 665,990 1,029,651 118,359 ------------ ---------- ------------- ----------- ---------- ---------- ---------- Net change in unrealized appreciation or depreciation of investments......... 2,959,616 531,323 437,868 5,125,798 7,026,078 7,820,193 85,088 ------------ ---------- ------------- ----------- ---------- ---------- ---------- Net gains (losses) on investments... 3,086,348 751,958 366,615 5,641,115 7,692,068 8,849,844 203,447 ------------ ---------- ------------- ----------- ---------- ---------- ---------- Net increase (decrease) in net assets resulting from operations... $ 2,719,132 714,224 337,130 5,210,846 7,554,335 8,359,193 184,191 ============ ========== ============= =========== ========== ========== ==========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS ----------------------------------------------------------------------------------------- TEMPLETON TEMPLETON JANUS FRANKLIN DEVELOPING GLOBAL JANUS ASPEN JANUS MUTUAL SHARES FRANKLIN MARKETS ASSET ASPEN CAPITAL INTERNATIONAL SECURITIES SMALL CAP SECURITIES ALLOCATION BALANCED APPRECIATION GROWTH ------------- ---------- ----------- ---------- -------- ------------ ------------ Investment income (loss): Investment income distributions from underlying mutual fund (note 4).......................... $ 28,756 - 281,418 189,154 67,960 4,914 147,282 Mortality and expense charges (note 3).......................... (58,138) (198,838) (195,837) (84,894) (36,090) (245,137) (219,457) ------------- ---------- ----------- ---------- -------- ------------ ------------- Investment income (loss) - net........................ (29,382) (198,838) 85,581 104,260 31,870 (240,223) (72,175) ------------- ---------- ----------- ---------- -------- ------------ ------------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund....... - - - - - - - ------------- ---------- ----------- ---------- -------- ------------ ------------- Realized gains (losses) on sales of investments: Proceeds from sales............ 374,485 2,682,785 13,498,083 1,732,418 496,982 3,851,731 5,958,374 Cost of investments sold....... (297,602) (2,419,297) (12,677,387) (1,476,426) (450,263) (5,021,404) (7,065,784) ------------- ---------- ----------- ---------- -------- ------------ ------------- 76,883 263,488 820,696 255,992 46,719 (1,169,673) (1,107,410) ------------- ---------- ----------- ---------- -------- ------------ ------------- Net realized gains (losses) on investments................ 76,883 263,488 820,696 255,992 46,719 (1,169,673) (1,107,410) ------------- ---------- ----------- ---------- -------- ------------ ------------- Net change in unrealized appreciation or depreciation of investments....................... 467,176 1,442,095 2,405,078 573,378 140,550 4,324,741 4,118,087 ------------- ---------- ----------- ---------- -------- ------------ ------------- Net gains (losses) on investments................... 544,059 1,705,583 3,225,774 829,370 187,269 3,155,068 3,010,677 ------------- ---------- ----------- ---------- -------- ------------ ------------- Net increase (decrease) in net assets resulting from operations.................... $ 514,677 1,506,745 3,311,355 933,630 219,139 2,914,845 2,938,502 ============= ========== =========== ========== ======== ============ =============
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS -------------------------------------------------------------------------------------- MFS MFS MFS OPPENHEIMER OPPENHEIMER INVESTORS MID CAP NEW MFS CAPITAL OPPENHEIMER INTERNATIONAL GROWTH STOCK GROWTH DISCOVERY VALUE APPRECIATION HIGH INCOME GROWTH ------------ ---------- --------- -------- ------------ ------------ ------------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4).......... $ - - - 57,598 7,901 611,349 37,265 Mortality and expense charges (note 3)... (18,278) (19,794) (130,089) (41,676) (53,868) (179,034) (49,124) ---------- ---------- ---------- -------- -------- ---------- ---------- Investment income (loss) - net........ (18,278) (19,794) (130,089) 15,922 (45,967) 432,315 (11,859) ---------- ---------- ---------- -------- -------- ---------- ---------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund................... - - - - - - - ---------- ---------- ---------- -------- -------- ---------- ---------- Realized gains (losses) on sales of investments: Proceeds from sales................... 551,535 1,415,075 2,562,647 518,218 392,279 2,751,819 1,371,035 Cost of investments sold.............. (485,712) (1,281,643) (2,304,472) (415,076) (325,045) (2,549,018) (1,198,711) ---------- ---------- ---------- -------- -------- ---------- ---------- 65,823 133,432 258,175 103,142 67,234 202,801 172,324 ---------- ---------- ---------- -------- -------- ---------- ---------- Net realized gains (losses) on investments........................... 65,823 133,432 258,175 103,142 67,234 202,801 172,324 ---------- ---------- ---------- -------- -------- ---------- ---------- Net change in unrealized appreciation or depreciation of investments.............. 54,280 63,724 349,640 277,820 196,569 309,655 453,615 ---------- ---------- ---------- -------- -------- ---------- ---------- Net gains (losses) on investments..... 120,103 197,156 607,815 380,962 263,803 512,456 625,939 ---------- ---------- ---------- -------- -------- ---------- ---------- Net increase (decrease) in net assets resulting from operations............. $ 101,825 177,362 477,726 396,884 217,836 944,771 614,080 ========== ========== ========== ======== ======== ========== ==========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS ----------------------------------------------------------------------------------- PUTNAM VT PUTNAM VT PUTNAM VT PUTNAM VT VAN KAMPEN GROWTH AND INTERNATIONAL NEW NEW PUTNAM VT VAN KAMPEN EMERGING INCOME GROWTH OPPORTUNITIES VALUE VOYAGER COMSTOCK GROWTH ----------- ------------- ------------- ---------- ---------- ---------- ---------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4)... $ 22,979 131,437 - 9,573 1,862 17,493 - Mortality and expense charges (note 3)... (21,359) (138,338) (4,323) (21,243) (10,888) (42,644) (2,863) ---------- ---------- ------- -------- -------- ------- -------- Investment income (loss) - net......... 1,620 (6,901) (4,323) (11,670) (9,026) (25,151) (2,863) ---------- ---------- ------- -------- -------- ------- -------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund................. - - - - - - - ---------- ---------- ------- -------- -------- ------- -------- Realized gains (losses) on sales of investments: Proceeds from sales.................... 224,469 2,297,380 78,572 212,178 144,086 140,971 118,638 Cost of investments sold............... (177,479) (1,799,945) (66,082) (170,622) (128,957) (98,177) (114,713) ---------- ---------- ------- -------- -------- ------- -------- 46,990 497,435 12,490 41,556 15,129 42,794 3,925 ---------- ---------- ------- -------- -------- ------- -------- Net realized gains (losses) on investments.......................... 46,990 497,435 12,490 41,556 15,129 42,794 3,925 ---------- ---------- ------- -------- -------- ------- -------- Net change in unrealized appreciation or depreciation of investments......... 106,939 947,921 17,924 222,396 25,167 485,037 13,159 ---------- ---------- ------- -------- -------- ------- -------- Net gains (losses) on investments...... 153,929 1,445,356 30,414 263,952 40,296 527,831 17,084 ---------- ---------- ------- -------- -------- ------- -------- Net increase (decrease) in net assets resulting from operations..... $ 155,549 1,438,455 26,091 252,282 31,270 502,680 14,221 ========== ========== ======= ======== ======== ======= ========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS ----------------------------------------------------------------------------------------- WADDELL WADDELL WADDELL VAN KAMPEN WADDELL WADDELL & REED & REED WADDELL & REED GROWTH AND & REED & REED INTERNATIONAL SMALL CAP & REED MICRO-CAP INCOME BALANCED GROWTH II GROWTH VALUE GROWTH ---------- ----------- ----------- ------------- ----------- ----------- ----------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4)....... $ 3,102 3,213,015 474,437 1,676,736 - 730,512 - Mortality and expense charges (note 3) ............................. (8,762) (2,874,478) (2,166,201) (1,911,649) (965,576) (846,597) (269,596) ---------- ----------- ----------- ----------- ----------- ----------- ----------- Investment income (loss) - net .............................. (5,660) 338,537 (1,691,764) (234,913) (965,576) (116,085) (269,596) ---------- ----------- ----------- ----------- ----------- ----------- ----------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund ............... - - - 1,323,729 - - - ---------- ----------- ----------- ----------- ----------- ----------- ----------- Realized gains (losses) on sales of investments: Proceeds from sales ................ 24,112 46,401,298 33,800,408 25,218,133 15,144,881 11,044,355 9,557,398 Cost of investments sold ........... (17,639) (51,507,108) (45,424,261) (22,225,459) (18,734,039) (10,780,731) (12,446,311) ---------- ----------- ----------- ----------- ----------- ----------- ----------- 6,473 (5,105,810) (11,623,853) 2,992,674 (3,589,158) 263,624 (2,888,913) ---------- ----------- ----------- ----------- ----------- ----------- ----------- Net realized gains (losses) on investments ....................... 6,473 (5,105,810) (11,623,853) 4,316,403 (3,589,158) 263,624 (2,888,913) ---------- ----------- ----------- ----------- ----------- ----------- ----------- Net change in unrealized appreciation or depreciation of investments ....... 99,799 21,239,010 16,520,120 26,478,196 14,175,731 8,484,781 4,140,931 ---------- ----------- ----------- ----------- ----------- ----------- ----------- Net gains (losses) on investments ....................... 106,272 16,133,200 4,896,267 30,794,599 10,586,573 8,748,405 1,252,018 ---------- ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations... $ 100,612 16,471,737 3,204,503 30,559,686 9,620,997 8,632,320 982,422 ========== =========== =========== =========== =========== =========== ===========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS -------------------------------------------------------------------------------------- WADDELL WADDELL WADDELL WADDELL & REED WADDELL & REED WADDELL & REED WADDELL & REED SMALL CAP & REED ASSET & REED SCIENCE & & REED DIVIDEND VALUE CORE EQUITY STRATEGY INTERNATIONAL TECHNOLOGY BOND INCOME ----------- ----------- -------- ------------- ---------- ------- ------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4) ... $ - 74,279 63,797 25,037 - 88,586 11,486 Mortality and expense charges (note 3) .......................... (511,011) (142,356) (28,586) (29,356) (32,048) (5,708) (6,411) ----------- ---------- -------- -------- -------- ------- ------- Investment income (loss) - net ... (511,011) (68,077) 35,211 (4,319) (32,048) 82,878 5,075 ----------- ---------- -------- -------- -------- ------- ------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund ............ 2,419,355 - 34,035 - - 23,242 - ----------- ---------- -------- -------- -------- ------- ------- Realized gains (losses) on sales of investments: Proceeds from sales .............. 6,422,857 2,959,996 465,559 914,343 938,352 4,396 1,309 Cost of investments sold ......... (4,737,175) (3,522,561) (440,982) (864,932) (945,973) (4,250) (1,288) ----------- ---------- -------- -------- -------- ------- ------- 1,685,682 (562,565) 24,577 49,411 (7,621) 146 21 ----------- ---------- -------- -------- -------- ------- ------- Net realized gains (losses) on investments ..................... 4,105,037 (562,565) 58,612 49,411 (7,621) 23,388 21 ----------- ---------- -------- -------- -------- ------- ------- Net change in unrealized appreciation or depreciation of investments .... 2,080,767 1,508,315 324,987 359,475 575,049 (97,324) 108,600 ----------- ---------- -------- -------- -------- ------- ------- Net gains (losses) on investments ..................... 6,185,804 945,750 383,599 408,886 567,428 (73,936) 108,621 ----------- ---------- -------- -------- -------- ------- ------- Net increase (decrease) in net assets resulting from operations ...................... $ 5,674,793 877,673 418,810 404,567 535,380 8,942 113,696 =========== ========== ======== ======== ======== ======= =======
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------ WADDELL WADDELL WADDELL WADDELL WADDELL & REED & REED & REED & REED & REED HIGH LIMITED-TERM MONEY MORTGAGE REAL ESTATE INCOME BOND MARKET SECURITIES SECURITIES ---------- ------------ -------- ---------- ----------- Investment income (loss): Investment income distributions from underlying mutual fund (note 4) ..................................... $ 260,751 19,013 3,991 329,303 49,762 Mortality and expense charges (note 3) .................... (12,816) (2,160) (4,399) (116,654) (50,403) ---------- ------- -------- -------- --------- Investment income (loss) - net ........................ 247,935 16,853 (408) 212,649 (641) ---------- ------- -------- -------- --------- Realized and unrealized gains (losses) on investments - net: Realized gain distributions from underlying mutual fund ... - - - 223,537 115,032 ---------- ------- -------- -------- --------- Realized gains (losses) on sales of investments: Proceeds from sales ................................... 16,752 16,664 580,904 46,650 81,183 Cost of investments sold .............................. (15,705) (16,450) (580,904) (45,573) (67,766) ---------- ------- -------- -------- --------- 1,047 214 - 1,077 13,417 ---------- ------- -------- -------- --------- Net realized gains (losses) on investments ............ 1,047 214 - 224,614 128,449 ---------- ------- -------- -------- --------- Net change in unrealized appreciation or depreciation of investments ........................................ (140,027) (17,435) - 201,318 1,777,757 ---------- ------- -------- -------- --------- Net gains (losses) on investments ..................... (138,980) (17,221) - 425,932 1,906,206 ---------- ------- -------- -------- --------- Net increase (decrease) in net assets resulting from operations ...................................... $ 108,955 (368) (408) 638,581 1,905,565 ========== ======= ======== ======== =========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS ----------------------------------------------------------------------------------------- ADVANTUS ADVANTUS ADVANTUS ADVANTUS ADVANTUS MATURING MATURING ADVANTUS ADVANTUS MONEY INDEX MORTGAGE GOVERNMENT GOVERNMENT INTERNATIONAL BOND MARKET 500 SECURITIES BOND 2006 BOND 2010 BOND ------------ ----------- ----------- ----------- ---------- ---------- ------------ Operations: Investment income (loss) - net ......... $ (1,945,548) (197,975) (2,885,733) (1,834,573) (96,908) (90,095) (609,706) Net realized gains (losses) on investments .......................... 3,151,222 - 3,284,673 3,926,211 525,493 213,772 3,050,270 Net change in unrealized appreciation or depreciation of investments ...... 4,166,128 - 22,648,527 2,689,082 (498,087) 12,181 1,771,102 ------------ ----------- ----------- ----------- ---------- ---------- ----------- Net increase (decrease) in net assets resulting from operations ............. 5,371,802 (197,975) 23,047,467 4,780,720 (69,502) 135,858 4,211,666 ------------ ----------- ----------- ----------- ---------- ---------- ----------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments ............. 26,966,184 37,297,242 37,931,891 14,721,649 100,664 489,578 3,544,314 Contract withdrawals and charges ....... (25,367,787) (46,293,192) (27,292,818) (32,762,320) (4,382,327) (1,533,501) (13,334,196) Actuarial adjustments for mortality experience on annuities in payment period ............................... 15,409 (707) 133,501 14,631 2,993 3,137 1,209 Annuity benefit payments ............... (366,207) (20,836) (4,972,520) (314,579) (30,453) (31,989) (51,509) ------------ ----------- ----------- ----------- ---------- ---------- ----------- Increase (decrease) in net assets from contract transactions ................. 1,247,599 (9,017,493) 5,800,055 (18,340,619) (4,309,123) (1,072,775) (9,840,182) ------------ ----------- ----------- ----------- ---------- ---------- ----------- Increase (decrease) in net assets ........ 6,619,401 (9,215,468) 28,847,522 (13,559,899) (4,378,625) (936,917) (5,628,516) Net assets at the beginning of year ...... 150,703,416 43,250,792 245,642,588 151,561,342 9,953,107 7,647,073 54,896,928 ------------ ----------- ----------- ----------- ---------- ---------- ----------- Net assets at the end of year ............ $157,322,817 34,035,324 274,490,110 138,001,443 5,574,482 6,710,156 49,268,412 ============ =========== =========== =========== ========== ========== ===========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------------------------ AIM V.I. AMERICAN ADVANTUS ADVANTUS AIM V.I. DENT AIM V.I. CENTURY INDEX 400 REAL ESTATE AGGRESSIVE AIM V.I. DEMOGRAPHIC PREMIER INCOME MID-CAP SECURITIES GROWTH BALANCED TRENDS EQUITY AND GROWTH ----------- ----------- ---------- --------- ----------- -------- ---------- Operations: Investment income (loss) - net ......... $ (395,143) (656,795) (16,624) 1,829 (8,834) (5,704) (14,498) Net realized gains (losses) on investments .......................... 1,179,566 5,112,519 18,132 (2,988) 16,190 24,519 63,749 Net change in unrealized appreciation or depreciation of investments ....... 3,577,023 10,596,017 132,268 110,022 37,005 4,085 323,571 ----------- ----------- --------- --------- -------- -------- --------- Net increase (decrease) in net assets resulting from operations .............. 4,361,446 15,051,741 133,776 108,863 44,361 22,900 372,822 ----------- ----------- --------- --------- -------- -------- --------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments ............. 12,155,335 20,332,189 623,541 1,137,943 250,914 178,527 1,695,233 Contract withdrawals and charges ....... (6,493,903) (14,999,895) (91,289) (458,944) (101,982) (140,518) (357,121) Actuarial adjustments for mortality experience on annuities in payment period ............................... 837 706 - - - - - Annuity benefit payments ............... (59,398) (81,701) - - - - - ----------- ----------- --------- --------- -------- -------- --------- Increase (decrease) in net assets from contract transactions ............. 5,602,871 5,251,299 532,252 678,999 148,932 38,009 1,338,112 ----------- ----------- --------- --------- -------- -------- --------- Increase (decrease) in net assets ........ 9,964,317 20,303,040 666,028 787,862 193,293 60,909 1,710,934 Net assets at the beginning of year ...... 26,607,076 45,304,358 884,176 1,337,299 553,799 519,608 2,504,905 ----------- ----------- --------- --------- -------- -------- --------- Net assets at the end of year ............ $36,571,393 65,607,398 1,550,204 2,125,161 747,092 580,517 4,215,839 =========== =========== ========= ========= ======== ======== =========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS ----------------------------------------------------------------------------------- CREDIT SUISSE GLOBAL FIDELITY FRANKLIN AMERICAN AMERICAN POST- FIDELITY VIP FIDELITY LARGE CAP CENTURY CENTURY VENTURE VIP EQUITY- VIP GROWTH ULTRA VALUE CAPITAL CONTRAFUND INCOME MID-CAP SECURITIES ------------- ----------- ---------- ---------- ----------- ----------- ----------- Operations: Investment income (loss) - net ............... $ (367,216) (37,734) (29,485) (430,269) (137,733) (490,651) (19,256) Net realized gains (losses) on investments ................................. 126,732 220,635 (71,253) 515,317 665,990 1,029,651 118,359 Net change in unrealized appreciation or depreciation of investments ................. 2,959,616 531,323 437,868 5,125,798 7,026,078 7,820,193 85,088 ------------ ---------- --------- ---------- ---------- ---------- ---------- Net increase (decrease) in net assets resulting from operations .................. 2,719,132 714,224 337,130 5,210,846 7,554,335 8,359,193 184,191 ------------ ----------- ---------- ----------- ---------- ---------- ---------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments ................... 20,545,499 5,612,091 888,949 11,306,291 32,761,753 10,455,209 5,831,545 Contract withdrawals and charges ............. (749,725) (1,192,404) (813,027) (4,694,403) (4,840,364) (3,635,726) (4,187,473) Actuarial adjustments for mortality experience on annuities in payment period 1,088 1 - 91 781 1,019 - Annuity benefit payments ..................... (58,288) (952) - (41,883) (118,110) (49,126) (926) ------------ ---------- --------- ---------- ---------- ---------- ---------- Increase (decrease) in net assets from contract transactions ....................... 19,738,573 4,418,736 75,922 6,570,096 27,804,060 6,771,376 1,643,146 ------------ ---------- --------- ---------- ---------- ---------- ---------- Increase (decrease) in net assets ............. 22,457,705 5,132,960 413,052 11,780,942 35,358,395 15,130,569 1,827,337 Net assets at the beginning of year ........... 15,411,423 2,802,907 2,080,388 34,087,961 56,712,063 32,189,299 1,202,608 ------------ ---------- --------- ---------- ---------- ---------- ---------- Net assets at the end of year ................. $ 37,869,128 7,935,867 2,493,440 45,868,903 92,070,458 47,319,868 3,029,945 ============ ========== ========= ========== ========== ========== ==========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS ---------------------------------------------------------------------------------------- FRANKLIN TEMPLETON TEMPLETON MUTUAL DEVELOPING GLOBAL JANUS JANUS JANUS SHARES FRANKLIN MARKETS ASSET ASPEN ASPEN CAPITAL INTERNATIONAL SECURITIES SMALL CAP SECURITIES ALLOCATION BALANCED APPRECIATION GROWTH ---------- --------- ----------- ----------- --------- ------------- -------------- Operations: Investment income (loss) - net ....... $ (29,382) (198,838) 85,581 104,260 31,870 (240,223) (72,175) Net realized gains (losses) on investments ..................... 76,883 263,488 820,696 255,992 46,719 (1,169,673) (1,107,410) Net change in unrealized appreciation or depreciation of investments ..................... 467,176 1,442,095 2,405,078 573,378 140,550 4,324,741 4,118,087 ---------- ---------- ----------- ---------- --------- ---------- ---------- Net increase (decrease) in net assets resulting from operations .......... 514,677 1,506,745 3,311,355 933,630 219,139 2,914,845 2,938,502 ---------- ---------- ----------- ---------- --------- ---------- ---------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments ........... 3,136,043 4,640,663 15,681,044 2,493,885 1,568,531 3,121,875 8,342,646 Contract withdrawals and charges ..... (360,139) (2,579,729) (13,378,947) (1,682,483) (479,248) (3,681,602) (5,835,632) Actuarial adjustments for mortality experience on annuities in payment period ..................... (50) (203) 2,994 120 - 1,028 1,087 Annuity benefit payments ............. (119) (16,643) (34,918) (9,538) - (19,399) (19,707) ---------- ---------- ----------- ---------- --------- ---------- ---------- Increase (decrease) in net assets from contract transactions .... 2,775,736 2,044,089 2,270,173 801,984 1,089,283 (578,098) 2,488,394 ---------- ---------- ----------- ---------- --------- ---------- ---------- Increase (decrease) in net assets ..... 3,290,413 3,550,834 5,581,528 1,735,614 1,308,422 2,336,747 5,426,896 Net assets at the beginning of year ... 2,752,836 13,489,461 12,919,582 5,985,105 2,116,520 18,698,614 16,205,018 ---------- ---------- ----------- ---------- --------- ---------- ---------- Net assets at the end of year ......... $6,043,249 17,040,295 18,501,110 7,720,719 3,424,942 21,035,361 21,631,914 ========== ========== =========== ========== ========= ========== ==========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------------------------------- MFS MFS MFS OPPENHEIMER OPPENHEIMER INVESTORS MID CAP NEW MFS CAPITAL OPPENHEIMER INTERNATIONAL GROWTH STOCK GROWTH DISCOVERY VALUE APPRECIATION HIGH INCOME GROWTH ------------ ------------ ------------ ---------- ------------- ------------ ------------- Operations: Investment income (loss) - net ...................... $ (18,278) (19,794) (130,089) 15,922 (45,967) 432,315 (11,859) Net realized gains (losses) on investments ........... 65,823 133,432 258,175 103,142 67,234 202,801 172,324 Net change in unrealized appreciation or depreciation of investments ....... 54,280 63,724 349,640 277,820 196,569 309,655 453,615 ----------- ----------- ----------- ----------- ----------- ----------- ---------- Net increase (decrease) in net assets resulting from operations ................... 101,825 177,362 477,726 396,884 217,836 944,771 614,080 ----------- ----------- ----------- ----------- ----------- ----------- ---------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments .......... 412,076 1,907,476 7,849,276 1,619,631 2,421,897 10,981,578 3,753,463 Contract withdrawals and charges .... (541,744) (1,405,406) (2,535,421) (497,985) (373,219) (2,709,531) (1,356,373) Actuarial adjustments for mortality experience on annuities in payment period ....... - - 334 - - 435 1 Annuity benefit payments ............ - - (15,126) - - (32,318) (936) ----------- ----------- ----------- ----------- ----------- ----------- ---------- Increase (decrease) in net assets from contract transactions ........ (129,668) 502,070 5,299,063 1,121,646 2,048,678 8,240,163 2,396,155 ----------- ----------- ----------- ----------- ----------- ----------- ---------- Increase (decrease) in net assets ..... (27,843) 679,432 5,776,789 1,518,530 2,266,514 9,184,934 3,010,235 Net assets at the beginning of year ... 1,462,824 933,083 5,858,374 2,327,459 2,499,721 7,815,040 1,895,546 ----------- ----------- ----------- ----------- ----------- ----------- ---------- Net assets at the end of year ......... $ 1,434,981 1,612,515 11,635,163 3,845,989 4,766,235 16,999,974 4,905,781 =========== =========== =========== =========== =========== =========== ==========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------------------------- PUTNAM VT PUTNAM VT PUTNAM VT PUTNAM VT VAN KAMPEN GROWTH AND INTERNATIONAL NEW NEW PUTNAM VT VAN KAMPEN EMERGING INCOME GROWTH OPPORTUNITIES VALUE VOYAGER COMSTOCK GROWTH ---------- ------------- ------------- ---------- --------- ---------- ---------- Operations: Investment income (loss) - net .................... $ 1,620 (6,901) (4,323) (11,670) (9,026) (25,151) (2,863) Net realized gains (losses) on investments .................. 46,990 497,435 12,490 41,556 15,129 42,794 3,925 Net change in unrealized appreciation or depreciation of investments .................. 106,939 947,921 17,924 222,396 25,167 485,037 13,159 ---------- ----------- ------- --------- -------- --------- -------- Net increase (decrease) in net assets resulting from operations ........................ 155,549 1,438,455 26,091 252,282 31,270 502,680 14,221 ---------- ----------- ------- --------- -------- --------- -------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments ........ 675,348 5,163,433 115,889 1,268,254 370,883 2,612,311 213,384 Contract withdrawals and charges ......................... (213,173) (2,292,744) (75,442) (199,615) (138,631) (132,009) (116,087) Actuarial adjustments for mortality experience on annuities in payment period - 5 - 1 - - - Annuity benefit payments .......... - (368) - (945) - - - ---------- ----------- ------- --------- -------- --------- -------- Increase (decrease) in net assets from contract transactions ...................... 462,175 2,870,327 40,447 1,067,695 232,252 2,480,302 97,297 ---------- ----------- ------- ---------- -------- --------- -------- Increase (decrease) in net assets ............................ 617,724 4,308,782 66,538 1,319,977 263,522 2,982,982 111,518 Net assets at the beginning of year ........................... 1,234,411 7,272,213 295,198 889,893 635,247 1,507,649 142,785 ---------- ----------- ------- --------- -------- --------- -------- Net assets at the end of year ....... $1,852,135 11,580,995 361,736 2,209,870 898,769 4,490,631 254,303 ========== =========== ======= ========= ======== ========= ========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS -------------------------------------------------------------------------------------------- WADDELL & WADDELL & VAN KAMPEN WADDELL & WADDELL & REED REED WADDELL & WADDELL & REED GROWTH AND REED REED INTERNATIONAL SMALL CAP REED MICRO-CAP INCOME BALANCED GROWTH II GROWTH VALUE GROWTH ---------- ---------- ------------ ------------- ------------ ----------- -------------- Operations: Investment income (loss) - net ...... $ (5,660) 338,537 (1,691,764) (234,913) (965,576) (116,085) (269,596) Net realized gains (losses) on investments ..................... 6,473 (5,105,810) (11,623,853) 4,316,403 (3,589,158) 263,624 (2,888,913) Net change in unrealized appreciation or depreciation of investments ..................... 99,799 21,239,010 16,520,120 26,478,196 14,175,731 8,484,781 4,140,931 -------- ----------- ----------- ------------ ----------- ---------- ---------- Net increase (decrease) in net assets resulting from operations .......... 100,612 16,471,737 3,204,503 30,559,686 9,620,997 8,632,320 982,422 -------- ----------- ----------- ------------ ----------- ---------- ---------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments .......... 663,426 8,890,223 12,198,952 24,508,193 7,578,652 7,432,805 3,990,545 Contract withdrawals and charges .... (18,648) (43,262,048) (31,638,385) (23,579,471) (14,172,925) 10,263,876) (9,334,742) Actuarial adjustments for mortality experience on annuities in payment period ........ - 31,587 17,143 (244) 13,285 13,484 908 Annuity benefit payments ............ - (555,641) (310,706) (248,773) (178,520) (148,729) (37,278) -------- ----------- ----------- ------------ ----------- ---------- ---------- Increase (decrease) in net assets from contract transactions ............... 644,778 (34,895,879) (19,732,996) 679,705 (6,759,507) (2,966,316) (5,380,568) -------- ----------- ----------- ------------ ----------- ---------- ---------- Increase (decrease) in net assets ..... 745,390 (18,424,142) (16,528,493) 31,239,391 2,861,490 5,666,005 (4,398,146) Net assets at the beginning of year ... 252,779 246,795,946 192,077,415 145,621,007 80,974,858 68,458,346 23,278,419 -------- ----------- ----------- ------------ ----------- ---------- ---------- Net assets at the end of year ......... $998,169 228,371,804 175,548,922 176,860,398 83,836,348 74,124,351 18,880,273 ======== =========== =========== ============ =========== ========== ==========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS -------------------------------------------------------------------------------------- WADDELL & WADDELL & WADDELL & WADDELL & REED WADDELL & REED REED WADDELL & REED SMALL CAP REED ASSET WADDELL & REED SCIENCE & REED DIVIDEND VALUE CORE EQUITY STRATEGY INTERNATIONAL TECHNOLOGY BOND INCOME ------------ ----------- --------- -------------- ---------- --------- ----------- Operations: Investment income (loss) - net ......... $ (511,011) (68,077) 35,211 (4,319) (32,048) 82,878 5,075 Net realized gains (losses) on investments ..................... 4,105,037 (562,565) 58,612 49,411 (7,621) 23,388 21 Net change in unrealized appreciation or depreciation of investments ..................... 2,080,767 1,508,315 324,987 359,475 575,049 (97,324) 108,600 ----------- ---------- --------- --------- --------- --------- ---------- Net increase (decrease) in net assets resulting from operations .............. 5,674,793 877,673 418,810 404,567 535,380 8,942 113,696 ----------- ---------- --------- --------- --------- --------- ---------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments ............. 13,520,135 2,797,307 4,745,246 3,698,569 5,835,765 2,095,597 1,802,138 Contract withdrawals and charges ....... (6,134,670) (2,792,213) (451,386) (901,942) (928,166) (17,939) (13,671) Actuarial adjustments for mortality experience on annuities in payment period ............................. (14,392) 2,077 - 21 1 - - Annuity benefit payments ............... (82,061) (72,399) - (104) (937) - - ----------- ---------- --------- --------- --------- --------- ---------- Increase (decrease) in net assets from contract transactions .................. 7,289,012 (65,228) 4,293,860 2,796,543 4,906,662 2,077,658 1,788,467 ----------- ---------- --------- --------- --------- --------- ---------- Increase (decrease) in net assets .......... 12,963,805 812,445 4,712,670 3,201,110 5,442,042 2,086,600 1,902,163 Net assets at the beginning of year ........ 36,825,287 11,553,656 464,746 949,442 406,684 - - ----------- ---------- --------- --------- --------- --------- ---------- Net assets at the end of year .............. $49,789,092 12,366,101 5,177,416 4,150,552 5,848,726 2,086,600 1,902,163 =========== ========== ========= ========= ========= ========= ==========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2004
SEGREGATED SUB-ACCOUNTS ---------------------------------------------------------------------------------- WADDELL & REED WADDELL & REED WADDELL & REED WADDELL & REED WADDELL & REED HIGH LIMITED-TERM MONEY MORTGAGE REAL ESTATE INCOME BOND MARKET SECURITIES SECURITIES -------------- -------------- -------------- -------------- -------------- Operations: Investment income (loss) - net ........... $ 247,935 16,853 (408) 212,649 (641) Net realized gains (losses) on investments ........................... 1,047 214 - 224,614 128,449 Net change in unrealized appreciation or depreciation of investments .......... (140,027) (17,435) - 201,318 1,777,757 -------------- ------- --------- ---------- --------- Net increase (decrease) in net assets resulting from operations . ..................... 108,955 (368) (408) 638,581 1,905,565 -------------- ------- --------- ---------- --------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments ............... 3,985,892 745,066 1,785,058 16,537,047 7,710,897 Contract withdrawals and charges ......... (42,278) (15,834) (576,730) (16,210) (69,710) Actuarial adjustments for mortality experience on annuities in payment period ................................ - - - - - Annuity benefit payments ................. - - - - - -------------- ------- --------- ---------- --------- Increase (decrease) in net assets from contract transactions.............................. 3,943,614 729,232 1,208,328 16,520,837 7,641,187 -------------- ------- --------- ---------- --------- Increase (decrease) in net assets ............. 4,052,569 728,864 1,207,920 17,159,418 9,546,752 Net assets at the beginning of year ........... - - - - - -------------- ------- --------- ---------- --------- Net assets at the end of year ................. $ 4,052,569 728,864 1,207,920 17,159,418 9,546,752 ============== ======= ========= ========== =========
See accompanying notes to financial statements. VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2003
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------------------------------- ADVANTUS ADVANTUS ADVANTUS ADVANTUS ADVANTUS MATURING MATURING ADVANTUS ADVANTUS MONEY MORTGAGE INDEX GOVERNMENT GOVERNMENT INTERNATIONAL BOND MARKET SECURITIES 500 BOND 2006 BOND 2010 BOND -------------- ----------- ----------- ----------- ---------- ---------- ------------- Operations: Investment income (loss) - net ... $ (1,921,815) (334,291) (2,101,590) (2,421,654) (129,822) (118,328) (652,801) Net realized gains (losses) on investments .................... 2,609,538 0 3,642,047 (2,692,677) 317,165 471,364 1,374,848 Net change in unrealized appreciation or depreciation on investments ................. 5,299,819 0 3,051,086 55,508,108 (97,362) (211,021) 8,111,383 -------------- ----------- ----------- ----------- ---------- ---------- ---------- Net increase (decrease) in net assets resulting from operation 5,987,542 (334,291) 4,591,543 50,393,777 89,981 142,015 8,833,430 -------------- ----------- ----------- ----------- ---------- ---------- ---------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: 24,513,118 34,803,854 19,413,018 33,199,535 1,612,771 1,616,233 8,635,070 Contract terminations, withdrawal payments and charges: (29,619,310) (56,947,111) (37,796,274) (30,893,913) (2,358,770) (3,429,619) (8,160,643) Actuarial adjustments for mortality experience on annuities in payment period: (12,935) (235) (11,058) (13,601) (2,579) (2,672) (1,462) Annuity benefit payments: (445,207) (35,606) (304,939) (541,177) (35,996) (33,091) (50,205) -------------- ----------- ----------- ----------- ---------- ---------- ---------- Increase (decrease) in net assets from contract transactions ....... (5,564,334) (22,179,098) (18,699,253) 1,750,844 (784,574) (1,849,149) 422,760 -------------- ----------- ----------- ----------- ---------- ---------- ---------- Increase (decrease) in net assets ... 423,208 (22,513,389) (14,107,710) 52,144,621 (694,593) (1,707,134) 9,256,190 Net assets at the beginning of year (note 1) ......................... 150,280,208 65,764,181 165,669,052 193,497,967 10,647,700 9,354,207 45,640,738 -------------- ----------- ----------- ----------- ---------- ---------- ---------- Net assets at the end of year ....... $ 150,703,416 43,250,792 151,561,342 245,642,588 9,953,107 7,647,073 54,896,928 ============== =========== =========== =========== ========== ========== ==========
See accompanying notes to financial statements VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2003
SEGREGATED SUB-ACCOUNTS --------------------------------------------------------------------------------------- ADVANTUS AIM V.I. AMERICAN ADVANTUS REAL AIM V.I. DENT AIM V.I. CENTURY INDEX 400 ESTATE AGGRESSIVE AIM V.I. DEMOGRAPHIC PREMIER INCOME MID-CAP SECURITIES GROWTH BALANCED TRENDS EQUITY AND GROWTH ----------- ---------- ---------- --------- ----------- -------- ---------- Operations: Investment income (loss) - net ........................... $ (249,297) (412,687) (5,676) 15,545 (3,360) (3,967) (8,034) Net realized gains (losses) on investments ................ (724,811) 600,730 20,767 2,920 7,062 2,476 1,916 Net change in unrealized appreciation or depreciation on investments ................ 6,768,700 11,133,743 94,016 77,134 59,800 80,888 272,684 ----------- ---------- -------- --------- ------- -------- --------- Net increase (decrease) in net assets resulting from operations...... 5,794,592 11,321,786 109,107 95,599 63,502 79,397 266,566 ----------- ---------- -------- --------- ------- -------- --------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: 11,338,237 11,754,910 770,057 1,128,355 587,215 348,446 2,035,460 Contract terminations, withdrawal payments and charges: (8,323,527) (3,744,674) (148,545) (60,836) (129,424) (164,854) (19,463) Actuarial adjustments for mortality experience on annuities in payment period: (801) (1,329) 0 0 0 0 0 Annuity benefit payments: (51,111) (43,302) 0 0 0 0 0 ----------- ---------- -------- --------- ------- -------- --------- Increase (decrease) in net assets from contract transactions ........... 2,962,798 7,965,605 621,512 1,067,519 457,791 183,592 2,015,997 ----------- ---------- -------- --------- ------- -------- --------- Increase (decrease) in net assets....... 8,757,390 19,287,391 730,619 1,163,118 521,293 262,989 2,282,563 Net assets at the beginning of year (note 1) ........................ 17,849,686 26,016,967 153,557 174,181 32,506 256,619 222,342 ----------- ---------- -------- --------- ------- -------- --------- Net assets at the end of year .......... $26,607,076 45,304,358 884,176 1,337,299 553,799 519,608 2,504,905 =========== ========== ======== ========= ======= ======== =========
See accompanying notes to the financial statements VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2003
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------------------------------- CREDIT SUISSE FRANKLIN AMERICAN AMERICAN GLOBAL LARGE CAP CENTURY CENTURY POST-VENTURE FIDELITY VIP FIDELITY VIP FIDELITY VIP GROWTH ULTRA VALUE CAPITAL CONTRAFUND EQUITY INCOME MID CAP SECURITIES ----------- --------- ------------ ------------ ------------- ------------ ---------- Operations: Investment income (loss) - net...... $ (91,006) (10,453) (14,227) (265,391) (535) (250,866) (4,505) Net realized gains (losses) on investments ..................... 31,830 17,070 (54,998) (376,992) (527,113) 55,650 (3,213) Net change in unrealized appreciation or depreciation on investments .................. 1,505,616 412,718 475,620 7,046,174 10,934,061 8,176,961 130,608 ----------- --------- --------- ---------- ---------- ---------- --------- Net increase (decrease) in net assets resulting from operations.... 1,446,440 419,335 406,395 6,403,791 10,406,413 7,981,745 122,890 ----------- --------- --------- ---------- ---------- ---------- --------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: 12,402,568 2,043,050 1,126,411 8,681,815 23,730,424 7,202,018 926,479 Contract terminations, withdrawal payments and charges: (276,849) (183,366) (92,470) (2,673,822) (4,547,236) (3,679,972) (46,969) Actuarial adjustments for mortality experience on annuities in payment period: (617) 0 0 (422) (944) (1,250) 0 Annuity benefit payments: (52,283) 0 0 (33,840) (95,993) (39,428) 0 ----------- --------- --------- ---------- ---------- ---------- --------- Increase (decrease) in net assets from contract transactions... 12,072,819 1,859,684 1,033,941 5,973,731 19,086,251 3,481,368 879,510 ----------- --------- --------- ---------- ---------- ---------- --------- Increase (decrease) in net assets ..... 13,519,259 2,279,019 1,440,336 12,377,522 29,492,664 11,463,113 1,002,400 Net assets at the beginning of year (note 1) ...................... 1,892,164 523,888 640,052 21,710,439 27,219,399 20,726,186 200,208 ----------- --------- --------- ---------- ---------- ---------- --------- Net assets at the end of year ......... $15,411,423 2,802,907 2,080,388 34,087,961 56,712,063 32,189,299 1,202,608 =========== ========= ========= ========== ========== ========== =========
See accompanying notes to the financial statements VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2003
SEGREGATED SUB-ACCOUNTS --------------------------------------------------------------------------------------------- TEMPLETON FRANKLIN DEVELOPING TEMPLETON JANUS JANUS JANUS ASPEN FRANKLIN MUTUAL SHARES MARKETS GLOBAL ASSET ASPEN ASPEN CAPITAL INTERNATIONAL SMALL CAP SECURITIES SECURITIES ALLOCATION BALANCED APPRECIATION GROWTH ----------- ------------- ---------- ------------ --------- ------------- ------------- Operations: Investment income (loss) - net ......................... $ (126,765) (7,139) (16,420) 52,398 10,263 (187,392) (43,840) Net realized gains (losses) on investments .............. (263,849) 6,269 22,124 (10,504) 5,692 (2,894,054) (2,571,009) Net change in unrealized appreciation or depreciation on investments .............. 3,443,157 334,759 4,007,474 1,250,618 152,245 6,104,992 6,726,122 ----------- --------- ---------- --------- --------- ---------- ---------- Net increase (decrease) in net assets resulting from operations... 3,052,543 333,889 4,013,178 1,292,512 168,200 3,023,546 4,111,273 ----------- --------- ---------- --------- --------- ---------- ---------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: 4,039,505 1,946,368 9,113,763 2,054,942 1,483,262 2,079,980 3,769,201 Contract terminations, withdrawal payments and charges: (1,186,716) (93,752) (7,826,316) (961,778) (170,909) (4,266,369) (5,044,420) Actuarial adjustments for mortality experience on annuities in payment period: (299) 0 (1,967) (74) 0 (815) (668) Annuity benefit payments: (12,417) 0 (28,379) (8,206) 0 (15,676) (15,202) ----------- --------- ---------- --------- --------- ---------- ---------- Increase (decrease) in net assets from contract transactions ........ 2,840,073 1,852,616 1,257,101 1,084,884 1,312,353 (2,202,880) (1,291,089) ----------- --------- ---------- --------- --------- ---------- ---------- Increase (decrease) in net assets 5,892,616 2,186,505 5,270,279 2,377,396 1,480,553 820,666 2,820,184 Net assets at the beginning of year (note 1) ..................... 7,596,845 566,331 7,649,303 3,607,709 635,967 17,877,948 13,384,834 ----------- --------- ---------- --------- --------- ---------- ---------- Net assets at the end of year ....... $13,489,461 2,752,836 12,919,582 5,985,105 2,116,520 18,698,614 16,205,018 =========== ========= ========== ========= ========= ========== ==========
See accompanying notes to the financial statements VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2003
SEGREGATED SUB-ACCOUNTS -------------------------------------------------------------------------------------------- MFS MFS MFS OPPENHEIMER OPPENHEIMER INVESTORS MID CAP NEW MFS CAPITAL OPPENHEIMER INTERNATIONAL GROWTH STOCK GROWTH DISCOVERY VALUE APPRECIATION HIGH INCOME GROWTH ------------ -------- ---------- --------- ------------ ----------- ------------- Operations: Investment income (loss) - net.. $ (8,076) (4,749) (35,283) (15,771) (13,058) 61,953 (5,608) Net realized gains (losses) on investments .................. 1,406 16,211 210,170 1,207 53,109 81,438 137,308 Net change in unrealized appreciation or depreciation on investments ............... 116,595 73,827 479,483 344,065 260,661 449,318 230,784 ------------ -------- ---------- --------- --------- ---------- ---------- Net increase (decrease) in net assets resulting from operations.. 109,925 85,289 654,370 329,501 300,712 592,709 362,484 ------------ -------- ---------- --------- --------- ---------- ---------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: 1,175,023 900,999 6,999,657 1,412,925 1,840,728 7,290,560 4,311,740 Contract terminations, withdrawal payments and charges: (21,587) (147,576) (2,701,157) (124,356) (364,617) (1,045,886) (3,008,900) Actuarial adjustments for mortality experience on annuities in payment period: 0 0 (154) 0 0 (344) 0 Annuity benefit payments: 0 0 (13,358) 0 0 (22,840) 0 ------------ -------- ---------- --------- --------- ---------- ---------- Increase (decrease) in net assets from contract transactions ....... 1,153,436 753,423 4,284,988 1,288,569 1,476,111 6,221,490 1,302,840 ------------ -------- ---------- --------- --------- ---------- ---------- Increase (decrease) in net assets.... 1,263,361 838,712 4,939,358 1,618,070 1,776,823 6,814,199 1,665,324 Net assets at the beginning of year (note 1) .......................... 199,463 94,371 919,016 709,389 722,898 1,000,841 230,222 ------------ -------- ---------- --------- --------- ---------- ---------- Net assets at the end of year ....... $ 1,462,824 933,083 5,858,374 2,327,459 2,499,721 7,815,040 1,895,546 ============ ======== ========== ========= ========= ========== ==========
See accompanying notes to the financial statements VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2003
SEGREGATED SUB-ACCOUNTS --------------------------------------------------------------------------------------- PUTNAM VT PUTNAM VT PUTNAM VT PUTNAM VT VAN KAMPEN VAN KAMPEN GROWTH AND INTERNATIONAL NEW NEW PUTNAM VT GROWTH AND EMERGING INCOME EQUITY OPPORTUNITIES VALUE VOYAGER INCOME GROWTH ----------- ------------- ------------- --------- --------- ---------- ---------- Operations Investment income (loss)- net ....... $ (2,599) (29,843) (2,153) (2,834) (4,162) (1,137) (412) Net realized gains (losses) on investments ............ 12,351 193,893 8,090 16,068 2,826 4,253 2,666 Net change in unrealized appreciation or depreciation on investments ..................... 179,755 996,407 34,101 122,395 74,628 27,366 2,864 ----------- ---------- ------- ------- ------- ------- ------- Net increase (decrease) in net assets resulting from operations ........ 189,507 1,160,457 40,038 135,629 73,292 30,482 5,118 ----------- ---------- ------- ------- ------- ------- ------- Contract transactions (notes 2, 3, 4 and 5): Contract purchase payments: 964,364 7,044,634 234,688 807,274 430,833 245,083 82,632 Contract terminations, withdrawal payments and charges: (161,395) (2,230,708) (47,106) (190,050) (46,972) (22,786) 44,965) Actuarial adjustments for mortality experience on annuities in payment period: 0 (103) 0 0 0 0 0 Annuity benefit payments: 0 (4,579) 0 0 0 0 0 ----------- ---------- ------- ------- ------- ------- ------- Increase (decrease) in net assets from contract transactions ....... 802,969 4,809,244 187,582 617,224 383,861 222,297 37,667 ----------- ---------- ------- ------- ------- ------- ------- Increase (decrease) in net assets ........ 992,476 5,969,701 227,620 752,853 457,153 252,779 42,785 Net assets at the beginning of year (note 1) ................................ 241,935 1,302,512 67,578 137,040 178,094 0 0 ----------- ---------- ------- ------- ------- ------- ------- Net assets at the end of year ............ $ 1,234,411 7,272,213 295,198 889,893 635,247 252,779 142,785 =========== ========== ======= ======= ======= ======= =======
See accompanying notes to the financial statements VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2003
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------------------------------ WADDELL WADDELL WADDELL & REED WADDELL WADDELL WADDELL VAN KAMPEN & REED & REED SMALL CAP & REED & REED & REED COMSTOCK GROWTH CORE EQUITY GROWTH BALANCED INTERNATIONAL INTERNATIONAL II ----------- ------------ ----------- ----------- ------------ ------------ ------------ Operations: Investment income (loss) - net......... $ (5,259) (2,205,880) (58,631) (837,293) (1,360,109) 759,165 10,918 Net realized gains (losses) on investments ......................... 2,455 (88,764,482) (1,297,263) (6,760,723) (12,222,105) (4,278,642) 28,165 Net change in unrealized appreciation or depreciation on investments...................... 146,053 128,776,175 3,307,709 33,657,567 56,301,546 48,964,735 43,921 ---------- ----------- ---------- ---------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations........ 143,249 37,805,813 1,951,815 26,059,551 42,719,332 45,445,258 83,004 ---------- ----------- ---------- ---------- ----------- ----------- ----------- Contract transactions (notes 2,3,4 and 5): Contract purchase payments: 1,373,168 86,902,649 911,177 3,491,413 4,918,321 16,103,181 1,270,603 Contract terminations, withdrawal payments and charges: (8,768) (113,914,219) (3,014,411) (9,472,952) (42,891,187) (23,594,918) (404,165) Actuarial adjustments for mortality experience on annuities in payment period: 0 (11,557) (1,449) (8,765) (16,994) (10,104) 0 Annuity benefit payments: 0 (346,937) (66,997) (158,754) (571,573) (256,744) 0 ---------- ----------- ---------- ---------- ----------- ----------- ----------- Increase (decrease) in net assets from contract transactions.............. 1,364,400 (27,370,064) (2,171,680) (6,149,058) (38,561,433) (7,758,585) 866,438 ---------- ----------- ---------- ---------- ----------- ----------- ----------- Increase (decrease) in net assets....... 1,507,649 10,435,749 (219,865) 19,910,493 4,157,899 37,686,673 949,442 Net assets at the beginning of year (note 1)............................... 0 181,641,666 11,773,521 61,064,365 242,638,047 107,934,334 0 ---------- ----------- ---------- ---------- ----------- ----------- ----------- Net assets at the end of year .......... $1,507,649 192,077,415 11,553,656 80,974,858 246,795,946 145,621,007 949,442 ========== =========== ========== ========== =========== =========== ===========
See accompanying notes to the financial statements VARIABLE ANNUITY ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2003
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------------------ WADDELL & REED WADDELL & REED WADDELL & REED WADDELL & REED MICRO-CAP SMALL CAP WADDELL & REED SCIENCE & ASSET GROWTH VALUE VALUE TECHNOLOGY STRATEGY -------------- -------------- -------------- -------------- -------------- Operations: Investment income (loss) - net................ $ (217,384) (355,179) (430,071) (670) 4,997 Net realized gains (losses) on investments.... (2,333,470) (133,644) (2,173,226) (4,419) 1,284 Net change in unrealized appreciation or depreciation on investments................. 9,752,268 11,946,918 17,016,577 14,363 13,645 ------------ ---------- ---------- ------- ------- Net increase (decrease) in net assets resulting from operations.................................. 7,201,414 11,458,095 14,413,280 9,274 19,926 ------------ ---------- ---------- ------- ------- Contract transactions (notes 2,3,4 and 5): Contract purchase payments: 5,059,070 6,236,254 2,043,198 494,145 446,150 Contract terminations, withdrawal payments and charges: (3,257,690) (5,837,019) (10,310,306) (96,735) (1,330) Actuarial adjustments for mortality experience on annuities in payment period: (587) (3,543) (8,089) 0 0 Annuity benefit payments: (33,498) (67,365) (161,947) 0 0 ------------ ---------- ---------- ------- ------- Increase (decrease) in net assets from contract transactions..................................... 1,767,295 328,327 (8,437,144) 397,410 444,820 ------------ ---------- ---------- ------- ------- Increase (decrease) in net assets.................. 8,968,709 11,786,422 5,976,136 406,684 464,746 Net assets at the beginning of year (note 1)....... 14,309,710 25,038,865 62,482,210 0 0 ------------ ---------- ---------- ------- ------- Net assets at the end of year...................... $ 23,278,419 36,825,287 68,458,346 406,684 464,746 ============ ========== ========== ======= =======
See accompanying notes to the financial statements 1 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (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 nine types of contracts consisting of sixty-one 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 and unit value), MultiOption Classic and MultiOption Achiever (each of which has the same mortality and expense charges, administrative charges, and unit value), MultiOption Advisor, MegAnnuity, Adjustable Income Annuity and Waddell & Reed Advisors Retirement Builder. 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 sixty-one segregated sub-accounts. Such payments are then invested in shares of the Advantus Series Fund, Inc., AIM Variable Insurance Funds, American Century Variable Portfolios, Inc., Credit Suisse Trust, Fidelity Variable Products Insurance Fund, Franklin Templeton Variable Insurance Products Trust, Janus Aspen Series, MFS Variable Insurance Trust, Oppenheimer Variable Account Funds, Panorama Series Fund, Inc., Putnam Variable Trust, Van Kampen Funds and Waddell & Reed Target Funds, Inc. (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 Advantus International Bond Portfolio which is non-diversified), open-end management investment company. On September 22, 2003, the Advantus Series Fund, Inc. and Waddell & Reed Target Funds, Inc. completed a tax free exchange where the shares of the Advantus Growth and Advantus Capital Appreciation Portfolios were combined into Waddell & Reed Growth, and the Advantus Asset Allocation, Advantus International Stock, Advantus Value Stock, Advantus Small Company Value, Advantus Macro-Cap Value and Advantus Micro-Cap Value Portfolios were exchanged for shares of Waddell & Reed Balanced, Waddell & Reed International II, Waddell & Reed Value, Waddell & Reed Small-Cap Growth, Waddell & Reed Core Equity and Waddell & Reed Micro-Cap Value, respectively. Payments allocated to the Advantus Bond, Advantus Money Market, Advantus Index 500, Advantus Mortgage Securities, Advantus Maturing Government Bond 2006, Advantus Maturing Government Bond 2010, Advantus International Bond, Advantus Index 400 Mid-Cap, Advantus Real Estate Securities, AIM V.I. Aggressive Growth, AIM V.I. Balanced, AIM V.I. Dent Demographic Trends, AIM V.I. Premier Equity, American Century Income and Growth, 2 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (1) ORGANIZATION AND BASIS OF PRESENTATION - CONTINUED American Century Ultra, American Century Value, Credit Suisse Global Post-Venture Capital, Fidelity VIP Contrafund, Fidelity VIP Equity-Income, Fidelity VIP Mid-Cap, Franklin Large Cap Growth Securities, Franklin Mutual Shares Securities, Franklin Small Cap, Templeton Developing Markets Securities, Templeton Global Asset Allocation, Janus Aspen Balanced, Janus Aspen Capital Appreciation, Janus Aspen International Growth, MFS Investors Growth Stock, MFS Mid Cap Growth, MFS New Discovery, MFS Value, Oppenheimer Capital Appreciation, Oppenheimer High Income, Oppenheimer International Growth, Putnam VT Growth and Income, Putnam VT International Growth, Putnam VT New Opportunities, Putnam VT New Value, Putnam VT Voyager, Van Kampen Comstock, Van Kampen Emerging Growth, Van Kampen Growth and Income, Waddell & Reed Balanced, Waddell & Reed Growth, Waddell & Reed International II, Waddell & Reed Small Cap Growth, Waddell & Reed Value, Waddell & Reed Micro-Cap Growth, Waddell & Reed Small Cap Value, Waddell & Reed Core Equity, Waddell & Reed Asset Strategy, Waddell & Reed International, Waddell & Reed Science & Technology, Waddell & Reed Bond, Waddell & Reed Dividend Income, Waddell & Reed High Income, Waddell & Reed Limited-Term Bond, Waddell & Reed Money Market, Waddell & Reed Mortgage Securities, and Waddell & Reed Real Estate Securities segregated sub-accounts are invested in shares of the Bond, Money Market, Index 500, Mortgage Securities, Maturing Government Bond 2006, Maturing Government Bond 2010, International Bond, Index 400 Mid-Cap and Real Estate Securities Portfolios of the Advantus Series Fund, Inc.; Series II shares of AIM V.I. Aggressive Growth, AIM V.I. Balanced, AIM V.I. Dent Demographic Trends Fund, and AIM V.I. Premier Equity Funds of the AIM Variable Insurance Funds; Class II shares of American Century Income and Growth, American Century Ultra, and American Century Value Funds of the American Century Variable Portfolios, Inc.; Credit Suisse Global Post-Venture Capital Portfolio of Credit Suisse Trust; Service Class 2 shares of VIP Contrafund, VIP Equity-Income, and VIP Mid-Cap Portfolios of Fidelity Variable Insurance Products Funds; Class 2 shares of Franklin Large Cap Growth Securities, Franklin Mutual Shares Securities, Franklin Small Cap, Templeton Developing Markets Securities, and Templeton Global Asset Allocation Funds of Franklin Templeton Variable Insurance Products Trust; Service shares of Janus Balanced, Janus Capital Appreciation, and Janus Aspen International Growth Portfolios of Janus Aspen Series; Service shares of MFS Investors Growth Stock, MFS Mid Cap Growth, MFS New Discovery, and MFS Value Series of MFS Variable Insurance Trust; Service shares of Oppenheimer Capital Appreciation and Oppenheimer High Income Funds of Oppenheimer Variable Account Funds; Service shares of Oppenheimer International Growth Fund of Panorama Series Fund, Inc.; IB shares of Putnam VT Growth and Income, Putnam VT International Growth, Putnam VT New Opportunities, Putnam VT New Value, and Putnam VT Voyager Funds of Putnam Variable Trust; Class 2 shares of Van Kampen Comstock, Van Kampen Emerging Growth, and Van Kampen Growth and Income of Van Kampen Funds; Waddell & Reed Balanced, Waddell & Reed Growth, Waddell & Reed International II, Waddell & Reed Small Cap Growth, Waddell & Reed Value, Waddell & Reed Micro-Cap Growth, Waddell & 3 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (1) ORGANIZATION AND BASIS OF PRESENTATION - CONTINUED Reed Small Cap Value, Waddell & Reed Core Equity, Waddell & Reed Asset Strategy, Waddell & Reed International, Waddell & Reed Science & Technology, Waddell & Reed Bond, Waddell & Reed Dividend Income, Waddell & Reed High Income, Waddell & Reed Limited-Term Bond, Waddell & Reed Money Market, Waddell & Reed Mortgage Securities, and Waddell & Reed Real Estate Securities Portfolios of Waddell & Reed Target Funds, Inc., respectively. Securian Financial Services, Inc. (Securian) acts as the underwriter for the Account. Advantus Capital Management, Inc. (Advantus) acts as the investment adviser for the Advantus Series Fund, Inc. Both Securian and Advantus are affiliate companies of Minnesota Life. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements and disclosure of contingent assets and liabilities. 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 the Underlying Funds. Investment transactions are recorded on a trade date basis. Effective January 1, 2003, the cost of investments sold is determined on the FIFO basis. Prior to January 1, 2003, the cost of investments sold was determined on the average cost method. The financial statement impact of this change in determining the cost of investments sold does not change the net assets of the sub-account and is limited to classification changes between realized and unrealized gains and losses. Management has determined that the reclassification amounts were not material. All dividend distributions received from the Underlying Funds are reinvested in additional shares of the Underlying Funds and are recorded by the sub-accounts on the ex-dividend date. The underlying Advantus Series Fund, Inc. Portfolios, and other non-affiliated Funds, may utilize consent dividends to effectively distribute income for income tax purposes. The Account "consents" to treat these amounts as dividend income for tax purposes although they are not paid by the Underlying Funds. Therefore, no dividend income is recorded in the statements of operations related to such consent dividends. 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 4 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED income or capital gain distributions received by the Account from the underlying Funds. Any applicable taxes will be the responsibility of the contract holders or beneficiaries upon termination or withdrawals are payable on investment. CONTRACTS IN ANNUITY PAYMENT PERIOD MULTIOPTION FLEX/SINGLE/SELECT, MULTIOPTION CLASSIC/ACHIEVER, MULTIOPTION ADVISOR AND WADDELL & REED ADVISORS RETIREMENT BUILDER: 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 3.50 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 4.50 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) 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. This is charged through the daily unit value calculation. A contingent deferred sales charge paid may be imposed on a Multi-Option Flex/Single 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. For the years ended December 31, 2004 and 2003, contingent deferred sales charges totaled $1,124,938 and $1,476,773, respectively. 5 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED 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. This is charged through the daily unit value calculation. The administrative charge paid to Minnesota Life is equal, on an annual basis, to 0.15 percent of the average daily 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. For the years ended December 31, 2004 and 2003, contingent deferred sales charges totaled $887,634 and $773,089, respectively. Within each contract, premium taxes may be deducted from purchase payments or at the commencement of annuity payments. Currently such taxes range from 0 to 3.50 percent depending on the applicable state law. No premium taxes were deducted from the purchase payments for the years ended December 31, 2004 and 2003. Where allowed by law, we reserve the right to credit certain additional amounts, the "Wealthbuilder Credit", to certain contracts in circumstances where large purchase payments are made to those contracts. Those amounts are obtained from the Minnesota Life General Account. Minnesota Life reserves the right to modify, suspend or terminate the Wealthbuilder Credit program at any time without notice. MULTIOPTION ADVISOR: The mortality and expense charge paid to Minnesota Life is computed daily and is equal, on an annual basis, to 1.20 percent of the average daily net assets of the Account. This is charged through the daily unit value calculation. The administrative charge paid to Minnesota Life is equal, on an annual basis, to between 0.0 and 1.45 percent of the average daily net assets of the Account. Within each contract, premium taxes may be deducted from purchase payments or at the commencement of annuity payments. Currently such taxes range from 0 to 3.50 percent depending on the applicable state law. No premium taxes were deducted from the purchase payments for the years ended December 31, 2004 and 2003. A contingent deferred sales charge paid may be imposed on a Multi-Option Advisor contract owner during the first ten years, if a contract's accumulation value is reduced by a withdrawal or 6 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED surrender. For the years ended December 31, 2004 and 2003, contingent deferred sales charges totaled $184,003 and $0, respectively. Certain options have guaranteed minimum death or income benefits. These options mortality and expense charges range from 1.35 % to 2.65 %. There are no additional fees and charges associated with these guarantees. MEGANNUITY: The administrative charge paid to Minnesota Life is equal, on an annual basis, to 0.15 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. This is charged through the daily unit value calculation. Within each contract, premium taxes may be deducted from purchase payments or at the commencement of annuity payments. Currently such taxes range from 0 to 3.50 percent depending on the applicable state law. No premium taxes were deducted from the purchase payments for the years ended December 31, 2004 and 2003. 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. This is charged through the daily unit value calculation. 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 up to 4.50 percent, depending upon the total amount of purchase payments, is deducted from each contract purchase payment. No sales charges were deducted from contract purchase payments for the years ended December 31, 2004 and 2003. A risk charge in the amount of 1.25 percent is deducted from each contract purchase payment. Under certain conditions, the risk charge may be as high as 2.00 percent. No risk charges were deducted from contract purchase payments for the years ended December 31, 2004 and 2003. 7 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED A premium tax charge of up to 3.50 percent is deducted from each contract purchase payment. No premium tax charges were deducted from contract purchase payments for the years ended December 31, 2004 and 2003. WADDELL & REED ADVISORS RETIREMENT BUILDER: The Waddell & Reed Advisors Retirement Builder product commenced operations on May 3, 2004. The mortality and expense charge paid to Minnesota Life is computed daily and is equal, on an annual basis, to between 1.25 percent and 1.35 percent of the average daily net assets of the Account. This is charged through the daily unit value calculation. Within each contract, premium taxes may be deducted from purchase payments or at the commencement of annuity payments. Currently such taxes range from 0 to 3.50 percent depending on the applicable state law. No premium taxes were deducted from the purchase payments for the period ended December 31, 2004. A contingent deferred sales charge paid may be imposed on a Waddell & Reed Advisors Retirement Builder contract owner during the first ten years, if a contract's accumulation value is reduced by a withdrawal or surrender. For the period ended December 31, 2004 contingent deferred sales charges totaled $0. Certain options have guaranteed minimum death or income benefits. These optional mortality and expense charges range from .15 percent to .50 percent. There are no additional fees and charges associated with these guarantees. OTHER To the extent the Account invests in the Advantus Series Fund, Inc., the Account indirectly incurs management fees that are payable to Advantus. The advisory fee agreement provides for payments ranging from 0.15% to 0.60% 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 0.25% of average daily net assets to Securian. Advantus Series Fund, Inc. also pays an administrative service fee to Minnesota Life and for each portfolio pays an annual fee equal to 0.02% of net assets to State Street, Inc. for daily fund accounting services. To the extent the Account invests in non-affiliated funds, the Account will also indirectly incur fees. 8 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED Total mortality and expense charges and administrative charges for the year ended December 31, 2004 are listed in the following table:
ADVANTUS ADVANTUS ADVANTUS ADVANTUS MATURING ADVANTUS MONEY INDEX MORTGAGE GOVERNMENT BOND MARKET 500 SECURITIES BOND 2006 ----------- --------- ---------- ---------- ---------- Adjustable Income Annuity - - (598,752) - - MegAnnuity (7,555) (2,923) (19,598) (3,126) (959) MultiOption Advisor 1.20 % Variable Account Charge (101,609) (29,145) (39,297) (65,109) - 1.35 % Variable Account Charge (57,037) (15,846) (20,125) (33,035) - 1.45 % Variable Account Charge (16,347) (6,096) (2,599) (4,699) - 1.50 % Variable Account Charge (3,254) (1,132) (1,675) (1,420) - 1.55 % Variable Account Charge (71,139) (26,008) (25,399) (35,952) - 1.60 % Variable Account Charge (3,889) (1,141) (79) (551) - 1.65 % Variable Account Charge (1,646) (1,433) - - - 1.70 % Variable Account Charge (56,268) (9,418) (38,204) (29,155) - 1.75 % Variable Account Charge (770) (69) - - - 1.80 % Variable Account Charge (12,111) (2,249) (5,131) (9,709) - 1.85 % Variable Account Charge (3,669) (1,677) (399) (1,279) - 1.90 % Variable Account Charge (8,922) (1,017) (2,751) (3,480) - 1.95 % Variable Account Charge (9,699) (2,676) (713) (332) - 2.00 % Variable Account Charge (186) (59) - (51) - 2.05 % Variable Account Charge (6,968) (6,228) (95) (850) - 2.15 % Variable Account Charge (2,568) (791) - (603) - 2.20 % Variable Account Charge (1,117) (851) - (1,179) - 2.25 % Variable Account Charge (1,640) (454) - - - 2.30 % Variable Account Charge (604) (256) (1,155) (314) - 2.35 % Variable Account Charge (39) - - - - 2.40 % Variable Account Charge (1,137) (14) - (12) - 2.55 % Variable Account Charge (477) (311) - - - 2.65 % Variable Account Charge (1,076) (933) (399) - - MultiOption Classic/Achiever (429,561) (114,440) (369,088) (544,535) (5,229) MultiOption Flex/Single/Select (1,146,260) (250,202) (1,760,274) (1,099,182) (90,720) Waddell and Reed Advisors Retirement Builder - - - - - ---------- -------- ---------- ---------- ------- Total Expenses (1,945,548) (475,369) (2,885,733) (1,834,573) (96,908) ========== ======== ========== ========== =======
9 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED
ADVANTUS MATURING ADVANTUS ADVANTUS ADVANTUS AIM V.I. GOVERNMENT INTERNATIONAL INDEX 400 REAL ESTATE AGGRESSIVE BOND 2010 BOND MID-CAP SECURITIES GROWTH ---------- ------------- ---------- ----------- ----------- Adjustable Income Annuity - - - - - MegAnnuity (128) (1,133) (2,123) (2,840) - MultiOption Advisor 1.20 % Variable Account Charge - - (22,312) (43,167) (3,093) 1.35 % Variable Account Charge - - (14,142) (26,877) (3,947) 1.45 % Variable Account Charge - - (3,212) (5,062) (421) 1.50 % Variable Account Charge - - (726) (2,305) - 1.55 % Variable Account Charge - - (19,477) (41,463) (1,578) 1.60 % Variable Account Charge - - (1,249) (948) - 1.65 % Variable Account Charge - - (527) (326) - 1.70 % Variable Account Charge - - (19,875) (26,610) (806) 1.75 % Variable Account Charge - - (637) (119) - 1.80 % Variable Account Charge - - (6,772) (7,019) - 1.85 % Variable Account Charge - - (1,530) (1,802) (171) 1.90 % Variable Account Charge - - (2,238) (3,907) - 1.95 % Variable Account Charge - - (3,763) (3,628) - 2.00 % Variable Account Charge - - (110) (113) - 2.05 % Variable Account Charge - - (2,341) (3,544) - 2.15 % Variable Account Charge - - (893) (774) - 2.20 % Variable Account Charge - - (450) (282) - 2.25 % Variable Account Charge - - (573) (382) - 2.30 % Variable Account Charge - - (181) (928) - 2.35 % Variable Account Charge - - (39) - - 2.40 % Variable Account Charge - - (460) (336) - 2.55 % Variable Account Charge - - (98) - - 2.65 % Variable Account Charge - - (290) (104) - MultiOption Classic/Achiever (9,904) (140,741) (98,912) (200,729) (6,608) MultiOption Flex/Single/Select (80,063) (467,832) (192,213) (283,530) - Waddell and Reed Advisors Retirement Builder - - - - - ------- -------- -------- -------- ------- Total Expenses (90,095) (609,706) (395,143) (656,795) (16,624) ======= ======== ======== ======== =======
10 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED
AIM V.I. AMERICAN DENT AIM V.I. CENTURY AMERICAN AIM V.I. DEMOGRAPHIC PREMIER INCOME CENTURY BALANCED TRENDS EQUITY AND GROWTH ULTRA -------- ----------- -------- ----------- --------- Adjustable Income Annuity - - - - - MegAnnuity - - - - - MultiOption Advisor 1.20 % Variable Account Charge (6,235) (2,266) (949) (9,344) (74,227) 1.35 % Variable Account Charge (1,392) (1,320) (704) (3,733) (43,652) 1.45 % Variable Account Charge (61) - (28) (809) (14,752) 1.50 % Variable Account Charge (71) (121) - (242) (2,614) 1.55 % Variable Account Charge (2,138) (1,107) (612) (7,296) (70,182) 1.60 % Variable Account Charge - - - - (3,727) 1.65 % Variable Account Charge - - - - (1,571) 1.70 % Variable Account Charge (4,221) (645) (700) (4,523) (42,032) 1.75 % Variable Account Charge - - - - (499) 1.80 % Variable Account Charge (3,713) (34) - (7,448) (7,079) 1.85 % Variable Account Charge - - (52) (174) (5,465) 1.90 % Variable Account Charge (1,826) - - (1,668) (7,400) 1.95 % Variable Account Charge (159) - - (488) (10,161) 2.00 % Variable Account Charge - - - - (321) 2.05 % Variable Account Charge (116) - - (202) (7,441) 2.15 % Variable Account Charge - - - - (2,685) 2.20 % Variable Account Charge - - - - (1,585) 2.25 % Variable Account Charge - - - - (1,673) 2.30 % Variable Account Charge - - - (896) (529) 2.35 % Variable Account Charge - - - (39) - 2.40 % Variable Account Charge - - - (87) (1,457) 2.55 % Variable Account Charge - - - - (324) 2.65 % Variable Account Charge - - - - (907) MultiOption Classic/Achiever (5,941) (3,341) (4,448) (12,086) (66,933) MultiOption Flex/Single/Select - - - - - Waddell and Reed Advisors Retirement Builder - - - - - ------- ------ ------ ------- -------- Total Expenses (25,873) (8,834) (7,493) (49,035) (367,216) ======= ====== ====== ======= ========
11 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED
CREDIT SUISSE AMERICAN GLOBAL CENTURY POST-VENTURE FIDELITY VIP FIDELITY VIP FIDELITY VIP VALUE CAPITAL CONTRAFUND EQUITY-INCOME MID-CAP -------- ------------- ------------ ------------- ------------ Adjustable Income Annuity - - - - - MegAnnuity - (236) (811) (778) (989) MultiOption Advisor 1.20 % Variable Account Charge (10,828) - (35,376) (123,507) (31,052) 1.35 % Variable Account Charge (9,190) - (12,450) (61,978) (21,743) 1.45 % Variable Account Charge (515) - (1,915) (18,965) (3,721) 1.50 % Variable Account Charge (135) - (1,384) (3,543) (1,217) 1.55 % Variable Account Charge (8,105) - (24,694) (102,639) (23,864) 1.60 % Variable Account Charge (194) - - (4,819) (195) 1.65 % Variable Account Charge (247) - (104) (2,379) (65) 1.70 % Variable Account Charge (6,253) - (13,955) (60,605) (19,557) 1.75 % Variable Account Charge - - (458) (660) (50) 1.80 % Variable Account Charge (3,636) - (1,129) (22,705) (3,407) 1.85 % Variable Account Charge (1,422) - (769) (6,491) (753) 1.90 % Variable Account Charge (78) - (3,078) (9,581) (1,694) 1.95 % Variable Account Charge - - (1,128) (14,175) (976) 2.00 % Variable Account Charge - - - (432) (39) 2.05 % Variable Account Charge (431) - (1,231) (9,135) (667) 2.15 % Variable Account Charge - - - (3,419) (409) 2.20 % Variable Account Charge - - (37) (2,315) (198) 2.25 % Variable Account Charge - - (1) (2,173) - 2.30 % Variable Account Charge (323) - (1,596) (1,889) (411) 2.35 % Variable Account Charge - - (78) (77) - 2.40 % Variable Account Charge (99) - (134) (1,832) (140) 2.55 % Variable Account Charge - - - (581) - 2.65 % Variable Account Charge - - (803) (1,327) - MultiOption Classic/Achiever (25,950) (13,770) (214,870) (298,851) (201,353) MultiOption Flex/Single/Select - (15,479) (189,104) (234,685) (178,151) Waddell and Reed Advisors Retirement Builder - - - - - ------- ------- -------- -------- -------- Total Expenses (67,406) (29,485) (505,105) (989,541) (490,651) ======= ======= ======== ======== ========
12 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED
FRANKLIN TEMPLETON LARGE CAP FRANKLIN DEVELOPING TEMPLETON GROWTH MUTUAL SHARES FRANKLIN MARKETS GLOBAL ASSET SECURITIES SECURITIES SMALL CAP SECURITIES ALLOCATION ---------- ------------- --------- ---------- ----------- Adjustable Income Annuity - - - - - MegAnnuity - - (452) (718) (463) MultiOption Advisor 1.20 % Variable Account Charge (6,238) (8,218) (12,687) (12,855) - 1.35 % Variable Account Charge (4,794) (6,304) (6,596) (5,665) - 1.45 % Variable Account Charge (230) (1,033) (380) (1,024) - 1.50 % Variable Account Charge (204) (228) (1,176) (1,231) - 1.55 % Variable Account Charge (3,385) (10,642) (10,705) (11,630) - 1.60 % Variable Account Charge (191) - - (101) - 1.65 % Variable Account Charge (153) - - (123) - 1.70 % Variable Account Charge (2,862) (3,939) (7,908) (4,973) - 1.75 % Variable Account Charge (429) - - (36) - 1.80 % Variable Account Charge (631) (1,548) (2,410) (694) - 1.85 % Variable Account Charge (60) (1,068) (441) (753) - 1.90 % Variable Account Charge (517) (509) (1,270) (518) - 1.95 % Variable Account Charge (19) (1,095) (87) (40) - 2.00 % Variable Account Charge - (53) (51) (19) - 2.05 % Variable Account Charge (79) (526) (97) (586) - 2.15 % Variable Account Charge - - - - - 2.20 % Variable Account Charge - - (116) (77) - 2.25 % Variable Account Charge - - - (0) - 2.30 % Variable Account Charge - (1) (55) (256) - 2.35 % Variable Account Charge - - - (42) - 2.40 % Variable Account Charge - (129) - (223) - 2.55 % Variable Account Charge - - - - - 2.65 % Variable Account Charge - - - - - MultiOption Classic/Achiever (8,214) (22,845) (87,844) (62,595) (45,664) MultiOption Flex/Single/Select - - (66,563) (91,678) (38,767) Waddell and Reed Advisors Retirement Builder - - - - - ------- ------- -------- -------- ------- Total Expenses (28,006) (58,138) (198,838) (195,837) (84,894) ======= ======= ======== ======== =======
13 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED
JANUS JANUS JANUS MFS MFS ASPEN ASPEN CAPITAL INTERNATIONAL INVESTORS MID CAP BALANCED APPRECIATION GROWTH GROWTH STOCK GROWTH -------- ------------- ------------- ------------ ------ Adjustable Income Annuity - - - - - MegAnnuity - (518) (575) - - MultiOption Advisor 1.20 % Variable Account Charge (9,663) (3,887) (7,722) (2,605) (4,867) 1.35 % Variable Account Charge (2,314) (2,906) (5,309) (1,846) (1,726) 1.45 % Variable Account Charge (194) (66) (910) (481) (21) 1.50 % Variable Account Charge - (163) (215) (219) (664) 1.55 % Variable Account Charge (7,154) (5,773) (4,000) (2,200) (3,106) 1.60 % Variable Account Charge - - - - - 1.65 % Variable Account Charge - (199) (114) - - 1.70 % Variable Account Charge (2,653) (1,162) (3,418) (1,144) (1,257) 1.75 % Variable Account Charge - - (168) - (298) 1.80 % Variable Account Charge (389) (1,095) (446) (814) (236) 1.85 % Variable Account Charge (25) (18) (839) (338) (207) 1.90 % Variable Account Charge (79) - (185) (46) - 1.95 % Variable Account Charge - - (239) - - 2.00 % Variable Account Charge - - (75) - - 2.05 % Variable Account Charge (215) (90) (517) - - 2.15 % Variable Account Charge - - (79) - (129) 2.20 % Variable Account Charge - - (66) - - 2.25 % Variable Account Charge - - (481) - - 2.30 % Variable Account Charge - - (119) - - 2.35 % Variable Account Charge - - - - - 2.40 % Variable Account Charge (137) (4) (3) - - 2.55 % Variable Account Charge - - - - - 2.65 % Variable Account Charge - - - - - MultiOption Classic/Achiever (13,267) (126,166) (108,308) (8,585) (7,283) MultiOption Flex/Single/Select - (103,090) (85,669) - - Waddell and Reed Advisors Retirement Builder - - - - - ------- -------- -------- ------- ------- Total Expenses (36,090) (245,137) (219,457) (18,278) (19,794) ======= ======== ======== ======= =======
14 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED
MFS OPPENHEIMER OPPENHEIMER NEW MFS CAPITAL OPPENHEIMER INTERNATIONAL DISCOVERY VALUE APPRECIATION HIGH INCOME GROWTH --------- -------- ------------ ----------- ------------- Adjustable Income Annuity - - - - - MegAnnuity - - - - - MultiOption Advisor 1.20 % Variable Account Charge (25,541) (4,449) (7,601) (32,975) (8,698) 1.35 % Variable Account Charge (14,374) (4,738) (10,299) (21,293) (7,808) 1.45 % Variable Account Charge (4,165) (52) (190) (6,738) (744) 1.50 % Variable Account Charge (1,466) (1,015) (1,271) (1,005) (676) 1.55 % Variable Account Charge (23,174) (6,018) (2,715) (40,036) (3,668) 1.60 % Variable Account Charge (1,418) - - (1,537) - 1.65 % Variable Account Charge (489) - (152) (501) - 1.70 % Variable Account Charge (17,080) (2,280) (3,236) (13,713) (7,157) 1.75 % Variable Account Charge (37) - - (582) - 1.80 % Variable Account Charge (2,467) (412) - (9,879) (1,593) 1.85 % Variable Account Charge (1,660) (406) (60) (1,261) (1,402) 1.90 % Variable Account Charge (2,426) (268) (663) (1,795) (343) 1.95 % Variable Account Charge (4,105) - (171) (4,559) (111) 2.00 % Variable Account Charge (4) - (50) (113) - 2.05 % Variable Account Charge (2,609) (89) (193) (1,745) (46) 2.15 % Variable Account Charge (808) - (493) (1,293) (384) 2.20 % Variable Account Charge (454) - (229) (590) (290) 2.25 % Variable Account Charge - - - (705) - 2.30 % Variable Account Charge (526) - (9) (412) (223) 2.35 % Variable Account Charge - - - -- (39) 2.40 % Variable Account Charge (718) - (5) (22) - 2.55 % Variable Account Charge (92) - - (196) - 2.65 % Variable Account Charge (319) - - (446) - MultiOption Classic/Achiever (26,157) (21,949) (26,531) (37,638) (15,942) MultiOption Flex/Single/Select - - - - - Waddell and Reed Advisors Retirement Builder - - - - - -------- ------- ------- -------- ------- Total Expenses (130,089) (41,676) (53,868) (179,034) (49,124) -------- ------- ------- -------- -------
15 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED
PUTNAM VT PUTNAM VT PUTNAM VT PUTNAM VT GROWTH AND INTERNATIONAL NEW NEW PUTNAM VT INCOME GROWTH OPPORTUNITIES VALUE VOYAGER ---------- ------------- ------------- --------- --------- Adjustable Income Annuity - - - - - MegAnnuity - - - - - MultiOption Advisor 1.20 % Variable Account Charge (5,262) (24,688) (463) (2,709) (1,595) 1.35 % Variable Account Charge (1,975) (19,721) (714) (2,973) (671) 1.45 % Variable Account Charge (57) (5,672) - (26) (295) 1.50 % Variable Account Charge - (1,256) - (484) (79) 1.55 % Variable Account Charge (3,248) (25,995) (965) (6,240) (1,012) 1.60 % Variable Account Charge - (1,339) - - - 1.65 % Variable Account Charge - (661) - - - 1.70 % Variable Account Charge (1,579) (11,690) (38) (1,642) (821) 1.75 % Variable Account Charge (441) -- - -- - 1.80 % Variable Account Charge (411) (2,980) - (15) (626) 1.85 % Variable Account Charge - (1,140) - (19) - 1.90 % Variable Account Charge (283) (2,858) - (568) (46) 1.95 % Variable Account Charge - (3,321) (87) - - 2.00 % Variable Account Charge - (62) - - - 2.05 % Variable Account Charge (55) (2,614) (48) - - 2.15 % Variable Account Charge - (817) - - - 2.20 % Variable Account Charge - (292) - - - 2.25 % Variable Account Charge - - - - - 2.30 % Variable Account Charge - (349) - - (345) 2.35 % Variable Account Charge - -- - - - 2.40 % Variable Account Charge - (747) - - - 2.55 % Variable Account Charge - (240) - - - 2.65 % Variable Account Charge - (450) - - - MultiOption Classic/Achiever (8,048) (31,446) (2,008) (6,567) (5,398) MultiOption Flex/Single/Select - - - - - Waddell and Reed Advisors Retirement Builder - - - - - ------- -------- ------ ------- ------- Total Expenses (21,359) (138,338) (4,323) (21,243) (10,888) ------- -------- ------ ------- -------
16 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED
VAN KAMPEN VAN KAMPEN VAN KAMPEN EMERGING GROWTH AND WADDELL & REED WADDELL & REED COMSTOCK GROWTH INCOME BALANCED GROWTH ---------- ---------- ---------- -------------- -------------- Adjustable Income Annuity - - - - - MegAnnuity - - - (7,466) (13,411) MultiOption Advisor 1.20 % Variable Account Charge (7,159) (720) (1,692) (10,964) (3,782) 1.35 % Variable Account Charge (12,299) (1,105) (3,784) (6,183) (2,534) 1.45 % Variable Account Charge (1,471) (9) (19) (449) (109) 1.50 % Variable Account Charge (307) (120) - (100) (204) 1.55 % Variable Account Charge (11,429) (519) (1,638) (36,470) (20,169) 1.60 % Variable Account Charge - - - (516) - 1.65 % Variable Account Charge - - - (208) - 1.70 % Variable Account Charge (6,250) (390) (837) (15,055) (6,808) 1.75 % Variable Account Charge - - - - - 1.80 % Variable Account Charge (396) - (612) (779) (165) 1.85 % Variable Account Charge (901) - (18) - (29) 1.90 % Variable Account Charge (626) - (162) (1,904) (1,132) 1.95 % Variable Account Charge (35) - - (976) (67) 2.00 % Variable Account Charge (68) - - (53) (44) 2.05 % Variable Account Charge (1,093) - - (296) (180) 2.15 % Variable Account Charge - - - - - 2.20 % Variable Account Charge (462) - - - (159) 2.25 % Variable Account Charge - - - - - 2.30 % Variable Account Charge (143) - - (566) - 2.35 % Variable Account Charge - - - - - 2.40 % Variable Account Charge (5) - - (129) - 2.55 % Variable Account Charge - - - - - 2.65 % Variable Account Charge - - - - - MultiOption Classic/Achiever - - - (266,268) (230,908) MultiOption Flex/Single/Select - - - (2,520,832) (1,862,517) Waddell and Reed Advisors Retirement Builder 1.25 % Variable Account Charge - - - (840) (3,728) 1.40 % Variable Account Charge - - - (222) (1,699) 1.50 % Variable Account Charge - - - - (1,466) 1.60 % Variable Account Charge - - - (498) (1,714) 1.65 % Variable Account Charge - - - (107) (70) 1.75 % Variable Account Charge - - - (1,889) (7,657) 1.85 % Variable Account Charge - - - (660) (297) 1.90 % Variable Account Charge - - - (972) (5,151) 2.00 % Variable Account Charge - - - (61) (1,147) 2.15 % Variable Account Charge - - - - (179) 2.25 % Variable Account Charge - - - - (22) 2.35 % Variable Account Charge - - - (15) (853) ------- ------ ------ ---------- ---------- Total Expenses (42,644) (2,863) (8,762) (2,874,478) (2,166,201) ------- ------ ------ ---------- ----------
17 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED
WADDELL & REED WADDELL & REED WADDELL & REED WADDELL & REED SMALL CAP WADDELL & REED MICRO-CAP SMALL CAP INTERNATIONAL II GROWTH VALUE GROWTH VALUE ---------------- -------------- -------------- -------------- -------------- Adjustable Income Annuity - - - - - MegAnnuity (7,618) (4,558) (2,491) (956) (2,584) MultiOption Advisor 1.20 % Variable Account Charge (59,724) (5,909) (3,256) (6,945) (23,882) 1.35 % Variable Account Charge (31,211) (2,372) (1,160) (3,261) (8,962) 1.45 % Variable Account Charge (8,663) (180) (260) (171) (1,031) 1.50 % Variable Account Charge (1,746) (254) - (121) (808) 1.55 % Variable Account Charge (58,651) (4,877) (4,110) (9,082) (16,481) 1.60 % Variable Account Charge (2,333) (185) - - (189) 1.65 % Variable Account Charge (1,031) - - - (264) 1.70 % Variable Account Charge (40,306) (5,783) (2,752) (2,314) (10,806) 1.75 % Variable Account Charge (362) - - (23) (215) 1.80 % Variable Account Charge (3,575) (216) (13) (583) (5,579) 1.85 % Variable Account Charge (3,317) (179) (1) (850) (1,877) 1.90 % Variable Account Charge (4,012) (826) (806) (123) (364) 1.95 % Variable Account Charge (7,335) (155) (263) - (948) 2.00 % Variable Account Charge (219) - (14) - (89) 2.05 % Variable Account Charge (4,472) (219) (344) - (1,071) 2.15 % Variable Account Charge (1,651) (187) (673) - (117) 2.20 % Variable Account Charge (1,274) (83) - - (304) 2.25 % Variable Account Charge (1,189) - - - (683) 2.30 % Variable Account Charge (760) (454) (134) (5) (640) 2.35 % Variable Account Charge - - - - - 2.40 % Variable Account Charge (848) (1) (130) (1) (96) 2.55 % Variable Account Charge (106) - - - - 2.65 % Variable Account Charge (120) - - - - MultiOption Classic/Achiever (237,603) (135,917) (92,795) (70,528) (166,513) MultiOption Flex/Single/Select (1,425,725) (791,140) (720,090) (169,645) (257,425) Waddell and Reed Advisors Retirement Builder 1.25 % Variable Account Charge (1,719) (1,461) (3,521) (705) (1,490) 1.40 % Variable Account Charge (355) (474) (1,250) (207) (1,450) 1.50 % Variable Account Charge (195) (291) (363) (40) (196) 1.60 % Variable Account Charge (508) (563) (1,210) (74) (654) 1.65 % Variable Account Charge (45) (43) (91) (43) (68) 1.75 % Variable Account Charge (2,247) (4,314) (5,140) (1,630) (2,896) 1.85 % Variable Account Charge (69) (351) (88) (103) (82) 1.90 % Variable Account Charge (1,541) (3,126) (3,778) (1,336) (1,734) 2.00 % Variable Account Charge (824) (853) (1,137) (749) (1,065) 2.15 % Variable Account Charge - (180) (179) - - 2.25 % Variable Account Charge (14) (4) (17) - (14) 2.35 % Variable Account Charge (281) (421) (531) (101) (434) ---------- -------- -------- -------- -------- Total Expenses (1,911,649) (965,576) (846,597) (269,596) (511,011) ---------- -------- -------- -------- --------
18 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED
WADDELL & REED WADDELL & REED WADDELL & REED ASSET WADDELL & REED SCIENCE & WADDELL & REED CORE EQUITY STRATEGY INTERNATIONAL TECHNOLOGY BOND -------------- -------------- -------------- -------------- -------------- Adjustable Income Annuity - - - - - MegAnnuity (481) - - - - MultiOption Advisor - 1.20 % Variable Account Charge (1,073) (3,044) (4,581) (2,807) - 1.35 % Variable Account Charge (725) (945) (2,049) (1,163) - 1.45 % Variable Account Charge (27) (32) (69) (524) - 1.50 % Variable Account Charge - (236) (179) (55) - 1.55 % Variable Account Charge (1,585) (3,565) (3,921) (800) - 1.60 % Variable Account Charge - (522) - - - 1.65 % Variable Account Charge - - - - - 1.70 % Variable Account Charge (669) (1,769) (1,567) (5,411) - 1.75 % Variable Account Charge - - - (23) - 1.80 % Variable Account Charge - (56) (488) (15) - 1.85 % Variable Account Charge (35) (34) (223) (250) - 1.90 % Variable Account Charge - (17) (1,908) (94) - 1.95 % Variable Account Charge - (580) (40) (112) - 2.00 % Variable Account Charge - - - - - 2.05 % Variable Account Charge - (283) (333) (66) - 2.15 % Variable Account Charge - - - - - 2.20 % Variable Account Charge - - - - - 2.25 % Variable Account Charge - - - - - 2.30 % Variable Account Charge - - - (526) - 2.35 % Variable Account Charge - - - - - 2.40 % Variable Account Charge - (129) - - - 2.55 % Variable Account Charge - - - - - 2.65 % Variable Account Charge - - (307) - - MultiOption Classic/Achiever (43,144) (1,093) (2,431) (1,806) - MultiOption Flex/Single/Select (88,706) (7,864) (4,338) (6,615) - Waddell and Reed Advisors Retirement Builder 1.25 % Variable Account Charge (1,537) (1,420) (1,237) (1,953) (1,360) 1.40 % Variable Account Charge (443) (1,463) (228) (542) (566) 1.50 % Variable Account Charge (1,068) (40) (207) (222) - 1.60 % Variable Account Charge (282) (348) (355) (518) (147) 1.65 % Variable Account Charge (60) (98) (30) (75) - 1.75 % Variable Account Charge (577) (1,448) (3,054) (4,129) (1,724) 1.85 % Variable Account Charge (276) (268) (38) (436) (49) 1.90 % Variable Account Charge (1,471) (2,041) (1,560) (2,429) (1,387) 2.00 % Variable Account Charge (183) (859) (2) (971) (237) 2.15 % Variable Account Charge - - - (180) - 2.25 % Variable Account Charge - - (3) (5) (3) 2.35 % Variable Account Charge (14) (432) (208) (321) (235) -------- ------- ------- ------- ------ Total Expenses (142,356) (28,586) (29,356) (32,048) (5,708) -------- ------- ------- ------- ------
19 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED
WADDELL & REED WADDELL & REED WADDELL & REED WADDELL & REED WADDELL & REED DIVIDEND HIGH LIMITED-TERM MONEY MORTGAGE INCOME INCOME BOND MARKET SECURITIES -------------- -------------- -------------- -------------- -------------- Adjustable Income Annuity - - - - - MegAnnuity - - - - - MultiOption Advisor - - - - - MultiOption Classic/Achiever - - - - - MultiOption Flex/Single/Select - - - - - Waddell and Reed Advisors Retirement Builder 1.25 % Variable Account Charge (1,365) (3,199) (690) (4,169) (113,634) 1.40 % Variable Account Charge (744) (714) (132) - (203) 1.50 % Variable Account Charge (45) (439) - - (357) 1.60 % Variable Account Charge (330) (560) - (6) (358) 1.65 % Variable Account Charge (17) (7) - - - 1.75 % Variable Account Charge (1,774) (3,950) (836) - (1,063) 1.85 % Variable Account Charge (29) (54) (22) (217) (3) 1.90 % Variable Account Charge (1,612) (2,796) (431) (7) (331) 2.00 % Variable Account Charge (245) (589) - - (662) 2.15 % Variable Account Charge (179) - - - - 2.25 % Variable Account Charge - (28) (19) - - 2.35 % Variable Account Charge (71) (480) (30) - (43) ------ ------- ------ ------ -------- Total Expenses (6,411) (12,816) (2,160) (4,399) (116,654) ------ ------- ------ ------ --------
WADDELL & REED REAL ESTATE SECURITIES -------------- Adjustable Income Annuity - MegAnnuity - MultiOption Advisor - MultiOption Classic/Achiever - MultiOption Flex/Single/Select - Waddell and Reed Advisors Retirement Builder 1.25 % Variable Account Charge (42,758) 1.40 % Variable Account Charge (1,233) 1.50 % Variable Account Charge (399) 1.60 % Variable Account Charge (424) 1.65 % Variable Account Charge (10) 1.75 % Variable Account Charge (2,569) 1.85 % Variable Account Charge (73) 1.90 % Variable Account Charge (1,786) 2.00 % Variable Account Charge (720) 2.15 % Variable Account Charge (10) 2.25 % Variable Account Charge (421) 2.35 % Variable Account Charge ------- Total Expenses (50,403) -------
20 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (4) INVESTMENT TRANSACTIONS The Account's purchases of Underlying Funds shares, including reinvestment of dividend distributions, were as follows during the period ended December 31, 2004: Advantus Bond $26,310,540 Advantus Money Market 37,366,906 Advantus Index 500 37,052,210 Advantus Mortgage Securities 14,312,330 Advantus Maturing Government Bond 2006 90,540 Advantus Maturing Government Bond 2010 467,976 Advantus International Bond 3,366,707 Advantus Index 400 Mid-Cap 11,895,102 Advantus Real Estate Securities 19,824,575 AIM V.I. Aggressive Growth 614,852 AIM V.I. Balanced 1,154,189 AIM V.I. Dent Demographic Trends 248,900 AIM V.I. Premier Equity 177,130 American Century Income and Growth 1,703,957 American Century Ultra 20,148,160 American Century Value 5,607,044 Credit Suisse Global Post-Venture Capital 876,800 Fidelity VIP Contrafund 11,081,545 Fidelity VIP Equity-Income 33,028,508 Fidelity VIP Mid-Cap 10,133,949 Franklin Large Cap Growth Securities 5,820,419 Franklin Mutual Shares Securities 3,120,857 Franklin Small Cap 4,528,054 Templeton Developing Markets Securities 15,853,858 Templeton Global Asset Allocation 2,638,662 Janus Aspen Balanced 1,618,140 Janus Aspen Capital Appreciation 3,033,423 Janus International Growth 8,374,624 MFS Investors Growth Stock 403,590 MFS Mid Cap Growth 1,897,352 MFS New Discovery 7,731,661 MFS Value 1,655,795 Oppenheimer Capital Appreciation 2,395,001 Oppenheimer High Income 11,424,365 Oppenheimer International Growth 3,755,349 Putnam VT Growth and Income 688,267 Putnam VT International Growth 5,160,840 Putnam VT New Opportunities 114,697 Putnam VT New Value 1,268,212 Putnam VT Voyager 367,315 Van Kampen Comstock 2,596,147 Van Kampen Emerging Growth 213,072 Van Kampen Growth and Income 663,235 Waddell & Reed Balanced 11,844,026 Waddell & Reed Growth 12,375,758
21 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (4) INVESTMENT TRANSACTIONS - CONTINUED Waddell & Reed International II 26,986,860 Waddell & Reed Small Cap Growth 7,419,863 Waddell & Reed Value 7,962,028 Waddell & Reed Micro-Cap Growth 3,907,261 Waddell & Reed Small Cap Value 15,620,312 Waddell & Reed Core Equity 2,826,714 Waddell & Reed Asset Strategy 4,828,706 Waddell & Reed International 3,706,597 Waddell & Reed Science & Technology 5,813,020 Waddell & Reed Bond 2,188,199 Waddell & Reed Dividend Income 1,794,875 Waddell & Reed High Income 4,208,349 Waddell & Reed Limited-Term Bond 762,756 Waddell & Reed Money Market 1,788,825 Waddell & Reed Mortgage Securities 17,003,687 Waddell & Reed Real Estate Securities 7,836,793
22 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS Transactions in units for each segregated sub-account for the years ended December 31, 2004 and 2003 were as follows:
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------------ ADVANTUS ADVANTUS ADVANTUS ADVANTUS MATURING ADVANTUS MONEY INDEX MORTGAGE GOVERNMENT BOND MARKET 500 SECURITIES BOND 2006 ------------ ------------ ------------- ------------ ----------- Units outstanding at December 31, 2002 .................... 62,421,448 42,537,083 72,078,923 74,476,525 5,364,167 Contract purchase payments .................. 22,118,352 30,005,084 46,108,530 15,524,618 1,031,587 Contract terminations, withdrawal payments and charges ...... (12,998,000) (42,364,642) (12,936,680) (16,498,242) (1,258,983) ----------- ----------- ------------ ----------- ---------- Units outstanding at December 31, 2003 ................... 71,541,800 30,177,525 105,250,773 73,502,901 5,136,771 Contract purchase payments .................. 23,713,392 33,249,135 24,310,403 12,808,859 51,874 Contract terminations, withdrawal payments and charges ...... (11,523,090) (38,165,513) (12,359,548) (16,242,395) (2,248,131) ----------- ----------- ------------ ----------- ---------- Units outstanding at December 31, 2004 ................... 83,732,102 25,261,147 117,201,628 70,069,365 2,940,514 =========== =========== ============ =========== ==========
SEGREGATED SUB-ACCOUNTS --------------------------------------------------------------------- ADVANTUS MATURING ADVANTUS ADVANTUS ADVANTUS AIM V.I. GOVERNMENT INTERNATIONAL INDEX 400 REAL ESTATE AGGRESSIVE BOND 2010 BOND MID-CAP SECURITIES GROWTH ----------- ----------- ----------- ----------- ----------- Units outstanding at December 31, 2002 ................... 4,458,787 38,800,221 14,982,764 21,160,081 200,861 Contract purchase payments .................. 919,817 7,485,878 9,104,377 8,728,667 772,424 Contract terminations, withdrawal payments and charges ...... (1,661,370) (6,743,357) (6,560,387) (2,902,423) (150,100) ---------- ---------- ---------- ---------- -------- Units outstanding at December 31, 2003 ................... 3,717,234 39,542,742 17,526,754 26,986,325 823,185 Contract purchase payments .................. 223,163 2,541,042 8,382,808 11,973,151 527,692 Contract terminations, withdrawal payments and charges ...... (743,952) (9,830,104) (4,016,796) (8,837,893) (87,784) ---------- ---------- ---------- ---------- --------- Units outstanding at December 31, 2004 ................... 3,196,445 32,253,680 21,892,766 30,121,583 1,263,093 ========== ========== ========== ========== =========
SEGREGATED SUB-ACCOUNTS ---------------------------------------------------------------- AIM V.I. AMERICAN DENT AIM V.I. CENTURY AMERICAN AIM V.I. DEMOGRAPHIC PREMIER INCOME CENTURY BALANCED TRENDS EQUITY AND GROWTH ULTRA ----------- ----------- -------- ------------------------ Units outstanding at December 31, 2002 ................... 202,181 44,099 333,328 271,073 1,768,593 Contract purchase payments .................. 1,109,782 566,213 396,090 1,925,765 12,556,424 Contract terminations, withdrawal payments and charges ...... (69,516) (114,168) (208,396) (30,769) (484,996) --------- -------- -------- --------- ---------- Units outstanding at December 31, 2003 ................... 1,242,447 496,144 521,022 2,166,069 13,840,021 Contract purchase payments .................. 1,002,332 201,532 157,743 1,382,879 17,130,189 Contract terminations, withdrawal payments and charges ...... (408,935) (103,342) (144,882) (302,835) (822,934) --------- -------- -------- --------- ---------- Units outstanding at December 31, 2004 ................... 1,835,844 594,334 533,883 3,246,113 30,147,276 ========= ======== ======== ========= ==========
23 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - CONTINUED
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------------- CREDIT SUISSE AMERICAN GLOBAL CENTURY POST-VENTURE FIDELITY VIP FIDELITY VIP FIDELITY VIP VALUE CAPITAL CONTRAFUND EQUITY-INCOME MID-CAP ----------- ------------- ------------ ------------- ------------ Units outstanding at December 31, 2002 ................... 607,599 1,869,296 29,726,965 30,830,481 19,501,428 Contract purchase payments ................. 2,033,778 2,527,952 10,077,080 24,422,335 6,656,494 Contract terminations, withdrawal payments and charges ..... (203,761) (240,877) (3,772,292) (5,405,396) (3,451,607) --------- ---------- ---------- ---------- ---------- Units outstanding at December 31, 2003 ................... 2,437,616 4,156,371 36,031,753 49,847,420 22,706,315 Contract purchase payments ................. 4,456,573 1,680,861 9,942,285 26,503,919 7,034,612 Contract terminations, withdrawal payments and charges ..... (980,804) (1,561,629) (4,776,252) (4,464,097) (2,471,372) --------- ---------- ---------- ---------- ---------- Units outstanding at December 31, 2004 ................... 5,913,385 4,275,603 41,197,786 71,887,242 27,269,555 ========= ========== ========== ========== ==========
SEGREGATED SUB-ACCOUNTS ----------------------------------------------------------------------- FRANKLIN TEMPLETON LARGE CAP FRANKLIN DEVELOPING TEMPLETON GROWTH MUTUAL SHARES FRANKLIN MARKETS GLOBAL ASSET SECURITIES SECURITIES SMALL CAP SECURITIES ALLOCATION ----------- ------------- ----------- ------------ ------------ Units outstanding at December 31, 2002 ................... 244,326 670,423 15,909,414 13,519,675 4,416,037 Contract purchase payments ................. 890,937 1,887,167 6,232,254 13,330,483 2,410,511 Contract terminations, withdrawal payments and charges ..... (49,011) (113,461) (2,490,698) (12,251,148) (1,172,646) ---------- ---------- ---------- ----------- ---------- Units outstanding at December 31, 2003 ................... 1,086,252 2,444,129 19,650,970 14,599,010 5,653,902 Contract purchase payments ................. 4,837,985 2,631,961 4,905,365 11,969,226 2,287,286 Contract terminations, withdrawal payments and charges ..... (3,455,469) (321,077) (3,515,846) (10,720,880) (1,567,457) ---------- ---------- ---------- ----------- ---------- Units outstanding at December 31, 2004 ................... 2,468,768 4,755,013 21,040,489 15,847,356 6,373,731 ========== ========== ========== =========== ==========
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------------ JANUS JANUS JANUS MFS MFS ASPEN ASPEN CAPITAL INTERNATIONAL INVESTORS MID CAP BALANCED APPRECIATION GROWTH GROWTH STOCK GROWTH ----------- ------------- ------------- ------------ ----------- Units outstanding at December 31, 2002 ................... 689,640 34,709,134 29,205,230 254,637 132,901 Contract purchase payments ................. 1,480,015 3,672,956 5,143,335 1,194,369 840,831 Contract terminations, withdrawal payments and charges ..... (186,959) (8,310,526) (8,166,523) (30,675) (145,167) --------- ---------- ---------- --------- ---------- Units outstanding at December 31, 2003 ................... 1,982,696 30,071,564 26,182,042 1,418,331 828,565 Contract purchase payments ................. 1,421,127 3,761,967 7,953,127 370,099 1,611,318 Contract terminations, withdrawal payments and charges ..... (454,143) (5,746,037) (7,518,544) (520,824) (1,211,115) --------- ---------- ---------- --------- ---------- Units outstanding at December 31, 2004 ................... 2,949,680 28,087,494 26,616,625 1,267,606 1,228,768 ========= ========== ========== ========= ==========
24 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - CONTINUED
SEGREGATED SUB-ACCOUNTS ----------------------------------------------------------------------- MFS OPPENHEIMER OPPENHEIMER NEW MFS CAPITAL OPPENHEIMER INTERNATIONAL DISCOVERY VALUE APPRECIATION HIGH INCOME GROWTH ---------- --------- ------------ ----------- ------------- Units outstanding at December 31, 2002 ............................ 1,073,449 852,323 890,405 674,348 323,095 Contract purchase payments .............................. 6,263,564 1,456,085 1,823,069 6,944,098 4,549,914 Contract terminations, withdrawal payments and charges .................. (2,319,827) (160,067) (406,169) (1,018,191) (3,285,133) ---------- --------- --------- ---------- ---------- Units outstanding at December 31, 2003 ............................ 5,017,186 2,148,341 2,307,305 6,600,255 1,587,876 Contract purchase payments .............................. 6,182,257 1,368,763 2,073,045 8,993,533 2,819,171 Contract terminations, withdrawal payments and charges .................. (2,131,992) (452,498) (343,164) (2,283,708) (1,058,463) ---------- --------- --------- ---------- ---------- Units outstanding at December 31, 2004 ............................ 9,067,451 3,064,606 4,037,186 13,310,080 3,348,584 ========== ========= ========= ========== ==========
SEGREGATED SUB-ACCOUNTS -------------------------------------------------------------------- PUTNAM VT PUTNAM VT PUTNAM VT PUTNAM VT GROWTH AND INTERNATIONAL NEW NEW PUTNAM VT INCOME GROWTH OPPORTUNITIES VALUE VOYAGER ---------- ------------- ------------- --------- --------- Units outstanding at December 31, 2002 .................................... 296,889 1,418,042 88,859 164,533 228,014 Contract purchase payments ...................................... 996,477 7,226,432 234,670 792,106 439,161 Contract terminations, withdrawal payments and charges .......................... (176,286) (2,363,207) (51,545) (182,687) (56,748) --------- ---------- -------- --------- -------- Units outstanding at December 31, 2003 .................................... 1,117,080 6,281,267 271,984 773,952 610,427 Contract purchase payments ...................................... 567,986 4,161,712 93,062 1,016,279 338,923 Contract terminations, withdrawal payments and charges .......................... (197,050) (1,967,588) (76,275) (171,682) (136,321) --------- ---------- -------- --------- -------- Units outstanding at December 31, 2004 .................................... 1,488,016 8,475,391 288,771 1,618,549 813,029 ========= ========== ======== ========= ========
SEGREGATED SUB-ACCOUNTS ----------------------------------------------------------------------------- VAN KAMPEN VAN KAMPEN VAN KAMPEN EMERGING GROWTH AND WADDELL & REED WADDELL & REED COMSTOCK GROWTH INCOME BALANCED GROWTH ---------- ---------- ---------- -------------- -------------- Units outstanding at December 31, 2002 .......................... - - - 96,126,456 89,698,886 Contract purchase payments .......................... 1,241,148 158,958 228,854 6,168,927 1,221,828 Contract terminations, withdrawal payments and charges .............. (11,992) (39,359) (20,556) (16,164,468) (10,946,677) --------- ------- ------- ----------- ----------- Units outstanding at December 31, 2003 ......................... 1,229,156 119,599 208,298 86,130,915 79,974,037 Contract purchase payments .......................... 2,029,485 178,645 536,331 8,077,612 11,334,300 Contract terminations, withdrawal payments and charges .............. (103,259) (96,351) (15,179) (14,581,463) (11,925,974) --------- ------- ------- ----------- ----------- Units outstanding at December 31, 2004 ......................... 3,155,382 201,893 729,450 79,627,064 79,382,363 ========= ======= ======= =========== ===========
25 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - CONTINUED
SEGREGATED SUB-ACCOUNTS -------------------------------------------------------------------------------- WADDELL & REED WADDELL & REED WADDELL & REED WADDELL & REED INTERNATIONAL SMALL CAP WADDELL & REED MICRO-CAP SMALL CAP II GROWTH VALUE GROWTH VALUE ------------- -------------- -------------- -------------- -------------- Units outstanding at December 31, 2002 ........................... 69,117,878 50,956,068 44,175,977 16,079,775 23,025,937 Contract purchase payments ............................ 14,829,981 4,159,253 2,546,317 4,816,043 5,665,523 Contract terminations, withdrawal payments and charges ................ (14,737,011) (7,027,498) (6,829,522) (3,402,377) (5,133,731) ----------- ---------- ---------- ---------- ---------- Units outstanding at December 31, 2003 ........................... 69,210,848 48,087,823 39,892,772 17,493,441 23,557,729 Contract purchase payments ............................ 16,877,532 6,788,728 6,558,976 3,261,658 9,870,529 Contract terminations, withdrawal payments and charges ................ (10,362,577) (8,583,090) (5,894,597) (7,203,242) (3,916,497) ----------- ---------- ---------- ---------- ---------- Units outstanding at December 31, 2004 ........................... 75,725,803 46,293,461 40,557,151 13,551,857 29,511,761 =========== ========== ========== ========== ==========
SEGREGATED SUB-ACCOUNTS ------------------------------------------------------------------------------ WADDELL & REED WADDELL & REED WADDELL & REED ASSET WADDELL & REED SCIENCE & WADDELL & REED CORE EQUITY STRATEGY INTERNATIONAL TECHNOLOGY BOND -------------- -------------- -------------- -------------- --------------- Units outstanding at December 31, 2002 ......................... 16,313,415 - - - - Contract purchase payments .......................... 1,732,339 439,894 1,222,148 811,365 - Contract terminations, withdrawal payments and charges .............. (4,307,522) (405) (380,216) (441,586) - ---------- --------- --------- --------- --------- Units outstanding at December 31, 2003 ......................... 13,738,232 439,489 841,932 369,779 - Contract purchase payments .......................... 2,801,815 4,429,340 3,431,915 5,352,080 2,047,415 Contract terminations, withdrawal payments and charges .............. (3,312,387) (425,163) (798,544) (858,600) (19,042) ---------- --------- --------- --------- --------- Units outstanding at December 31, 2004 ......................... 13,227,660 4,443,666 3,475,303 4,863,259 2,028,373 ========== ========= ========= ========= =========
SEGREGATED SUB-ACCOUNTS --------------------------------------------------------------------------- WADDELL & REED WADDELL & REED WADDELL & REED WADDELL & REED WADDELL & REED DIVIDEND HIGH LIMITED-TERM MONEY MORTGAGE INCOME INCOME BOND MARKET SECURITIES -------------- -------------- -------------- -------------- -------------- Units outstanding at December 31, 2002 .......................... - - - - - Contract purchase payments ........................... - - - - - Contract terminations, withdrawal payments and charges ............... - - - - - --------- --------- ------- --------- ---------- Units outstanding at December 31, 2003 .......................... - - - - - Contract purchase payments ........................... 1,761,873 3,818,810 739,579 1,789,720 16,483,362 Contract terminations, withdrawal payments and charges ............... (14,709) (43,262) (16,183) (578,494) (16,564) --------- --------- ------- --------- ---------- Units outstanding at December 31, 2004 .......................... 1,747,164 3,775,548 723,396 1,211,226 16,466,798 ========= ========= ======= ========= ==========
26 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - CONTINUED
SEGREGATED SUB-ACCOUNTS ---------------------- WADDELL & REED REAL ESTATE SECURITIES -------------- Units outstanding at December 31, 2002 ........................................ - Contract purchase payments .......................................... - Contract terminations, withdrawal payments and charges .............................. - -------------- Units outstanding at December 31, 2003 ........................................ - Contract purchase payments .......................................... 7,309,132 Contract terminations, withdrawal payments and charges .............................. (60,469) -------------- Units outstanding at December 31, 2004 ........................................ 7,248,663 ==============
27 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY A summary by product and sub-account of net assets, units outstanding, and unit values at December 31, 2004 is as follows:
ADVANTUS BOND ADVANTUS MONEY MARKET ------------------------------------ ---------------------------------- UNITS UNITS OUTSTANDING AUV NET ASSETS OUTSTANDING AUV NET ASSETS ----------- ---- ----------- ----------- ---- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity 1,442,104 3.54 5,102,475 903,863 2.09 1,887,468 MultiOption Advisor 1.20% Variable Account Charge 11,919,467 1.09 12,939,085 3,159,203 0.99 3,127,319 1.35% Variable Account Charge 5,158,518 1.08 5,599,076 1,683,971 0.99 1,666,922 1.45% Variable Account Charge 1,322,060 1.08 1,434,969 497,929 0.98 492,888 1.50% Variable Account Charge 5,905,850 1.08 6,410,233 1,603,772 0.98 1,587,535 1.55% Variable Account Charge 365,822 1.05 397,065 149,603 0.99 148,089 1.60% Variable Account Charge 185,652 1.04 201,507 270,850 0.98 268,108 1.65% Variable Account Charge 5,289,252 1.04 5,740,975 974,107 0.98 964,245 1.70% Variable Account Charge 71,189 1.04 77,269 9,978 0.98 9,877 1.75% Variable Account Charge 752,510 1.04 816,777 150,323 0.98 148,801 1.80% Variable Account Charge 613,500 1.04 665,896 197,755 0.98 195,753 1.85% Variable Account Charge 578,859 1.04 628,296 59,451 0.98 58,849 1.90% Variable Account Charge 210,026 1.05 227,963 72,925 0.99 72,187 1.95% Variable Account Charge 692,800 1.04 751,968 184,738 0.99 182,867 2.00% Variable Account Charge 40,891 1.04 44,383 6,553 0.98 6,487 2.05% Variable Account Charge 769,904 1.04 835,656 107,512 0.98 106,423 2.10% Variable Account Charge - - - - - - 2.15% Variable Account Charge 180,120 1.04 195,503 61,610 0.98 60,986 2.20% Variable Account Charge 115,595 1.04 125,467 50,944 0.98 50,428 2.25% Variable Account Charge 126,735 1.04 137,559 37,947 0.98 37,563 2.30% Variable Account Charge 68,594 1.04 74,452 22,728 0.98 22,498 2.35% Variable Account Charge 2,964 1.04 3,217 - - - 2.40% Variable Account Charge 55,003 1.04 59,700 3,417 0.98 3,382 2.45% Variable Account Charge - - - - - - 2.50% Variable Account Charge - - - - - - 2.55% Variable Account Charge 17,631 1.04 19,137 12,305 0.98 12,180 2.60% Variable Account Charge - - - - - - 2.65% Variable Account Charge 37,874 1.03 41,108 38,399 0.98 38,011 MultiOption Classic/Achiever 21,494,605 1.35 29,095,998 6,231,731 1.06 6,631,322 MultiOption Flex/Single/Select 26,314,577 3.26 85,697,083 8,769,533 1.85 16,255,136 Waddell and Reed Variable Annuity - - - - - - ---------- ---- ----------- ---------- ---- ---------- 83,732,102 157,322,817 25,261,147 34,035,324 ---------- ---- ----------- ---------- ---- ----------
28 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
ADVANTUS INDEX 500 ADVANTUS MORTGAGE SECURITIES ---------------------------------------- ---------------------------------------- UNITS UNITS OUTSTANDING AUV NET ASSETS OUTSTANDING AUV NET ASSETS ----------- ---- ----------- ----------- ---- ----------- Contracts Adjustable Income Annuity 42,333,743 1.86 78,810,092 - - - MegAnnuity 2,803,470 4.94 13,854,429 556,006 3.76 2,088,999 MultiOption Advisor 1.20% Variable Account Charge 3,501,409 1.31 4,591,775 7,409,963 1.07 7,904,584 1.35% Variable Account Charge 1,452,530 1.31 1,904,430 2,715,037 1.06 2,895,940 1.45% Variable Account Charge 150,966 1.30 197,933 333,698 1.06 355,933 1.50% Variable Account Charge 1,752,518 1.30 2,297,747 2,910,291 1.06 3,104,204 1.55% Variable Account Charge 91,422 1.32 119,864 122,441 1.04 130,600 1.60% Variable Account Charge - - - - - - 1.65% Variable Account Charge 4,154,422 1.31 5,446,913 2,365,978 1.04 2,523,623 1.70% Variable Account Charge - - - - - - 1.75% Variable Account Charge 241,933 1.31 317,202 592,001 1.04 631,446 1.80% Variable Account Charge 54,475 1.31 71,423 217,845 1.03 232,360 1.85% Variable Account Charge 189,529 1.31 248,494 245,844 1.03 262,224 1.90% Variable Account Charge 16,286 1.16 21,353 19,615 1.04 20,922 1.95% Variable Account Charge 48,517 1.15 63,612 130,711 1.03 139,420 2.00% Variable Account Charge - - - 11,616 1.03 12,390 2.05% Variable Account Charge 129,989 1.15 170,431 109,194 1.03 116,470 2.10% Variable Account Charge - - - - - - 2.15% Variable Account Charge - - - 28,654 1.03 30,563 2.20% Variable Account Charge - - - 87,102 1.03 92,906 2.25% Variable Account Charge - - - - - - 2.30% Variable Account Charge - - - 17,236 1.03 18,385 2.35% Variable Account Charge - - - - - - 2.40% Variable Account Charge - - - 9,185 1.03 9,797 2.45% Variable Account Charge - - - - - - 2.50% Variable Account Charge - - - - - - 2.55% Variable Account Charge - - - - - - 2.60% Variable Account Charge - - - - - - 2.65% Variable Account Charge 13,782 1.14 18,070 - - - MultiOption Classic/Achiever 30,531,817 0.88 27,013,451 26,275,858 1.37 35,878,198 MultiOption Flex/Single/Select 29,734,820 4.69 139,342,891 25,911,090 3.15 81,552,479 Waddell and Reed Variable Annuity - - - - - - ----------- ---- ----------- ---------- ---- ----------- 117,201,628 274,490,110 70,069,365 138,001,443 ----------- ---- ----------- ---------- ---- -----------
29 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
ADVANTUS MATURING GOVERNMENT BOND 2006 ADVANTUS MATURING GOVERNMENT BOND 2010 -------------------------------------- -------------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ----- ---------- ----------- ----- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity 195,021 2.18 424,506 31,042 2.46 76,510 MultiOption Advisor - - - - - - MultiOption Classic/Achiever 271,920 1.33 362,081 421,516 1.47 619,801 MultiOption Flex/Single/Select 2,473,573 1.94 4,787,895 2,743,887 2.19 6,013,845 Waddell and Reed Variable Annuity - - - - - - ----------- ----- ---------- ----------- ----- ---------- 2,940,514 5,574,482 3,196,445 6,710,156 ----------- ----- ---------- ----------- ----- ----------
ADVANTUS INTERNATIONAL BOND ADVANTUS INDEX 400 MID-CAP --------------------------------- ---------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ----- ---------- ----------- ----- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity 494,033 1.66 820,423 839,447 2.02 1,691,727 MultiOption Advisor 1.20% Variable Account Charge - - - 2,242,988 1.48 3,321,796 1.35% Variable Account Charge - - - 1,129,429 1.48 1,672,292 1.45% Variable Account Charge - - - 248,521 1.47 367,973 1.50% Variable Account Charge - - - 1,265,670 1.47 1,874,019 1.55% Variable Account Charge - - - 76,945 1.49 113,929 1.60% Variable Account Charge - - - 43,847 1.48 64,922 1.65% Variable Account Charge - - - 1,471,016 1.48 2,178,064 1.70% Variable Account Charge - - - 38,113 1.48 56,432 1.75% Variable Account Charge - - - 275,412 1.48 407,789 1.80% Variable Account Charge - - - 191,187 1.48 283,082 1.85% Variable Account Charge - - - 106,863 1.48 158,227 1.90% Variable Account Charge - - - 57,742 1.22 85,496 1.95% Variable Account Charge - - - 173,162 1.21 256,392 2.00% Variable Account Charge - - - 16,634 1.21 24,629 2.05% Variable Account Charge - - - 172,585 1.21 255,538 2.10% Variable Account Charge - - - - - - 2.15% Variable Account Charge - - - 47,956 1.21 71,007 2.20% Variable Account Charge - - - 32,715 1.21 48,439 2.25% Variable Account Charge - - - 35,258 1.21 52,205 2.30% Variable Account Charge - - - 19,315 1.21 28,598 2.35% Variable Account Charge - - - 2,318 1.21 3,431 2.40% Variable Account Charge - - - 12,968 1.20 19,201 2.45% Variable Account Charge - - - - - - 2.50% Variable Account Charge - - - - - - 2.55% Variable Account Charge - - - 2,887 1.20 4,274 2.60% Variable Account Charge - - - - - - 2.65% Variable Account Charge - - - 8,153 1.20 12,072 MultiOption Classic/Achiever 7,040,204 1.46 10,274,917 5,004,688 1.55 7,736,986 MultiOption Flex/Single/Select 24,719,443 1.54 38,173,072 8,376,947 1.88 15,782,873 Waddell and Reed Variable Annuity - - - - - - ----------- ----- ---------- ----------- ----- ---------- 32,253,680 49,268,412 21,892,766 36,571,393 ----------- ----- ---------- ----------- ----- ----------
30 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
ADVANTUS REAL ESTATE SECURITIES AIM V.I. AGGRESSIVE GROWTH --------------------------------- ---------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ----- ---------- ----------- ----- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity 1,133,763 2.32 2,627,507 - - - MultiOption Advisor 1.20 % Variable Account Charge 3,456,938 1.90 6,579,013 248,112 1.36 336,546 1.35 % Variable Account Charge 1,631,551 1.90 3,105,059 284,645 1.35 386,041 1.45 % Variable Account Charge 244,243 1.89 464,827 28,884 1.35 39,172 1.50 % Variable Account Charge 2,127,796 1.89 4,049,480 86,086 1.35 116,751 1.55 % Variable Account Charge 127,891 1.75 243,394 - - - 1.60 % Variable Account Charge 26,134 1.75 49,736 - - - 1.65 % Variable Account Charge 1,670,941 1.75 3,180,022 74,235 1.35 100,679 1.70 % Variable Account Charge 9,381 1.75 17,853 - - - 1.75 % Variable Account Charge 293,171 1.74 557,943 - - - 1.80 % Variable Account Charge 154,020 1.74 293,120 14,317 1.35 19,417 1.85 % Variable Account Charge 195,849 1.74 372,727 - - - 1.90 % Variable Account Charge 29,146 1.42 55,468 - - - 1.95 % Variable Account Charge 204,146 1.42 388,517 - - - 2.00 % Variable Account Charge 15,104 1.42 28,745 - - - 2.05 % Variable Account Charge 544,533 1.41 1,036,319 - - - 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge 30,224 1.41 57,521 - - - 2.20 % Variable Account Charge 28,603 1.41 54,435 - - - 2.25 % Variable Account Charge 19,195 1.41 36,530 - - - 2.30 % Variable Account Charge 49,204 1.41 93,642 - - - 2.35 % Variable Account Charge - - - - - - 2.40 % Variable Account Charge 12,147 1.41 23,117 - - - 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge 2,360 1.40 4,492 - - - MultiOption Classic/Achiever 6,976,637 2.58 17,983,261 526,815 1.05 551,598 MultiOption Flex/Single/Select 11,138,606 2.18 24,303,266 - - - Waddell and Reed Variable Annuity - - - - - - ----------- ----- ---------- ----------- ----- ---------- 30,121,583 65,607,398 1,263,093 1,550,204 ----------- ----- ---------- ----------- ----- ----------
31 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
AIM V.I. BALANCED AIM V.I. DENT DEMOGRAPHIC TRENDS --------------------------------- ---------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ----- ---------- ----------- ----- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity - - - - - - MultiOption Advisor 1.20 % Variable Account Charge 588,181 1.19 700,542 186,767 1.35 252,904 1.35 % Variable Account Charge 170,466 1.19 202,997 85,113 1.35 115,244 1.45 % Variable Account Charge 6,408 1.18 7,631 - - - 1.50 % Variable Account Charge 124,506 1.18 148,266 57,958 1.34 78,476 1.55 % Variable Account Charge 4,674 1.19 5,565 6,417 1.33 8,689 1.60 % Variable Account Charge - - - - - - 1.65 % Variable Account Charge 248,288 1.18 295,670 47,483 1.32 64,293 1.70 % Variable Account Charge - - - - - - 1.75 % Variable Account Charge 182,093 1.18 216,843 1,352 1.32 1,831 1.80 % Variable Account Charge - - - 1,869 1.32 2,530 1.85 % Variable Account Charge 79,639 1.18 94,837 - - - 1.90 % Variable Account Charge - - - - - - 1.95 % Variable Account Charge 7,175 1.09 8,544 - - - 2.00 % Variable Account Charge - - - - - - 2.05 % Variable Account Charge 9,222 1.09 10,982 9,940 1.10 13,459 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge - - - - - - 2.20 % Variable Account Charge - - - - - - 2.25 % Variable Account Charge - - - - - - 2.30 % Variable Account Charge - - - - - - 2.35 % Variable Account Charge - - - - - - 2.40 % Variable Account Charge - - - - - - 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge - - - - - - MultiOption Classic/Achiever 415,192 1.04 433,284 197,435 1.06 209,666 MultiOption Flex/Single/Select - - - - - - Waddell and Reed Variable Annuity - - - - - - ----------- ----- ---------- ----------- ----- ---------- 1,835,844 2,125,161 594,334 747,092 ----------- ----- ---------- ----------- ----- ----------
32 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
AIM V.I. PREMIER EQUITY AMERICAN CENTURY INCOME AND GROWTH --------------------------------- ---------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ----- ---------- ----------- ----- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity - - - - - - MultiOption Advisor 1.20 % Variable Account Charge 87,864 1.22 107,451 818,506 1.35 1,102,967 1.35 % Variable Account Charge 49,017 1.22 59,938 257,536 1.34 346,994 1.45 % Variable Account Charge 1,680 1.22 2,054 46,095 1.34 62,107 1.50 % Variable Account Charge 47,595 1.21 58,199 376,889 1.34 507,806 1.55 % Variable Account Charge - - - 13,529 1.37 18,228 1.60 % Variable Account Charge - - - - - - 1.65 % Variable Account Charge 37,975 1.22 46,436 283,191 1.36 381,561 1.70 % Variable Account Charge - - - - - - 1.75 % Variable Account Charge - - - 296,270 1.36 399,183 1.80 % Variable Account Charge 4,513 1.22 5,519 8,780 1.36 11,830 1.85 % Variable Account Charge - - - 72,410 1.36 97,562 1.90 % Variable Account Charge - - - - - - 1.95 % Variable Account Charge - - - 29,035 1.18 39,121 2.00 % Variable Account Charge - - - - - - 2.05 % Variable Account Charge - - - 129,886 1.18 175,003 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge - - - - - - 2.20 % Variable Account Charge - - - - - - 2.25 % Variable Account Charge - - - - - - 2.30 % Variable Account Charge - - - 64,016 1.18 86,253 2.35 % Variable Account Charge - - - 2,476 1.18 3,336 2.40 % Variable Account Charge - - - 4,068 1.17 5,481 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge - - - - - - MultiOption Classic/Achiever 305,239 0.99 300,920 843,426 1.16 978,407 MultiOption Flex/Single/Select - - - - - - Waddell and Reed Variable Annuity - - - - - - ----------- ----- ---------- ----------- ----- ---------- 533,883 580,517 3,246,113 4,215,839 ----------- ----- ---------- ----------- ----- ----------
33 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
AMERICAN CENTURY ULTRA AMERICAN CENTURY VALUE --------------------------------- ---------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ----- ---------- ----------- ----- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity - - - - - - MultiOption Advisor 1.20 % Variable Account Charge 8,060,562 1.29 10,427,654 1,080,553 1.40 1,508,050 1.35 % Variable Account Charge 3,608,359 1.29 4,667,332 924,798 1.39 1,290,528 1.45 % Variable Account Charge 1,035,414 1.29 1,339,285 43,689 1.39 60,966 1.50 % Variable Account Charge 4,706,270 1.28 6,087,457 741,335 1.39 1,034,510 1.55 % Variable Account Charge 270,454 1.28 349,827 7,901 1.40 11,026 1.60 % Variable Account Charge 147,237 1.28 190,448 30,745 1.39 42,904 1.65 % Variable Account Charge 3,754,559 1.28 4,856,439 580,530 1.39 810,112 1.70 % Variable Account Charge 58,422 1.28 75,567 - - - 1.75 % Variable Account Charge 358,066 1.28 463,150 206,050 1.39 287,537 1.80 % Variable Account Charge 685,802 1.28 887,070 168,977 1.39 235,802 1.85 % Variable Account Charge 351,971 1.27 455,266 31,270 1.39 43,636 1.90 % Variable Account Charge 191,676 1.12 247,929 - - - 1.95 % Variable Account Charge 609,658 1.12 788,579 9,194 1.22 12,830 2.00 % Variable Account Charge 52,734 1.12 68,210 - - - 2.05 % Variable Account Charge 738,041 1.11 954,640 87,605 1.22 122,250 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge 164,231 1.11 212,430 - - - 2.20 % Variable Account Charge 129,057 1.11 166,932 - - - 2.25 % Variable Account Charge 115,260 1.11 149,086 - - - 2.30 % Variable Account Charge 61,288 1.11 79,275 43,282 1.21 60,399 2.35 % Variable Account Charge - - - - - - 2.40 % Variable Account Charge 47,453 1.11 61,379 9,470 1.21 13,215 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge 10,550 1.11 13,646 - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge 28,784 1.11 37,231 - - - MultiOption Classic/Achiever 4,961,428 1.07 5,290,296 1,947,986 1.23 2,402,102 MultiOption Flex/Single/Select - - - - - - Waddell and Reed Variable Annuity - - - - - - ----------- ----- ---------- ----------- ----- ---------- 30,147,276 37,869,128 5,913,385 7,935,867 ----------- ----- ---------- ----------- ----- ----------
34 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
CREDIT SUISSE GLOBAL POST-VENTURE CAPITAL FIDELITY VIP CONTRAFUND --------------------------------- ---------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ----- ---------- ----------- ----- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity 223,271 0.61 136,743 523,325 1.10 577,041 MultiOption Advisor 1.20 % Variable Account Charge - - - 3,078,053 1.42 4,383,109 1.35 % Variable Account Charge - - - 1,095,190 1.42 1,559,343 1.45 % Variable Account Charge - - - 121,528 1.42 173,033 1.50 % Variable Account Charge - - - 1,663,438 1.41 2,368,420 1.55 % Variable Account Charge - - - 88,011 1.41 125,310 1.60 % Variable Account Charge - - - 9,323 1.40 13,275 1.65 % Variable Account Charge - - - 923,027 1.40 1,314,215 1.70 % Variable Account Charge - - - 20,272 1.40 28,863 1.75 % Variable Account Charge - - - 76,041 1.40 108,268 1.80 % Variable Account Charge - - - 74,249 1.40 105,717 1.85 % Variable Account Charge - - - 179,347 1.40 255,357 1.90 % Variable Account Charge - - - - - - 1.95 % Variable Account Charge - - - 91,023 1.19 129,600 2.00 % Variable Account Charge - - - 3,440 1.19 4,898 2.05 % Variable Account Charge - - - 204,521 1.19 291,199 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge - - - - - - 2.20 % Variable Account Charge - - - 10,913 1.19 15,538 2.25 % Variable Account Charge - - - - - - 2.30 % Variable Account Charge - - - 63,867 1.18 90,934 2.35 % Variable Account Charge - - - 4,776 1.18 6,800 2.40 % Variable Account Charge - - - 10,300 1.18 14,666 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge - - - 25,356 1.18 36,102 MultiOption Classic/Achiever 1,811,358 0.58 1,049,543 16,513,505 1.04 17,119,870 MultiOption Flex/Single/Select 2,240,974 0.58 1,307,154 16,418,281 1.04 17,147,345 Waddell and Reed Variable Annuity - - - - - - ----------- ----- ---------- ----------- ----- ---------- 4,275,603 2,493,440 41,197,786 45,868,903 ----------- ----- ---------- ----------- ----- ----------
35 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
FIDELITY VIP EQUITY-INCOME FIDELITY VIP MID-CAP --------------------------------- ---------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ----- ---------- ----------- ----- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity 439,252 1.28 562,852 457,616 1.86 850,908 MultiOption Advisor 1.20 % Variable Account Charge 12,175,897 1.35 16,472,629 2,423,114 1.68 4,061,349 1.35 % Variable Account Charge 4,911,473 1.35 6,643,656 1,450,448 1.67 2,430,565 1.45 % Variable Account Charge 1,296,829 1.35 1,754,197 181,006 1.67 303,318 1.50 % Variable Account Charge 6,573,300 1.34 8,891,578 1,362,874 1.66 2,283,814 1.55 % Variable Account Charge 366,035 1.38 495,129 63,256 1.71 106,000 1.60 % Variable Account Charge 211,201 1.37 285,688 7,017 1.71 11,758 1.65 % Variable Account Charge 5,203,621 1.37 7,038,839 1,196,091 1.70 2,004,330 1.70 % Variable Account Charge 71,729 1.37 97,027 3,281 1.70 5,499 1.75 % Variable Account Charge 1,063,776 1.37 1,438,950 141,405 1.70 236,956 1.80 % Variable Account Charge 834,201 1.37 1,128,408 107,457 1.70 180,069 1.85 % Variable Account Charge 423,208 1.37 572,465 98,497 1.70 165,055 1.90 % Variable Account Charge 238,707 1.19 322,895 - - - 1.95 % Variable Account Charge 757,731 1.18 1,024,968 73,403 1.34 123,004 2.00 % Variable Account Charge 71,115 1.18 96,196 6,791 1.34 11,381 2.05 % Variable Account Charge 702,107 1.18 949,727 145,727 1.34 244,200 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge 198,209 1.18 268,114 14,081 1.34 23,596 2.20 % Variable Account Charge 151,168 1.18 204,483 14,107 1.34 23,640 2.25 % Variable Account Charge 142,379 1.18 192,594 - - - 2.30 % Variable Account Charge 142,466 1.18 192,710 59,733 1.34 100,097 2.35 % Variable Account Charge 4,934 1.18 6,674 - - - 2.40 % Variable Account Charge 61,225 1.18 82,818 10,202 1.33 17,096 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge 18,200 1.18 24,618 - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge 39,779 1.17 53,809 - - - MultiOption Classic/Achiever 18,931,006 1.20 22,808,147 9,708,842 1.75 16,974,211 MultiOption Flex/Single/Select 16,857,694 1.21 20,461,287 9,744,607 1.76 17,163,022 Waddell and Reed Variable Annuity - - - - - - ----------- ----- ---------- ----------- ----- ---------- 71,887,242 92,070,458 27,269,555 47,319,868 ----------- ----- ---------- ----------- ----- ----------
36 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
FRANKLIN LARGE CAP GROWTH SECURITIES FRANKLIN MUTUAL SHARES SECURITIES --------------------------------- ---------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ----- ---------- ----------- ----- ---------- Contracts Adjustable Income Annuity MegAnnuity - - - - - - MultiOption Advisor - - - - - - 1.20 % Variable Account Charge 625,835 1.27 794,977 733,543 1.35 992,022 1.35 % Variable Account Charge 437,111 1.27 555,243 631,624 1.35 854,033 1.45 % Variable Account Charge 15,008 1.26 19,064 52,742 1.35 71,313 1.50 % Variable Account Charge 256,475 1.26 325,789 676,052 1.34 914,105 1.55 % Variable Account Charge 17,567 1.28 22,314 19,930 1.33 26,947 1.60 % Variable Account Charge 15,051 1.28 19,118 - - - 1.65 % Variable Account Charge 372,121 1.27 472,689 241,367 1.32 326,358 1.70 % Variable Account Charge 20,435 1.27 25,958 - - - 1.75 % Variable Account Charge 30,339 1.27 38,538 91,706 1.32 123,998 1.80 % Variable Account Charge 18,984 1.27 24,114 130,336 1.32 176,230 1.85 % Variable Account Charge 33,559 1.27 42,628 28,953 1.32 39,147 1.90 % Variable Account Charge - - - - - - 1.95 % Variable Account Charge 1,269 1.12 1,612 72,126 1.19 97,523 2.00 % Variable Account Charge - - - 3,944 1.19 5,333 2.05 % Variable Account Charge 30,713 1.11 39,014 77,514 1.19 104,808 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge - - - - - - 2.20 % Variable Account Charge - - - - - - 2.25 % Variable Account Charge - - - - - - 2.30 % Variable Account Charge - - - 68 1.18 92 2.35 % Variable Account Charge - - - - - - 2.40 % Variable Account Charge - - - 6,036 1.18 8,162 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge - - - - - - MultiOption Classic/Achiever 594,301 1.09 648,887 1,989,072 1.16 2,303,178 MultiOption Flex/Single/Select - - - - - - Waddell and Reed Variable Annuity - - - - - - ----------- ----- ---------- ----------- ----- --------- 2,468,768 3,029,945 4,755,013 6,043,249 ----------- ----- ---------- ----------- ----- ---------
37 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
TEMPLETON DEVELOPING FRANKLIN SMALL CAP MARKETS SECURITIES --------------------------------- ---------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ----- ---------- ----------- ----- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity 399,603 0.74 297,200 649,033 1.00 646,477 MultiOption Advisor 1.20 % Variable Account Charge 1,095,875 1.42 1,552,410 967,328 1.81 1,747,308 1.35 % Variable Account Charge 452,413 1.41 640,787 364,793 1.80 658,807 1.45 % Variable Account Charge 15,082 1.41 21,362 59,201 1.80 106,916 1.50 % Variable Account Charge 633,145 1.41 896,772 593,571 1.79 1,071,974 1.55 % Variable Account Charge 62,165 1.45 88,049 64,008 1.78 115,596 1.60 % Variable Account Charge - - - 5,309 1.77 9,587 1.65 % Variable Account Charge 541,409 1.44 766,839 335,022 1.77 605,042 1.70 % Variable Account Charge - - - 3,155 1.77 5,697 1.75 % Variable Account Charge 121,605 1.44 172,238 29,480 1.77 53,240 1.80 % Variable Account Charge 40,696 1.44 57,641 74,375 1.77 134,319 1.85 % Variable Account Charge 54,549 1.44 77,263 21,915 1.77 39,578 1.90 % Variable Account Charge - - - 192 1.35 347 1.95 % Variable Account Charge 14,344 1.15 20,316 12,951 1.34 23,389 2.00 % Variable Account Charge 8,728 1.15 12,362 3,789 1.34 6,843 2.05 % Variable Account Charge 6,047 1.15 8,565 46,516 1.34 84,007 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge - - - - - - 2.20 % Variable Account Charge 4,033 1.15 5,713 5,341 1.34 9,646 2.25 % Variable Account Charge - - - - - - 2.30 % Variable Account Charge 9,436 1.15 13,365 9,961 1.34 17,990 2.35 % Variable Account Charge - - - 2,158 1.34 3,898 2.40 % Variable Account Charge - - - 5,168 1.34 9,334 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge - - - - - - MultiOption Classic/Achiever 9,343,826 0.70 6,574,632 3,884,795 1.33 5,174,438 MultiOption Flex/Single/Select 8,237,533 0.71 5,834,781 8,709,295 0.92 7,976,677 Waddell and Reed Variable Annuity - - - - - - ----------- ----- ---------- ----------- ----- ---------- 21,040,489 17,040,295 15,847,356 18,501,110 ----------- ----- ---------- ----------- ----- ----------
38 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
TEMPLETON GLOBAL ASSET ALLOCATION JANUS ASPEN BALANCED --------------------------------- ---------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ----- ---------- ----------- ----- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity 376,676 1.27 479,179 - - - MultiOption Advisor 1.20 % Variable Account Charge - - - 1,000,508 1.19 1,186,466 1.35 % Variable Account Charge - - - 258,244 1.18 306,203 1.45 % Variable Account Charge - - - 6,005 1.18 7,120 1.50 % Variable Account Charge - - - 564,213 1.18 668,993 1.55 % Variable Account Charge - - - - - - 1.60 % Variable Account Charge - - - - - - 1.65 % Variable Account Charge - - - 144,922 1.16 171,835 1.70 % Variable Account Charge - - - - - - 1.75 % Variable Account Charge - - - 19,355 1.16 22,949 1.80 % Variable Account Charge - - - 14,767 1.16 17,509 1.85 % Variable Account Charge - - - 4,819 1.16 5,713 1.90 % Variable Account Charge - - - - - - 1.95 % Variable Account Charge - - - - - - 2.00 % Variable Account Charge - - - 4,136 1.10 4,904 2.05 % Variable Account Charge - - - 28,229 1.10 33,472 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge - - - - - - 2.20 % Variable Account Charge - - - - - - 2.25 % Variable Account Charge - - - - - - 2.30 % Variable Account Charge - - - - - - 2.35 % Variable Account Charge - - - - - - 2.40 % Variable Account Charge - - - 10,979 1.10 13,018 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge - - - - - - MultiOption Classic/Achiever 3,031,549 1.20 3,648,558 893,503 1.10 986,760 MultiOption Flex/Single/Select 2,965,506 1.21 3,592,982 - - - Waddell and Reed Variable Annuity - - - - - - ----------- ----- ---------- ----------- ----- ---------- 6,373,731 7,720,719 2,949,680 3,424,942 ----------- ----- ---------- ----------- ----- ----------
39 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
JANUS ASPEN CAPITAL APPRECIATION JANUS INTERNATIONAL GROWTH -------------------------------- ------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ---- ---------- ----------- ---- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity 531,620 0.76 401,748 599,490 0.75 449,357 MultiOption Advisor 1.20 % Variable Account Charge 490,845 1.33 650,695 1,357,080 1.53 2,083,531 1.35 % Variable Account Charge 266,491 1.32 353,234 509,541 1.53 781,992 1.45 % Variable Account Charge 187 1.32 248 79,286 1.53 121,680 1.50 % Variable Account Charge 420,482 1.32 557,349 381,986 1.52 586,234 1.55 % Variable Account Charge 23,274 1.35 30,850 38,679 1.58 59,361 1.60 % Variable Account Charge 27,068 1.35 35,879 20,125 1.58 30,886 1.65 % Variable Account Charge 120,784 1.35 160,099 552,485 1.58 847,899 1.70 % Variable Account Charge - - - 17,578 1.58 26,977 1.75 % Variable Account Charge 84,455 1.35 111,946 40,428 1.58 62,045 1.80 % Variable Account Charge 3,315 1.35 4,394 142,473 1.58 218,653 1.85 % Variable Account Charge - - - 13,345 1.57 20,481 1.90 % Variable Account Charge - - - - - - 1.95 % Variable Account Charge - - - 34,146 1.22 52,404 2.00 % Variable Account Charge 3,687 1.21 4,887 14,227 1.22 21,834 2.05 % Variable Account Charge 168,018 1.20 222,708 87,965 1.22 135,001 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge - - - 9,585 1.22 14,711 2.20 % Variable Account Charge - - - 17,629 1.22 27,056 2.25 % Variable Account Charge - - - 29,593 1.22 45,416 2.30 % Variable Account Charge - - - 15,922 1.22 24,435 2.35 % Variable Account Charge - - - - - - 2.40 % Variable Account Charge 1,938 1.20 2,569 2,298 1.22 3,527 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge - - - - - - MultiOption Classic/Achiever 13,688,074 0.71 9,725,361 12,717,095 0.70 8,962,477 MultiOption Flex/Single/Select 12,257,256 0.72 8,773,394 9,935,669 0.71 7,055,957 Waddell and Reed Variable Annuity - - - - - - ---------- ---------- ---------- ---------- 28,087,494 21,035,361 26,616,625 21,631,914 ---------- ---------- ---------- ----------
40 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
MFS INVESTORS GROWTH STOCK MFS MID CAP GROWTH ----------------------------- ----------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ---- ---------- ----------- ---- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity - - - - - - MultiOption Advisor 1.20 % Variable Account Charge 213,414 1.24 264,585 336,594 1.45 489,769 1.35 % Variable Account Charge 131,435 1.24 162,927 130,385 1.45 189,686 1.45 % Variable Account Charge 29,105 1.23 36,079 998 1.45 1,452 1.50 % Variable Account Charge 141,463 1.23 175,357 161,473 1.44 234,913 1.55 % Variable Account Charge 12,727 1.23 15,777 28,599 1.43 41,606 1.60 % Variable Account Charge - - - - - - 1.65 % Variable Account Charge 52,109 1.23 64,594 68,350 1.43 99,437 1.70 % Variable Account Charge - - - 12,780 1.43 18,593 1.75 % Variable Account Charge 38,990 1.22 48,332 10,099 1.43 14,692 1.80 % Variable Account Charge 31,283 1.22 38,779 8,666 1.43 12,608 1.85 % Variable Account Charge 2,114 1.22 2,620 - - - 1.90 % Variable Account Charge - - - - - - 1.95 % Variable Account Charge - - - - - - 2.00 % Variable Account Charge - - - - - - 2.05 % Variable Account Charge - - - - - - 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge - - - 4,544 1.17 6,611 2.20 % Variable Account Charge - - - - - - 2.25 % Variable Account Charge - - - - - - 2.30 % Variable Account Charge - - - - - - 2.35 % Variable Account Charge - - - - - - 2.40 % Variable Account Charge - - - - - - 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge - - - - - - MultiOption Classic/Achiever 614,966 1.02 625,931 466,280 1.08 503,148 MultiOption Flex/Single/Select - - - - - - Waddell and Reed Variable Annuity - - - - - - --------- ---------- --------- ---------- 1,267,606 1,434,981 1,228,768 1,612,515 --------- ---------- --------- ----------
41 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
MFS NEW DISCOVERY MFS VALUE ----------------------------- ----------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ---- ---------- ----------- ---- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity - - - - - - MultiOption Advisor 1.20 % Variable Account Charge 2,214,794 1.35 2,994,569 429,318 1.35 581,722 1.35 % Variable Account Charge 1,023,167 1.35 1,383,052 289,933 1.35 392,779 1.45 % Variable Account Charge 277,056 1.35 374,506 2,926 1.35 3,964 1.50 % Variable Account Charge 1,398,160 1.34 1,889,944 367,813 1.35 498,285 1.55 % Variable Account Charge 96,350 1.33 130,240 64,444 1.38 87,304 1.60 % Variable Account Charge 23,116 1.33 31,247 - - - 1.65 % Variable Account Charge 1,154,037 1.33 1,559,954 111,139 1.38 150,563 1.70 % Variable Account Charge 4,301 1.33 5,813 - - - 1.75 % Variable Account Charge 104,962 1.33 141,881 18,571 1.38 25,158 1.80 % Variable Account Charge 177,031 1.32 239,299 43,371 1.37 58,756 1.85 % Variable Account Charge 100,007 1.32 135,183 11,479 1.37 15,551 1.90 % Variable Account Charge 70,205 1.07 94,898 - - - 1.95 % Variable Account Charge 211,001 1.06 285,217 - - - 2.00 % Variable Account Charge 3,207 1.06 4,335 - - - 2.05 % Variable Account Charge 159,697 1.06 215,868 163,278 1.23 221,196 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge 42,366 1.06 57,268 - - - 2.20 % Variable Account Charge 20,019 1.06 27,060 - - - 2.25 % Variable Account Charge - - - - - - 2.30 % Variable Account Charge 24,538 1.06 33,168 - - - 2.35 % Variable Account Charge - - - - - - 2.40 % Variable Account Charge 16,773 1.06 22,673 - - - 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge 2,850 1.05 3,853 - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge 10,159 1.05 13,732 - - - MultiOption Classic/Achiever 1,933,655 1.03 1,991,403 1,562,334 1.16 1,810,711 MultiOption Flex/Single/Select - - - - - - Waddell and Reed Variable Annuity - - - - - - --------- ---------- --------- --------- 9,067,451 11,635,163 3,064,606 3,845,989 --------- ---------- ---------- ---------
42 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
OPPENHEIMER CAPITAL APPRECIATION OPPENHEIMER HIGH INCOME -------------------------------- ------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ----- ---------- ----------- ---- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity - - - - - - MultiOption Advisor 1.20 % Variable Account Charge 673,525 1.29 870,543 3,216,830 1.29 4,136,390 1.35 % Variable Account Charge 751,742 1.29 971,507 1,655,540 1.28 2,128,414 1.45 % Variable Account Charge 31,278 1.29 40,422 448,019 1.28 575,987 1.50 % Variable Account Charge 173,296 1.28 223,957 2,736,329 1.28 3,517,909 1.55 % Variable Account Charge 76,316 1.29 98,627 92,382 1.18 118,770 1.60 % Variable Account Charge 14,789 1.29 19,113 57,073 1.18 73,374 1.65 % Variable Account Charge 210,550 1.29 272,102 1,127,305 1.18 1,449,299 1.70 % Variable Account Charge - - - 35,912 1.18 46,170 1.75 % Variable Account Charge - - - 403,333 1.18 518,538 1.80 % Variable Account Charge 15,861 1.28 20,498 197,729 1.18 254,207 1.85 % Variable Account Charge 28,078 1.28 36,287 100,580 1.18 129,309 1.90 % Variable Account Charge - - - 77,562 1.11 99,716 1.95 % Variable Account Charge 30,763 1.11 39,757 300,420 1.10 386,230 2.00 % Variable Account Charge 6,249 1.11 8,075 15,563 1.10 20,008 2.05 % Variable Account Charge 13,206 1.11 17,067 185,643 1.10 238,669 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge 20,071 1.11 25,939 73,250 1.10 94,173 2.20 % Variable Account Charge 8,503 1.11 10,989 54,179 1.10 69,654 2.25 % Variable Account Charge - - - 46,855 1.10 60,238 2.30 % Variable Account Charge 2,070 1.10 2,675 56,494 1.10 72,631 2.35 % Variable Account Charge - - - - - - 2.40 % Variable Account Charge 4,660 1.10 6,023 3,953 1.10 5,082 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - 6,278 1.09 8,071 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge - - - 13,479 1.09 17,329 MultiOption Classic/Achiever 1 ,976,229 1.06 2,102,654 2,405,372 1.24 2,979,806 MultiOption Flex/Single/Select - - - - - - Waddell and Reed Variable Annuity - - - - - - ----------- ---- ---------- ----------- ---- ---------- 4,037,186 4,766,235 13,310,080 16,999,974 ----------- ---- ---------- ----------- ---- ----------
43 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
OPPENHEIMER INTERNATIONAL GROWTH PUTNAM VT GROWTH AND INCOME -------------------------------- ------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ---- ---------- ----------- ---- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity - - - - - - MultiOption Advisor 1.20 % Variable Account Charge 673,232 1.63 1,094,345 440,423 1.31 578,832 1.35 % Variable Account Charge 508,339 1.62 826,161 153,052 1.31 201,132 1.45 % Variable Account Charge 36,763 1.62 59,747 4,633 1.31 6,088 1.50 % Variable Account Charge 256,975 1.61 417,641 190,596 1.31 250,470 1.55 % Variable Account Charge 33,685 1.70 54,745 - - - 1.60 % Variable Account Charge - - - - - - 1.65 % Variable Account Charge 463,185 1.69 752,777 96,869 1.34 127,300 1.70 % Variable Account Charge - - - 20,698 1.34 27,200 1.75 % Variable Account Charge 55,063 1.69 89,489 18,765 1.34 24,660 1.80 % Variable Account Charge 84,192 1.69 136,830 - - - 1.85 % Variable Account Charge 10,360 1.69 16,837 19,578 1.34 25,728 1.90 % Variable Account Charge - - - - - - 1.95 % Variable Account Charge 20,680 1.23 33,609 - - - 2.00 % Variable Account Charge - - - - - - 2.05 % Variable Account Charge 2,374 1.23 3,858 6,490 1.17 8,528 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge 13,406 1.23 21,788 - - - 2.20 % Variable Account Charge 10,406 1.23 16,912 - - - 2.25 % Variable Account Charge - - - - - - 2.30 % Variable Account Charge 6,883 1.22 11,186 - - - 2.35 % Variable Account Charge 2,195 1.22 3,568 - - - 2.40 % Variable Account Charge - - - - - - 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge - - - - - - MultiOption Classic/Achiever 1,170,846 1.17 1,366,288 536,912 1.12 602,197 MultiOption Flex/Single/Select - - - - - - Waddell and Reed Variable Annuity - - - - - - ------------ ---- ---------- ----------- ---- ---------- 3,348,584 4,905,781 1,488,016 1,852,135 ------------ ---- ---------- ----------- ---- ----------
44 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
PUTNAM VT INTERNATIONAL GROWTH PUTNAM VT NEW OPPORTUNITIES ------------------------------- ------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ---- ---------- ----------- ---- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity - - - - - - MultiOption Advisor 1.20 % Variable Account Charge 1,894,571 1.43 2,705,635 35,473 1.36 48,275 1.35 % Variable Account Charge 1,211,494 1.42 1,729,668 42,399 1.36 57,693 1.45 % Variable Account Charge 340,209 1.42 485,722 - - - 1.50 % Variable Account Charge 1,420,434 1.42 2,027,975 59,411 1.35 80,842 1.55 % Variable Account Charge 56,172 1.45 80,198 - - - 1.60 % Variable Account Charge 28,910 1.45 41,275 - - - 1.65 % Variable Account Charge 670,831 1.45 957,756 21,507 1.33 29,266 1.70 % Variable Account Charge - - - - - - 1.75 % Variable Account Charge 122,751 1.44 175,253 - - - 1.80 % Variable Account Charge 91,840 1.44 131,121 - - - 1.85 % Variable Account Charge 110,744 1.44 158,111 - - - 1.90 % Variable Account Charge 66,096 1.23 94,367 - - - 1.95 % Variable Account Charge 159,988 1.23 228,417 3,918 1.12 5,331 2.00 % Variable Account Charge 7,254 1.23 10,356 - - - 2.05 % Variable Account Charge 126,829 1.22 181,075 14,737 1.12 20,054 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge 38,942 1.22 55,598 - - - 2.20 % Variable Account Charge 12,173 1.22 17,380 - - - 2.25 % Variable Account Charge - - - - - - 2.30 % Variable Account Charge 14,627 1.22 20,883 - - - 2.35 % Variable Account Charge - - - - - - 2.40 % Variable Account Charge 17,457 1.22 24,924 - - - 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge 7,402 1.22 10,568 - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge 13,424 1.22 19,166 - - - MultiOption Classic/Achiever 2,063,243 1.18 2,425,547 111,326 1.08 120,275 MultiOption Flex/Single/Select - - - - - - Waddell and Reed Variable Annuity - - - - - - ----------- ---- ---------- ----------- ---- ---------- 8,475,391 11,580,995 288,771 361,736 ----------- ---- ---------- ----------- ---- ----------
45 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
PUTNAM VT NEW VALUE PUTNAM VT VOYAGER ------------------------------- ------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ---- ---------- ----------- ---- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity - - - - - - MultiOption Advisor 1.20 % Variable Account Charge 244,416 1.41 344,958 134,217 1.22 163,654 1.35 % Variable Account Charge 209,351 1.41 295,409 59,115 1.21 71,998 1.45 % Variable Account Charge 1,386 1.40 1,955 11,887 1.21 14,477 1.50 % Variable Account Charge 546,196 1.40 770,722 76,797 1.21 93,533 1.55 % Variable Account Charge 27,245 1.47 38,444 4,556 1.21 5,548 1.60 % Variable Account Charge - - - - - - 1.65 % Variable Account Charge 121,977 1.46 172,118 64,897 1.21 79,039 1.70 % Variable Account Charge - - - - - - 1.75 % Variable Account Charge 4,366 1.46 6,161 30,046 1.21 36,593 1.80 % Variable Account Charge 10,719 1.46 15,125 - - - 1.85 % Variable Account Charge 23,398 1.46 33,016 2,093 1.21 2,549 1.90 % Variable Account Charge - - - - - - 1.95 % Variable Account Charge - - - - - - 2.00 % Variable Account Charge - - - - - - 2.05 % Variable Account Charge - - - - - - 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge - - - - - - 2.20 % Variable Account Charge - - - - - - 2.25 % Variable Account Charge - - - - - - 2.30 % Variable Account Charge - - - 15,634 1.05 19,041 2.35 % Variable Account Charge - - - - - - 2.40 % Variable Account Charge - - - - - - 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge - - - - - - MultiOption Classic/Achiever 429,495 1.24 531,962 413,787 1.00 412,337 MultiOption Flex/Single/Select - - - - - - Waddell and Reed Variable Annuity - - - - - - ----------- ---- ---------- ----------- ---- ---------- 1,618,549 2,209,870 813,029 898,769 ----------- ---- ---------- ----------- ---- ----------
46 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
VAN KAMPEN COMSTOCK VAN KAMPEN EMERGING GROWTH ------------------------------- ------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ---- ---------- ----------- ---- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity - - - - - - MultiOption Advisor 1.20 % Variable Account Charge 705,527 1.42 1,004,260 53,734 1.26 67,693 1.35 % Variable Account Charge 908,628 1.42 1,293,063 82,490 1.26 103,897 1.45 % Variable Account Charge 85,100 1.42 121,105 498 1.25 628 1.50 % Variable Account Charge 573,569 1.41 816,242 23,230 1.25 29,258 1.55 % Variable Account Charge 32,574 1.45 46,356 6,771 1.25 8,529 1.60 % Variable Account Charge - - - - - - 1.65 % Variable Account Charge 451,745 1.44 642,876 35,170 1.24 44,298 1.70 % Variable Account Charge - - - - - - 1.75 % Variable Account Charge 17,150 1.44 24,406 - - - 1.80 % Variable Account Charge 108,163 1.44 153,926 - - - 1.85 % Variable Account Charge 30,368 1.44 43,216 - - - 1.90 % Variable Account Charge - - - - - - 1.95 % Variable Account Charge - - - - - - 2.00 % Variable Account Charge 7,745 1.24 11,022 - - - 2.05 % Variable Account Charge 173,898 1.24 247,472 - - - 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge - - - - - - 2.20 % Variable Account Charge 31,824 1.23 45,288 - - - 2.25 % Variable Account Charge - - - - - - 2.30 % Variable Account Charge 24,437 1.23 34,776 - - - 2.35 % Variable Account Charge - - - - - - 2.40 % Variable Account Charge 4,654 1.23 6,623 - - - 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge - - - - - - MultiOption Classic/Achiever - - - - - - MultiOption Flex/Single/Select - - - - - - Waddell and Reed Variable Annuity - - - - - - ----------- ---- ---------- ----------- ---- ---------- 3,155,382 4,490,631 201,893 254,303 ----------- ---- ---------- ----------- ---- ----------
47 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
VAN KAMPEN GROWTH AND INCOME WADDELL & REED BALANCED ------------------------------- -------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ---- ---------- ----------- ---- ----------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity - - - 1,306,293 3.90 5,092,207 MultiOption Advisor 1.20 % Variable Account Charge 187,806 1.37 257,021 1,242,649 1.15 1,423,647 1.35 % Variable Account Charge 292,950 1.36 400,853 532,789 1.14 610,209 1.45 % Variable Account Charge 3,226 1.36 4,414 27,563 1.14 31,568 1.50 % Variable Account Charge 104,067 1.36 142,398 3,108,825 1.14 3,560,565 1.55 % Variable Account Charge - - - 8,449 1.14 9,677 1.60 % Variable Account Charge - - - 22,681 1.14 25,977 1.65 % Variable Account Charge 89,303 1.39 122,196 1,408,023 1.14 1,612,621 1.70 % Variable Account Charge - - - - - - 1.75 % Variable Account Charge 35,013 1.39 47,909 114,132 1.14 130,716 1.80 % Variable Account Charge 9,233 1.39 12,634 - - - 1.85 % Variable Account Charge 7,852 1.39 10,744 139,394 1.14 159,649 1.90 % Variable Account Charge - - - 36,701 1.13 42,034 1.95 % Variable Account Charge - - - 54,404 1.12 62,310 2.00 % Variable Account Charge - - - 4,599 1.12 5,268 2.05 % Variable Account Charge - - - 32,851 1.12 37,624 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge - - - - - - 2.20 % Variable Account Charge - - - - - - 2.25 % Variable Account Charge - - - - - - 2.30 % Variable Account Charge - - - 4,538 1.12 5,198 2.35 % Variable Account Charge - - - - - - 2.40 % Variable Account Charge - - - 7,028 1.12 8,049 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge - - - - - - MultiOption Classic/Achiever - - - 20,073,642 0.95 19,098,244 MultiOption Flex/Single/Select - - - 49,928,741 3.90 194,747,842 Waddell and Reed Variable Annuity 1.25 % Variable Account Charge - - - 323,954 1.09 351,731 1.35 % Variable Account Charge - - - - 1.08 - 1.40 % Variable Account Charge - - - 83,909 1.08 91,083 1.50 % Variable Account Charge - - - - 1.08 - 1.60 % Variable Account Charge - - - 189,181 1.08 205,356 1.65 % Variable Account Charge - - - 59,373 1.08 64,450 1.75 % Variable Account Charge - - - 476,106 1.08 516,815 1.85 % Variable Account Charge - - - 175,546 1.08 190,556 1.90 % Variable Account Charge - - - 200,760 1.08 217,925 2.00 % Variable Account Charge - - - 12,355 1.08 13,411 2.10 % Variable Account Charge - - - 48,368 1.08 52,503 2.15 % Variable Account Charge - - - - 1.08 - 2.25 % Variable Account Charge - - - - 1.08 - 2.35 % Variable Account Charge - - - 4,210 1.08 4,569 ----------- ---- ---------- ----------- ---- ---------- 729,450 998,169 79,627,064 228,371,804 ----------- ---- ---------- ----------- ---- ----------
48 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
WADDELL & REED GROWTH WADDELL & REED INTERNATIONAL II -------------------------------- -------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ---- ---------- ----------- ---- ----------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity 3,046,480 2.98 9,088,926 1,626,427 3.39 5,517,995 MultiOption Advisor 1.20 % Variable Account Charge 408,391 1.09 444,100 5,193,099 1.68 8,714,485 1.35 % Variable Account Charge 223,799 1.08 243,265 2,306,885 1.67 3,870,417 1.45 % Variable Account Charge 7,285 1.08 7,919 510,713 1.67 856,857 1.50 % Variable Account Charge 1,450,216 1.08 1,576,361 3,792,773 1.67 6,363,393 1.55 % Variable Account Charge 15,979 1.08 17,369 172,654 1.72 289,673 1.60 % Variable Account Charge - - - 91,982 1.71 154,325 1.65 % Variable Account Charge 997,292 1.08 1,084,041 3,055,751 1.71 5,126,841 1.70 % Variable Account Charge - - - 32,720 1.71 54,897 1.75 % Variable Account Charge 20,551 1.08 22,339 231,193 1.71 387,888 1.80 % Variable Account Charge 4,109 1.08 4,467 388,470 1.71 651,763 1.85 % Variable Account Charge 89,533 1.08 97,321 184,398 1.71 309,377 1.90 % Variable Account Charge - - - 93,865 1.32 157,484 1.95 % Variable Account Charge 79,232 1.06 86,124 368,063 1.31 617,525 2.00 % Variable Account Charge 9,713 1.06 10,558 28,638 1.31 48,048 2.05 % Variable Account Charge 16,862 1.06 18,328 341,781 1.31 573,429 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge - - - 78,775 1.31 132,165 2.20 % Variable Account Charge 9,169 1.06 9,966 71,315 1.31 119,651 2.25 % Variable Account Charge - - - 65,854 1.30 110,488 2.30 % Variable Account Charge - - - 44,627 1.30 74,874 2.35 % Variable Account Charge - - - - - - 2.40 % Variable Account Charge - - - 29,521 1.30 49,530 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - 2,834 1.30 4,755 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge - - - 3,053 1.30 5,122 MultiOption Classic/Achiever 27,025,049 0.62 16,701,539 14,651,290 1.32 9,381,654 MultiOption Flex/Single/Select 39,424,396 3.53 139,259,694 40,145,110 3.01 120,647,881 Waddell and Reed Variable Annuity 1.25 % Variable Account 853,491 1.05 895,574 334,555 1.19 399,062 1.35 % Variable Account Charge - 1.05 - - 1.19 - 1.40 % Variable Account Charge 537,871 1.05 564,309 138,106 1.19 164,659 1.50 % Variable Account Charge 474,844 1.05 498,184 30,162 1.19 35,962 1.60 % Variable Account Charge 457,293 1.05 479,770 194,820 1.19 232,278 1.65 % Variable Account Charge 30,952 1.05 32,473 19,078 1.19 22,746 1.75 % Variable Account Charge 2,108,730 1.05 2,212,381 693,413 1.19 826,735 1.85 % Variable Account Charge 82,561 1.05 86,620 30,922 1.19 36,867 1.90 % Variable Account Charge 1,285,312 1.04 1,348,489 439,274 1.19 523,733 2.00 % Variable Account Charge 190,389 1.04 199,747 110,973 1.19 132,310 2.10 % Variable Account Charge 275,854 1.04 289,414 157,798 1.19 188,137 2.15 % Variable Account Charge 78,051 1.04 81,888 - 1.19 - 2.25 % Variable Account Charge 12,627 1.04 13,248 7,017 1.18 8,366 2.35 % Variable Account Charge 166,332 1.04 174,508 57,894 1.18 69,026 ----------- ---- ----------- ----------- ---- ----------- 79,382,363 175,548,922 75,725,803 176,860,398 ----------- ---- ----------- ----------- ---- -----------
49 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
WADDELL & REED SMALL CAP GROWTH WADDELL & REED VALUE ------------------------------- ------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ---- ---------- ----------- ---- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity 1,439,431 2.34 3,364,266 793,157 2.43 1,929,059 MultiOption Advisor 1.20 % Variable Account Charge 734,842 1.22 894,841 376,198 1.25 468,829 1.35 % Variable Account Charge 283,185 1.21 344,600 109,260 1.24 136,146 1.45 % Variable Account Charge 38,221 1.21 46,510 19,604 1.24 24,427 1.50 % Variable Account Charge 427,235 1.21 519,891 349,068 1.24 434,964 1.55 % Variable Account Charge 28,178 1.21 34,290 - - - 1.60 % Variable Account Charge - - - - - - 1.65 % Variable Account Charge 496,089 1.21 603,677 256,571 1.24 319,706 1.70 % Variable Account Charge - - - - - - 1.75 % Variable Account Charge 47,634 1.21 57,965 24,759 1.24 30,852 1.80 % Variable Account Charge 21,318 1.21 25,942 2,019 1.24 2,516 1.85 % Variable Account Charge 61,690 1.21 75,069 43,191 1.23 53,819 1.90 % Variable Account Charge - - - - - - 1.95 % Variable Account Charge 11,276 1.19 13,722 13,750 1.21 17,134 2.00 % Variable Account Charge - - - - - - 2.05 % Variable Account Charge 30,341 1.19 36,921 31,341 1.21 39,053 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge 8,486 1.18 10,326 29,428 1.21 36,670 2.20 % Variable Account Charge 4,924 1.18 5,992 - - - 2.25 % Variable Account Charge - - - - - - 2.30 % Variable Account Charge 18,900 1.18 22,998 25,760 1.21 32,099 2.35 % Variable Account Charge - - - - - - 2.40 % Variable Account Charge 465 1.18 566 6,617 1.20 8,245 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge - - - - - - MultiOption Classic/Achiever 9,012,183 1.14 10,294,299 6,825,470 1.02 6,977,227 MultiOption Flex/Single/Select 30,436,113 2.10 63,906,035 27,037,872 2.16 58,476,426 Waddell and Reed Variable Annuity 1.25 % Variable Account Charge 300,173 1.12 336,334 637,855 1.11 710,669 1.35 % Variable Account Charge - 1.12 - - 1.11 - 1.40 % Variable Account Charge 168,526 1.12 188,877 413,726 1.11 460,694 1.50 % Variable Account Charge 47,898 1.12 53,682 77,394 1.11 86,180 1.60 % Variable Account Charge 195,640 1.12 219,265 336,284 1.11 374,460 1.65 % Variable Account Charge 25,924 1.12 29,055 55,469 1.11 61,765 1.75 % Variable Account Charge 1,136,611 1.12 1,273,865 1,412,938 1.11 1,573,339 1.85 % Variable Account Charge 80,318 1.12 90,017 70,432 1.11 78,428 1.90 % Variable Account Charge 750,242 1.12 840,840 937,412 1.11 1,043,830 2.00 % Variable Account Charge 126,930 1.12 142,258 187,591 1.11 208,887 2.10 % Variable Account Charge 201,889 1.11 226,269 318,127 1.11 354,241 2.15 % Variable Account Charge 74,642 1.11 83,656 74,097 1.11 82,508 2.25 % Variable Account Charge 2,782 1.11 3,118 12,351 1.11 13,753 2.35 % Variable Account Charge 81,375 1.11 91,202 79,410 1.11 88,425 ----------- ---- ---------- ----------- ---- ---------- 46,293,461 83,836,348 40,557,151 74,124,351 ----------- ---- ---------- ----------- ---- ----------
50 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
WADDELL & REED MICRO-CAP GROWTH WADDELL & REED SMALL CAP VALUE ------------------------------- ------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ---- ---------- ----------- ---- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity 395,674 1.57 621,830 1,106,683 1.84 2,038,996 MultiOption Advisor 1.20 % Variable Account Charge 447,856 1.63 731,054 2,432,793 1.60 3,899,699 1.35 % Variable Account Charge 183,198 1.63 299,005 829,993 1.60 1,330,253 1.45 % Variable Account Charge 9,941 1.62 16,224 91,912 1.59 147,309 1.50 % Variable Account Charge 478,281 1.62 780,620 1,262,547 1.59 2,023,520 1.55 % Variable Account Charge 417 1.60 681 84,773 1.67 135,868 1.60 % Variable Account Charge - - - 39,748 1.66 63,705 1.65 % Variable Account Charge 124,781 1.59 203,660 1,079,340 1.66 1,729,889 1.70 % Variable Account Charge 1,575 1.59 2,571 20,364 1.66 32,638 1.75 % Variable Account Charge 21,039 1.59 34,339 240,534 1.66 385,510 1.80 % Variable Account Charge 67,996 1.59 110,979 203,863 1.66 326,738 1.85 % Variable Account Charge 6,572 1.59 10,727 46,336 1.65 74,264 1.90 % Variable Account Charge - - - - - - 1.95 % Variable Account Charge - - - 61,084 1.25 97,901 2.00 % Variable Account Charge - - - 14,613 1.25 23,420 2.05 % Variable Account Charge - - - 146,156 1.25 234,248 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge - - - 13,437 1.25 21,536 2.20 % Variable Account Charge - - - 30,746 1.25 49,278 2.25 % Variable Account Charge - - - 38,991 1.25 62,492 2.30 % Variable Account Charge 902 1.14 1,472 39,181 1.25 62,796 2.35 % Variable Account Charge - - - - - - 2.40 % Variable Account Charge 1,099 1.13 1,794 9,837 1.25 15,767 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge - - - - - - MultiOption Classic/Achiever 4,530,387 1.13 5,108,701 6,768,726 1.89 12,763,266 MultiOption Flex/Single/Select 6,050,318 1.58 9,579,176 12,253,051 1.73 21,237,314 Waddell and Reed Variable Annuity 1.25 % Variable Account Charge 177,065 1.12 197,888 321,559 1.12 361,686 1.35 % Variable Account Charge - 1.12 - - 1.12 - 1.40 % Variable Account Charge 77,142 1.12 86,269 342,801 1.12 385,444 1.50 % Variable Account Charge 12,067 1.12 13,494 40,315 1.12 45,330 1.60 % Variable Account Charge 15,651 1.12 17,502 198,697 1.12 223,415 1.65 % Variable Account Charge 26,806 1.12 29,978 29,263 1.12 32,903 1.75 % Variable Account Charge 409,318 1.11 457,749 919,312 1.12 1,033,671 1.85 % Variable Account Charge 56,529 1.11 63,217 28,334 1.12 31,859 1.90 % Variable Account Charge 268,294 1.11 300,038 410,162 1.12 461,185 2.00 % Variable Account Charge 92,621 1.11 103,580 173,397 1.12 194,967 2.10 % Variable Account Charge 74,497 1.11 83,311 145,413 1.12 163,502 2.15 % Variable Account Charge - 1.11 - - 1.12 - 2.25 % Variable Account Charge - 1.11 - 7,435 1.12 8,360 2.35 % Variable Account Charge 21,831 1.11 24,414 80,365 1.12 90,363 ----------- ---- ---------- ----------- ---- ---------- 13,551,857 18,880,273 29,511,761 49,789,092 ----------- ---- ---------- ----------- ---- ----------
51 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
WADDELL & REED CORE EQUITY WADDELL & REED ASSET STRATEGY ------------------------------- ------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ---- ---------- ----------- ---- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity 285,577 1.04 298,309 - - - MultiOption Advisor 1.20 % Variable Account Charge 87,243 1.18 102,667 431,560 1.18 510,992 1.35 % Variable Account Charge 50,870 1.17 59,855 149,437 1.18 176,916 1.45 % Variable Account Charge 2,122 1.17 2,497 - - - 1.50 % Variable Account Charge 112,876 1.17 132,813 422,800 1.18 500,545 1.55 % Variable Account Charge - - - 19,976 1.18 23,649 1.60 % Variable Account Charge - - - - - - 1.65 % Variable Account Charge 46,333 1.17 54,516 235,319 1.18 278,590 1.70 % Variable Account Charge - - - - - - 1.75 % Variable Account Charge - - - 4,698 1.17 5,562 1.80 % Variable Account Charge 3,100 1.17 3,647 17,673 1.17 20,923 1.85 % Variable Account Charge - - - 4,960 1.17 5,873 1.90 % Variable Account Charge - - - 36,165 1.18 42,815 1.95 % Variable Account Charge - - - 56,253 1.17 66,597 2.00 % Variable Account Charge - - - - - - 2.05 % Variable Account Charge - - - 34,277 1.17 40,580 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge - - - - - - 2.20 % Variable Account Charge - - - - - - 2.25 % Variable Account Charge - - - - - - 2.30 % Variable Account Charge - - - - - - 2.35 % Variable Account Charge - - - - - - 2.40 % Variable Account Charge - - - 6,949 1.17 8,227 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge - - - - - - MultiOption Classic/Achiever 3,948,596 0.79 3,129,851 133,392 1.18 157,529 MultiOption Flex/Single/Select 6,761,633 0.96 6,474,460 685,715 1.18 811,347 Waddell and Reed Variable Annuity 1.25 % Variable Account Charge 415,490 1.09 453,955 373,632 1.15 428,470 1.35 % Variable Account Charge - 1.09 - - 1.15 - 1.40 % Variable Account Charge 135,819 1.09 148,354 341,610 1.15 391,604 1.50 % Variable Account Charge 367,385 1.09 401,291 35,499 1.14 40,694 1.60 % Variable Account Charge 113,012 1.09 123,442 56,769 1.14 65,077 1.65 % Variable Account Charge 36,978 1.09 40,391 54,608 1.14 62,600 1.75 % Variable Account Charge 236,969 1.09 258,839 496,173 1.14 568,786 1.85 % Variable Account Charge 55,340 1.09 60,447 34,109 1.14 39,101 1.90 % Variable Account Charge 414,808 1.09 453,090 392,707 1.14 450,178 2.00 % Variable Account Charge 30,326 1.09 33,125 122,953 1.14 140,947 2.10 % Variable Account Charge 111,627 1.09 121,929 247,881 1.14 284,158 2.15 % Variable Account Charge - 1.09 - - 1.14 - 2.25 % Variable Account Charge - 1.09 - - 1.14 - 2.35 % Variable Account Charge 11,556 1.08 12,623 48,551 1.14 55,656 ----------- ---- ---------- ----------- ---- ---------- 13,227,660 12,366,101 4,443,666 5,177,416 ----------- ---- ---------- ----------- ---- ----------
52 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
WADDELL & REED INTERNATIONAL WADDELL & REED SCIENCE & TECHNOLOGY ------------------------------ ----------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ---- ---------- ----------- ---- ------------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity - - - - - - MultiOption Advisor 1.20 % Variable Account Charge 463,586 1.27 588,949 329,343 1.26 416,083 1.35 % Variable Account Charge 207,174 1.27 263,164 176,188 1.26 222,588 1.45 % Variable Account Charge 4,867 1.27 6,182 39,254 1.26 49,592 1.50 % Variable Account Charge 244,032 1.26 309,983 72,675 1.26 91,814 1.55 % Variable Account Charge 13,591 1.27 17,264 6,087 1.26 7,690 1.60 % Variable Account Charge - - - - - - 1.65 % Variable Account Charge 115,527 1.26 146,749 390,531 1.26 493,380 1.70 % Variable Account Charge - - - 1,992 1.25 2,517 1.75 % Variable Account Charge 18,232 1.26 23,160 4,917 1.25 6,211 1.80 % Variable Account Charge 14,902 1.26 18,930 64,614 1.25 81,631 1.85 % Variable Account Charge 92,921 1.26 118,034 10,091 1.25 12,749 1.90 % Variable Account Charge - - - - - - 1.95 % Variable Account Charge - - - 28,270 1.22 35,716 2.00 % Variable Account Charge - - - 3,881 1.22 4,903 2.05 % Variable Account Charge 26,034 1.20 33,070 3,413 1.22 4,312 2.10 % Variable Account Charge - - - - - - 2.15 % Variable Account Charge - - - - - - 2.20 % Variable Account Charge - - - - - - 2.25 % Variable Account Charge - - - - - - 2.30 % Variable Account Charge - - - 192 1.21 243 2.35 % Variable Account Charge - - - - - - 2.40 % Variable Account Charge - - - - - - 2.45 % Variable Account Charge - - - - - - 2.50 % Variable Account Charge - - - - - - 2.55 % Variable Account Charge - - - - - - 2.60 % Variable Account Charge - - - - - - 2.65 % Variable Account Charge 10,317 1.19 13,105 - - - MultiOption Classic/Achiever 205,418 1.27 260,250 168,422 1.26 212,249 MultiOption Flex/Single/Select 344,362 1.27 437,167 642,359 1.26 811,050 Waddell and Reed Variable Annuity 1.25 % Variable Account Charge 206,176 1.12 230,401 394,776 1.16 458,952 1.35 % Variable Account Charge - 1.12 - - 1.16 - 1.40 % Variable Account Charge 84,993 1.12 94,910 158,132 1.16 183,846 1.50 % Variable Account Charge 40,373 1.11 45,084 66,335 1.16 77,122 1.60 % Variable Account Charge 108,726 1.11 121,413 179,948 1.16 209,210 1.65 % Variable Account Charge 18,434 1.11 20,585 29,091 1.16 33,821 1.75 % Variable Account Charge 689,650 1.11 770,122 990,683 1.16 1,151,778 1.85 % Variable Account Charge 10,517 1.11 11,744 76,442 1.16 88,872 1.90 % Variable Account Charge 352,166 1.11 393,258 592,816 1.16 689,214 2.00 % Variable Account Charge 7,614 1.11 8,502 134,041 1.16 155,837 2.10 % Variable Account Charge 165,312 1.11 184,602 162,875 1.16 189,360 2.15 % Variable Account Charge - 1.11 - 71,389 1.16 82,997 2.25 % Variable Account Charge 1,866 1.11 2,084 1,396 1.15 1,622 2.35 % Variable Account Charge 28,513 1.11 31,840 63,106 1.15 73,367 ----------- ---- ---------- ----------- ---- ------------- 3,475,303 4,150,552 4,863,259 5,848,726 ----------- ---- ---------- ----------- ---- -------------
53 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
WADDELL & REED BOND WADDELL & REED DIVIDEND INCOME ----------------------------- ------------------------------ Units Net Units Net Outstanding AUV Assets Outstanding AUV Assets ----------- ---- --------- ----------- ----- --------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity - - - - - - MultiOption Advisor - - - - - - MultiOption Classic/Achiever - - - - - - MultiOption Flex/Single/Select - - - - - - Waddell and Reed Variable Annuity 1.25 % Variable Account Charge 411,452 1.03 423,354 269,938 1.09 293,996 1.35 % Variable Account Charge - 1.03 - - 1.09 - 1.40 % Variable Account Charge 234,567 1.03 241,287 149,816 1.09 163,095 1.50 % Variable Account Charge - 1.03 - 50,058 1.09 54,495 1.60 % Variable Account Charge 76,573 1.03 78,767 80,161 1.09 87,267 1.65 % Variable Account Charge - 1.03 - 3,148 1.09 3,427 1.75 % Variable Account Charge 591,625 1.03 608,575 491,566 1.09 535,139 1.85 % Variable Account Charge 77,265 1.02 79,479 36,998 1.08 40,277 1.90 % Variable Account Charge 422,954 1.02 435,071 398,490 1.08 433,813 2.00 % Variable Account Charge 54,930 1.02 56,504 40,369 1.08 43,947 2.10 % Variable Account Charge 115,325 1.02 118,629 134,504 1.08 146,426 2.15 % Variable Account Charge - 1.02 - 75,674 1.08 82,382 2.25 % Variable Account Charge 5,834 1.02 6,002 - 1.08 - 2.35 % Variable Account Charge 37,848 1.02 38,932 16,442 1.08 17,899 ----------- ---- --------- ----------- ---- --------- 2,028,373 2,086,600 1,747,164 1,902,163 ----------- ---- --------- ----------- ---- ---------
WADDELL & REED HIGH INCOME WADDELL & REED LIMITED-TERM BOND ----------------------------- -------------------------------- Units Net Units Net Outstanding AUV Assets Outstanding AUV Assets ----------- ---- --------- ----------- ---- ------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity - - - - - - MultiOption Advisor - - - - - - MultiOption Classic/Achiever - - - - - - MultiOption Flex/Single/Select - - - - - - Waddell and Reed Variable Annuity 1.25 % Variable Account Charge 721,334 1.07 774,427 259,228 1.01 261,204 1.35 % Variable Account Charge - 1.07 - - 1.01 - 1.40 % Variable Account Charge 291,918 1.07 313,321 30,061 1.01 30,287 1.50 % Variable Account Charge 109,267 1.07 117,278 - 1.01 - 1.60 % Variable Account Charge 206,431 1.07 221,567 - 1.01 - 1.65 % Variable Account Charge 1,229 1.07 1,319 - 1.00 - 1.75 % Variable Account Charge 1,216,633 1.07 1,305,834 293,521 1.00 295,729 1.85 % Variable Account Charge 6,934 1.07 7,442 4,192 1.00 4,224 1.90 % Variable Account Charge 712,833 1.07 765,097 104,358 1.00 105,143 2.00 % Variable Account Charge 118,827 1.07 127,539 - 1.00 - 2.10 % Variable Account Charge 300,190 1.07 322,199 16,321 1.00 16,444 2.15 % Variable Account Charge - 1.07 - - 1.00 - 2.25 % Variable Account Charge 15,107 1.07 16,214 6,013 1.00 6,058 2.35 % Variable Account Charge 74,845 1.07 80,332 9,702 1.00 9,775 ----------- ---- --------- ----------- ---- ------- 3,775,548 4,052,569 723,396 728,864 ----------- ---- --------- ----------- ---- -------
54 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) CONTRACT OWNERS EQUITY - CONTINUED
WADDELL & REED MONEY MARKET WADDELL & REED MORTGAGE SECURITIES -------------------------------- ---------------------------------- Units Units Outstanding AUV Net Assets Outstanding AUV Net Assets ----------- ---- ---------- ----------- ---- ---------- Contracts Adjustable Income Annuity - - - - - - MegAnnuity - - - - - - MultiOption Advisor - - - - - - MultiOption Classic/Achiever - - - - - - MultiOption Flex/Single/Select - - - - - - Waddell and Reed Variable Annuity 1.25 % Variable Account Charge 1,179,640 1.00 1,176,420 15,458,353 1.04 16,108,685 1.35 % Variable Account Charge - 1.00 - - 1.04 - 1.40 % Variable Account Charge - 1.00 - 90,330 1.04 94,117 1.50 % Variable Account Charge - 1.00 - 153,433 1.04 159,868 1.60 % Variable Account Charge - 0.99 - 79,014 1.04 82,328 1.65 % Variable Account Charge - 0.99 - - 1.04 - 1.75 % Variable Account Charge - 0.99 - 342,397 1.04 356,755 1.85 % Variable Account Charge - 0.99 - 355 1.04 370 1.90 % Variable Account Charge 31,586 0.99 31,500 176,435 1.04 183,833 2.00 % Variable Account Charge - 0.99 - 83,582 1.04 87,087 2.10 % Variable Account Charge - 0.99 - 69,936 1.04 72,869 2.15 % Variable Account Charge - 0.99 - - 1.04 - 2.25 % Variable Account Charge - 0.99 - - 1.04 - 2.35 % Variable Account Charge - 0.99 - 12,963 1.04 13,506 ----------- ---- ---------- ----------- ---- ---------- 1,211,226 1,207,920 16,466,798 17,159,418 ----------- ---- ---------- ----------- ---- ----------
WADDELL & REED REAL ESTATE SECURITIES ------------------------------------------ Units Outstanding AUV Net Assets ----------- ---- ---------- Contracts Adjustable Income Annuity - - - MegAnnuity - - - MultiOption Advisor - - - MultiOption Classic/Achiever - - - MultiOption Flex/Single/Select - - - Waddell and Reed Variable Annuity 1.25 % Variable Account Charge 5,432,797 1.32 7,155,668 1.35 % Variable Account Charge - 1.32 - 1.40 % Variable Account Charge 251,151 1.32 330,708 1.50 % Variable Account Charge 154,980 1.31 204,074 1.60 % Variable Account Charge 91,869 1.31 120,971 1.65 % Variable Account Charge 1,687 1.31 2,222 1.75 % Variable Account Charge 594,302 1.31 782,560 1.85 % Variable Account Charge 51,945 1.31 68,399 1.90 % Variable Account Charge 416,159 1.31 547,988 2.00 % Variable Account Charge 85,527 1.31 112,620 2.10 % Variable Account Charge 99,176 1.31 130,592 2.15 % Variable Account Charge - 1.31 - 2.25 % Variable Account Charge 2,550 1.31 3,358 2.35 % Variable Account Charge 66,520 1.31 87,592 ----------- ---- ---------- 7,248,663 9,546,752 ----------- ---- ----------
55 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS (7) FINANCIAL HIGHLIGHTS A summary of units outstanding, unit values, net assets, ratios, and total return for variable annuity contracts for the years ended December 31, 2004, 2003, 2002 and 2001 is as follows:
At December 31 For the years ended December 31 ------------------------------------------------ ----------------------------------------------------- Units Unit Fair Value lowest Investment Expense Ratio** Total Return*** Outstanding to highest Net Assets Income Ratio* lowest to highest lowest to highest ----------- ---------------------- ----------- ------------- ----------------- ----------------- Advantus Bond 2004 83,732,102 1.03 to 3.54 157,322,817 0.00% 0.15% to 2.65% 2.23% to 4.82% 2003 71,541,800 1.01 to 3.38 150,703,416 0.00% 0.15% to 2.65% -1.78% to 5.19% 2002 62,421,448 0.49 to 3.21 150,280,208 0.00% 0.15% to 1.40% 8.97% to 10.34% 2001 57,777,187 0.67 to 2.91 136,717,695 11.08% 0.15% to 1.40% 6.40% to 7.74% Advantus Money Market 2004 25,261,147 0.98 to 2.09 34,035,324 0.74% 0.15% to 2.65% -1.88% to 0.60% 2003 30,177,525 0.99 to 2.08 43,250,792 0.63% 0.15% to 2.65% -0.89% to 0.46% 2002 42,537,083 1.08 to 2.07 65,764,181 1.28% 0.15% to 1.40% -0.13% to 1.13% 2001 46,433,132 1.08 to 2.04 73,086,827 3.57% 0.15% to 1.40% 2.34% to 3.63% Advantus Index 500 2004 117,201,628 0.88 to 4.94 274,490,110 0.00% 0.15% to 2.65% 7.51% to 10.23% 2003 105,250,773 0.81 to 4.48 245,642,588 0.00% 0.15% to 1.95% 5.75% to 32.02% 2002 72,078,923 0.64 to 3.51 193,497,967 0.00% 0.15% to 1.40% -23.45% to -22.48% 2001 77,262,312 0.84 to 4.53 283,002,183 0.89% 0.15% to 1.40% -13.48% to -12.39% Advantus Mortgage Securities 2004 70,069,365 1.03 to 3.76 138,001,443 0.00% 0.15% to 2.40% 2.07% to 4.65% 2003 73,502,901 1.00 to 3.59 151,561,342 0.00% 0.15% to 2.20% -0.18% to 4.00% 2002 74,476,525 1.29 to 3.45 165,669,052 0.06% 0.15% to 1.40% 8.13% to 9.50% 2001 62,749,113 1.19 to 3.15 136,919,160 12.15% 0.15% to 1.40% 7.46% to 8.81% Advantus Maturing Government Bond 2006 2004 2,940,514 1.33 to 2.18 5,574,482 0.00% 0.15% to 1.40% -1.27% to -0.03% 2003 5,136,771 1.35 to 2.18 9,953,107 0.00% 0.15% to 1.40% 0.53% to 1.79% 2002 5,364,167 1.34 to 2.14 10,647,700 0.00% 0.15% to 1.40% 11.42% to 12.82% 2001 4,864,034 1.20 to 1.90 8,692,552 5.40% 0.15% to 1.40% 6.57% to 7.91% Advantus Maturing Government Bond 2010 2004 3,196,445 1.47 to 2.46 6,710,156 0.00% 0.15% to 1.40% 1.88% to 3.16% 2003 3,717,234 1.44 to 2.39 7,647,073 0.00% 0.15% to 1.40% 1.33% to 2.60% 2002 4,458,787 1.42 to 2.33 9,354,207 0.07% 0.15% to 1.40% 17.20% to 18.68% 2001 3,226,490 1.22 to 1.96 5,840,469 10.49% 0.15% to 1.40% 3.51% to 4.81% Advantus International Bond 2004 32,253,680 1.46 to 1.66 49,268,412 0.00% 0.15% to 1.40% 9.88% to 11.26% 2003 39,542,742 1.33 to 1.49 54,896,928 0.00% 0.15% to 1.40% 18.58% to 20.07% 2002 38,800,221 1.12 to 1.24 45,640,738 0.27% 0.15% to 1.40% 16.30% to 17.77% 2001 35,648,905 0.96 to 1.06 36,124,400 1.10% 0.15% to 1.40% -2.88% to -1.66% Advantus Index 400 Mid-Cap 2004 21,892,766 1.20 to 2.02 36,571,393 0.00% 0.15% to 2.65% 12.70% to 15.56% 2003 17,526,754 1.07 to 1.74 26,607,076 0.00% 0.15% to 2.65% 0.61% to 40.43% 2002 14,982,764 1.02 to 1.30 17,849,686 0.00% 0.15% to 1.40% -16.22% to -15.16% 2001 15,271,982 1.22 to 1.53 21,884,881 0.86% 0.15% to 1.40% -2.44% to -1.22% Advantus Real Estate Securities 2004 30,121,583 1.40 to 2.58 65,607,398 0.00% 0.15% to 2.65% 31.98% to 35.32% 2003 26,986,325 1.06 to 1.93 45,304,358 0.00% 0.15% to 2.65% 2.50% to 46.58% 2002 21,160,081 1.16 to 1.38 26,016,967 0.02% 0.15% to 1.40% 5.48% to 6.81% 2001 10,820,336 1.10 to 1.30 12,378,669 4.06% 0.15% to 1.40% 8.51% to 9.87% AIM V.I. Aggressive Growth 2004 1,263,093 1.05 to 1.36 1,550,204 0.00% 1.20% to 1.80% 8.55% to 10.14% 2003 823,185 0.95 to 1.24 884,176 0.00% 1.20% to 1.70% 15.08% to 33.76% 2002 (a) 200,861 0.76 153,557 0.00% 1.40% (a) -23.55% AIM V.I. Balanced 2004 1,835,844 1.04 to 1.19 2,125,161 1.58% 1.20% to 2.05% 4.44% to 5.96% 2003 1,242,447 0.99 to 1.12 1,337,297 2.73% 1.20% to 1.95% .58% to 14.61% 2002 (a) 202,181 0.86 174,181 5.69% (a) 1.40% (a) -13.85%
56 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS (7) FINANCIAL HIGHLIGHTS - CONTINUED
At December 31 For the years ended December 31 ------------------------------------------------ ----------------------------------------------------- Units Unit Fair Value lowest Investment Expense Ratio** Total Return*** Outstanding to highest Net Assets Income Ratio* lowest to highest lowest to highest ----------- ---------------------- ---------- ------------- ----------------- ----------------- AIM V.I. Dent Demographic Trends 2004 594,334 1.06 to 1.35 747,092 0.00% 1.20% to 2.05% 5.08% to 6.61% 2003 496,144 1.00 to 1.27 553,799 0.00% 1.20% to 1.80% 4.64% to 35.40% 2002 (a) 44,099 0.74 32,506 0.00% 1.40% (a) -26.29% AIM V.I. Premier Equity 2004 533,883 .99 to 1.22 580,517 0.33% 1.20% to 1.80% 2.73% to 4.23% 2003 521,022 .95 to 1.18 519,608 0.26% 1.20% to 1.70% 4.70% to 33.29% 2002 (a) 333,328 0.77 256,619 1.37% (a) 1.40% (a) -23.01% American Century Income and Growth 2004 3,246,113 1.16 to 1.37 4,215,839 1.04% 1.20% to 2.40% 9.63% to 11.23% 2003 2,166,069 1.04 to 1.23 2,504,905 0.88% 1.20% to 2.30% 2.59% to 40.15% 2002 (a) 271,073 0.82 222,342 0.00% 1.40% (a) -17.98% American Century Ultra 2004 30,147,276 1.07 to 1.29 37,869,128 0.00% 1.20% to 2.65% 7.70% to 9.27% 2003 13,840,021 0.98 to 1.18 15,411,423 0.00% 1.20% to 2.65% 1.54% to 28.31% 2002 (a) 1,768,593 0.79 1,892,164 0.15% (a) 1.40% (a) -20.55% American Century Value 2004 5,913,385 1.21 to 1.40 7,935,867 0.63% 1.20% to 2.40% 11.19% to 12.81% 2003 2,437,616 1.10 to 1.24 2,802,907 0.76% 1.20% to 1.90% .12% to 36.68% 2002 (a) 607,599 0.86 523,888 0.00% 1.40% (a) -13.78% Credit Suisse Global Post-Venture Capital 2004 4,275,603 0.58 to 0.61 2,493,440 0.00% 0.15% to 1.40% 16.35% to 17.81% 2003 4,156,371 0.50 to 0.52 2,080,388 0.00% 0.15% to 1.40% 45.61% to 47.44% 2002 1,869,296 0.34 to 0.35 640,052 0.00% 0.15% to 1.40% -35.07% to -34.26% 2001 1,868,817 0.53 to 0.54 985,138 8.10% 0.15% to 1.40% -33.72% to -29.52% Fidelity VIP Contrafund 2004 41,197,786 1.04 to 1.42 45,868,903 0.20% 0.15% to 2.65% 12.15% to 14.99% 2003 36,031,753 0.91 to 1.25 34,087,961 0.29% 0.15% to 2.05% 1.68% to 32.40% 2002 29,726,965 0.72 to 0.75 21,710,439 0.70% 0.15% to 1.40% -10.86% to -9.74% 2001 26,305,920 0.81 to 0.83 21,501,171 0.67% 0.15% to 1.40% -13.69% to -12.60% Fidelity VIP Equity- Income 2004 71,887,242 1.17 to 1.38 92,070,458 1.19% 0.15% to 2.65% 8.32% to 11.07% 2003 49,847,420 1.08 to 1.26 56,712,063 0.01% to 1.56% 0.15% to 2.65% 6.27% to 35.70% 2002 30,830,481 0.86 to 0.89 27,219,399 1.45% 0.15% to 1.40% -18.30% to -17.28% 2001 22,269,645 1.05 to 1.07 23,587,152 1.06% 0.15% to 1.40% -6.55% to -5.37% Fidelity VIP Mid-Cap 2004 27,269,555 1.33 to 1.86 47,319,868 0.00% 0.15% to 2.40% 21.40% to 24.47% 2003 22,706,315 1.10 to 1.49 32,189,299 0.00% to 0.28% 0.15% to 2.05% 2.26% to 42.43% 2002 19,501,428 1.04 to 1.08 20,726,186 0.83% 0.15% to 1.40% -11.28% to -10.16% 2001 17,716,573 1.18 to 1.20 20,984,737 0.27% 0.15% to 1.40% -4.86% to -3.66% Franklin Large Cap Growth Securities 2004 2,468,768 1.09 to 1.28 3,029,945 0.44% 1.20% to 2.05% 5.11% to 6.65% 2003 1,086,252 1.03 to 1.20 1,202,608 0.56% 1.20% to 2.05% 3.27% to 31.13% 2002 (a) 244,326 0.82 200,208 0.37% (a) 1.40% (a) -18.06%
57 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS (7) FINANCIAL HIGHLIGHTS - CONTINUED
At December 31 For the years ended December 31 ----------------------------------------------- ---------------------------------------------------- Units Unit Fair Value lowest Investment Expense Ratio** Total Return*** Outstanding to highest Net Assets Income Ratio* lowest to highest lowest to highest ----------- ---------------------- ---------- ------------- ----------------- ----------------- Franklin Mutual Shares Securities 2004 4,755,013 1.16 to 1.35 6,043,249 0.71% 1.20% to 2.40% 9.69% to 11.29% 2003 2,444,129 1.04 to 1.21 2,752,836 1.01% 1.20% to 1.95% 3.00% to 23.41% 2002 (a) 670,423 0.84 566,331 1.09% 1.40% (a) -15.53% Franklin Small Cap 2004 21,040,489 0.70 to 1.45 17,040,295 0.00% 0.15% to 2.30% 8.56% to 11.31% 2003 19,650,970 0.64 to 1.32 13,489,461 0.00% 0.15% to 2.20% -0.91% to 42.62% 2002 15,909,414 0.47 to 0.49 7,596,845 0.25% 0.15% to 1.40% -29.68% to -28.79% 2001 10,082,739 0.67 to 0.68 6,852,986 0.40% 0.15% to 1.40% -16.43% to -15.37% Templeton Developing Markets Securities 2004 15,847,356 0.92 to 1.81 18,501,110 1.86% 0.15% to 2.40% 21.45% to 24.52% 2003 14,599,010 0.74 to 1.47 12,919,582 .49% to 1.13% 0.15% to 2.40% 3.10% to 52.76% 2002 13,519,675 0.49 to 0.72 7,649,303 1.47% 0.15% to 1.40% -1.53% to -0.30% 2001 13,906,056 0.50 to 0.73 7,847,819 0.10% 0.15% to 1.40% -9.36% to -8.22% Templeton Global Asset Allocation 2004 6,373,731 1.20 to 1.27 7,720,719 2.83% 0.15% to 1.40% 14.11% to 15.54% 2003 5,653,902 1.05 to 1.10 5,985,105 2.34% to 2.56% 0.15% to 1.40% 30.12% to 31.76% 2002 4,416,037 0.81 to 0.84 3,607,709 0.00% 0.15% to 1.40% -5.72% to -4.53% 2001 2,557,131 0.86 to 0.88 2,219,608 9.82% 0.15% to 1.40% -11.20% to -10.08% Janus Aspen Balanced 2004 2,949,680 1.10 to 1.19 3,424,942 2.61% 1.20% to 2.40% 5.46% to 7.00% 2003 1,982,696 1.03 to 1.11 2,116,520 2.02% 1.20% to 1.90% 3.20% to 12.14% 2002 (a) 689,640 0.92 635,967 2.74% (a) 1.40% (a) -7.78% Janus Aspen Capital Appreciation 2004 28,087,494 0.71 to 1.35 21,035,361 0.03% 0.15% to 2.40% 14.88% to 17.79% 2003 30,071,564 0.61 to 1.16 18,698,614 0.24% 0.15% to 1.80% 5.11% to 20.06% 2002 34,709,134 0.51 to 0.53 17,877,948 0.30% 0.15% to 1.40% -17.10% to -16.05% 2001 38,811,457 0.62 to 0.64 24,324,231 0.86% 0.15% to 1.40% -22.92% to -21.95% Janus International Growth 2004 26,616,625 0.70 to 1.58 21,631,914 0.88% 0.15% to 2.40% 15.58% to 18.51% 2003 26,182,042 0.60 to 1.35 16,205,018 0.98% 0.15% to 1.90% 4.61% to 34.33% 2002 29,205,230 0.45 to 0.47 13,384,834 0.64% 0.15% to 1.40% -26.79% to -25.87% 2001 30,574,683 0.62 to 0.64 19,195,115 0.70% 0.15% to 1.40% -24.50% to -23.54% MFS Investors Growth Stock 2004 1,267,606 1.02 to 1.24 1,434,981 0.00% 1.20% to 1.85% 6.13% to 7.68% 2003 1,418,331 0.95 to 1.15 1,462,824 0.00% 1.20% to 1.90% 0.11% to 20.90% 2002 (a) 254,637 0.78 199,463 0.00% 1.40% (a) -21.67% MFS Mid Cap Growth 2004 1,228,768 1.08 to 1.45 1,612,515 0.00% 1.20% to 2.15% 11.39% to 13.01% 2003 828,565 0.96 to 1.29 933,083 0.00% 1.20% to 1.85% -.17% to 34.71% 2002 (a) 132,901 0.71 94,371 0.00% 1.40% (a) -28.99% MFS New Discovery 2004 9,067,451 1.03 to 1.35 11,635,163 0.00% 1.20% to 2.65% 3.43% to 4.94% 2003 5,017,186 0.98 to 1.29 5,858,375 0.00% 1.20% to 2.65% -0.73% to 31.58% 2002 (a) 1,073,449 0.75 919,016 0.00% 1.40% (a) -25.27% MFS Value 2004 3,064,606 1.16 to 1.38 3,845,989 1.95% 1.20% to 2.05% 11.82% to 13.46% 2003 2,148,341 1.02 to 1.22 2,327,459 0.15% 1.20% to 1.90% 0.28% to 22.98% 2002 (a) 852,323 0.83 709,389 0.00% 1.40% (a) -16.77%
58 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS (7) FINANCIAL HIGHLIGHTS - CONTINUED
At December 31 For the years ended December 31 ------------------------------------------------ --------------------------------------------------- Units Unit Fair Value lowest Investment Expense Ratio** Total Return*** Outstanding to highest Net Assets Income Ratio* lowest to highest lowest to highest ----------- ---------------------- ---------- ------------- ------------------ ----------------- Oppenheimer Capital Appreciation 2004 4,037,186 1.06 to 1.29 4,766,235 0.20% 1.20% to 2.40% 3.83% to 5.34% 2003 2,307,305 1.01 to 1.23 2,499,721 0.24% 1.20% to 2.20% 1.20% to 28.88% 2002 (a) 890,405 0.81 722,898 0.00% 1.40% (a) -21.48% Oppenheimer High Income 2004 13,310,080 1.09 to 1.29 16,999,974 4.97% 1.20% to 2.65% 5.89% to 7.43% 2003 6,600,255 1.03 to 1.20 7,815,040 6.05% 1.20% to 2.65% 0.21% to 22.08% 2002 (a) 674,348 0.95 1,000,841 0.00% 1.40% (a) -5.36% Oppenheimer International Growth 2004 3,348,584 1.17 to 1.70 4,905,781 1.08% 1.20% to 2.35% 14.08% to 15.75% 2003 1,587,876 1.01 to 1.47 1,895,546 0.83% 1.20% to 2.30% -0.01% to 43.52% 2002 (a) 323,095 0.71 230,222 0.00% 1.40% (a) -29.61% Putnam VT Growth and Income 2004 1,488,016 1.12 to 1.34 1,852,135 1.50% 1.20% to 2.05% 8.21% to 9.79% 2003 1,117,080 1.02 to 1.23 1,234,411 1.41% 1.20% to 1.90% 7.90% to 25.61% 2002 (a) 296,889 0.81 241,935 0.00% 1.40% (a) -18.51% Putnam VT International Growth 2004 8,475,391 1.18 to 1.45 11,580,995 1.38% 1.20% to 2.65% 13.16% to 14.81% 2003 6,281,267 1.03 to 1.27 7,272,213 0.83% 1.20% to 2.65% 3.70% to 26.75% 2002 (a) 1,418,042 0.81 1,302,512 0.00% 1.40% (a) -19.05% Putnam VT New Opportunities 2004 288,771 1.08 to 1.36 361,736 0.00% 1.20% to 2.05% 7.42% to 8.99% 2003 271,984 .99 to 1.25 295,198 0.00% 1.20% to 1.55% 6.99% to 30.60% 2002 (a) 88,859 0.76 67,578 0.00% 1.40% (a) -23.95% Putnam VT New Value 2004 1,618,549 1.24 to 1.47 2,209,870 0.65% 1.20% to 1.85% 12.41% to 14.05% 2003 773,952 1.09 to 1.29 889,893 0.84% 1.20% to 1.90% 12.90% to 30.64% 2002 (a) 164,533 0.83 137,040 0.00% 1.40% (a) -16.71% Putnam VT Voyager 2004 813,029 1.00 to 1.22 898,769 0.24% 1.20% to 2.30% 2.26% to 3.78% 2003 610,427 .96 to 1.17 635,247 0.30% 1.20% to 1.90% 5.63% to 23.18% 2002 (a) 288,014 0.78 178,094 0.00% 1.40% (a) -21.89% Van Kampen Comstock 2004 3,155,382 1.23 to 1.45 4,490,631 0.60% 1.20% to 2.40% 14.36% to 16.03% 2003 (b) 1,229,156 1.07 to 1.25 1,507,649 0.00% 1.20% to 2.20% (a) 1.44% to 9.49% Van Kampen Emerging Growth 2004 201,893 1.24 to 1.26 254,303 0.00% 1.20% to 1.65% 3.98% to 5.50% 2003 (b) 119,599 1.18 to 1.19 142,785 0.00% 1.20% to 1.70% (a) 0.97% to 6.81% Van Kampen Growth and Income 2004 729,450 1.36 to 1.39 998,169 0.50% 1.20% to 1.85% 11.14% to 12.76% 2003 (b) 208,298 1.21 to 1.24 252,779 0.00% 1.20% to 1.80% (a) 8.75% to 10.69%
59 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS (7) FINANCIAL HIGHLIGHTS - CONTINUED
At December 31 For the years ended December 31 ------------------------------------------------- --------------------------------------------------- Units Unit Fair Value lowest Investment Expense Ratio** Total Return*** Outstanding to highest Net Assets Income Ratio* lowest to highest lowest to highest ----------- ---------------------- ----------- -------------- ----------------- ------------------ Waddell & Reed Balanced 2004 79,627,064 0.95 to 3.90 228,371,804 1.39% 0.15% to 2.40% 6.06% to 8.77% 2003 86,130,915 0.89 to 3.63 246,795,946 0.66% 0.15% to 2.05% 1.89% to 20.87% 2002 96,126,456 0.74 to 3.03 242,627,878 0.00% 0.15% to 1.40% -10.25% to -9.12% 2001 115,815,207 0.83 to 3.37 334,282,742 1.87% 0.15% to 1.40% -15.55% to -14.49% Waddell & Reed Growth 2004 79,382,363 0.62 to 3.53 175,548,922 0.27% 0.15% to 2.35% 0.61% to 4.92% 2003 79,974,037 0.61 to 3.46 192,077,415 0.00% 0.15% to 1.90% 1.70% to 25.26% 2002 89,698,886 0.56 to 2.79 181,641,666 0.00% 0.15% to 1.40% -32.49% to -25.55% 2001 102,359,809 0.67 to 3.90 312,995,984 0.09% 0.15% to 1.40% -25.85% to -24.74 Waddell & Reed International II 2004 75,725,803 1.18 to 3.39 176,860,398 1.10% 0.15% to 2.65% 18.36% to 22.49% 2003 69,210,848 1.09 to 2.77 145,621,007 1.78% 0.15% to 2.65% .4.91% to 50.04% 2002 69,117,878 0.76 to 1.89 107,934,334 0.00% 0.15% to 1.40% -18.96% to -17.94% 2001 77,650,129 0.93 to 2.30 154,874,874 4.22% 0.15% to 1.40% -12.45% to -11.34% Waddell & Reed Small Cap Growth 2004 46,293,461 1.11 to 2.34 83,836,348 0.00% 0.15% to 2.40% 11.26% to 14.12% 2003 48,087,823 1.01 to 2.05 80,974,858 0.00% 0.15% to 2.30% 2.26% to 47.76% 2002 50,956,068 0.69 to 1.39 61,064,365 0.00% 0.15% to 1.40% -32.75% to -31.90% 2001 58,874,540 1.03 to 2.04 106,352,320 0.00% 0.15% to 1.40% -15.89% to -14.83% Waddell & Reed Value 2004 40,557,151 1.02 to 2.43 74,124,351 1.07% 0.15% to 2.40% 10.55% to 14.53% 2003 39,892,772 0.90 to 2.12 68,458,346 0.54% 0.15% to 1.95% 2.07% to 26.87% 2002 44,175,977 0.72 to 1.67 62,482,210 0.00% 0.15% to 1.40% -16.50% to -15.45% 2001 48,303,751 0.86 to 1.98 85,380,743 1.07% 0.15% to 1.40% -11.70 to -10.59% Waddell & Reed Micro -Cap Growth 2004 13,551,857 1.11 to 1.63 18,880,273 0.00% 0.15% to 2.40% 7.17% to 11.83% 2003 17,493,441 1.04 to 1.50 23,278,419 0.00% 0.15% to 1.80% 2.89% to 73.88% 2002 16,079,775 0.68 to 0.96 14,309,710 0.00% 0.15% to 1.40% -44.43% to -43.73% 2001 18,375,194 1.23 to 1.72 29,750,152 0.00% 0.15% to 1.40% -12.56% to -11.46% Waddell & Reed Small Cap Value 2004 29,511,761 1.12 to 1.89 49,789,092 0.00% 0.15% to 2.40% 11.62% to 14.85% 2003 23,557,729 1.11 to 1.66 36,825,287 0.00% 0.15% to 2.30% .59% to 59.63% 2002 23,025,937 1.03 to 1.13 25,038,865 0.00% 0.15% to 1.40% -21.09% to -20.10% 2001 19,875,251 1.31 to 1.43 27,119,932 0.00% 0.15% to 1.40% 13.98% to 15.41% Waddell & Reed Core Equity 2004 13,227,660 0.79 to 1.18 12,366,101 0.65% 0.15% to 2.35% 6.70% to 9.40% 2003 13,738,232 0.73 to 1.09 11,553,656 0.71% 0.15% to 1.70% 3.31% to 21.15% 2002 16,313,415 0.61 to 0.79 11,773,521 0.00% 0.15% to 1.40% -29.14% to -28.25% 2001 17,049,674 0.87 to 1.10 17,416,946 0.24% 0.15% to 1.40% -9.03% to -7.88% Waddell & Reed Asset Strategy 2004 4,443,666 1.14 to 1.18 5,177,416 2.85% 1.20% to 2.40% 10.34% to 14.63% 2003 (b) 439,489 1.05 to 1.06 464,746 .00% to 3.71% 1.20% to 1.95% 1.41% to 6.01% Waddell & Reed International 2004 3,475,303 1.11 to 1.27 4,150,552 1.14% 1.20% to 2.65% 11.02% to 12.64% 2003 (b) 841,932 1.07 to 1.13 949,442 2.04% 1.20% to 2.65% -1.69% to 13.69% Waddell & Reed Science & Technology 2004 4,863,259 1.15 to 1.26 5,848,726 0.00% 1.20% to 2.35% 13.21% to 16.26% 2003 (b) 369,779 1.10 406,684 0.00% 1.20% to 1.85% 2.19% to 11.50%
60 VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS (7) FINANCIAL HIGHLIGHTS - CONTINUED
At December 31 For the years ended December 31 ------------------------------------------------ --------------------------------------------------- Units Unit Fair Value lowest Investment Expense Ratio** Total Return*** Outstanding to highest Net Assets Income Ratio* lowest to highest lowest to highest ----------- ---------------------- ---------- ------------- ----------------- ----------------- Waddell & Reed Bond 2004 (c) 2,028,373 1.02 to 1.03 2,086,600 17.28% 1.25% to 2.35% 2.12% to 2.86% Waddell & Reed Dividend Income 2004 (c) 1,747,164 1.08 to 1.09 1,902,163 2.00% 1.25% to 2.35% 8.08% to 8.86% Waddell & Reed High Income 2004 (c) 3,775,548 1.07 to 1.07 4,052,569 22.73% 1.25% to 2.35% 6.55% to 7.33% Waddell & Reed Limited-Term Bond 2004 (c) 723,396 1.00 to 1.01 728,864 9.18% 1.25% to 2.35% 0.02% to 0.75% Waddell & Reed Money Market 2004 (c) 1,211,226 .99 to 1.00 1,207,920 0.79% 1.25% to 2.35% -1.00% to -0.27% Waddell & Reed Mortgage Securities 2004 (d) 16,466,798 1.04 to 1.04 17,159,418 2.11% 1.25% to 2.35% 3.51% to 4.19% Waddell & Reed Real Estate Securities 2004 (d) 7,248,663 1.31 to 1.32 9,546,752 0.77% 1.25% to 2.35% 30.82% to 31.68%
* 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, 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 and, to the extent the underlying fund utilizes consent dividends rather than paying dividends in cash or reinvested shares, the Account does not record investment income. ** This ratio represents the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges. The ratio includes 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 period indicated, 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. Investment options with a date notation indicate the effective date of that investment option in the variable account. The total return is calculated from the period indicated or from the effective date through the end of the reporting period. (a) Period from May 1, 2002, commencement of operations, to December 31, 2002. (b) Period from September 22, 2003, commencement of operations, to December 31, 2003. (c) Period from May 3, 2004, commencement of operations, to December 31, 2004. (d) Period from May 27, 2004, commencement of operations, to December 31, 2004. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholder Minnesota Life Insurance Company: We have audited the accompanying consolidated balance sheets of Minnesota Life Insurance Company and subsidiaries (collectively, the Company) as of December 31, 2004 and 2003, 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, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 Minnesota Life Insurance Company and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. As discussed in note 2 to the consolidated financial statements, effective January 1, 2004, the Company adopted Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long- Duration Contracts and for Separate Accounts. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The supplementary information included in the accompanying schedules is presented for purpose of additional analysis and is not a required part of the basic consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. Minneapolis, Minnesota March 10, 2005 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2004 and 2003 (In thousands)
2004 2003 ----------- ----------- Assets Fixed maturity securities: Available-for-sale, at fair value (amortized cost $5,213,338 and $4,647,433) $ 5,472,948 $ 4,941,278 Equity securities, at fair value (cost $606,225 and $580,495) 747,277 676,398 Mortgage loans, net 810,508 773,479 Real estate, net 1,771 1,830 Finance receivables, net 140,425 127,716 Policy loans 270,186 263,508 Private equity investments (cost $228,338 and $236,197) 226,631 222,200 Fixed maturity securities on loan, at fair value (amortized cost $1,128,126 and $1,304,233) 1,152,143 1,361,128 Equity securities on loan, at fair value (cost $63,396 and $52,100) 84,121 68,771 Other invested assets 23,306 169,720 ----------- ----------- Total investments 8,929,316 8,606,028 Cash and cash equivalents 196,508 222,529 Securities held as collateral 1,276,761 1,466,354 Deferred policy acquisition costs 721,055 636,475 Accrued investment income 85,553 83,461 Premiums and fees receivable 137,578 137,954 Property and equipment, net 80,033 82,856 Reinsurance recoverables 727,129 677,102 Goodwill and intangible assets, net 23,089 -- Other assets 36,653 31,870 Separate account assets 9,563,176 8,854,022 ----------- ----------- Total assets $21,776,851 $20,798,651 =========== =========== Liabilities and Stockholder's Equity Liabilities: Policy and contract account balances $ 4,853,594 $ 4,688,655 Future policy and contract benefits 2,090,802 2,052,276 Pending policy and contract claims 169,699 160,687 Other policyholder funds 578,621 557,525 Policyholder dividends payable 48,301 52,995 Unearned premiums and fees 212,057 199,767 Federal income tax liability: Current 24,457 32,429 Deferred 198,484 138,964 Other liabilities 428,111 497,970 Notes payable 125,000 125,000 Securities lending collateral 1,276,761 1,466,354 Separate account liabilities 9,563,176 8,809,077 ----------- ----------- Total liabilities 19,569,063 18,781,699 ----------- ----------- Stockholder's equity: Common stock, $1 par value, 5,000,000 shares authorized, issued and outstanding 5,000 5,000 Additional paid in capital 61,164 3,000 Retained earnings 1,918,603 1,795,285 Accumulated other comprehensive income 223,021 213,667 ----------- ----------- Total stockholder's equity 2,207,788 2,016,952 ----------- ----------- Total liabilities and stockholder's equity $21,776,851 $20,798,651 =========== ===========
See accompanying notes to consolidated financial statements. 2 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Consolidated Statements of Operations and Comprehensive Income Years ended December 31, 2004, 2003 and 2002 (In thousands)
2004 2003 2002 ---------- ---------- ---------- Revenues: Premiums $1,078,586 $1,005,277 $ 900,074 Policy and contract fees 382,048 351,669 355,890 Net investment income 459,612 465,858 499,103 Net realized investment gains (losses) 73,862 (48,641) (137,097) Finance charge income 37,694 34,148 33,125 Commission income 40,589 -- -- Other income 21,273 18,820 22,777 ---------- ---------- ---------- Total revenues 2,093,664 1,827,131 1,673,872 ---------- ---------- ---------- Benefits and expenses: Policyholder benefits 1,027,760 975,604 849,342 Interest credited to policies and contracts 280,618 287,018 289,606 General operating expenses 389,924 341,552 328,421 Commissions 143,633 108,293 100,912 Administrative and sponsorship fees 63,057 68,773 71,166 Dividends to policyholders 15,331 17,817 19,162 Interest on notes payable 10,391 11,258 12,758 Amortization of deferred policy acquisition costs 169,888 166,138 188,662 Capitalization of policy acquisition costs (206,061) (208,620) (169,437) ---------- ---------- ---------- Total benefits and expenses 1,894,541 1,767,833 1,690,592 ---------- ---------- ---------- Income (loss) from operations before taxes 199,123 59,298 (16,720) Federal income tax expense (benefit): Current 17,445 19,121 3,048 Deferred 42,821 (4,268) (23,524) ---------- ---------- ---------- Total federal income tax expense (benefit) 60,266 14,853 (20,476) ---------- ---------- ---------- Net income $ 138,857 $ 44,445 $ 3,756 ========== ========== ========== Other comprehensive income (loss), net of tax: Unrealized gains (losses) on securities, net $ 9,354 $ 155,276 $ (44,898) ---------- ---------- ---------- Other comprehensive income (loss), net of tax 9,354 155,276 (44,898) ---------- ---------- ---------- Comprehensive income (loss) $ 148,211 $ 199,721 $ (41,142) ========== ========== ==========
See accompanying notes to consolidated financial statements. 3 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Consolidated Statements of Changes in Stockholder's Equity Years ended December 31, 2004, 2003 and 2002 (In thousands)
2004 2003 2002 ---------- ---------- ---------- Common stock: Total common stock $ 5,000 $ 5,000 $ 5,000 ========== ========== ========== Additional paid in capital: Beginning balance $ 3,000 $ 3,000 $ 3,000 Contributions 58,164 -- -- ---------- ---------- ---------- Total additional paid in capital $ 61,164 $ 3,000 $ 3,000 ========== ========== ========== Retained earnings: Beginning balance $1,795,285 $1,786,873 $1,821,015 Net income 138,857 44,445 3,756 Dividends to stockholder (15,539) (36,033) (37,898) ---------- ---------- ---------- Total retained earnings $1,918,603 $1,795,285 $1,786,873 ========== ========== ========== Accumulated other comprehensive income: Beginning balance $ 213,667 $ 58,391 $ 103,289 Change in unrealized appreciation (depreciation) of securities, net 9,354 155,276 (44,898) ---------- ---------- ---------- Total accumulated other comprehensive income $ 223,021 $ 213,667 $ 58,391 ========== ========== ========== Total stockholder's equity $2,207,788 $2,016,952 $1,853,264 ========== ========== ==========
See accompanying notes to consolidated financial statements. 4 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 2004, 2003 and 2002 (In thousands)
2004 2003 2002 ----------- ----------- ----------- Cash Flows from Operating Activities Net income $ 138,857 $ 44,445 $ 3,756 Adjustments to reconcile net income to net cash provided by operating activities: Interest credited to annuity and insurance contracts 248,103 249,128 251,828 Fees deducted from policy and contract balances (352,028) (327,631) (319,227) Change in future policy benefits 41,572 30,013 153,061 Change in other policyholder liabilities, net 9,006 35,834 (35,323) Amortization of deferred policy acquisition costs 169,888 166,138 188,662 Capitalization of policy acquisition costs (206,061) (208,620) (169,437) Change in premiums and fees receivable 375 (12,530) (6,689) Deferred tax provision 42,821 (4,268) (23,524) Change in federal income tax liabilities - current (7,972) 16,009 (16,929) Net realized investment losses (gains) (73,862) 48,641 137,097 Change in reinsurance recoverables (50,027) (30,147) (22,515) Other, net 90,532 137,729 14,973 ----------- ----------- ----------- Net cash provided by operating activities 51,204 144,741 155,733 ----------- ----------- ----------- Cash Flows from Investing Activities Proceeds from sales of: Fixed maturity securities, available-for-sale 1,538,904 1,658,859 2,046,691 Equity securities 537,399 429,470 378,452 Mortgage loans 3,239 -- -- Real estate 1,276 11,255 3,301 Private equity investments 63,623 23,703 11,583 Other invested assets 23,619 1,729 12,343 Proceeds from maturities and repayments of: Fixed maturity securities, available-for-sale 1,262,636 1,170,516 601,211 Mortgage loans 79,356 81,056 50,370 Purchases and originations of: Fixed maturity securities, available-for-sale (3,077,269) (3,281,851) (2,898,144) Equity securities (477,434) (462,070) (377,641) Mortgage loans (119,806) (86,931) (78,011) Real estate (1,324) (737) -- Private equity investments (51,265) (31,519) (42,639) Other invested assets (21,779) (4,319) (2,866) Finance receivable originations or purchases (109,989) (91,674) (82,141) Finance receivable principal payments 89,283 77,154 78,266 Securities in transit (109,734) 95,821 (39,632) Other, net (23,196) (22,760) (14,346) ----------- ----------- ----------- Net cash used for investing activities (392,461) (432,298) (353,203) ----------- ----------- ----------- Cash Flows from Financing Activities Deposits credited to annuity and insurance contracts 1,814,146 1,626,707 1,434,456 Withdrawals from annuity and insurance contracts (1,546,611) (1,263,337) (1,188,125) Payments on debt -- (12,000) (22,000) Contributed capital 55,000 -- -- Dividends paid to stockholder -- (22,000) (78,586) Other, net (7,299) 2,714 (363) ----------- ----------- ----------- Net cash provided by financing activities 315,236 332,084 145,382 ----------- ----------- ----------- Net (decrease) increase in cash and cash equivalents (26,021) 44,527 (52,088) Cash and cash equivalents, beginning of year 222,529 178,002 230,090 ----------- ----------- ----------- Cash and cash equivalents, end of year $ 196,508 $ 222,529 $ 178,002 =========== =========== ===========
See accompanying notes to consolidated financial statements. 5 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2004, 2003 and 2002 (1) Nature of Operations Organization and 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 LLC, Enterprise Holding Corporation, Northstar Life Insurance Company, and Allied Solutions, LLC. 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 four strategic business units, which focus on various markets: Individual Financial Security, Financial Services, Group Insurance, and Retirement Services. Revenues, including net realized investment gains and losses, in 2004 for these business units were $598,650,000, $270,687,000, $888,030,000 and $197,468,000, respectively. Revenues in 2003 for these strategic business units were $589,782,000, $258,798,000, $805,084,000, and $187,440,000, respectively. Revenues in 2002 for these strategic business units were $620,370,000, $287,073,000, $672,316,000, and $188,626,000, respectively. Additional revenues, including the majority of net realized investment gains and losses, reported by the Company's subsidiaries and corporate product line for the years ended December 31, 2004, 2003 and 2002, were $138,829,000, ($13,973,000) and ($94,513,000), respectively. The Company serves over eight million people through more than 5,000 home office associates and field representatives located at its St. Paul, Minnesota headquarters and in sales offices nationwide. During 2004, the Company's majority-owned subsidiary, MIMLIC Life Insurance Company, was dissolved. On June 1, 2004, the Company purchased Allied Solutions, LLC and Subsidiary (Allied). See note 13 for further explanation of this transaction. Effective July 1, 2003, Personal Finance Company converted from a C corporation into a limited liability company and its name was changed to Personal Finance Company LLC. On April 1, 2003, ownership of Securian Life Insurance Company was transferred from the Company to Securian Financial Group, Inc., in the form of a dividend. On January 2, 2003, ownership of Securian Casualty Company was transferred from the Company to Securian Financial Group, Inc., in the form of a dividend. (2) Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The consolidated financial statements include the accounts of the Minnesota Life Insurance Company and its subsidiaries. The results of Allied are reported on a month lag, which is not considered to be material to the consolidated results of operations or financial position of the Company. All material intercompany transactions and balances have been eliminated. (Continued) 6 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (2) Summary of Significant Accounting Policies (Continued) Basis of Presentation (Continued) The Company's insurance operations, domiciled in the states of Minnesota and New York, prepare statutory financial statements in accordance with the accounting practices prescribed or permitted by the insurance departments of the states of domicile. Prescribed statutory accounting practices are those practices that are incorporated directly or by reference in state laws, regulations and general administrative rules applicable to all insurance enterprises domiciled in a particular state. Permitted statutory accounting practices include practices not prescribed by the domiciliary state, but allowed by the domiciliary state regulatory authority. The Company's insurance operations have no material statutory accounting practices that differ from those of the state of domicile or the National Association of Insurance Commissioners accounting practices. See note 19 for discussion of statutory dividend limitations. The preparation of consolidated 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. The most significant estimates include those used in determining the balance and amortization of deferred policy acquisition costs for traditional and nontraditional insurance products, policyholder liabilities, impairment losses on investments, valuation allowances for mortgage loans on real estate, federal income taxes, goodwill, intangible assets, and pension and other postretirement employee benefits. Although some variability is inherent in these estimates, the recorded amounts reflect management's best estimates based on facts and circumstances as of the balance sheet date. Management believes the amounts provided are appropriate. 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. To the extent that this revenue is unearned, it is reported as part of unearned premiums and fees on the consolidated balance sheets. 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 and is assessed on a daily or monthly basis and recognized as revenue when assessed and earned. Expenses include both the portion of claims not covered by and the interest credited to the related policy and contract account balances. Deferred policy acquisition costs are amortized relative to estimated gross profits or margins. Any premiums on both traditional and nontraditional products due as of the date of the consolidated financial statements that are not yet paid are included in premiums and fees receivables on the consolidated balance sheets. Certain nontraditional life products, specifically individual adjustable and variable life insurance policies, require payment of fees in advance for services that will be rendered over the estimated lives of the policies. These payments are established as unearned revenue reserves upon receipt and are included in unearned premiums and fees on the consolidated balance sheets. These unearned revenue reserves are amortized to operations over the estimated lives of these policies and contracts in relation to the emergence of estimated gross profit margins. (Continued) 7 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (2) Summary of Significant Accounting Policies (Continued) Commission Revenue Commission income on insurance products is recognized as earned, net of the amount required to be remitted to the various underwriters responsible for providing the policy. Deferred Policy Acquisition Costs The costs of acquiring new and renewal business, which vary with and are primarily related to the production of new and renewal business, are generally deferred to the extent recoverable from future premiums or expected gross profits. Deferrable costs include commissions, underwriting expenses and certain other selling and issue costs. Deferred policy acquisition costs (DAC) are subject to loss recognition testing at least annually. For traditional life, accident and health and group life products, DAC are amortized with interest 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 are amortized with interest over the expected lives of the contracts in relation to the present value of estimated gross profits from investment, mortality and expense, and lapse margins. The Company reviews actuarial assumptions used to project estimated gross profits, such as mortality, persistency, expenses, investment returns and separate account performance, periodically throughout the year. These assumptions reflect the Company's best estimate of future experience. For future separate account performance, the Company utilizes a mean reversion process. The Company's future long-term yield assumption changed from 9% to 8% at December 31, 2004. This change was a result of a change in management's best estimate regarding future long-term separate account performance. Factors regarding economic outlook as reviewed by a third party and internal investment experts, and management's current view of the capital markets were considered in developing management's best estimate of the long-term assumption. The Company's policy regarding the reversion to the mean process assumes a five-year reversion period during which a modified yield assumption is projected for the next five years after the valuation date. This modified yield assumption is calculated such that, when combined with the actual yields from January 1, 2001 through the valuation date, the total yield from January 1, 2001 through the end of the five-year reversion period is equal to the long-term assumption. This modified yield assumption is not permitted to be negative or in excess of 15% during the five-year reversion period. Changes in actuarial assumptions can have a significant impact on the amount of DAC reported for nontraditional life and deferred annuities, and the related amortization patterns. In the event actual experience differs from assumptions or assumptions are revised to reflect management's best estimate, the Company records an increase or decrease in DAC amortization expense, which could be significant. Any resulting impact to financial results from a change in actuarial assumption is included in amortization of deferred policy acquisition costs in the consolidated statements of operations. Deferred policy acquisition costs are adjusted to reflect the impact of unrealized gains and losses on fixed maturity securities available-for-sale as described in note 17. 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 $26,183,000 and $26,032,000 as of December 31, 2004 and 2003, respectively, and amortized software expense of $8,356,000, $7,838,000 and $8,227,000 for the years ended December 31, 2004, 2003 and 2002, respectively. (Continued) 8 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (2) Summary of Significant Accounting Policies (Continued) Finance Charge Income and Receivables Finance charge income, arising from the Company's consumer finance operations, includes earned finance charges, interest, and fees on finance receivables. Accrued and uncollected finance charges, interest, and fees are included in finance receivables in the consolidated balance sheets. 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 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. Late charges are accrued only if two or less late charges are due and unpaid. Accrual of finance charges and interest is suspended on other receivables at the earlier of when they are contractually past due for more than 60 days or they are considered by management to be impaired. A loan is treated as impaired when based upon current information and events it is probable that the Company will be unable to collect all amounts due according to all of the contractual terms of the loan agreement. 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 accrued in the current year is reversed. Interest payments received on impaired loans are generally applied to principal unless the remaining principal balance has been determined to be fully collectible. An allowance for losses is maintained by direct charges to operations at an amount which in management's judgment, based on a specific review of larger individual loans, the overall risk characteristics of the portfolio, changes in the character or size of the portfolio, the level of non-performing assets, historical losses and economic conditions, is adequate to absorb probable losses on existing receivables. It is the Company's general policy to charge-off accounts (net of unearned finance charges) when they are deemed uncollectible and in any event on which no collections were received during the preceding six months, except for certain accounts which have been individually reviewed by management and are deemed to warrant further collection effort. The adequacy of the allowance for losses is highly dependent upon management's estimates of variables affecting valuation, appraisals of collateral, evaluations of performance and status, and the amounts and timing of future cash flows expected to be received on impaired loans. Such estimates, appraisals, evaluations and cash flows may be subject to frequent adjustments due to changing economic prospects of borrowers or properties. These estimates are reviewed periodically and adjustments, if necessary, are recorded in the provision for credit losses in the periods in which they become known. Valuation of Investments and Net Investment Income 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. Premiums and discounts are amortized or accreted over the estimated lives of the securities based on the interest yield method. The Company recognizes the excess of all cash flows attributable to its beneficial interest in asset-backed securities, including all interest only strips and asset-backed securities not of high credit quality, estimated at the acquisition/transaction date over the initial investment as interest income over the life of the Company's beneficial interest using the effective yield method. The Company uses book value as cost for applying the retrospective adjustment method to fixed maturity securities purchased. Prepayment assumptions for single class and multi-class mortgage-backed securities were obtained from broker dealer survey values or internal estimates. Marketable equity securities (common stocks, preferred stocks and equity securities on loan) are classified as available-for-sale and are carried at fair value. Mutual funds in select asset classes that are sub-advised are carried at the fair value of the underlying net assets of the funds. (Continued) 9 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (2) Summary of Significant Accounting Policies (Continued) Valuation of Investments and Net Investment Income (Continued) Mortgage loans are carried at amortized cost less any valuation allowances. Premiums and discounts are amortized or accreted over the terms of the mortgage loans based on the interest yield method. Impairments are determined by specific identification. 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 consolidated balance sheets 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. Any adjustments recorded directly to stockholders' equity of the investee are recorded, based on the Company's ownership share, as an adjustment to the amount invested and as unrealized gains or losses. 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 are based on quoted market prices where available. Fair values of marketable equity securities and embedded derivatives are based on quoted market prices. Fair values of private equity investments are obtained from the financial statement valuations of the underlying fund or independent broker bids. For fixed maturity securities not based on quoted market prices (generally private placement securities and securities that do not trade regularly) an internally developed pricing model using a commercial software application is most often used. The internally developed pricing model is developed by obtaining spreads versus the U.S. Treasury yield for corporate securities with varying weighted average lives and bond ratings. The weighted average life and bond rating of a particular fixed maturity security to be priced are important inputs into the model and are used to determine a corresponding spread that is added to the U.S. Treasury yield to create an estimated market yield for that security. The estimated market yield, liquidity premium, any adjustments for known credit risk, and other relevant factors are then used to estimate the fair value of the particular fixed maturity security. For securities for which quoted market prices are not available and the internally developed pricing model is not suitable for estimating fair values, qualified company representatives determine the fair value using discounted cash flows and pricing information obtained from the trustee of the related security. As of December 31, 2004, 79.3% of the fair values of fixed maturity securities were obtained from quoted market prices, 19.8% from the internal methods described above and .9% from other sources, primarily broker bids. Real estate is carried at cost less accumulated depreciation and an allowance for estimated losses. The Company recognizes interest income as earned and recognizes dividend income on equity securities upon the declaration of the dividend. For mortgage-backed securities, the Company recognizes income using a constant effective yield method based on prepayment assumptions obtained from an outside service provider or upon analyst review of the underlying collateral and the estimated economic life of the securities. When estimated prepayments differ from the anticipated prepayments, the effective yield is recalculated to reflect actual prepayments to date and anticipated future payments. Any resulting adjustment is included in net investment income. All other investment income is recorded using the interest method without anticipating the impact of prepayments. Policy loans are carried at the unpaid principal balance. (Continued) 10 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (2) Summary of Significant Accounting Policies (Continued) Valuation of Investments and Net Investment Income (Continued) Cash and cash equivalents are carried at cost, which approximates fair value. The Company considers all money market funds and commercial paper with original maturity dates of less than three months to be cash equivalents. The Company places its cash and cash equivalents with high quality financial institutions and, at times, these balances may be in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit. A portion of the funds collected by the Company from its financial institution customers is restricted in its use because the Company is acting as an agent on behalf of certain insurance underwriters. As an agent, the Company has a fiduciary responsibility to remit the appropriate percentage of monies collected to the corresponding insurance underwriters. This sum of money is defined as unremitted premiums payable, is recorded in other liabilities on the consolidated balance sheets, and is discussed in detail in note 12. The use of the restricted funds is limited to the satisfaction of the unremitted premiums payable owed to the underwriter. The amount of restricted cash reported in cash and cash equivalents on the consolidated balance sheets is $13,008,000 and $0 at December 31, 2004 and 2003, respectively. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of adjustments to deferred policy acquisition costs, reserves and deferred federal income tax, reported as a separate component of accumulated other comprehensive income in stockholder's equity. The adjustment to deferred policy acquisition costs represents the change in amortization of deferred policy acquisition costs that would have been required as a charge or credit to operations had such unrealized amounts been realized. The adjustment to reserves represents the increase in policy reserves from using a discount rate that would have been required if such unrealized gains had been realized and the proceeds reinvested at then current market interest rates, which were lower than the current effective portfolio rate. Finance receivables that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding unpaid principal balances reduced by any charge-off. The interest rates on the receivables outstanding at December 31, 2004 and 2003 are consistent with the rates at which loans would currently be made to borrowers of similar credit quality and for the same maturities and security; as such, the carrying value of the receivables outstanding at December 31, 2004 and 2003 approximate the fair value at that date. Credit Risk Certain financial instruments, consisting primarily of cash and cash equivalents, potentially subject the Company to concentration of credit risk. The Company places its cash and cash equivalents with high quality financial institutions and limits the amount of credit exposure with any one institution. Concentration of credit risk with respect to mortgages, fixed maturity securities, and other invested assets are limited because of the diverse geographic base and industries of the underlying issuers. This diversity is an integral component of the portfolio management process. Equity security diversification is obtained through the use of style diversification and through limiting exposure to a single issuer. Private equity investment diversification is achieved by dividing the portfolio between direct venture company funds, mezzanine debt funds and hedge and other types of private equity instruments. In addition, this portfolio is managed by diversifying industry sectors to limit exposure to any one type of fund. (Continued) 11 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (2) Summary of Significant Accounting Policies (Continued) Credit Risk (Continued) During 2003, the Company exchanged its affiliated investment advisor's mutual funds for shares of Waddell and Reed Ivy Investment Co. funds due to the sale of the equity advisory business by its affiliated investment advisor. For 2003, the investments continued to be invested across the same eight well-diversified investment strategies employed by the former affiliated funds. The fair value of these funds at December 31, 2003 was $172,424,000. During 2004, four of these funds were liquidated while the remaining four funds continue to be managed using the same diversification strategy and had a fair value at December 31, 2004 of $93,297,000. Derivative Financial Instruments 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 held one derivative in the form of an equity swap which matured in August 2003. The purpose of this swap was to hedge the fair value of equity-linked instruments to equity market movements. This swap was a customized derivative that was embedded directly with the underlying equity-linked fixed maturity security and could not be unwound separately from the fixed maturity security. Equity swaps are considered to be fair value hedges and were entered into only for the purpose of hedging such risks, not for speculation. The change in fair value of this swap was offset to net realized capital losses by changes in the fair value of the item being hedged. As of December 31, 2004 and 2003, the Company had no equity swap positions. The Company uses short-duration spot contracts to manage the foreign exchange risk inherent in the elapsed time between trade processing and trade settlement in its international equity portfolio. The contracts had an immaterial impact on the Company's current year consolidated operating results. The Company reclassified certain mortgage dollar roll securities from fixed maturity and equity securities classified as available-for-sale as of December 31, 2004 and 2003, in the amount of $2,926,000 and $114,809,000, respectively, to other invested assets. As of December 31, 2004 and 2003, the change in fair value of these securities included in realized capital gains (losses) was $1,013,000 and ($1,007,000), respectively. Realized and Unrealized Gains and Losses The Company regularly reviews each investment in its various asset classes to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of the investments. Under the Company's accounting policy for debt and equity securities that can be contractually prepaid or otherwise settled in a way that may limit the Company's ability to fully recover cost, an impairment is deemed to be other-than-temporary unless the Company has both the ability and intent to hold the investment for a reasonable period of time. For debt securities, the Company estimates cash flows over the life of purchased beneficial interests in securitized financial assets. If the Company estimates that the fair value of its beneficial interests is not greater than or equal to its carrying value based on current information and events, and if there has been an adverse change in estimated cash flows since the last revised estimate, considering both timing and amount, then the Company recognizes an other-than-temporary impairment and writes down the purchased benefit interest to fair value. (Continued) 12 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (2) Summary of Significant Accounting Policies (Continued) Realized and Unrealized Gains and Losses (Continued) For other debt and equity securities, an other-than-temporary charge is taken when the Company does not have the ability and intent to hold the security until the forecasted recovery or if it is no longer probable that the Company will recover all amounts due under the contractual terms of the security. Many criteria are considered during this process including but not limited to, the current fair value as compared to the amortized cost of the security, specific credit issues such as collateral, and financial prospects related to the issuer, the Company's intent to hold or dispose of the security, and current economic conditions. Available-for-sale equity securities which have been in an unrealized loss position of greater than 20% for longer than six months are reviewed specifically using available third party information and the manager's intent to hold the stock. Mutual funds are reviewed analyzing the characteristics of the underlying investments and the long-term outlook for the asset class along with the intent to hold the investment. All other available-for-sale equity securities with significant unrealized losses are also reviewed on the same basis for impairment. Private equity securities which have been in an unrealized loss position of greater than 20% for longer than two years are analyzed on a fund by fund basis using current and forecasted expectations for future fund performance, the age of the fund, general partner commentary and underlying investments within the fund. All other material unrealized losses are reviewed for any unusual event that may trigger an other-than-temporary charge. Other-than-temporary impairments are recorded to bring the cost of the investment down to the fair market value. Other-than-temporary impairment losses result in a permanent reduction to the cost basis of the underlying investment. The Company provides valuation allowances for impairments of mortgage loans on a specific identification basis. Mortgage loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When the Company determines that a loan is impaired, a provision for loss is established equal to the difference between the carrying value and the present value of expected future cash flows discounted at the loan's effective interest rate, or the fair value of the collateral, if the loan is collateral dependent. Changes in the valuation allowance are recorded in net realized gains and losses on the consolidated statements of operations. No valuation allowances for mortgage loans were necessary as of December 31, 2004 and 2003. Impairment losses are recorded on investments in real estate and other long-lived assets used in operations when indicators of impairment are present, using undiscounted cash flows if available or independent market appraisals. Total other-than-temporary write-downs for fixed maturity securities for the years ended December 31, 2004, 2003 and 2002 respectively were $6,684,000, $34,632,000 and $53,299,000, respectively. Total other-than-temporary write-downs for marketable equity securities for the years ended December 31, 2004, 2003 and 2002 were $1,728,000, $13,157,000 and $5,314,000 respectively. An additional $23,427,000 and $40,300,000 of other than temporary write-downs for marketable equity securities were recorded on securities that were subsequently sold during 2003 and 2002, respectively. Total other-than-temporary write-downs for private equity investments for the years ended December 31, 2004, 2003 and 2002 were $13,863,000, $57,480,000 and $51,410,000, respectively. (Continued) 13 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 fair 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 $1,762,000, $2,378,000, and $1,413,000 for the years ended December 31, 2004, 2003, and 2002, respectively. Securities, consisting of equity securities and fixed maturity securities, were loaned to other financial institutions. Amounts loaned as of December 31, 2004 and 2003 were $1,236,264,000 and $1,429,899,000, respectively. As of December 31, 2004 and 2003, the collateral associated with securities lending was $1,276,761,000 and $1,466,354,000, 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 sheets as securities held as collateral 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 commercial paper 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 $179,776,000 and $170,390,000 at December 31, 2004 and 2003, 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, 2004, 2003, and 2002, was $12,427,000, $11,855,000, and $12,085,000, respectively. Effective January 1, 2002, the Company adopted Financial Accounting Standards Board (FASB) 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 determined that there were no material impacts to the consolidated statements of operations or financial position due to the adoption and subsequent application of FAS 144. Goodwill and Other Intangible Assets In accordance with FASB Statement No. 142 (FAS 142), Goodwill and Other Intangible Assets, the Company does not amortize goodwill. The Company tests goodwill, at the reporting unit level, at least annually and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to: (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company compares the fair value of the reporting unit to which the goodwill is assigned to the reporting unit's carrying amount, including goodwill. The fair value of the reporting unit is estimated using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies' data, when available. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of reporting unit goodwill to its carrying amount. In calculating the implied fair value of reporting unit goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value. (Continued) 14 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (2) Summary of Significant Accounting Policies (Continued) Goodwill and Other Intangible Assets (Continued) The Company also evaluates the recoverability of other intangible assets with an indefinite useful life whenever events or changes in circumstances indicate that an intangible asset's carrying amount may not be recoverable. Such circumstances could include, but are not limited to: (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset. The Company measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds its fair value. The fair value is measured based on quoted market prices, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. Intangible assets with a finite useful life are amortized over their useful lives on a straight-line basis. Separate Accounts Separate account assets and liabilities represent segregated funds administered by an unaffiliated asset management firm. These assets and liabilities are invested by both an unaffiliated asset management firm and an affiliate of the Company for the exclusive benefit of the Company's 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 fair value of the investments held in the segregated funds. The investment income and gains and losses of these accounts accrue directly to the policyholders and contractholders. The activity of the separate accounts is not reflected in the consolidated statements of operations except for the fees the Company received, which are assessed on a daily or monthly basis and recognized as revenue when assessed and earned. The Company periodically invests money in its separate accounts. The fair value of such investments, included with separate account assets at December 31, 2003 was $44,945,000. At December 31, 2004, the fair value of these investments was $49,445,000 and included with equity securities as required by Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts (SOP 03-1). Sales Inducements The Company defers sales inducements and amortizes them over the life of the policy using the same methodology and assumptions used to amortize DAC. The Company's sales inducement credits the policyholder with a higher interest rate than the normal general account interest rate for the first policy year. Changes in deferred sales inducements for the period ended December 31 were as follows: in thousands 2004 ------------ ---- Balance at beginning of year $ -- Capitalization 261 Amortization (11) ---- Balance at end of year $250 ==== (Continued) 15 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (2) Summary of Significant Accounting Policies (Continued) Reinsurance 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. Reinsurance premiums ceded and recoveries on benefits and claims incurred are deducted from the respective income and expense accounts. Policyholder 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. Certain traditional life products are accounted for under AICPA Statement of Position 95-1, Accounting for Certain Insurance Activities of Mutual Life Insurance Entities. When estimating the expected gross margins for traditional life products as of December 31, 2004, the Company has assumed an average rate of investment yields ranging from 4.69% to 4.95%. Future policy and contract benefits are adjusted to reflect the impact of unrealized gains and losses on securities as described in note 17. Other policyholder funds are comprised of dividend accumulations, premium deposit funds and supplementary contracts without life contingencies. Participating Business Dividends on participating policies and other discretionary payments are declared by the Board of Directors based upon actuarial determinations, which take into consideration current mortality, interest earnings, expense factors and federal income taxes. Dividends are recognized as expenses consistent with the recognition of premiums. At December 31, 2004 and 2003, the total participating business in force was $1,310,550,000 and $1,199,752,000, respectively. As a percentage of total life insurance in force, participating business in force represents .3% at December 31, 2004 and 2003. Income Taxes The Company files a consolidated life/non-life federal income tax return with 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 (IRS). (Continued) 16 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (2) Summary of Significant Accounting Policies (Continued) Income Taxes (Continued) The Company provides for federal income taxes based on amounts the Company believes it ultimately will owe. Inherent in the provision for federal income taxes are estimates regarding the deductibility of certain items and the realization of certain tax credits. In the event the ultimate deductibility of certain items or the realization of certain tax credits differs from estimates, the Company may be required to significantly change the provision for federal income taxes recorded in the consolidated financial statements. Any such change could significantly affect the amounts reported in the consolidated statements of operations. Management has used best estimates to establish reserves based on current facts and circumstances regarding tax exposure items where the ultimate deductibility is open to interpretation. Management evaluates the appropriateness of such reserves based on any new developments specific to their fact patterns. Information considered includes results of completed tax examinations, Technical Advice Memorandums and other rulings issued by the IRS or the tax courts. The Company utilizes the asset and liability method of accounting for income tax. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under this method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when it is determined that it is more likely than not that the deferred tax asset will not be fully realized. Current income taxes are charged to operations based upon amounts estimated to be payable as a result of taxable operations for the current year. New Pronouncements In December 2004, the FASB issued Statement No. 153, (FAS 153), Exchange of Nonmonetary Assets, an amendment of APB Opinion No. 29 (APB 29), which eliminates the exception in APB 29 for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. This guidance is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company expects no material impact to its consolidated results of operations or financial position due to the adoption of FAS 153. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law on December 8, 2003. In accordance with FASB Staff Position (FSP) FAS 106-1, Accounting and Disclosure Requirements Related to The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (FSP FAS 106-1), issued in January 2004, the Company elected to defer accounting for the effects of the Act until the FASB issued guidance on how to account for the provisions of the Act. In May 2004, the FASB issued FSP FAS 106-2, Accounting and Disclosure Requirements Related to The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (FSP FAS 106-2), which superseded FSP FAS 106-1 and provided guidance on accounting and disclosures related to the Act. The Company has concluded that prescription drug benefits available under its postretirement plans to some or all participants for some or all future years are at least actuarially equivalent to Medicare Part D, and thus qualify for the subsidy under the Act. The Company has estimated the expected subsidy that will reduce the Company's share of the cost and has reflected that in its postretirement plan costs and obligations. The effect of the Act to the Company is a $7,750,000 reduction of the accumulated postretirement benefit obligation as of December 31, 2004 and a $1,151,000 reduction in the net periodic postretirement benefit cost for 2004. (Continued) 17 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (2) Summary of Significant Accounting Policies (Continued) New Pronouncements (Continued) In March 2004, the Emerging Issues Task Force (EITF) reached consensus on further guidance concerning the identification of and accounting for other-than-temporary impairments and disclosures for cost method investments, as required by EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (EITF 03-1), which was issued on October 23, 2003. The Company revised its method of calculating the impairment of securities based on this additional guidance. Other-than-temporary impairments reduce the value of the investment to fair value. On September 8, 2004, the FASB exposed for comment FSP EITF Issue 03-1-a, which was intended to provide guidance related to the application of paragraph 16 of EITF 03-1, and proposed FSP EITF Issue 03-1-b, which proposed a delay in the effective date of EITF 03-1 for debt securities that are impaired because of interest rate and/or sector spread increases. Based on comments received on these proposals, on September 30, 2004 the FASB issued FSP EITF 03-1-1, Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, which delayed the effectiveness of the related paragraphs in EITF 03-1, with the exception of certain disclosure requirements. The delay had no impact on the Company's consolidated financial position or results of operations. In June 2004, the FASB issued FSP 97-1, Situations in Which Paragraphs 17(b) and 20 of FASB Statement No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments (FAS 97), Permit or Require Accrual of an Unearned Revenue Liability (FSP FAS 97-1), to clarify the guidance related to unearned revenue reserves (URR). The primary purpose of FSP FAS 97-1 is to address the practice question of whether SOP 03-1 restricts the application of the URR guidance in FAS 97 to situations in which profits are expected to be followed by losses. Although SOP 03-1 requires URR in certain situations where profits are followed by losses, it does not restrict the calculation of URR to only those situations. The adoption of FSP FAS 97-1 had no material impact to the consolidated results of operations or financial position of the Company. Effective January 1, 2004, the Company adopted SOP 03-1. This statement provides guidance on the classification, valuation and accounting for nontraditional long-duration contract liabilities, the accounting for contracts with guaranteed minimum death benefits (GMDB), the accounting for sales inducements, and separate account presentation and valuation. SOP 03-1 requires companies to evaluate the significance of a GMDB to determine whether a contract should be accounted for as an investment or insurance contract. At adoption, the Company reclassified $44,945,000 of ownership in its own separate accounts from separate account assets to equity securities. The Company also has recorded certain market value adjusted ("MVA") fixed annuity products and investment options on variable annuities as separate account assets and liabilities through December 31, 2003. Notwithstanding the market value adjustment feature, all of the investment performance of the separate account assets is not being passed to the contractholder, and it therefore does not meet the conditions for separate account reporting under the SOP. On January 1, 2004, market value reserves included in separate account liabilities of $37,979,000 were revalued at current account value in the general account to $37,552,000. The related separate account assets of $38,912,000 were also reclassified to the general account. Since adoption of the SOP, the components of the spread on a book value basis are recorded in interest income and interest credited. Realized gains and losses on investments and market value adjustments on contract surrenders are recognized as incurred. The adoption of SOP 03-1 had no material impact to the consolidated results of operations or financial position of the Company. In December 2003, the FASB issued Statement No. 132, revised 2003, (FAS 132), Employers' Disclosures about Pensions and Other Post Retirement Benefits, which amends disclosure requirements for pension plans and other post retirement benefit plans, effective for nonpublic entities for fiscal years ending after June 15, 2004. The adoption of FAS 132 on January 1, 2004, did not have a material impact on the consolidated results of operations or financial position of the Company. (Continued) 18 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (2) Summary of Significant Accounting Policies (Continued) Reclassification Certain 2003 and 2002 financial statement balances have been reclassified to conform to the 2004 presentation. (3) Investments Net investment income for the years ended December 31 was as follows:
in thousands 2004 2003 2002 ------------ -------- -------- -------- Fixed maturity securities $367,978 $370,208 $398,491 Equity securities 14,368 17,615 24,620 Mortgage loans 62,182 61,404 58,791 Real estate 29 1,543 1,285 Policy loans 19,843 19,517 19,360 Cash equivalents 2,233 2,216 3,384 Private equity investments 4,909 1,853 3,277 Other invested assets 3,305 5,357 3,019 -------- -------- -------- Gross investment income 474,847 479,713 512,227 Investment expenses (15,235) (13,855) (13,124) -------- -------- -------- Total $459,612 $465,858 $499,103 ======== ======== ========
Net realized investment gains (losses) for the years ended December 31 were as follows:
in thousands 2004 2003 2002 ------------ -------- -------- --------- Fixed maturity securities $ 9,712 $(19,499) $ (26,162) Equity securities 64,029 25,572 (64,038) Mortgage loans (242) (376) 1,509 Real estate (33) 4,490 (1) Private equity investments 11,571 (54,224) (48,395) Other invested assets (11,175) (4,604) (10) -------- -------- --------- Total $ 73,862 $(48,641) $(137,097) ======== ======== =========
Gross realized gains (losses) on the sales and impairments of fixed maturity securities, equity securities and private equity investments for the years ended December 31 were as follows:
in thousands 2004 2003 2002 ------------ -------- -------- --------- Fixed maturity securities, available-for-sale: Gross realized gains $ 24,167 $ 21,560 $ 59,802 Gross realized losses (14,455) (41,059) (85,964) Equity securities: Gross realized gains 88,097 93,634 40,973 Gross realized losses (24,068) (68,062) (105,011) Private equity investments: Gross realized gains 26,852 3,823 3,525 Gross realized losses (15,281) (58,047) (51,920)
(Continued) 19 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (3) Investments (Continued) Net unrealized gains (losses) included in stockholder's equity at December 31 were as follows:
in thousands 2004 2003 ------------ --------- --------- Gross unrealized gains $ 492,319 $ 514,469 Gross unrealized losses (50,025) (54,769) Adjustment to deferred policy acquisition costs (63,599) (112,006) Adjustment to reserves (44,280) (47,221) Adjustment to unearned policy and contract fees 10,253 17,365 Deferred federal income taxes (121,647) (104,171) --------- --------- Net unrealized gains $ 223,021 $ 213,667 ========= =========
The amortized cost and fair value of investments in fixed maturity and marketable equity securities by type of investment were as follows:
Gross Unrealized in thousands Amortized ------------------ Fair December 31, 2004 Cost Gains Losses Value ----------------------------------- ---------- -------- ------- ---------- United States government $ 20,377 $ 431 $ 72 $ 20,736 Government agencies and authorities 44,517 550 125 44,942 Foreign governments 1,714 76 -- 1,790 Corporate securities 3,207,961 197,974 7,162 3,398,773 Asset-backed securities 504,197 25,654 2,448 527,403 Mortgage-backed securities 1,434,572 50,040 5,308 1,479,304 ---------- -------- ------- ---------- Total fixed maturities 5,213,338 274,725 15,115 5,472,948 Equity securities-unaffiliated 606,225 144,589 3,537 747,277 ---------- -------- ------- ---------- Total $5,819,563 $419,314 $18,652 $6,220,225 ========== ======== ======= ==========
Gross Unrealized in thousands Amortized ------------------ Fair December 31, 2003 Cost Gains Losses Value ----------------------------------- ---------- -------- ------- ---------- United States government $ 54,092 $ -- $ 66 $ 54,026 Government agencies and authorities 5,582 17 5 5,594 Foreign governments 1,467 127 -- 1,594 Corporate securities 2,637,690 226,145 9,262 2,854,573 Asset-backed securities 661,465 16,702 5,404 672,763 Mortgage-backed securities 1,287,137 68,816 3,225 1,352,728 ---------- -------- ------- ---------- Total fixed maturities 4,647,433 311,807 17,962 4,941,278 Equity securities-unaffiliated 580,495 97,537 1,634 676,398 ---------- -------- ------- ---------- Total $5,227,928 $409,344 $19,596 $5,617,676 ========== ======== ======= ==========
(Continued) 20 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 in thousands Amortized ---------------- Fair December 31, 2004 Cost Gains Losses Value ----------------------------------- ---------- ------- ------ ---------- United States government $ 219,852 $10,294 $ 714 $ 229,432 Government agencies and authorities 168,952 4,203 832 172,323 Corporate securities 101,224 3,119 94 104,249 Asset-backed securities 8,170 304 -- 8,474 Mortgage-backed securities 629,928 10,381 2,644 637,665 ---------- ------- ------ ---------- Total fixed maturities 1,128,126 28,301 4,284 1,152,143 Equity securities-unaffiliated 63,396 21,579 854 84,121 ---------- ------- ------ ---------- Total $1,191,522 $49,880 $5,138 $1,236,264 ========== ======= ====== ==========
Gross Unrealized in thousands Amortized ---------------- Fair December 31, 2003 Cost Gains Losses Value ----------------------------------- ---------- ------- ------ ---------- United States government $ 205,495 $10,883 $ 47 $ 216,331 Government agencies and authorities 219,209 7,393 -- 226,602 Corporate securities 323,481 29,123 226 352,378 Asset-backed securities 12,529 669 -- 13,198 Mortgage-backed securities 543,519 10,985 1,885 552,619 ---------- ------- ------ ---------- Total fixed maturities 1,304,233 59,053 2,158 1,361,128 Equity securities-unaffiliated 52,100 16,920 249 68,771 ---------- ------- ------ ---------- Total $1,356,333 $75,973 $2,407 $1,429,899 ========== ======= ====== ==========
The amortized cost and estimated fair value of fixed maturity securities at December 31, 2004, 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 Available-for-Sale Securities on Loan ----------------------- ----------------------- Amortized Fair Amortized Fair in thousands Cost Value Cost Value ------------ ---------- ---------- ---------- ---------- Due in one year or less $ 311,134 $ 321,851 $ 45,809 $ 46,109 Due after one year through five years 195,890 209,785 250,228 253,794 Due after five years through ten years 2,343,390 2,446,881 138,459 143,854 Due after ten years 928,352 1,015,127 63,702 70,721 ---------- ---------- ---------- ---------- 3,778,766 3,993,644 498,198 514,478 Mortgage-backed securities 1,434,572 1,479,304 629,928 637,665 ---------- ---------- ---------- ---------- Total $5,213,338 $5,472,948 $1,128,126 $1,152,143 ========== ========== ========== ==========
(Continued) 21 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (3) Investments (Continued) The Company had certain investments with a reported fair value lower than the cost of the investment as follows: in thousands Unrealized December 31, 2004 Fair Value Cost Losses ------------------------------------ ---------- -------- ---------- US government securities Less than 12 months $ 11,526 $ 11,598 $ 72 Greater than 12 months -- -- -- Government agencies and authorities Less than 12 months 25,883 26,008 125 Greater than 12 months -- -- -- Corporate securities Less than 12 months 562,396 569,337 6,941 Greater than 12 months 23,947 24,168 221 Mortgage and asset-backed securities Less than 12 months 541,614 549,370 7,756 Greater than 12 months -- -- -- Equity securities - unaffiliated Less than 12 months 41,894 45,431 3,537 Greater than 12 months -- -- -- Private equity investments Less than 12 months 14,732 16,177 1,445 Greater than 12 months 76,048 99,435 23,387 in thousands Unrealized December 31, 2003 Fair Value Cost Losses ------------------------------------ ---------- -------- ---------- US government securities Less than 12 months $ 18,579 $ 18,645 $ 66 Greater than 12 months -- -- -- Government agencies and authorities Less than 12 months 8,251 8,256 5 Greater than 12 months -- -- -- Corporate securities Less than 12 months 248,946 252,829 3,883 Greater than 12 months 71,276 76,655 5,379 Mortgage and asset-backed securities Less than 12 months 371,769 376,996 5,227 Greater than 12 months 30,697 34,099 3,402 Equity securities - unaffiliated Less than 12 months 13,817 14,534 717 Greater than 12 months 15,350 16,267 917 Private equity investments Less than 12 months 95,778 124,813 29,035 Greater than 12 months 6,905 9,271 2,366 (Continued) 22 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (3) Investments (Continued) The Company had certain investments on loan with a reported fair value lower than the cost of the investment as follows: in thousands Unrealized December 31, 2004 Fair Value Cost Losses ------------------------------------ ---------- -------- ---------- US government securities Less than 12 months $ 85,483 $ 86,197 $ 714 Greater than 12 months -- -- -- Government agencies and authorities Less than 12 months 95,646 96,478 832 Greater than 12 months -- -- -- Corporate securities Less than 12 months 20,363 20,457 94 Greater than 12 months -- -- -- Mortgage and asset-backed securities Less than 12 months 221,959 224,603 2,644 Greater than 12 months -- -- -- Equity securities - unaffiliated Less than 12 months 7,439 8,293 854 Greater than 12 months -- -- -- in thousands Unrealized December 31, 2003 Fair Value Cost Losses ------------------------------------ ---------- -------- ---------- US government securities Less than 12 months $ 1,814 $ 1,861 $ 47 Greater than 12 months -- -- -- Government agencies and authorities Less than 12 months -- -- -- Greater than 12 months -- -- -- Corporate securities Less than 12 months 24,081 24,307 226 Greater than 12 months -- -- -- Mortgage and asset-backed securities Less than 12 months 173,292 175,177 1,885 Greater than 12 months -- -- -- Equity securities - unaffiliated Less than 12 months 3,460 3,709 249 Greater than 12 months -- -- -- Unrealized losses on fixed maturity securities are generally interest related rather than credit related. For equity securities, outside research supports target prices for the holdings that will return the securities to original cost or higher. For private equity securities, unrealized losses are generally due to heavy initial expenses and capital calls typical of newly developed funds. (Continued) 23 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (3) Investments (Continued) At December 31, 2004, no specific mortgage loans were considered impaired. At December 31, 2003, one mortgage loan was considered impaired. An allowance of $400,000 was recorded in 2003 on the impaired mortgage loan. The loan was sold in 2004, resulting in an additional realized loss of $242,000. As of December 31, 2004 and 2003, there was no general allowance for credit losses for potential impairments in the mortgage loan portfolio. There were no provisions for credit losses or charge-offs in 2004, 2003 or 2002. Below is a summary of interest income on impaired mortgage loans.
in thousands 2004 2003 2002 ------------ ---- ---- ---- Impaired mortgage loans $-- $ -- $ 1 Interest income on impaired mortgage loans - contractual -- 442 166 Interest income on impaired mortgage loans - collected -- -- --
At December 31, 2004 and 2003, fixed maturity securities and cash equivalents with a carrying value of $9,522,000 and $9,568,000, respectively, were on deposit with various regulatory authorities as required by law. (4) Variable Interest Entities In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities - an interpretation of ARB No. 51, subsequently revised in December of 2003 (FIN 46-R). The provisions of FIN 46-R for non-public entities apply immediately to variable interest entities (VIEs) created after December 31, 2003, and to VIEs in which an enterprise obtains an interest after that date. For VIEs created prior to December 31, 2003 the effective date of FIN 46-R is the beginning of the first period beginning after December 15, 2004. FIN 46-R changes the method of determining whether certain entities should be included in the Company's consolidated financial statements. An entity subject to FIN 46-R is called a VIE if it has (1) equity that is insufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or (2) equity investors that cannot make significant decisions about the entity's operations, or that do not absorb the expected losses or receive the expected returns of the entity. A VIE is consolidated by its primary beneficiary, which is the party involved with the VIE that absorbs a majority of the expected losses, receives a majority of the expected residual returns or both. The Company has reviewed all investments and relationships for potential VIEs. The Company has identified two VIEs for which it is the primary beneficiary. The Company has invested debt with the holding company of a former related party. Management of the holding company are not under agreement or regulation required to produce consolidated financial statement information. Data available for the Company to consolidate is considered incomplete, particularly in regard to revenue, capital transactions and minority interest information, and immaterial to the financial results of the Company. The Company estimates its maximum remaining exposure in this VIE to be $300,000. The Company estimates the revenue of this VIE to be approximately $1,000,000. The Company additionally holds an investment in a trust for which it is the primary beneficiary and where results are consolidated in the Company's financial results. The assets held under this VIE are approximately $5,000,000. The Company has identified VIE arrangements in which it holds significant variable interests, but is not the primary beneficiary and for which results have not been consolidated as detailed below: Maximum Exposure in thousands Total Assets to Loss ------------ ------------ ---------------- Collateralized debt obligations $ 12,870 $ 13,000 Non-registered mutual funds 125,436 113,592 Private equity investments 33,625 30,977 Other invested assets 3,141 3,141 (Continued) 24 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (5) 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 interest rate on the note was 8.625%, with principal payments to the Company commencing February 2004 and a maturity date of August 2025. Interest payments to the Company were payable February and August of each year commencing February 2001. All principal and interest payments were due only to the extent of available tax increments. In 2002, the loan reached its maximum principal balance of $15,000,000. In 2003, the Company took a write-down on the loan of $5,200,000, consisting of $4,959,000 of accrued interest and $241,000 of principal. The loan continued to accrue interest on the new balance, with payments applied first to accrued interest and then to principal. As of December 31, 2003, the loan balance was $13,791,000 and the accrued interest was $496,000. For the years ended December 31, 2004 and 2003, the Company received principal payments of $0 and $968,000, respectively, and interest payments of $346,000 and $755,000, respectively. During 2004, the note was refinanced into two new notes: a $17,800,000 note and a $2,976,000 note. An immediate write down at the time of refinancing of $4,808,000 and $428,000, respectively was taken on each of these notes. The two new notes were subsequently transferred from the Company to its parent in the form of a dividend. The loan balance was included in other invested assets, accrued interest was included in accrued investment income, and investment income is included in net investment income. (6) Net Finance Receivables Finance receivables as of December 31 were as follows: in thousands 2004 2003 ------------ -------- -------- Direct installment loans $163,348 $154,155 Retail installment notes 24,971 17,286 Retail revolving credit 51 108 Accrued interest 2,915 2,632 -------- -------- Gross receivables 191,285 174,181 Unearned finance charges (42,982) (39,233) Allowance for uncollectible amounts (7,878) (7,232) -------- -------- Finance receivables, net $140,425 $127,716 ======== ======== Direct installment loans, at December 31, 2004 and 2003, consisted of $111,100,000 and $103,349,000, respectively, of discount basis loans, net of unearned finance charges, and $13,762,000 and $14,552,000, respectively, of interest-bearing loans and generally have a maximum term of 84 months. The retail installment notes are principally discount basis, arise from borrowers purchasing household appliances, furniture, and sundry services, and generally have a maximum term of 48 months. (Continued) 25 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (6) Net Finance Receivables (Continued) Total finance receivables, net of unearned finance charges, by date of final maturity at December 31, 2004 were as follows: in thousands ------------ 2005 $ 20,726 2006 43,855 2007 66,758 2008 12,167 2009 1,585 2010 and thereafter 3,212 -------- Total finance receivables, net of unearned finance charges 148,303 Allowance for uncollectible amounts (7,878) -------- Finance receivables, net $140,425 ======== During the years ended December 31, 2004 and 2003, principal cash collections of direct installment loans were $57,523,000 and $52,705,000, respectively, and the percentages of these cash collections to average net balances were 49% and 48%, respectively. Retail installment notes' principal cash collections were $28,653,000 and $21,597,000, respectively, and the percentages of these cash collections to average net balances were 164% for both 2004 and 2003. The ratio for the allowance for losses to net outstanding receivables balances at December 31, 2004 and 2003 was 5.3% and 5.4%, respectively. Changes in the allowance for losses for the periods ended December 31 were as follows: in thousands 2004 2003 2002 ------------ -------- -------- -------- Balance at beginning of year $ 7,232 $ 6,627 $ 5,846 Provision for credit losses 8,080 8,014 8,029 Allowance applicable to bulk purchase -- -- 4 Charge-offs (10,541) (10,262) (10,292) Recoveries 3,107 2,853 3,040 -------- -------- -------- Balance at end of year $ 7,878 $ 7,232 $ 6,627 ======== ======== ======== At December 31, 2004 and 2003, the recorded investments in certain direct installment loans and direct revolving credit loans were considered to be impaired. The balances of such loans at December 31, 2004 and 2003 and the related allowance for losses was as follows: Installment Revolving in thousands Loans Credit Total ------------ ----------- --------- ----- Balances at December 31, 2004 $303 -- $303 Related allowance for credit losses $110 -- $110 Balances at December 31, 2003 $374 54 $428 Related allowance for credit losses $122 54 $176 (Continued) 26 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (6) Net Finance Receivables (Continued) All loans deemed to be impaired are placed on non-accrual status. No accrued or unpaid interest was recognized on impaired loans during the years ended December 31, 2004, 2003 and 2002. The average quarterly balance of impaired loans during the years ended December 31, 2004 and 2003 was $348,000 and $515,000 for installment basis loans and $13,000 and $54,000 for revolving credit loans, respectively. There were no commitments to lend additional funds to customers whose loans were classified as impaired at December 31, 2004. The net investment in loans on which the accrual of finance charges and interest was suspended at December 31, 2004 and 2003 was $15,691,000 and $14,625,000, respectively. There was no investment in receivables past due more than 90 days that were accounted for on an accrual basis at December 31, 2004 and 2003. (7) Income Taxes Income tax expense (benefit) varies from the amount computed by applying the federal income tax rate of 35% to income (loss) from operations before taxes. The significant components of this difference were as follows:
in thousands 2004 2003 2002 ------------ ------- ------- -------- Computed tax expense (benefit) $69,693 $20,754 $ (5,852) Difference between computed and actual tax expense: Dividends received deduction (8,751) (5,032) (8,539) Tax credits (1,811) (1,200) (1,300) Expense adjustments and other 1,135 331 (4,785) ------- ------- -------- Total tax expense (benefit) $60,266 $14,853 $(20,476) ======= ======= ========
The tax effects of temporary differences that give rise to the Company's net deferred federal tax liability were as follows:
in thousands 2004 2003 ------------ -------- -------- Deferred tax assets: Policyholder liabilities $ 4,108 $ 18,565 Pension and post retirement benefits 34,857 35,330 Tax deferred policy acquisition costs 95,386 103,556 Deferred gain on individual disability coinsurance 16,449 17,874 Net realized capital losses 60,163 56,592 Ceding commissions 7,363 8,611 Other 7,598 11,232 -------- -------- Gross deferred tax assets 225,924 251,760 -------- -------- Deferred tax liabilities: Deferred policy acquisition costs 198,437 173,739 Premiums 20,003 19,246 Real estate and property and equipment depreciation 9,383 9,056 Basis difference on investments 28,965 21,734 Net unrealized capital gains 155,817 154,633 Other 11,803 12,316 -------- -------- Gross deferred tax liabilities 424,408 390,724 -------- -------- Net deferred tax liability $198,484 $138,964 ======== ========
(Continued) 27 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (7) Income Taxes (Continued) A valuation allowance for deferred tax assets was not considered necessary as of December 31, 2004 and 2003 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, 2004, 2003, and 2002, were $23,747,000, $3,588,000 and $20,066,000, respectively. In December 2004, the IRS completed their audit of the Company's federal income tax returns for the years 2001 and 2002. The Company has accrued for the taxes assessed as a result of the audit. The Company's tax returns for 2003 and later are expected to be under examination by the IRS beginning in late 2005. The Company believes that any additional taxes refunded or assessed as a result of this future examination will not have a material effect on its consolidated financial position. (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. The Company expects to contribute at least $7,000,000 to its noncontributory defined benefit retirement plans in 2005 and intends to contribute more if required to meet minimum funding standards. In addition, it may contribute additional tax deductible amounts. 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 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 Company has set up a 401(h) account during 2004 through its noncontributory defined benefit plan to partially fund retiree medical costs for non-key employees. The Company expects to contribute additional tax deductible amounts during 2005. The measurement date of the majority of the Company's pension and postretirement plans other than pensions is December 1. 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 ------------------- ----------------- in thousands 2004 2003 2004 2003 ------------ -------- -------- ------- ------- Change in benefit obligation: Benefit obligation at beginning of year $330,876 $275,112 $56,754 $52,719 Service cost 14,674 12,871 2,510 2,589 Interest cost 19,624 18,718 3,155 3,516 Actuarial (gain) loss (1,248) 30,707 728 (994) Benefits paid (7,005) (1,275) (1,076) (6,532) -------- -------- ------- ------- Benefit obligation at end of year $356,921 $330,876 $61,872 $56,754 ======== ======== ======= =======
(Continued) 28 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 --------------------- ------------------- in thousands 2004 2003 2004 2003 ------------ --------- --------- -------- -------- Change in plan assets: Fair value of plan assets at beginning of year $ 192,833 $ 160,852 $ -- $ -- Actual return on plan assets 25,612 24,046 -- -- Employer contribution 25,556 14,467 4,175 1,076 Benefits paid (7,005) (6,532) (1,275) (1,076) --------- --------- -------- -------- Fair value of plan assets at end of year $ 236,996 $ 192,833 $ 2,900 $ -- ========= ========= ======== ======== Net amount recognized: Funded status $(119,924) $(138,043) $(58,972) $(56,755) Unrecognized net actuarial loss 86,555 101,461 6,979 5,943 Unrecognized transition obligation 1,631 2,167 Unrecognized prior service cost (benefit) 2,323 2,741 -- (526) --------- --------- -------- -------- Net amount recognized $ (29,415) $ (31,674) $(51,993) $(51,338) ========= ========= ======== ======== Amounts recognized in the consolidated balance sheets consist of: Accrued benefit cost $ (30,711) $ (35,586) $(51,993) $(51,338) Intangible asset 68 3,892 -- -- Accumulated other comprehensive income 1,228 20 -- -- --------- --------- -------- -------- Net amount recognized $ (29,415) $ (31,674) $(51,993) $(51,338) ========= ========= ======== ======== Accumulated benefit obligation $ 250,129 $ 225,079 $ 61,872 $ 56,755 Plans with accumulated benefit obligation in excess of plan assets: Projected benefit obligation $ 72,497 $ 321,240 Accumulated benefit obligation 59,880 217,525 Fair value of plan assets 33,731 185,266 Minimum pension liability 26,149 32,259 Increase in minimum liability included in other comprehensive income 1,208 20 Weighted average assumptions used to determine benefit obligations: Discount rate 5.99% 6.25% 6.00% 6.25% Rate of compensation increase 5.95% 5.95% -- --
(Continued) 29 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 ------------------- ---------------- in thousands 2004 2003 2004 2003 ------------ -------- -------- ------- ------ Components of net periodic benefit cost: Service cost $ 14,674 $ 12,871 $ 2,510 $2,589 Interest cost 19,624 18,718 3,155 3,516 Expected return on plan assets (16,043) (14,730) -- -- Transition obligation amortization 536 536 -- -- Prior service cost (benefit) amortization 418 418 (526) (526) Recognized net actuarial loss (gain) 4,088 2,283 (308) 101 -------- -------- ------- ------ Net periodic benefit cost $ 23,297 $ 20,096 $ 4,831 $5,680 ======== ======== ======= ====== Weighted average assumptions used to Determine net periodic benefit costs: Discount rate 6.24% 7.00% 6.25% 7.00% Expected long-term return on plan assets 7.81% 7.79% -- -- Rate of compensation increase 5.95% 5.97% -- --
Estimated future benefit payments for pension and other postretirement benefits: Pension Other Medicare in thousands Benefits Benefits Subsidy ------------ -------- -------- -------- 2005 $ 7,642 $ 1,355 $ -- 2006 8,211 1,410 216 2007 8,927 1,606 247 2008 9,556 1,821 280 2009 10,378 2,056 317 2010 - 2014 69,404 14,480 2,179 For measurement purposes, a 9.0% and 10.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2004 and 2003, respectively. The rate was assumed to decrease gradually to 5.5% for 2012 and remain at that level thereafter. The Company recorded an additional minimum liability of $1,296,000 and $3,912,000 as of December 31, 2004, and 2003, respectively. This liability represents the amount by which the accumulated benefit obligation exceeded the sum of the fair value of plan assets and accrued amounts previously recorded. The additional liability may be offset by an intangible asset to the extent of previously unrecognized prior service cost. The intangible asset of $68,000 and $3,892,000 at December 31, 2004, and 2003, respectively, is included in other assets in the consolidated balance sheets. The assumptions presented herein are based on pertinent information available to management as of December 31, 2004 and 2003. Actual results could differ from those estimates and assumptions. For example, increasing the assumed health care cost trend rates by one percentage point would increase the postretirement benefit obligation as of December 31, 2004 by $22,084,000 and the estimated eligibility cost and interest cost components of net periodic benefit costs for 2004 by $2,565,000. Decreasing the assumed health care cost trend rates by one percentage point would decrease the postretirement benefit obligation as of December 31, 2004 by $17,259,000 and the estimated eligibility cost and interest cost components of net periodic postretirement benefit costs for 2004 by $1,929,000. (Continued) 30 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) Historical rates of return for individual asset classes and future estimated returns are used to develop expected rates of return. These rates of return are applied to the plan's investment policy to determine a range of expected returns. The expected long-term rate of return on plan assets is selected from this range. The Company's non-contributory defined benefit plans weighted average asset allocations by asset category at December 31 are as follows: 2004 2003 ---- ---- Equity securities 61% 57% Debt securities 26% 28% Insurance company general account 13% 15% At times, investments may be made in non-traditional asset classes with the approval of the Company's non-contributory defined benefit plan trustees. Current investments include private equity limited partnerships which are classified as equity investments for asset allocation purposes. A tactical asset allocation overlay investment is also employed which utilizes equity and debt futures positions to adjust overall exposure to these broad asset classes. The futures contracts owned control 10% positions in both equity securities and fixed income securities in one of the non-contributory defined benefit plans, and 9% when weighted across all non-contributory defined benefit plans. Generally, the investment objective of the non-contributory defined benefit plans is to pursue high returns but to limit the volatility of returns to a level which will keep the liquidation of depressed assets for benefit payments, the increase in contributions and pension expense due to investment losses, and the decline in the funded ratios due to investment losses to levels deemed tolerable. The target asset allocation as of December 31, 2004, for each of the broad investment categories, weighted for all plans combined is as follows: Equity securities 43% to 71% Debt securities 16% to 42% Insurance company general account 11% to 18% Other 0% to 2% The primary investment goals of the postretirement plans are to preserve capital and provide sufficient liquidity to meet the annual expenses incurred by the Company. These plan assets are currently allocated to 100% debt securities, which are primarily high quality short-term fixed income securities. The target asset allocation as of December 31, 2004 is 100% to debt securities. 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 2004, 2003, and 2002 of $10,811,000, $6,924,000 and $3,899,000, respectively. Participants may elect to receive a portion of their contributions in cash. (Continued) 31 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (9) 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: in thousands 2004 2003 2002 ------------ -------- -------- -------- Balance at January 1 $554,160 $536,604 $518,209 Less: reinsurance recoverable 471,425 449,212 433,323 -------- -------- -------- Net balance at January 1 82,735 87,392 84,886 -------- -------- -------- Incurred related to: Current year 55,546 60,927 65,692 Prior years 3,388 (526) 4,839 -------- -------- -------- Total incurred 58,934 60,401 70,531 -------- -------- -------- Paid related to: Current year 24,165 24,849 27,436 Prior years 38,523 40,209 40,589 -------- -------- -------- Total paid 62,688 65,058 68,025 -------- -------- -------- Net balance at December 31 78,981 82,735 87,392 Plus: reinsurance recoverable 496,450 471,425 449,212 -------- -------- -------- Balance at December 31 $575,431 $554,160 $536,604 ======== ======== ======== 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, pending policy and contract claims, and other liabilities on the consolidated balance sheets. As a result of changes in estimates of claims incurred in prior years, the accident and health claims, reserve for losses and claim and loss adjustment expenses incurred increased by $3,388,000 in 2004, decreased by $526,000 in 2003, and increased by $4,839,000 in 2002, which includes the amortization of discount on individual accident and health claim reserves of $75,000, $153,000, and $331,000 in 2004, 2003, and 2002, 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. (10) Reinsurance In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsurance to other insurance companies. To the extent that a reinsurer is unable to meet its obligation under the reinsurance agreement, the Company remains liable. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk to minimize its exposure to significant losses from reinsurer insolvencies. Allowances are established for amounts deemed to be uncollectible. Reinsurance is accounted for over the lives of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies. (Continued) 32 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (10) Reinsurance(Continued) The effect of reinsurance on premiums for the years ended December 31 was as follows: in thousands 2004 2003 2002 ------------ ---------- ---------- -------- Direct premiums $ 924,713 $ 887,189 $807,116 Reinsurance assumed 276,104 225,288 181,473 Reinsurance ceded (122,231) (107,200) (88,515) ---------- ---------- -------- Net premiums $1,078,586 $1,005,277 $900,074 ========== ========== ======== Reinsurance recoveries on ceded reinsurance contracts were $105,589,000, $103,839,000 and $103,979,000 during 2004, 2003, and 2002, respectively. During September 2003, the Company entered into a written agreement with Pan-American Life Insurance Company whereby 401(k) accounts representing 865 contracts with associated fixed and variable assets of approximately $488,174,000 were transferred to separate accounts and approximately $85,366,000 were transferred to the general account, effective November 17, 2003. The amounts pertaining to reinsurance assumed and coinsurance agreements are $55,236,000 and $518,305,000, respectively. (11) Certain Nontraditional Long-Duration Contracts and Separate Accounts The Company issues certain nontraditional long-duration contracts including universal life, variable universal life and deferred annuities that contain either certain guarantees or sales inducements. The Company issues variable contracts through its separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contractholder. The Company also issues variable annuity contracts through separate accounts where the Company contractually guarantees to the contractholder either (a) return of no less than total deposits made to the contract adjusted for partial withdrawals, (b) total deposits made to the contract adjusted for partial withdrawals plus a minimum return, (c) the highest contract value on a specified anniversary date adjusted for withdrawals following the contract anniversary, or (d) a minimum payment on a variable immediate annuity. These guarantees include benefits that are payable in the event of death or annuitization. The Company also issues universal life and variable universal life contracts where the Company provides to the contractholder a no-lapse guarantee. The assets supporting the variable portion of the traditional variable annuities, variable contracts with guarantees, universal life and variable universal life contracts are carried at fair value and reported as summary total separate account assets with an equivalent summary total reported for liabilities. For variable annuity contracts amounts assessed against the contractholders for mortality, administrative, and other services are included in revenue, changes in liabilities for minimum guarantees on deferred annuities are included in policyholder benefits, and changes in liabilities for the minimum guaranteed payments on variable immediate annuities are included in net realized investment losses in the consolidated statements of operations. For universal life contracts the amounts assessed against the contractholders for mortality, administrative, and other services are included in universal life policy fees and changes in liabilities for guaranteed benefits are included in policyholder benefits in the consolidated statements of operations. For both variable annuity and universal life contracts, separate account net investment income, net investment gains and losses, and the related liability changes are offset within the same line item in the consolidated statements of operations. There were no investment gains or losses on transfers of assets from the general account to the separate account during 2004. (Continued) 33 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (11) Certain Nontraditional Long-Duration Contracts and Separate Accounts (Continued) The Company's variable annuity contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed are not mutually exclusive. For guarantees of amounts in the event of death, the net amount at risk is defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. For guarantees of amounts at annuitization, the net amount at risk is defined as the present value of the minimum guaranteed annuity payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance. For the guaranteed payout annuity floor, the net amount at risk is defined as the guaranteed benefit in excess of the current benefit payable measured as a monthly amount. For universal life and variable universal life contracts the net amount at risk is defined as the current death benefit in excess of the current balance, excluding reinsurance. At December 31 and January 1, 2004, the Company had the following variable annuity contracts with guarantees: December 31 January 1 in thousands 2004 2004 ------------ ----------- ---------- Return of net deposits: In the event of death Account value $1,412,580 $1,316,042 Net amount at risk $ 14,272 $ 27,997 Average attained age of contractholders 52.4 52.7 Return of net deposits plus a minimum return: In the event of death Account value $ 62,843 $ 25,971 Net amount at risk $ 70 $ 23 Average attained age of contractholders 57.7 58.9 At annuitization Account value $ 81,233 $ 3,112 Net amount at risk -- -- Weighted average period remaining until expected annuitization (in years) 9.7 9.9 Highest specified anniversary account value: In the event of death Account value $ 390,485 $ 314,950 Net amount at risk $ 9,962 $ 17,206 Average attained age of contractholders 52.5 52.5 Guaranteed payout annuity floor: Account value $ 78,809 $ 52,271 Net amount at risk $ 14 $ 19 Average attained age of contractholders 66 67 (Continued) 34 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (11) Certain Nontraditional Long-Duration Contracts and Separate Accounts (Continued) At December 31 and January 1, 2004, the Company had the following universal life and variable universal life contracts with guarantees: December 31 January 1 in thousands 2004 2004 ------------ ----------- ----------- Account value (general and separate accounts) $ 1,656,229 $ 1,399,563 Net amount at risk $32,902,249 $31,422,025 Average attained age of policyholders 46 45 Liabilities for guarantees on variable contracts reflected in the general account for 2004 are:
Minimum Guaranteed Universal Life Guaranteed Payout and Variable in thousands Death Benefit Annuity Floor Universal Life ------------ ------------- ------------- -------------- Balance at beginning of year $ 87 $7,493 $ -- Incurred guarantee benefits 654 924 2,294 Paid guaranteed benefits (520) (225) (1,427) ----- ------ ------- Balance at end of year $ 221 $8,192 $ 867 ===== ====== =======
The minimum guaranteed death benefit liability is determined each period end by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. The guaranteed payout annuity floor benefits are considered to be derivatives under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and are recognized at fair value through earnings. The universal life and variable universal life liabilities are determined by estimating the expected value of death benefits in excess of projected account balances and recognizing the excess ratably over the accumulation period based on total expected assessments. For both variable annuity and universal life contracts with guarantees, the Company regularly evaluates estimates used and adjusts the additional liability balance, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. The following assumptions and methodology were used to determine the minimum guaranteed death benefit liability on variable annuities at December 31, 2004: . Data compiled from 10,000 stochastically generated investment performance scenarios and ranked by wealth factors. Projections were run using a sampling of these scenarios. . Mean investment performance was 10.35% and is consistent with DAC projections over a 10 year period. . Annualized monthly standard deviation was 14.28%. . Assumed mortality was 100% of the 1983a table. . Lapse rates varied by contract type and policy duration, ranging form 1% to 25%, with an average of 9%. . Discount rates varied by contract type and policy duration and were consistent with discount rates used in DAC models. (Continued) 35 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (11) Certain Nontraditional Long-Duration Contracts and Separate Accounts (Continued) The following assumptions and methodology, which are consistent with those used for DAC models, were used to determine the universal life and variable universal life liability at December 31, 2004: . Separate account investment performance assumption was 8%. . Assumed mortality was 100% of pricing levels. . Lapse rates varied by policy duration, ranging from 2% to 9%. . General account discount rate was 5.5%. . Separate account discount rate was 7.7%. Account balances for contracts with guarantees were invested in variable separate accounts by mutual fund grouping as follows at December 31 and January 1, 2004: Variable Annuity Contracts Universal Life Contracts -------------------------- ------------------------ in thousands December 31 January 1 December 31 January 1 ------------ ----------- ---------- ----------- ---------- Equity $1,259,616 $1,040,199 $1,089,227 $ 911,641 Bond 209,677 192,712 83,893 74,537 Balanced 238,106 248,114 157,382 147,868 Money market 33,859 42,568 18,374 18,959 Mortgage 137,110 149,231 54,498 49,154 Real estate 66,349 36,410 29,496 15,296 ---------- ---------- ---------- ---------- Total $1,944,717 $1,709,234 $1,432,870 $1,217,455 ========== ========== ========== ========== (12) Unremitted Premiums Payable The Company acts as an agent of certain insurance underwriters and has a fiduciary responsibility to remit the appropriate percentage of monies collected from each financial institution customer to the corresponding insurance underwriters. The remittance is equal to the premiums collected from the financial institution customer, less any commissions earned by the Company. The Company recognizes a liability equal to the amount of the premiums that have not yet been remitted to the insurance underwriters. At December 31, 2004 and 2003, the liability associated with unremitted premiums payable was $13,008,000 and $0, respectively. As described in note 2, as of December 31, 2004 and 2003, the Company had restricted the use of $13,008,000 and $0, respectively, of its cash and cash equivalents to satisfy these premium remittance payables. (13) Business Combinations Effective June 1, 2004, the Company completed the acquisition of Allied, a privately held independent distributor of credit union insurance and financial services products. The Company anticipates this acquisition will strengthen its leadership position in the credit union marketplace through the combination of each entity's respective strengths; manufacturing through Minnesota Life Insurance Company and distribution through Allied. The acquisition was accounted for under the purchase method of accounting as required by FAS 141, Business Combinations (FAS 141), which requires that assets purchased and liabilities assumed be valued at fair value. Goodwill represents the excess of the purchase price over the fair value of the acquired tangible assets, assumed liabilities and identifiable intangible assets. (Continued) 36 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (13) Business Combinations (Continued) In accordance with the purchase method of accounting, the purchase price of $21,500,000 was allocated based on an estimate of the fair values of assets acquired and liabilities assumed as of June 1, 2004, as follows: in thousands ------------ Cash $ 8,504 Property and equipment 1,250 Intangible assets 13,592 Other assets 3,388 Other liabilities (16,012) -------- Net assets acquired 10,722 Excess of cost over fair value - goodwill 10,778 -------- Allocated purchase price $ 21,500 ======== Of the $13,592,000 of value assigned to intangible assets, $2,146,000 was assigned to non-compete covenants specified in the purchase agreement to be amortized over a three year period on a straight-line basis. The remaining assignment of intangible asset relates to the purchased customer/client relationships existing at the date of acquisition. The assigned value of $11,446,000 is supported through a discounted cash flow analysis that estimated the value and the useful life of the intangibles. The amortization of this intangible asset is three to ten years based on the estimated useful life of the underlying customer/client relationships on a straight-line basis. Amortization expense for 2004 in the amount of $1,281,000 is included in general operating expenses. Projected amortization expense for the next five years is as follows: 2005, $2,720,000; 2006, $2,720,000; 2007, $1,998,000; 2008, $1,705,000; 2009, $1,055,000. In connection with the acquisition of Allied, the Company has agreed to pay additional consideration in future periods, based on either the fulfillment of certain requirements or the attainment of defined operating objectives. In accordance with FAS 141, the Company does not accrue contingent consideration obligations prior to the attainment of the objectives. At December 31, 2004, the maximum potential future consideration pursuant to this agreement, to be resolved over the next three years, is $18,500,000. The Company anticipates that any such payments would result in increases in goodwill. The Company has also agreed to pay an additional $1,000,000 in the period where a contractual obligation was met by the sellers. Subsequent to December 31, 2004, the sellers have met this requirement and payment was made in January, 2005. The Company anticipates that this payment will result in an increase in goodwill. (14) 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, 2004 and 2003. 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 judgment 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. Fair values of mortgage loans are based upon discounted cash flows, quoted market prices and matrix pricing. The carrying amounts for policy loans, cash, cash equivalents, and finance receivables approximate the assets' fair values. The fair values of securities lending collateral assets and liabilities are based on quoted market prices. (Continued) 37 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (14) Fair Value of Financial Instruments (Continued) The interest rates on the finance receivables outstanding as of December 31, 2004 and 2003, 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, 2004 and 2003, approximate the fair value for those respective dates. The fair values of deferred annuities 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, 2004 and 2003 as those investment contracts have no defined maturity, are similar to a deposit liability and are based on the current interest rate environment relative to the guaranteed interest rates. The amount payable on demand equates to the account balance less applicable surrender charges. Contracts without guaranteed interest rates and surrender charges have fair values equal to their accumulation values plus applicable market value adjustments. The fair values of supplementary contracts without life contingencies and annuity certain contracts 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:
2004 2003 ------------------------- ------------------------- Carrying Fair Carrying Fair in thousands Amount Value Amount Value ------------ ----------- ----------- ----------- ----------- Fixed maturity securities Available-for-sale $ 5,472,948 $ 5,472,948 $ 4,941,278 $ 4,941,278 Equity securities 747,277 747,277 676,398 676,398 Mortgage loans, net 810,508 885,371 773,479 868,556 Finance receivables, net 140,425 140,425 127,716 127,716 Policy loans 270,186 270,186 263,508 263,508 Private equity investments 226,631 226,631 222,200 222,200 Fixed maturity securities on loan 1,152,143 1,152,143 1,361,128 1,361,128 Equity securities on loan 84,121 84,121 68,771 68,771 Other invested assets 2,926 2,926 114,809 114,809 Cash and cash equivalents 196,508 196,508 222,529 222,529 Securities held as collateral 1,276,761 1,276,761 1,466,354 1,466,354 Separate account assets 9,563,176 9,563,176 8,854,022 8,854,022 ----------- ----------- ----------- ----------- Total financial assets $19,943,610 $20,018,473 $19,092,192 $19,187,269 =========== =========== =========== ===========
(Continued) 38 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (14) Fair Value of Financial Instruments (Continued) The carrying amounts and fair values of the Company's financial instruments, which were classified as liabilities as of December 31, were as follows:
2004 2003 ------------------------- ------------------------- Carrying Fair Carrying Fair in thousands Amount Value Amount Value ------------ ----------- ----------- ----------- ----------- Deferred annuities $ 1,962,025 $ 1,967,527 $ 1,831,790 $ 1,835,924 Annuity certain contracts 59,666 62,712 62,144 65,858 Other fund deposits 1,103,217 1,107,354 1,121,288 1,130,236 Supplementary contracts without life contingencies 43,538 43,538 42,068 42,068 Notes payable 125,000 126,983 125,000 126,935 Securities lending collateral 1,276,761 1,276,761 1,466,354 1,466,354 Separate account liabilities 9,563,176 9,563,176 8,809,077 8,809,077 ----------- ----------- ----------- ----------- Total financial liabilities $14,133,383 $14,148,051 $13,457,721 $13,476,452 =========== =========== =========== ===========
(15) Related Party Transactions The Company has investment advisory agreements with an affiliate, Advantus Capital Management, Inc. (Advantus). Under these agreements, the Company pays quarterly investment management fees based on total assets managed. Investment management fees paid by the Company were $12,407,000, $11,379,000 and $10,866,000 during 2004, 2003 and 2002, respectively. As of December 31, 2004 and 2003, the amount due to Advantus under these agreements was $3,594,000 and $3,527,000, respectively. The Company also has an agreement with an affiliate, Securian Financial Services, Inc. (SFS). Under this agreement, SFS is the distributor of the Company's variable annuity and variable life products. Fees paid for performing compliance functions for these variable products by the Company totaled $3,813,000, $3,448,000 and $3,539,000 for the years ended December 31, 2004, 2003 and 2002, respectively. The Company has agreements with its affiliates for expenses including allocations for occupancy costs, data processing, compensation, advertising and promotion, and other administrative expenses, in which the Company incurs on behalf of its affiliates. At December 31, 2004 and 2003, the amount payable to the Company was $9,310,000 and $9,219,000, respectively. The amount of expenses incurred for the years ended December 31, 2004, 2003, and 2002 were $42,322,000, $48,896,000 and $49,205,000, respectively. During 2002, the Company sold a group variable universal life policy to Securian Financial Group, Inc. The Company received premiums of $2,000,000 in 2004, 2003 and 2002. No claims were paid during 2004, 2003 and 2002. As of December 31, 2004 and 2003, reserves held under this policy were $9,516,000 and $6,841,000, respectively. (Continued) 39 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (16) 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, 2004 and 2003. The issuance costs of $1,421,000 are deferred and amortized over 30 years on straight-line basis. At December 31, 2004 and 2003, the balance of the surplus notes was $125,000,000. At December 31, 2004, the aggregate minimum annual notes payable maturities for the next five years are as follows: 2005, $0; 2006, $0; 2007, $0; 2008, $0; 2009, $0; thereafter $125,000,000. Prior to 2004, the Company maintained a line of credit, which was drawn down periodically throughout the year. As of December 31, 2003, the outstanding balance of this line of credit was zero. Interest paid on debt for the years ended December 31, 2004, 2003 and 2002, was $10,360,000, $11,180,000 and $12,579,000, respectively. (17) Other Comprehensive Income Comprehensive income is defined as any change in stockholder's equity originating from non-owner transactions. The Company has identified those changes as being comprised of net income, unrealized appreciation (depreciation) on securities and related adjustments. The components of comprehensive income (loss), other than net income are illustrated below:
in thousands 2004 2003 2002 ------------ -------- -------- -------- Other comprehensive income (loss), before tax: Unrealized gains (loss) on securities $ 67,906 $154,508 $(74,150) Reclassification adjustment for (gains) losses included in net income (85,312) 48,151 138,595 Adjustment to unearned policy and contract fees (7,112) (2,142) 13,074 Adjustment to reserves 2,941 7,069 (54,290) Adjustment to deferred policy acquisition costs 48,407 23,362 (93,375) -------- -------- -------- 26,830 230,948 (70,146) Income tax expense (benefit) related to items of other comprehensive income (17,476) (75,672) 25,248 -------- -------- -------- Other comprehensive income (loss), net of tax $ 9,354 $155,276 $(44,898) ======== ======== ========
(18) Stock Dividends and Capital Contributions During 2004, the Company declared and paid a dividend to Securian Financial Group, Inc. in the amount of $15,539,000. This dividend was in the form of tax increment financing note agreements with the City of St. Paul. During 2003, the Company declared and paid dividends to Securian Financial Group, Inc. totaling $22,000,000. These dividends were in the form of cash. Additionally, the Company declared and paid a dividend representing the affiliated stock of Securian Life Insurance Company in the amount of $14,033,000. During 2002, the Company declared and paid dividends to Securian Financial Group, Inc. totaling $29,500,000. These dividends were in the form of cash. Additionally, the Company declared and accrued a dividend representing the affiliated stock of Securian Casualty Company. The amount of the transfer, on January 2, 2003, of Securian Casualty Company was $8,398,000. (Continued) 40 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (18) Stock Dividends and Capital Contributions (Continued) 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 2004 statutory results, the maximum amount available for the payment of dividends during 2005 by Minnesota Life Insurance Company without prior regulatory approval is $141,945,000 after January 1, 2005. During 2004, Securian Financial Group, Inc. contributed capital to the Company in the amount of $55,000,000. This contribution was made in the form of cash and cash equivalents. Additionally, during 2004, Securian Financial Group, Inc. contributed capital to the Company in the amount of $3,164,000. This contribution was made in the form of real estate. (19) Commitments and Contingencies The Company is involved in various pending or threatened legal proceedings arising out of the normal course of business. In the opinion of management, the ultimate resolution of such litigation will not have a material adverse effect on consolidated operations or the financial position of the Company. In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsurance to other insurance companies. To the extent that a reinsurer is unable to meet its obligations under the reinsurance agreement, the Company remains liable. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk to minimize its exposure to significant losses from reinsurer insolvencies. Allowances are established for amounts deemed uncollectible. The Company holds "To-Be-Announced" (TBA) Government National Mortgage Association forward contracts that require the Company to take delivery of a mortgage-backed security at a settlement date in the future. Most of these TBAs are settled at the first available period allowed under the contract. However, the deliveries of some of the Company's TBA securities happen at a later date, thus extending the forward contract date. These securities are reported at fair value as other invested assets. As of December 31, 2004 and 2003, these securities were reported at $2,926,000 and $110,894,000, respectively. The Company has long-term commitments to fund private equity investments and real estate investments totaling $140,685,000 as of December 31, 2004. The Company estimates that $46,000,000 of these commitments will be invested in 2005, with the remaining $94,685,000 invested over the next four years. As of December 31, 2004, the Company had committed to purchase mortgage loans totaling $45,950,000 and fixed maturity corporate securities totaling $31,187,000 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: 2005, $11,267,000; 2006, $11,267,000; 2007, $11,267,000; 2008, $11,267,000; 2009, $11,267,000. The Company sub-leases space in downtown St. Paul. Commitments to the Company from these agreements are as follows: 2005, $802,000; 2006, $718,000; 2007, $734,000; 2008, $704,000; 2009, $707,000. Lease expense net of sub-lease income for the years ended December 31, 2004, 2003 and 2002 was $8,561,000, $8,705,000 and $8,740,000, respectively. The Company also has long-term lease agreements with unaffiliated companies. Minimum gross rental commitments under these leases are as follows: 2005, $2,854,000; 2006, $2,409,000; 2007, $1,474,000; 2008, $886,000; 2009, $735,000. (Continued) 41 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (19) Commitments and Contingencies (Continued) At December 31, 2004, the Company had guaranteed the payment of $73,600,000 in policyholder dividends and discretionary amounts payable in 2005. The Company has pledged fixed maturity securities, valued at $87,178,000 to secure this guarantee. Pursuant to the Escrow Trust Account Agreement dated December 13, 1991 between Minnesota Life Insurance Company and Wells Fargo Bank, N.A., the Company pays irrevocable dividends to certain policyholders of the Company. Policyholders may choose the form in which the irrevocable dividend is applied, which include the cash payment of the dividend to the policyholder, using the dividend to purchase additional coverage or to increase the cash value of the policy. The policyholders covered by the Escrow Trust Agreement primarily includes owners of certain individual life insurance policies issued by the Company, but does not include all of the dividend-paying insurance policies issued by the Company. The Company has a 100% coinsurance agreement for its Individual Disability line. Under the terms of this agreement, assets supporting the reserves transferred to the reinsurer are held under a trust agreement for the benefit of the Company in the event that the reinsurer is unable to perform its obligations. At December 31, 2004 and 2003 the assets held in trust were $608,550,000 and $566,495,000, respectively. The Company in conjunction with Securian Holding Company, the parent company of Securian Financial Group, has guaranteed the payment of benefits under certain of its affiliates' non-qualified pension plans in the event that the affiliate is unable to make such payment. This guarantee is unfunded, unsecured and revocable by the parties to the agreement and under certain other conditions. Management does not consider an accrual necessary relating to these guarantees. 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, 2004 and 2003 the amount was immaterial to the consolidated 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 $1,634,000 and $1,913,000 as of December 31, 2004 and 2003, respectively. These assets are being amortized over a five-year period. Occasionally, the Company will enter into arrangements where by certain lease obligations related to general agents' office space are guaranteed. Management does not consider an accrual necessary relating to these guarantees. In connection with the dissolution of MIMLIC Life Insurance Company, the Company has agreed to guarantee all obligations and liabilities of MIMLIC Life Insurance Company that arise in the normal course of business. Management does not consider an accrual necessary relating to this guarantee. (Continued) 42 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (20) Statutory Financial Data The significant differences that exist between statutory and GAAP accounting, and their effects are illustrated below:
Year ended December 31 ----------------------- in thousands 2004 2003 ------------ ---------- ---------- Statutory capital and surplus $1,419,449 $1,168,753 Adjustments: Deferred policy acquisition costs 719,598 636,179 Net unrealized investment gains 282,168 351,806 Adjustment to reserves (44,174) (47,221) Statutory asset valuation reserve 213,750 205,298 Statutory interest maintenance reserve 15,323 14,181 Premiums and fees deferred or receivable (37,583) (35,687) Change in reserve basis 134,848 124,117 Deferred reinsurance gain (46,996) (51,070) Separate accounts (35,300) (30,847) Unearned policy and contract fees (155,226) (138,449) Surplus notes (125,000) (125,000) Net deferred income taxes (334,823) (338,228) Pension benefit liabilities (39,597) (30,907) Non-admitted assets 180,460 250,105 Policyholder dividends 56,582 62,497 Other 4,309 1,425 ---------- ---------- Stockholder's equity as reported in the accompanying consolidated financial statements $2,207,788 $2,016,952 ========== ==========
The significant differences that exist between statutory and GAAP accounting, and their effects are illustrated below:
As of December 31 ------------------------------ in thousands 2004 2003 2002 ------------ -------- -------- -------- Statutory net income (loss) $155,796 $ 11,638 $ (9,814) Adjustments: Deferred policy acquisition costs 35,050 42,482 (19,156) Statutory interest maintenance reserve 1,373 1,450 5,470 Premiums and fees deferred or receivable (1,906) 13,817 1,611 Change in reserve basis 10,962 (746) (2,797) Separate accounts (4,454) (2,162) 10,913 Deferred reinsurance gain (1,713) (3,409) (12,847) Unearned policy and contract fees (9,665) (7,617) 1,600 Realized gains (losses) 3,431 (5,642) (10,012) Net deferred income taxes (42,821) 4,268 23,524 Policyholder dividends (5,915) (2,162) (1,168) Pension benefits (498) (682) 7,472 Other (783) (6,790) 8,960 -------- -------- -------- Net income as reported in the accompanying consolidated financial statements $138,857 $ 44,445 $ 3,756 ======== ======== ========
(Continued) 43 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Schedule I - Summary of Investments - Other than Investments in Related Parties December 31, 2004 (In thousands)
As shown on the Market consolidated Type of investment Cost (3) Value balance sheet (1) - ------------------ ---------- ---------- ----------------- Fixed maturity securities United States government $ 20,377 $ 20,736 $ 20,736 Government agencies and authorities 44,517 44,942 44,942 Foreign governments 1,714 1,790 1,790 Public utilities 441,420 472,789 472,789 Asset-backed securities 494,235 517,067 517,067 Mortgage-backed securities 1,434,572 1,479,304 1,479,304 All other corporate fixed maturity securities 2,776,503 2,936,320 2,936,320 ---------- ---------- ---------- Total fixed maturity securities 5,213,338 5,472,948 5,472,948 ---------- ---------- ---------- Equity securities: Common stocks: Public utilities 6,841 7,520 7,520 Banks, trusts and insurance companies 129,863 163,587 163,587 Industrial, miscellaneous and all other 466,071 572,747 572,747 Nonredeemable preferred stocks 3,450 3,423 3,423 ---------- ---------- ---------- Total equity securities 606,225 747,277 747,277 ---------- ---------- ---------- Mortgage loans on real estate 810,508 xxxxxx 810,508 Real estate (2) 1,771 xxxxxx 1,771 Policy loans 270,186 xxxxxx 270,186 Other investments 163,731 xxxxxx 163,731 Private equity investments 228,338 xxxxxx 226,631 Fixed maturity securities on loan 1,128,126 xxxxxx 1,152,143 Equity securities on loan 63,396 xxxxxx 84,121 ---------- ---------- ---------- Total 2,666,056 -- 2,709,091 ---------- ---------- ---------- Total investments $8,485,619 $6,220,225 $8,929,316 ========== ========== ==========
(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 reduced by impairment write-downs for equity securities and original cost reduced by repayments and impairment write-downs and adjusted for amortization of premiums and accrual of discounts for fixed maturity securities and other investments. See accompanying report of independent registered public accounting firm. 44 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 - --------------------------- ----------- -------------- ------------ ------------- 2004: Life insurance $526,326 $2,758,334 $180,596 $148,057 Accident and health insurance 66,502 695,620 31,443 21,315 Annuity 128,227 3,490,442 18 327 -------- ---------- -------- -------- $721,055 $6,944,396 $212,057 $169,699 ======== ========== ======== ======== 2003: Life insurance $464,087 $2,690,654 $168,868 $140,799 Accident and health insurance 70,299 663,495 30,871 19,775 Annuity 102,089 3,386,782 28 113 -------- ---------- -------- -------- $636,475 $6,740,931 $199,767 $160,687 ======== ========== ======== ======== 2002: Life insurance $421,265 $2,605,553 $156,832 $111,576 Accident and health insurance 78,588 638,288 34,418 19,349 Annuity 70,885 3,155,822 27 196 Property and liability insurance -- 25 -- -- -------- ---------- -------- -------- $570,738 $6,399,688 $191,277 $131,121 ======== ========== ======== ======== 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) - --------------------------- ----------- ----------- -------------- ------------ --------- ----------- 2004: Life insurance $1,204,119 $238,332 $1,061,659 $134,768 $408,460 $-- Accident and health insurance 132,964 11,524 60,323 12,896 76,843 -- Annuity 123,551 209,756 201,727 22,224 121,702 -- ---------- -------- ---------- -------- -------- --- $1,460,634 $459,612 $1,323,709 $169,888 $607,005 $-- ========== ======== ========== ======== ======== === 2003: Life insurance $1,122,503 $240,777 $1,024,443 $127,528 $341,177 $-- Accident and health insurance 131,057 10,711 57,919 19,214 79,737 -- Annuity 103,386 214,370 198,077 19,396 108,962 -- ---------- -------- ---------- -------- -------- --- $1,356,946 $465,858 $1,280,439 $166,138 $529,876 $-- ========== ======== ========== ======== ======== === 2002: Life insurance $1,012,901 $260,686 $ 883,852 $147,235 $336,387 $-- Accident and health insurance 131,835 12,494 60,459 20,511 88,290 -- Annuity 111,228 225,704 213,817 20,916 88,540 -- Property and liability insurance -- 219 (18) -- 40 -- ---------- -------- ---------- -------- -------- --- $1,255,964 $499,103 $1,158,110 $188,662 $513,257 $-- ========== ======== ========== ======== ======== ===
(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 accompanying report of independent registered public accounting firm. 45 MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES Schedule IV - Reinsurance Years ended December 31, 2004, 2003 and 2002 (In thousands)
Percentage Ceded to Assumed from of amount Gross other other Net assumed amount companies companies amount to net ------------ ----------- ------------ ------------ ---------- 2004: Life insurance in force $329,081,364 $47,795,013 $104,062,955 $385,349,306 27.0% ============ =========== ============ ============ Premiums: Life insurance $ 685,032 $ 52,212 $ 275,004 $ 907,824 30.3% Accident and health insurance 202,435 70,019 548 132,964 0.4% Annuity 37,246 -- 552 37,798 1.5% ------------ ----------- ------------ ------------ Total premiums $ 924,713 $ 122,231 $ 276,104 $ 1,078,586 25.6% ============ =========== ============ ============ 2003: Life insurance in force $302,107,783 $38,521,130 $ 90,958,405 $354,545,058 25.7% ============ =========== ============ ============ Premiums: Life insurance $ 650,603 $ 37,988 $ 223,765 $ 836,380 26.8% Accident and health insurance 204,829 69,212 1,469 137,086 1.1% Annuity 31,757 -- 54 31,811 -- ------------ ----------- ------------ ------------ Total premiums $ 887,189 $ 107,200 $ 225,288 $ 1,005,277 22.4% ============ =========== ============ ============ 2002: Life insurance in force $266,335,791 $35,836,486 $ 76,101,905 $306,601,210 24.8% ============ =========== ============ ============ Premiums: Life insurance $ 566,342 $ 13,677 $ 180,539 $ 733,204 24.6% Accident and health insurance 200,610 74,838 934 126,706 0.7% Annuity 40,164 -- -- 40,164 -- ------------ ----------- ------------ ------------ Total premiums $ 807,116 $ 88,515 $ 181,473 $ 900,074 20.2% ============ =========== ============ ============
See accompanying report of independent registered public accounting firm. 46 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 ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) Audited Financial Statements of Variable Annuity Account for the fiscal year ended December 31, 2004, are included in Part B of this filing and consist of the following: 1. Report of Independent Registered Public Accounting Firm. 2. Statements of Assets and Liabilities, as of December 31, 2004. 3. Statements of Operations, year ended December 31, 2004. 4. Statements of Changes in Net Assets, years ended December 31, 2004 and 2003. 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. Report of Independent Registered Public Accounting Firm - Minnesota Life Insurance Company and subsidiaries, for the fiscal years ended December 31, 2004, 2003 and 2002. 2. Consolidated Balance Sheets - Minnesota Life Insurance Company and subsidiaries, as of December 31, 2004 and 2003. 3. Consolidated Statements of Operations and Comprehensive Income - Minnesota Life Insurance Company and subsidiaries, for the fiscal years ended December 31, 2004, 2003 and 2002. 4. Consolidated Statements of Changes in Stockholder's Equity - Minnesota Life Insurance Company and subsidiaries, for the fiscal years ended December 31, 2004, 2003 and 2002. 5. Consolidated Statements of Cash Flows - Minnesota Life Insurance Company and subsidiaries, for the fiscal years ended December 31, 2004, 2003 and 2002. 6. Notes to Consolidated Financial Statements - Minnesota Life Insurance Company and subsidiaries, for the fiscal years ended December 31, 2004 and 2003. 7. Schedule I - Summary of Investments-Other than Investments in Related Parties - Minnesota Life Insurance Company and subsidiaries, as of December 31, 2004. 8. Schedule III - Supplementary Insurance Information - Minnesota Life Insurance Company and subsidiaries, for the fiscal years ended December 31, 2004 and 2003. 9. Schedule IV - Reinsurance - Minnesota Life Insurance Company and subsidiaries, for the fiscal years ended December 31, 2004, 2003 and 2002. (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 February 28, 2005 as this exhibit to Registrant's Form N-4, File Number 333-111067, is hereby incorporated by reference. 2. Not applicable. 3. (a) The Distribution Agreement between The Minnesota Mutual Life Insurance Company and Ascend Financial Services, Inc. previously filed on August 18, 1999 as this exhibit to Registrant's Form N-4, File Number 333-79049, Pre-Effective Amendment Number 1, is hereby incorporated by reference (b) The Dealer Selling Agreement previously filed on August 18, 1999 as this exhibit to Registrant's Form N-4, File Number 333-79049, Pre-Effective Amendment Number 1, is hereby incorporated by reference. 4. (a) The Flexible Payment Deferred Variable Annuity Contract, form 99-70017 previously filed on August 18, 1999 as this exhibit to Registrant's Form N-4, File Number 333-79049, Pre-Effective Amendment Number 1, is hereby incorporated by reference. (b) The Tax Sheltered Annuity Loan Agreement, form 99-70006 previously filed on August 18, 1999 as this exhibit to Registrant's Form N-4, File Number 333-79049, Pre-Effective Amendment Number 1, is hereby incorporated by reference. (c) The Tax Sheltered Annuity Amendment, form MHC-88-9213 previously filed as on August 18, 1999 this exhibit to Registrant's Form N-4, File Number 333-79049, Pre-Effective Amendment Number 1, is hereby incorporated by reference. (d) The Immediate Payout Agreement, form MHC-82-9032 previously filed on August 18, 1999 as this exhibit to Registrant's Form N-4, File Number 333-79049, Pre-Effective Amendment Number 1, is hereby incorporated by reference. (e) The Annuity Payment Endorsement, form MHC-83-9060 previously filed on August 18, 1999 as this exhibit to Registrant's Form N-4, File Number 333-79049, Pre-Effective Amendment Number 1, is hereby incorporated by reference. (f) The Qualified Plan Agreement, form MHC-88-9176 Rev. 8-93 previously filed on August 18, 1999 as this exhibit to Registrant's Form N-4, File Number 333-79049, Pre-Effective Amendment Number 1, is hereby incorporated by reference. (g) The Individual Retirement Annuity (IRA) Agreement, SEP, Traditional IRA and Roth-IRA, form MHC-97-9418 previously filed on August 18, 1999 as this exhibit to Registrant's Form N-4, File Number 333-79049, Pre-Effective Amendment Number 1, is hereby incorporated by reference. (h) The Individual Retirement Annuity SIMPLE - (IRA) Agreement, form MHC-98-9431 previously filed on August 18, 1999 as this exhibit to Registrant's Form N-4, File Number 333-79049, Pre-Effective Amendment Number 1, is hereby incorporated by reference. 5. (a) The Variable Annuity Application, form 02-70069 previously filed on April 29, 2003 as this exhibit to Registrant's Form N-4, File Number 333-79049, Post-Effective Amendment Number 5, is hereby incorporated by reference. 6. Certificate of Incorporation and Bylaws. (a) The Restated Certificate of Incorporation previously filed on February 28, 2005 as this exhibit to Registrant's Form N-4, File Number 333-111067, Post-Effective Amendment Number 1, is hereby incorporated by reference. (b) The Bylaws of the Depositor previously filed as exhibit 26(f)(2) to Minnesota Life Variable Life Account's Form N-6, File Number 333-120704, Initial Registration Statement, on November 23, 2004, is hereby incorporated by reference. 7. Not applicable. 8. (a) Participation Agreement among Advantus Series Fund, Inc., Advantus Capital Management, Inc. and Minnesota Life Company filed on February 27, 2003 as exhibit 27(h)(1)(i) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Minnesota Life Variable Universal Life Account's Post-Effective Amendment Number 10, is hereby incorporated by reference. (b) Amendment Number One to the Participation Agreement among Advantus Series Fund, Inc., Advantus Capital Management, Inc. and Minnesota Life Insurance Company filed on February 27, 2003 as exhibit 27(h)(1)(ii) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Post-Effective Amendment Number 10, is hereby incorporated by reference. (c) Amendment Number Two to the Participation Agreement among Advantus Series Fund, Inc., Advantus Capital Management, Inc. and Minnesota Life Insurance Company filed on February 27, 2003 as exhibit 27(h)(1)(iii) to Minnesota Life Variable Universal Life Accounts Form N-6, File Number 33-85496, Post-Effective Amendment Number 10, is hereby incorporated by reference. (d) Fund Participation Agreement between Janus Aspen Series, Janus Distributors, Inc. and Minnesota Life Insurance Company filed on February 27, 2003 as exhibit 27(h)(2)(i) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Post-Effective Amendment Number 10, is hereby incorporated by reference. (e) Addendum Dated May 1, 2000 to Fund Participation Agreement between Janus Aspen Series, Janus Distributors, Inc. and Minnesota Life Insurance Company filed on February 27, 2003 as exhibit 27(h)(2)(ii) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Minnesota Life Variable Universal Life Account's Post-Effective Amendment Number 10, is hereby incorporated by reference. (f) Amendment to Fund Participation Agreement between Janus Aspen Series, Janus Distributors, Inc. and Minnesota Life Insurance Company filed on February 27, 2003 as exhibit 27(h)(2)(iii) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Post-Effective Amendment Number 10, is hereby incorporated by reference. (g) Amendment Dated December 1, 2002 to Fund Participation Agreement between Janus Aspen Series, Janus Distributors, Inc. and Minnesota Life Insurance Company filed on February 27, 2003 as exhibit 27(h)(2)(iv) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Post-Effective Amendment Number 10, is hereby incorporated by reference. (h) Amendment Dated March 1, 2004 to Fund Participation Agreement between Janus Aspen Series, Janus Distributors LLC and Minnesota Life Insurance Company, filed on April 22, 2005 as Exhibit 26(h)(2)(v) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Post-Effective Amendment Number 14, is hereby incorporated by reference. (i) Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Minnesota Life Insurance Company filed on February 27, 2003 as exhibit 27(h)(3)(i) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Post-Effective Amendment Number 10, is hereby incorporated by reference. (j) Amendment One to the Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Minnesota Life Insurance Company filed on February 27, 2003 as exhibit 27(h)(3)(ii) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Post-Effective Amendment Number 10, is hereby incorporated by reference. (k) Second Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Minnesota Life Insurance Company filed on February 27, 2003 as exhibit 27(h)(3)(iii) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Post-Effective Amendment Number 10, is hereby incorporated by reference. (l) Third Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Minnesota Life Insurance Company, filed on April 22, 2005 as Exhibit 26(h)(3)(iv) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Post-Effective Amendment Number 14, is hereby incorporated by reference. (m) Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Minnesota Life Insurance Company filed on February 27, 2003 as exhibit 27(h)(4)(i) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Post-Effective Amendment Number 10, is hereby incorporated by reference. (n) Amendment One to the Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Minnesota Life Insurance Company filed on February 27, 2003 as exhibit 27(h)(4)(ii) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Post-Effective Amendment Number 10, is hereby incorporated by reference. (o) Second Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Minnesota Life Insurance Company filed on February 27, 2003 as exhibit 27(h)(4)(iii) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Post-Effective Amendment Number 10, is hereby incorporated by reference. (p) Third Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Minnesota Life Insurance Company, filed on April 22, 2005 as Exhibit 26(h)(4)(iv) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Post-Effective Amendment Number 14, is hereby incorporated by reference. (q) Participation Agreement among Variable Insurance Products Fund III, Fidelity Distributors Corporation and Minnesota Life Insurance Company filed on February 27, 2003 as exhibit 27(h)(5)(i) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Post-Effective Amendment Number 10, is hereby incorporated by reference. (r) First Amendment to Participation Agreement among Variable Insurance Products Fund III, Fidelity Distributors Corporation and Minnesota Life Insurance Company filed on February 27, 2003 as exhibit 27(h)(5)(ii) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Post-Effective Amendment Number 10, is hereby incorporated by reference. (s) Third Amendment to Participation Agreement among Variable Insurance Products Fund III, Fidelity Distributors Corporation and Minnesota Life Insurance Company, filed on April 22, 2005 as Exhibit 26(h)(5)(iii) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Post-Effective Amendment Number 14, is hereby incorporated by reference. (t) Fund Shareholder Services Agreement between Minnesota Life Insurance Company and Ascend Financial Services, Inc. filed on February 27, 2003 as exhibit 27(h)(6) to Minnesota Life Variable Universal Life Account's Form N-6, File Number 33-85496, Post-Effective Amendment Number 10, is hereby incorporated by reference. (u) Investment Accounting Agreement between Securian Financial Group, Inc. and State Street Bank and Trust Company filed on February 26, 2003 as this exhibit to Registrant's From N-4, File Number 333-91784, Post-Effective Amendment Number 1, is hereby incorporated by reference. (v) Administration Agreement between Securian Financial Group, Inc. and State Street Bank and Trust Company filed on February 26, 2003 as this exhibit to Registrant's Form N-4, File Number 333-91784, Post-Effective Amendment Number 1, is hereby incorporated by reference. (w) Participation Agreement among Oppenheimer Variable Account Funds, OppenheimerFunds, Inc. and Minnesota Life Insurance Company filed on April 29, 2003 as this exhibit to Registrant's Form N-4, File Number 333-91784, Post-Effective Amendment Number 2, is hereby incorporated by reference. (i) Amendment No. 1 to Participation Agreement among Oppenheimer Variable Account Funds, OppenheimerFunds, Inc. and Minnesota Life Insurance Company filed on April 29, 2003 as this exhibit to Registrant's Form N-4, File Number 333-91784, Post-Effective Amendment Number 2, is hereby incorporated by reference. (ii) Amendment No. 2 to Participation Agreement among Oppenheimer Variable Account Funds, OppenheimerFunds, Inc. and Minnesota Life Insurance Company filed on April 29, 2003 as this exhibit to Registrant's Form N-4, File Number 333-91784, Post-Effective Amendment Number 2, is hereby incorporated by reference. (iii) Amendment No. 3 to the Participation Agreement among Oppenheimer Variable Accounts Funds, OppenheimerFunds, Inc. and Minnesota Life Insurance Company, previously filed as Exhibit 26(h)(7)(iv) to Minnesota Life Variable Life Account's Form N-6, File Number 33-3233, Post-Effective Amendment Number 23, on April 26, 2005, is hereby incorporated by reference. (x) Participation Agreement among Panorama Series Fund, Inc., OppenheimerFunds, Inc. and Minnesota Life Insurance Company filed on April 29, 2003 as this exhibit to Registrant's Form N-4, File Number 333-91784, Post-Effective Amendment Number 2, is hereby incorporated by reference. (i) Amendment No. 1 to Participation Agreement among Panorama Series Fund Inc., OppenheimerFunds, Inc. and Minnesota Life Insurance Company filed on April 29, 2003 as this exhibit to Registrant's Form N-4, File Number 333-91784, Post-Effective Amendment Number 2, is hereby incorporated by reference. (ii) Amendment No. 2 to Participation Agreement among Panorama Series Fund, Inc., OppenheimerFunds, Inc. and Minnesota Life Insurance Company filed on April 29, 2003 as this exhibit to Registrant's Form N-4, File Number 333-91784, Post-Effective Amendment Number 2, is hereby incorporated by reference. (iii) Amendment No. 3 to Participation Agreement among Panorama Series Funds, Inc., OppenheimerFunds, Inc. and Minnesota Life Insurance Company, previously filed as Exhibit 26(h)(8)(iv) to Minnesota Life Variable Life Account's Form N-6, File Number 33-3233, Post-Effective Amendment Number 23, on April 26, 2005, is hereby incorporated by reference. (y) Participation Agreement among Putnam Variable Trust, Putnam Retail Management, L.P. and Minnesota Life Insurance Company filed on April 29, 2003 as this exhibit to Registrant's Form N-4, File Number 333-91784, Post-Effective Amendment Number 2, is hereby incorporated by reference. (i) Schedule A (as amended May 1, 2003 to Minnesota Life Insurance Company Participation Agreement filed on April 29, 2003 as this exhibit to Registrant's Form N-4, File Number 333-91784, Post-Effective Amendment Number 2, is hereby incorporated by reference. (z) Participation Agreement by and among AIM Variable Insurance Funds, AIM Distributors, Inc. and Minnesota Life Insurance Company filed on April 30, 2003 as exhibit 27(h)(10)(i) to Registrant's Form N-6, File Number 333-96383, Post-Effective Amendment Number 4, is hereby incorporated by reference. (i) Schedule A as amended May 1, 2003 to the Participation Agreement among AIM Variable Insurance Funds, AIM Distributors, Inc. and Minnesota Life Insurance Company filed on April 30, 2003 as exhibit 27(h)(10)(ii) to Registrant's Form N-6, File Number 333-96383, Post-Effective Amendment Number 4, is hereby incorporated by reference. (ii) Amendment No. 1 to the Participation Agreement dated March 4, 2002, by and among AIM Variable Insurance Funds, AIM Distributors, Inc. and Minnesota Life Insurance Company, previously filed as Exhibit 26(h)(10)(iii) to Minnesota Life Variable Life Account's Form N-6, File Number 33-3233, Post- Effective Amendment Number 23, on April 26, 2005, is hereby incorporated by reference. (aa) Shareholder Services Agreement among American Century Investment Services, Inc. and Minnesota Life Insurance Company filed on April 30, 2003 as exhibit 27(h)(11) to Registrant's Form N-6, File Number 333-96383, Minnesota Life Variable Life Account's Post-Effective Amendment Number 4, is hereby incorporated by reference. (bb) Participation Agreement by and among Minnesota Life Insurance Company, Warburg, Pincus Trust, Credit Suisse Asset Management, LLC and Credit Suisse Asset Management Securities, Inc. filed on April 30, 2003 as exhibit 27(h)(12) to Minnesota Life Variable Life Account's Form N-6, File Number 333-96383, Minnesota Life Variable Life Account's Post-Effective Amendment Number 4, is hereby incorporated by reference. (cc) Participation Agreement among MFS Variable Insurance Trust, Massachusetts Financial Services Company and Minnesota Life Insurance Company filed on April 30, 2003 as exhibit 27(h)(13)(i) to Minnesota Life Variable Life Account's Form N-6, File Number 333-96383, Post-Effective Amendment Number 4, is hereby incorporated by reference. (i) Amendment No. 1 to the Participation Agreement among MFS Variable Insurance Trust, Massachusetts Financial Services Company and Minnesota Life Insurance Company filed on April 30, 2003 as exhibit 27(h)(13)(ii) to Minnesota Life Variable Life Account's Form N-6, File Number 333-96383, Post-Effective Amendment Number 4, is hereby incorporated by reference. (ii) Amendment No. 2 to the Participation Agreement among MFS Variable Insurance Trust, Massachusetts Financial Services Company and Minnesota Life Insurance Company filed on April 30, 2003 as exhibit 27(h)(13)(iii) to Minnesota Life Variable Life Account's Form N-6, File Number 333-96383, Post-Effective Amendment Number 4, is hereby incorporated by reference. (dd) Participation Agreement as of May 1, 2000 between Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc. and Minnesota Life Insurance Company filed on April 30, 2003 as exhibit 27(h)(14)(i) to Minnesota Life Variable Life Account's Form N-6, File Number 333-96383, Post-Effective Amendment Number 4, is hereby incorporated by reference. (i) Amendment to Participation Agreement as of May 1, 2000 between Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc. and Minnesota Life Insurance Company filed on April 30, 2003 as exhibit 27(h)(14)(ii) to Minnesota Life Variable Life Account's Form N-6, File Number 333-96383, Post-Effective Amendment Number 4, is hereby incorporated by reference. (ii) Amendment No. 2 to Participation Agreement between Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc. and Minnesota Life Insurance Company filed on April 30, 2003 as exhibit 27(h)(14)(iii) to Minnesota Life Variable Life Account's Form N-6, File Number 333-96383, Post-Effective Amendment Number 4, is hereby incorporated by reference. (iii) Amendment No. 3 to Participation Agreement between Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc. and Minnesota Life Insurance Company, previously filed as Exhibit 26(h)(14)(iv) to Minnesota Life Variable Life Account's Form N-6, File Number 33-3233, Post-Effective Amendment Number 23, on April 26, 2005, is hereby incorporated by reference. (ee) Waddell & Reed Target Funds, Inc. Participation Agreement, previously filed on February 19, 2004 as exhibit 27(h)(15) to Minnesota Life Variable Life Account's Form N-6, File Number 333-109853, Pre-Effective Amendment Number 1, is hereby incorporated by reference. 9. Opinion and consent of Donald F. Gruber, Esq. 10. Consent of KPMG LLP. 11. Not applicable. 12. Not applicable. 13. 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 Business Address with Insurance Company - ---------------- ---------------------- Mary K. Brainerd Director HealthPartners 8100 34th Avenue South Bloomington, MN 55440-1309 John F. Bruder Senior Vice President Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Thomas P. Burns Senior Vice President Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Keith M. Campbell Senior Vice President Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 John W. Castro Director Merrill Corporation One Merrill Circle St. Paul, MN 55108 John E. Gherty Director Land O'Lakes, Inc. P.O. Box 64101 St. Paul, MN 55164 John F. Grundhofer Director U.S. Bancorp 800 Nicollet Mall Suite 2870 Minneapolis, MN 55402 John H. Hooley Director SUPERVALU INC. 11840 Valley View Road Eden Prairie, MN 55344-3691 Robert E. Hunstad Director and Executive Minnesota Life Insurance Vice President Company 400 Robert Street North St. Paul, MN 55101
James E. Johnson Senior Vice President Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Dianne M. Orbison Senior Vice President Minnesota Life Insurance and Treasurer Company 400 Robert Street North St. Paul, MN 55101 Dennis E. Prohofsky Director and Secretary Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Robert L. Senkler Chairman, President and Minnesota Life Insurance Chief Executive Officer Company 400 Robert Street North St. Paul, MN 55101 Bruce P. Shay Senior Vice President Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Gregory S. Strong Senior Vice President Minnesota Life Insurance and Chief Financial Company Officer 400 Robert Street North St. Paul, MN 55101 Randy F. Wallake Director and Minnesota Life Insurance Executive Vice President Company 400 Robert Street North St. Paul, MN 55101 Warren J. Zaccaro Executive Vice President Minnesota Life 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.: I.A. Systems, Inc. (New York) Securian Ventures, Inc. Securian Financial Network, Inc. Minnesota Life Insurance Company Advantus Capital Management, Inc. Securian Financial Services, Inc. Securian Casualty Company Securian Life Insurance Company Wholly-owned subsidiaries of Minnesota Life Insurance Company: Northstar Life Insurance Company (New York) Personal Finance Company LLC (Delaware) Enterprise Holding Corporation Allied Solutions, L.L.C. (Indiana) MIMLIC Life Insurance Company (Arizona) Wholly-owned subsidiaries of Securian Financial Services, Inc.: MIMLIC Insurance Agency of Massachusetts, Inc. (Massachusetts) Ascend Insurance Agency of Nevada, Inc. (Nevada) Ascend Insurance Agency of Oklahoma, Inc. (Oklahoma) Wholly-owned subsidiaries of Enterprise Holding Corporation: Financial Ink Corporation Oakleaf Service Corporation Concepts in Marketing Research Corporation Lafayette Litho, Inc. MIMLIC Funding, Inc. MCM Funding 1997-1, Inc. MCM Funding 1998-1, 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 Insurance Agency, Inc. (Massachusetts) Majority-owned subsidiary of Securian Financial Group, Inc.: Securian Trust Company, N.A. 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 Enterprise Holding Corporation: CRI Securities, LLC Unless indicated otherwise parenthetically, each of the above corporations is a Minnesota corporation. ITEM 27. NUMBER OF CONTRACT OWNERS As of April 5, 2005, the number of holders of securities of this class were as follows: Number of Record Title of Class Holders -------------- ---------------- Variable Annuity Contracts 5,842 ITEM 28. INDEMNIFICATION The State of Minnesota has an indemnification statute (Minnesota Statutes 300.083), as amended, effective January 1, 1984, which requires indemnification of individuals only under the circumstances described by the statute. Expenses incurred in the defense of any action, including attorneys' fees, may be advanced to the individual after written request by the board of directors upon receiving an undertaking from the individual to repay any amount advanced unless it is ultimately determined that he or she is entitled to be indemnified by the corporation as authorized by the statute and after a determination that the facts then known to those making the determination would not preclude indemnification. Indemnification is required for persons made a part to a proceeding by reason of their official capacity so long as they acted in good faith, received no improper personal benefit and have not been indemnified by another organization. In the case of a criminal proceeding, they must also have had no reasonable cause to believe the conduct was unlawful. In respect to other acts arising out of official capacity: (1) where the person is acting directly for the corporation there must be a reasonable belief by the person that his or her conduct was in the best interests of the corporation or, (2) where the person is serving another organization or plan at the request of the corporation, the person must have reasonably believed that his or her conduct was not opposed to the best interests of the corporation. In the case of persons not directors, officers or policy-making employees, determination of eligibility for indemnification may be made by a board-appointed committee of which a director is a member. For other employees, directors and officers, the determination of eligibility is made by the Board or a committee of the Board, special legal counsel, the shareholder of the corporation or pursuant to a judicial proceeding. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Minnesota Life Insurance Company and Variable Annuity Account pursuant to the foregoing provisions, or otherwise, Minnesota Life Insurance Company and Variable Annuity Account have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Minnesota Life Insurance Company and Variable Annuity Account of expenses incurred or paid by a director, officer or controlling person of Minnesota Life Insurance Company and Variable Annuity Account in the successful defense of any action, suit or proceeding) is asserted by such director, officer of controlling person in connection with the securities being registered, Minnesota Life Insurance Company and Variable Annuity Account will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 29. PRINCIPAL UNDERWRITERS (a) Securian Financial Services, Inc. currently acts as principal underwriter for the following investment companies: Variable Fund D Variable Annuity Account Minnesota Life Variable Life Account Minnesota Life Variable Universal Life Account Northstar Life Variable Universal Life Account (b) Directors and Officers of Securian Financial Services, Inc.: DIRECTORS AND OFFICERS OF UNDERWRITER DIRECTORS AND OFFICERS OF UNDERWRITER
Positions and Name and Principal Offices Business Address with Underwriter - ---------------- ---------------- George I. Connolly President, Chief Securian Financial Services, Inc. Executive Officer and 400 Robert Street North Director St. Paul, Minnesota 55101 Lynda S. Czarnetzki Treasurer Securian Financial Services, Inc. 400 Robert Street North St. Paul, Minnesota 55101 Robert E. Hunstad Director Minnesota Life Insurance Company 400 Robert Street North St. Paul, Minnesota 55101 Dwayne C. Radel Director Minnesota Life Insurance Company 400 Robert Street North St. Paul, Minnesota 55101 Loyall E. Wilson Vice President, Chief Securian Financial Services, Inc. Compliance Officer and 400 Robert Street North Secretary St. Paul, Minnesota 55101 Michael J. Jorgenson Vice President and Securian Financial Services, Inc. Chief Operating Officer 400 Robert Street North St. Paul, Minnesota 55101 Richard A. Diehl Vice President and Securian Financial Services, Inc. Chief Investment Officer 400 Robert Street North St. Paul, Minnesota 55101 Kimberly K. Carpenter Assistant Secretary Securian Financial Services, Inc. 400 Robert Street North St. Paul, Minnesota 55101 Allen L. Peterson Assistant Secretary Securian Financial Services, Inc. 400 Robert Street North St. Paul, Minnesota 55101
(c) All commissions and other compensation received by each principal underwriter, directly or indirectly, from the Registrant during the Registrant's last fiscal year:
Name of Net Underwriting Compensation on Principal Discounts and Redemption or Brokerage Other Underwriter Commissions Annuitization Commissions Compensation - ----------- ---------------- --------------- ----------- ------------ Securian Financial, Services Inc. $20,482,311 --- --- ---
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) Minnesota Life Insurance Company hereby represents that it will 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 variable annuity contracts may be accepted. (b) Minnesota Life Insurance Company hereby represents that it will 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) Minnesota Life Insurance Company hereby represents that it will deliver any Statement of Additional Information and any financial statements required to be made available under this form promptly upon written or oral request. (d) Minnesota Life Insurance Company hereby represents that, as to the variable annuity contract which is the subject of this Registration Statement, File No. 333-79049, 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 the Minnesota Life Insurance Company. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 the Registrant, Variable Annuity Account, certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to 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, thereunto duly authorized, in the City of St. Paul and the State of Minnesota on the 22nd day of April, 2005. VARIABLE ANNUITY ACCOUNT (Registrant) By: MINNESOTA LIFE INSURANCE COMPANY (Depositor) By /s/ Robert L. Senkler --------------------------------------- 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 22nd day of April, 2005. MINNESOTA LIFE INSURANCE COMPANY By /s/ Robert L. Senkler --------------------------------------- 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 /s/ Robert L. Senkler Chairman, President and April 22, 2005 - --------------------------------------- Robert L. Senkler Chief Executive Officer * /s/ Mary K. Brainerd Director - --------------------------------------- Mary K. Brainerd * /s/ John W. Castro Director - --------------------------------------- John W. Castro * /s/ John E. Gherty Director - --------------------------------------- John E. Gherty * /s/ John F. Grundhofer Director - --------------------------------------- John F. Grundhofer * /s/ John H. Hooley Director - --------------------------------------- John H. Hooley Director - --------------------------------------- Robert E. Hunsted * /s/ Dennis E. Prohofsky Director - --------------------------------------- Dennis E. Prohofsky * /s/ Randy F. Wallake Director - --------------------------------------- Randy F. Wallake /s/ Gregory S. Strong Senior Vice President April 22, 2005 - --------------------------------------- (chief financial officer) Gregory S. Strong /s/ Gregory S. Strong Senior Vice President April 22, 2005 - --------------------------------------- (chief accounting officer) Gregory S. Strong /s/ Dianne M. Orbison Senior Vice President and April 22, 2005 - --------------------------------------- Treasurer (treasurer) Dianne M. Orbison /s/ Dwayne C. Radel Attorney-in-Fact April 22, 2005 - --------------------------------------- Dwayne C. Radel
* Pursuant to power of attorney dated April 4, 2005, 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. 13. Minnesota Life Insurance Company Power of Attorney to sign Registration Statements. EX-99.9 2 c93676bexv99w9.txt OPINION/CONSENT OF DONALD F. GRUBER, ESQ. Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101-2098 651.665.3500 Tel MINNESOTA LIFE A MINNESOTA MUTUAL COMPANY April 22, 2005 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 8 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 333-79049). 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-99.10 3 c93676bexv99w10.txt CONSENT OF KPMG LLP EXHIBIT 99.10 KPMG LLP 4200 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402 Consent of Independent Registered Public Accounting Firm The Board of Directors of Minnesota Life Insurance Company and Contract Owners of Variable Annuity Account: We consent to the use of our report dated March 10, 2005 on the consolidated financial statements of Minnesota Life Insurance Company and subsidiaries and our report dated March 25, 2005 on the financial statements of Variable Annuity Account included herein and to the reference to our Firm under the heading "Auditors" in Part B of the Registration Statement. Our report dated March 10, 2005 on the consolidated financial statements of Minnesota Life Insurance Company and subsidiaries refers to the adoption, effective January 1, 2004, of Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts. /s/ KPMG LLP KPMG LLP Minneapolis, Minnesota April 22, 2005 EX-99.13 4 c93676bexv99w13.txt POWER OF ATTORNEY 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 Dwayne C. Radel and Gary R. Christensen, 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 4, 2005 - ------------------------------------------ President and Chief Robert L. Senkler Executive Officer
Signature Title Date /s/ Mary K. Brainerd Director April 4, 2005 - ------------------------------------------ Mary K. Brainerd /s/ John W. Castro Director April 4, 2005 - ------------------------------------------ John W. Castro /s/ John E. Gherty Director April 4, 2005 - ------------------------------------------ John E. Gherty /s/ John F. Grundhofer Director April 4, 2005 - ------------------------------------------ John F. Grundhofer /s/ John H. Hooley Director April 4, 2005 - ------------------------------------------ John H. Hooley /s/ Dennis E. Prohofsky Director April 4, 2005 - ------------------------------------------ Dennis E. Prohofsky /s/ Randy F. Wallake Director April 4, 2005 - ------------------------------------------ Randy F. Wallake
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